We consider implications of a possible presence of a Thomson-thick , low-temperature , plasma cloud surrounding the compact object in the binary system Cyg X-3 .
The presence of such a cloud was earlier inferred from the energy-independent orbital modulation of the X-ray flux and the lack of high frequencies in its power spectra .
Here , we study the effect of Compton scattering by the cloud on the X-ray energy and power spectra , concentrating on the hard spectral state .
The process reduces the energy of the high-energy break/cut-off in the energy spectra , which allows us to determine the Thomson optical depth .
This , together with the observed cut-off in the power spectrum , determines the size of the plasma to be \sim 2 \times 10 ^ { 9 } cm .
At this size , the cloud will be in thermal equilibrium in the photon field of the X-ray source , which yields the cloud temperature of \simeq 3 keV , which refines the determination of the Thomson optical depth to \sim 7 .
At these parameters , thermal bremsstrahlung emission of the cloud becomes important as well .
The physical origin of the cloud is likely to be collision of the very strong stellar wind of the companion Wolf-Rayet star with a small accretion disc formed by the wind accretion .
Our model thus explains the peculiar X-ray energy and power spectra of Cyg X-3 .