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Cablegate: Heat Wave, Drought Hits Vietnam Power and Ag Production

VZCZCXRO2235
PP RUEHCHI RUEHDT RUEHHM
DE RUEHHI #0547/01 0811008
ZNR UUUUU ZZH
P 221008Z MAR 07
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 4948
INFO RUEHHM/AMCONSUL HO CHI MINH 2782
RUEAIIA/CIA WASHINGTON DC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 6869

UNCLAS SECTION 01 OF 03 HANOI 000547

SIPDIS

STATE FOR EAP/MLS; EB; EB/ESC/IEC
USDOE FOR INTERNATIONAL AFFAIRS
USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO
STATE FOR USAID

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ENRG EAGR ECON EIND EINV EPET ETRD VM
SUBJECT: HEAT WAVE, DROUGHT HITS VIETNAM POWER AND AG PRODUCTION


HANOI 00000547 001.2 OF 003


(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED. NOT FOR INTERNET.

REFS: A) 06 HANOI 3095 B) 06 HANOI 1585

1. (U) Summary: Record high-temperatures and Vietnam's worst drought
in 20 years may lead to power outages and damage agriculture
production, Government of Vietnam (GVN) officials say. Northern
Vietnam's Red River and the rivers feeding northern Vietnam's
hydropower and agriculture systems are flowing at their lowest
levels in a century. The country's worst drought in 20 years,
meanwhile, is threatening some 140,000 hectares of winter crops and
causing fires in highland forests. Officials have responded with
mandatory power reductions to government offices and to certain
northern provinces. The GVN is seeking various remedies to the
problem, including draining water from power plant reservoirs to
feed irrigation systems and importing more power from China. Over
the long term, the GVN plans to build some 17,000 to 18,000
megawatts (MW) of power capacity before 2010, a plan requiring power
investment of USD 20 billion. End Summary.

Warmest Weather in 100 Years
---------------------------

2.(U) According to Vietnamese media, the most severe climactic
conditions in a century during the current dry season from January
to May are causing damage to crops and are leading to electricity
shortages throughout northern Vietnam. Officials say that El Nino
has exacerbated the worst drought in 20 years, leading to record
temperatures, drier weather and a shorter rainy season. According
to Dang Huy Cuong, Director of the National Load Dispatch Center at
Electricity Vietnam (EVN), temperatures at 20-22 degrees Celcius
(68-72 degrees Fahrenheit) were five degrees higher than average in
February and the highest recorded in a century. Inflow to the Hoa
Binh Reservoir, which feeds Vietnam's main northern power plant and
irrigation systems, is seeing the slowest inflow in a century, at
300 cubic meters per second, 80 percent of the 2006 inflow. Its
current level of 106.6 meters is two meters below corresponding 2006
levels, and will necessarily fall further as temperatures increase
toward the summer and water is released to feed irrigation systems.
Media reported in March that Northern Vietnam's Red River recorded a
100-year low at 1.53 meters in January, with a trickle of water
running through a vast riverbed.

Surging Demand
--------------

3. (SBU) Increasing demand for electrical power as a result of the
country's strong economic growth is exacerbating the electricity
shortage. EVN's Cuong confirmed press reports that electricity
demand in January 2007 was 20 percent higher than one year before,
belying official forecasts that power demand is increasing by 15-17
percent per year. Industrial electricity demand rose 23.9 percent
in 2006, Cuong said. EVN Vice President Dinh Quang Tri, at a
Euromoney Conference on March 20, said the GVN had adjusted its
official estimate of increased power demand in 2007 to 17 percent,
up from a more general estimate of 15-to-17 percent, as a result of
such figures. Cuong told Econoff, however, that estimates of energy
demand were difficult to make in the current environment, due to
Vietnam's strong growth, soaring incomes, and climate conditions.
"Vietnam's power demand is like that in China a few years ago, when
they had shortages," Cuong said. "It is unpredictable. At the same
time it is quite possible that demand will increase that much (by 20
percent)," he said. Last year, total Vietnamese electricity
consumption was 60.6 billion kilowatt hours (KWH) and media reports
have said demand will outstrip supply by 1 billion KWH from January
to May, though Cuong said the GVN would be able to balance supply
and demand.

4. (U) The impacts of the drought are expected to be widespread.
Vietnam's electricity infrastructure has less room for error with an
overtaxed system. Outages, resulting from human error, electrical
storms and equipment malfunction, are more likely with the
electrical infrastructure running at high capacity. In December
much of northern Vietnam lost power for more than 30 minutes due to
a general over-taxing of the electricity grid (Ref A) and momentary
power outages now occur frequently in northern Vietnam, most
recently on March 19 when most of Hanoi momentarily lost power.

5. (U) The drought is also having a negative impact on agriculture.
According to media reports, 140,000 hectares of winter crops,

HANOI 00000547 002.2 OF 003


including rice, are threatened. Other crops may also be damaged by
larger insect counts and the fact that rice will mature earlier than
expected, press reports stated. Highland forest officials
throughout Vietnam have also been put on high alert, with 165
wildfires northern and central highland areas burning 765 hectares
of forests, according to local press reports quoting the Forest
Department at the Ministry of Agriculture and Rural Development.

Government Measures
-------------------

6. (U) The water shortage was a key topic at a March 12 GVN Cabinet
meeting, where the Prime Minister directed the Ministry of Finance
to provide 10 percent less budgeting for government electricity
bills in 2007 to ensure that state agencies follow through on
instructions to conserve power. Government officials, including
those at EVN, have reacted by turning off office lights, with a
recent visit to EVN by Econoff revealing darkened hallways and
rooms. Last year, a voluntary electricity savings program for
government offices resulted only in a 3.6-percent reduction and this
year's measures are meant to be stronger. Earlier in March, the PM
also issued a directive to provincial leaders in northern Vietnam to
conserve water and direct local government bodies to dredge
irrigation networks, encourage farmers to plant crops other than
rice and institute other measures to save water. The PM also
directed Electricity Vietnam to drain water from the Hoa Binh
reservoir to irrigate rice fields, a measure which will decrease the
amount of electricity capacity available later in the summer when
power demand increases.

7. (SBU) EVN's Cuong denied that the government had any current plan
to institute rolling blackouts. Rolling cuts would only occur if
the GVN, at EVN's recommendation, declares a power emergency, he
said. Enforced power reductions in addition to those for government
offices, will occur, however, he said. The GVN will be reducing
power to the Son La, Dien Bien and Hoa Binh provinces by 30, 10 and
50 percent, respectively. Overall, savings measures are expected to
reduce demand by some 600 million KWH in 2007, he said. He added
neither Hanoi nor Ho Chi Minh City will be targeted by scheduled
blackouts, but would not go into detail except to say that periodic
outages may occur for system maintenance. He would not state which
tripwires EVN would use to determine an emergency.

Energy from China
-----------------

8. (U) Another key measure includes increased purchases of
electricity from its industrial rival China via Vietnam's 220 KV
lines through Lao Cai and Ha Giang provinces. Vietnam, which has
been purchasing electricity from China since 2004, has doubled the
amount of power it is buying from China to 400 MW. This capacity
will increase to 500 MW by the time improvements to the two lines
are completed, Cuong added. The GVN has also ordered that a planned
two-week halt of the Nam Con Son pipeline, operated by British
Petroleum and PetroVieetnam, be cut down to only 1.5 days so that
gas can continue to be supplied to power plants.

9. (SBU) Vietnam's longer-term challenge is to build enough power to
meet demand, something that Prime Minister Dzung emphasized at the
Cabinet meeting on March 12. The GVN plans to boost power
production capacity by 17,000 to 18,000 MW by 2010, up from current
production of about 12,000 MW, at a cost of some USD 20 billion.
Some 750 MW of new hydro and gas fired plans will come on line in
2007, EVN says. Most facilities will be built by EVN, with
financing from a range of domestic and international bond issuances,
share offerings of newly equitized joint-stock power companies to be
split from EVN, local banks and international lending institutions
such as the World Bank. EVN plans to issue shares for its power
generators in Vietnam by 2008, two years ahead of schedule, to speed
up power investment. The government is having reasonable success
keeping to this timetable, observers note. "They are doing it,"
said Enamul Latifi, the Chief Financial Officer of AES Transpower in
Hanoi, an American firm building the USD 1.4 billion, 1,200 MW
coal-fired Mong Duong II plant in northeastern Vietnam. He added
that domestic investors, buoyed by strong returns on Vietnam's stock
and bond markets, are showing enthusiasm for power investment, while
foreign investors have also demonstrated strong interest in power
investment, with EVN raising $150 million via Vietnam's first
overseas bond issuance in December 2006.


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