BISHKEK (TCA) — A tender to develop the Jerooy gold deposit in the Talas province of Kyrgyzstan will be held in February or March 2015, the State Agency for Geology and Mineral Resources of Kyrgyzstan announced. The starting price is $100 million.

The first tender failed in the spring of 2013 due to the lack of investors. "Investors were not interested in this attractive and rich deposit, the second in gold reserves in the country, and it is clear why,” said Aktilek Tungatarov, Executive Director of the International Business Council (IBC) based in Bishkek. Tungatarov was a tender committee member. “Jerooy’s proven reserves - almost 100 tons of gold - are very good especially because the world gold price is several times higher than when the agreement on Kumtor was concluded. This should attract very large investors."

The Government cannot convince investors that it can properly cooperate with them as partners, Tungatarov believes. “We were only able to quarrel with them, revise agreements, and get involved in international arbitration proceedings."

Therefore, it is untimely to hold the tender in the near future, because, most likely, there will be no applications again, and the tender may fail. As a result, this will have a negative impact on the investment climate in the country, the IBC director said.

Another negative point: if the tender does not take place, according to the law, this facility will be auctioned. And here, in contrast to the tender, the deposit may be sold cheaper or to wrong investors and on less favorable conditions.

"We need to solve the urgent issues and foremost those related with arbitration. It makes no sense to hold the tender until we face these problems, and license to develop the deposit is encumbered with litigation," concluded Tungatarov.

Background

In November 2010, Jerooyaltyn’s license to develop the deposit was canceled for the failure to fulfill obligations under the agreement. Soon Consolidated Exploration Holdings, the owner of 60 percent of Jerooyaltyn JSC, filed a lawsuit against the Kyrgyz Government. The Bishkek City Court found that the license had been revoked legally.

In March 2014, Consolidated Exploration Holdings filed a complaint against the Government of Kyrgyzstan to the International Center for Settlement of Investment Disputes (ICSID). Investors asked the ICSID to collect more than $400 million for the expropriation of shares in the Jerooy. According to the Legal Representation Center under the Government of the Kyrgyz Republic, in October 2014 Consolidated Exploration increased the amount of the claim up to $548 million.

Serious investors needed

Jerooy should have a serious investor working in compliance with international labor and environment safety rules. In addition, large companies have good experience in solving problems with the local population.

According to the Geology Agency, the Jerooy tender will help solve the social problems, because the state needs money. However Tungatarov believes this approach is wrong.

“They try to convince us that by attracting investment the state will create jobs. But mining is a special sector, and it is not as sustainable as, for example, the banking sector,” Tungatarov explains. If a bank opens and continues to operate successfully, its services and products will always be in demand, and people will work in it. But Jerooy, sooner or later, will be worked out, and investors will leave it, and local people will become unemployed.

Developing infrastructure

“Therefore, we should not hold the tender and attract investors just to replenish the budget. It is necessary to develop this project so that investments would be directed into infrastructure facilities that will remain in the country after investors leave it. We have to launch new factories and processing shops in the Talas province to develop small and medium businesses.

"If Jerooy’s profits are spent on pensions and [public-sector] salaries and we just waste them, then there is no sense in such investments. We can survive without them,” Tungatarov said.

Solving the problems with litigation is the number one issue for Kyrgyzstan. According to the Tender Regulations, a future investor will bear all legal obligations on arbitration. This will scare off investors. We are talking about $400 million compensation that former Jerooy’s owners demand to pay them. It is not clear what the courts’ decisions will be, and it may happen that a company that will win the tender will not be able to implement its obligations on behalf of Kyrgyzstan, Tungatarov said.

Big companies cherish their reputation

If the state attracts an investor now, it may be a paltry company because big companies do not want to participate not only in major scandalous trials, but even in smaller ones.

For example, Australian Santos mining company (a former IBC member) could sue and recover its license without publicity. But the company was against any kind of litigation. Worrying about its international reputation and in order its shares not to fall, Santos preferred to leave Kyrgyzstan. The company chose to lose $50 million invested in Kyrgyzstan, but to keep its reputation clean and untainted with trials.

Kyrgyzstan has to defend its rights in the courts, believes Tungatarov. “There is a Center for Litigation in the country, but we still do not know what it is doing. Meanwhile, the Centerra’s assets are the money of Kyrgyzstan’s people.”

URL: http://www.timesca.com/news/14779-kyrgyzstan-to-hold-another-tender-for-jerooy-gold-deposit.