Can't Really Understand why the government is pushing to assume more 51% than of the "windfall losses"?

The Law, governing the minerals sector, in essence, the rules of the game for minerals business have to be stable and predictable for the minerals business is an extremely risky, time and capital intensive. No one would be willing to invest in Mongolia’s minerals sector if Mongolia changes its only two-year old Minerals Law. As for the investment agreements, although the guidelines and basic principles adopted by the Parliament instruct to conclude the agreements according to the existing, the 2006 Minerals Law, the guidelines nurture an idea that after some time the law would be revised to accommodate the gradual increase in the share of the Government ownership, therefore, it is still likely that the legal and regulatory environment might change.

Some guess that the Investment Agreement would exempt the investor from the WPT, that the investors would not accept Mongolia’s intention to levy the WPT. How justifiable are such guesses? Could there be any other taxes to replace the WPT?

It sounds akin to telling a beer producer to produce and export vodka, otherwise it would be levied a 68% tax. Production of copper concentrate and production of pure copper require two different sets of technologies, management and marketing, different skills and experience. On the other hand, those “windfall profits” are now replaced with “windfall losses”, aren’t they? I can’t understand why the Government is pushing to assume more than 51% of the “windfall” [sudden] losses. It’s hard to imagine the future of the Mongolian budget if the government atop of its various commitments, would now volunteer to finance losses. Why should the policy to produce pure copper in Mongolia be materialized through such an unsophisticated form as exerting pressure on the investors? Can’t there be found any better policy options?!

Would you agree with a criticism that increasing the gold price threshold for the WPT purposes to 850 USD would put too much pressure on the struggling budget? Some say this was not a patriotic decision at all to make especially in the times of economic crisis…

I agree if you use the term “additional pressure on the budget” in a sense that even if the government increases the threshold to 850 us$, gold production and sales won’t increase and that the revenues from the gold sector to the budget wont’ be collected. Gold price is likely to increase, therefore the WPT has to be abolished, the sooner the better. This would revive the sector – production would notably increase, all hidden and shadow transactions will come out of shells, leading to an expanded taxation base, which automatically will translate into increased revenues for the budget. Gold producers will re-invest that margin of profits, which looks so mouth-watering in the eyes of the government, into their businesses, in creating jobs and for other tangible and meaningful purposes.  In other words, the direct and indirect benefits of mining will greatly increase than in the times of WPT. If you judge from a different angle, you will see that hundreds of millions of dollars, maybe even billions of dollars are being rejected, traded off by the Mongolian government’s trying to earn some merely 50 billion tugrugs from gold producers through the WPT as budgeted for 2009. By preserving this Law Mongolia gives up new jobs, erodes her mining sector competitiveness and downplays her own image and reputation. Self-destructive, just like shooting at your own feet.

Would you agree with a statement that Mongolia lost a lot in her agreements on Boroo gold and Tumurtei zinc deposits? Would you agree that these agreements shattered people’s perceptions and beliefs in the benefits and values of investment? Should the politicians who concluded such agreements, who lobbied and supported the conclusion of the agreements, be held accountable?

I wouldn’t say we lost a lot. We have jobs created and other benefits multiplied through other business channels and venues, I don’t negate them. If we had flaws, they are policy-related, policy caused faults. We cannot blame the investors. We should blame ourselves. We earned a good lesson that if our policies, laws, regulations are as “volatile” as the commodity prices, we can only earn losses. Not a bad lesson. In 1998, the time when the agreements were established, gold and other minerals were at their nightmare low rates. In those years, promoting FDI was perhaps one of the major goals of development. Therefore, we had a very liberal law and a very generous taxation system. I just regret that we made ourselves pay too high a price for a simple lesson, and we are still learning. I recall we paid over 30 million dollars to also “attend a lesson” to learn to do a banking reform. We have to try to end this economic transition at lower as possible costs and not repeat our own and other’s mistakes.