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Cablegate: Southern Vietnam's Deepwater Port First Phase Up And

VZCZCXRO6473
RR RUEHCHI RUEHDT RUEHNH
DE RUEHHM #0670/01 3371400
ZNR UUUUU ZZH
R 031400Z DEC 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 6149
INFO RUEHHI/AMEMBASSY HANOI 4044
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 6392

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000670

SENSITIVE
SIPDIS

STATE PASS USTR
STATE PASS DOT

E.O. 12958: N/A
TAGS: EINV EIND ECON PGOV ENRG KNNP VM
SUBJECT: SOUTHERN VIETNAM'S DEEPWATER PORT FIRST PHASE UP AND
RUNNING, BUT ROAD ACCESS STILL A PROBLEM

REF: 08 HCMC 757

HO CHI MIN 00000670 001.2 OF 003


1. (SBU) Summary: After just five months in operation, the two
terminals in Vietnam's southern deepwater port facility at Cai
Mep have already begun to shift container traffic away from the
overly-congested ports in Ho Chi Minh City. Even more
importantly, because the new facilities can handle the type of
large container ships that are almost exclusively used for
trans-oceanic travel, shipping lines have begun offering direct
service to/from Vietnam and both US coasts. Eight other
terminals currently under construction at Cai Mep are expected
to come online in the next few years, creating new capacity
upwards of 8 million TEUs per year and the ability to handle the
world's largest container vessels. In sharp contrast, little
has been done to create the land infrastructure -- especially
the access roads to the terminals -- that will enable businesses
in Vietnam's Southern Key Economic Zone to take full advantage
of the new port. Because Cai Mep port is rapidly developing
into a major shipping hub for Vietnam, the U.S. Department of
Energy is now evaluating Cai Mep as a potential partner for its
Megaports program. End Summary.

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Open for Business: Cai Mep Port Plans Become Reality

--------------------------------------------- --------

2. (SBU) In the Southern Key Economic Zone (SKEZ) surrounding
HCMC that produces 40 percent of Vietnam's GDP, manufacturers
complain bitterly that poor infrastructure handicaps their
companies. Even when shipping demand weakened substantially in
the face of the global economic slowdown during the first five
months of 2009, there were still bottlenecks at Saigon Port in
Ho Chi Minh City (HCMC). Rapid trade growth over the last
decade has put considerable constraints on the system,
especially because close to 90 percent of Vietnam's trade is
transported by sea. Now the new Cai Mep port facility in
Baria-Vung Tau (BRVT) has finally begun to relieve the pressure
on HCMC's overburdened ports. According to BRVT Customs, so far
the new terminals have processed about 35,000 twenty-foot
equivalent units (TEUs) for exports.

3. (SBU) Vietnam's first deepwater port complex in Cai Mep in
BRVT province is fifty miles from HCMC, close to the sea and,
after extensive dredging, capable of servicing the world's
largest ships, known as "hyper post-Panamax vessels." In May
2009, two terminals in the Cai Mep complex opened: 1) the Tan
Cang Cai Mep terminal, a joint venture between a Korean,
Japanese and Taiwanese shipping lines and Saigon Newport, and 2)
the SP-PSA terminal, a joint venture between Saigon Port and
Singapore's PSA. Two other terminals are set to begin
operations in the next year: 1) the Saigon International
Terminals Vietnam (SITV), a joint venture between Saigon Trading
Group and Hong Kong's Hutchinson; and 2) the Cai Mep
International Terminal (CMIT), a joint venture between Saigon
Port and APM-Maersk Terminals, targeting November 2010. Four
other terminals plan to follow shortly, including the planned
2011 opening of the SSIT terminal, a joint-venture between
Seattle-based SSA Marine and Saigon Port.

4. (SBU) More capacity is helpful, but crucially, the new
terminals now enable shippers to schedule direct service routes
between Vietnam and the United State and Europe. PSA operations
manager Mr. Silas Png said that the direct routes save at least
six days of transport time to the United States. For
importers/exporters located in the southern key economic
provinces, such as Bien Hoa, Dong Nai, and BRVT, the Cai Mep
port also allows manufacturers to avoid the congestions of HCMC
ports altogether. (Note: Although the shippers call the improved
routes to the USA "direct," what they really mean is they are
now able to save considerable costs by no longer having to move
Vietnamese containers by smaller feeder vessels to Singapore or
Hong Kong to load onto larger vessels. However, the new direct
mega-vessels still make stops in Hong Kong, Japan or Taiwan
ports to add on more cargo. In that sense they are more akin to
airline "stop-over" flights.)

Lagging Infrastructure Threatens to Negate Progress

HO CHI MIN 00000670 002.2 OF 003

--------------------------------------------- ------

5. (SBU) Despite steady progress on port construction, access
roads from Highway 51 to the now-operational Tang Cang Cai Mep
terminal are an unpaved three-mile stretch of craters and
puddles that takes 35 minutes to drive. VPA's Mr. Lan said
trucking companies complain about damage to their vehicles and
cargo owners complain about damaged goods. Many have turned to
ferries for transport to HCMC, which have added serious delays.
Shippers held a formal meeting with the Transport Ministry on
October 21, demanding that the GVN improve the port access
roads, but little progress has been made.

6. (SBU) Without a viable road transport network, cost savings
for manufacturers are reduced and delays continue to hamper
terminal operations themselves. All of the terminal operations
managers in Cai Mep complain about the snail's pace progress on
infrastructure projects, including expansion of the main highway
connecting Vung Tau to Ho Chi Minh City to six lanes. Another
proposed expressway and rail line remain little more than
phantom projects on GVN's transportation master plan. The lack
of an efficient highway and freight rail system also contributes
to the rising costs of inland transport. According to a World
Bank analysis, exporters in Vietnam have to pay $669 of domestic
costs to ship a 20-foot container from Vietnam, in contrast to
$390 for Chinese exporters and $416 in Singapore. Such total
costs seriously erode the comparative advantages offered by
Vietnam's low labor costs and other relative benefits.

7. (SBU) Although Vietnam's investment in infrastructure, at
around 10% of GDP according to a Harvard policy paper, has
actually been very high relative to other Asian economies, most
businesses still cite inadequate transport infrastructure as the
single biggest impediment to doing business in Vietnam and to
continued economic expansion in the southern key economic zone.
Multiple levels of government sharing jurisdiction over
financing and implementing infrastructure projects make the
administration of transportation problematic. Financing for
national roads is approved by the Ministry of Planning and
Investment but the system is managed by the Ministry of
Transport, and maintenance is the responsibility of Vietnam
Roads Administration with funds channeled through the Ministry
of Finance. For local roads, the complexity is even greater due
to the involvement of provincial government departments.

Megaports

---------

8. (SBU) The U.S. Department of Energy is in the process of
negotiating an MOU with GVN to begin a "Megaports" initiative
that could provide equipment, training and expertise to reduce
the threat of illicit trafficking in nuclear and other
radioactive materials. After touring several of the terminals
at Cai Mep port, meeting with the BRVT People's Committee Vice
Chairman Ho Van Nien and talking to local customs officials, the
DoE delegation was encouraged that, road infrastructure concerns
aside, Cai Mep is the port of the future and is the best place
to initiate a possible Megaports project in Vietnam.

Comment:

--------

9. (SBU) As much as the private sector likes to complain about
infrastructure in Vietnam -- and BRVT's road system proves there
is a lot to complain about -- the opening of two new deep-water
terminals is a huge step toward making Vietnamese exports
competitive for years to come. The terminals are
state-of-the-art, managed by foreign partners with global
expertise, and are situated near the industrial parks that
produce large volumes of goods to be shipped internationally.
Many other infrastructure development projects don't meet these
criteria. Rather than targeting the development of roads that
support these new ports and improve overall system capacity, GVN

HO CHI MIN 00000670 003.2 OF 003


plans seem intent on spreading money thinly throughout Vietnam,
often to the benefit of local state-owned enterprises that win
project bids. Vietnam's private sector would be far better
served by a fully-functional Cai Mep port complex. End comment.

10. (U) This cable was coordinated with Embassy Hanoi.
FAIRFAX

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