VZCZCXRO9754
PP RUEHLMC RUEHVK
DE RUEHUM #0712/01 3610032
ZNR UUUUU ZZH
P 270032Z DEC 07
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC PRIORITY 1762
INFO RUEHUL/AMEMBASSY SEOUL 3100
RUEHMO/AMEMBASSY MOSCOW 2030
RUEHTA/AMEMBASSY ASTANA
RUEHAH/AMEMBASSY ASHGABAT 0027
RUEHEK/AMEMBASSY BISHKEK 0069
RUEHNT/AMEMBASSY TASHKENT 0028
RUEHDBU/AMEMBASSY DUSHANBE
RUEHBJ/AMEMBASSY BEIJING 5911
RUEHML/AMEMBASSY MANILA 1579
RUEHLO/AMEMBASSY LONDON 0236
RUEHKO/AMEMBASSY TOKYO 2796
RUEHBK/AMEMBASSY BANGKOK 1666
RUEHOT/AMEMBASSY OTTAWA 0549
RUEHBY/AMEMBASSY CANBERRA 0208
RUEHSH/AMCONSUL SHENYANG 0414
RUEHVK/AMCONSUL VLADIVOSTOK 0200
RUEHOK/AMCONSUL OSAKA KOBE 0057
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 04 ULAANBAATAR 000712 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EAP/CM AND EB/IFD/OIA 
STATE PASS USTR, USGS, DOC/ITA, 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: PREL EAID ECON SENV MARR PGOV KMCA MG
SUBJECT: Ambassador Meets New Minister of Industry and Trade 
         Narankhuu 
 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) SUMMARY: Newly appointed Minister of Industry and Trade Kh. 
Narankhuu told the Ambassador, during an initial courtesy call 
December 21, that the Government of Mongolia (GOM) hopes to conclude 
one or both of the two major mining projects under consideration 
(Oyu Tolgoi and Tavan Tolgoi) over the coming months.  He reviewed 
the GOM's current thinking on the two projects and noted the GOM 
hopes major western firms will participate. The Ambassador 
reiterated USG advocacy support for U.S. firms and urged the GOM 
give the firms' respective proposals full and careful consideration 
as well as a timely decision. He also encouraged the GOM to move 
forward with the USTR-proposed Transparency Agreement (TA) which 
would in and of itself benefit Mongolia while serving as an 
important indicator of Mongolia's readiness to move its bilateral 
trade relationship with the U.S. to next level.  The Ambassador also 
sought Narankhuu's support for Millennium Challenge Account Compact 
implementation preparations. A brief biography of Minister Narankhuu 
is included. END SUMMARY 
 
¶2. (U) On December 21 the Ambassador, accompanied by DCM and the 
Senior Commercial Specialist (notetaker), called on newly appointed 
Minister of Industry and Trade Kh. Narankhuu.  V. Enkhbold, Director 
for Trade and Economic Cooperation Policy Coordination and 
Chinbaazar, Americas Desk Officer, also attended the cordial 
45-minute meeting. 
 
Transparency Agreement A Useful Step Forward 
-------------------------------------------- 
 
¶3. (SBU) After congratulating Minister Narankhuu on his appointment 
the Ambassador noted that the two had met in fall 2006 during the 
Ambassador's visit to Erdenet. (Note: Prior to this recent 
ministerial appointment, Narankhuu had headed the Erdenet copper 
mine).  The Ambassador expressed hope that bilateral commercial 
relations would continue to expand and noted that the next round of 
bilateral commercial and investment talks were tentatively set for 
February 2008 in Washington.  He reviewed for Narankhuu the history 
of the U.S.-proposed transparency agreement (TA) and encouraged the 
Government of Mongolia to use this agreement as a stepping stone to 
eventually achieving the GOM's goal of a bilateral free trade 
agreement (FTA). The Ambassador also described efforts to conclude a 
Generalized System of Preferences (GSP) agreement to promote duty 
free entry to the U.S. of certain Mongolian handicrafts. 
 
TA and FTA Prospects Reviewed 
----------------------------- 
 
¶4. (SBU) Minister Narankhuu thanked the Ambassador for his 
comprehensive and positive report.  He noted that Prime Minister 
Bayar had laid out his Government's goals for the next six months 
before the June parliamentary elections.  The PM made clear that the 
GOM would carefully select the issues to address as it could not 
focus on too many problems in so short a period. Consequently, MOIT 
would follow the PM's lead and focus on a narrow range of issues. 
 
¶5. (SBU) Turning to the transparency agreement, Narankhuu said he 
understood that the TA proposal would accelerate the bilateral trade 
 
ULAANBAATA 00000712  002 OF 004 
 
 
relationship.  He observed that the USG was having difficulty 
passing FTAs, and wondered why the GOM should go through the effort 
to complete multiple incremental steps.  He stressed that timing and 
not willingness was the key for the GOM.  He mused about packaging 
the TA with another less controversial trade proposal to facilitate 
Mongolian domestic support. 
 
¶6. (SBU) The Ambassador drew upon his experience with the Korean 
FTA, observing that eventual FTA negotiations invariably build upon 
incremental efforts to build the basis for advanced trade talks.  In 
Korea, much had been done quietly over the years to build the 
conditions for negotiations.  The Ambassador explained that the U.S. 
President did not have the power to declare an FTA unilaterally; nor 
did the Congress have the power to force an FTA by means of a 
non-binding congressional resolution, as some in the GOM had 
mistakenly hoped.  The Ambassador stressed the importance of getting 
U.S. businesses interested in Mongolia through mining and other 
projects that would, in turn, build a constituency to support a FTA 
with Mongolia.  While acknowledging that USG recognized that a TA 
would be challenging for Mongolia, the Ambassador concluded that 
embarking on TA negotiations would indicate Mongolia's readiness to 
take the trade relationship to the next level. In addition, the 
Ambassador noted that pursuing a TA now would set into motion a 
process that any incoming USG administration could easily act upon; 
rather than suffer any delays that would invariably attend 
formulating new U.S.-Mongolia trade initiatives in the absence of 
any ongoing activities. 
 
Support for U.S. Mining Firms 
----------------------------- 
 
¶7. (SBU) The Ambassador said that the development of Mongolia's 
mineral resources would likely be the central sector for expanding 
U.S. commercial relations, and he explained the advocacy process 
under which the USG supported Rio Tinto's proposal to develop the 
Oyu Tolgoi (OT) copper deposit.  He noted Rio Tinto had made a 
serious proposal worthy of the GOM's full, transparent, and careful 
consideration-along with a timely response.  He said Peabody Energy 
would soon submit a proposal for the Tavan Tolgoi (TT) coal deposit, 
meriting similar consideration.  The Ambassador stressed the 
importance of maintaining an open and transparent system and process 
for developing Mongolia's mining sector as vital to building 
predictability and confidence among foreign investors. 
 
GOM Hopes for Major Mining Project Approval - or Two 
--------------------------------------------- ------- 
 
¶8. (SBU) Minister Narankhuu replied that the GOM hoped to 
successfully conclude investment (stability) agreements on one or 
both of the OT and TT projects.  He said the GOM was addressing 
problem issues affecting both foreign and domestic investors in the 
mining sector.  (Comment:  We believe Minister Narankhuu meant in 
regards to problems with mining laws and regulations.)  With respect 
to Tavan Tolgoi, Narankhuu noted that TT differs from other mining 
projects in that to date it has no major foreign involvement or 
investment.  He said that at this point, the GOM was still 
attempting to come to agreement on the terms of any TT project 
implementation, adding that while doing this, the GOM must soon 
 
ULAANBAATA 00000712  003 OF 004 
 
 
start negotiations with the current rights holder, Energy Resources. 
 He expected talks would begin within the coming week or so. 
 
¶9. (SBU) Narankhuu said that it was essential for the GOM get the 
licenses back to prevent the private sector from interfering with 
the GOM's implementation of its mining development concepts.  He 
explained that once these concepts were in place and the GOM had an 
agreed upon plan or framework, then the GOM could consider how 
foreign direct investment and the public sector could work together 
on TT.  He stressed that the GOM definitely wanted a world class 
western firm involved.  He mentioned as Rio Tinto or BHP Billiton as 
possible examples. 
 
Need for Consistent Mining Framework 
------------------------------------ 
 
¶10. (SBU) Minister Narankhuu acknowledged that the GOM's policy was 
in constant flux, and he recognized that this flux worried foreign 
investors, making them hesitate to invest.  He added that the 
Parliament (the State Great Hural) and the GOM were still learning 
about the issues, and that GOM attempts to get mining projects off 
the ground were complicated by the simultaneous development of a 
proper legal framework.  Narankhuu said PM Bayar supported efforts 
to agree on the basic terms for the TT project and the GOM hoped to 
recover the licenses by January 15, 2008. 
 
Minister Describes GOM's Thinking on Mining Projects 
--------------------------------------------- ------- 
 
¶11. (SBU) Turning to Oyu Tolgoi's prospects, Narankhuu said OT 
differs from TT in that it had a history of negotiations (with 
foreign rights holders who have already made substantial 
investments).  He said conditions seemed more promising in the 
Parliament as the GOM saw a consensus building to resolve issues in 
this session rather than delay till after 
the elections. Groups were forming within Parliament to push certain 
points of view favoring forward movement on OT.  Narankhuu said the 
GOM was talking with well-known Western consultancies and banks such 
as JP Morgan, Merrill Lynch, etc. to obtain a clearer assessment of 
the current OT proposal and the benefits that accrue to Mongolia 
upon its passage.  He opined ironically that after years of urging 
western and American firms to come to Mongolia, "You came and now 
we're not ready and we're too slow." 
 
Support for MCA Compact Measures Sought 
--------------------------------------- 
 
¶12. (U) The Ambassador sought Minister Narankhuu's support for 
advancing the Millennium Challenge Account Compact implementation 
preparation process.  Specifically, he encouraged the GOM to pass a 
Cabinet resolution establishing MCA-Mongolia to implement the 
Compact and to seek ratification of the Compact by Parliament. 
 
Minister's Bio 
-------------- 
 
¶9. (SBU) Born in 1955 in Ulaanbaatar, Narankhuu Khalzkhuu received 
the traditional education of the socialist era graduating from the 
 
ULAANBAATA 00000712  004 OF 004 
 
 
#2 Russian High School in Ulaanbaatar in 1973 and receiving 
Bachelors from Ukraine State University in International Economics 
in 1978. From 1978-1990, Narankhuu held several trade-related 
positions with the GOM: Instructor at the Ministry of Foreign Trade 
(1978-1979) and then Staff at the Council of Ministers in charge of 
COMECOM issues (1979-1989). From 1990-1994, Narankhuu was Head of 
Department at the Ministry of Industry and Trade.  While in this 
position, Narankhuu attended the University of Maryland-College Park 
(1991) and Georgetown University (1993) where he studied 
macroeconomics and market economics respectively. From 1994 through 
1998, he served as Economic Counselor at the Mongolian Embassy in 
Washington, DC.  By 1998, the then Democratic Party government 
ejected from most of the Mongolian Peoples Revolutionary Party 
(MPRP) functionaries, which Narankhuu was, from their respective 
positions. Consequently, Mr. Narankhuu left government service, 
joining the private sector. When the MPRP swept back into power in 
2000, Mr. Narankhuu rejoined the GOM, assuming the position of Vice 
Minister of Industry and Trade from August to October, 2000.  In 
October 2000, then Prime Minister (now President) Enkhbayar 
appointed Narankhuu to be the Director of the Erdenet Mining 
Corporation, which remains Mongolia's largest active mine, earner of 
foreign exchange, and generator of tax revenues. Narankhuu held this 
sensitive and vitally important position from October 2000 to 
December 2007, a testament to his political reliability, management 
skills, and relative integrity. In December 2007, he assumed the 
position of Minister of Industry and Trade in the Bayar-MPRP 
Cabinet. 
 
MINTON