Friday, July 10, 2009

More Details

Saturday's edition of Өнөөдөр has a few more details about the proposed agreement, some of which I have seen in other papers. Interestingly the article in Өнөөдөр is on page two and emphasizes statements from MPs who are declaring this is a bad deal for Mongolia. So, oddly it does not cast the deal in the best of light, and yet it is also tucked inside the paper. The other details according to Өнөөдөр, though, are:
  1. Mongolia will have a 34% equity share in the project, and the government will pay for it through 4 separate tax regimes.
  2. The agreement will be for 30 years.
  3. The project will be exempt from several taxes such as the value added tax and foreign workers tax for 7 years as construction for the project takes place. (This provision is not clear in the article, and it seems to also indicate an exemption from the Windfall profit tax).
  4. Rio Tinto and Ivanhoe mines will put down a deposit of $125 million which will be repaid by Mongolia at a concessionary interest rate.
  5. Construction must begin in 2 years of signing the agreement or the government can cancel the it.
Reading the different papers it is hard to get a clear definitive explanation of the terms of the deal, so I am not confident that anyone is reporting it accurately. Until the government publishes the draft, it will remain this way.

In other news, four employees in Rio Tinto's Beijing office were arrested this week for "stealing state secrets." This has created tension between the Chinese government and the Australian government which is being pressed by Rio Tinto to address the situation. For those who do not follow international mining news, a few months ago a Chinese mining conglomerate attempted to buy a strategic stake in Rio Tinto which was pursued by Rio Tinto's management but was ultimately defeated by Rio Tinto's shareholders. This made for some bad blood between China and Australia, and the arrest this week of the Rio employees naturally raises suspicion of continuing drama over that failed deal.

There was some speculation that one of the reasons the Oyu Tolgoi deal was floundering in the special and regular spring sessions of parliament was the fact that people here were wary of the fact that Rio Tinto was on the verge of becoming a company partially owned by a Chinese state run corporation. The stock purchase deal falling through may have contributed to a change of heart for some in parliament, as well as the addition of provisions that prohibit Rio Tinto or Ivanhoe Mines from selling their stakes to third-parties without permission from the government. So, corporate intrigue, geo-politics, and domestic politics are all affecting the trajectory of this deal. Very complicated, indeed.

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