VZCZCXRO2512
RR RUEHCHI RUEHDT
DE RUEHHM #0547/01 1420934
ZNR UUUUU ZZH
R 220934Z MAY 07
FM AMCONSUL HO CHI MINH CITY
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INFO RUEHHI/AMEMBASSY HANOI 1910
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 2843

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000547 
 
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USDOC FOR 4431 (MAC/AP/OPB/VLC/HPPHO) 
TREASURY OASIA 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV SOCI PREL VM
SUBJECT: CORRUPTION IN KHANH HOA PROVINCE: WILL THE BEACH BEAT BAD 
GOVERNANCE 
 
REF: 04 HCMC 1359 
 
HO CHI MIN 00000547  001.2 OF 002 
 
 
¶1. (SBU) Summary:  On the central coast of Vietnam, Khanh Hoa 
province is well placed for growth with a strong base in 
tourism, aquaculture, and industry.  Government and business 
leaders are concentrating on attracting foreign investment to 
large scale investment projects and economic zones.  On a recent 
visit to Khanh Hoa, however, the Consul General found that 
corruption remains a pervasive problem.    Some of the officials 
we met had been implicated in recent high profile corruption 
scandals.  But instead of facing consequences, most remain in 
positions of power.  The unfortunate example of Khanh Hoa is 
that of a province that has prospered on the basis of rampant 
corruption.  End summary. 
 
THE RUSALKA CORRUPTION SCANDAL IN KHANH HOA PROVINCE 
--------------------------------------------- ------- 
 
¶2. (SBU) Rusalka was a large-scale tourism complex planned for 
Nha Trang, the capital of Khanh Hoa in 2000.  The deal finally 
collapsed in 2005.  The scandal involved complex financial fraud 
in which local businessmen and officials have been accused of 
bribery and embezzlement.  Duc Chi, a Vietnamese businessman 
with alleged connections to Russian organized crime, has been 
accused of illegal land deals and bribing local officials.  The 
Ministry of Public Security (MPS) began investigating after 
information was leaked to the press in early 2005.  Chi was 
arrested in June 2005. He has admitted to paying USD 700,000 in 
bribes to government officials.  Just after assuming office in 
mid-2006, Prime Minister Nguyen Tan Dzung called for prosecution 
and punishment of any officials at the Ministry of Planning and 
Investment (MPI) and the People's Committee of Khanh Hoa 
province who had helped Chi. 
 
¶3. (SBU) After a flurry of investigations, and despite Dzung's 
instruction, most of those implicated remain in important 
positions.  Nguyen Trong Hoa served as Khanh Hoa Director of the 
Department of Planning and Investment prior to being promoted to 
Vice Chair of the People's Committee in 2003.  He was close to 
the Rusalka deals in both positions.  In 2006, he left he left 
the People's Committee and became the manager of the Van Phong 
Bay Economic Zone (VPEZ), the province's flagship project.  Hoa 
told the Consul General that he had been handpicked by Prime 
Minister Dzung to head the VPEZ.  Pham Van Chi, another 
provincial leader implicated in the Rusalka case, resigned as 
provincial People's Committee Chairman in 2003 and now heads a 
private company that facilitates investments also for the Van 
Phong Economic Zone (VPEZ).  These two former government leaders 
are now competing with each other as they both seek out 
investors for the VPEZ. 
 
VAN PHONG BAY: MORE CONTROVERSY IN KHANH HOA 
--------------------------------------------- - 
 
¶4. (SBU) The VPEZ is planned for a pristine deep water bay north 
of Nha Trang.  VPEZ manager Nguyen Trong Hoa outlined the 
development plan for the economic zone for the CG.  The project 
includes a deep-water container transshipment port, several 
industrial parks with adjacent urban areas, a ship-building site 
and several lots allocated for tourism development.  The 
container port is located on the tip of a small peninsula that 
reaches out to the center of the bay.  While the location of the 
port could endanger the environment of the whole bay, Hoa said 
the location was chosen because it is surrounded by the bay's 
deepest water and is closest to international waters.  Hoa 
admitted he is not sure that the area could attract sufficient 
container traffic to make the port viable.  The CG noted that 
another obstacle to the port's viability is the fact that the 
shortest route to and from the port is through a 600-meter wide 
passage between two islets. 
 
NHA TRANG CABLE CAR:  MORE MISMANAGEMENT IN KHANH HOA 
--------------------------------------------- -------- 
 
¶5. (SBU) The latest controversy to hit Khanh Hoa is the Nha 
Trang cable car, which connects the Vinh Pearl Resort on Hon Tre 
Island to mainland Nha Trang.  At a height of 54 meters, the 
cable car may prevent larger cruise ships from visiting Nha 
Trang. According to press speculation the owners of the Vinh 
Pearl Resort, a Vietnamese group widely believed to have 
connections with Ukrainian organized crime groups, persuaded 
local officials to allow the construction of the cable car 
without proper clearances.  In early March, the Prime Minister 
asked MPI for an explanation of the cable car scandal. 
 
HO CHI MIN 00000547  002.2 OF 002 
 
 
 
¶6. (SBU) Khanh Hoa People's Committee Chairman Vo Lam Phi told 
the Consul General that the cable car system does not affect the 
ability of ships to enter the bay since it only obstructs the 
bay's south entrance; ships are still able to enter the bay 
through the north entrance.  Phi opined that if ships are denied 
entry into the port, it was not due to the cable car but to the 
port authority restrictions.  Since that time, the GVN's 
Ministry of Culture and Information  has ordered that no further 
cars can be added to the cable car system, though that would not 
appear to address the vertical clearance problem. 
 
COMMENT 
------- 
 
¶7. (SBU) Regardless of Prime Minister Dung's exhortations, 
corruption often goes unpunished and at times, is even rewarded. 
 Only the most flagrant corruption scandals come to light and 
few of those implicated are held accountable.  Despite its 
reputation for corruption, Nha Trang is the Cannes of Vietnam's 
Riviera and business and construction are booming. 
WINNICK