Cablegate: Timber, Roads, and Rubber in Sayaboury Province

DE RUEHVN #0409/01 1361023
R 161023Z MAY 07






E.O. 12958: N/A
SUBJECT: Timber, Roads, and Rubber in Sayaboury Province

Ref: A) 07 VIENTIANE 0390, B) 06 VIENTIANE 0674, C) 07 VIENTIANE 259

1. (SBU) Summary: While Sayaboury Province is isolated from the
rest of Laos due to a lack of transportation infrastructure, some
significant road projects are currently underway, and others are
expected to commence within the next two years. Logging activity in
the province has increased significantly in recent years and, in
some areas, saw mill workers report that most of the hardwoods have
already been cleared. The provincial government does not enforce
contractual obligations that require timber companies to plant
seedlings in areas where timber has been cleared. Instead, the
province is looking to Chinese investments in rubber plantations as
a means to reduce erosion in areas that have been cleared of timber.
The construction of a $900 million USD lignite-fired power plant in
Hongsa District is expected to commence in 2008. Brunei funded two
new drug treatment centers in the province in 2006. The President
of the Provincial Lao Women's Union (LWU), noting the recent opening
of a U.S.-funded training project for women in the northern part of
the province, expressed her hope that the program can be expanded in
the future to other districts in the province. End Summary.

Sayaboury Province
2. (U) Sayaboury Province is the fifth largest of Laos' 16
provinces and has a population of over 338,000. Among the major
ethnic groups represented in the province, lowland Lao (61 percent)
are the most numerous, followed by the Khmu (10 percent), Hmong (8
percent), Leu (8 percent), and Plai (6 percent). The province's
2006 gross domestic product (GDP) was approximately $155 million
USD, and per capita income was $460 USD compared to national per
capita income of more than $500 USD. Timber is the province's
leading export and primary source of revenue. The province is
unique in that the Mekong River forms almost the entire northern and
eastern borders. With no bridges over the Mekong, the province is
almost completely disconnected from the remainder of Laos. The
province shares a long land border with Thailand, but poor road
infrastructure has restricted contact with Thailand, with the
exception of a few areas.

CARE International and Foreign Workers
3. (SBU) Mr. Somsack Bounyavong of CARE International's Sayaboury
Province office informed PolOff that the province's investment
climate is poor compared to many other provinces. There are ten
districts in Sayaboury Province. CARE focuses its activities on
Sayaboury District, which includes the provincial capital, one of
the poorest in the country. Eighty percent of Sayaboury District is
covered by mountains. The district has little paddy rice land and
is primarily characterized by upland agricultural practices. There
are 120 separate villages in Sayaboury District, largely populated
by ethnic Hmong and Plai. CARE's activities in the district involve
agricultural development, animal husbandry, and the protection of
resources in minority areas.

4. (SBU) Most economic activity in Sayaboury District, as well as
the province as a whole, is timber-related. Besides timber, other
leading exports include non-timber forestry products as well as
commercial crops such as corn and sesame. According to Somsack,
most foreigners present in the province are associated with the
timber industry. While the Thai are the most active within the
timber industry, he described Chinese and Vietnamese as being much
more active across a range of occupations. For example, he said
Chinese and Vietnamese represent the majority of those selling tools
and electronics as well as providing auto repair, electronic repair,
and construction-related services.

5. (U) During a visit to a Chinese merchant's electronics shop in
Sayaboury District, PolOff asked about the price of a Chang Hong
brand television on his store shelf. The Hunanese merchant advised
PolOff not to buy the television he had pointed to because, as the
merchant said, "it is a fake." He told PolOff that he had real
Chang Hong televisions in the back room for sale to those who could
afford them and went on to note that more than 70 percent of the
Chinese products his shop sold were counterfeit. Referring to the

VIENTIANE 00000409 002 OF 005

Chang Hong televisions, he noted that Chang Hong is a high-quality
brand and too expensive for most Lao people. Using Chang Hong and
other well-known labels, he said, several smaller electronics
manufacturers in China produce less expensive televisions for the
Lao and other less affluent markets.

Timber Exploitation
6. (SBU) Sawmills dot the landscape throughout Sayaboury Province.
According to saw mill workers and villagers in several districts,
logging activity has increased significantly over the past few
years, and hardwoods have almost been completely cleared in some
areas. Logging concessions are reportedly granted by the provincial
government based on the advice of the Province's Department of
Agriculture and Forestry. In Sayaboury District alone, there are
eight sawmill operations, and most small roads, bridges, and canals
are reportedly funded by timber companies in exchange for timber
quotas. The provincial government Fund is also made up of revenues
from timber exports and reportedly funded more than half the cost of
the more than $2 million USD provincial government administration

7. (SBU) During a March 15 meeting, Mr. Bounlay Khamphoumy of the
Sayaboury Province Department of Agriculture and Forestry described
timber as the province's primary export and leading source of
revenue. He remarked that, while companies have contractual
obligations to plant seedlings in areas that have been cleared of
timber, the provincial government does not enforce that aspect of
the contracts. He noted that there are serious erosion and water
supply problems in many areas where timber has been cut. He added
that many provincial officials believe the province will have
serious environmental problems in years to come. While noting that
"it's not the best method," he described the planting of rubber
trees as one means to protect against erosion in areas where timber
has been cut.

Rubber Investments
8. (SBU) Bounlay also indicated that the provincial government is
counting on rubber to play a major role in the province's economic
future. He noted that the province is working with Chinese
investors to promote rubber planting throughout the province.
Currently, two Chinese rubber companies are active in the province.
According to Bounlay, two types of arrangements have characterized
rubber investments. The first arrangement requires the Chinese
company and its workers to plant and tend rubber trees on a land
concession. These rubber plantations are intended to be models for
villagers to follow. The second method requires the Chinese company
to provide technical expertise and sign an agreement to purchase
rubber produced by the villagers. This arrangement relies on local
villagers to tend the rubber trees as well as provide the land.

9. (SBU) According to Bounlay, the concession fee per hectare is $5
USD per year. Standard concessions are for 30 years and primarily
involve areas that have been cleared of timber. He told PolOff that
the primary benefits the province gains from rubber investments are
the ability to provide work for villagers and the revenue that
villagers will receive from selling rubber. (Note: Rubber trees
generally require seven to eight years to reach maturity; therefore,
it will be several years before villagers receive any revenues. End
Note.) In discussing rubber concession agreements that have already
been reached, he said a 900 hectare concession has been granted to a
Chinese company in southern Sayaboury Province. The same company's
request for an additional 3,500 hectares is currently being
considered. A second company has requested 500 hectares in each of
the five northern districts of the province. (Note: Several small
concessions - 25 to 100 hectares - have already been granted in the
two northern districts of Hongsa and Ngeun. End Note.)

10. (SBU) Bounlay informed PolOff that no concessions will require
villagers to move, except in areas where the villagers are not
considered "permanent." PolOff, however, had met with a villager in
Ngeun District who indicated that he and 10 other households were
required to move to make room for a 25 hectare concession for rubber
seedlings. Near Yang Village in Ngeun District, PolOff visited with

VIENTIANE 00000409 003 OF 005

more than 20 Lao Leu women who were digging holes for planting
rubber trees on a 100 hectare Chinese concession. They told PolOff
that Chinese investors had indicated that they would pay 3,500 kip
per hole dug for the planting of rubber trees. The villagers
anticipated additional earnings for caring for the trees, but no
agreements had been made. (Note: On May 8, 2007, Prime Minister
Bouasone Bouphavanh announced he had issued a decree halting the
approval of future land concessions for industrial tree plantations,
perennial plants, and mining projects involving areas of 100
hectares or more until a more comprehensive national strategy could
be devised. End Note.)

Power Plant Investment
11. (SBU) In 1994, the Government of Laos (GoL) allowed a Thai
company to begin exploring an area in Hongsa District as a potential
site for a lignite-fired power plant. The total announced
investment was estimated to be $900 million USD at the time.
Following almost 13 years of survey and exploration work, the
company, Banpu Power Company of Thailand, finally gained GoL
permission to develop the power plant in 2006. Construction of the
power plant is expected to begin in late 2008 or early 2009, with
completion in 2012. The plant is expected to have generating
capacity of 1,800 MW, most of which will be exported to Thailand.
The Thai company behind the development of the Hongsa Lignite Power
Plant - a joint venture with the GoL - has pledged a budget of $16
million USD as compensation for villagers (360 families) who must
relocate from the area. (Note: The GoL recently agreed to allow a
Thai company the right to survey for a potential hydropower project
on the Mekong River in Sayaboury Province as well. The project,
which is valued at more than $1 billion USD, also received a bid
from an American company (Ref A). End Note.)

Road Infrastructure Developments
12. (SBU) While timber companies have funded several of the smaller
roads and bridges in the province - such as the one currently being
built to connect the Governor's home village to Sayaboury town - in
exchange for timber quotas, there are also several large road
projects that are funded by international donors and the GoL.
According to the Road and Bridge Department of the Lao Ministry of
Communication, Transport, Posts and Construction, the following
roads are either currently being constructed or will be constructed
in Sayaboury Province in the near future:

--Road 4A from Sayaboury District to Hongsa District with an
extension to the border of Oudomsay Province; length 116 kilometers;
construction dates 2006 - 2010; funding from the Asian Development
Bank (ADB) and the GoL.

--Road 4A from Hongsa District to Ngeun District; length 120
kilometers; date of construction not determined; expected to be
funded by the Hongsa Lignite Power Plant Project.

--Road 5356 from Ngeun District to Pakbeng, Oudomsay Province;
length 49 kilometers; construction dates 2006 - 2009; funding from
grant aid and loan money from the Thai Government.

--Road 4 from Xieng Ngeun District, Luang Prabang Province through
Sayaboury Province from northeast to southwest toward the border
with Thailand at Kenthao District; length 370 kilometers;
construction dates 2008 - 2012; funding from ADB, Organization for
Petroleum Exporting Countries (OPEC), AusAID, and the GoL. (Note:
This is the only Sayaboury road project that includes a planned
bridge over the Mekong between Sayaboury and Luang Prabang
provinces. End Note.)

--Road 11 from Pak Ton Village in Vientiane Municipality to Vang
Village in Vientiane Province near the Sayaboury border; length 42
kilometers, construction dates 2005 - 2009; funding from ADB.
(Note: While the road only extends to Vang Village, it links with
another ADB road project completed in 2006 that extends to the
Mekong River just across from Paklay District, Sayaboury Province.
While the GoL is seeking a donor to fund a bridge, the current
project does not include a bridge connecting Vientiane and Sayaboury

VIENTIANE 00000409 004 OF 005

provinces. End Note.)

Brunei-Funded Drug Treatment Centers
13. (U) In March 2007, Mr. Khamkeo of the Sayaboury Province
Commission for Drug Control informed PolOff that opium cultivation
and addiction had declined dramatically in recent years. In 2003,
for example, he said there were more than 550 hectares of opium in
the province and more than 1,500 consumers. In comparison, there
were only six hectares in 2006. As of March 2007, he said there
were only 493 confirmed opium consumers in the province.
Methamphetamine and adhesive (glue sniffing) addicts currently make
up the bulk of the province's drug users. Khamkeo estimated that
there were more than 900 methamphetamine and adhesive consumers,
noting that sniffing glue and other adhesives is common among youth
aged 14 - 16 years. He added that the province does not have
facilities that are operational to treat such addictions yet.

14. (U) The Government of Brunei has completed two $100,000 USD
drug treatment facilities in November 2006. While each facility is
expected to employ seven to eight staff, the facilities have not yet
been furnished and are not yet open. Each facility is expected to
accommodate 70 people, with separate facilities on the compound for
men and women. One facility is in Sayaboury District and the other
is in Ngeun District. The province provided $15,000 for each
facility and constructed roads to each. The provincial government
will also provide staff salaries but has been seeking a donor to
fund furniture and equipment. Mr. Khamkeo estimated an additional
need of $7,000 USD for each of the two drug treatment centers for
furniture, equipment, and an administrative office on each

Lao Women's Union President
15. (U) On March 15, PolOff met with Ms. Thavee Panlak, President
of the Sayaboury Province Lao Women's Union (LWU). The provincial
LWU has worked with Save the Children Australia (SCA) on a long-term
Integrated Rural Development Project that, among other things,
establishes micro-credit programs in rural areas. SCA has been
active in the province since 1992 and has worked with the LWU since
1998. In March 2007, SCA began a vocational training program for
ethnic minority women in Khop and Xienghoun Districts - two of the
province's most remote districts. The project was funded by the
U.S. Government through its annual Women's Issues Fund (WIF) and
provides tailoring, weaving, and basic marketing training for women
in these districts.

16. (U) In terms of out-migration, Ms. Thavee described the
province's three southernmost districts of Paklay, Botien, and
Kenthao as the most vulnerable. She estimated that approximately
2000 men and women from Sayaboury Province - mostly from these three
southern provinces - worked in Thailand in 2006. She further
estimated that 70 percent were women and 30 percent were men, most
of whom were working in Thai provinces that border Sayaboury. Most
men were working as manual laborers while women were mostly employed
as domestic workers. She estimated that five percent of women
migrants were involved in the Thai sex service industry and related
entertainment work. Noting that the biggest challenges facing women
include the lack of educational facilities in or near their villages
and a lack of job opportunities, she said she hopes the WIF project
in northern Sayaboury Province can be expanded to other districts in
the future.

17. (SBU) Illegal timber cutting is often cited as a problem in
Laos. Unfortunately, the lack of government enforcement of legal
timber contracts and the scale of government-approved logging in
provinces like Sayaboury appear to be much more of an issue than
illegal timber cutting. While rubber plantations are part of the
provincial government's plan for increased economic development,
several Sayaboury officials cited Luang Namtha Province as
exemplifying what they do not want - rubber planting in nearly every
region of the province without regard for environmental and food
security factors (Ref C). Given the provincial government's

VIENTIANE 00000409 005 OF 005

performance in regard to enforcing timber contracts, however, it is
doubtful the provincial government will have the will to refuse
proposed Chinese rubber investments. Post is hopeful the Prime
Minister's decree regarding the temporary cessation of land
concessions of more than 100 hectares, and the plan to devise a
comprehensive government strategy, will result in a more coherent
and sensible national policy.

18. (SBU) The Hongsa Lignite Power Plant project represents a
significant investment. If this project and the planned hydropower
project cited in Ref A both come to fruition, Sayaboury Province
would stand to receive foreign direct investment (FDI) of more than
two billion USD over the coming several years. Apart from these two
planned investments and a few million USD in rubber project
investments, the province has received only a few million USD in FDI
since 1994. With the two large-scale energy investments on the
horizon, the tests for the GoL and the provincial government will
be: whether or not they encourage the projects to be implemented in
such a way as to provide employment and opportunities for residents
of the province, and whether or not they require the two projects to
be constructed according to international environmental standards.


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