Tuesday, July 21, 2009

Status of OT Agreement Update

Bloomberg is reporting that Ivanhoe Mines has agreed to meet with the Mongolian government next week to reopen discussions on the OT agreement (see here). This information seems lifted from the Ivanhoe Mines press release here. Neither are very informative, and much of the information I see on news sites in Mongolian either deal with the issue in a hypothetical, out of context sort of way or with mild to impassioned invective being hurled in all directions. There are not a lot of simple facts to be had. Given the limited information available at this point, however, it appears the agreement suffered a serious if not fatal setback last week. However, I am somewhat convinced it may in the end be less of a setback than it appears.

Parliament approved giving the government, led by Prime Minister Bayar, the authority to conclude the OT agreement without further parliamentary input. However, the resolution tacked on a proviso that any agreement has to conform with current laws; i.e., the final agreement cannot have any special exemptions that contravene current laws. This is seen as a shot over the bow of the government and Ivanhoe Mines by those who do not want to see OT contain exemptions from taxes such as the controversial "Windfall Profit Tax." Or, in other words, it was a seemingly successful last ditch effort by opposing factions in parliament to scuttle the deal. That's because the government is now authorized to negotiate and sign an agreement, but parliament took away all of its bargaining chips. Without the ability to tailor the agreement with exemptions, provisos, and amendments on tax and revenue issues, the government goes to the table without the ability to negotiate in a practical way.

That is the pessimistic view, and it probably is a fair assessment of the situation. If one side of a negotiation is anchored to a position, then it ceases to be a negotiation. However, what I am going to be looking for in the coming week is whether this, in fact, is an accurate assessment of the government's bargaining position. The first meeting between the government and Ivanhoe should hopefully shed some light on this. The fact that the government has the authority to sign an agreement means that, even hamstrung by the parliamentary resolution, Prime Minister Bayar finds himself in an unprecedented position of actually being tantalizingly close to concluding a deal. This has to be worth a lot in terms of attracting the investors back to the table, and hence the meeting in the coming week. Moreover, agreements are all about wording, right? So, the thing to look out for is the PM and other ministers discussing details of the agreement with Ivanhoe and Rio Tinto that conform to the spirit of the parliamentary resolution but still give the government the ability to move from its starting position, thereby making what looks like a setback actually the final stage of refreshed negotiations.

1 comment:

Marissa said...

found this blog yesterday:


summaries and commentary for OT deal related articles in Onoodor, Ardiin Erkh, etc.