MP Z.Enkhbold shares his opinion on OT IA which was the main highlight of the last week.
Q: The Government received the task to reach a deal with investors to agree upon 34% ownership and imposition of all types of taxes without waives including windfall tax. What do you think about it? Our counterpart will be happy with it?
MP Z.Enkhbold: We are not going to get free. We are going to get it with payment. Our counterpart fails to raise capital, but we agree to pay our part. Actually, we are helping our counterpart by buying our share.
Q: But with this ownership of 34%, we are not going to get any profit in coming 15-16 years?
MP Z.Enkhbold: It is same for them as well. IVN will not make profit. It will seek fund in the first two years. IVN is poor like us. Even Rio Tinto made mistake in acquiring many properties when commodity price was high. It is now in debt because of commodity price slump. It is hard for such a company to invest in Oyu Tolgoi. Therefore, it offers to wait another two years until to raise sufficient fund and world economy stabilizes and in return to pay the tax in advance.
Q: Do you mean 225 million USD?
MP Z.Enkhbold: Yes, it will start building factory after two years of signature and will build it for 5 years, therefore, no money or ROI for first 7 years. Plus no tax for 7 years. After 7 years of installation, there will period of no dividend distribution. It said in different terms such as five years or seven years of initial development. But for at least 13 years, there will not be anything to Mongolia. But 50-60 million US$ will be injected as investment. But Oyu Tolgoi is essential for long term for Mongolia, but not for today’s cash.
Q: So, this agreement is not for 1.5 million MNT as the Grant of the Motherland or a way out of the financial crisis?
MP Z.Enkhbold: No, no. The nearest benefit is the establishment of infrastructure and city or town. Over 10 thousand people will be employed within the period of 5 years of building factory. Once the factory is not completed or starts its production, it also can’t provide sufficient salary.
Q: So, when Mongolia will be benefited from it?
MP Z.Enkhbold: I think real cash flow would start from 2022. First of all, we should seek right body to realize this project as soon as possible. We should not grant “A” license (license for mining) to IVN and leave its faith to IVN. Mongolia should take part in it. We can use the name of Mongolia to raise fund that they can’t raise.
Q: People say that Mongolia will be in trouble only in order to provide its stake of 34%?
MP Z.Enkhbold: No, if we take loan of 1.7 billion USD from IVN and pay the interest rate, we could. The interest rate is 12.15%. It is way too high interest rate for Mongolia; even our local banks’ don’t have such high interest rate. If we follow every single word of IVN, we will go for bankruptcy. Therefore, we should decide on our own in order to preserve our right to fund our ownership.
Q: How much investment is required for us to keep our 34% ownership?
MP Z.Enkhbold: According to the foreign media source, the factory would be built with 3 billion US$. It was few years ago and it is still the same now. But this price is increased up to 5 billion now, therefore, I don’t believe in this company. I think this company has two faces. The actual price of the project is 3 billion USD, but our Minister D.Zorigt is “pushing” 5 billion USD. It was wrong and it was proved by Bloomberg reports saying “Mongolian parliament grants the power to the Government to sign IA. It is the biggest undeveloped gold and copper deposit of three billion US$”. You better check it from its website.
Q: the issue is resolved, it is now ready to sign IA. But some worry about the investor side to quit Mongolia if the condition is with windfall tax of 68% and without any tax heaven.
MP Z.Enkhbold: We are talking wrong like saying what it will be for Ivanhoe Mines or how to attract Rio Tinto. We should think about what policy, principle and what kind of offer we have for this deposit. Especially, Minister D.Zorigt doesn’t think so. Therefore, some serious MPs were asking the questions from him as “to whom do you belong to? Or are you Minister of the Mongolian Government or employee of IVN” We will decide how to realize the biggest undeveloped mine in the world under what circumstances and conditions. It is not the deposit to give away without taxes but begging. Actually, we determined our principles. No tax heaven, if anybody agrees with it, please welcome!
Q: during the session of SGK, Minister D.Zorigt answered as “Nigeria has 15%, but nowhere else within the developed countries” to the question of does any other practice it legislate the state ownership in the world. How precise decision this 34% ownership?
MP Z.Enkhbold: State role is to impose tax. If most MPs decide to keep ownership, it has to. Actually, business and Government affairs must be separate. But if copper price slumps, we will face risk of 3 billion US$ (loan of 1.7 billion and its interest rate of 1.3 billion US$). Therefore, if we grant tax waive we should compensate it with our 34% ownership. Or we have alternative of holding “golden share” or royalty agreement that increases in parallel with the commodity price. But we made mistake in Boroo Gold case.
Q: People demonstrated in the street with slogan of better keep our property instead of election promises if 1.5 million MNT during SGK session? But it was sooner disappeared?
MP Z.Enkhbold: The biggest frustration of the public was the tax waive. 34% can be obtained by those who have money. But we have no money; therefore, we are trying to find the better arrangement to acquire it. The main reason why we should not allow tax waive is that Mongolia should treat its investors equally. We can impose tax on Erdenet JVC, but why we can’t on JVC with Canada? We will impose tax on all of them or we should change windfall tax and its size and type. If the factory can’t be built because of tax, we should increase royalty or it can be replaced with laws and regulations such as VAT waive for the commodity exporting companies. Windfall tax has two purposes: if it produce final product in Mongolia, then it shall not pay windfall tax and if the price is increased, so windfall tax will be. We can’t talk about canceling windfall tax, but we can talk about replacing it.
Q: Will IA be built based on the condition that is set by SGK?
MP Z.Enkhbold: SGK gives its principle. If we accept the condition of our counterpart, we will lose 18 billion USD in next 50 years with tax waive. We said that our tax environment is like this; if you want you should accept this condition and free to start business.
Q: Why SGK just recently bring the windfall tax issue?
MP Z.Enkhbold: As the result of the first two negotiations, windfall tax is not accepted. Mongolia is ready to waive, if it start producing final products. This tax is not for the pure ingots, it is for the concentrates. Let’s build a smelting factory together with mine and we smelt it into ingots. The Chilean mines operate like this.