NUCLEAR ENERGY OVERVIEW FOR MONGOLIA

UNCLAS ULAANBAATAR 000555 SENSITIVE STATE FOR T/MARC HUMPHREY COMMERCE FOR SARAH LOPP E.O. 12958: N/A TAGS: ENRG TRGY BEXP BTIO PGOV MG SUBJECT: NUCLEAR ENERGY OVERVIEW FOR MONGOLIA Sensitive but Unclassified - Not for Internet distribution. Contains proprietary and confidential business information. REF: STATE 127423 ¶1. (SBU) SUMMARY. Mongolia's nuclear sector is at a primitive stage of development, although GOM officials hope that as-yet unproven reserves can spur rapid sector growth. An undeveloped legal and regulatory framework makes it difficult for businesses interested in Mongolia's uranium reserves, although several state-owned enterprises (primarily from Canada, Russia, China, and Kazakhstan) remain interested in the sector. To progress, however, the government will have to clarify the roles and responsibilities of various entities with responsibility for varied parts of the mining and power sector. END SUMMARY. OVERVIEW OF CIVIL NUCLEAR POWER PROGRAM -------------- ¶2. (SBU) As requested reftel, this cable reviews civil nuclear energy in Mongolia. Primary sources of information include Nuclear Energy Agency of Mongolia (NRA) Vice Chair Prof. S. Enkhbat; Advisor to the Minister of Fuel, Energy, and Minerals S. Otgonbat; Mineral Resources Authority of Mongolia Cadastral Office Head Ts. Bat-Orgil; and various lawyers and business representatives associated with uranium exploration in Mongolia. ¶3. (SBU) Dr. Enkhbat of the NRA provided the most complete overview of the sector. More specifically, he highlighted that the nuclear sector is at a primitive state. Mongolia does not have a civilian nuclear power program or related facilities; it absolutely lacks a nuclear-related manufacturing base; and due to minimal nuclear energy research activity in Mongolia, the nuclear-trained workforce is small, consisting of at most a score of poorly trained technicians and experts. Dr. Enkhbat, however, explained to Emboffs that the GOM intends to develop facilities by leveraging what he and others in the GOM hope are substantial uranium reserves. Assuming that estimates of the size of Mongolia's uranium resources prove out, the NRA, Ministry of Fuel, Energy, and Minerals, and other key government entities intend to offer access to reserves in return for the extractor assisting Mongolia's development of a civilian Nuclear industry. This would likely include enrichment of uranium and power generation. At the moment, the most likely extractors/partners would be a state-owned enterprise (SOE) from Canada, China, Kazakhstan, or Russia. ¶4. (SBU) Russia's state-owned Rosatom (an SOE) has explicitly expressed an interest in assisting Mongolia achieve some of these goals if it can obtain exclusive rights both to Mongolia's existing uranium deposits and to explore and develop future resources. Arrangements have not progressed beyond a memorandum of understanding to simply explore these possibilities. Dr. Enkhbat said that he believes Russia's request is a bit too ambitious, and he hopes that France's SOE Areva or Canada's Cameco could be induced to assist in the development of Mongolia's nuclear power industry for less generous (for the SOE) terms than the Russians are seeking. ¶5. (SBU) Attorneys and miners active in Mongolia's uranium exploration sector have shared with us their doubts regarding the GOM's nuclear ambitions, saying that their contacts from Russia, France, and Canada do not echo GOM optimism regarding the sector's development. While initial processing of uranium into "safe" yellow cake (uranium oxide) is in the cards, sources tell us that none of these foreign entities have serious plans to build nuclear plants and associated nuclear-related facilities in Mongolia given the current low estimates of Mongolia's uranium holdings, a shaky legal and regulatory framework, and substandard infrastructure. ¶6. (U) The 2006 amendments to Mongolia's Minerals Law passed in 2006 dramatically altered the environment for extracting uranium. The revised law specifically singled out uranium as a "strategic" mineral, meaning the state holds the right to acquire up to 50 percent equity. Uranium exploration firms are not particularly comfortable with this provision, but generally agree that if the GOM compensates them for what share of equity it takes, they will comply without too much struggle. (NOTE: The GOM's policy on uranium, much like its policy on other mining activities, is intended to ensure that Mongolia benefits from resource extraction. As a result, this equity debate extends to mining of other mineral resources, including but not limited to copper, gold, and coal. END NOTE.) ¶7. (SBU) One impediment to the development of uranium resources is the GOM's disorganized approach to regulating the extraction and production of nuclear products. For example, while the Ministry of Minerals and Energy is responsible for mining, extraction, and processing for power generation and production, some argue that the NRA has the authority to administer all aspects of nuclear power in Mongolia, from exploration to power production. Business and government representatives note that this lack of clarity makes it difficult to make firm, long-term decisions regarding the sector. ¶8. (SBU) Dr. Enkhbat lamented the sorry state of training among those within the GOM that might be tasked with regulating uranium mining and processing and, ultimately, power generation. The Ministry of Nature and Environment and the State Special Inspection Agency are formally charged with regulatory responsibility but are just beginning consider their roles in this specific sector. On the environmental side, the legal and regulatory framework has a long way to go to be able to effectively administer this part of the mining sector. Laws and rules remain obsolete or nonexistent, and the Mongolians routinely ask for guidance on how they can regulate this and other complex mining operations with their low resource base. The Mongolian National Security Council (President, Prime Minister, and Speaker of Parliament) have a say in the debate as well. As a result, any potential miner and processor would have to knock on many doors and undoubtedly need to mediate conflicts among each GOM entity that wants to add a bit of uranium to its portfolio. There seems no inherent impediment for untying this bureaucrat tangle, just attention from senior GOM politicos to order it done. ¶9. (U) To post's knowledge Mongolia has not enacted specific nuclear third party liability legislation. OPPORTUNITIES FOR U.S. INDUSTRY -------------- 10.(U) Mongolia has no current or anticipated nuclear-related tenders. 11.(U) There are no nuclear sector opportunities foreseen for U.S. industry. FOREIGN COMPETITORS -------------- 12.(U) There is no significant engagement by nuclear supplier countries in Mongolia. MINTON NNNN End Cable Text Marc A Humphrey 02/02/2009 04:29:57 PM From DB/Inbox: Search Results