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D.Gankhuyag: It all becomes clear if it is stated “The Mongolian share will be 50 percent once the initial investment is met.”

By B.KHASH-ERDENE

The following is an interview with Minister of Mining, D.Gankhuyag.

-Twenty three parliament members have demanded that the Oyu Tolgoi contract be renewed in accordance with decree 57. A year ago, the same demand was made by the previous parliament members. You were one of them. Are you still an advocate of this demand?
-The parliament decree 57 is the law of the Mongolian Nation. Therefore it is actively being implemented and enforced. Because it is active, parliament members have handed in their proposal. The demand is not about abolishing the Oyu Tolgoi contract. I personally have never stated that I wanted to abolish or take down the Oyu Tolgoi contract. Hence you will never hear me say that.
I was always for the creating of the contract but I have always criticised when a policy or an article of the contract was not practical. For example, for Mongolia to own 34 percent of the project, we had to have a loan with a 12-13 percent interest. After my criticism, it has been changed to 6.5 percent interest. The Minister of Finance of that time noted that this has increased the Mongolian revenue from the project by one billion USD. We have to understand this and think long and short term. The parliament decree 57 has three clauses. The first clause already mentions that the Mongolian side will own 34 percent from Oyu Tolgoi straight away. In this section, it also states that when the initial investment is raised, Mongolia will own 50 percent. I’m on this still for this policy. The parliament created a policy on mining for both Oyu Tolgoi and Tavan Tolgoi. But the government Ministers of the time who were supposed to enforce and implement these laws signed the contract even though it was in conflict with the law. It is not the fault of the investors. After all they didn’t force our ministers to sign the contract. But since the contract is in conflict with decree 57, it is not congruent with the Mongolian law.
-You are now the minister of this sector. You have the power to correct the contract. Will you change the contract so that it is in accordance with the decree 57?
-In the last election, the Democratic Party, Mongolia People’s Party, Justice Coalition and Civil Will Green Party have formed a coalition government. The parliament has given birth to the government. The programs and projects the government will undertake are being discussed. The issues that were talked about during the election are to form the base for this. The Oyu Tolgoi contract was also discussed within this scope. It was decided that a change in the investment agreement will be made after the initial investment has been met so as to benefit both sides. Since the government’s duty is to implement and enforce the law, there is no other way. This is the principle that the “Innovation Government” has taken on. Not just mine.
-Does this mean that the Oyu Tolgoi investment contract will be changed and Mongolia’s ownership will become 51 percent?
-Not 51 percent. The policy states, “Not less than 50 percent.” This means the old government did not implement the law, decree 57 that was passed by the Parliament. Which means the talks of changing the agreement on the base of economic data will be carried on by the government.
-Have the investors of Oyu Tolgoi raised the initial investment?
-There is an estimation made by the Rio Tinto and the Ivanhoe Mines or Turquoise Hill Resources during the time the agreement was made. It is the amount of money they will contribute to the Mongolian Nation through tax and after-tax profit. The estimation is that when a ton of copper is 4,320 USD on the international market, the initial investment will be met in 4.7 years. But this is after the Oyu Tolgoi mines have started operations. The Oyu Tolgoi mines will begin operations in 2013. Bear in mind that the copper price has been 7000-8000 USD since 2006. Which means the initial investment can be met in 3-4 years. Which means, it will all become clear if it is stated “The Mongolian share will be 50 percent once the initial investment is met.” Hence this issue has been on the agenda of the Government programs.
-Will changing of the agreement give rise to conflict on the investor’s side?
-It will. They will say, “Your previous governmentww already signed the contract, what are you talking about?” If the policy had been abided by from the start, there wouldn’t have been any issues. The government will decide in accordance with the Mineral Resource law which ministers will conduct a meeting with the Oyu Tolgoi investors. They will listen to the investors and work to come up with the solution to please both parties involved.

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Posted by on Sep 16 2012. Filed under Business & Economics. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

5 Comments for “D.Gankhuyag: It all becomes clear if it is stated “The Mongolian share will be 50 percent once the initial investment is met.””

  1. Press release: Oyu Tolgoi corrects the record
    September 20, 2012

    Ulaanbaatar, Mongolia – Some members of the Mongolian Parliament held a press conference on Wednesday, September 19 in connection with the approval of the Government Plan of Action for 2012-2016. The MPs claimed that “the investors will not pay VAT and export duty”. This statement does not align with the facts.

    Oyu Tolgoi does not get any tax breaks or tax holidays. In 2011 alone, the Government of Mongolia received US$251 million in taxes from Oyu Tolgoi. Before Oyu Tolgoi earns its first Tugrugs the Government of Mongolia will have received US$700 million in tax revenues and prepayments.

    The MPs claims maintained that “…although it is claimed that the Oyu Tolgoi project will yield 50 to 60 per cent benefit for the Mongolians, in reality the gain will not be greater than 30 per cent”.

    The International Monetary Fund in its report ‘The Fiscal Regime for Mining – A Way Forward’ released in 2010, noted that Mongolia will receive up to 71 per cent of Oyu Tolgoi cash flow through taxes, dividends, royalties and fees. Indeed, under the Investment Agreement, the Mongolian Government would be receiving billions of dollars from the Oyu Tolgoi project even before the investors break even.

    Should there be any confusion, we invite the people of Mongolia to read the Oyu Tolgoi Investment Agreement by visiting http://www.ot.mn/mn/about-us/investment-agreement.
    Rio’s Mongolian chief, Cameron McRae, has a strong message for the mineral rich country’s government. If there is any attempt to renegotiate the investment agreement on its massive Oyu Tolgoi gold and copper mine, it could jeopardise its $5 billion second stage.

  2. During the final discussion of the draft program of the Government between 2012 – 2016 at the General Session of State Great Khural, MPs were in intense disagreement over the review of Investment Agreement of Oyu Tolgoi.
    MP Kh.Bolorchuluun said that “… recently 25 MPs signed on the petition of amending the Investment Agreement on Oyu Tolgoi and many more will join it. MPs didn’t hold press conference because of politically misleading outcome. Oyu Tolgoi is four times bigger project than Erdenet, but its ineffective agreement was proven by the research of SGK and patriotic scholars, also. Some examples are royalty fee of 5%, but the investing side will get 6% of management fee from the sales income. Moreover, investor will not pay VAT and export tax. At the end Mongolia will buy its 34% with related interests. 7 types of taxes were frozen for 30 years and Mongolia will get its additional 16% only after 31 years. At that time Oyu Tolgoi will be just like Boroo Gold, exhausted with its best part of deposit. Therefore, I am for the amendment of the agreement…”
    MP S.Byambatsogt commented that “… Mongolians will be in debt of US$6 billion after 30 years. Therefore, the resolution 57 was made to improve it”
    Some MPs, mostly from the previous parliament answered the following way:
    MP A.Bakey (Chairman of the Standing Committee of State Structure): 2/3 of MPs shall vote for the amendment. But none of them made such proposal.
    MP S.Bayartsogt, Deputy Speaker of the SGK: New MPs haven’t well informed with the situation and “elder” MPs misinterpreting the situation with purpose. It shouldn’t be discussed and considered as you explained.
    MP Ch.Saikhanbileg, Chairman of the Cabinet Secretariat and Minister: We shall announce debate over the Oyu Tolgoi agreement, otherwise we shouldn’t argue about its effectiveness at the parliament.
    Prime Minister N.Altankhuyag said that “… we are representatives of 2.8 million Mongolians who love their homeland. It is obvious that there are some issue, need to be reviewed, over the agreement. As mentioned by MP Ch.Saikhanbileg, we shall announce open debate and discussion about this issue, otherwise, such example of splitting each other into patriotic and non-patriotic. The Government oversees this issue as follows, not naming any deposit or project, but all investment and stability agreement on not only mining projects, but other sectors such as energy and product share agreements…”
    MP B.Bat-Erdene, who has been against the agreement all the time since its discussion and made petition for the dismissal of Minister for Mineral Resources, said that “… you should not approach this issue that easy way. It is the issue related with the faith of all Mongolians. We should state the amendment of Oyu Tolgoi agreement in the program…” and he sat next to the speech platform of SGK, showing his protest over the result. MP Kh.Bolorchuluun and S.Ganbaatar took him out of the hall.
    Shortly after the session ended, MP B.Bat-Erdene, S.Byambatsogt, D.Battsogt, S.Ganbaatar, Kh.Bolorchuluun made announcement to hold press conference at 12.00 on Wednesday, September 19, 2012, in “G” Hall of the State Palace. The topic is obviously the amendment of Oyu Tolgoi Investment Agreement.

  3. Since Chaco was rejected, Will they still sell electricity to you Holyoke at a reasonable price? Will Mongolia build a power plant or require turquoise hill to do so? Mongolian coal is a huge advantage for China. isn’t this a great bargaining chip for the electricity and to allow Mongolian commodity sales to the rest of the world to transit thru China to their shipping ports?
    Thank you for any responses.

  4. September 12, 2012
    - Some recent allegations by MPs do not reflect the reality of the Oyu Tolgoi Investment Agreement -

    Ulaanbaatar, Mongolia – In a series of press releases Oyu Tolgoi copper and gold mine in the Umnugobi, corrects the record on statements made by signatories of a petition to the Prime Minister. These statements question the integrity of the Oyu Tolgoi Investment Agreement.

    Some signatories to the petition claimed, “The Oyu Tolgoi Investment Agreement only enables foreigners access to Mongolia’s wealth but it must be revised and changed into a mutually beneficial agreement”.

    In fact, the Oyu Tolgoi Investment Agreement is a valid legal document and was signed on the basis of the mutual benefits to all parties concerned. The Government of Mongolia, as a shareholder, will not only receive dividends but will also receive royalties, income tax, VAT, customs duty and other taxes. Furthermore, according to the International Monetary Fund, by the time the mine is operational, Mongolia will receive more than 71 per cent of the mine revenue. In other words, the Mongolian people will receive up to 71 MNT from every 100 MNT of revenue made from the mine.

    It has also been reported that some claim the Oyu Tolgoi Investment Agreement is not compatible with Parliament Resolution 57 and has violated the constitution of Mongolia.

    The Oyu Tolgoi Investment Agreement was signed in full compliance with the existing laws and regulations of Mongolia including the Constitution and Resolution 57. The Government, the National Security Council and the President have twice affirmed, most recently less than a year ago, that the agreement fully complies with resolution 57 and other existing laws and regulations of Mongolia.

    These and other comments from the petitioners do not reflect the reality of the Investment Agreement and are creating an atmosphere of uncertainty in our society. We would like to call on the people of Mongolia to make their own minds up by visiting http://www.ot.mn/mn/about-us/investment-agreement.

  5. One recently made assertion in the press stated that Investment Agreement (IA) is not mutually beneficial.
    Oyu Tolgoi’s Investment Agreement is mutually beneficial.  Moreover Mongolia benefits most thanks to this agreement.  In other words, Mongolia receives up to 71% of the cash flow that comes through Oyu Tolgoi project.  International Monetary Fund report, which was released in 2011, indicates this percentage.  Thanks to stability, assured by Investment Agreement, 6 billion dollar investment is made to Mongolia and it also had received 900 billion tugrik in taxes.
    Reports also said the Investment Agreement is not in compliance with Constitution.
    Investment Agreement was made on the basis of Resolution #57.  Mongolian Government and National Security Council reaffirmed the Investment Agreement is made in compliance with Parliamentary Resolution #57 and the Mongolian Constitution in October 2011.
    False claim was made about Oyu Tolgoi’s Mongolian employees don’t match with the quota required by the Investment Agreement.
    Investment Agreement indicates Mongolian employees must be up to 60% of OT’s entire work force during the construction period.  We are doing better than what was expected.  74.2% or 11,956 of Oyu Tolgoi employees are Mongolians.
    Clause 8.4 in the Investment Agreement requires 90% of Oyu Tolgoi LLC employees must be Mongolians once the operation starts and we are confident and happy to fulfill this duty.   We are implementing 168 billion dollar vocational training initiative.  With this investment, four vocational training centers are being built and three being renovated, 1200 teachers are being trained and 3300 students are being taught new skills.  Moreover, we believe hundreds of students who are majoring in various fields in Mongolian and international colleges and universities with Oyu Tolgoi scholarships would show valuable contribution to the development of Mongolia.

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