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Cablegate: Dong Nai Polluter Vedan Highlights Limitations Of

DE RUEHHM #0595/01 2571013
O P 141013Z SEP 09




E.O. 12958: N/A

REF: 2008 HANOI 1261

HO CHI MIN 00000595 001.2 OF 004

1. (SBU) Summary: Farmers seeking compensation from Taiwanese
MSG producer Vedan recently rejected an offer of $1.5 million
for environmental damages caused by the facility's untreated
waste. Although company officials admit to having flouted
environmental regulations, they told ConGen officers that the
GVN has made Vedan a scapegoat for violations which are common
at both foreign and domestic industrial firms along the Thi Vai
River in Dong Nai province. While the fact that the GVN is
pursuing the case is positive, the ways in which it has done so
have not been transparent, and have highlighted governance
issues: differences between the letter of the law and its
implementation, unclear authority between the provincial and
central governments, and the lack of technical expertise for
environmental issues in Vietnam. The current high level of
public interest in environmental protection has Vietnam's
private sector looking to U.S. technology and services and is
opening an opportunity to influence environmental policy in
Vietnam. End Summary.

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Polluter and Farmers Jostle over Environmental Impact
--------------------------------------------- --------
2. (SBU) In August, a coalition of three Farmers' Associations
(FA) in Dong Nai, Ho Chi Minh City, and Ba Ria Vung Tau
provinces rejected Vedan's offer to provide $1.5 million in
assistance for damages incurred by fisherman resulting from 14
years of dumping untreated wastewater into the Thi Vai River.
Negotiations between the FAs and Vedan had begun in March 3,
2009 after the FAs collected thousands of letters from fisherman
and farmers along the river claiming damages and, in many cases,
a total loss of livelihood as a result of the heavy pollution.
Vedan has admitted responsibility for dumping untreated waste in
the river and says it wants to provide assistance to farmers,
but fisherman first need to provide specific and reasonable
evidence of their losses.

3. (SBU) The Vedan case has made headlines since the story broke
in September of last year after the Ministry of Natural
Resources and Environment (MoNRE) sent a special team to inspect
projects along the Thi Vai River, including Vedan (REFTEL). Mr.
Phan Van Het, Vice Director of the Department of Natural
Resources and Environment (DoNRE) in Dong Nai province, told
ConGen Off the team found that Vedan had surreptitiously added
nine new projects to its complex without having applied for
licenses or undergoing any of the required environmental
assessments. Inspectors also found that Vedan had run pipelines
from factories directly into the river, completely bypassing the
onsite waste management system.

The Vedan Case Pits Development Against Environment
--------------------------------------------- ------
4.(SBU) Vedan is a Taiwanese-invested company specializing in
the production of Monosodium Glutamate (MSG). According to
Vedan General Manager H.K. Yang, Vedan obtained a license in
1992 (one year before Vietnam's old environmental law was
enacted) to construct its 129 hectare complex in Long Thanh
district of Dong Nai province. Before the scandal broke last
year, Vedan was in some ways considered a model corporate
citizen. Vedan employs more than 2,600 people in the Long Thanh
complex, many of them former fisherman who joined Vedan's ranks
in 1995 under a company program to provide local general
assistance. Vedan also prides itself on helping 600,000
farmers' livelihoods by buying local raw materials, such as
cassava and molasses, for its MSG production.

Investigators Clarify River Dumping Scheme, Eventually
--------------------------------------------- ---------
5.(SBU) Vedan's Yang told ConGen EconOff that the direct
pipeline for river dumping had existed since 1994, shortly after
Vedan began operations in the Long Thanh complex. He said they
had built the pipeline to transport waste onto ships for "ocean
dumping," a practice that they had used in China and Japan. The
GVN rejected the "ocean dumping" technique, saying it flouted
international conventions on environmental protection. Despite
this refusal, Vedan's pipeline stayed intact. According to
media reports, Vedan kept a series of pipelines well-hidden
under the ground to escape detection, discharging as much as
105,600 cubic meters of untreated wastewater into the Thi Vai
River every month over many years. When EconOff asked Mr. Yang
whether these allegations were true, Mr. Yang said that some of
Vedan's staff might have dumped waste into the river "every now

HO CHI MIN 00000595 002.2 OF 004

and then," but he emphasized that it was "not every week."

6.(SBU) Despite Vedan's economic contributions to the province,
once the media caught wind of the violations discovered by
MoNRE's special inspection team, there were vocal calls from
many different sectors, including the Prime Minister, to shut
Vedan down completely. Thanh Nhien newspaper reported local
DoNRE officials as saying they had no idea that Vedan was hiding
pipelines to dispose waste. However, DoNRE's Mr. Het told
EconOff that DoNRE knew all along that Vedan's waste management
system did not meet national standards. He said that Vedan had
applied for licenses and environmental reports through the
Ministry of Natural Resources and Environment (MoNRE) in Hanoi
and yearly inspections were conducted either independently by
DoNRE or in conjunction with MoNRE. Mr. Het wouldn't address
directly why DoNRE did not crack down on Vedan sooner if it knew
the company was not in compliance with environmental
regulations, but indicated that it was MoNRE's responsibility
since it had issued the licenses.

7.(SBU) In spite of the public outcry, the GVN did not try to
force Vedan out, instead imposing administrative fees of $15,000
for operating without a license and $7.7 million in retroactive
environmental protection fees. In addition, Mr. Het said Vedan
was forced to destroy its pipeline system and to cut back the
40% of its operations for which it never received permission.
Vedan will not be allowed to operate at full capacity until it
completes all outstanding environmental procedures, which it is
now close to achieving. According to Mr. Yang, Vedan has spent
almost $30 million to upgrade and install new waste treatment
facilities, including a $9 million waste solidifier from Germany
and a $10 million concentration facility, both of which will be
operational by the end of October 2009.

Farmers Still Have Fish to Fry
8.(SBU) Mr. Het said that DoNRE and provincial authorities are
awaiting results of an independent assessment by the Institute
of Environment and Natural Resources at HCMC National University
that will determine the scope, area, duration and level of
damage inflicted by Vedan. DoNRE will use the results of the
assessment, in addition to fishermen's claims, to determine how
much to seek from Vedan in compensation. However, the Farmers'
Associations in the three provinces along the Thi Vai River did
not wait for the assessment to be completed before they began
seeking compensation from Vedan. According to Mr. Quang, the
Vice Director of the Dong Nai Farmer's Association, the FA has
received 4,647 letters from groups in Dong Nai alone, including
fish farm owners, invested fish catchers and small-scale

9.(SBU) Vedan initially agreed to an MOU with the Farmers'
Associations to discuss the "principal, scope of recipients, and
the level of compensation." However, that's about the only
thing they've been able to agree on up to this point. Mr. Quang
said that Vedan had offered the farmers a miniscule $1.4 million
"assistance fund" to encourage job transformation and
agricultural promotion. In addition, they offered a "direct
assistance package" of $1.1 million, always making clear the
separation between assistance and compensation. Mr. Quang said
that Vedan set strict stipulations on potential fund recipients:
they must have a formal title, legal evidence for their
investment, proof that the damage is both real and caused by
Vedan, and they cannot be among those that received assistance
from Vedan in 1995.

Muddy, Muddy Waters
10. (SBU) Mr. Quang said that with all those criteria, the
fishermen wouldn't need an Association to back them up since
they would be better off suing Vedan directly through the
courts. He explained that most fishermen do not have formal
titles or proof of investment, but nonetheless have been
seriously impacted by Vedan's environmental violations. In
fact, based on the fishermen's claims and assessments, Vedan has
inflicted at least $70 million worth of damage. DoNRE noted
that although many of the fishermen have legitimate claims,
there are probably a good number of profiteers that have simply
jumped on the bandwagon hoping to cash in on the deal. He
referenced a seafood processor upstream from Vedan and several
rice and cashew farmers making claims that have never even used

HO CHI MIN 00000595 003.2 OF 004

water from the Thi Vai River due to its 50% salt content.

11. (SBU) Mr. Quang also acknowledged that some of the claims
may be unjustified, which is the reason that the FAs agreed to
seek only 45% of the desired compensation from Vedan. Vedan's
Mr. Yang said he has no idea how the Farmers' Associations came
up with the figure of 45%, but even cut by that much, it still
amounts to $35 million, which is far more than Vedan is able to
pay out. While Vedan wants to take responsibility and right its
wrongs, it will not do so without a single piece of evidence of
the damage or proof that Vedan is the culprit.

12.(SBU) Mr. Yang welcomes an independent assessment of the
damage, but is concerned that Vietnam lacks the technical
expertise to carry out a meaningful, valid study of such
complexity. He said that the institute MoNRE has charged with
conducting the study is using a "Mac 21 method," but does not
have any prior experience with that method. Vedan has tried
unsuccessfully to get the GVN to allow the institute to partner
with a Taiwanese research entity familiar with the method.
Meanwhile, MoNRE is pushing to meet its end of September
research deadline rather than waiting the six months the method
would require. Thus, Mr. Yang said, even once "independent"
results are determined, their validity may still be

A Hairy Scapegoat?
13. (SBU) There is a Vietnamese saying that "the guy with hair
is easier to catch than the bald one," and Mr. Yang surmises
that it is precisely because Vedan has been so successful in
Vietnam that the media has focused attention on this case and
made his company a scapegoat. Mr. Yang lamented that despite
being interviewed many times, Vedan's version of events never
appears in the media. He finds this unfair when Vedan is far
from alone among companies - both foreign and domestic - that
have violated Vietnam's environmental regulations. There are
close to 300 other companies operating along the Thi Vai River
and Mr. Yang said there's no way that Vedan is the only one
responsible for the environmental damage. As obvious proof that
not all pollution in the Thi Vai is from Vedan, he points to the
fact that heavy metals have been detected in the river water but
that Vedan does not use any in its processes.

14. (SBU) Mr. Yang further noted that part of the reason Vedan
set up operations along the Thi Vai River in the first place is
because GVN had told Vedan in 1994 that the Thi Vai River's salt
content made it unsuitable for agricultural irrigation.
According to Mr. Yang, GVN had claimed that it would be used
exclusively as an industrial river, emphasizing its close access
to Cai Med deep-water port (which is itself a heavy source of
river pollution).

Contradictory Messages and Limits of the Law
15. (SBU) Contradictory messages from different government
entities and the media, Mr. Yang said, make doing business in
Vietnam frustrating. Changing regulations are also a source of
confusion and cost for companies. For example, Mr. Yang said
that since Vedan first began operations in Vietnam, the
environmental laws have changed twice, each time with much
stricter standards. Instead of having a timeline for gradual
compliance, such as phasing in new requirements over a five to
10 year period, GVN simply changed the law in 2005 and expected
companies to comply immediately, without considering the huge
costs that come with such adjustments. He emphasized the fact
that if environmental standards are too strict or there is not
sufficient time or means for compliance, companies are inclined
to find ways around them. Mr. Yang also noted that authorities
seem to implement regulations on an ad hoc basis, depending on
the province.

15. (SBU) Sometimes implementation of the law is not possible
simply because the implementing decrees do not exist. Although
the 2005 Environmental Law allows for criminal penalties of big
polluters and media reports had made reference to GVN applying
these penalties, Mr. Het of DoNRE said that none of the
implementing decrees or articles have yet been established.
Since administrative penalties are too low, one strategy the
agency has been using as an alternative to "punish" polluting
companies is to categorize them according to their violations

HO CHI MIN 00000595 004.2 OF 004

(heavy, medium, and light) and then publicize them to the media.
For example, of the 218 projects that were inspected in 2008,
80 were publicized in the media as medium or heavy polluters.
Mr. Het said such a public strategy has a strong disincentive
affect on companies who are shamed into compliance.

17. (SBU) Comment: The case of Vedan is both a classic example
of the difficulty in finding the balance between promoting
economic development while also preserving the environment and a
an example of the even greater difficulty posed by trying to
improve older regulations after industrial plants have already
been built. Particularly because Vedan representatives are
certainly correct when they assert that they are not the only
source of pollution in the Thi Vai river and thus should not be
expected to fully compensate every farmer and fisherman who has
suffered losses due to pollution, the case also raises questions
of how to adjudicate tort claims when rule of law is weak.
While the GVN's activism on this case certainly reflects growing
sensitivity to environmental issues, it could also reflect a
desire to avert public attention from long-term, systemic
failures by GVN agencies charged with protecting the
environment. Although government agencies ultimately went after
Vedan, questions remain as to why it took the GVN 14 years to do
so, particularly if local authorities, as DoNRE claimed, knew
all along that Vedan's operations did not meet standards. In
addition to what appears to have been a lack of political will
to go after polluters such as Vedan, a lack of technical
expertise also impeded quick resolution as there is not yet an
accepted methodology for measuring toxic waste. While there is
no easy resolution to this thorny problem, there is a silver
lining for U.S. producers and exporters of environmental
protection and waste management equipment. An increasing number
of Vietnamese companies are seeking Mission's assistance to
identify U.S. environmental product and service providers, to
find partners to teach waste management in vocational schools,
and to help them influence the development environmental
standards in Vietnam. End Comment.

18. (U) This cable was coordinated with Embassy Hanoi.

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