Rio Tinto Mongolia Tax Arbitration Raises Stakes for Oyu Tolgoi Deal

Rio Tinto’s decision to trigger international arbitration against Mongolia has escalated tensions around the massive Oyu Tolgoi copper and gold project. The move follows the collapse of bilateral negotiations over a long-running $155 million tax dispute and sets the stage for a high-stakes legal confrontation that could land in the middle of Mongolia’s 2025 political transition.

Cabinet Secretary and lead government negotiator Luvsannamsrain Oyun-Erdene sought to defuse the optics, framing the Rio Tinto Mongolia tax arbitration as an “expected development” given the failure to reach a negotiated resolution. He insisted that settling out of court was not an option, arguing it would have weakened enforcement of Mongolia’s tax law and established a damaging precedent that statutory obligations could be sidestepped by foreign investors.

Despite the legal proceedings, Oyun-Erdene noted that Mongolia is still working with the G7-backed CONNEX initiative to conduct a compliance review of the Oyu Tolgoi Investment Agreement (OTIA), in line with parliamentary resolution No. 92. However, the efficacy of that initiative now appears largely symbolic, given that the dispute has entered formal arbitration in London.

The tax disagreement itself dates back two years, when then-Cabinet Secretary and current Parliamentary Speaker Gombojavyn Zandanshatar described the case as a “routine business dispute.” Rio Tinto’s copper division head, Arnaud Soirat, sharply disagreed, contending that the assessments directly violated the legal agreements underpinning the project—specifically the OTIA, the Underground Development Plan (UDP), and the Amended and Restated Shareholder Agreement (ARSHA).

Yet this dispute is only one thread in a larger pattern of political volatility. Over the past decade, Mongolia’s policymakers have repeatedly wavered in their commitment to the Rio Tinto-Turquoise Hill venture. Although Parliament walked back a controversial clause in last November’s resolution that would have allowed cancellation and renegotiation of the OTIA, some remain active and may use the arbitration outcome—especially if unfavorable to Mongolia—as renewed justification to attack the deal.

A ruling from the London arbitration tribunal is unlikely to arrive before 2025. Given the average case duration, that means the decision will land squarely in the early months of a new government’s term. While Mongolia has historically complied with previous arbitration rulings—even those it lost—this case could become a litmus test for the next administration’s political maturity and legal credibility.

The political environment remains uncertain. Although Prime Minister Ukhnaagiin Khurelsukh and Oyun-Erdene may survive re-election, there is no assurance they will retain their posts or continue to back pre-election commitments. A potential victory by the increasingly populist Democratic Party—led by Zandaakhuugiin Enkhbold and Sodnomzunduin Erdene—may not offer more policy consistency. Nor is it clear how President Khaltmaagiin Battulga, who is widely expected to seek re-election, will handle the case. A self-made businessman and a strongman, Battulga could well reject an unfavorable ruling in order to consolidate political support.

Even a favorable ruling for Rio Tinto may do little to rebuild public trust. Tax disputes are only a subset of the broader dissatisfaction with the handling of Oyu Tolgoi, especially around revenue timing, power infrastructure, and perceptions of unequal benefit-sharing.

A case in point: this week, the Mongolian government summarily dismissed Rio Tinto’s feasibility study for building a domestic power plant at Tavan Tolgoi. Oyun-Erdene rejected the proposal on grounds that escalating costs would delay Mongolia’s first dividend receipts from 2048 to 2060. Energy Minister Davaasuren echoed the criticism, suggesting that the power plan was neither timely nor economically acceptable. Construction is unlikely to begin in 2025, further complicating OT’s long-term operating model.