Ulan-Bator promises to settle the matter of taxing the super profits of Russian investors in exchange for a $300 million loan.
During his meeting with Mongolian Prime Minister Sanjaagiin Bayar in Moscow yesterday, Vladimir Putin urged the need to protect Russian companies working in Mongolia. The laws On Minerals and On Tax on Growing Prices for Some Types of Products adopted two years ago seriously infringe upon the interests of Russian investors, who have lost $2.5 billion of their profits. The Mongolian Prime Minister promised to look into the situation, but independent experts believe the chances of an out-of-court settlement of the conflict are nil. In their opinion, Ulan-Bator will fight to the last to uphold its right to determine the level of taxes on joint ventures.
The Russian and Mongolian Prime Ministers held talks on bilateral trade and economic cooperation yesterday. They agreed on the creation of a railway joint venture, joint exploitation of Mongolia's natural resources, and some major investment projects. Moscow will issue a $300 million project-tied loan for agricultural purposes.
"We have some good plans in various areas, and the main task is to create conditions for their implementation," Mr Putin said. The words "better conditions for the implementation" may contain a hint at some complications faced in recent years by joint ventures with Russian participation in Mongolia.
The extra revenues from the growth of world gold and copper prices have been taxed at the rate of 68% since 2006. As a result, major Mongolian mining companies with Russian participation, such as Erdenet Ore-Dressing Plant, Mongolrostsvetmet, Golden East-Mongolia, and Shizhiralt, paid an extra $2.5 billion over the last two years. The Russian state budget also missed $500 million in taxes from the Russian-Mongolian JVs.
A source at the Government House confirmed that Mr Putin raised this issue during the talks with Mr Bayar. He stressed the need to create more favourable conditions for Russian investors in the Mongolian market. The Mongolian head of Government promised to sort out the situation.
Independent experts, however, believe that there are practically no chances of an amicable settlement of the conflict that has destroyed the traditional idyllic Russian-Mongolian relations. The International Arbitration Court, guided by the arbitration rules of the UN Commission on International Trade Legislation, will consider the lawsuit of the company Golden East-Mongolia, which seeks a repeal of the controversial laws, in April.
Varvara Knutova, a lawyer with the company Pepelyayev, Goldsblat, and Partners, believes that Russian investors have a chance to prove their case. "This is possible if it is proved in the court of law that the Mongolian side has violated the national regime with regard to Russian investors and thus put them in an unequal position compared with the other market participants," Ms Knutova stressed.
Alexei Makarkin, Deputy Director-General of the Centre for Political Technologies, does not rule out a possible compromise, citing a lack of political tensions between Moscow and Ulan-Bator. At the same time, the expert notes that Russia in this dispute finds itself in an unusual role, as it has to defend its investors against the actions of a foreign state. Usually such things happen with foreign companies working in Russia. "The prevailing view here is that agreements signed with foreign investors must favour our state and the extra profits should stay in Russia," Mr Makarkin noted. In his opinion, Mongolia has become an absolutely independent player with its own "legal personality" and, like Russia and other countries, is seeking the best possible terms in its relations with foreign investors working on its territory.
Igor Naumov