Mongolia lawmakers seek metals windfall tax repeal
Thu Aug 20, 2009 12:13pm EDT
reuters.com
ULAN BATOR, Aug 20 (Reuters) - Mongolian parliamentary committees worked into the night on Thursday on legal revisions aimed at paving the way for foreign mining investment, including billions of dollars promised for the Oyu Tolgoi copper project.
Chief among the changes is repeal of the windfall profits tax, passed hurriedly in 2006, which was designed to allow the state to benefit from historically high copper and gold prices but instead set the stage for acrimonious negotiations with Oyu Tolgoi developer Ivanhoe Mines Ltd (IVN.TO) of Canada.
Ivanhoe, partner Rio Tinto (RIO.AX)(RIO.L) and the Mongolian government earlier this month reached a draft agreement that requires changes to the legal framework for foreign investment. Committees also considered revisions to the corporate income tax law and additions to the water and road laws.
Mongolia is desperate for revenues to flow from new mining projects to allow the government to meet social commitments over the next several years.
Its economy, which is heavily dependent on mining, contracted by 1.3 percent in the first half of this year, and non-performing loans increased, speaker D Demberel said as he opened an extraordinary session of Parliament on Wednesday.
"These Draft Laws are directed at improving the legal environment related not only to the Oyu Tolgoi deposit but to other mineral deposits as well," Demberel said.
"Establishing the Oyu Tolgoi Investment Agreement will speed up the development of Mongolia, win time and create possibility for exploiting the next major deposits."
Fears that the Mongolian state would lose out on the benefits from the $4 billion Oyu Tolgoi project led the government in 2006 to pass a law requiring the state take 34 percent of any deposit, and 50 percent of any prospected with state money.
Contentious debates over the state share and the windfall profits tax followed soon after, throwing foreign investors into a state of uncertainty and freezing projects during the peak of the commodity boom.
The windfall profits tax did not apply to ore smelted in Mongolia, but Ivanhoe argued that building a smelter would raise its capital and investment costs prohibitively. Other opponents argued the law encouraged smuggling or underreporting of gold by Mongolia's many unregulated miners.
The windfall profits law assessed a 68 percent tax on copper above $2,600 a tonne, and gold above $500 an ounce. On Thursday, benchmark copper MUC3 traded at $6,030 a tonne and gold at $940.50 an ounce.
Under the current proposal on the windfall profit tax, it would be abolished effective Jan. 1, 2011.
Mongolia's two major parties held separate internal discussions on Wednesday over the changes, and the revisions will be debated by the full Parliment, or Great Hural, as early as Friday after moving out of committee.
(Reporting by Danielle Mario, writing by Lucy Hornby; Editing by Keiron Henderson ) |
