State Council decision to deploy, adapt and take the initiative to lead the new normal economic development, further emancipate the mind, bold exploration and accelerate the introduction of both has annual characteristics, but also conducive to long-term institutional arrangements of the reform, further emancipate and develop social productive forces. To deal with the relationship between government and the market as the core, driven by the government's own revolution important areas of reform, focus their efforts on the ground has been introduced to implement the reform program, launched a number of activation seize the market, the release of energy, is conducive to the steady growth of employment insurance reform and increase efficiency new initiatives to reform the new dividend into development new impetus.
Firmly grasp the problem-oriented, so that the reform to better serve the steady growth, adjusting the structure, benefit people's livelihood, risk prevention. To effectively solve the problems facing the economic and social development as an important criterion for the effectiveness of economic reform. For economic downward pressure, the development of deep-seated contradictions highlight the old and new problems are stacked up, increase the risk of difficulties and risks and other issues, and promote the steady growth conducive to employment insurance benefits by early introduction of reform measures to speed up the landing, stimulate market dynamism through reform release development potential, resolve potential risks, and promote steady economic advance and to improve quality and efficiency upgrades.
Insist on top-level design and the combination of grass-roots innovation, and fully arouse social vitality and creativity. Both attach great importance to the reform of the top-level design, but also insist on looking downward, the pace down, fully respect and play to local, grass-roots masses practices and pioneering spirit, good attention from the focus of the masses, the difficulty to find the starting point of reform people's lives, so reform ideas, decisions, measures and develop more in line with the actual needs of the masses, to find the best solutions from practice to promote top-level design and grassroots exploration positive interaction, combination.
Conscious use of the rule of law and the rule of law way of thinking reform, deepen the reform and the rule of law to achieve the organic unity of security.
The agreements address key outstanding matters including the following specific items: tax matters, the 2% net smelter royalty, sales royalty calculation and management services payments. The agreements also address the sourcing of power for Oyu Tolgoi from within Mongolia. The overall value impact for the Company in connection with the agreements is less than 2% of the value of the reserve case of $7.4 billion.
In 2003, Turquoise Hill acquired a 2% net smelter royalty from BHP Billiton. The enforceability of the royalty has been challenged by the Assistant General Prosecutor of Mongolia under Mongolian law. The Company has conceded that it has no entitlement to receive payment.
In June 2014, Oyu Tolgoi LLC received a Tax Act (Tax Assessment) from the Mongolian Tax Authority as a result of a general tax audit for the period 2010 through 2012. Oyu Tolgoi appealed the assessment and in September 2014 received a response reducing the amount of tax, interest and penalties claimed to be payable, from approximately $127 million to approximately $30 million. In a separate agreement with the Government of Mongolia, Oyu Tolgoi has agreed, without accepting liability and without creating a precedent to pay the amount of the determination by way of settlement to resolve the tax matter.
The parties have agreed that Oyu Tolgoi's 5% sales royalty paid to the Government of Mongolia will be calculated on gross revenues by not allowing deductions for the costs of processing, freight differentials, penalties or payables. Oyu Tolgoi will recalculate royalties payable accordingly since the commencement of sales and submit any additional amount payable to the Government within 30 days.
Notwithstanding the terms of the ARSHA, the parties have agreed that in calculating the Management Services Payment (MSP), the rate applied to capital costs of the underground development will be 3% instead of 6%, as provided by the ARSHA. The MSP rate on operating cost and capital related to current operations remains at 6%.
Within 30 days of execution of the Mine Plan, Oyu Tolgoi LLC and Turquoise Hill have agreed to prepare and submit working assumptions for a possible credit enhancement mechanism to support Oyu Tolgoi LLC's obligations under a potential power purchase arrangement from the Tavan Tolgoi power plant project.
Today's announcement is a significant first step towards restarting underground development. The Mine Plan is available on SEDAR and the Company's website.