Owner Decides the Faith of His Own Property

Mar 17 • Business, Economy, Government, Mining, Politics • 623 Views • 2 Comments on Owner Decides the Faith of His Own Property

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The draft law on amending the Mineral Law of Mongolia will be discussed at the extraordinary session of parliament of Mongolia, March 25 2008. MPs are expressing their position towards the draft law.

Ts.Munkhorgil:

The Mineral Law of 1997 was the best law to fit in the Mongolian situation.

The draft law on amending Mineral Law of Mongolia is about to be discussed at the moment.

If the law is not amended and takes effect longer, it is good. Business people say that the legally stable and transparent environment is the biggest issue. Lower tax is the next important issue. For the mining industry that requires the long term partnership and multi-million dollar investment, the stable law is vital issue. People are criticizing the Mineral Law of 1997. But I think it is the best law to fit the Mongolian situation. According to this law, everyone who can afford it, can acquire the license independently from the Government, Ministry and Ministers. The only mistake was the loss of control and tax imposition on these license sale and purchase.

A.Murat:

The state company or even individuals can be.

The draft law on amending Mineral Law of Mongolia is about to be discussed at the moment.

The announcement of the extraordinary session is right decision without losing time. Especially, it is very correct to resolve the issue of amending the Mineral Law of Mongolia.

Many say that the proportion of 51:49% for the Oyu Tolgoi and Tavan Tolgoi investment agreement is correct decision, what will be your point of view?

The Mongolians share will be 51% on the strategically important deposits. Therefore we will enjoy more rights. It can be the state company or individuals. It will serve to the legal body of Mongolia. On the other hand, the opportunity for the Mongolian citizens to buy share, is opened.

In relation with it, the new term called “golden share” was emerged?

We need to talk about “golden share”. In general 51% is itself “golden share”. On the other hand, foreigners will not have the right to transfer and sell the deposit on their own initiative. They need to get the approval from the Mongolian side only. Finally, I would like to say that the owner decides the faith of its own property.

Z.Enkhbold: Limited by 15 years.

You made proposal in regard with Oyu Tolgoi and Tavan Tolgoi deposits. Can you give us some more detailed information?

It is very limited understanding because MPs cannot conclude the agreement. Our obligation is to submit our proposal on the agreement to the Government. We shall worry about it much earlier, otherwise, remember what was developed previously. We should think about it.

Investors don’t like to pay the windfall tax of 68%. Will it be stated in the law?

The law is still effective, so the tax must be imposed. But it will be within the law. The previous agreement on Oyu Tolgoi went wrong because of it. Also, we changed the term of the agreement and set the limit by 15 years instead of longer term, according to the international standard.

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2 Responses to Owner Decides the Faith of His Own Property

  1. HRA says:

    The 1997 Mineral Law was efficient and thanks to this Law the Mongolian economy stretched this much.

  2. Joe says:

    Oyu Tolgoi and all significant mineral resources (other than easily-mined coal) will sit undeveloped until Mongolian government realizes that a mining company requires a significant incentive to proceed with work. Windfall taxes have proven again and again to be “deal killers” and eventually cost governments that impose them more revenues than they provide.

    Also, Mongolia already owns and always will own 100% of resources. 51% ownership of the mining operation simply acts as a 51% income tax on the investor mining company while transferring the risk of the operation to the government. This means that if there is no profit, the government LOSES money. Does Mongolian government have the expertise and human resources necessary to “call the shots” at Oyu Tolgoi, let alone at the other hundreds of projects that it will be the majority investor at? Can the country risk its future economic well-being on the prospect that things might go wrong in the mining operation or that metal prices may drop sharplY?

    Ivanhoe and Rio Tinto will sit idle at the Oyu Tolgoi site until the government of Mongolia approves an agreement that provides the assurances and incentive necessary. Approximately a 55% effective tax rate was offered by Ivanhoe / Rio Tinto last summer. It is very doubtful if that there will be any change in that belabored and well-reasoned proposal.

    This is just my opinion, and I am just a layman with limited time to surmise about these things. Certainly the politicians guiding Mongolia’s future can expend the energy to overcome their own biases, personal interests, and misconceptions to provide a sound foundation for Mongolia’s future while maintaining good relationships with the investors who will help build that future.

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