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Cablegate: Corruption in Khanh Hoa Province: Will the Beach Beat Bad

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RR RUEHCHI RUEHDT
DE RUEHHM #0547/01 1420934
ZNR UUUUU ZZH
R 220934Z MAY 07
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 2644
INFO RUEHHI/AMEMBASSY HANOI 1910
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 2843

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000547

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR EAP/MLS
DEPT PLEASE PASS USTR DBISBEE
USDOC FOR 4431 (MAC/AP/OPB/VLC/HPPHO)
TREASURY OASIA

E.O. 12958: N/A
TAGS: PGOV ECON EINV SOCI PREL VM
SUBJECT: CORRUPTION IN KHANH HOA PROVINCE: WILL THE BEACH BEAT BAD
GOVERNANCE

REF: 04 HCMC 1359

HO CHI MIN 00000547 001.2 OF 002


1. (SBU) Summary: On the central coast of Vietnam, Khanh Hoa
province is well placed for growth with a strong base in
tourism, aquaculture, and industry. Government and business
leaders are concentrating on attracting foreign investment to
large scale investment projects and economic zones. On a recent
visit to Khanh Hoa, however, the Consul General found that
corruption remains a pervasive problem. Some of the officials
we met had been implicated in recent high profile corruption
scandals. But instead of facing consequences, most remain in
positions of power. The unfortunate example of Khanh Hoa is
that of a province that has prospered on the basis of rampant
corruption. End summary.

THE RUSALKA CORRUPTION SCANDAL IN KHANH HOA PROVINCE
--------------------------------------------- -------

2. (SBU) Rusalka was a large-scale tourism complex planned for
Nha Trang, the capital of Khanh Hoa in 2000. The deal finally
collapsed in 2005. The scandal involved complex financial fraud
in which local businessmen and officials have been accused of
bribery and embezzlement. Duc Chi, a Vietnamese businessman
with alleged connections to Russian organized crime, has been
accused of illegal land deals and bribing local officials. The
Ministry of Public Security (MPS) began investigating after
information was leaked to the press in early 2005. Chi was
arrested in June 2005. He has admitted to paying USD 700,000 in
bribes to government officials. Just after assuming office in
mid-2006, Prime Minister Nguyen Tan Dzung called for prosecution
and punishment of any officials at the Ministry of Planning and
Investment (MPI) and the People's Committee of Khanh Hoa
province who had helped Chi.

3. (SBU) After a flurry of investigations, and despite Dzung's
instruction, most of those implicated remain in important
positions. Nguyen Trong Hoa served as Khanh Hoa Director of the
Department of Planning and Investment prior to being promoted to
Vice Chair of the People's Committee in 2003. He was close to
the Rusalka deals in both positions. In 2006, he left he left
the People's Committee and became the manager of the Van Phong
Bay Economic Zone (VPEZ), the province's flagship project. Hoa
told the Consul General that he had been handpicked by Prime
Minister Dzung to head the VPEZ. Pham Van Chi, another
provincial leader implicated in the Rusalka case, resigned as
provincial People's Committee Chairman in 2003 and now heads a
private company that facilitates investments also for the Van
Phong Economic Zone (VPEZ). These two former government leaders
are now competing with each other as they both seek out
investors for the VPEZ.

VAN PHONG BAY: MORE CONTROVERSY IN KHANH HOA
--------------------------------------------- -

4. (SBU) The VPEZ is planned for a pristine deep water bay north
of Nha Trang. VPEZ manager Nguyen Trong Hoa outlined the
development plan for the economic zone for the CG. The project
includes a deep-water container transshipment port, several
industrial parks with adjacent urban areas, a ship-building site
and several lots allocated for tourism development. The
container port is located on the tip of a small peninsula that
reaches out to the center of the bay. While the location of the
port could endanger the environment of the whole bay, Hoa said
the location was chosen because it is surrounded by the bay's
deepest water and is closest to international waters. Hoa
admitted he is not sure that the area could attract sufficient
container traffic to make the port viable. The CG noted that
another obstacle to the port's viability is the fact that the
shortest route to and from the port is through a 600-meter wide
passage between two islets.

NHA TRANG CABLE CAR: MORE MISMANAGEMENT IN KHANH HOA
--------------------------------------------- --------

5. (SBU) The latest controversy to hit Khanh Hoa is the Nha
Trang cable car, which connects the Vinh Pearl Resort on Hon Tre
Island to mainland Nha Trang. At a height of 54 meters, the
cable car may prevent larger cruise ships from visiting Nha
Trang. According to press speculation the owners of the Vinh
Pearl Resort, a Vietnamese group widely believed to have
connections with Ukrainian organized crime groups, persuaded
local officials to allow the construction of the cable car
without proper clearances. In early March, the Prime Minister
asked MPI for an explanation of the cable car scandal.

HO CHI MIN 00000547 002.2 OF 002

6. (SBU) Khanh Hoa People's Committee Chairman Vo Lam Phi told
the Consul General that the cable car system does not affect the
ability of ships to enter the bay since it only obstructs the
bay's south entrance; ships are still able to enter the bay
through the north entrance. Phi opined that if ships are denied
entry into the port, it was not due to the cable car but to the
port authority restrictions. Since that time, the GVN's
Ministry of Culture and Information has ordered that no further
cars can be added to the cable car system, though that would not
appear to address the vertical clearance problem.

COMMENT
-------

7. (SBU) Regardless of Prime Minister Dung's exhortations,
corruption often goes unpunished and at times, is even rewarded.
Only the most flagrant corruption scandals come to light and
few of those implicated are held accountable. Despite its
reputation for corruption, Nha Trang is the Cannes of Vietnam's
Riviera and business and construction are booming.
WINNICK

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