Identifier
Created
Classification
Origin
06ULAANBAATAR552
2006-07-20 07:06:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ulaanbaatar
Cable title:  

EBRD OPENS FOR BUSINESS IN MONGOLIA

Tags:  EAID EFIN PREL MG 
pdf how-to read a cable
VZCZCXRO5905
RR RUEHLMC
DE RUEHUM #0552/01 2010706
ZNY EEEEE ZZH
R 200706Z JUL 06
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC 0140
INFO RUEHBJ/AMEMBASSY BEIJING 5122
RUEHRL/AMEMBASSY BERLIN 0055
RUEHLO/AMEMBASSY LONDON 0037
RUEHML/AMEMBASSY MANILA 1210
RUEHMO/AMEMBASSY MOSCOW 1550
RUEHFR/AMEMBASSY PARIS 0019
RUEHRO/AMEMBASSY ROME 0026
RUEHUL/AMEMBASSY SEOUL 2355
RUEHKO/AMEMBASSY TOKYO 2167
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0322
UNCLAS E F T O SECTION 01 OF 02 ULAANBAATAR 000552 

SIPDIS

SENSITIVE
NOFORN
SIPDIS

TREASURY PASS USEDS TO WORLD BANK AND IMF
LONDON PASS USED TO EBRD
MANILA USED TO ADB
STATE FOR EAP/CM AND EB/IFD/ODF

E.O. 12958: DECL: 07/20/2011
TAGS: EAID EFIN PREL MG
SUBJECT: EBRD OPENS FOR BUSINESS IN MONGOLIA


SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION.

UNCLAS E F T O SECTION 01 OF 02 ULAANBAATAR 000552

SIPDIS

SENSITIVE
NOFORN
SIPDIS

TREASURY PASS USEDS TO WORLD BANK AND IMF
LONDON PASS USED TO EBRD
MANILA USED TO ADB
STATE FOR EAP/CM AND EB/IFD/ODF

E.O. 12958: DECL: 07/20/2011
TAGS: EAID EFIN PREL MG
SUBJECT: EBRD OPENS FOR BUSINESS IN MONGOLIA


SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION.


1. (U) Summary: On July 15, 2006, the European Bank for
Reconstruction and Development (EBRD) received notification
from the Russian Federation that it had ratified Mongolia's
accession to the EBRD, the last of the sixty-one EBRD members
to do so. EBRD Business Group Director Olivier Deschamps and
the new Director for Mongolia John Chomel-Doe on July 18 and
19 briefed representatives of diplomatic, UN, and
multi-lateral agencies in Ulaanbaatar on the EBRD's approach
and goals in Mongolia. EBRD's emphasis on private sector
investment; non-concessional, commercial-rate loans for
economically sustainable projects; and corporate good
governance is a welcome complement to the USG's own focus on
private sector-led development and good governance. Deschamps
is particularly interested in collaborating with the
Millennium Challgenge Corporation to implement projects in
Mongolia, citing previous such collaboration with MCC in
Georgia. End Summary.


2. (SBU) Deschamps opened the July 18 briefing (attended by
Ambassadors from US, UK, France, and India and
representatives from Russia, Japan, the UN, World Bank, IMF,
and Asian Development Bank) by describing the July 15, 2006
decision of the Russian Federation to ratify Mongolia's
accession and EBRD plans for its office in Mongolia.
(Comment: Mongolia was slated to be admitted in May, 2006,
but the Russian Federation, alone, held up its ratification
of the accession. According to Deschamps, in a private
conversation with the Ambassador, the Russians extracted some
concessions from Mongolia in exchange for the ratification.
He was unclear exactly what the Russians had demanded and
received, but he understood that this had been a major focus
of the July 8-9 Joint Mongolian-Russian Economic Commission
meeting held in Ulaanbaatar (septel to follow). It was
noteworthy, said Deschamps that the Russian notification to
the EBRD -- informing EBRD that President Putin had approved

the March Duma ratification -- followed the meeting of the
Commission and the July 10-12 visit to Mongolia of the
Russian Prime Minister (for the 800th anniversary
celebrations).


3. (U) Mongolia will be included with other "poor" countries
at the equivalent point in their economic development, in the
"Southern and Eastern Europe, Caucasus and Central Asia"
group. EBRD intended to open an office, headed by John
Chomel-Doe (currently Director for Bulgaria) on September 1;
the EBRD President will visit in mid-September; and the
Mongolia strategy and work plan will be presented to the EBRD
Board in November. Stressing that EBRD is unlike the World
Bank and Asian Development Bank which provide soft loans and
subsidies, Deschamps described the EBRD's focus: identify
and finance economically sustainable private sector projects,
through long-term, non-concessional financing based on LIBOR
Plus (5 or 6 percent, in the case of Mongolia, whose credit
rating is a B (S&P) to a B (Fitch)). The projects can be as
small as $500,000 (e.g., a single factory equipment
improvement) or as large as $300 million (e.g., a second
north-south railroad line). EBRD has a proven track record
in the mining sector in other countries and will apply this
experience to Mongolia's developing mining sector. Other
areas for potential investment would include: infrastructure
(power plants),transportation (railroads and aviation),
banking, and SME-level projects (e.g., cashmere/textile
production and tourist facilities). EBRD takes a "banker's"
approach to project financing and will implement these
projects directly through commercial banks and NBFI financial
mechanisms. In terms of corporate governance, the EBRD can
provide technical assistance in the form of retired CEOs who
can be tapped to sit on the boards of Mongolian companies
involved in EBRD-financed projects.


4. (SBU) During Deschamps' July 19 lunch with the British,
German, and French Ambassadors and DCM, he sought views on a

ULAANBAATA 00000552 002 OF 002


host of investment climate, political, and social issues. He
spent a considerable block of time asking questions related
to corruption and prospects for Mongolia's new
anti-corruption law, and he sought "potential allies" for
reform in Mongolia's Parliament. Deschamps was also
interested in Mongolia's political leadership and the
stability of the current coalition government. He wanted to
know about Russian and Chinese interests in Mongolia and
Mongolia's and Mongolians' attitudes towards both; ditto for
Europe and the U.S. After listening to an extensive expose
of Mongolia's faults and shortcomings tempered with cautious
optimism, Deschamps, for his part, stressed that the EBRD was
committed to establishing a relationship with Mongolia and
making a difference. "The EBRD will find its niche and be
relevant," he concluded.


5. (SBU) Comment: The European Bank for Reconstruction and
Development had been preparing to open an office in Mongolia
for over a year and had sent at least two fact-finding
missions to Mongolia. The Embassy Country Team met with one
such mission, led by Masaru Honma (Director, Central Asia) in
June 2006. At the end of that meeting, one member of the
EBRD team noted that he saw no real commitment by the
Mongolian leadership to a market economy, only lip service
and rent-seeking activities. Honma and others acknowledged
that given EBRD guidelines, Mongolian political behavior
(read: corruption),and the economic challenges facing
land-locked Mongolia, the EBRD may not find many economically
sustainable projects to fund. In the margins of the July 18
briefing, Honma conveyed to the Ambassador his appreciation
for the frank and informative exchange of views at the June
meeting, and confided that the EBRD's strategy and work plan
for Mongolia was based largely on input provided by the
Embassy/USAID. He and Chomel-Doe requested to meet with
USAID's implementing partners (Chemonics Inc.) for the
Economic Policy Reform and Competitiveness Project (EPRC) to
discuss, inter alia, investments in the energy sector,
cashmere, and tourism. Deschamps noted to the Ambassador
that EBRD is interested in working with the US Millennium
Challenge Corporation on project implementation in Mongolia;
he cited the precedent of EBRD-MCC collaboration in Georgia.
The Ambassador welcomed the offer and suggested that EBRD
follow up directly with the MCC in Washington. End Comment.
SLUTZ