VZCZCXRO1116
RR RUEHCHI RUEHDT RUEHNH
DE RUEHHM #0049/01 0420946
ZNR UUUUU ZZH
R 110946Z FEB 10
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 6308
INFO RUEHHI/AMEMBASSY HANOI 4190
RUEHHM/AMCONSUL HO CHI MINH CITY 6551
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHRC/USDA FAS WASHDC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 03 HO CHI MINH CITY 000049 
 
SENSITIVE 
SIPDIS 
 
STATE PASS FOR EAGR 
 
E.O. 12958: N/A 
TAGS: ECON EAGR ETRD EFIN SOCI PGOV VM
SUBJECT: BIOFUEL IN VIETNAM: ENERGY SAVER BUT NOT ENERGY SAVIOR 
 
REF: A) HCMC 171 B) HCMC 661 
 
HO CHI MIN 00000049  001.2 OF 003 
 
 
¶1. (SBU) Summary:  The central and southern provinces of Vietnam 
are rich in agricultural resources and faced with a growing 
energy crunch, suggesting to many that biofuel could be an 
important 'green component' to the GVN's overall energy 
strategy.  However, the biofuel industry is still nascent in 
Vietnam and there are key challenges that will limit its 
proliferation: proven ethanol sources such as cassava and 
sugarcane present controversial food security trade-offs while 
second generation sources, such as the region's abundant rice 
hulls, are still prohibitively expensive to extract and convert 
into biofuel.  Although biodiesels such as jatropha oil hold 
promise, they remain untested at commercial scale.  Vietnam's 
best prospects for biofuel remain in the pilot project stage, or 
on paper only, with Vietnamese experts looking to the United 
States for inspiration, expertise and the technological 
breakthroughs that will make the economics work in Vietnam.  End 
summary. 
 
 
 
American Companies Help Biofuel Projects Take Baby Steps 
 
--------------------------------------------- ----------- 
 
¶2. (SBU) Eight major ethanol projects are underway in the 
central and southern provinces of Vietnam, most using cassava 
and sugarcane for raw material, according to HCMC biofuel 
experts.  Dong Xanh joint stock in the central province of Quang 
Nam is the only one that is fully operational.  In addition, a 
few other projects have begun producing biodiesel on a small 
scale.  Foreign companies, including U.S. based firms, are 
leading the charge with technology and initiative.  For example, 
Virginia-based Delta T is teaming up with Petro Vietnam for a 
biofuel project in Phu Tho province (the only approved project 
in the North), aimed at creating domestic biofuel to reduce 
gasoline imports and carbon emissions.  American-run Green 
Energy is testing jatropha's potential (Ref A) in coastal Ninh 
Thuan province.  Other U.S. companies like Superior 
Biotechnologies Corporation and Nature's Fuel are exploring 
local possibilities. 
 
 
 
¶3. (U) Unmet demand for electricity and Vietnam's evolving 
regulatory framework make biofuel opportunities attractive to 
many western investors.  Demand for energy is estimated to grow 
between 15 and 20 percent per year until 2020, while capacity 
will only grow at 10 percent, compelling GVN to develop new 
energy sources.  Investors in the southern key economic zone are 
hoping that the 2007 National Biofuel Development project will 
help ease the energy crunch.  Under the plan, biofuels should 
account for five percent of Vietnam's annual energy needs by 
2015 and to get there, the GVN offers biofuel investors tax 
exemptions, preferential land lease terms of over 20 years, and 
low import duties for material and equipment. 
 
 
 
First Generation Fuels Are a Bad Food Security Trade-Off 
 
--------------------------------------------- ----------- 
 
¶4. (SBU) Although the GVN has an overarching policy for biofuel 
development, it still lacks specific plans about land use for 
biofuel production, according to Dr. Nguyen Quoc Binh, Executive 
Vice Director of the HCMC Biotech Institute, especially policies 
that balance production for ethanol versus production for food 
crops.  Dr. Huynh Kim Tuoc, Director of the Tropical Biology 
Institute (TBI) noted the opportunity costs associated with 
using traditional food sources as biofuel, such as their 
potential threat to food supplies and biodiversity.  He noted 
that while food security is not yet an imminent issue, it is 
something that should be considered early on to avoid problems 
down the road. 
 
 
 
¶5. (SBU) With its low cellulose and high starch content, Dr. 
Binh promoted cassava as the food crop most suitable for ethanol 
production in Vietnam.  Dr. Duong Hoa Xo, director of the HCMC 
Biotech Institute, also noted several advantages to cassava as 
an ethanol source: cassava already occupies large plantation 
areas in the Central Highlands, requires less water than many 
crops, and yields higher ethanol per ton than other food stocks 
such as sugarcane.  Additionally, cassava processing waste can 
also be used for ethanol.  However, in addition to general food 
 
HO CHI MIN 00000049  002.2 OF 003 
 
 
security concerns, scientists at the Tropical Biology Institute 
(TBI) noted that cassava cultivation damages the land, making it 
difficult for farmers to substitute other crops such as rice and 
vegetables.  Also, Dr. Binh noted that increasing demand for 
cassava in ethanol production would lead to a jump in domestic 
animal feed prices. 
 
 
 
¶6. (SBU) Sugarcane is another crop which has been successfully 
used to produce biofuel in other countries and is also in the 
works for Vietnam.  However, when asked about sugarcane's 
potential as an ethanol source in Vietnam, Dr. Xo said he is 
skeptical, particularly because Vietnam is a net importer of 
sugar (most from Thailand) and doesn't produce sufficient 
quantities to meet domestic consumption.  Also the price and 
consumption of sugar are volatile.  In order to put additional 
land into sugar cultivation, farmers would have to shift land 
away from rice cultivation, where Vietnam enjoys more of a 
comparative advantage in international markets.  Already 
companies producing locally in Vietnam, such as Coca Cola and 
Nestle, have a difficult time accessing reasonably-priced sugar 
(Ref B).  The short supply of sugar hasn't stopped Opus 
Securitas VN from investing in factory in Quang Ngai province to 
produce up to 160 million liters of ethanol per year, according 
to Dr. Xo. 
 
 
 
Unlocking Second Generation Biofuel Potential 
 
--------------------------------------------- 
 
¶7. (SBU) Because of its ability to flourish on marginally 
productive lands that cannot support food crops, jatropha has 
been heralded as an ideal biofuel source for Vietnam (reftel A). 
 However, Dr Du, a jatropha expert at TBI, explained that there 
is still insufficient evidence that jatropha will be profitable 
as a biodiesel source.  He noted that although the crop was 
introduced to Vietnam in 2006, there won't be conclusive 
evidence about the best yield potential or appropriate planting 
varieties for at least a couple more years.  Dr. Xo was even 
more dubious about jatropha production, stating unequivocally 
that "jatropha is not good for the long term" because farmers 
get a very low profit and can grow other crops much more 
efficiently and profitably.  He added that land issues are a 
challenge even when the land is considered marginal, 
highlighting that "Vietnam is not Australia" when it comes to 
land per capita.  Even in areas like Binh Thuan and Ninh Thuan 
with poor quality soil, he continued, there is just not enough 
land to go around, and provinces could plant trees in those 
areas proposed for jatropha that would be better used to prevent 
desertification. 
 
 
 
¶8. (SBU) In the process of harvesting 40 million tons of rice 
annually, Vietnam also produces 100 million tons of rice hulls, 
ideally positioning the country -- and the Mekong Delta in 
particular -- to produce ethanol extracted from rice hulls. 
However, because cellulose content is high in such second 
generation biofuel sources, transforming it into ethanol is more 
complicated and expensive than highly starchy food crop sources 
like cassava.  Rice hulls also have some commercial value as a 
fuel for low-tech industries like brick-making.  TBI experts 
said that with appropriate technology Vietnam could produce 
million of tons of biomass ethanol per year, but it currently 
lacks the technology to produce it in a cost effective manner. 
Dr. Binh noted that in the U.S. where extractive technology 
exists, ethanol derived from biomass averages about USD 1.3 per 
liter - far above the price of gasoline.  Until technology is 
advanced enough to make it profitable, second generation biomass 
sources are unlikely to be tapped into on a large scale. 
 
 
 
Catfish Waste Tested on Small Scale 
 
----------------------------------- 
 
¶9. (SBU) Catfish flourish in the Mekong Delta region and using 
their waste as a biodiesel source has piqued public and private 
interest.  However, considering fish waste only has a 25 percent 
fat content, said Mr. Xo, even if waste for all 100 million tons 
of catfish could be used, the maximum converted into biodiesel 
would be a relatively small 250,000 tons a year.  On a micro 
scale, however, catfish shows better potential and there are 
 
HO CHI MIN 00000049  003.2 OF 003 
 
 
currently a few projects in the works.  Hiep Thanh Corporation 
has a fish waste-to-biodiesel project underway with Finnish 
support, and another, Minh Tu Corporation, is already 
operational.  TBI scientists said the Finnish would like to set 
up mobile stations to produce biodiesel on the same sites that 
fish are processed; however, it requires expensive waste 
treatment equipment.  Currently, processers prefer to convert 
catfish fat into fish feed since it offers a higher price than 
using it for biofuel. 
 
 
 
Comment 
 
------- 
 
¶10. (SBU) The biofuel story in central and southern Vietnam 
consists of two competing narratives: as an industry it's beset 
by problems of scale, efficiency and viability; but at the 
micro-level, individual companies and projects forge ahead to 
their immediate advantage.  While a fish processor can't produce 
enough biodiesel to fuel the Mekong Delta, it does reduce the 
company's fuel bill significantly.  At the macro level, while a 
national plan is in place and there is some forward movement, 
Vietnam still has a long road ahead to develop its biofuel 
potential.  U.S. involvement is key because HCMC's experts are 
convinced that second general biomass is a viable fuel source if 
they can get appropriate technology transfer, capacity building 
and research, much of which will need to come from foreign 
partners.  Scientists expressed keen interest in greater 
cooperation with U.S. scientists to further develop Vietnam's 
potential in this arena. 
 
 
 
¶11. (U) This cable was coordinated with Embassy Hanoi 
FAIRFAX