VZCZCXRO0524
RR RUEHCHI RUEHDT RUEHNH RUEHPB
DE RUEHHM #0957/01 2370201
ZNR UUUUU ZZH
R 250201Z AUG 06
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 1353
INFO RUEHHI/AMEMBASSY HANOI 0948
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEAIIA/CIA WASHDC
RUEKJCS/SECDEF WASHINGTON DC//USDP/ISA/AP//
RUEKJCS/CJCS WASHINGTON DC//J2/J3/J5//
RHEFDIA/DIA WASHINGTON DC//DHO-3//
RHMFIUU/CDR USPACOM HONOLULU HI//J00/J2/J3/J5//
RUEHHM/AMCONSUL HO CHI MINH CITY 1421

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000957 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV EIND KCOR PINR VM
SUBJECT: MILITARY OWNED ENTERPRISES IN SOUTHERN VIETNAM 
 
REF: HCMC 0411 B) IIR 6 950 0015 06 C)IIR 6 950 0014 06 
 
HO CHI MIN 00000957  001.2 OF 002 
 
 
¶1. (SBU) Summary: Military Owned Enterprises (MOEs) in southern 
Vietnam are tied in with the Ministry of Defense (MOD) much as 
other State Owned Enterprises (SOEs) interact with their 
respective owner/ministries, according to HCMC officials.  The 
economic impact of MOEs is hard to gauge due to the wide range 
of their activities, murky corporate governance structures and a 
general unwillingness by the MOD to discuss its role in the 
economy of southern Vietnam.  The justification for MOEs is 
derived from Vietnam's military doctrine, which emphasizes 
self-reliance for critical warfighting production. However, our 
discussions suggest that MOE activities go far beyond defense 
industries and are equally important as a source of financing 
for the military.  This sector also reflects the Communist 
Party's policy of maintaining the "leading role" of the 
State-owned sector in the national economy.  As with SOEs, MOE 
managers see the merits in equitizing smaller subsidiaries, but 
do not foresee the equitization of MOE holding companies or any 
changes to the fundamental ownership structure of the Ministry 
of Defense. And like the SOEs, resistance to reform and 
privatization appears to be driven as much by management 
self-interest as by ideology.  End Summary. 
 
The Reach of Military Owned Enterprises 
--------------------------------------- 
 
¶2.  (SBU) The Department of Economics of the Ministry of Defense 
(MOD) lists 141 military-owned enterprises (MOEs). This is not 
an all inclusive list.  The number of MOEs is likely much 
higher, depending on source material and how individual entities 
are classified.  According to Mr. Duong Cong Minh, a partner of 
Him Lam Company, a private firm with significant MOD contacts, 
the military owns small, medium and large companies.  The MOEs 
operate in fields in line with the military's doctrine of 
self-reliance including agriculture, construction, 
telecommunication, and textiles, but their output is not limited 
to military goods or military customers.  Most of these 
companies market products and services in multiple sectors.  Per 
refs B and C, the relationship between MOEs and the MOD is 
complex. Not all MOEs fall under the General Departments of the 
MOD; some fall under regional military commands or branch 
commands. (Note: Him Lam participates in several large-scale 
projects involving military-owned properties and Mr. Minh, owner 
of Him Lam, a former member of the military, is said to have 
high level family contacts within the MOD. End Note) 
 
¶3. (SBU) According to Minh, the MOD's role in the Vietnamese 
economy can be broken down into several broad categories: 
 
--ammunition and most weapons are produced by MOD-owned and 
MOD-operated facilities that do not follow SOE laws and 
regulations; 
 
--MOEs whose activities have dual-use applications, such as 
explosives producers; and, 
 
--enterprises without any clear national security purpose, such 
as hotels and construction firms. While MOEs such as printing 
houses are not traditionally identified as national 
security-related industries, they are often classified as such. 
By being included as national security exemptions, these MOEs 
can avoid equitization and remain wholly controlled by the MOD. 
 
The Financial Relationship Between MOEs and the MOD 
--------------------------------------------- ------ 
 
¶4.  (SBU) Our contacts at the Saigon New Port and Him Lam 
Company tell us that some MOEs contribute a portion of their 
earnings directly to the MOD, although they all pay taxes to the 
GVN.  MOEs, like SOEs, are exempt from paying rent when 
occupying MOD properties, a cost-saving advantage over private 
enterprises.  Rent exemption, as an indirect subsidy to MOEs, 
deprives the GVN of rental income normally gathered when private 
companies operate on MOD owned properties. 
 
¶5. (SBU) For example, Lt. Col. Tran Khanh Hoang, manager of the 
Operation and Planning Department of MOE Tan Cang, or Saigon New 
Port (SNP), told us that his company pays "less than five 
percent of total revenue" directly to the MOD.  SNP is one of 
Vietnam's leading container terminal operators.  In 2005, SNP's 
container volume reached 1,086,242 TEUs (twenty-foot equivalent 
units) or approximately 40 percent of the national market.  A 
U.S. naval facility during the Vietnam War, the complex was 
underexploited and in disrepair until 1989, when the GVN 
established SNP and granted it use of the port's property and 
facilities. 
 
HO CHI MIN 00000957  002.2 OF 002 
 
 
 
¶6. (SBU) According to these contacts, the MOD does not exercise 
direct influence over the operation and management of MOEs.  For 
example, the GVN and MOD have given SNP relative freedom with 
regard to daily operations, management, and even long-term 
planning, allowing it to function as a traditional commercial 
enterprise.  By comparison, HCMC municipal authorities play a 
much larger role in the planning and strategic development of 
the Saigon Port Authority, often complicating matters and 
hindering foreign investment (ref A). 
 
¶7. (SBU) Mr. Minh of Him Lam told us that one of the primary 
sources of off-budget revenue for the MOD comes from land and 
property rents.  The MOD contracts the management of its 
designated commercial properties to separate management 
companies, and these third-party entities receive 10 percent of 
the total rent.  The real estate market in Vietnam has 
experienced a boom over the past several years, fueling demand 
for property and elevating average real estate prices. Real 
estate management contracts, often large in value, are awarded 
at the discretion of the MOD.  As with other SOEs, lack of 
transparency in awarding contracts provides ample opportunity 
for graft. 
 
Corporate Structure of MOEs 
--------------------------- 
 
¶8.  (SBU) According to the MOD's Department of Economics 
website, MOEs vary in size and structure.  Some have a specific 
manufacturing base, but many operate multiple subsidiary 
companies.  Company 32, also know ASECO, is the MOD's "showcase" 
enterprise, and is included on every official U.S. military 
college visit to southern Vietnam.  ASECO has six subsidiaries 
specializing in the production of footwear and garments and is 
one of the companies specifically mentioned in the EU's 
anti-dumping case on shoe imports from China and Vietnam.  The 
company has 5,000 employees and is managed by a team of twelve 
military officers.  These officers continue to belong to the 
General Department of Logisitics chain of command, but they are 
paid by the MOE. According to Mr. Nguyen Xuan Binh, Deputy 
Director of Company 32, many of these officers have been at the 
company for several years, with no intention of returning to 
active duty and lower MOD salaries. 
 
¶9. (SBU) Other companies such as Thasimex (or Thaison) operate a 
broad range of entrepreneurial activities, including 
joint-ventures with foreign-owned enterprises.  These firms 
resemble holding companies with many independent operating 
subsidiaries, often horizontally and/or vertically integrated 
with each other.  Compared with ASECO's 5,000 employees, 
Thasimex officials told us that they employ only 1,000 workers, 
but the company has greater capitalization and is financially 
stronger.  According to Deputy Director Dr. Pham Gap, Thasimex 
subsidiaries operate in construction, chemical and fertilizer 
production (including a joint venture with the Norwegian firm 
Yara); real estate development (including the Long Binh Hi-Tech 
Park in association with a Japanese company); educational 
training centers; and even include a supermarket in Russia. 
Each of these entities functions independently, with Thasimex 
holding majority stakes in each subsidiary.  Dr. Gap noted that 
Thasimex hoped to equitize some of its smaller companies in the 
future.  Dr. Gap said that the MOD has no plans to change its 
relationship with Thasimex, despite the claim that the company 
does not directly contribute revenue to the MOD. 
 
¶10. (SBU) Comment: ConGen's contacts with the military 
establishment in southern Vietnam are limited and our 
discussions are generally anodyne.  MOD officials in HCMC have 
rebuffed overtures to discuss the role of MOEs.  While the 
information provided by our contacts modestly expands our 
understanding of the role of these enterprises, it is noteworthy 
that the discussions are happening at all.  The overall impact 
of MOEs on the Vietnamese economy remains opaque, but the MOD is 
clearly influential in key sectors of the economy, including 
telecom and infrastructure.  The MOD is likely to resist 
equitization of MOEs, using national security exceptions as its 
justification, and also following Party directives to protect 
the "leading role" of the State-sector in the economy.  The 
MOD's self-reliance doctrine is used to justify MOD holdings in 
non-defense sectors even as other SOEs in those sectors 
equitize.  As in all SOEs, MOE managers have defacto ownership 
of their firms and can profit handsomely from their positions. 
End Comment.WINNICK