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Cablegate: China's Largest Petrochemical Plant Planned for Guangdong,

VZCZCXRO0315
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0246/01 1200616
ZNR UUUUU ZZH
R 290616Z APR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7080
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 000246

SIPDIS

SENSITIVE
SIPDIS

EMB BEIJING FOR DOE
USDOE FOR OFFICE OF THE SECRETARY
USDOE FOR INTERNATIONAL AFFAIRS
USDOE FOR FOSSIL POLICY AND ENERGY
STATE FOR EAP/CM, EB/TRA, AND EB
STATE ALSO PASS USTR FOR CHINA OFFICE

E.O. 12958: N/A
TAGS: ENRG ECON EMIN SENV PGOV TRGY CH
SUBJECT: China's Largest Petrochemical Plant Planned for Guangdong,
Pending Environmental Assessment Approval

REF: A) Guangzhou 1297; B) Guangzhou 0212

1. (U) Summary. Sinopec and Kuwait National Petroleum Company are
awaiting Beijing's approval on plans to build what will reportedly
be China's largest joint venture, a USD 5 billion petrochemical
plant located in the heart of the Pearl River Delta. The plant will
alleviate the severe gap between Guangdong's refining capacity and
demand for petroleum products in south China. A handful of local
officials, concerned about the potential environmental impact of the
plant, have called for a reevaluation of the project. Although
other provincial officials have announced their support for the
project, the State Ministry of Environmental Protection has not yet
granted final approval, and the timeline for that decision remains
unclear. End Summary

--------------------------
Nansha Petrochemical Plant
--------------------------

2. (U) Sinopec and Kuwait National Petroleum Company are ready to
begin construction on what will reportedly be China's largest joint
venture, a new USD 5 billion petrochemical plant. The project will
be located in Nansha at the mouth of the Pearl River Delta, about an
hour and a half south of downtown Guangzhou. Guangdong province has
highlighted the plant as the key development project in its 2008
annual economic and social development report. The plant is
expected to increase local employment opportunities, expand local
economic development efforts, and alleviate Guangdong's oil supply
problems.

--------------------------------------------- ---
Increasing Guangdong's Petroleum Products Supply
--------------------------------------------- ---

3. (SBU) One of Guangdong's biggest energy challenges is a lack of
petroleum products. Guangdong is thirsty for oil. With a growing
population, rising auto sales, and increased development in
oil-consuming industries, authorities are seeking out opportunities
to bring petroleum products supply, including more diesel fuel, into
alignment with demand. According to Chen Guangrong, Deputy Director
of the Guangdong Environmental Protection Bureau (GD EPB),
construction of this petrochemical plant is essential to the
province's energy security as well as its industrial expansion
efforts. The Sinopec-Kuwait joint venture is expected to process 15
million tons of petroleum and 1 million tons of ethylene annually.
In the meantime, Guangdong continues to import much of its supply of
petroleum products from other provinces, including Hainan. From
January through March of this year alone, Hainan Refining and
Chemical Company, a subsidiary of Sinopec Group, exported 550,000
tons of petroleum products to Guangdong. It expects Guangdong to
consume 40% of the company's entire output by year's end.

4. (SBU) Guangdong has a severe shortage of refining capacity
compared to other more developed parts of China. According to Zeng
Lei, Deputy Director General of Guangzhou Nansha Economic and Trade
Bureau, approximately 70% of China's oil products are imported
through south China. Dr. Lu Jin, Director of the Guangdong
Techno-economy Research and Development Center (GD TRD) told us that
the current nationwide distribution of oil refineries is uneven,
largely favoring the northern and western portions of China. Lu
believes the proposed Nansha plant will solve many demand challenges
and authorities should establish more projects in areas of highest
demand, such as Guangdong.

----------------------
Environmental Concerns
----------------------

5. (SBU) While the project will contribute to Nansha's economic
development, it may pose significant challenges to environmental
protection efforts. The Guangdong Environmental Protection Planning
Outline (2006-2010) states that Nansha is an 'ecologically fragile'
area, and recommends that large refinery projects not be built in
the area. According to one Guangdong official, due to its location
at the mouth of the Pearl River, possible oil spills and even more
probable wastewater dumping create potential challenges to public

GUANGZHOU 00000246 002 OF 002


safety and to the large transportation industry that relies on the
Pearl River Delta's waterways. In addition, according to a local
media report, air quality remains a concern, as the plant is
expected to emit approximately 6,000 tons of sulfur dioxide per
year, potentially affecting greater Guangzhou, Shenzhen, and Hong
Kong. In spite of these concerns, Guangzhou Mayor Zhang Guangning
has attempted to reassure the public that the new plant will use
clean technology to offset possible threats to the environment.

---------------------------------
Government Support vs. Opposition
---------------------------------

6. (U) Several government officials have raised environmental
concerns such as these in an effort to shutdown the project
altogether. During the most recent session of the Guangdong's
People's Congress, 14 provincial legislators called for a motion to
suspend the project pending an environmental investigation into
whether the plant meets the State Council's requirements for new
project construction. Per national regulations, the project must
undergo an Environment Impact Assessment (EIA), and receive final
approval from the State Ministry of Environmental Protection.

7. (SBU) On the other hand, many local governmental agencies
including both the provincial and municipal Environmental Protection
Bureaus (EPB) have publicly announced their support for the plant's
construction. However, Zeng Lei stressed that the decision is
entirely up to Beijing. While government supporters of the project
have been characterized in some media reports as prioritizing
economic development over the environment, Zeng told us that the
local government's main priority is neither; rather, it is feeding
the high demand for petroleum products in the Pearl River Delta.

----------------
Public Sentiment
----------------

8. (SBU) In general, local residents have remained relatively quiet
about the project, even though public opinion is a key component
evaluated by the Ministry of Environmental Protection's EIA. Unlike
the public unrest following plans to construct a chemical plant in
Xiamen last year (ref A), Zeng Lei told us that there has been no
wide-scale public outcry related to the Nansha project. Residents
have, however, expressed concern about compensation for those who
have been displaced from their homes to provide land for the
project.

-----------------------
The Debate Continues...
-----------------------

9. (SBU) While the project has already received National Development
and Reform Commission (NDRC) approval, the Ministry of Environmental
Protection has yet to complete its final evaluation. There is
currently no timeline for when the Ministry of Environmental
Protection might hand down its decision. According to a Guangdong
official, the project has already undergone an EIA, which has
subsequently been revised 10 times due to the controversy. Even
though the project has not received the final okay, eight square
kilometers of land have been requisitioned for construction by local
authorities. If approved, the project is expected to come online in
2010.

GOLDBERG

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