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Cablegate: Kachin Jade Mining: The Road to Riches and Ruin

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 RANGOON 001585

SIPDIS

SENSITIVE

STATE FOR EAP/BCLTV, EB/ESC
COMMERCE FOR ITA JEAN KELLY
TREASURY FOR OASIA JEFF NEIL
CINCPAC FOR FPA

E.O. 12958: N/A
TAGS: EMIN ECON PHUM BM
SUBJECT: KACHIN JADE MINING: THE ROAD TO RICHES AND RUIN

REF: RANGOON 1571

1. (SBU) Summary: Jade mining and smuggling are big business
in Kachin State. Concession sales provide revenue for both
the government and the Kachin ethnic cease-fire groups.
However, little trickles down to the average citizen. End
summary.

Jade Mining Ain't What it Used to Be

2. (SBU) Kachin State has the world's only pure jadeite
mines. However, according to Kachin jade miners and various
community leaders, the jade industry is not what it used to
be. In the past, the jade mines (focused on the town of Hpa
Kant, northwest of Myitkyina) were the employer of last
resort for local people. If all else failed, it was always
possible for an individual to try his luck at jade mining.
Now, the jade mines have been re-organized by the government
to cater to larger mining companies that rely more on heavy
machinery than manpower. While this has cleaned up the wild
west image of Hpa Kant, the economic outlet and opportunities
for local people have also declined significantly.

3. (SBU) Most Kachin mining executives started as small time
prospectors, making their money as independent miners and
traders. Now they have companies that, while capital-poor,
are able to offer experience and knowledge of the local
mining conditions. Engineers and geologists are shunned in
the Kachin jade fields, while a nose for the rock is rewarded
handsomely. The capital, and heavy equipment, necessary for
today's mining industry comes from three primary sources: (1)
Chinese investors from the PRC operating at arms length or
with illegally acquired Burmese ID papers; (2) the Burmese
military's Union of Myanmar Economic Holdings, Ltd.; or, (3)
businesses from the Wa, Kokang, or Pa-O cease-fire groups who
have the cash to buy the heavy equipment, but not the
expertise to mine effectively.

4. (SBU) On the surface, the SPDC's Ministry of Mines
operates a rational bidding system. Periodically, the
government auctions off surprisingly short 3-year leases on a
number of plots (of varying size) for prospecting and
development. Bidders must put down a 100,000 kyat (about
$100) deposit for each bid, which is returned if the bid is
not successful. The government establishes a minimum bid for
each plot (usually 1 million kyat ($1,000), but can be up to
55 million kyat ($55,000) for the best areas). The bidding
process is far from transparent, as bidders are not allowed
to be present when the Ministry of Mines unseals the bids.
Not surprisingly, those with the best connections usually get
the best plots. The Kachin miners say that partnering with
UMEHL ensures the best results during the bidding process,
but that the company is an unreliable partner that takes far
more than its share of the profits.

5. (SBU) In areas of the state that are under the
semi-autonomous control of the ethnic Kachin cease-fire
groups, the process is a bit different. For plots not
specifically put up for bid by the SPDC, Kachin Independence
Organization (KIO) business representatives told us that they
are free to negotiate directly with private firms. Non-KIO
Kachin jade miners and businessmen told us that dealing with
the KIO is often easier than negotiating with the SPDC
because the smaller bureaucracy means fewer bribes.

Taking the Backdoor

6. (SBU) There are two ways to get high-quality jade stones
onto the market. The first, and more popular, route is to
hire couriers to illegally bring stones over the border
directly, or via Mandalay, to buyers in China or Thailand.
This bypasses the government's ostensibly rigid controls on
the sale of gems, and also the government's taxation system.
The second, legal, route is to pay an up front 20 percent tax
to the Ministry of Mines, bring the stones to Rangoon for
sale at the semi-annual gem emporium, and then pay taxes on
the profits (as well as various bribes along the way).
According to the miners, the only benefit of the second
route, besides its legality, is that foreign exchange profits
from these sales are "white" and thus can be used for
importing, etc.

7. (SBU) Comment: The restructuring of the jade mining
industry has brought about some positive short term
reductions in drugs and prostitution in mining towns.
However, these short term localized benefits are overshadowed
by increasingly serious economic and social ills across the
state. Though NGOs can and do make a difference, until the
government and KIO focus on turning mining profits into
economic development, and creating economic alternatives for
local people, the humanitarian problems in Kachin State will
continue to expand. End comment.
Martinez

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