published: 03 September 2014
Recent statements by some government officials in the Kyrgyz Republic about the payment of a dividend by Kumtor Gold Company (KGC) to its parent company, Centerra Gold Inc. (Centerra), are incorrect and may create a misleading impression that the dividend was improper. In fact, the dividend was entirely in keeping with Kyrgyz law and normal commercial practice and was in no way a loss for the Kyrgyz Republic.
In order to develop and operate the Kumtor gold mine, Centerra invested $2 billion over the years into KGC. Centerra is also KGC’s only shareholder. Under Kyrgyz law, KGC has the right to pay dividends to Centerra from the earnings it receives from producing and selling gold. Such dividends are the legal and well-recognized mechanism for Centerra to recover its investment and realize a return on that investment. Relevant Kyrgyz law, including the Law on Investments, provides for this type of payment, as do the agreements governing the Kumtor project, each of which was approved by the Jogorku Kenesh in 2009.
In fact, the payment of dividends by subsidiaries is a common practice for both Kyrgyz and foreign companies generally. Many Kyrgyz companies make such payments, including state-owned companies such as Kyrgyzaltyn.
It should also be recalled that Kyrgyzaltyn owns one-third of Centerra’s shares. Thus, any dividend paid by KGC to Centerra is in no way a loss for the Kyrgyz Republic. On the contrary, it is a transfer of earnings to a company in which Kyrgyzaltyn is a major shareholder. Since 2010, Centerra has paid over $67 million of dividends to Kyrgyzaltyn.
There has been misguided speculation that the dividend is related to the current negotiations over the restructuring of KGC envisioned in the Heads of Agreement signed by the Kyrgyz Government and Centerra in January 2014. There is no basis for such speculation. Centerra understands that Kyrgyzaltyn’s international legal and financial advisers, DLA Piper and Pricewaterhouse Coopers, have confirmed that the dividend had no effect on Kyrgyz interests or the proposed restructuring.