VZCZCXRO3160
OO RUEHDT RUEHPB
DE RUEHHM #0352/01 0950510
ZNR UUUUU ZZH
O P 040510Z APR 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3954
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHHI/AMEMBASSY HANOI PRIORITY 2594
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 4176

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000352 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA 
USAID/ANE/EAA FOR FRANK DONOVAN 
STATE PASS USTR FOR BISBEE 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON ENRG ETRD ELAB EINV VM
SUBJECT: SUPPLY ISSUES LEAD TO POWER CUTS IN HCMC 
 
HO CHI MIN 00000352  001.2 OF 002 
 
 
¶1. (SBU) Summary:  The power went out in parts of Ho Chi Minh 
City last week, as the energy demanded by a booming economy 
outstripped supply.  Electricity shortages muddy Vietnam's 
efforts to attract investment and directly impact U.S. 
businesses, so on April 2 the Ambassador visited the source of 
40 percent of Vietnam's electricity -- Ba Ria-Vung Tau 
province's Phu My power generation complex.  Shrinking 
reservoirs, power plant mechanical failures, inefficient 
transmission and dysfunctional pricing mechanisms triggered the 
recent outages.  State-owned Energy of Vietnam's monopolistic 
behavior and speculative forays into non-energy sectors such as 
telecommunications and real estate also threaten to prolong the 
energy shortage and constrain economic growth.  End Summary. 
 
 
Lights out Saigon 
----------------- 
¶2. (U) A wave of blackouts hit Ho Chi Minh City with the first 
of a predicted series of power outages that are expected to 
worsen in coming months.  The city center and most industrial 
zones were spared but urban and suburban districts, which are 
home to millions of people and thousands of light manufacturing 
and retail outlets, lost power for 12 hours on March 15 and 16, 
and again on March 20.  Street lights throughout the city have 
dimmed, and many small business owners and shopkeepers are 
purchasing diesel generators.  Garment exporters and other 
manufacturers located outside HCMC's industrial zones tell us 
that prolonged shortages would threaten their existence. 
 
Demand Outstrips Supply 
----------------------- 
¶3. (SBU) "There is no slack in the system," the Phu My III power 
plant general manager told the Ambassador on April 2nd, "and 
beyond the few new plants like Ca Mau I there isn't much 
capacity coming on line anytime soon."  Just upstream, the Nam 
Con Son gas pipeline general manager also confirmed that the 
BP-ConocoPhillips-PetroVietnam joint venture continues to supply 
its capacity of nearly 15 million cubic meters per day to the 
Phu My power generation complex.  An expansion currently 
underway should increase pipeline capacity to 20 million cubic 
meters per day by the end of 2008. 
 
¶4. (SBU) National energy consumption in February increased 16 
percent year on year (and GVN expects consumption to continue to 
grow at that rate through 2015), while production failed to keep 
pace.  HCMC, like the country as a whole, is powered by a mix of 
hydroelectric and thermal plants.  Water shortages nationwide 
have crimped hydroelectric capacity in recent years, new thermal 
plants have suffered delays in coming on-line, and occasional 
shortages of natural gas have decreased power production.  The 
long-awaited 750MW capacity Ca Mau I thermal power plant in 
Vietnam's southernmost province broke down during trial runs on 
March 10.  These setbacks, along with mechanical disruptions 
such as a failed turbine blade at one of Phu My's gas-fired 
plants, triggered the current wave of outages in HCMC. 
 
No Energy Market Means Buy High, Sell Low 
----------------------------------------- 
¶5. (SBU) While technical difficulties and a lack of rain are the 
immediate causes of the current power outages, the problem is 
compounded by the fact that Vietnam's long-term energy strategy 
is in the hands of state-owned energy producer Electricity of 
Vietnam (EVN).  EVN is plugging short-term gaps with expensive 
($0.45 per kilowatt hour kWH) power imported from China, and the 
GVN's Electricity Master Plan VI (approved July 2007) does call 
for 136 new power projects by 2015 and deregulation of the 
entire power generation market by 2020. 
 
¶6. (SBU) At $0.05 per kWh, Vietnam's current retail prices are 
below market rates; however, the GVN plans to begin removing 
price restrictions in 2009 in order to attract private 
investors.  As a reference point, electricity costs $0.12 per 
kWh in Singapore.  "The economics are clear and everybody 
understands them, but this is not a purely economic issue" the 
Phu My III plant manager confirmed. 
 
¶7. (SBU) "This happened to every country:  China, the 
Philippines, Indonesia and Thailand," the Phu My III manager 
continued, "and every country finds its own solution."  He 
predicted that over the next few years, Vietnam's industrial 
parks will increasingly purchase large capacity generators to 
backstop the national grid, as they did in the 1990s during 
Vietnam's last power crunch.  Eventually, market pricing will 
draw interest to Vietnam and already opportunities for potential 
investors, like the GVN's ongoing discussions with AES, are 
 
HO CHI MIN 00000352  002.2 OF 002 
 
 
emerging for cheap coal-fired power generation. 
 
State Monopoly Stiffs Private Energy Sector, Goes Shopping 
--------------------------------------------- ------------- 
¶8. (SBU) Private energy analysts and the local media have 
criticized EVN's failure to buy cheap surplus power from private 
suppliers, as well as its forays into Vietnam's speculative real 
estate market.  EVN's decision to purchase expensive Chinese 
power instead of excess capacity from either the Hiep Phuoc 
plant (Vietnam's first 100% foreign Build Own Operate plant 
located in HCMC's premier industrial park) or from Formosa 
Corporation's coal-fired facility in neighboring Dong Nai 
province has been criticized by the press.  Private energy 
analysts consider the formation of mobile phone service provider 
EVN Telecom, as well as the construction of golf courses and 
luxury hotels by EVN's four real estate companies, to be 
unproductive diversions from EVN's core functions. 
 
Comment 
------- 
¶9. (SBU) Rapid economic growth and the attendant surge in energy 
demand have stretched Vietnam's power generation capacity to its 
limit.  EVN's monopolistic tendencies and habit of diverting 
resources outside its core energy functions have exacerbated the 
situation.  Much depends on scheduled reforms; the GVN must 
succeed in establishing a competitive market for power 
generation or risk stalling the growth of Vietnam's electricity 
production and the economic growth it fuels.  Mission actively 
presses the GVN to improve transparency in order to create real 
opportunities for U.S. companies to participate in Vietnam's 
energy industry.  End Comment. 
 
¶10. (U) This cable was coordinated with Embassy Hanoi. 
DICKEY