Call for “win-win partnership” douses tensions, for now
9th of 3, 2018
The Mongolian Mining Journal /Jan.2018/
Not many were convinced that the brief, and somewhat sudden, visit to Mongolia by Rio Tinto CEO Jean-Sebastien Jacques was solely or really to inaugurate on 22 January the company’s new office in Mongolia, separate from Oyu Tolgoi LLC. Such events do not usually warrant the presence of the chief executive of a global giant.
It would seem Jacques had been closely following developments in Mongolia and decided, with corporate shrewdness, that they should be controlled before things went out of hand. His repeated reassurance that Rio Tinto wanted a “win-win situation” vis-а-vis Mongolia and the Mongolian Government was a masterful public relations stroke, and may very well bring down tensions rising around popular perception, stoked by some politicians, that Oyu Tolgoi has not been bringing much of the promised benefit to our country and people.
The new office is to support, according to a Rio Tinto press release, its exploration programme and to put a sharp focus on growing relationships with all partners in Mongolia. Once here, Jacques said, “Mongolia is one of Rio Tinto’s most strategically important markets and we are here to stay…Today we are demonstrating the deepening of our commitment to Mongolia…By investing more in Mongolia we are creating future leaders for our global business and exporting Mongolia’s intellectual capacity around the world. This is a true win-win scenario.”
Put against that spirit of bonhomie was a letter issued just a week earlier by the Mongolian Tax Administration (MTA), asking Oyu Tolgoi LLC to pay $155 million in arrear tax. The company is jointly owned by the Government of Mongolia, with 34 percent, and Turquoise Hill Resources with 66 percent. Turquoise Hill is in turn 51 percent-owned by Rio Tinto. The tax demand came after MTA had made an audit of payments made between 2013 and 2015. The company says it would respond to the demand in due time, after studying it in detail.
In June 2014 the company had received a tax bill for $130 million from MTA. The amount was trimmed to $30 million after some months but OT made the payment almost a year later -- in May 2015, to be exact -- after a long-awaited agreement had been signed by the Government, Turquoise Hill Resources and Rio Tinto on developing the Oyu Tolgoi underground mine. Not everybody was convinced the signing of the agreement and OT finally paying the arrear tax were just coincidence. They would also say the issue of the tax notice was less routine administrative procedure than pressure tactics.
Is this what is being seen again? As the underground mine is developed at high speed and huge expense, some Mongolian politicians are playing on resentment that the nation has received too little benefit from the project that has swallowed up such massive investment. The Deputy Mining Minister has gone so far as to threaten closure of the project if Mongolia is not seen to benefit more from it.
Pressure can come from both sides, and in a charged atmosphere there have been rumours that Rio Tinto’s halting shipments of copper concentrate from Oyu Tolgoi was more than just a response to a dispute at the border crossing. They felt it was also to do with the present tax notice.
Jacques played down such speculation, telling media here tax disputes are “normal in business”. Referring to similar developments in the US and Australia, he said Rio Tinto “is always ready to discuss differences and reach a compromise”. Compromise and consensus are certainly better than confrontation, especially as Oyu Tolgoi means so much to all its shareholders. It was a very good tactical move by Jacques to come to Mongolia at this time, and reassuring Mongolians that his company was for a win-win situation would help defuse the growing political tension.
Jacques called on Prime Minister Khurelsukh on 23 January and the two decided to set up a joint working group with a three-pronged focus. It will explore ways to reduce costs so that all shareholders benefit more, identify quicker ways to improve the energy situation in Mongolia, and to expedite enabling private and public investments towards sustainable community development in Khanbogd.
After the meeting, Jacques said, “We want to work with the Government of Mongolia to create long-term sustainable solutions that benefit all stakeholders and the country while staying true to the established investment frameworks.” This would be assured as the working group identified “win-win solutions”, was his final message to Mongolians.