Mongolia must accept blame over Rio Tinto mine dispute - PM

ULAN BATOR, April 3 (Reuters) - Mongolia must take much of the blame for a dispute with Rio Tinto that has delayed the expansion of a $6.5 billion copper mine and disrupted economic growth, the country’s prime minister said.

The construction of the second underground phase of the Oyu Tolgoi project has been on hold since August, 2013, amid complaints about cost overruns and a dispute over tax.

“Much of the blame (for the delay) goes to us,” said Prime Minister Chimed Saikhanbileg, who was appointed late last year with the task of kickstarting an economy rattled by falling commodity prices and a 74-percent slump in foreign investment last year.

Amid concerns about the growing role played by foreign firms in its mineral-dependent economy, Mongolia passed a series of laws and regulations designed to raise tax revenue and impose greater domestic control over “strategic” mining assets.

Parliamentarians even sought to renegotiate the terms of the 2009 Oyu Tolgoi agreement, which granted 66 percent of the project to Ivanhoe Mines, now known as Turquoise Hill Resources and majority owned by Rio Tinto.

But Saikhanbileg, speaking at the annual Mongolian Economic Forum, said that some of the regulations had been badly conceived and implemented, and that Mongolia had “lost credibility”.

“We need that credibility at this time when we move ahead with the Oyu Tolgoi underground mine project,” he said, according to a transcript published by the Business Council of Mongolia on Friday.

He pointed to a decision to impose a “progressive royalty” without even informing Rio Tinto, which led to the closure of the project’s domestic bank account, diverting all the mine’s cash flows overseas and undermining trust in Mongolia itself.

“That happened some time ago, but it was a key problem element in the long-term negotiations between Oyu Tolgoi and the government,” said Jim Dwyer, the executive director of the Business Council of Mongolia.

The two sides have also been in dispute over a claim by Mongolia for unpaid tax. An official said earlier this week that there has now been a breakthrough and that “misunderstandings” surrounding the tax regime had now been resolved.

“They’re making a lot of progress,” Dwyer said about current negotiations between the government and Rio Tinto. The Business Council of Mongolia has 225 local and international members, including Rio Tinto and Oyu Tolgoi. (Reporting by Terrence Edwards; Editing by David Stanway and Ed Davies)