Rio’s Mongolian wrangle prefigures bigger fight over smaller spoils

PM Chimed’s idea of a referendum on mineral resources by text message will exasperate mining group
M
ongolians do not always do what foreigners think they should. The warriors of Genghis Khan pinged arrows from a distance at adversaries who had pencilled “pitched battle” into their day planners. This was unsporting but effective. Now, Mongolia’s new prime minister, Saikhanbileg Chimed, has announced a referendum by text message on whether to develop further his nation’s plentiful mineral resources.
This news will exasperate Rio Tinto, which indirectly owns a majority stake in the vast Oyu Tolgoi copper mine in the South Gobi. The Mongolian government has 34 per cent. The partners have been bickering over how to split a $900m cost overrun on the first, open-cast phase of the project. About $4bn needed to develop a second, underground phase hangs on them resolving their differences.
Financial folk tend to expect political obstacles to dissolve in response to economic expediency. Under that world view, Mr Saikhanbileg’s non-binding poll is a populist gesture presaging a handshake with Rio’s Sam Walsh. That may understate the complexity of politics in an immature democracy with qualms over the “resource curse” — the distorting effect mineral wealth can have on civil institutions.
Nor is Rio alone in wrestling with such issues. Multinationals are recalibrating their expectations of paybacks from investments in response to plunging commodity prices. The penny will not yet have dropped for many governments.
When it does, they, like the Mongolians, may begin to feel taxation of resource developments is a safer bet than the risk-sharing arrangements popular at the top of the cycle.
The phlegmatic Mr Walsh delivered the first phase of Oyu Tolgoi, albeit behind schedule. He is now said to be “talking robustly” to the Mongolians about the second phase. Not too robustly, one hopes. Genghis built pyramids from the skulls of people he seriously disagreed with.

Source:Financial Times.

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