Bloomberg just cited Rio Tinto, the investors in the Oyu Tolgoi project, with this statement:
“A number of substantive issues have recently been raised by the government of Mongolia, including the implementation of the investment and shareholder agreements and project finance,” London-based Rio said today in a statement. “Subject to the resolution of these issues, first commercial production from Oyu Tolgoi is scheduled to commence by the end of June 2013.”
Thanks to this tweet by Enkhbat Dangaasuren for the link.
As mentioned before, that is the very simple leverage that Rio Tinto has when dealing with unreasonable requests by the Mongolian government that have the potential to undermine trust of foreign investors in the country.
Just do nothing. With no product shipped, there will be no income to tax. A higher tax rate on zero is still zero, contrary to assumptions of the Mongolian government on this year’s budget.
In a contest who can hold breath longer, I would assume that Rio Tinto will come out on top.
They also have a link to a television interview with new CEO Sam Walsh at that article. He says that he has a team of people speaking to the Mongolian government every day, and that he expects to sort out these issues.
This is of course very important for both sides to resolve. Rio Tinto has six billion dollars in investment sitting around at Oyu Tolgoi gathering dust if they can’t get this out of the way. The Mongolian government will see their plans for this year’s budget severely derailed if they can’t get the issue solved.
So, what I would expect to happen is that eventually Rio pays some more money than was agreed on, and that the extra payments will be treated as advance on future income of the Mongolians. I would be surprised if they agree to renegotiate the Investment Agreement.