VZCZCXRO1807
RR RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHHI #0417/01 1191035
ZNR UUUUU ZZH
R 291035Z APR 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC 9594
INFO RUEHHM/AMCONSUL HO CHI MINH 5828
RUEHBJ/AMEMBASSY BEIJING 7354
RUCNASE/ASEAN MEMBER COLLECTIVE

UNCLAS SECTION 01 OF 04 HANOI 000417 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MLS AND EEB 
 
E.O. 12958: N/A 
TAGS: EMIN SENV ECON PREL EINV VM
SUBJECT: VIETNAM'S PLANS FOR BAUXITE EXPLOITATION 
 
HANOI 00000417  001.2 OF 004 
 
 
¶1. (SBU) Summary:  The Government of Vietnam (GVN) has spent several 
years developing plans to exploit Vietnam's massive bauxite 
reserves, estimated as the world's fourth or fifth largest.  Despite 
environmental and national security concerns, and popular anxiety 
over Chinese participation, the highest levels of the GVN and the 
Communist Party have remained committed to an ambitious USD 15 
billion initiative to mine bauxite, process aluminum, and transport 
the finished product 300 kilometers to a new port.  While a Chinese 
company has begun construction on two alumina processing facilities 
in the Central Highlands, the GVN, though the State-owned Vietnam 
National Coal-Mineral Industries Group (Vinacomin), hopes to join 
with other international partners, such as Alcoa, to fully develop 
its aluminum potential.  Unsteady markets for aluminum and the 
global financial crisis have not dissuaded the GVN from its goals, 
though it has acknowledged possible delays. 
 
Comment: 
-------- 
 
¶2. (SBU) To our modest surprise, GVN officials provided much-greater 
detail about their plans for the bauxite sector than we had expected 
or that we have received in similar meetings relating to other 
natural resource exploitation or environmental issues.  Most likely, 
this reflects GVN worry that growing public concern over 
environmental impacts and Chinese involvement in the project 
(septel) might dissuade Alcoa from continued participation.  With 
BHP Billiton's already-announced postponement, Alcoa's possible 
postponement or departure would leave the Chinese as the project's 
sole foreign participant and likely market.  This would further feed 
the public perception that the GVN was ceding economic (and possibly 
territorial) control over the project to China and its unpopular and 
environmentally unfriendly technologies.  End comment 
 
Bauxite Reserves 
---------------- 
 
¶3. (SBU) Officials at the Ministry of Industry and Trade (MOIT) 
estimate Vietnam's bauxite reserves at about 5.4 billion tons, equal 
to about 2.4 billion tons of refined bauxite, and the fourth or 
fifth largest reserves in the world.    The highest quality (up to 
40 percent aluminum oxide) and largest-sized bauxite reserves are 
concentrated in the Central Highlands provinces of Dak Nong and Lam 
Dong and continue across the border into Cambodia (Note:  Laos also 
has non-contiguous bauxite reserves across the border from the 
central province of Quang Nam).  Though the Central Highlands are 
rich with coffee, tea and rubber production, GVN officials claim 
that most bauxite is located in bare, unforested areas, typically 
from four to twelve meters below the surface on the crest of hills. 
 
 
Many Years of Study 
------------------- 
 
¶4. (SBU) In the early 1980s, the Soviet Union and Hungary explored 
the possibility of bauxite mining but concluded that the 
environmental damage would be too great and instead urged an 
emphasis on cash crops, such as pepper, rubber and coffee. 
Subsequent Chinese plans to develop the bauxite mining sector did 
not receive GVN approval, most likely due to Vietnam's concerns that 
China, not Vietnam, would receive the added value from aluminum 
processing.  However, as Vietnam continued to develop, the GVN, 
possibly prompted by its Chinese counterpart, revisited the 
possibilities of bauxite and by the early part of this decade was 
looking to create a large-scale mining and refining project. 
 
High-Level GVN and Communist Party Commitment 
--------------------------------------------- 
 
¶5. (SBU) The GVN and the Communist Party repeatedly have identified 
bauxite/alumina development as important for economic development in 
the Central Highlands.  The 10th Communist Party Congress in 2006 
highlighted bauxite as an area for state investment, and in 2005 
MOIT initiated plans to develop the sector through 2015.  Most 
recently, in November 2008, Prime Minister Nguyen Tan Dung issued 
Decision 167/2007/QD-TTg approving the exploration, exploitation, 
processing and use of bauxite through 2015.  Bauxite development has 
frequently been raised in high-level government-to-government and 
party-to-party talks with China, including the joint statement made 
during the November 2006 visit to Vietnam by Chinese President Hu 
Jintao, which noted the countries' desire to "immediately discuss 
and carry out large projects such as the Bauxite one in Dac Nong..." 
and the joint statement issued during Vietnamese Communist Party 
Secretary Nong Duc Manh's June 2008 visit to China, which noted that 
the two sides would "enhance cooperation in projects such as bauxite 
in Dac Nong."  Outside groups monitoring the project note that this 
is a top-down effort with relevant decisions made by the Prime 
Minister, Ministry of Industry and Trade and Vinacomin. 
 
 
HANOI 00000417  002.2 OF 004 
 
 
Ambitious Bauxite Sector Plans 
------------------------------ 
 
¶6. (SBU) The GVN has initiated construction of two moderate sized 
projects in Dak Nong and Lam Dong provinces as the first steps in a 
hoped-for USD 15.6 billion initiative that will include several 
bauxite mines and aluminum refineries, linked by a 300-kilometer 
transportation link from the Central Highlands to a new deepwater 
seaport built specifically to handle bauxite at Khe Ga cape in 
coastal Binh Thuan province, about 200 kilometers north of Ho Chi 
Minh City.  (Comment: These roads and ports are part of a broader 
Central Coast development program that has some port people 
wondering why Vietnam needs half a dozen ports on the Central Coast 
when barely one has enough cargo to be considered functional now. 
End comment.)  According to Nguyen Khac Tho, Deputy Director of 
Heavy Industry at MOIT, the GVN's bauxite development plan assigned 
Vinacoin the lead in bauxite, alumina, and aluminum planning and 
focuses on capacity, financing, and technology.  Under the plan, 
production would reach 13-15 million tons of alumina and 0.4-0.8 
million tons of aluminum annually by 2025.  However, MOIT, MONRE and 
Vinacomin contacts noted that aluminum production hinges on the 
ability to obtain enough power for energy-demanding aluminum 
refining, which will require heavy investment in new power 
projects. 
 
China's Chinalco to Build First Two Facilities 
--------------------------------------------- -- 
 
¶7. (SBU) According to MOIT's Tho, China's Chinalco won a bid to 
construct the Lam Dong and Dak Nong bauxite/alumina facilities as 
part of an Engineering, Procurement and Construction (EPC) contract. 
 Each have a capacity of 600,000 tons of alumina per year, though 
initial capacity will be set at 300,000 tons at each facility 
annually.  Vinacomin will be responsible for facility operations and 
will perform the exploitation and bauxite separation.  According to 
Lien, Chinalco will provide 4,000 Chinese workers (2,000 per 
project) at peak periods; higher numbers reported in Vietnamese 
blogs were exaggerated.  Chinalco would provide training and 
technology transfer to Vinacomin, though approximately 100 Chinese 
professionals will continue to work in the alumina production 
facilities after construction. 
 
Potential Joint Ventures with 
U.S., Chinese, and Australian/UK Companies 
------------------------------------------ 
 
¶8. (SBU) Beyond the initial two projects, Vinacomin has ambitious 
plans for aluminum production joint ventures following the 
completion of transportation links to Binh Thuan.  While the global 
economic downturn has caused GVN to re-evaluate projects and push 
targets out from 2015 to 2020, it does not plan to down-size its 
projections.  According to Tho, Vinacomin is looking at three 
primary facilities in which Vinacomin will hold 60 percent shares 
and foreign partners up to 40 percent (alternately, additional local 
partners, including the private sector, may take up to 9 percent, 
leaving Vinacomin with a 51 percent stake).  Lien from Vinacomin 
added that the GVN was considering allowing foreign partners have 
100 percent control of any future aluminum processing.  China's 
Chalco will develop alumina production of 1.9 tons from Quang Son in 
Dak Nong; Alcoa will develop alumina production of 1.5 to 2 million 
tons (eventually up to 4 million tons) at Gia Nghia in Dak Nong; and 
BHP Billiton (Australian/UK) to develop alumina production of 1.5 to 
2 million tons (eventually up to 4 million tons) in Dak Nong. 
 
¶9. (SBU) Vinacomin looked most positively on the Alcoa project, as 
MOIT believed that Alcoa had agreed to participate in transportation 
infrastructure construction -- a prerequisite to a final agreement. 
In June 2008, during Prime Minister Nguyen Tan Dung's visit to 
Washington, Alcoa and Vinacomin signed a Cooperation Agreement to 
study the feasibility of developing a bauxite mine and alumina 
refinery.  By contrast, though Vinacomin and BHP Billiton had an MOU 
and the PM visited London to review, due to economic downturn, BHP 
Billiton had postponed its joint venture.  However, international 
aluminum experts cited poor world economic conditions, plunging 
global commodity prices and the ongoing backlash in Vietnam against 
bauxite mining as reasons why Alcoa could face a long delay in its 
plans for Gia Nghia. 
 
Transportation Infrastructure 
----------------------------- 
 
¶10. (SBU) The GVN will choose from a new railway, a rebuilt and 
expanded road system, or a pipeline to transport bauxite-related 
products to the coast for shipment to export markets.  MOIT has 
initiated a pre-feasibility study for the rail project from Central 
Highlands to coastal Binh Thuan province, which would also provide 
passenger and other cargo service.  The proposed railway will be 
constructed in two phases, each costing USD 1.5 billion, which will 
 
HANOI 00000417  003.2 OF 004 
 
 
be funded from the GVN budget and contributions from partners (Note: 
According to Liem, Alcoa balked at this cost estimate and the GVN 
has asked an Australian consulting firm to recalculate.  Alcoa's 
Walkmeyer made similar comments in his meeting with the Ambassador 
and recommended building an above-ground pipeline, converting the 
raw bauxite into "slurry," and moving it via pipeline from the 
central highlands to the coast for refining and eventual shipping). 
The seaport will be able to initially handle 3 million tons of 
alumina per year, with future expansion to handle larger volumes. 
Vinacomin's Lien stated that once Vinacomin locates financing, the 
first phase of the seaport project will cost USD 250 million. 
Expansion plans may cost up to USD 1 billion and the GVN is looking 
to cooperate with foreign partners. 
 
Financing and Markets 
--------------------- 
 
¶11. (SBU) Financing for the initial two projects, budgeted at USD 
1.5 billion, is coming from the Vinacomin budget and commercial 
loans, while larger, future plans will depend upon commercial loans 
and contributions from partners.  GVN contacts did not discuss 
turning to multilateral development banks or donors, such as JICA, 
for assistance, and the World Bank and Asian Development Bank 
confirmed that they had not been approached for loans and that they 
did not contemplate entering this sector.  According to Lien, 
Vinacomin initially will focus on alumina production, as prohibitive 
energy costs make aluminum exports unlikely for several years. 
According to Tho at MOIT, initial alumina production will flow to 
China, though Vietnam would look at exports to other countries, such 
as Australia or the United States, depending on transportation 
costs.  However, according to Lien, Vinacomin recently signed a 
contract with Yunnan Metallurgy in China under which Yunnan 
Metallurgy has agreed to purchase all alumina from initial projects 
in Dak Nong and Lam Dong for 30 years.  Larger aluminum projects 
will rely on foreign partners to help with aluminum sales.  Again, 
Vinacomin expects to look at the China market, though it is also 
considering the Middle East, Japan and Russia. 
 
The Environment 
--------------- 
 
¶12. (SBU) MONRE, MOIT and Vinacomin officials stated that the Prime 
Minister and Deputy Prime Minister had tasked project developers 
with finding ways to best protect the environment.  To that end, 
MONRE and Vinacomin officials have been studying how other bauxite 
and alumina producers manage environmental concerns.  Recently, 
Vinacomin sent engineers to Australia and China to learn the best 
production and pollution management technologies, while MONRE sent a 
team to Guangzhi to study how China manages red mud wastes produced 
during bauxite exploitation.  Vinacomin will adopt technologies and 
techniques from its international partners.  For initial projects, 
Chalieco will transfer Chinese technology, but will follow 
international standards.  MONRE and Vinacomin also noted agreements 
with Alcoa and Russia's RusAl to develop better bauxite 
technologies.  Vinacomin planned to use minimal land surface to mine 
and would recover all mined areas, would reuse water supplies 
several times in the bauxite cleaning and separation process to 
limit wastewater, limit hazardous wastes, and follow Alcoa practices 
on handling red mud to ensure the smallest environmental impacts. 
 
Environmental Impact Assessments 
-------------------------------- 
 
¶13. (SBU) In accordance with Vietnamese law, Vinacomin must prepare 
Environmental Impact Assessments (EIAs) prior to construction of 
each element of the overall project, including mining, processing, 
infrastructure construction and transportation.  However, Vinacomin 
was unsure whether it would prepare a Strategic Environmental 
Assessment (SEA) looking at the environmental impacts of the project 
as a whole, as GVN law did not require such an undertaking when the 
project was approved (though it does so now).  Nor, is it clear 
whether EIAs for individual components will look at cumulative 
environmental impacts of these components together with other 
related initiatives.  Vinacomin prepared EIAs for the initial phase 
of bauxite/alumina projects in Lam Dong and Dak Nong and will 
prepare supplements when those two facilities are expanded to full 
capacity of 600,000 tons per year.  Vinacomin stated that it hired 
expert consultants to make sure that the EIAs relied upon 
international standards and that it provided training to local 
residents (including many poor, ethnic minorities) to ensure they 
could participate in the EIA process.  According to MONRE, which has 
approved these documents, the EIAs cover all aspects of 
bauxite/alumina mining and production, though they do not cover 
aluminum processing (not likely to happen at the two facilities) or 
transportation.  The EIAs covered four main areas: soil topography 
after bauxite removal, water (surface water used in bauxite 
production, not groundwater, as GVN believes layers of clay and 
basalt prevent bauxite-related contaminants from leaching into 
 
HANOI 00000417  004.2 OF 004 
 
 
groundwater), red mud created during bauxite production, and 
population resettlement issues. 
 
¶14. (U) This cable was coordinated with ConGen HCMC. 
 
MICHALAK