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Cablegate: Auctioning Off Burma's Riches

VZCZCXRO1074
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHGO #0062/01 0251006
ZNR UUUUU ZZH
O 251006Z JAN 08
FM AMEMBASSY RANGOON
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7099
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBY/AMEMBASSY CANBERRA 0860
RUEHBJ/AMEMBASSY BEIJING 1700
RUEHKA/AMEMBASSY DHAKA 4740
RUEHNE/AMEMBASSY NEW DELHI 4420
RUEHUL/AMEMBASSY SEOUL 7951
RUEHKO/AMEMBASSY TOKYO 5512
RUEHCN/AMCONSUL CHENGDU 1325
RUEHCHI/AMCONSUL CHIANG MAI 1353
RUEHCI/AMCONSUL KOLKATA 0192
RUEAIIA/CIA WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEKJCS/DIA WASHDC
RUEHGV/USMISSION GENEVA 3481
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 1300
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 RANGOON 000062

SIPDIS

SIPDIS

STATE FOR EAP/MLS; INR/EAP; OES FOR JMIOTKE AND ACOVINGTON;
EAP FOR JYAMAMOTO; EEB FOR TSAEGER
PACOM FOR FPA;
TREASURY FOR OASIA:SCHUN

E.O. 12958: N/A
TAGS: SENV ECON ETRD PGOV EINV BM
SUBJECT: AUCTIONING OFF BURMA'S RICHES

REF: A. 07 RANGOON 339
B. RANGOON 61
C. RANGOON 46

RANGOON 00000062 001.2 OF 002


1. (SBU) Summary. Myanmar Economic Holdings Ltd (MEHL), a
state-owned enterprise owned by the Ministry of Defense,
controls Burma's gem and jade industry. In addition to
owning all of Burma's mines, MEHL also controls the sale of
high-quality stones, putting them up for auction at its
annual gem and jade emporiums. Auctions are open to both
local and foreign companies and lots must be purchased with
Euros. MEHL hosts four or five emporiums a year, earning an
average of $300 million in sales. End Summary.

How the Emporiums Work
----------------------

2. (SBU) Each year between November and May, Burma's gem and
jade mines are in full operation. Only companies that enter
into joint ventures with MEHL are able to extract stones from
the mines; individuals are no longer able to purchase mining
permits. While most of the jade is sold at MEHL's emporiums,
only high-quality gemstones are sent to the emporiums.
Companies can keep and sell inferior and medium-quality stone
on the local market (Ref B). MEHL holds two types of
emporiums each year: government auctions with stones from
MEHL mines and private auctions with stones from joint
venture mines. The government auctions are held in March and
September, while the private auctions are held in January and
July. If MEHL has an overstock of gems and jade, it will
also hold an additional mid-fiscal year auction in November.

3. (SBU) While the emporiums usually last two weeks, the
GOB places more emphasis on the jade auction. Customers can
view precious gem lots for three days, with the auction
occurring on the fourth day. Viewing of jade lots lasts
longer, approximately 13 days, with one day for auction.
MEHL auctions both gem and jade lots in two ways, either
through silent auction or open bidding. MEHL reserves silent
auction for lower quality ruby and sapphire sales, as well as
for larger jade lots. It uses open bidding, which draws more
attention and customers, to sell high-quality gemstones and
jade. MEHL officials believe they can draw a higher price
for the best stones by pitting customers against each other,
gem merchants explain.

4. (SBU) Each year, the gem and jade emporiums attract the
interest of both local and foreign companies. In FY06/07, an
average of 500 companies participated in each auction, 40
percent of which were foreign companies. In FY07/08, the
number of foreign companies and businessmen attending the
auctions has increased, now averaging around 50 percent. In
order for a company to participate in the auction, it must be
registered with the Ministry of Mines as a legitimate dealer
and have a local bank account, either with the Myanmar
Foreign Trade Bank or the Myanmar Investment Bank. Under
Burmese law, foreigners are able to purchase gem lots, but
the financial transaction must clear the bank before they are
able to take possession of the lots. According to local gem
dealers, MEHL often ships the gem lot to the foreigner
several weeks after the financial transaction clears.

Making a Profit
---------------

5. (SBU) The majority of the earnings from the jade and gem
emporiums go to MEHL. MEHL collects all revenues from the
government auctions and the mid-year auction. It also earns

RANGOON 00000062 002.2 OF 002


a percentage of the profits from the private auctions, based
upon MEHL's joint venture contract with each company. MEHL's
revenues from the auctions are tax-free; private companies
must pay a 7 percent tax to the Internal Revenue Department
(Ref A).

6. (SBU) In FY06/07, MEHL reported earnings of more than
$300 million in profits from the emporiums, up from $200
million in FY05/06. Profit estimates for FY07-08 are not yet
available, although NGOs estimate that the GOB earned
approximately $125 million from the 16th mid-year emporium in
November alone. MEHL recently concluded another jade and gem
auction on January 19; MEHL will not report the results (Ref
B).

Comment
-------

7. (SBU) By ensuring that state-owned enterprises are
entrenched in Burma's economy, the regime asserts its control
over business ventures while reaping profits from all
economic endeavors (Ref C). The sale of gems and jade is
only one way that the regime earns its cash, and the GOB
predicts that FY07/08 sales may overtake FY06/07 profits of
$300 million. Despite all the negative attention that Burma
has received in recent months, Burmese gems and jade remain
popular with many foreigners. It appears that quality, not
politics, defines interest in gemstones and jade.

VILLAROSA

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