Over the years governments have sat at the negotiating table to discuss amendments to the Oyu Tolgoi agreement. Some governments managed to see out their terms by only engaging in dialogue. The most beneficial amendment was made by S.Batbold’s government, and the most damaging was the famous “Dubai Agreement” signed by Ch.Saikhanbileg’s government. Even today, L.Oyun-Erdene’s government is making extensive progress in amending the Oyu Tolgoi agreement. Here are four major changes made by S.Batbold’s government to the Oyu Tolgoi agreement.

1. Batbold reduced interest rates on Mongolian loans by 3.4 percent and saved more than 600 million USD in loan payments

Under the original agreement for the Oyu Tolgoi project, the interest rate on the Mongolian Government’s share was 9.9 percent. This interest rate was changed and reduced by S.Batbold’s government. In other words, the interest rate to be repaid by the Mongolian Government’s share was reduced from 9.9% + US CPI to 6.5% + LIBOR. The 6.5 percent interest rate is lower than Mongolia’s borrowing rights. The reduction in interest rates has reduced Mongolia’s interest payments by more than $600 million to date. It will continue to be deducted from the interest payments of the Mongolian stake. In other words, if no such change was implemented Mongolia’s debt to date will be greater by $ 600 million and will continue to grow.

Annex 1 – OYU TOLGOI SHAREHOLDER AGREEMENT

(AMENDED AND RESTATED)

Date: June 8, 2011

Source:

https://www.ot.mn/%D0%B3%D1%8D%D1%80%D1%8D%D1%8D%D0%BD%D2%AF%D2%AF%D0%B4/

          2. Oyu Tolgoi’s tax increase was increased by 20 percent and more than $ 400 million was contributed to the budget

Another historic achievement of S.Batbold’s government was the termination of the so-called double tax on Oyu Tolgoi. In other words, S.Batbold’s government revealed that Oyu Tolgoi was hiding behind the so-called double taxation and evading taxes. Within the framework of this decision a bill was submitted to the Parliament of Mongolia and the double taxation agreements with the Kingdom of Luxembourg and the Kingdom of the Netherlands, signed in 1998 and 2002 respectively, was terminated. Under these agreements, Oyu Tolgoi agreed to pay income and property taxes to these countries and not to duplicate these taxes in Mongolia. With the termination of the double taxation agreements the amount of withholding tax paid by Oyu Tolgoi LLC increased 2-20 times, and paved the way for Mongolia to be able to receive an additional tax of about $ 400 million up to date. This additional withholding tax will continue to increase.

As a result of this decision, Oyu Tolgoi LLC initiated a legal dispute over the payment of the sharply increased withholding tax. The decision of the Government of Mongolia was appealed to The London Court of International Arbitration. However, as the situation did not improve, Oyu Tolgoi deposited the withholding tax in question to the treasury of the Ministry of Finance. The Government of Mongolia officially announced that 300,000 MNT was allocated from this money to every citizen of Mongolia during the quarantine imposed by the State Special Commission in April of this year due to the Covid-19 pandemic. The financial source to allocate MNT 300,000 to every citizen was provided as a result of S.Batbold’s government’s decision that the withholding tax must be paid in duplicate to Mongolia.

Appendix 2 – Proposed bill to terminate double taxation agreements with Kingdom of Luxembourg and the Kingdom of the Netherlands

          3. Mongolian Government’s 34 percent share will not be reduced under any circumstances

Another important issue that S.Batbold was able to come to agreement with the amendment to the Oyu Tolgoi agreement was to not reduce the 34 percent shareholding of the Mongolian people under any circumstance. The reason for this agreement is that as Oyu Tolgoi’s investment increased, there was a risk of Mongolia’s debt being increased and its share being decreased. This agreement is reflected in Article 10.2 of the Amended and Restated Shareholders Agreement dated June 8, 2011” which states “For the avoidance of doubt, if SHC elects not to contribute to a Called Sum, its Percentage Interest (being 34% immediately after the issue of the Government Issue Shares to SHC) cannot be diluted and if, after the Funding Period, Shares are issued to the IVN Shareholders because the Ivanhoe Shareholders have elected to fund under or in a manner similar to clause 11 then Shares must also be issued in proportion to SHC’s Percentage Interest on the same terms and conditions.”

         4. Restrictions on the transfer of Oyu Tolgoi shares

Rio Tinto entered into “Restriction on Transfer of Shares Agreement” acknowledging that it will not sell or transfer any shares held by Ivanhoe, OT LLC, or other subsidiaries of Ivanhoe, directly or indirectly owned by OT LLC, to third parties without prior negotiation or written consent of the Government of Mongolia. This agreement has so far blocked Rio Tinto from the sale and transfer of shares, to Chinese state-owned companies and foreign third parties who have openly expressed their interest in Oyu Tolgoi’s resources, without Mongolia’s consent, and Rio Tinto has chosen to sit either side of the negotiating table with the Mongolian government.

The “Restriction on Transfer of Shares Agreement” of Oyu Tolgoi Agreement, Appendix 4, states “The Government of Mongolia (GoM), and Rio Tinto International Holding Limited (Rio Tinto) enters into this agreement based on the Investment Agreement entered into by GoM, Ivanhoe Mines Mongolia Inc. (now Oyu Tolgoi LLC) (OT LLC), and Ivanhoe Mines Limited (Ivanhoe) and Rio Tinto on October 6, 2009 effective as of June 8, 2011. The agreement states “Any member of the Ivanhoe Group or any member of the Rio Tinto Group that is a Shareholder or preferred shareholder may transfer all or part of the Shares or any preferred shares (as applicable) held by it to any other member of the Ivanhoe Group or the Rio Tinto Group without obtaining tile prior written consent of the other Shareholders or preferred shareholders, or first complying with the requirements of clause 16.2.”

            CONCLUSION

It can be concluded that as a result of the measures taken by the government led by S.Batbold, the economic benefits of the Oyu Tolgoi project to Mongolia has increased by hundreds of millions of USD as well opening possibilities of increasing its strategic collateral, which nobody seems to mention. S.Batbold himself is not promoting it. In return, they tried to accuse him at home and abroad of “giving an advantage for Oyu Tolgoi.” These are not such advantages. Oyu Tolgoi will continue to benefit the Mongolian people as long as successive governments can make such amendments.

B.Solongo