From the Mongolian Press:Interview with the MPRP Lawmaker on Oyu Tolgoi Investment Agreement

Unen” newspaper of MPRP (Mongolian People’s Revolutionary Party). Dated July 23, 2009. Interview with Davaasuren Tserenpil, MPRP lawmaker.
- The Khural transferred the right to execute agreement on Oyu Tolgoi deposit within existing legal framework to Government of Mongolia. During the parliamentary hearing you supported the resolution to authorize the Government making deal with the investors. Could you talk about significance of the resolution?
- Passing the resolution is a right step. It is because the draft Oyu Tolgoi Investment agreement submitted by the Government was inadequate. For instance, tax incentive issues. According to the draft agreement, total of $ 17 billion US Windfall Profits Taxes were to be exempted when the companies produce 20 million tons of ore annually. If the production starts after 2020 or when annual production is 50 million tons , amount of this type of tax exemptions would reach to $ 40 billion US. This $ 40 billion US tax exemptions are more than $ 19 billion US profit Mongolia to get from the mining! Therefore, first, this caused a lot of hesitation. Second, according to feasibility studies, resource rent payment of the company is $ 13 million US annually. However, management and administrative costs of the company is $ 33 million US annually. It is very illogical to think that the company will pay less for using resources than its management and administrative costs! The resolution was passed because of such mistakes and insufficiencies and for the benefit of all citizens of Mongolia. Actually, Mongolian citizens, media and public are saying long ago that Mongolia’s stake of Oyu Tolgoi should be 50 %. This is reflected in the resolution. Tax exemptions and buying back 34% stake is problematic. If the investors are exempted from certain taxes, this should be appropriated to Mongolia’s stake ownership of the deposit. For instance, 2 billion out of $ 17 billion US tax exemptions for 20 million tons of ore can be appropriated for Mongolian 34% stake ownership of the deposit. Based on the above, we considered the draft investment agreement was not done in a way to benefit Mongolia. If this large scale investment project is done incorrectly, all other large mining projects might follow the suit.

- On the other hand, there is concern that because of the directives outlined in the resolution, the negotiation might be delayed ! What kind of right does the Government have now due to this resolution?
- We have given the right to conclude an agreement within certain framework. The minerals law (article 29.1.1) defines the framework of the agreement. According to the law, there should not any tax exemptions. The law stipulates about creating stable tax environment only. Stable tax environment means any future tax changes will not be applied to the investor companies. The re-negotiation should be done within this framework. In previous agreement, the investors had tax exemptions which went beyond the law and ignored directives given by the Khural.
- They say that if this draft investment agreement is approved, the investors will not negotiate further?
- Why some Mongolians have to worry that the negotiation will be delayed and the company will leave Mongolia? There are many other mining companies in the world besides Rio Tinto. There are many countries which can invest large funds to Mongolian mining projects. Why we can not deal with Europe, Japan and Korea. We don’t have to look at Rio Tinto as the only investor in Mongolian mining project. I have no doubt that Rio Tinto will not leave Mongolia. Why? Because they have invested significant amount of fund in the deposit. The working group of the Government of Mongolia should not act as Representatives of the investors in the Khural. They should concern themselves only how to negotiate successfully.
- Government of Mongolia is emphasizing that Mongolia’s profit from the Oyu Tolgoi project will be 55-77% of the mining profits. Is this figure not good enough?
-3000 jobs to be created at the Oyu Tolgoi site is insignificant compared to the size of the project. There are other issues such as infrastructure and development surrounding the Oyu Tolgoi project. From the feasibility study, one can not see such figures and profit percentages. Therefore, we doubt these figures. Government of Mongolia is not introducing the relevant feasibility studies and researches to the public well enough. If this agreement was really beneficial for Mongolia, this needs to be shown and introduced. Talk is one thing and cold calculation of profit is another thing. However, calculation of profits can be done in any method. Therefore, feasibility studies prepared by professional, highly qualified experts and researchers should be open to anybody. The company is not giving full, comprehensive feasibility study. How come resource rent payment is less than management and administrative cost! We, Mongolians are the masters of the resource and how come we receive less profit than the cost of the company? According to cases of other countries, royalty payment is more than 20%.
-Can not Mongolia set royalty payment through law as we have legalized Mongolia’s ownership stake at 34%?
- Well, current minerals law is a law that needs to be revised. However, some of the provisions of the law do not need revision for another 30 years. I have submitted draft law to revise the minerals law along with other lawmakers. Through revision of the law, “30 year duration of large investment agreement” can be changed to “up to 30 year period.” Also in the current minerals law, holder of production license shall be owner of deposit. I’m in a position that resource rent or royalty payments should be set differently according to mining deposit size and type of resource.
- The 68% windfall profits tax law is very much criticized by the mining investors. Do you agree that this law needs to be applied flexibly?
- I have said before that the minerals law have no articles about tax exemptions. It is not true that only Mongolia have windfall profits tax. For instance, Chile, one of largest supplier of copper sets certain price of copper and any profit above that price level is concentrated in stabilization fund of the state. If mining profits to be shared with public, 68% windfall profits tax law should be there. If no windfall profits tax, royalty payment should be set higher. Some people confuse royalty payments as windfall profits tax.
- What do you say about the recently passed law on that giving VAT rebates to mining companies!
- No need to give the tax rebates. Mining companies take back huge amount of money. Tax rebates of “Golden East-Mongolia” and “ Centerra Gold” companies amount to billions of Tugrig.
- The Khural is now in recess. What do you think about accomplishments of the Parliamentary session?
- The session of the Khural debated some important laws and legislations. Personally, I think the parliament worked well. I would name law on beer advertising as bad law passed by the Khural.

Interviewed by B.Nomin



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