REFILE-Kyrgyzstan may cancel Centerra Gold deal, wants more cash

Mon Jan 28, 2013 7:34pm IST

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(Adds missing "s" in headline)

* Centerra deal "not entirely in Kyrgyz interests" - govt

* Wants investor to pay more or will tear up agreement

* Centerra says "no assurance" of constructive dialogue

* Already faces $142 mln environmental damages fine

By Olga Dzyubenko

BISHKEK, Jan 28 (Reuters) - Kyrgyzstan wants to reap more cash from its flagship gold venture with Canada's Centerra Gold Inc and may tear up the current financial arrangements if it fails to reach agreement with the investor.

Economy Minister Temir Sariyev said agreements the government signed with Centerra between 1992 and 2009 were dubious. "They were all approved by a narrow circle of persons, without wide public disussion and not entirely in Kyrgyzstan's interests," he told a news conference on Monday.

The Kumtor mine, the largest gold deposit operated in central Asia by a western company, is vital for the politically wobbly and impoverished ex-Soviet state which has seen two presidents deposed by violent coups since 2005.

Kumtor alone accounted for 12 percent of Kyrgyz gross domestic product and more than a half of its exports in 2011.

Sariyev, who heads a state commission on Centerra's work in the country, said the company "unjustly enjoys special conditions" under a "murky" agreement signed in 2009.

Under this deal, signed when fugitive President Kurmanbek Bakiyev was in power, the government is paid a 14 percent tax on gross revenue from Kumtor, Centerra's flagship mine.

Sariyev said Kyrgyzstan wanted Centerra to pay tax at the current rate of between 17 and 20 percent, as paid by other mining companies working in the country.

"If they pay in line with our laws ... they will pay 5 billion soms ($105 million) more than they have been paying under the current agreement," Sariyev said. "In case there is no agreement ... the government will be recommended to cancel the current concession agreement."

Centerra says it expects to resolve the dispute through talks with the government, though it conceded in a statement posted on its website there could no assurance this would be the case. It noted Kumtor was governed by agreements signed in June 2009 that included a specified tax regime on activities at the mine.

Centerra, whose output dropped by 40 percent to 387,076 ounces in 2012, already faces an environmental damages claim from Kyrgyzstan worth 6.8 billion soms, or $142 million at current exchange rates.

The gold venture, one-third owned by the Kyrgyz government, has become an extra cause of political tension in the country that hosts U.S. and Russian military air bases and lies on a drug trafficking route out of Afghanistan.

In October, a nationalist crowd demanding Kumtor's nationalisation attempted to seize the government headquarters in the centre of the capital Bishkek.

On Monday, Sariyev echoed Kyrgyz Prime Minister Zhantoro Satybaldiyev, who gave the Canadian company assurances that the venture would not be nationalised. (Writing by Dmitry Solovyov; Editing by David Holmes)