VZCZCXRO5733
PP RUEHGH RUEHLMC
DE RUEHUM #0380 1360744
ZNR UUUUU ZZH
P 160744Z MAY 06
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC PRIORITY 9890
INFO RUEHUL/AMEMBASSY SEOUL 2241
RUEHBJ/AMEMBASSY BEIJING 4979
RUEHOT/AMEMBASSY OTTAWA 0313
RUEHKO/AMEMBASSY TOKYO 2101
RUEHMO/AMEMBASSY MOSCOW 1484
RUEHBY/AMEMBASSY CANBERRA 0069
RUEHGH/AMCONSUL SHANGHAI 0011
RUEHSH/AMCONSUL SHENYANG 0213
RUEHHK/AMCONSUL HONG KONG 0745
RUEATRS/DEPT OF TREASURY WASHDC
RUCPODC/USDOC WASHDC 1016
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0258

UNCLAS ULAANBAATAR 000380 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE PASS USTR FOR WINELAND 
DEPT OF COMMERCE FOR ZHEN GONG CROSS 
 
E.O. 12958: N/A 
TAGS: EMIN ETRD EINV PREL PGOV MG HK CA
SUBJECT: FOREIGN INVESTORS CONCERNED AS WINDFALL MINING 
TAX PASSES 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET 
DISTRIBUTION. 
 
Ref: ULAANBAATAR 261 (notal) 
 
¶1. (SBU) On May 12, Mongolia's State Great Hural (SGH), 
or Parliament, passed a controversial windfall profits 
tax on copper and gold.  This law moved through the 
typically glacial SGH process at light speed, being 
passed less than two weeks after it was initially 
proposed without any  opportunity for public or 
industry comment.  Proposed by Member of Parliament 
Batbayar and supported by his party, the ruling 
coalition Mongolian People's Revolutionary Party 
(MPRP), this law found traction in the current 
environment of public protests and concern over foreign 
investment in the mining sector (reftel). 
 
¶2. (SBU) Post has just obtained a Mongolian version of 
the law, although it was a struggle as no copy was made 
available by the SGH, despite repeated requests from 
and to multiple sources and in contravention of the 
SGH's policy that all drafts and laws are public at 
each phase of the parliamentary process.  Once 
translated, post will provide a fuller analysis, but 
reports indicate that the legislation provides for a 
tax of 68% when copper prices reach US$2,600 a ton 
(US$1.18 per pound), and when gold reaches US$500 an 
ounce.  It is unclear whether earlier investments are 
grandfathered or not.  Foreign mining companies are 
concerned that this may be but the first in a series of 
similar legislation, including populist proposals that 
the government receive a majority equity stake in 
foreign mining ventures. 
 
¶3.  (SBU) According to SGH Secretariat sources, the 
windfall profits legislation has not yet been passed to 
Mongolia's President for review.  Under the 
Constitution, the President has five working days to 
review the bill once it reaches him, and has the 
opportunity to veto it in full or in part. 
 
¶4. (SBU) On May 10, DCM, Econ/Coml Chief, and Senior 
Commercial Assistant met with the Presidential Foreign 
Policy Advisor Tsogtbaatar (strictly protect) to urge 
caution on this and related mining legislation, lest 
there be damage to the business and investment 
environment.  Tsogtbaatar expressed personal concern 
about the risks and negative trends in such legislation 
and said the President was also concerned about it. 
That said, he left the impression that the President 
would probably not/not veto such legislation as he 
needed to "keep his powder dry" for potentially larger, 
more serious attacks looming against the GOM's market 
economy principles.  DCM cautioned that, having already 
lost control of the initiative, failing to stand firm 
against potentially damaging laws risks losing the war 
by virtually surrendering the field on smaller but 
defining battles. 
 
SLUTZ