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Identifier
Created
Classification
Origin
07BISHKEK391
2007-04-10 13:57:00
CONFIDENTIAL
Embassy Bishkek
Cable title:  

KUMTOR RAISES THE STAKES IN KYRGYZ GOLD DISPUTE

Tags:   ECON  EMIN  EINV  PREL  KG 
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						C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 000391 

SIPDIS

SIPDIS

DEPT FOR SCA/CEN (GEHRENBECK)

E.O. 12958: DECL: 04/10/2017
TAGS: ECON EMIN EINV PREL KG
SUBJECT: KUMTOR RAISES THE STAKES IN KYRGYZ GOLD DISPUTE

REF: A. BISHKEK 316

B. BISHKEK 155

BISHKEK 00000391 001.2 OF 002


Classified By: Ambassador Marie Yovanovitch for Reasons 1.4 (b) and (d)



1. (C) Summary: Kumtor Operating Company (KOC), the
Canadian operator of the Kumtor gold mine, is holding open
the possibility of fresh negotiations with the Atambayev-led
government, following the government's rejection of a deal
KOC negotiated with former First Deputy Prime Minister Usenov
that would have increased payments to the government in
return for extending the term of the KOC's concession.
Although draft legislation in parliament threatening to
nationalize KOC's concession may have been merely a "pressure
tactic" for the negotiations, KOC is taking precautions. KOC
has notified the government of its intent to utilize
arbitration to address wage and/or tax issues. In addition,
KOC is prepared to take additional measures if the draft
legislation is passed. Prime Minister Atambayev told the
Ambassador April 6 that he opposed nationalization, and
Finance Minister Japarov confirmed April 10 that the
government was interested in new negotiations with KOC. End
summary.

Two Steps Back...


--------------------------





2. (C) In March, former First Deputy Prime Minister Daniyar
Usenov negotiated directly with the Canadian-run Kumtor
Operating Company (KOC) a new deal that would have increased
payments to the government in exchange for extending the term
and area of KOC's gold concession, but the government
subsequently rejected the deal. (See reftel A for details.)
An observer told emboff April 6 that the Cabinet had feared
that the controversial Usenov would have gained too much
stature from the proposed deal. Andy Lewis, president of
KOC, told emboff March 29 that Prime Minister Isabekov's
resignation and related turmoil had disrupted any further
discussions with the government. However, KOC Vice President
of Finance Phil Yee told emboff April 10 that new Prime
Minister Atambayev had called for renewed negotiations.
Minister of Finance Akylbek Japarov confirmed the offer in an
April 10 conversation with the Ambassador.



3. (C) Although the new Atamayev-led government has offered
to negotiate, KOC is worried about recent actions in the
Kyrgyz parliament. Lewis expressed disdain for Kyrgyz
parliamentarian Arslanbek Maliev, who introduced the
legislation in March challenging KOC's current mining
concession. Maliev, Lewis claimed, had promised not to take
any legislative action while negotiations were underway, but
introduced the Kumtor-related legislation the following day.
(Note: Lewis also stated that Maliev, who represents a
district near the Kumtor mine, repeatedly has sought
financial aid from KOC ostensibly for projects in his
constituency. End note.) Although the draft legislation has
not yet had its second reading in parliament, KOC's parent
company labeled the legislation a "pressure tactic" in a
March 26 press release. Maliev reportedly confirmed that
Kumtor's nationalization was not planned. Another observer
told emboff that the legislation had not been properly
debated in committee; and, as a result, President Bakiyev
would have grounds to return the bill to parliament.

Calling the Bluff


--------------------------



BISHKEK 00000391 002 OF 002





4. (C) Yee told emboff KOC had recently sent Kyrgyz
authorities a letter expressing KOC's intent to bring recent
Kumtor financial issues (tax and/or wage problems) before
international arbitration. The letter, Yee recounted,
outlined possible actions such as placing future tax payments
in escrow. In addition, if parliament passes the legislation
after a second reading, KOC is considering halting its
operations. Yee added that the Canadian ambassador, who is
based in nearby Almaty, recently returned from Canada and
will be presenting a "forceful" letter to Kyrgyz authorities
regarding problems at Kumtor.

Comment


--------------------------





5. (C) The Canadian operators of the Kumtor mine clearly
view the Kyrgyz parliament as the main obstacle in reaching a
new arrangement over the mining concession. Parliament is
currently in recess. According to KOC's Yee, residents of
Maliev's district are signing petitions protesting government
actions that might threaten KOC's operations and their
livelihoods. This legislation, combined with recent
parliamentary measures to set electricity and certain
telephone tariffs and lower the retirement age, represents a
populist trend in parliament that interferes with the
business environment. While the legislation represents a
potential serious threat to KOC's interests, the prime
minister and the finance minister have both told us the
government is not interested in nationalizing the concession,
and they hope to pursue new negotiations.

YOVANOVITCH