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Light At the End of the Tunnel for Oyu Tolgoi?

August 13, 2009

There has been an update in the Mongolian media on the latest in the on-going saga that is the Oyu Tolgoi Investment Agreement.

According to news outlets in Mongolia the Cabinet and National Security Council have approved the latest changes that have been forged during the last round of negotiations.  These include:

  • Project investment reduced to US4 billion from a previous US5 billion;
  • Mongolia’s investment for its 34% shares will be US816 million, half the amount of previous discussions;
  • There will be a prepayment loan to the Government of Mongolia in the amount of US250 million, with 5% annual interest rate, which is a lower interest rate than in previous negotiations; and
  • No exemption from Customs Tax or refund of VAT already paid by the companies.

There have also been proposed amendments to four laws, including the rescinding of the Windfall Profits Tax on January 1, 2010; allowing losses incurred by a company to be carried forward for eight years instead of the current two years; and unspecified changes to the Road Law and the Law on Water.

These are from early reports in the Mongolian media and have been translated from the original Mongolian language by a colleague.  The new changes will be handed over to the Speaker today and the Government is expected to request a special session of Parliament in order to continue discussions.

These developments signal the Government of Mongolia is perhaps becoming a bit more serious about passing the Investment Agreement (IA) .  After years of IA negotiations it looks as if this summer is the make-or-break moment for everyone involved.  Rio Tinto and Ivanhoe have certainly grown weary of continuing to invest millions of dollars in a project on which in was becoming increasingly unclear they would ever see returns.  And Mongolia, through continued delay, lost untold amounts in revenues and taxes during the previous commodity boom.

Hopefully there is reason to be cautiously optimistic that the IA will, at last, be finalized within the next few months.  It will be the shot in the arm Mongolia needs as well as a boost for both companies involved.

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