Business calls on Kyrgyzstan government, Centerra to reach consensus in court disputes

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BISHKEK (TCA) — “Kyrgyzstan should become a paradise for business, investors and for each entrepreneur, local and foreign, large and small,” Kyrgyz President Almazbek Atambayev said at the fifth meeting of the National Sustainable Development Council of the Kyrgyz Republic.

The President set the task to create and implement a National Sustainable Development Strategy of Kyrgyzstan until 2040, based on human capital and innovation. The Taza Koom (Clean Society) national program of digital transformation is the key component of the Strategy, and not only state bodies but also representatives of business and civil society are involved in its development.

According to the current NSDS, mining is the strategic sector of the Kyrgyz economy and it is necessary “to create a favorable investment climate for all subsoil users, regardless of ownership and nationality”.

To attract investments, transparent and effectively functioning legislation is needed which could protects property rights, giving investors preferences and ensuring equal rules for foreign and domestic investors, the NSDS says.

Current arbitration proceedings do not contribute to improving the investment attractiveness of the country, the International Business Council (IBC) based in Bishkek believes. There are several lawsuits in international arbitration courts against the Kyrgyz Republic, in particular, arbitration proceedings on the lawsuit of Canada-based Centerra Gold Inc. to the Kyrgyz Government related to the Kumtor gold project.

Centerra Gold Inc. is among the largest investors and taxpayers in Kyrgyzstan. In 2016, the company’s payments exceeded $238 million, and over the operating period from 1994 to 2016, the company’s payments exceeded $3.2 billion in Kyrgyzstan. According to the National Statistical Committee of Kyrgyzstan, Kumtor’s share in the country’s GDP was 8% and 23.4% in the total volume of industrial production in 2016.

Given the importance of this investment project for the country, IBC urges the Kyrgyz government and Centerra to complete the settlement process.

Background

On May 31, 2016, the Government of the Kyrgyz Republic received a notice of arbitration from Centerra Gold Inc., Kumtor Gold Company CJSC and Kumtor Operating Company CJSC to the Kyrgyz Republic and Kyrgyzaltyn state gold company due to violation of the terms of the revised investment agreement from June 6, 2009, and the Law of the Kyrgyz Republic “On Investments”. On November 30, 2016, a procedural hearing on this arbitration took place in the Hague, the Netherlands, within which the parties agreed on the procedural schedule on the case. Thus, the arbitration proceedings on the suit of Centerra, Kumtor Gold Company and Kumtor Operating Company to the Kyrgyz Republic and Kyrgyzaltyn had started.

Claims on environmental disputes in the local courts of the Kyrgyz Republic were the grounds for initiating the arbitration proceedings.

In 2013, the State Inspectorate for Environmental and Technical Safety (SIETS) and the State Agency for Environmental Protection and Forestry under the Government of the Kyrgyz Republic (SAEPF) appealed to Kyrgyz judicial authorities to compensate for environmental damage caused by Kumtor Operating Company worth more than 7 billion soms and 15 billion soms respectively. The state bodies calculated the damage, which, in their opinion, was caused by Kumtor Operating Company for 1996-2011.

Litigation instead of consensus

The litigation is currently continuing instead of finding consensus, given international arbitration.

According to experts, the SIETS and SAEPF claims are almost the same, and state authorities want to get the compensation for the same damage caused, in the opinion of state bodies, for the placement of waste rock in dumps.

On April 24, 2009, the Kyrgyz Government and Centerra entered into an Investment Agreement on New Terms for the Kumtor Project (the Agreement on New Terms), in which there was a provision to waive the claims, an annex to the Agreement, which is part of the legislation of the Kyrgyz Republic.

The parties agreed to waive any claims to each other with respect to any issue that had arisen prior to the date of signing the Agreement, regardless of whether the parties were aware of such matters at the date of signing the Agreement.

The Agreement on New Terms provides that all claims for compensation for environmental damage or other payments against Kumtor Operating Company that occurred before 2009 had already been settled by a $22.4 million payment.

Compromise solution needed

The IBC calls on both sides to reach a compromise solution, completing consultations on the settlement of legal disputes in the near future. It is necessary for both Centerra and the Kyrgyz Government.

The State policy in the mining industry is aimed at maintaining the balance of interests of the state and the investor, the NSDS says. The IBC calls to implement the NSDS task.

“We do not assess the decision of the state bodies to file a lawsuit, but only stress the importance of the state’s fulfillment of the commitments undertaken as part of investment agreements, as well as the high importance of the rule of law for the country’s investment climate,” IBC Executive Director Askar Sydykov said.

At the same time, Centerra Gold Inc. and Kumtor Gold Company should pay greater attention to the environmental safety of the Kumtor project, as well as to continue rigorous compliance with all norms and requirements provided for by the legislation of the Kyrgyz Republic, IBC concluded.