MONGOLIA'S OPPOSITION PARTY STALLS PARLIAMENT'S MINING

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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

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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