The Mongolian Parliament has delayed passing the proposed agreement between the government and Ivanhoe Mines Ltd. (TSE:IVN, NYSE:IVN) to mine the country’s most important mining project at Oyu Tolgoi, operated in cooperation with Rio Tinto (RTP: NYSE; RIO: LSX, ASX). A parliamentary working group will be established to further examine the case.

Members of parliament are questioning whether the terms of the agreement are overly favorable to Ivanhoe as well as other issues, including the taxing structure agreed upon and the length of the exclusive contract being issued to Ivanhoe and their partner in the project, Rio Tinto. 

Government advocates for passage of the agreement have repeatedly stated the importance of beginning the project because of the enormous revenues that will raise Mongolia’s Gross Domestic Product. 

At the same time, Democratic Party Parliament members have repeatedly questioned whether the agreement violates Mongolian law. Of particular concern to opposition lawmakers is wording in the agreement stating, "If this agreement somehow contradicts Mongolian laws, both sides will follow agreement terms." 

Democrat N. Batbayar insisted on learning who in the government was responsible for the wording, however, the government was unable to answer. Ch. Hurelbaatar, leader of the government’s negotiating group, responded that the agreement is very important for Mongolia’s economy and must move ahead. Hurelbaatar also said three IMF specialists had assisted in working out the agreement. 

Z. Enkhbold responded, "Ivanhoe has great experience in making agreements, but what was the government’s experience compared to Ivanhoe’s." Other Democrats complained that the 80-year agreement was too long, saying the country had lived under communism for nearly 100 years and now the country will have to live under “Ivanhoe’s pressure for 80 years because of this agreement.” 

Z. Enkhbold further reminded Parliament that Mongolia has the world’s second largest mineral deposits, following China, and many investors seek unfair advantage in wishing to sign agreements with Mongolia. 

Z. Enkhbold noted, “If the IMF suggested this agreement is in favor of the Mongolian people then I feel suspicious about them. This is a very big project for Mongolians and we should not be hurrying. This agreement is going to be in force for the next 80 years, and we will be choosing our next 80-year business partner. We need more advantages in the agreement and we need to hire foreign specialists to assist in drafting the agreement, even paying them a million dollars a year. In the future we need to be prepared for reaching agreements with large companies. Our government’s fault is they sent inexperienced kids to negotiate an agreement with Ivanhoe. The government’s agreement was made at an amateur level.”  

Democratic Parliament member N. Batbayars questioned if the agreement’s exempting Ivanhoe from paying the windfall tax of 68 percent for five years is legal. Hurelbaatar replied that with its 68 percent tax, Mongolia will not be able to attract any investors for the Oyu Tolgoi project. According to Hurelbaatar, calculations using today's copper prices of  $797 per ton, Ivanhoe’s tax exemption would be 4 billion dollars. However, according to N. Batbayar, Ivanhoe’s investment in developing Oyu Tolgoi is only $2 billion and he feels their tax exemption violates the law.  

Adding additional pressure to pass the agreement, local suppliers for the project believe that Ivanhoe would suspend all contracts and purchase orders if the agreement is not concluded during the current session of Parliament. 

Nonetheless, Democrats appear to be moving to have The Standing Committee on Economic Policy look further into the agreement, which is sure to delay quick passage of the accord. 

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