⚖️ Mongolia trade | Petrol reserves | Oyu Tolgoi's tax dispute suspention

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Did you know? As of today, a license plate restriction policy is in effect until February 1st. Vehicles with even-numbered plates will be permitted to drive on designated days, while odd-numbered plates will be allowed on alternate days. 

In today’s edition…

• Mongolia's Trade Balance: Booming or Balancing? 

• Fueling the Future: Mongolia's Petrol Reserves Under Scrutiny 

• D-Day for Oyu Tolgoi: Tax Dispute Between The Government of Mongolia and Oyu Tolgoi

Let’s dive in. 👇🏻

🫴🏻 What gained, what given?

Mongolia's exports surged by 23.9% to $13.8 billion in the first 11 months of this year, resulting in a foreign trade profit of $5.4 billion. What do Mongolians export and import?

Export

Raw materials constitute a significant portion, with mineral products forming the majority 86.5%, precious stones contributing 5%, and textile materials and textiles making up 3.1%, totaling 94.5% of exports. 

• Mongolian goods are exported to 80 countries, but an overwhelming 91.2% are exclusively destined for China. This includes all crude oil, 99.9% of copper concentrate, 99.3% of coal, and 99.7% of washed goat cashmere, underscoring substantial reliance on the Chinese market.

Import

However, the import volume increased by 6.4% from the previous year, reaching $8.4 billion. Goods were imported from 158 countries, with China leading at 40.3%, followed by Russia at 25.7%, and Japan at 7.8%.

• Key imported products include petroleum products 19.9%, passenger cars and trucks 11.9%, and electric energy 2.1%. This suggests that Mongolia heavily relies on imports for essential needs like oil and electricity.

In conclusion, unless the dependence on imports, particularly from China, is addressed, remote areas may face electricity limitations, and the nation risks fuel shortages. While an oil refinery is under construction in Dornogovi province, expediting these efforts is crucial to avoid perpetual dependence on external sources.

DATA STORY: ⛽️ Mongolia’s Petrol Reserves Decline by 42.4%, Year-to-Date

The total petrol reserves have decreased by 42.4% from the previous year, reaching 67.3 thousand tonnes as of December 5th. Specifically, national reserves of A-80 fuel declined by 66.8%, diesel fuel by 51.9%, and AI-92 by 28.1%. As of December 5th, a total of 2,210.3 thousand tonnes of oil products were imported. Among these, 0.9% was A-80 gasoline, 28.6% was AI-92 gasoline, and 54.7% was diesel fuel.

⏳ Ticking Clock for Oyu Tolgoi Tax Standoff

December marks the critical deadline for resolving the Oyu Tolgoi tax dispute. Meanwhile, the Mongolian Tax Authority recently issued a tax bill to Oyu Tolgoi. What is happening between the Government and Oyu Tolgoi?

Core issues 

At the heart of the disagreement lies the interpretation of the 2009 Investment Agreement. While the agreement stabilizes specific tax rates for Business entity income tax, Mineral royalty, VAT, customs, and real estate at levels prevailing at the time, it remains ambiguous regarding overall tax environment stability.

• Rio Tinto (RIO), Oyu Tolgoi's head company, interprets this as guaranteeing immunity from any subsequent legislative changes affecting the project's taxation. Conversely, the government maintains the right to adjust tax rates as needed.

This clashing of interpretations led to a series of events:

• 2015: The Government of Mongolia temporarily accepted Rio Tinto's interpretation, seemingly resolving the dispute.

• 2018: Mongolian Tax Authority audited Oyu Tolgoi's operation during 2013-2015 and fined the company $155 million. The company partially complied or paid $4.8 billion but disputed the remaining amount.

• 2020: Since Oyu Tolgoi and the government could not resolve the tax dispute covering the years 2013-2015 for 2 years after 2018, Oyu Tolgoi submitted to the arbitration court.

• December 2020: The government believes the tax was reasonable, so they filed a counterclaim seeking an additional ₮649.4 billion in tax assessments. Now and again putting up a $70-$80 million bill.

Both parties have declared a preference for resolving the dispute through negotiation. Rio Tinto hopes to strengthen its relationship with the government, while Mongolia aims to secure its rightful tax revenue. However, the counterclaim complicates the situation, and the arbitrator's eventual decision holds significant weight. A ruling in favor of Oyu Tolgoi could nullify the disputed bills, impacting government finances and public sentiment.

Furthermore, during the COVID-19 pandemic, the Mongolian government disbursed ₮1 trillion in total, or ₮300,000 to every citizen from its shared bank account with Oyu Tolgoi. Additionally, with upcoming parliamentary elections on the horizon, the resolution of the tax dispute may become intertwined with political considerations. What will happen?

🎁 Little Heroes Project 2023

Experience the magic of giving by joining the cherished Little Heroes project, a heartwarming tradition upheld by Rotaract clubs in Mongolia since 2012. Their mission? To fill New Year's Day with laughter, joy, and encouragement for the little champions undergoing treatment.

As a part of the poject, 300 children at local hospitals will celebrate New Year's Eve with a special gift giveaway and fun activities hosted by the Little Heroes project on December 30th and 31st! Join them in spreading cheer to kids at the Center for Rehabilitation, Children's Hospital, and Trauma Center.

If you wish to contribute to the joy of the little heroes, consider making a donation to the Rotaract Club of UFE via Trade Development Bank account 👉🏻 457106398.

Click HERE for more details.

🏃 QUICK STORIES

🔵Mongolian banks currently allocate 5% of total loans to green loans. This is part of the Bank of Mongolia's objective to boost the green loan portfolio to 10% by 2030. FYI, the upcoming monetary policy aims to implement a robust measurement system for assessing the efficacy of green loans.

🔵The Asian Development Bank approved 2 projects totaling $157.1 million in Mongolia. The $57.1 million Agriculture and Rural Development Project, Phase 2 aims to improve the competitiveness of Mongolia’s agriculture sector, and $100 million Border Efficiency for Sustainable Trade Project, aims to enhance Mongolia’s trade sector resilience. 

🔵The Bank of Mongolia held the monetary policy interest rate at 13%. Despite a 22.3% expansion in next year's budget expenditure, the Bank of Mongolia decided to keep its interest rate at 13%. As a result of the tight monetary policy, inflation reached 8.6% in November, which was 12.3% at the beginning of the year.

🔵The number of accredited companies in mineral commodities trading reached 12. The last 2 listed companies were Andiin ilch and Usukh zoos. Mining products valued at ₮5.8 billion have been traded through the Mongolian Stock Exchange (MSE) year-to-date.

⭐ TOP NEWS

• City: Urbanization, Innovation, and Solutions in Mongolia’s Capital City (TheDiplomat)

• EDU: The Evolving Right to Education of Mongolia (UNESCO)

• Energy: Ulaanbaatar to Cooperate with UNDP to Increase The Use of Renewable Energy (VisitUlaanbaatar)

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Editor: E.Zolbayar
Writer: M.Khulan & Skh.Angirmaa & G.Aminaa

Disclaimer: The information Inside Mongolia provides is for educational and informational purposes only. It is not intended to be or constitute financial advice, trading advice, or any other advice. The decision whether to consider the information we provide is solely our readers' independent decision.