Cablegate: Vietnam: Preparing for Apec Energy Ministers Meeting

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

2000HANOI00899 - UNCLASSIFIED

UNCLASSIFIED PTQ2964

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FM AMEMBASSY HANOI
TO SECSTATE WASHDC PRIORITY 9683
USDOE WASHINGTON DC PRIORITY
INFO ASEAN COLLECTIVE
AMEMBASSY MOSCOW
AMCONSUL HO CHI MINH CITY

UNCLAS SECTION 01 OF 03 HANOI 000899

SIPDIS

STATE FOR EAP/BCLTV, EB/ESC
USDOE FOR IA-42/J BRODMAN

E.O. 12958: N/A
TAGS: ENRG ECIN EPET VM APEC
SUBJECT: VIETNAM: PREPARING FOR APEC ENERGY MINISTERS MEETING

UNCLASSIFIED

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REF: A) HANOI 471; B) STATE 71973

1. ACCORDING TO THE MINISTRY OF INDUSTRY (MOI),
MINISTER DANG VU CHU WILL LEAD VIETNAM'S DELEGATION
TO THE MAY 10-12 APEC ENERGY MINISTERS CONFERENCE IN
SAN DIEGO. (NOTE: THE GOVERNMENT OF VIETNAM DOES NOT
HAVE A MINISTRY OF ENERGY. CERTAIN FUNCTIONS ARE
DELEGATED TO OTHER MINISTRIES OR TO STATE-OWNED
CORPORATIONS, BUT EMBASSY BELIEVES THE INDUSTRY
MINISTER IS THE MOST APPROPRIATE ATTENDEE. END
NOTE.) THIS MESSAGE PROVIDES REQUESTED INFORMATION
ON VIETNAM'S ENERGY AND ENVIRONMENT SECTORS AS WELL
AS PENDING COMMERCIAL ADVOCACY ISSUES.

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ENERGY
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2. CRUDE OIL IS VIETNAM'S MOST IMPORTANT EXPORT
COMMODITY, GENERATING ROUGHLY ONE-FIFTH OF THE
COUNTRY'S EXPORT EARNINGS. CURRENT PRODUCTION IS
SLIGHTLY LESS THAN 300,000 BARRELS PER DAY, ALL FROM
OFFSHORE FIELDS. THE COUNTRY HAS RECOVERABLE GAS
RESERVES OF 60-80 TRILLION CUBIC FEET, PRIMARILY IN
THE NAM CON SON BASIN SOUTHEAST OF HO CHI MINH CITY,
BUT THESE ARE LARGELY UNEXPLOITED DUE TO A LACK OF
INFRASTRUCTURE. VIETNAM HAS LARGE RESERVES OF
ANTHRACITE COAL, WHICH ALSO IS A MAJOR EXPORT, BUT
THE INDUSTRY SUFFERS FROM OVER-CAPACITY, OUTDATED
TECHNOLOGY, AND EXCESS LABOR.

3. NUMEROUS U.S. AND FOREIGN ENERGY COMPANIES HAVE
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INVESTED CONSIDERABLE CAPITAL IN EXPLORATION AND
DEVELOPMENT, BUT MANY HAVE BECOME FRUSTRATED WITH
BUREAUCRATIC AND REGULATORY DELAYS AND HAVE WITHDRAWN
FROM THEIR PROJECTS. WITH THE EXCEPTION OF ONE JOINT
VENTURE (VIETSOVPETRO) WITH THE RUSSIAN COMPANY
ZARUBEZHNEFT, FOREIGN COMPANY INVOLVEMENT IN UPSTREAM
OIL AND GAS PROJECTS IS CONDUCTED THROUGH PRODUCTION-
SHARING CONTRACTS WITH PETROVIETNAM, THE STATE-OWNED
ENERGY COMPANY.

4. VIETNAM CURRENTLY DOES NOT HAVE A REFINERY, SO ALL
CRUDE OIL PRODUCTION IS EXPORTED. THE GOVERNMENT HAS
APPROVED A USD 1.3 BILLION JOINT VENTURE PROJECT WITH
RUSSIA TO CONSTRUCT A REFINERY AND ASSOCIATED
FACILITIES AT DUNG QUAT IN CENTRAL VIETNAM, BUT THUS
FAR HAS FAILED TO ATTRACT SUFFICIENT FUNDING. MANY
FOREIGN EXPERTS BELIEVE THE PROJECT IS NOT
ECONOMICALLY FEASIBLE.

5. ELECTRICITY OF VIETNAM (EVN), UNDER THE
SUPERVISION OF MOI, IS RESPONSIBLE FOR POWER
GENERATION, TRANSMISSION, AND DISTRIBUTION.
HYDROPOWER ACCOUNTS FOR MORE THAN SIXTY PERCENT OF
THE ENERGY SUPPLY, WITH THE REMAINDER GENERATED FROM
THERMAL (OIL AND COAL-FUELED) PLANTS. THE GVN HAS
DISCUSSED THE POSSIBLITY OF CONSTRUCTING A NUCLEAR
POWER PLANT.

6. ACCORDING TO THE WORLD BANK, IN THE NEXT FEW YEARS
VIETNAM WILL FACE FOUR MAJOR CHALLENGES IN THE ENERGY
SECTOR. FIRST, DEMAND FOR ELECTRICITY WILL INCREASE
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13-15 PERCENT ANNUALLY OVER THE NEXT TEN YEARS,
REQUIRING THE ADDITION OF 600-800 MEGAWATTS OF
CAPACITY TO THE POWER GRID EACH YEAR. SECOND,
LIMITED CAPITAL RESOURCES WILL NECESSITATE CAREFUL
PLANNING AND PRIORITIZATION OF PROJECTS. THIRD,
VIETNAM WILL NEED TO INVEST 5.3-5.5 PERCENT OF GDP,
OR TWICE THE LEVEL OF ITS SOUTHEAST ASIAN NEIGHBORS,
IN ESSENTIAL ENERGY INFRASTRUCTURE. TWO-THIRDS OF
THIS WILL HAVE TO BE FINANCED WITH OFFICIAL
DEVELOPMENT ASSISTANCE OR FOREIGN DIRECT INVESTMENT.
FOURTH, TO ATTRACT THIS AMOUNT OF FDI THE GVN WILL
HAVE TO IMPROVE SIGNIFICANTLY ITS INVESTMENT CLIMATE
AND REGULATORY FRAMEWORK. IT MAY NEED TO CREATE A
NATIONAL ENERGY AND COORDINATIVE AGENCY AND SEPARATE
THE POLICY AND COMMERCIAL FUNCTIONS OF BOTH EVN AND
PETROVIETNAM (PVN). THE GVN ALSO WILL NEED TO ACCEPT
AND STREAMLINE THE BOT APPROVAL PROCESS.

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ENVIRONMENT
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7. SINCE 1950, THE POPULATION OF VIETNAM HAS TRIPLED.
VIETNAM IS NOW ONE OF THE MOST DENSELY POPULATED
COUNTRIES IN THE WORLD. THE POPULATION IS
PREDOMINANTLY RURAL POOR, DEPENDENT ON THE NATURAL
RESOURCES OF LAND, FOREST, AND WATER FOR SUSTENANCE.
TO SATISFY BASIC NEEDS, INDIVIDUALS AND WHOLE
COMMUNITIES HAVE ENCROACHED ON FRAGILE ECOSYSTEMS AND
DEGRADED NATURAL RESOURCES. THE MOST VISIBILE
MANIFESTATION OF THIS IS THE LOSS OF PRIMARY FOREST
COVER, WHICH IN THE LAST HALF-CENTURY HAS GONE FROM
OVER 40 PERCENT TO ABOUT 10 PERCENT.

8. SINCE ABOUT 1960 THERE HAVE BEEN TWO SIMULTANEOUS
TRENDS OF INTERNAL MIGRATION: FROM CONGESTED TO LESS
DENSELY POPULATED AREAS -- AS PEOPLE SEEK LAND -- AND
FROM RURAL TO URBAN AREAS -- AS THEY SEEK WORK. THIS
MIGRATION HAS EXPANDED AND INTENSIFIED THE PATTERN OF
ENVIRONMENTAL DEGRADATION. IT HAS ALSO INTENSIFIED
URBAN ENVIRONMENTAL PROBLEMS, ESPECIALLY IN CLEAN AIR
AND WATER PROBLEMS, AND WASTE DISPOSAL DIFFICULTIES.
ALTHOUGH VIETNAM IS NOW ONE OF THE LOWEST CONSUMERS
OF ENERGY PER CAPITA IN ASIA, THE NEXT DECADE WILL
SEE A DRAMATIC GROWTH IN ENERGY CONSUMPTION AND
PRODUCTION FROM FOSSIL FUELS AND HYDROPOWER. THIS
WILL INEVITABLY PRODUCE PROFOUND ENVIRONMENTAL
IMPACTS. THE URBAN AREAS, MEANWHILE, WILL ABSORB MORE
THAN ONE-THIRD OF THE POPULATION AT CURRENT TRENDS.
WHILE POPULATION GROWTH WILL LEVEL OFF AROUND 2050,
THE ABSOLUTE INCREASE IN POPULATION AND INTERNAL
MIGRATION WILL CONTINUE TO POSE MAJOR ENVIRONMENTAL
CHALLENGES.

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COMMERCIAL ADVOCACY
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9. THERE ARE TWO PENDING POWER PROJECTS BY U.S.
COMPANIES. BOTH HAVE ENDURED LONG DELAYS IN THE
APPROVAL PROCESS, AND MINISTER CHU SHOULD BE URGED TO
EXPEDITE THEM. FIRST, ENRON HAS A PROPOSAL FOR A 475
MW BUILD-OPERATE-TRANSFER (BOT) POWER PROJECT IN SOC
TRANG PROVINCE:

-- ENRON SUBMITTED THE FEASIBILITY STUDY TO THE GVN
IN 1999.

-- ENRON HAS CONCLUDED TWO ROUNDS OF DISCUSSIONS WITH
THE MINISTRY OF INDUSTRY ON ITS BOT AGREEMENT, AS
WELL AS ONE ROUND OF DISCUSSIONS WITH ELECTRICITY
VIETNAM (EVN) ON THE ELECTRICITY TARIFF.

-- THE U.S. TRADE DEVELOPMENT AGENCY (TDA) HAS
PROVIDED A USD 700,000 GRANT TO ASSIST MOI IN
PREPARING THE LEGAL FRAMEWORK FOR THIS PROJECT.

(NOTE: UNDER THE GVN'S MOST RECENT POWER PLAN, THE
ENRON BOT PROJECT WILL NOT BEGIN OPERATIONS UNTIL
2006, DUE TO UNAVAILABILITY OF GAS FUEL.)

10. THE U.S COMPANY ORMAT HAS APPLIED FOR APPROVAL OF
ITS 50 MW BOT GEOTHERMAL POWER PLANT IN CENTRAL
VIETNAM:

-- IN 1998 MOI GRANTED EXPLORATION LICENSES FOR SIX
GEOTHERMAL AREAS.

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-- IN 1999 MOI APPROVED THE PRE-FEASIBILITY STUDY,
AND EVN AGREED TO THE POWER TARIFF SUBJECT TO A STUDY
FUNDED BY TDA.

-- TDA HAS BEEN WORKING WITH MOI ON AN AMENDMENT TO
THE SIGNED GRANT AGREEMENT TO MEET MOI'S REQUEST FOR
TECHNICAL ASSISTANCE.

-- ORMAT HAS APPLIED FOR AN EXTENSION OF ITS
EXPLORATION LICENSE FROM MOI THAT EXPIRED IN
DECEMBER.

11. MORE GENERALLY, THE LONG-PENDING BP-AMOCO
NEGOTIATIONS ON GAS SALES AND A PIPELINE FORM THE
OFFSHORE FIELDS TO VUNG TAU MUST BE COMPLETED. THIS
WILL SET A PRECEDENT FOR FUTURE GAS SALES AND
PIPELINE NEGOTIATIONS FOR UNOCAL AND OTHER U.S.
ENERGY AND POWER COMPANIES WHICH MAY HAVE INTERESTS
IN GAS EXPLORATION. FAILURE TO DELIVER GAS FROM THE
NAM CON SON FIELD IS DISRUPTING PLANS FOR EXISTING
AND NEW POWER PLANTS IN THE VUNG TAU AREA.

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BIO NOTE
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12. DANG VU CHU WAS APPOINTED MINISTER OF INDUSTRY IN
OCTOBER 1995, FOLLOWING THE MERGER OF THE MINISTRIES
OF LIGHT INDUSTRY, HEAVY INDUSTRY, AND ENERGY. FROM
1990 TO 1995 HE SERVED AS MINISTER OF LIGHT INDUSTRY.
HE WAS BORN IN 1940 AND EDUCATED IN VIETNAM
(BACHELOR'S DEGREE) AND CZECHOSLOVAKIA (DOCTORATE).

HARTER

UNCLASSIFIED

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