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R 290616Z APR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7080
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
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RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 02 GUANGZHOU 000246 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
EMB BEIJING FOR DOE 
USDOE FOR OFFICE OF THE SECRETARY 
USDOE FOR INTERNATIONAL AFFAIRS 
USDOE FOR FOSSIL POLICY AND ENERGY 
STATE FOR EAP/CM, EB/TRA, AND EB 
STATE ALSO PASS USTR FOR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EMIN SENV PGOV TRGY CH
SUBJECT: China's Largest Petrochemical Plant Planned for Guangdong, 
Pending Environmental Assessment Approval 
 
REF: A) Guangzhou 1297; B) Guangzhou 0212 
 
¶1. (U) Summary.  Sinopec and Kuwait National Petroleum Company are 
awaiting Beijing's approval on plans to build what will reportedly 
be China's largest joint venture, a USD 5 billion petrochemical 
plant located in the heart of the Pearl River Delta.  The plant will 
alleviate the severe gap between Guangdong's refining capacity and 
demand for petroleum products in south China.  A handful of local 
officials, concerned about the potential environmental impact of the 
plant,  have called for a reevaluation of the project.  Although 
other provincial officials have announced their support for the 
project, the State Ministry of Environmental Protection has not yet 
granted final approval, and the timeline for that decision remains 
unclear.  End Summary 
 
-------------------------- 
Nansha Petrochemical Plant 
-------------------------- 
 
¶2. (U) Sinopec and Kuwait National Petroleum Company are ready to 
begin construction on what will reportedly be China's largest joint 
venture, a new USD 5 billion petrochemical plant. The project will 
be located in Nansha at the mouth of the Pearl River Delta, about an 
hour and a half south of downtown Guangzhou.  Guangdong province has 
highlighted the plant as the key development project in its 2008 
annual economic and social development report.  The plant is 
expected to increase local employment opportunities, expand local 
economic development efforts, and alleviate Guangdong's oil supply 
problems. 
 
--------------------------------------------- --- 
Increasing Guangdong's Petroleum Products Supply 
--------------------------------------------- --- 
 
¶3. (SBU) One of Guangdong's biggest energy challenges is a lack of 
petroleum products.  Guangdong is thirsty for oil.  With a growing 
population, rising auto sales, and increased development in 
oil-consuming industries, authorities are seeking out opportunities 
to bring petroleum products supply, including more diesel fuel, into 
alignment with demand.  According to Chen Guangrong, Deputy Director 
of the Guangdong Environmental Protection Bureau (GD EPB), 
construction of this petrochemical plant is essential to the 
province's energy security as well as its industrial expansion 
efforts.  The Sinopec-Kuwait joint venture is expected to process 15 
million tons of petroleum and 1 million tons of ethylene annually. 
In the meantime, Guangdong continues to import much of its supply of 
petroleum products from other provinces, including Hainan.  From 
January through March of this year alone, Hainan Refining and 
Chemical Company, a subsidiary of Sinopec Group, exported 550,000 
tons of petroleum products to Guangdong.  It expects Guangdong to 
consume 40% of the company's entire output by year's end. 
 
¶4. (SBU) Guangdong has a severe shortage of refining capacity 
compared to other more developed parts of China.  According to Zeng 
Lei, Deputy Director General of Guangzhou Nansha Economic and Trade 
Bureau, approximately 70% of China's oil products are imported 
through south China. Dr. Lu Jin, Director of the Guangdong 
Techno-economy Research and Development Center (GD TRD) told us that 
the current nationwide distribution of oil refineries is uneven, 
largely favoring the northern and western portions of China.  Lu 
believes the proposed Nansha plant will solve many demand challenges 
and authorities should establish more projects in areas of highest 
demand, such as Guangdong. 
 
---------------------- 
Environmental Concerns 
---------------------- 
 
¶5. (SBU) While the project will contribute to Nansha's economic 
development, it may pose significant challenges to environmental 
protection efforts.  The Guangdong Environmental Protection Planning 
Outline (2006-2010) states that Nansha is an 'ecologically fragile' 
area, and recommends that large refinery projects not be built in 
the area.  According to one Guangdong official, due to its location 
at the mouth of the Pearl River, possible oil spills and even more 
probable wastewater dumping create potential challenges to public 
 
GUANGZHOU 00000246  002 OF 002 
 
 
safety and to the large transportation industry that relies on the 
Pearl River Delta's waterways.  In addition, according to a local 
media report, air quality remains a concern, as the plant is 
expected to emit approximately 6,000 tons of sulfur dioxide per 
year, potentially affecting greater Guangzhou, Shenzhen, and Hong 
Kong.  In spite of these concerns, Guangzhou Mayor Zhang Guangning 
has attempted to reassure the public that the new plant will use 
clean technology to offset possible threats to the environment. 
 
--------------------------------- 
Government Support vs. Opposition 
--------------------------------- 
 
¶6. (U) Several government officials have raised environmental 
concerns such as these in an effort to shutdown the project 
altogether.  During the most recent session of the Guangdong's 
People's Congress, 14 provincial legislators called for a motion to 
suspend the project pending an environmental investigation into 
whether the plant meets the State Council's requirements for new 
project construction.  Per national regulations, the project must 
undergo an Environment Impact Assessment (EIA), and receive final 
approval from the State Ministry of Environmental Protection. 
 
¶7. (SBU) On the other hand, many local governmental agencies 
including both the provincial and municipal Environmental Protection 
Bureaus (EPB) have publicly announced their support for the plant's 
construction.  However, Zeng Lei stressed that the decision is 
entirely up to Beijing.  While government supporters of the project 
have been characterized in some media reports as prioritizing 
economic development over the environment, Zeng told us that the 
local government's main priority is neither; rather, it is feeding 
the high demand for petroleum products in the Pearl River Delta. 
 
---------------- 
Public Sentiment 
---------------- 
 
¶8. (SBU) In general, local residents have remained relatively quiet 
about the project, even though public opinion is a key component 
evaluated by the Ministry of Environmental Protection's EIA.  Unlike 
the public unrest following plans to construct a chemical plant in 
Xiamen last year (ref A), Zeng Lei told us that there has been no 
wide-scale public outcry related to the Nansha project.  Residents 
have, however, expressed concern about compensation for those who 
have been displaced from their homes to provide land for the 
project. 
 
----------------------- 
The Debate Continues... 
----------------------- 
 
¶9. (SBU) While the project has already received National Development 
and Reform Commission (NDRC) approval, the Ministry of Environmental 
Protection has yet to complete its final evaluation.  There is 
currently no timeline for when the Ministry of Environmental 
Protection might hand down its decision.  According to a Guangdong 
official, the project has already undergone an EIA, which has 
subsequently been revised 10 times due to the controversy. Even 
though the project has not received the final okay, eight square 
kilometers of land have been requisitioned for construction by local 
authorities.  If approved, the project is expected to come online in 
¶2010. 
 
GOLDBERG