By Batnairamdal Otgonshar

Member of Parliament and Chair of the Interim Oversight Committee on Oyu Tolgoi, Parliament of Mongolia

Mongolia stands at a pivotal moment in determining how it will benefit from the Oyu Tolgoi strategic deposit, one of the world’s largest copper-gold projects and one of the nation’s most valuable mineral assets. The project required more than USD 26 billion in total investment, of which 99.8 percent has been completed. Yet the operating company’s unhealthy capital structure—heavily leveraged and largely engineered by the majority shareholder, Rio Tinto—has left Mongolia waiting decades before receiving any dividends for its 34 percent ownership.

At the center of this imbalance lies a USD 12 billion shareholder loan extended by Rio Tinto and its affiliates to the operating company, Oyu Tolgoi LLC. The loan carries a quarterly compounding interest rate of 3-month SOFR + 6.5 percent (plus a 26 bps credit adjustment), effectively around 11.1 percent today—a rate far exceeding international market benchmarks. Over the years, this rate has compounded interest upon interest, creating a burden so large that accumulated interest now almost equals the principal loan amount. As a result, Mongolia’s share of value has been effectively deferred until 2035–2040, even though the nameplate capacity of 500 ktpa of copper production is expected by 2028, according to Rio Tinto.

However, the Amended and Restated Shareholders’ Agreement (ARSHA) of June 8, 2011, provides a legal remedy. Clause 11.3(g) stipulates that “the interest rate shall be reviewed every seven years and may be modified by mutual agreement of the parties.” Mongolia did not succeed in exercising this right during the first review window in 2018. The next review window opens in 2025, and if no action is taken before the year’s end, the current high rate will remain in force for another seven years—at enormous fiscal cost.

This is therefore a moment of strategic importance. Adjusting the loan to a fair, commercially defensible level would immediately enhance Mongolia’s fiscal returns and bring forward dividends by nearly a decade. In accordance with the OECD Transfer Pricing Guidelines, loans between related parties must reflect arm’s-length market conditions. The current arrangement clearly fails this test.

To illustrate, the Government of Mongolia recently issued a USD 500 million sovereign bond in international capital markets at a 6.62 percent coupon, demonstrating the country’s improved creditworthiness and investor appetite. More notably, Entrée Resources Ltd., a Canadian publicly listed company and joint-venture partner within the Oyu Tolgoi strategic deposit, borrows directly from Oyu Tolgoi LLC at 6.7 percent, equivalent to the Canadian Prime Rate + 2 percent, as stated in their Joint Venture Agreement signed on February 3, 2025. These examples indicate that a fair market cost of capital for comparable or higher-risk entities lies in the 6–7 percent range—not the 11.1 percent currently charged by Rio Tinto to its Mongolian subsidiary. Also, for reference, Rio Tinto issued USD 9 billion of debt securities in eight tranches in March 2025 with fixed coupons ranging between 4.375 and 5.875 percent. Aligning the shareholder-loan interest to this range could unlock billions of dollars in value and enable Mongolia to receive its first dividends up to ten years earlier.

Legal and Constitutional Foundations

The legal framework is unequivocal. Article 6.2 of the Constitution of Mongolia declares that “the land, its subsoil, forests, water, fauna, flora, and other natural resources shall be the property of the people, and the State shall exercise the rights of the owner on behalf of the people.” Likewise, Article 5.5 of the Minerals Law of Mongolia empowers the State to hold up to 34 percent equity—or its value equivalent—in strategic mineral deposits.

Under Parliament Resolution No. 27 (2007), the Oyu Tolgoi ore body—including the Javkhlant (MV-15225) and Shivee Tolgoi (MV-15226) license areas—has been officially designated as part of the Oyu Tolgoi strategic deposit. These two adjacent licenses, held by Entrée Resources Ltd., are geologically contiguous with the Oyu Tolgoi ore body and contain approximately 32 percent of the deposit’s total geological resources, including 40 percent of the gold, 24 percent of the copper, and 94 percent of the molybdenum resources. On September 12, 2025, The Northern Miner, a global mining news outlet, reported that Entrée’s latest drilling results in the Shivee Tolgoi license area during the first half of 2025 ranked #1 globally among the Global Top 20 copper drilling results, with a 2.3 percent copper grade from 1,226 meters depth—the highest grade-times-interval globally.

Despite this, the Government of Mongolia currently holds no ownership participation in Entrée’s two licenses—contrary to the spirit of Article 4.1.12 of the Minerals Law, which defines strategic deposits as those capable of affecting national security or economic development. This legal guidance is particularly important regarding the meaning, application, and content of the two adjacent licensed resources.

Mandate of the Parliamentary Oversight Committee

To address these imbalances, the State Great Khural adopted Resolution No. 62 (2025), establishing the Interim Parliamentary Oversight Committee on Oyu Tolgoi. The Committee is tasked with reviewing Oyu Tolgoi’s financing model, scrutinizing the shareholder-loan structure, and evaluating Mongolia’s participation in adjacent licenses owned by Entrée Resources Ltd.

Complementary efforts have been initiated by the executive branch. Prime Minister’s Decree No. 67 (2025) formed a working group to revise the shareholder-loan interest rate, while Decree No. 73 (2025) created another to determine Mongolia’s potential equity participation in the Entrée licenses. Both must report to Parliament before year-end 2025.

Yet progress remains slow, and the timeline is unforgiving. Failure to act within this calendar year would delay renegotiation until 2032—locking Mongolia into a potentially double-digit interest rate for another seven years.

A Question of Economic Sovereignty

The Oyu Tolgoi project represents an economic undertaking of national magnitude. Its USD 26 billion capital investment equals more than 100 percent of Mongolia’s current GDP, which stands at approximately USD 25 billion. The project contributes over 20 percent of the country’s exports, supports nearly 20,000 direct jobs, and anchors Mongolia’s long-term fiscal stability.

At the same time, Oyu Tolgoi’s USD 20 billion total debt load accounts for roughly half of Mongolia’s total external debt, underscoring how deeply the project’s capital structure is intertwined with the nation’s macroeconomic health. Ensuring that Oyu Tolgoi’s financing terms are fair, transparent, and consistent with market practice is therefore not merely a corporate governance matter—it is an issue of the nation’s credit security and economic sovereignty. As stipulated in the legal frameworks of Mongolia, Parliament acts as both a legislative body and an overseer ensuring the nation’s economic security.

Furthermore, this is not a partisan issue—it is a question of fiscal justice and intergenerational equity. Mongolia must ensure that its most valuable and non-renewable resource is managed transparently, on lawful and commercially sound terms, and that the benefits reach its citizens—not decades from now, but within this generation and with certainty.

By reducing Oyu Tolgoi’s shareholder-loan interest to a fair market level and securing Mongolia’s participation in Entrée Resources’ licenses, the Government can safeguard the nation’s constitutional rights, uphold international norms, and demonstrate that Mongolia stands for transparent, equitable, and forward-looking resource governance.

The time to act is now!

Source: Zuuniimedee newspaper 2025.10.10 № 191 (7688), Friday.