US embassy cable - 03HANOI2367

UNCLAS HANOI 002367 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB, E, EAP/BCLTV 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: EAID, JA, VM 
SUBJECT: Japanese Special Yen Loans in Haiphong Port 
 
1.   (SBU)  As part of a September 8 trip to Haiphong, 
Ambassador and ECON/C toured the port and were briefed about 
the port modernization project.   According to the Port 
Project Manager, the first phase involving construction of a 
container port is complete and bidding is in progress for 
the second phase.  Phase II has several parts:  enlarging 
the container port with landfill, dredging the port, and 
redirecting the channel to take advantage of naturally 
deeper water and avoid silting problems from the river. 
Currently the minimum depth of the port is 5 meters with an 
additional 3 meters at high tide.  The dredging would 
increase this to 7.5 meters minimum depth. 
 
2.   (SBU)  The Project Manager went on to say that the 
first phase had cost $34 million in ODA provided by Japan. 
Although there had been open bidding on the first phase, 
only Japanese firms would be allowed to compete in the 
second phase.  The $126 million second phase would be funded 
by a special yen loan with a 10 year grace period before the 
30 year repayment period at the rate of 1% interest would 
begin.  The Manager noted that the two phases of the project 
were created in the wake of the 1997 financial crisis to 
shore up Southeast Asian economies as well as provide jobs 
for Japanese construction firms. 
 
3.   (SBU)  A few days later, the rep of a US firm pointed 
out that the Japanese firms often subcontracted Vietnamese 
SOEs for various parts of large construction projects like 
this one.   Unlike Japanese firms, SOEs are not obliged to 
use only Japanese equipment so his firm which provides heavy 
construction equipment had a nearly 90% share of the 
Vietnamese market compared with the 10% share of its major 
Japanese competitor. 
 
4.   (SBU)  Following the IBRD consultative group meeting 
last June, the Ambassador spoke with GOJ embassy officials 
up to and including the Japanese Ambassador all of whom 
denied that there was any tied aid in Japanese ODA-funded 
infrastructure projects in Vietnam.  Subsequent to the 
Haiphong trip, the Japanese Econ section chief confirmed the 
details of the project and its financing as described above 
and noted that it had been approved by the OECD.  He 
surmised that his Ambassador had been discussing tied aid 
that had not been approved by the OECD. 
BURGHARDT