VZCZCXRO9763
PP RUEHLMC RUEHVK
DE RUEHUM #0483/01 2362317
ZNR UUUUU ZZH
P 242317Z AUG 07
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC PRIORITY 1407
INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 5729
RUEHOT/AMEMBASSY OTTAWA PRIORITY 0492
RUCPODC/USDOC WASHDC PRIORITY 1361
RUEHUL/AMEMBASSY SEOUL 2903
RUEHMO/AMEMBASSY MOSCOW 1875
RUEHTA/AMEMBASSY ASTANA
RUEHML/AMEMBASSY MANILA 1439
RUEHLO/AMEMBASSY LONDON 0178
RUEHKO/AMEMBASSY TOKYO 2615
RUEHBK/AMEMBASSY BANGKOK 1518
RUEHBY/AMEMBASSY CANBERRA 0164
RUEHSH/AMCONSUL SHENYANG 0307
RUEHVK/AMCONSUL VLADIVOSTOK 0140
RUEHOK/AMCONSUL OSAKA KOBE 0039
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0682
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000483 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM AND EB/IFD/OIA 
STATE PASS USTR, EXIM, OPIC, AND EPA 
STATE PASS AID/ANE D. WINSTON 
MILLENNIUM CHALLENGE CORP WASHDC FOR F. REID 
TREASURY PASS USEDS TO IMF, WORLD BANK 
MANILA AND LONDON FOR USEDS TO ADB, EBRD 
 
E.O. 12958: N/A 
TAGS: ELTN ETRD PREL PGOV MG
SUBJECT: MONGOLIAN GOVERNMENT WALKS BACK ITS REVOCATION OF MINING 
RIGHTS - A BIT 
 
Reftel: Ulaanbaatar 0478 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION 
 
¶1. (SBU) SUMMARY. Post met with Ministry of Industry and Trade Vice 
Minister (VM) Sodbaatar to discuss several issues, among them the 
recent virtual "expropriatory" revocation of 34 exploration licenses 
owned by owned by 18 firms by the Government of Mongolia (GOM). The 
VM denied that licenses had been revoked, claiming that firms had 
misunderstood the written communication from the GOM. He stated that 
the firms would need to conform to the new mining law as soon as 
possible or risk loosing their licenses, and he blamed firms for 
being slow to follow Mongolia's new mining law. The VM promised to 
formally inform all affected firms of the GOM's decision to give 
them sufficient time to change their licenses.  Businesses 
appreciated the breathing space, but totally disagreed that they 
were flouting Mongolia's mining laws, arguing that an insufficient 
regulatory framework prevented them from complying with Mongolia's 
law. Post will continue to monitor the GOM's walk back on 
revocation, but believes that a lack of clear regulatory framework 
might allow another debacle such as this occur. In any case, 
Mongolia's reputation as safe place to do business has, for the 
moment,  been savaged. END SUMMARY. 
 
¶2. (SBU) In reftel post described the Government of Mongolia's 
revocation of the exploration licenses of 18 firms on 34 sites 
without prior warning, consultation, or any internal review of the 
action.  The DCM reviewed this GOM action with Vice Minister of 
Industry and Trade (MIT) Sodbaatar. The DCM sought the VM's 
explanation, noting that th decision seemed expropriatory on its 
face, and that the USG highly disapproved of expropriation of 
private property rights.  Referring to comments made by both 
Mongolian and foreign business people, the DCM also emphasized the 
damage done to Mongolia's reputation as a "predictable" and safe 
place to invest for mining or other endeavors. The DCM then asked 
how the GOM planned to respond, adding a letter had been sent to 
MRPAM seeking an explanation; no response had been received. 
 
¶3. (SBU) Without explaining how it happened that a low level 
functionary could send out a letter of such import, the VM 
acknowledged that the GOM had erred in sending out a letter to the 
firms that was unclear on exactly what was to be done about the 
exploration licenses.  He stated that it was the GOM's intention to 
warn the 18 licensees of the need to change their licenses from 
exploration permits to mining licenses or risk revocation of their 
rights as set out in Article 60 of the amended Minerals Law of 
Mongolia (2006); however, there was no intent to take their licenses 
if they conformed to the provision. 
 
¶4. (SBU) He then went on to criticize the firms, saying that they 
had ample time to change their licenses but had failed to do so out 
of laziness or disrespect for Mongolia's laws.  The VM then formally 
committed to send out the Head of the MIT's Mining Department to 
personally explain the exact process to each of the 18 firms and 
committed to send a letter to each firm confirming the Head's 
statements. 
 
¶5. (SBU) Post has received confirmation from affected firms that the 
Head of Mining will speak to them next week and that a written 
statement of that revocation will not occur if the firms change 
their licenses as required by the new law.  The firms are willing to 
do this, but have told post that they disagree with MIT's 
interpretation of why they delayed changing their licenses. Far from 
being dilatory or flouting Mongolia's laws, the businesses argue 
 
ULAANBAATA 00000483  002 OF 002 
 
 
that they could not change their licenses because the GOM had not 
drafted regulations to allow the firms to do so, and in absence of 
such regulations GOM agencies refused to act.  In addition, mining 
licenses require accurate reserve estimates and the GOM was dragging 
its heels on registering reserve estimates; and so, would issue no 
licenses. 
 
¶6. (SBU) Both the Econoff and Commoff spoke with their counterpart 
from the Canadian Embassy in Beijing about the revocation and post's 
response to it.  The Canadian advised that a letter of protest would 
be forthcoming from either the Ambassador Wright in Beijing or from 
the Canadian Foreign Minister within the week of August 27.  And the 
British Ambassador approached the Ambassador about a possible joint 
demarche. 
 
¶7. (SBU) COMMENT: Post is certainly relieved that the GOM walked 
back from revocation, which goes someway to calming jangled investor 
nerves.  Unfortunately, no  matter what the GOM does or says at this 
point, the damage to its reputation is substantial.  At the very 
least the GOM seems incompetent because it issued an order with 
properly vetting it; at worst, some now see the GOM as attempting to 
use a new law to steal from the rightful holders.  At this point, 
post will monitor the situation to see if the GOM honors its 
commitment to walk back from revocation.  Beyond this, post will 
work the mining industry, the GOM, and other parties to clarify 
regulations and procedures on the new mining law as soon as possible 
to avoid these sorts of debacles. END COMMENT. 
 
MINTON 
 
 
 
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