MCC Issues Briefer for Assistant Secretary Hill's June

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SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PREL PREF MARR EAID KMCA MG
SUBJECT: MCC Issues Briefer for Assistant Secretary Hill's June
14-18 Visit to Mongolia


SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION


1. (SBU) The following draft bullets and talking points are provided
in preparation for Assistant Secretary Hill's planned visit to
Mongolia.


2. (SBU) Background:

-- After three years of false starts and sometimes emotional
give-and-take with MCC, there is very strong optimism that a Compact
will finally be approved in the August-September timeframe
(including MCC's internal Investment Committee approval, Board
approval, and Congressional Notification).

-- Mongolian politicians have claimed a publicly-perceived "link"
between MCC and Mongolia's support for U.S. positions on a wide
array of topics, particularly Iraq deployments. They hinted that
slow progress of an MCC compact was a sign that Washington is not
"rewarding" them for taking a politically risky position in support
of the U.S.

-- Signing a Compact this year will be a major advance forward for
bilateral ties, and a major landmark in two countries' diplomatic
relations, a fitting achievement for the 20th anniversary year for
U.S.-Mongolia diplomatic relations.

-- According to MCC, due diligence and assessment teams have visited
Mongolia over the past several months, and the compact process is on
track with only minor details and questions to attend to. MCC
reports no "deal breakers" are seen on the horizon.

-- A signing is expected to take place shortly after compact
approval (ideally in October) as a deliverable during President
Enkhbayar's expected visit to Washington this fall. If funded with
FY 2008 money, as now seems likely, a Compact signing in October
will remain dependent on Congress passing the budget in time.

-- In its current (and most likely final) form, Mongolia's MCC
Compact proposal has four components (with estimated project
values):

(A) Railway Project ($129 million) to improve the capacity and
efficiency of Mongolia's sole railway artery on which virtually all
goods flow, thereby reducing transport costs and promoting exports.


(B) Health Project (about $12 million) focusing on prevention of
non-Communicable diseases particularly: breast and cervical cancer,
cardiovascular; and diabetes. These are major killers in Mongolia.

(C) Vocational Education Project (about $15 million),will fund
eight (out of Mongolia's current 35) model vocational education
centers. Training will focus on "core curriculum" and "hard" areas
like construction, heavy equipment, etc.

(D) Property Rights Project: (amount unconfirmed) This project,
still in flux, includes a peri-rrban land leasing and management
lease programs that will lease some 1,000 tracts of peri-urban land
to herder groups around major urban areas and will install or
rehabilitate up to 1,000 wells on leased tracts of peri-urban land.

-- Mongolians were very disappointed with the cutting of the health
project's diagnostic and training center.

-- Mongolia's current proposal is approximately $160 million, or
half of its original proposal of $300 million. In recent years,
USAID has averaged around $7 million, so the MCC Compact amounts to
over 20 year's worth of assistance, which will be delivered over a
five year period..

-- One area of concern, however, is with Russia's influence over the
Railway project. The Russian Government owns 50% of the Mongolian
Railway (MTZ) based on a 1949 agreement. The Mongolians are waiting
until summer, when they will assume control of MTZ's rotating
chairmanship, before discussing the project with their Russian
counterparts, for fear of giving them a de facto veto power.


3. (SBU) Talking Points:
--------------

-- We're glad that the work on the Compact now appears to be going
smoothly and is on track for signing later this year. This will be
a major step forward in bilateral relations in our joint effort to

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reduce poverty and promote sustainable economic development. It
will reward and support the many tough, courageous economic and
political choices Mongolia has made since 1990.

-- We also hope to be able to sign the Compact in October, but
Congress must pass the FY 2008 budget before the U.S. can sign the
Compact. That is our law.

-- (If raised) We are extremely grateful For Mongolia's deployments
to Iraq and Afghanistan, and more than $10 million in assistance
provided by the U.S. to Mongolia's military is a direct result of
that gratitude. There are no link, however, between the MCA Compact
and those deployments, which reflect Mongolia's wise recognition
that playing a significant international peacekeeping role is in
your own national interests.

MINTON