It is early to relax for OT

2019  |  October   |  024

  • Parliament allowed the Cabinet to give up on the 34 percent ownership of OT
  • Need to wait for the renewed feasibility study to maintain the agreements


The Parliament has ratified its next resolution on Oyu Tolgoi agreements. The 92nd resolution approved on November 21st gave direction for the Cabinet to amend the OT Investment Agreement, Shareholders’ Agreement, Underground Development Agreement, and Financing Plan in favor of Mongolia without terminating them. This is the Parliament deciding not to terminate the OT deal after two years of dispute over annulling the OT agreements and halting the project. In terms of timeframes, it was a fairly “good” resolution that will not have an impact on the image of the Mongolian Government in the external environment and internal politics and economy.

Rio Tinto notified of its approval to the Parliament’s resolution, reaffirming the validity of the Mongolian Parliament’s position on OT agreements, and notifying their readiness to sign a deal with the Cabinet.

Breaking down the articles of the Parliament’s resolution, it granted the rights for the Government to behave as they please. It could be possible for the Parliament to re-amend the resolution if they fail to reach a common ground. In brief, it was a message to continue the Oyu Tolgoi project by toning down their attitude if “Rio Tinto” agrees. 

The Parliament passed the ninth resolution prepared by the working group responsible for drafting these resolutions. Eight other resolutions were passed before this one. These include resolutions on terminating the Oyu Tolgoi and Dubai Agreements, making it obvious that the resolution went through a heavy conflict. The 92nd resolution was approved with 100 percent vote from the 46 members attended the Parliamentary meeting. Some of the politicians that voted to approve the resolution have always opposed the OT Agreement, and some even made their image. Interesting to see why these members, who went against the Oyu Tolgoi whenever they speak, decided to back the resolution. The National Security Council convened two days before the approval of the bill and agreed on not terminating these agreements according to the Minister of Justice Ts. Nyamdorj. It could be possible that the common ground of the President, Speaker, and Prime Minister was the leverage for the Parliament members to pass the bill with 100 percent vote. Also, the fact that the bill included languages of improving the agreements in alignment with the laws and regulations of Mongolia may have appealed to opposing members.

The Dubai Agreement has violated the laws of Mongolia. Although it goes against several laws, the legislative body has decided to improve the agreement to fit the laws. The head of the working group and a Parliament member B.Battumur expressed his position, saying “it is true that “The Dubai Agreement” has violated the laws and regulations of Mongolia and there is no attempt in denying that. Article 1.12 of the review of the working group led by D.Terbishdagva stated to “terminate the Dubai Agreement”. The “Dubai Agreement” has to be annulled since it violated the laws. Even though the Parliament has to make the decision, it was passed on to the Cabinet.”

The almost laughable decision demonstrates that Mongolia is appealing to its biggest investor and is “minding its reputation” in front of international financial institutions. It may just mean to continue the agreement that has an international impact and solve political and other domestic issues themselves. Destructuring the resolution approved by the Parliament by articles, it can be understood that the TRASH of 2009 and … of 2011 did not violate laws, but the Dubai Agreement did. Therefore, it is possible to predict what will happen to the high-profile officials that are being investigated by the IAAC. 

An important article in the Parliamentary resolution was the one that Parliament allowed the Cabinet to give up on the 34 percent ownership of Oyu Tolgoi LLC. But the single requirement is that the yields of the Mongolian side must not fall below the initially agreed 53 percent. The Cabinet was directed to explore and resolve options to have a product sharing arrangement or swap Mongolia’s equity holding of 34 percent for a special royalty if necessary. The dispute over 34 percent ownership has been brought up once again on its 10th anniversary. There is but a single reason behind the Parliament Members’ decision. Mongolia’s equity holding of 34 percent in Oyu Tolgoi LLC, which is valued at a bit over USD 400 million, is in a debt of USD 1.6 billion with a delay in underground development and because of the increased cost, the chances for the dividend is getting slim, forcing the state take such actions.

There would be many different positions over the timing of selling the 34 percent stake of the Government or getting yields from different sources. But there are not many options in terms of making a “deal”. 

Is “Rio Tinto” satisfied with the resolution. There is not much for them to dislike it as the final decision made it possible to continue the project compared to the review of the investigation conducted by the Parliamentary working group, which suggested termination of the “Dubai Agreement”.

The Parliament decided before the “Rio Tinto” board convened to discuss Oyu Tolgoi. It has been some time since the reconsideration of the Mongolian Government has agitated the top decision-makers and investors of “Rio Tinto”. There could be many hypotheses about whether the timing was happened to be now, or it was set up early on. Regardless, one certainty was that the Parliament’s decision cleared the doubts in the decision-making level of “Rio Tinto” whether to continue the Oyu Tolgoi project or not. Rio Tinto’s CEO Jean-Sébastien Jacques also expressed readiness in making deals with the Government.

The commencement, termination, and decision of the agreement between the Government and “Rio Tinto” are interesting topics now. The outcome will only be certain at the last minute so it is impossible to tell before-hand. But it seems the agreement will take place soon. Both sides may prefer reaching a deal before the next election. But multiple factors must be considered to predict the duration of the talk. First of all, the interests of the Mongolian Government must be assessed. It is also important for the ruling party to disseminate a “victory call” of improving the Oyu Tolgoi agreement in favor of Mongolia before the next election. Thus, the Cabinet will be active and act with haste. On the other hand, there is not a choice but to wait for the renewed feasibility study to change the agreement, especially to set out the articles regarding the underground development. The preliminary release for the feasibility study is in mid-2020, after the election.

The ideal outcome of the Cabinet will be clear from the selection of the head of the working group, who will sit behind the negotiating table with “Rio Tinto”. Historically, mining ministers have always headed the negotiations. In that sense, minister D.Sumiyabazar could potentially lead the working group. But it must be considered that the mining minister has been criticized within the state palace for taking investors’ sides. If it is not D.Sumiyabazar, the Chief of Cabinet Secretariat E.Oyun-Erdene will lead the team. If he heads the team as the Prime Minister’s loyal minister, it can be drawn that the Cabinet is giving great significance to the agreement. Because the ministers or anyone who sat behind the negotiating table with “Rio Tinto” to sign a deal over Oyu Tolgoi bears a great risk and becomes a living dead as a politician. Therefore, it has to be someone who has influence and power that could bear the risks that will head the working group. Other than that, the profession, knowledge, and skills to make a war pact will be the least important.

No doubt that the efficiency of negotiation will depend heavily on the members of the working groups formed by the two sides. It could be said that the deal made by the working group led by four ministers during the DP’s rule resulted in a more of a loss than profits. The working group this time will also negotiate under heavy conditions. “Rio Tinto” will also assign members depending on the formation of the Cabinet.

The chances of the negotiation delaying further are rather high. There is a chance of failure when it comes to solving one of the biggest issues of the past decade. There is no saying that they could prevent rushing such a giant issue before the election and repeating the previous Government’s mistake. When it comes to that, they could also present solutions to a few issues that arose previously to sign a deal for the election. Certain problems need immediate solutions, including interest rate, reduction of the cost of financing the ownership stakes, and power station. Since the political risks of the Oyu Tolgoi project have been reduced, the financing cost shall also reduce. But for the remaining issues, such as the fate of the 34 percent stake, which could have a huge impact on the social and political situations, it would not be a mistake to leave it to the next Government.  


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