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2000HANOI00899 - UNCLASSIFIED
 
 
 
                           UNCLASSIFIED     PTQ2964

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      EXME-00  EUR-01   E-00     UTED-00  VC-01    FRB-00   H-01     
      TEDE-00  INR-00   ITC-01   LAB-01   L-00     MOFM-04  MOF-03   
      AC-01    NSAE-00  NSCE-00  OES-01   OMB-01   OPIC-01  PM-00    
      PRS-00   ACE-00   SP-00    SSO-00   SS-00    STR-00   TRSE-00  
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FM AMEMBASSY HANOI
TO SECSTATE WASHDC PRIORITY 9683
USDOE WASHINGTON DC PRIORITY
INFO ASEAN COLLECTIVE
AMEMBASSY MOSCOW 
AMCONSUL HO CHI MINH CITY

UNCLAS SECTION 01 OF 03 HANOI 000899 
 
SIPDIS 
 
STATE FOR EAP/BCLTV, EB/ESC 
USDOE FOR IA-42/J BRODMAN 
 
E.O. 12958: N/A 
TAGS: ENRG ECIN EPET VM APEC
SUBJECT: VIETNAM: PREPARING FOR APEC ENERGY MINISTERS MEETING 
 
                       UNCLASSIFIED 
 
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REF:  A) HANOI 471; B) STATE 71973 
 
¶1. ACCORDING TO THE MINISTRY OF INDUSTRY (MOI), 
MINISTER DANG VU CHU WILL LEAD VIETNAM'S DELEGATION 
TO THE MAY 10-12 APEC ENERGY MINISTERS CONFERENCE IN 
SAN DIEGO.  (NOTE: THE GOVERNMENT OF VIETNAM DOES NOT 
HAVE A MINISTRY OF ENERGY.  CERTAIN FUNCTIONS ARE 
DELEGATED TO OTHER MINISTRIES OR TO STATE-OWNED 
CORPORATIONS, BUT EMBASSY BELIEVES THE INDUSTRY 
MINISTER IS THE MOST APPROPRIATE ATTENDEE.  END 
NOTE.)  THIS MESSAGE PROVIDES REQUESTED INFORMATION 
ON VIETNAM'S ENERGY AND ENVIRONMENT SECTORS AS WELL 
AS PENDING COMMERCIAL ADVOCACY ISSUES. 
 
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ENERGY 
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¶2. CRUDE OIL IS VIETNAM'S MOST IMPORTANT EXPORT 
COMMODITY, GENERATING ROUGHLY ONE-FIFTH OF THE 
COUNTRY'S EXPORT EARNINGS.  CURRENT PRODUCTION IS 
SLIGHTLY LESS THAN 300,000 BARRELS PER DAY, ALL FROM 
OFFSHORE FIELDS.  THE COUNTRY HAS RECOVERABLE GAS 
RESERVES OF 60-80 TRILLION CUBIC FEET, PRIMARILY IN 
THE NAM CON SON BASIN SOUTHEAST OF HO CHI MINH CITY, 
BUT THESE ARE LARGELY UNEXPLOITED DUE TO A LACK OF 
INFRASTRUCTURE.  VIETNAM HAS LARGE RESERVES OF 
ANTHRACITE COAL, WHICH ALSO IS A MAJOR EXPORT, BUT 
THE INDUSTRY SUFFERS FROM OVER-CAPACITY, OUTDATED 
TECHNOLOGY, AND EXCESS LABOR. 
 
¶3. NUMEROUS U.S. AND FOREIGN ENERGY COMPANIES HAVE 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  00899  01 OF 03  280933Z 
INVESTED CONSIDERABLE CAPITAL IN EXPLORATION AND 
DEVELOPMENT, BUT MANY HAVE BECOME FRUSTRATED WITH 
BUREAUCRATIC AND REGULATORY DELAYS AND HAVE WITHDRAWN 
FROM THEIR PROJECTS.  WITH THE EXCEPTION OF ONE JOINT 
VENTURE (VIETSOVPETRO) WITH THE RUSSIAN COMPANY 
ZARUBEZHNEFT, FOREIGN COMPANY INVOLVEMENT IN UPSTREAM 
OIL AND GAS PROJECTS IS CONDUCTED THROUGH PRODUCTION- 
SHARING CONTRACTS WITH PETROVIETNAM, THE STATE-OWNED 
ENERGY COMPANY. 
 
¶4. VIETNAM CURRENTLY DOES NOT HAVE A REFINERY, SO ALL 
CRUDE OIL PRODUCTION IS EXPORTED.  THE GOVERNMENT HAS 
APPROVED A USD 1.3 BILLION JOINT VENTURE PROJECT WITH 
RUSSIA TO CONSTRUCT A REFINERY AND ASSOCIATED 
FACILITIES AT DUNG QUAT IN CENTRAL VIETNAM, BUT THUS 
FAR HAS FAILED TO ATTRACT SUFFICIENT FUNDING.  MANY 
FOREIGN EXPERTS BELIEVE THE PROJECT IS NOT 
ECONOMICALLY FEASIBLE. 
 
¶5. ELECTRICITY OF VIETNAM (EVN), UNDER THE 
SUPERVISION OF MOI, IS RESPONSIBLE FOR POWER 
GENERATION, TRANSMISSION, AND DISTRIBUTION. 
HYDROPOWER ACCOUNTS FOR MORE THAN SIXTY PERCENT OF 
THE ENERGY SUPPLY, WITH THE REMAINDER GENERATED FROM 
THERMAL (OIL AND COAL-FUELED) PLANTS.  THE GVN HAS 
DISCUSSED THE POSSIBLITY OF CONSTRUCTING A NUCLEAR 
POWER PLANT. 
 
¶6. ACCORDING TO THE WORLD BANK, IN THE NEXT FEW YEARS 
VIETNAM WILL FACE FOUR MAJOR CHALLENGES IN THE ENERGY 
SECTOR.  FIRST, DEMAND FOR ELECTRICITY WILL INCREASE 
                       UNCLASSIFIED 
 
PAGE 04        HANOI  00899  01 OF 03  280933Z 
13-15 PERCENT ANNUALLY OVER THE NEXT TEN YEARS, 
REQUIRING THE ADDITION OF 600-800 MEGAWATTS OF 
CAPACITY TO THE POWER GRID EACH YEAR.  SECOND, 
LIMITED CAPITAL RESOURCES WILL NECESSITATE CAREFUL 
PLANNING AND PRIORITIZATION OF PROJECTS.  THIRD, 
VIETNAM WILL NEED TO INVEST 5.3-5.5 PERCENT OF GDP, 
OR TWICE THE LEVEL OF ITS SOUTHEAST ASIAN NEIGHBORS, 
IN ESSENTIAL ENERGY INFRASTRUCTURE.  TWO-THIRDS OF 
THIS WILL HAVE TO BE FINANCED WITH OFFICIAL 
DEVELOPMENT ASSISTANCE OR FOREIGN DIRECT INVESTMENT. 
FOURTH, TO ATTRACT THIS AMOUNT OF FDI THE GVN WILL 
HAVE TO IMPROVE SIGNIFICANTLY ITS INVESTMENT CLIMATE 
AND REGULATORY FRAMEWORK.  IT MAY NEED TO CREATE A 
NATIONAL ENERGY AND COORDINATIVE AGENCY AND SEPARATE 
THE POLICY AND COMMERCIAL FUNCTIONS OF BOTH EVN AND 
PETROVIETNAM (PVN).  THE GVN ALSO WILL NEED TO ACCEPT 
AND STREAMLINE THE BOT APPROVAL PROCESS. 
 
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ENVIRONMENT 
----------- 
¶7. SINCE 1950, THE POPULATION OF VIETNAM HAS TRIPLED. 
VIETNAM IS NOW ONE OF THE MOST DENSELY POPULATED 
COUNTRIES IN THE WORLD.  THE POPULATION IS 
PREDOMINANTLY RURAL POOR, DEPENDENT ON THE NATURAL 
RESOURCES OF LAND, FOREST, AND WATER FOR SUSTENANCE. 
TO SATISFY BASIC NEEDS, INDIVIDUALS AND WHOLE 
COMMUNITIES HAVE ENCROACHED ON FRAGILE ECOSYSTEMS AND 
DEGRADED NATURAL RESOURCES.  THE MOST VISIBILE 
MANIFESTATION OF THIS IS THE LOSS OF PRIMARY FOREST 
COVER, WHICH IN THE LAST HALF-CENTURY HAS GONE FROM 
OVER 40 PERCENT TO ABOUT 10 PERCENT. 
 
¶8. SINCE ABOUT 1960 THERE HAVE BEEN TWO SIMULTANEOUS 
TRENDS OF INTERNAL MIGRATION: FROM CONGESTED TO LESS 
DENSELY POPULATED AREAS -- AS PEOPLE SEEK LAND -- AND 
FROM RURAL TO URBAN AREAS -- AS THEY SEEK WORK. THIS 
MIGRATION HAS EXPANDED AND INTENSIFIED THE PATTERN OF 
ENVIRONMENTAL DEGRADATION. IT HAS ALSO INTENSIFIED 
URBAN ENVIRONMENTAL PROBLEMS, ESPECIALLY IN CLEAN AIR 
AND WATER PROBLEMS, AND WASTE DISPOSAL DIFFICULTIES. 
ALTHOUGH VIETNAM IS NOW ONE OF THE LOWEST CONSUMERS 
OF ENERGY PER CAPITA IN ASIA, THE NEXT DECADE WILL 
SEE A DRAMATIC GROWTH IN ENERGY CONSUMPTION AND 
PRODUCTION FROM FOSSIL FUELS AND HYDROPOWER. THIS 
WILL INEVITABLY PRODUCE PROFOUND ENVIRONMENTAL 
IMPACTS. THE URBAN AREAS, MEANWHILE, WILL ABSORB MORE 
THAN ONE-THIRD OF THE POPULATION AT CURRENT TRENDS. 
WHILE POPULATION GROWTH WILL LEVEL OFF AROUND 2050, 
THE ABSOLUTE INCREASE IN POPULATION AND INTERNAL 
MIGRATION WILL CONTINUE TO POSE MAJOR ENVIRONMENTAL 
CHALLENGES. 
 
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COMMERCIAL ADVOCACY 
                       UNCLASSIFIED 
 
PAGE 03        HANOI  00899  02 OF 03  280933Z 
------------------- 
¶9. THERE ARE TWO PENDING POWER PROJECTS BY U.S. 
COMPANIES.  BOTH HAVE ENDURED LONG DELAYS IN THE 
APPROVAL PROCESS, AND MINISTER CHU SHOULD BE URGED TO 
EXPEDITE THEM.  FIRST, ENRON HAS A PROPOSAL FOR A 475 
MW BUILD-OPERATE-TRANSFER (BOT) POWER PROJECT IN SOC 
TRANG PROVINCE: 
 
-- ENRON SUBMITTED THE FEASIBILITY STUDY TO THE GVN 
IN 1999. 
 
-- ENRON HAS CONCLUDED TWO ROUNDS OF DISCUSSIONS WITH 
THE MINISTRY OF INDUSTRY ON ITS BOT AGREEMENT, AS 
WELL AS ONE ROUND OF DISCUSSIONS WITH ELECTRICITY 
VIETNAM (EVN) ON THE ELECTRICITY TARIFF. 
 
-- THE U.S. TRADE DEVELOPMENT AGENCY (TDA) HAS 
PROVIDED A USD 700,000 GRANT TO ASSIST MOI IN 
PREPARING THE LEGAL FRAMEWORK FOR THIS PROJECT. 
 
(NOTE:  UNDER THE GVN'S MOST RECENT POWER PLAN, THE 
ENRON BOT PROJECT WILL NOT BEGIN OPERATIONS UNTIL 
2006, DUE TO UNAVAILABILITY OF GAS FUEL.) 
 
¶10. THE U.S COMPANY ORMAT HAS APPLIED FOR APPROVAL OF 
ITS 50 MW BOT GEOTHERMAL POWER PLANT IN CENTRAL 
VIETNAM: 
 
-- IN 1998 MOI GRANTED EXPLORATION LICENSES FOR SIX 
GEOTHERMAL AREAS. 
 
                       UNCLASSIFIED 
 
PAGE 04        HANOI  00899  02 OF 03  280933Z 
-- IN 1999 MOI APPROVED THE PRE-FEASIBILITY STUDY, 
AND EVN AGREED TO THE POWER TARIFF SUBJECT TO A STUDY 
FUNDED BY TDA. 
 
-- TDA HAS BEEN WORKING WITH MOI ON AN AMENDMENT TO 
THE SIGNED GRANT AGREEMENT TO MEET MOI'S REQUEST FOR 
TECHNICAL ASSISTANCE. 
 
-- ORMAT HAS APPLIED FOR AN EXTENSION OF ITS 
EXPLORATION LICENSE FROM MOI THAT EXPIRED IN 
DECEMBER. 
 
¶11. MORE GENERALLY, THE LONG-PENDING BP-AMOCO 
NEGOTIATIONS ON GAS SALES AND A PIPELINE FORM THE 
OFFSHORE FIELDS TO VUNG TAU MUST BE COMPLETED.  THIS 
WILL SET A PRECEDENT FOR FUTURE GAS SALES AND 
PIPELINE NEGOTIATIONS FOR UNOCAL AND OTHER U.S. 
ENERGY AND POWER COMPANIES WHICH MAY HAVE INTERESTS 
IN GAS EXPLORATION.  FAILURE TO DELIVER GAS FROM THE 
NAM CON SON FIELD IS DISRUPTING PLANS FOR EXISTING 
AND NEW POWER PLANTS IN THE VUNG TAU AREA. 
 
-------- 
BIO NOTE 
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¶12. DANG VU CHU WAS APPOINTED MINISTER OF INDUSTRY IN 
OCTOBER 1995, FOLLOWING THE MERGER OF THE MINISTRIES 
OF LIGHT INDUSTRY, HEAVY INDUSTRY, AND ENERGY.  FROM 
1990 TO 1995 HE SERVED AS MINISTER OF LIGHT INDUSTRY. 
HE WAS BORN IN 1940 AND EDUCATED IN VIETNAM 
(BACHELOR'S DEGREE) AND CZECHOSLOVAKIA (DOCTORATE). 
 
HARTER 
 
                       UNCLASSIFIED