Friday, July 10, 2009

Details of Deal Emerging

If there is a complete draft version of the deal that will be debated in parliament available in the public domain, I have still not seen it. However, on there is an article from Unuuduriin Mongol which describes some of the terms of the deal. The key points in the article are:
  1. The deal does not contain limits on the taxes collected from the project other than there being 7 specific kinds of taxes.
  2. Oyu Tolgoi will pay a depletion tax (or the government will receive a depletion deduction from its share of expenses) following the tax law provisions over a 10 year period. That is, as the mine extracts minerals, it will have to compensate for the depletion in the value of the site itself by subtracting that value lost from the total expenses of the government and thereby increasing the total amount of income for the government. Each year the site will have to submit a five year extraction plan, and it will have to ask for government approval to deviate from those plans. All equipment and extraction techniques will have to be international standard to mitigate the rate of depletion and depreciation on the area around the site. (Note: This part of the article is difficult to understand, and the author does not explain it well).
  3. Further the issue of water use and other natural resource depletion will be decided upon at the appropriate phase of the development process.
  4. Within four years after beginning the project, at least 90% of the employees must be Mongolian citizens. However, during the initial phases of construction, because the project will require foreign expertise, no less the 60% of employees must be Mongolian citizens.
  5. Fellowships to receive training and study mining issues at international and domestic institutions will be offered by Ivanhoe Mines and Rio Tinto (how often and to what extent the article does not say).
  6. The project will be subject to international audits, the provisions of which will be discussed between the project representatives and the tax authority.
  7. If ownership of the project is transferred to a third party without approval from the government, then the government will have the right to cancel the agreement.
There clearly has to be more to the deal, so this is just a sampling of what might appear in the final draft. Complicated stuff, though, especially No. 2 above, and it is not surprising it confuses a lot of people.

No comments: