VZCZCXRO8602
RR RUEHCHI RUEHDT RUEHNH
DE RUEHHM #0575/01 2221039
ZNR UUUUU ZZH
R 101039Z AUG 09
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC 5986
INFO RUEHHI/AMEMBASSY HANOI 3887
RUEHBJ/AMEMBASSY BEIJING 0059
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 6222

UNCLAS SECTION 01 OF 05 HO CHI MINH CITY 000575 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EAP/MLS AND EEB 
 
E.O. 12958: N/A 
TAGS: EMIN SENV ECON PREL EINV VM
SUBJECT: DEEPER DIGGING INTO VIETNAM'S BAUXITE DEBATE UNCOVERS AS 
MANY NEW QUESTIONS AS ANSWERS 
 
REF: A) Hanoi 417  B) Hanoi 537  C) Hanoi 413 
 
HO CHI MIN 00000575  001.2 OF 005 
 
 
¶1. (SBU) Summary: The issue of bauxite development in the 
Central Highlands has fueled strong passions among diverse 
sectors of the Vietnamese public, has most likely played a role 
in the arrest of some "dissidents" who emerged as leaders of the 
anti-mining crusade, and continues to generate lively national 
debate.  Concerns about bauxite have primarily revolved around 
three key issues: economic viability, environmental impact, and 
the level and nature of Chinese involvement.  Based on a recent 
trip to one of the mining sites and meetings with local 
officials, it appears that the GVN is maintaining its support 
for bauxite excavation and has ambitious plans for its 
processing and export.  There is, however, a wide chasm between 
those plans and the realities on the ground.  To date, only one 
project has actually moved into the construction phase, while 
another is pending permission to start construction.  In 
contrast to blog reports that cite thousands of Chinese workers 
in the Central Highlands, the Ambassador observed little 
evidence of a significant Chinese work force during his visit, 
though the numbers of workers will likely increase as plans move 
forward.  Despite the assurances of provincial leaders and 
project managers, there is still insufficient evidence that 
current plans to manufacture alumina will be either profitable 
or environmentally sound.  In other words, it is all still up in 
the air.  End summary. 
 
 
 
A Poor Province's Prerogative... 
 
-------------------------------- 
 
 
 
¶2. (SBU) Vietnam is estimated to have 5.4 billion tons of 
bauxite ore -- one the world's largest reserves -- and 4.4 
billion of those reserves are in Dak Nong, one of Vietnam's 
poorest provinces.  Dak Nong People's Committee Vice Chairman 
Tran Phuong told the Ambassador on July 25th, that the key to 
Dak Nong's economic future lies in exploitation of its abundant 
bauxite reserves.  Mr. Phuong noted that the central government 
had given a green light to Central Highland bauxite development, 
as issued in Politburo Decision Number 245 in April 2009, and 
that the Dak Nong People's Committee remains firm in its 
commitment to develop bauxite.  He added that "If a province is 
blessed with mineral resources, it has every prerogative to take 
advantage of those mineral resources". 
 
 
 
Three out of Four Projects Stalled 
 
---------------------------------- 
 
 
 
¶3. (SBU) The Dak Nong People's Committee originally envisioned 
four large bauxite projects that would export six million tons 
of alumina per year, all of which would be completed by 2015. 
Products of the processing factories would be transferred by a 
railway to the Ke Ga seaport in Binh Thuan province on the 
central coast, and the intermediate product, alumina, would be 
exported abroad.  The reality on the ground is that neither the 
railroad nor the port projects have gone beyond the 
pre-feasibility stage (Ref A).  Mr. Phuong also admitted that 
three of Dak Nong's four prospective bauxite projects are 
stalled. 
 
 
 
¶4. (SBU) The projects' troubled history provides a glimpse into 
why they are stalled and what must be done to get them moving. 
According to local officials, the Aluminum Corporation of China 
Limited (Chalco), the publicly-listed subsidiary of the 
state-owned holding company Aluminum Corporation of China 
(Chinalco), first showed interest in 2006, when there was a 
proposal for excavating and transporting the raw ore bauxite by 
pipeline to the central coast where it would be processed and 
exported to China.  Mr. Phuong noted, however, that negotiations 
on that particular project proposal are indefinitely on hold 
because such a venture would neither allow industrial 
development nor contribute any value-added for Dak Nong 
province.  BHP Billiton had also expressed interest in another 
project but has subsequently pulled out. 
 
 
 
 
HO CHI MIN 00000575  002.2 OF 005 
 
 
¶5. (SBU) The third company to express an interest was Alcoa. 
Mr. Phuong said the firm was initially attracted to Dak Nong 
because of the soil structure's similarity to Australia, where 
Alcoa already has bauxite operations, and had planned to conduct 
a series of feasibility studies.  But Alcoa's enthusiasm appears 
to have waned in the wake of Vietnam's bauxite brouhaha and it 
is now idling on the sidelines (reftels).  (Note: Per prior 
conversations between the Ambassador and company 
representatives, Alcoa is also concerned about the tax rate at 
every stage of bauxite processing, since they will be subject to 
a higher export tax if alumina is considered a "raw" rather than 
a "refined" material.  Mr. Phuong said Dak Nong province 
supports the classification of alumina as a "refined" material. 
End note) 
 
 
 
¶5. (SBU) In Dak Nong, the only bauxite mine ready to start 
construction is the Nhan Co project, but little is actually 
going on there yet.  While technically fully invested and 
operated by Vietnam Coal and Mineral Corporation (Vinacomin), 
the Chinese construction company Chalieco, another subsidiary of 
Chinalco, was awarded the Engineering Procurement and 
Construction (EPC) contract to build Nhan Co's aluminum 
processing factory.  On the wall of the makeshift project 
management meeting room hangs a large, impressive map of what 
the alumina processing complex will look like once construction 
is completed.  It features a factory with an initial annual 
capacity of 650,000 tons, a coal-fired power plant, and a 
bauxite refinery.  Nhan Co's Chief of Staff, Mr. Nguyen Van 
Hieu, said that the plant will be fully operational by 2011. 
Despite this assurance, it has been one year since the project 
began and thus far only the land has been flattened.  Before any 
further action can take place, Mr. Hieu said, Nhan Co must get 
approval for the economic efficiency and environmental impact 
reports it submitted to the Ministry of Planning and Investment 
and the Ministry of Natural Resources and Environment. 
 
 
 
¶6. (SBU) In contrast, the Tan Rai project, also wholly owned by 
Vinacomin in Lam Dong province, has already had both its 
economic and environmental reports approved.  Like Nhan Co, when 
complete, the full Tan Rai complex would include excavation, 
processing and refining of bauxite ores into alumina (4.3 
million tons of ores into 630,000 tons of alumina per year). 
Tan Rai's Vice Chairman, Mr. Tran Duong Le, said that 
construction (also by Chalieco) began last November and will be 
completed in November 2010 when the contract ends.  Vinacomin 
will oversee the bauxite mining itself, which it considers the 
"easy" part of the operation, while the more challenging parts, 
such as transferring ores by conveyor belt from mines located 4 
kilometers away from processing facilities and running the 
refinery operations, will be offered to a Vietnamese firm by 
domestic tender. 
 
 
 
Crunching the Numbers 
 
--------------------- 
 
 
 
¶7. (SBU) The economic viability of the GVN's plan to excavate 
and process bauxite is still an open question.  Because 
exporting raw bauxite ores would not allow for much industrial 
development in the Central Highlands, the GVN is keen to 
manufacture aluminum--the "value-added" product made from 
alumina.  But because aluminum processing requires a great deal 
of water and energy--two resources in short supply in the 
Central Highlands--the route forward is not clear.  In Dak Nong 
province, for example, Mr. Phuong said that 1,400 megawatts of 
the province's 1,700 megawatt capacity are already dedicated to 
meeting local demand.  While more projects are under 
construction, Mr. Phuong acknowledged that even after accounting 
for new power plants under construction there would, at best, be 
enough power available to produce no more than 200,000 tons of 
aluminum per year. 
 
 
 
¶8. (SBU) Given these limitations on the resources required to 
produce finished aluminum, Tan Rai Vice Chairman Le said that 
both the Tan Rai and Nhan Co projects will only be able to 
produce alumina, not aluminum.  Management at both projects 
noted that while their factories could eventually expand their 
 
HO CHI MIN 00000575  003.2 OF 005 
 
 
alumina capacity, neither project could independently add the 
capability to produce aluminum even if power and water were 
available since the technology for aluminum production does not 
yet exist in Vietnam.  To bring in a suitable partner with the 
technology, an international open tender would be required. 
While Vinacomin maintains the lofty goal of producing 120-150 
thousand tons of aluminum a year by 2014, it has not started 
concrete planning for an aluminum plant, it does not know where 
the power and water could come from, nor has it even decided on 
where an aluminum processing plant would be located. 
 
 
 
¶9. (SBU) Another potential economic viability concern is the 
medium and long term trajectory for aluminum prices (and 
correspondingly alumina prices).  Short-term prices have 
plummeted by more than 50 percent since last year when the 
project was making headlines.  While part of the drop is due to 
the global economic downturn, analysts say China's 
overproduction of aluminum may continue to drive prices down for 
the long term.  While China has already begun scaling back 
production, closing at least three large factories in the last 
year, there is still a global glut of aluminum, causing some 
analysts to remain bearish on the 10 year outlook for aluminum 
prices.  This bearish outlook stands in contrast to the bullish 
assumptions on which Vietnam's aluminum plans are built. 
According to one report, TVK assumes an average alumina price of 
$326 per ton (which is significantly above current market 
prices) for the duration of the Tan Rai project.  Even at that 
price, TVK estimates that although it will take 13 years to 
recover the investment, there will be positive economic benefits 
over the 50 year life of the project. 
 
 
 
Are All Sludge Pits Created Equal? 
 
--------------------------------- 
 
 
 
¶10. (SBU) Critics of the GVN's bauxite plans point to the 
potential deleterious effects that bauxite excavation and 
alumina processing could have on the environment.  Of particular 
concern is how "red sludge," the toxic byproduct of alumina 
processing, would be handled.  Mr. Phuong and managers of both 
the projects assured the Ambassador that the plants will be 
well-equipped to handle the red sludge safely.  They explained 
that disposal involves creating a pit, filling it with 20 
centimeters of clay, and then layering it with a chemical fabric 
so that the red mud can't penetrate into the soil.  Although it 
is not possible to reuse the red mud, it is possible to recycle 
the water back through the refining plant, which both projects 
intend to do.  Mr. Hieu noted that in Australia, sludge pits 
have been planted with trees and one has even been converted 
into a Formula One racetrack. 
 
 
 
¶11. (SBU) Mr. Phuong said he was initially skeptical about the 
environmental impact of bauxite development, but after visiting 
Australia and China's Kunming and Yunnan provinces and observing 
the processing, procedures and environmental safeguards in those 
countries, he was reassured that the damaging environmental 
effects of bauxite mining can be minimized when projects are 
carried out properly.  He emphasized that the same expertise can 
and will be applied in Vietnam.  Conditions in Australia, 
however, are significantly different than Vietnam.  Australia 
disposes its red sludge in remote outback areas with little 
rainfall, thus mitigating the risk of waterway contamination. 
Vietnam, which has a comparatively wetter climate and is more 
densely populated, does not have the luxury of vast tracts of 
unused land.  The proposed mining and process sites are also 
located in mountainous areas that serve as the water catchment 
for much of the central and southern regions of the country. If 
the toxic sludge were to seep into streams or the Dong Nai 
River, the primary water source for all of Southern Vietnam, the 
results could be catastrophic. 
 
 
 
¶12. (SBU) Red sludge is not the only environmental risk.  The 
Director of Cat Tien National Park, Mr. Tran Van Thanh, 
emphasized the serious consequences that building additional 
hydropower plants on the Dong Nai River system would inflict on 
the environment in and around Cat Tien.  In addition to 
destroying wetland areas, the hydropower plants would adversely 
 
HO CHI MIN 00000575  004.2 OF 005 
 
 
affect the aquatic ecosystems, and severely disturb the 
endangered rhinoceros population.  Mr. Thanh also said that the 
Vinacomin's environmental impact studies are "unreliable" 
because they are done by the government for the government, not 
by an independent source.  Vinacomin management at Tan Rai 
project initially said that the reports are transparent and 
available to the public, but when the Ambassador asked Vinacomin 
where he could find a copy of the report, there was a lot of 
uncomfortable commotion amongst the group, who ultimately said 
that the Ministry of Natural Resources and the Environment 
should have reports available. 
 
 
 
Much Ado about China 
 
-------------------- 
 
 
 
¶13. (SBU) Perhaps one of the most controversial aspects of the 
bauxite debate is the involvement of Chinese interests.  Public 
concern over protecting strategic national resources, unfair 
bidding tenders for Chalieco, and worries about the influx of 
foreign labor are consistent themes in Vietnam's media and 
Internet blogs, with some blogs reporting thousands of Chinese 
workers moving into the region and the Chinese military setting 
up shop there to protect the workers.  Mr. Phuong, however, 
assured the Ambassador that the only Chinese workers currently 
in Dak Nong province are "a handful" of Chalieco engineers 
studying the soil.  Before that, Phuong said about 60 to 70 
Chinese workers had been in Dak Nong to build a biofuel project, 
but all of them quickly departed after the project ended.  He 
believes the whole issue of Chinese labor has been hyped up and 
blown out of proportion by "people with bad intentions." 
 
 
 
¶14. (SBU) Indeed at Nhan Co, where construction is on hold, the 
Ambassador observed no obvious Chinese presence (beyond pandas 
painted on some of the bathroom tiles).  Nhan Co management 
would not give any projections about the number of Chinese 
workers once the EPC took effect, however, stating only that it 
would "vary depending on the phase of construction."   They 
emphasized that "anything that can be done by a Vietnamese will 
be" and that at full capacity there will be about 1,600 
Vietnamese employees.  Meanwhile at the Tan Rai project, there 
are currently "over 500" Chinese workers constructing the 
alumina refinery, but the management emphasized that 
construction of the facility and the transfer of technology were 
the only parts of the project subject to international tender. 
When the plant becomes operational, the entire workforce will be 
Vietnamese, except during the start up phase when some foreign 
experts (Chinese or others) will be employed as necessary. 
 
 
 
Comment 
 
------- 
 
 
 
¶15. (SBU) Although GVN and Central Highland provincial officials 
are pushing ahead with bauxite plans, there is a sizeable gap 
between their ambitious hopes and schedules and what is actually 
taking place on the ground.  This is likely due to a combination 
of factors, including the GVN reassessing priorities in light of 
the unexpected popular backlash and the assorted economic and 
environmental complexities associated with such a massive 
undertaking.  The Nhan Co project is currently little more than 
a pile of dirt and while Tan Rai is further along in the 
construction phase, it takes a lot of imagination to see how 
they will be able to excavate, refine and process 600,000 tons 
of bauxite into alumina within the next 16 months - particularly 
when a viable transport network for exporting the product does 
not exist. 
 
 
 
¶16. (SBU) Internet blogs and cocktail chat around Ho Chi Minh 
City about a "Chinese invasion" certainly appear exaggerated, as 
there is currently little evidence of an overt Chinese presence 
in either province.  That said, neither of the projects' 
managers would provide any hard numbers about how many Chinese 
workers they expect during the construction phase and beyond. 
Questions remain about the fairness of the tender that Chalieco 
 
HO CHI MIN 00000575  005.2 OF 005 
 
 
was ultimately awarded, particularly given China's spotty record 
on environmental protection and contract fulfillment in other 
tenders and the vital importance of safe red sludge containment. 
 Unfortunate mishaps with toxic waste notwithstanding, the 
development of power resources to support alumina (and 
eventually aluminum) processing is likely to represent a serious 
-- perhaps insurmountable -- obstacle that will also entail its 
own significant environmental cost.  Based on the evidence 
available now, it is not yet clear that the economic benefits of 
bauxite development are worth the high potential risks. End 
Comment. 
FAIRFAX