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Cablegate: Vietnam: Son La Dam Approved by National Assembly

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

UNCLAS SECTION 01 OF 04 HANOI 000208

SIPDIS

STATE ALSO PASS USTR FOR EBRYAN
STATE ALSO PASS USAID FOR ANE:AFERRERA and DMCLUSKEY
USDOC FOR 6500 AND 4431/MAC/AP/OKSA/VLC/HPPHO
TREASURY FOR OASIA

E.O. 12958: N/A
TAGS: ENRG ECON SENV EINV EAID VM ETMIN
SUBJECT: VIETNAM: SON LA DAM APPROVED BY NATIONAL ASSEMBLY

1. (U) SUMMARY: In December, the 11th National Assembly
gave "final" approval for the long-planned construction of
the Son La Dam and hydroelectric plant in northwest Vietnam.
The planning phase for this project has spanned more than 30
years and has instigated one of the more lengthy and
interesting debates in the National Assembly. Son La would
be the largest and most complex Dam/Hydroelectric project to
be undertaken in Vietnam to date. A combination of growing
demand for power by both industry and consumers, and a
perceived need for greater flood control for the down-river
Hoa Binh Dam (and ultimately, Hanoi) have pushed the project
forward. A US-based engineering company is now working with
the GVN to review and upgrade the feasibility study for the
project. The 2.0-2.6 billion dollar project was originally
scheduled to begin in 2003 but has been pushed back to 2005.
However, it is not clear whether that date will ultimately
hold.

2. (U) Concerns over safety issues (both the size of the
dam and its location), the massive displacement of mostly
ethnic minority persons (up to 91,000) and an incomplete and
insufficient review of the overall environmental impact
remain, making GVN law makers, international institutions
(including the World Bank) and bilateral donors approach the
project cautiously. At present, the IFIs have indicated that
they are not willing to finance the project. Vietnam has
announced plans to self-finance 70 percent and seek external
financing for the remaining 30 percent. During a recent
trip to the northwest, the Ambassador had an opportunity to
discuss the project with local officials and residents.
Provincial leaders in Lai Chau and Son La stated that an
earlier idea to relocate people to the Central Highlands has
been rejected and planning is now underway to carry out all
relocation within those two provinces. Vietnam is grappling
with some very difficult development choices, including the
need to develop energy infrastructure if it is to meet its
growth and poverty alleviation goals. The Son La project is
a key part of Vietnam's energy development plan over the
next 20 years but the trade-off on social and environmental
costs will be high. The PM's personal interest in this
"legacy" project and the active scrutiny of the plan by the
National Assembly is a positive sign that hopefully the GVN
will be held to a higher standard as this project is
implemented. End Summary.

BACKGROUND ON SON LA PROVINCE
-----------------------------

3. (U) Son La, the fifth largest province in the country,
is located 320 kilometers Northwest of Hanoi and borders
Laos on the south. Eighty percent of the province is
mountainous. Son La is home to a number of minority ethnic
groups, including the Ma, H'mong, Dzao, Muong, Kinh, Khmer,
Tay, and Thai. Total population is about 923,000 and GDP
per capita in 2001 was about $143 (compared to national
average of about $380). Son La's natural resources include
forestry, agriculture and hydroelectricity.

SON LA DAM PROJECT - ENERGY, FLOOD CONTROL, AND IRRIGATION
--------------------------------------------- -------------

4. (U) Robust economic development, industrialization and
the creation of a fledgling consumer society is contributing
to strong growth in demand for power in Vietnam, with an
average increase of 14-15 percent annually over the past few
years. This growth is straining Vietnam's current capacity
and is creating an urgent need for energy infrastructure
development. Current electricity consumption per capita
averages about 340 kWh/year, while Thailand uses 2,000
kWh/year, Malaysia 2,500 kWh/year and Singapore 6,000
kWh/year. The GVN estimates that at the current production
and consumption rates, Vietnam will have to purchase 6-7
billion kWh/year by 2005. The GVN estimates total demand to
rise to 70-80 billion kilowatts in 2010 and 160-200 billion
kilowatts in 2020, although that is probably an
overestimate. As currently planned, the Son La
hydroelectric project will have a capacity between 1,970 and
2,400 megawatts, will generate from 7.555 billion kWh to
9.209 billion kWh per year and cost between 2.6 and 2.7
billion dollars.

5. (U) Son La has also been proposed as a safety measure
for the Hoa Binh Dam downstream. When Hoa Binh was built in
the late 1980's, Soviet experts had warned that Vietnam
should build a second hydroelectric project upstream in
order to offer greater protection for Hoa Binh, because a
severe flood could cause the dam to collapse. The Son La
project will also provide water for low-land farming in the
dry season and help prevent flooding in the rainy season.

A LONG TIME ON THE DRAWING BOARD
--------------------------------

6. (U) The Vietnamese government has been studying a
possible Son La project since the 1960's. The Moscow
Institute of Hydroelectric and Industry, Japanese
consultants, and the Moscow-based Designing Survey Research
and Production Shareholding Company (they had previously
worked on Hoa Binh) have conducted a succession of
feasibility studies. A Swedish and American joint
engineering consulting firm, Harza-Sweco, began work in 1999
with the GVN to ensure that the project meets international
standards.

NATIONAL ASSEMBLY HAS CONCERNS
------------------------------

7. (U) Perhaps the most interesting part of the Son La saga
is the detailed and prolonged National Assembly (NA) debate
on the issue. A project of this size and impact needs NA
approval. The plan was submitted in 1999 after the
Communist Party Politburo approved the project. However, at
NA's annual session in June 2001, members of Parliament
(MPs) raised their concerns about the scale of the project
and the resettlement, asking for more detailed studies.
Originally, construction was to start in 2003, but it has
been delayed to at least 2005.

8. (U) Initial plans for a 265-metre (875-feet) high dam
were scaled down to 215 meters after NA legislators
criticized the human and environmental costs of the project.
More than 44,700 hectares (110,000 acres) of land, including
a 41 kilometers (25 mile) section of a national highway
would have been submerged under the original proposal. In
addition, some 100,000 people, mostly ethnic minorities,
would have required relocation (see below). MPs also
questioned the safety of building such a large dam on the Da
River in Vietnam's earthquake-prone northern mountains and
the potentially devastating flooding impact it could have
downstream, particularly on Hanoi. After much acrimonious
debate, in June 2001 the National Assembly approved the dam
project in principle but made clear that it was unhappy with
the scale. Based on the NA concerns, in March 2002, the
government revised the Son La project and again sent it
first to the Politburo for "examination" before being
submitted to the NA for final approval.

9. (U) The GVN's revised plan came up for debate in the NA
in November 2002. The GVN proposed 3 options: a high dam
(265m), low dam (215m), and a combination small Son La dam
and Lai Chau dam. All three options would have severe social
and environmental impacts (loss of ancestral sites and
cultivated land, displacement of persons, flooding of arable
and forested land, reduction in bio-diversification, etc.).
The proposal came under criticism by the National Assembly
because it still lacked a proper analysis regarding the pros
and cons of the various options. Rather, it only focused
and argued for one of the three (low dam) and did not
provide an objective basis for selecting the most
appropriate option.

10. (U) Many NA members raised concerns about the proposed
resettlement of local inhabitants. The low dam 215 meter
option will displace approximately 16,000 to 18,200
households comprised of 79,000 to 91,000 people, requiring
the largest resettlement in Vietnam's history. The affected
persons include 10 different ethnic groups, of which the
Thai minority comprise 74%, Kinh (national majority) 11% and
the rest distributed among the Dao, La Ha, Xa, Kho Mu, Lu,
Khang, Si La, Day and Nhi ethnic groups. The population is
made up of about 86% rural and 14% urban dwellers. The
project will flood 9,987 hectares of agricultural land,
including rice paddies, gardens and fishponds, 2,500 to
3,100 hectares of forest and 5,563 to 6,163 hectares of
other lands.

11. (U) Originally, the GVN gave priority to resettlement
sites on the remaining land within Son La and Lai Chau
provinces. However, because neither Son La nor Lai Chau has
sufficient additional arable land available for
resettlement, only a portion of the displaced could be
relocated without major environmental impact. For these
reasons, the GVN considered a second settlement option that
would move the majority of affected people to areas in the
Central Highlands, where population density is low. This
proposal raised protests not only from the Son La residents
but also from NGOs, bilateral donors and international
organizations. On a recent trip to the Northwest, provincial
leaders in Lai Chau and Son La told the Ambassador that this
proposal has been rejected and that planning is underway to
carry out all relocations within those two provinces. While
this will hopefully reduce the social impact, the
resettlement of a large number of people on the remaining
land will create new environmental stresses in terms of soil
erosion and increased deforestation in the northwest.

12. (U) Despite many unanswered questions, the National
Assembly overwhelmingly approved the Son La hydroelectric
project last December, opting for the "low design" at 215
meters. Construction of the plant is expected to begin in
2005 in order to ensure that its first turbine will generate
electricity in 2013, with full operation by 2015.

WHO WILL PAY?
-------------

13. (U) The real question now is how Vietnam will finance
the Son La project. The estimated cost is VND 31,000 -
37,0000 billion (USD 2 - 2.6 billion), of which 70 percent
is projected to be raised through "domestic financing" and
30 percent through "external financing." Possible sources of
financing could include deferred payment of equipment,
foreign loans, domestic credit, bonds, and increased power
rates in the first 3 years. The resettlement cost is
estimated to be 14-17 percent of the total cost, which is
the highest rate ever used for resettlement in Vietnam.
Although the government plans to spend USD 5,000 per
resettled person, officials have not provided details
regarding that part of the project's funding. There is
little support among the IFI's and bilateral donors to
provide financing to cash-strapped Vietnam for the project,
given the forced large-scale displacement of people and the
severe environmental impact.

AMBASSADOR'S TRIP TO THE NORTHWEST
-----------------------------------

14. (SBU) During a trip to the northwest region in
November, the Ambassador discussed the Son La dam project
with local officials and residents and visited villages that
will disappear after the project's completion (including the
provincial capital of Lai Chau). The Chairmen of the Lai
Chau and Son La People's Committees expected that the great
majority of displaced people would be in Son La province.
They stated emphatically that the option of relocation to
the Central Highlands had been rejected and plans were now
being developed to move all affected persons to areas within
the two provinces. In Son La, we heard that the
infrastructure for two small pilot re-housing projects (400
and 250 homes) was being installed and that a few families
had been moved already. The authorities claimed that new
homes would be built in accordance with the traditional
style of the Thai and other ethnic groups to be resettled.
We also heard some predictable allegations from the "man-in-
the-coffee shop" that local officials are already benefiting
from corruption related to the dam project. (Note: The Hanoi
ethnology museum, which is primarily dedicated to Vietnam's
ethnic minorities, has a small display on the Son La dam
project and proudly displays photos of one of the pilot
housing projects - modern cement block buildings in a muddy
dirt field, a far cry from the traditional village houses of
the area.)

15. (SBU) Provincial leaders acknowledged that mistakes had
been made in past dam relocation projects, such as Hoa Binh.
They insisted that this time, every effort would be made to
ensure that relocation actually improved peoples' lives.
They have given the same pitch to residents of villages to
be submerged. The villagers did not seem completely
convinced and are insisting that at a minimum, entire
villages be moved together. But in Hoa Binh province, no
one expected any prompt resolution to the 15 year old
problem of 8000 Muong people who refuse relocation from the
banks of the reservoir where they live under difficult
conditions as close as they can to their submerged ancestral
grounds.

PRIME MINISTER'S LEGACY AND EMBASY SUPPORT FOR US FIRM
--------------------------------------------- ---------

16. (SBU) Several months ago, the Senior Commercial Officer
in Hanoi accompanied Montgomery Watson Harza (MWH)
executives, including Dr. Abdel-Malek, President, to a
meeting with Prime Minister, Phan Van Khai. The discussions
lasted for more than one hour and the PM was extremely
knowledgeable about the details of the project. His staff
indicated that the PM viewed Son La as his personal "legacy"
to Vietnam. The PM was especially concerned about the issue
of safety, and noted that he did not want to be the PM who
"drowned Hanoi." Embassy and CS Hanoi will continue to work
with MWH and other American firms interested in this
project. (Note: MWH is a large engineering firm focusing on
energy and infrastructure projects. The company is very
interested in serving as the project management group for
Son La.)

COMMENT
-------
17. (SBU) Vietnam is grappling with some very difficult
choices regarding economic development and poverty
alleviation. Vietnam's future development will require
significant energy infrastructure investment and expansion
of electricity production capacity. Without more, cheaper,
and preferably local sources of energy, Vietnam will not be
able to meet its overall development goals both on the
economic and the social fronts. The Son La project is a key
part of Vietnam's energy development plan over the next 20
years, but the trade-off on social and environmental costs
will be high, if not severe in some cases. This project is
somewhat reminiscent of the 1930's Tennessee Valley
Authority, including the tough issue of relocation of large
numbers of ethnically distinct groups, or in Tennessee's
case, culturally distinct groups. The PM's personal
interest in this "legacy" project and the active scrutiny by
the National Assembly are positive signs that they will
continue to monitor the implementation of the Son La project
and hopefully, hold the GVN to higher standards than was the
case in previous projects.
BURGHARDT

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