VZCZCXRO5774
RR RUEHLMC
DE RUEHUM #0136/01 0870712
ZNR UUUUU ZZH
R 270712Z MAR 08 ZDK
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 2009
INFO RUEHBJ/AMEMBASSY BEIJING 6060
RUEHUL/AMEMBASSY SEOUL 3253
RUEHKO/AMEMBASSY TOKYO 2938
RUEHMO/AMEMBASSY MOSCOW 2156
RUEHOT/AMEMBASSY OTTAWA 0601
RUEHBY/AMEMBASSY CANBERRA 0253
RHEHNSC/NSC WASHINGTON DC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF INTERIOR WASHINGTON DC

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000136 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR, USTDA, OPIC, USGS, AND EXIMBANK 
STATE PASS DOI/BLM FOR TESS BENNINGTON 
STATE FOR EAP/CM AND EB/IFD/OIA 
USDOC FOR ITA 
 
E.O. 12958: N/A 
TAGS: EMIN EINV PREL ECON EFIN PGOV MG
SUBJECT: MONGOLIA'S OPPOSITION PARTY STALLS PARLIAMENT'S MINING 
DEBATE 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. 
 
¶1. (SBU) SUMMARY: A recess session of Mongolia's Parliament on key 
amendments to the Law on Mineral Resources was over almost as soon 
as it began on March 25, with the opposition Democratic Party (DP) 
effectively postponing debate.  Minutes after the start of the 
session, the (DP) chief of the Standing Committee on Economics, D. 
Gankhuyag, informed the Speaker that Parliament's DP Members were 
formally requesting that debate be postponed until the regular 
spring session, which opens on April 7.  The Democrats got their 
wish, but left many observers wondering why, given that DP Chairman 
Elbegdorj had announced, on March 12, that he and the head of the 
ruling Mongolian People's Revolutionary Party (MPRP), Prime Minister 
¶S. Bayar, had reached bipartisan agreement on the concept of the 
draft law.  Privately, some observers said Elbegdorj had 
underestimated the resistance within the DP to the amendments, which 
would give the state a 51% stake in "strategic" deposits.  They 
added that some DP MPs had threatened to run as independents in the 
June 29 Parliamentary elections, and/or withhold crucial campaign 
funding.  Other observers believed that the Democrats postponed the 
debate in order to prevent the MPRP from claiming credit for the 
deal before the election.  Given U.S. firms' commercial interest in 
mining and our advocacy responsibilities, post will continue to 
monitor these issues closely.   END SUMMARY. 
 
¶2. (SBU) All eyes were on Parliament March 25 at an extraordinary 
session to debate controversial amendments to Mongolia's Law on 
Mineral Resources, but the session lasted only half an hour.  For 
reasons that remain unclear, the opposition DP, with 25 seats in the 
76-seat legislature, successfully postponed debate until the spring 
session.  Some DP MPs later said publicly that the delay was 
intended to give all MPs an opportunity to fully review the 
legislation.  Others said a recess session should only be used for 
emergencies, and that, given the mining debate's importance, it 
should be considered in a regular session.  (Note: Only 51 MPs were 
present on March 25 - a number that is statutorily acceptable, but 
far fewer than the 70 or so who would likely attend the spring 
session.  Many of those who were not present on March 25 were 
overseas or visiting their constituencies. End Note.) 
 
¶3. (SBU) Some Democratic MPs and their staffers indicated that DP 
Chief Elbegdorj had underestimated the resistance he would encounter 
from other DP members over the amendments.  They pointed out that 
some Democratic heavyweights have mining interests that would likely 
be undercut by passage of the amendments.  They also hinted that 
some Democratic MPs had threatened to run as independents in the 
June 29 Parliamentary elections, and/or withhold crucial campaign 
funding from the DP. (Note: Elbegdorj would have remembered the 
situation in 2004, when around 10 DP members, many of them 
influential, turned their back on the DP and ran for Parliament as 
independents.  End Note.) 
 
¶4. (SBU) Some observers wondered why Elbegdorj, an experienced 
politician, would have committed the DP to a course opposed by so 
many in the party.  A long-serving MPRP MP shared with us his view 
that the DP, which has members serving in key mining districts, must 
move on this issue or risk appearing obstructionist.  (Comment: The 
DP responded to civil-society calls for state equity by promoting 
the idea publicly, but it now finds that the MPRP has co-opted the 
concepts, policies, and legislation.  End Comment.)  Another MPRP 
party rep told us that in his view, DP policies have until now been 
calibrated to the previous do-nothing Enkhbold Government, and that 
the activism of the current Bayar administration has caught them off 
guard.  This rep added that the DP may delay but cannot backtrack 
from the ideas it pushed so vigorously. 
 
¶5. (SBU) The mining industry has ferociously opposed the amendments. 
 Whether as a response to this opposition or for some other reason, 
lawmakers have recently inserted new text into the draft law.  The 
new legislation would allow for a gradual increase in the Mongolian 
Government's stake to 51%, and for production sharing contracts 
(PSC) to be used for the mining of metals, such as copper, at 
strategic deposits. (Note: Some industry stakeholders claim that 
PSC's would not work for base metals.  End Note.)   Despite their 
disgust for the amendments, many within the industry have concluded 
 
ULAANBAATA 00000136  002 OF 002 
 
 
that some key mining legislation will be passed in the near future, 
and that it would be better to see such action sooner, rather than a 
continuation of the current limbo, in which companies cannot 
determine how to invest in Mongolia. 
 
¶6. (SBU) The idea of 51% state ownership of strategic deposits 
enjoys strong support among many MPs.  Many MPs view the legislation 
as "sellable" to the public, although many have privately expressed 
doubts as to whether it would in fact kick-start the mining 
industry, which economists, businesspeople and political leaders all 
believe has the potential to propel the Mongolian economy rapidly 
forward.  Although Parliamentary debate on the mining legislation 
has been temporarily snuffed out, there is reason to believe that 
the public outcry over the amendments, from mining companies and 
others, has convinced some MPs that the draft law could deal a 
severe blow to foreign investment. 
 
Minton