Ulaanbaatar /MONTSAME/. Minister of Justice and Home Affairs Kh.Nyambaatar, who is heading the working group established by the Prime Minister of Mongolia to hold negotiations on Oyu Tolgoi issues, has delivered an update on the Oyu Tolgoi project matters. He reported that official talks between the working group and Rio Tinto company delegates will officially begin next week. 

According to him, draft guideline to the official talks sets out three stages of the negotiations on issues surrounding the Oyu Tolgoi project.

Firstly, the sides will discuss about the termination of the Oyu Tolgoi’s underground development plan. Rio Tinto has been declining to accept the Tax Act of more than MNT 1 trillion and initiated an arbitration proceeding at the London Court of International Arbitration with the government of Mongolia as a defendant. Rio Tinto has paid over MNT 650 billion to Mongolia under the Tax Act by the General Taxation Authority of Mongolia. In connection with this, the second stage of the talks are planned to touch on issues about the tax act and tax disputes.

The Government of Mongolia and Rio Tinto have signed 15 agreements and contracts since 2009. Revision of those documents to make the project mutually beneficial would be the agenda of the third stage of the talks.

Minister Nyambaatar said “The working group will convene on Saturday this week (March 27, 2021) to agree on its position for the upcoming talks with Rio Tinto, and also the draft guideline to the talks will be presented early next week to an irregular cabinet meeting for government approval.”

Initial cost estimates of the Oyu Tolgoi underground development plan were approved at USD5.3 billion. Unfortunately, this cost was increased by USD 1.4 billion, reaching USD 6.75 billion, and the date when the first underground production to be achieved was extended by 22 months from the first estimation of January 2021, as notified by the investor to the Mongolian government.

As a result, the amount of taxes and dividend payment that Mongolia to receive is likely to decline. As explained by Rio Tinto, the cost overrun and schedule delay are caused by the geological conditions that had been worsened. However, the Mongolian government had been carefully studying to explore about the causes, which are probably flaws in the project management and procurement activities, and sent an official letter to Rio Tinto in November 2020. 

A suggestion has been made to conduct an independent review of the causes of the cost overruns and delays to the underground development, and according to which, the Oyu Tolgoi’s board resolved to establish a special committee to protect the interests of minority shareholders in the project, which include the government of Mongolia and minority shareholders of Turquoise Hill Resources. 

"The government of Mongolia and minority shareholders of Turquoise Hill Resources have appointed working teams to have experts investigated if there are any wrongdoings in the Oyu Tolgoi project’s management and procurement and to give assignments to the experts. 

Minister Nyambaatar further informed that some minority shareholders of Turquoise Hill Resources have filed a claim to a New York court that Rio Tinto has disclosed the actual causes of the cost overruns and included testimonies of 12 former employees of the Oyu Tolgoi project. Some of the witness statements claim that Rio Tinto was actually aware of the geology and geological conditions of the Oyu Tolgoi project back in 2012 and argue that associating geological difficulties as the cause of the overruns is false. 

Ch.Ariunbold