Mongolia lawmakers seek metals windfall tax repeal

Thomson Reuters






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 of Canada.

Ivanhoe, partner Rio Tinto 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 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 )