Mongolia Plans to Charge Rio’s Oyu Tolgoi Interest on Tax

Mongolia plans to start charging interest on allegedly unpaid tax owed by Rio Tinto Group’s Oyu Tolgoi LLC, as talks continue over the future of the $6.6 billion copper and gold mine, the nation’s mining minister said.

Mongolia wants Oyu Tolgoi LLC, in which Rio controls 66 percent and the government the rest, to pay interest, even as the two sides disagree on whether the tax payment was made. Oyu Tolgoi said Feb. 5 that it pre-paid $150 million in tax in 2010 and 2011 and was due to receive credit for it last year. Mines Minister Davaajav Gankhuyag said today that the payment was a loan and tax obligations are still outstanding.

“Their tax will now be charged with interest,” which has yet to be worked out, Gankhuyag said in an interview in Ulan Bator. “The Mongolia government did not do anything wrong. It’s the investor side.”

The tax payment is one of several issues in an escalating dispute between the government and Rio’s Oyu Tolgoi unit over the mining project, which will make up 30 percent of Mongolia’s economy once it’s in full production. The two sides are still in talks, which include funding for Oyu Tolgoi’s development, Gankhuyag said.

“We do not have the same position on all matters, we have different positions in various topics, but I hope that we will have a final decision soon,” said Davaajav. “We want to start production at this mine as soon as possible.”

Budget Deadline

Oyu Tolgoi’s budget is only approved by both sides until the end of this month, while London-based Rio Tinto has said commercial scale operations are due to start by mid-year.

The board of Oyu Tolgoi is meeting today to discuss 13 major issues, the minister said. Among these are Mongolia’s plan to introduce a new minerals law to govern the mining industry and the annulment of earlier government decisions to grant Entree Gold Inc. (ETG), a Canadian company that owns part of the Oyu Tolgoi land, permits to extract minerals on the territory, he said.

Rio Tinto has a direct 12.85 percent stake in Entree and a 10.7 percent stake is held by Rio’s Turquoise Hill Resources Ltd. (TRQ) unit, according to data compiled by Bloomberg.

President Tsakhia Elbegdorj this month criticized Rio Tinto for cost overruns at Oyu Tolgoi and said Mongolia wants more control of the project. The copper and gold mine is the second- largest project that Rio is currently building.

In addition to Oyu Tolgoi’s tax prepayment, the company also made a $100 million prepayment of dividends in 2010 and 2011, it said in its February statement. Separately, in 2012 Oyu Tolgoi paid a total of $280 million to Mongolia in taxes and other fees, according to the statement.

The $250 million that Oyu Tolgoi said were tax and dividend prepayments was actually a loan to the Mongolian government that the country plans to repay in 2014 and 2015, with interest, minister Gankhuyag said.

To contact the reporters on this story: Michael Kohn in Ulan Bator at mkohn5@bloomberg.net; Yuriy Humber in Tokyo at yhumber@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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