US embassy cable - 04HANOI3084

UNCLAS SECTION 01 OF 03 HANOI 003084 
 
SIPDIS 
 
STATE ALSO FOR EAP/BCLTV AND EB 
STATE PASS USTR FOR EBRYAN 
STATE PASS USAID FOR ANE/KUNDER AND ANE-SPO BRADY 
STATE ALSO PASS USAID FOR ANE/KENNEDY 
TREASURY FOR OASIA 
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, EINV, EAID, ENRG, VM, FINREF 
SUBJECT: VIETNAM: SNAPSHOT OF RECENT ECONOMIC EVENTS 
 
1. This cable describes economic events in Hanoi during 
October and early November 2004. 
 
Financial Sector Donor Working Meeting 
-------------------------------------- 
 
2. The Financial Sector Donor Working Group met in Hanoi on 
October 18 to discuss donor projects in the financial sector 
and the key areas of reform that should be focused on in the 
World Bank's next Poverty Reduction Support Credit (PRSC) 4. 
The World Bank hosted the meeting with participation by the 
State Bank of Vietnam (SBV) and representatives from 15 
donor organizations and donor-funded projects.  (Note:  The 
goals of the PRSCs are speeding up economic growth and 
poverty-reduction through promoting competition, 
accelerating state-owned enterprise and banking reform, and 
improving transparency and accountability in SOEs and in the 
banking sector.  The most recent in the series of credits, 
PRSC 3, was signed on July 8, 2004 in the amount of US$100 
million.  However, due to the persistently slow pace of 
state-owned enterprise and banking sector reforms, the 
United States abstained on the third Poverty Reduction and 
Support Credit for Vietnam.  The PRSC 4 is currently under 
development with a tentative timeline proposing a draft 
program by February 2005 and the presentation to the World 
Bank Board in June 2005.  End Note.) 
 
3. Representatives of the World Bank, the European 
Commission, USAID, IMF, Agence Francaise de Developpement 
(AFD), and the Canadian International Development Agency 
(CIDA) shared highlights of their specific ongoing 
assistance projects in Vietnam.  They also identified 
proposed areas for future assistance, including assistance 
in the audit and restructuring of the State Owned Commercial 
Banks (SOCBs), strengthening of banking supervision, 
enhancement of the corporate governance and regulatory 
framework for banking, and other areas of Vietnam's capital 
market development.  Donors expressed concern that there is 
a lack of strategic focus guiding the large volume of 
assistance in the banking sector.  To address this concern, 
the Donor Working Group discussed ways in which the PRSC 4 
could be used to help focus donor assistance and advance the 
financial sector reform agenda.  The Donor Working Group 
also suggested two additional steps for advancing financial 
sector reforms:  1) encouraging relevant agencies such as 
the Ministry of Finance (MoF) and the State Securities 
Commission (SSC) to take a leadership role and participate 
more actively in financial sector reform issues; and 2) 
holding a donor meeting led by the State Bank of Vietnam 
(SBV) on the SBV's reform agenda and its immediate 
assistance needs in November and then holding more regular 
sector work group meetings thereafter. 
 
Oil Discovery off Northern Coast 
-------------------------------- 
 
4. American Technologies Inc Petroleum (ATIP), announced 
October 20 that initial drilling in the Yen Tu-1X well about 
70km off the coast of Hai Phong had found oil and gas.  ATI 
(an American company also invested in aquaculture and eco- 
tourism ventures in Vietnam) is in a partnership with 
Petronas Carigali (Malaysia), Oil and Gas Investment and 
Development Company (PetroVietnam) and Singapore Petroleum 
(Singapore) to explore blocks 102 and 106 in the Gulf of 
Tonkin.  Press reports indicate Petronas has a fifty percent 
stake in the project, ATI and PetroVietnam each have twenty 
percent and Singapore Petroleum has ten percent.  To date, 
the partnership has spent about $20 million and estimated it 
would need to spend another $100 million before commercial 
activities could begin.  According to ATI, the company's oil 
and gas and geology experts have estimated that these fields 
could contain 722 million barrels of recoverable oil and 40 
billion cubic meters of gas in the wells. 
 
5. However, certain issues cast some doubt on the validity 
of this announcement.  According to subsequent news 
articles, an official from Petronas, one of ATIP's partners, 
has said that Petronas believes the recoverable reserves may 
only be about seven to ten million barrels.  The Petronas 
official claims that Petronas found some oil in the well. 
However, when Petronas attempted to drill deeper, it 
encountered a large amount of poisonous hydrogen sulfide 
gas, which prompted the company to abandon the well.  In a 
meeting with the Ambassador on October 22, a ConocoPhillips 
executive resident in Vietnam indicated that initial 
petroleum finds in Vietnam's northern waters had contained 
significant Carbon Dioxide (CO2) levels, as high as 80 
percent.  At this level of CO2 contamination the commercial 
viability of these reserves could be affected. 
Additionally, throughout the press conference on October 20, 
ATIP General Director Huu Dinh, repeatedly requested that 
the media "ignore the rumors" about the discovery and focus 
on the "facts" presented by ATIP.  Huu Dinh is reportedly on 
the "verge of bankruptcy" in Vietnam. Several people who 
attended the press conference speculated the announcement 
might have been an attempt to attract other investors to a 
questionable venture. 
 
USVTC Hosts ICSID General Council 
--------------------------------- 
 
6. Under USAID's program to assist GVN in implementing the 
U.S.-Vietnam Bilateral Trade Agreement (BTA) and Vietnam's 
efforts to join the WTO, the U.S.-Vietnam Trade Council 
(USVTC) and the Ministry of Planning and Investment (MPI) 
hosted a visit of Gonzalo Flores, Senior counsel of the 
International Centre for Settlement of Investment Disputes 
(ICSID), to Hanoi October 26-29.  USVTC and MPI organized a 
workshop on ICSID for officials from a number of agencies 
including MPI, the Ministry of Justice, the Ministry of 
Trade, the Office of Government, and the National Assembly. 
The workshop provided a forum for Vietnamese legal experts 
to learn more about ICSID and to consider the impact ICSID 
membership will have on Vietnam. During the seminar, Flores 
stressed that because of its commitments in the BTA (as well 
as a number of bilateral investment agreements with other 
countries), Vietnam has consented to arbitration at the 
ICSID and investment dispute cases may already be referred 
to ICSID for dispute settlement.   (Note:  The investment 
chapter of the BTA (Chapter IV) states that nationals or 
companies of either the United States or Vietnam may submit 
an investment dispute to ICSID for settlement by binding 
arbitration.  Until Vietnam becomes a party to ICSID, 
settlement would be done through ICSID's Additional 
Facility.  End Note.)  Besides the seminar, Flores met with 
officials at the MPI, MOJ and OOG to discuss ICSID 
accession, met with officials of the Supreme People's Court 
to discuss enforcement of ICSID arbitration awards and spoke 
at an Amcham luncheon. 
 
Policy Dialogue on Services Sector 
---------------------------------- 
 
7. On October 26, in Hanoi, the Ministry of Planning and 
Investment (MPI), in cooperation with the UNDP, organized a 
policy dialogue seminar on the challenges and approaches to 
liberalization of Vietnam's services sector.  The seminar 
was held under the framework of the UNDP's technical 
assistance (TA) project "Capacity Strengthening to Manage 
and Promote Trade in Services in Vietnam in the Context of 
Integration."  Senior foreign government officials and 
consultants from Malaysia, India, Australia, Canada and 
Brazil participated in the seminar, described their 
respective countries' experiences with services 
liberalization and making recommendations for Vietnam. 
Representatives from the Vietnam's General Statistics Office 
(GSO) and other local economic experts pointed out that GVN 
statistics on the services sector do not comply with the 
WTO's classification of services sectors and sub-sectors and 
called for donor assistance in filling this gap. 
 
8. Officials from the Ministry of Planning and Investment 
(MPI) stressed the need for a national strategy for 
developing the services sector.  MPI officials also noted 
that to attract additional foreign direct investment in the 
services sector, the GVN should:  1) enhance transparency of 
legislation and policies; 2) simplify licensing procedures 
for FDI projects especially in the services sector; and 3) 
remove the 30 percent minimum capital contribution 
requirement by foreign investors in joint venture companies 
in some sectors. However, MPI officials also stressed that 
the GVN needs to maintain the ceiling on foreign ownership 
in some particularly important services projects.  A 
Canadian UNDP consultant cited telecom, IT services, 
education and training, and financial services as key 
sectors for development and liberalization.  Some foreign 
experts said that Vietnam should be cautious in making 
services commitments and that the GVN should consider what 
the most appropriate balance between government and private 
participation would be in the various services sectors. 
According to foreign experts, the GVN should also consider 
the possible impact of such commitments on the domestic 
market and on social and economic growth. A representative 
from the Prime Minister's Working Group on implementing the 
Enterprise Law commented that Vietnam's domestic services 
market should be open to investment from domestic private 
enterprises before they are open for foreign investment. 
 
Vietnam Literary Copyright Center Established 
--------------------------------------------- 
 
9. On November 2, The Vietnam Writers' Association (VWA) 
hosted a ceremony in Hanoi to announce the establishment of 
the Vietnam Literary Copyright Center (VLCC).  The VLCC is a 
non-governmental, non-profit organization under the 
management of the VWA, which the Ministry of Home Affairs 
established in August 2004.  The stated functions of the 
VLCC include:  executing contracts on copyright transfer 
between the Center and authors; settling disputes among 
members; coordinating with international organizations on 
the protection of copyrights; and disseminating the text of 
laws, regulations and international conventions on literary 
copyright issues to its members, other writers and the 
general public. At present, about 100 Vietnamese writers 
have signed contracts with the VLCC.  The VLCC has asked the 
William Joiner Center to act as an intermediary between the 
VWA and American writers, whose books are published by the 
VWA's publishing house in Vietnam. Embassy Hanoi's Public 
Affairs is providing a USD500 grant to the Center to support 
copyright protection. 
 
New Insurance Regulations 
------------------------- 
 
10. On October 19, the Ministry of Finance issued two new 
insurance circulars (98/2004/TT-BTC and 99/2004/TT-BTC), 
updating and replacing two earlier circulars, drafted with 
Asian Development Bank technical assistance.  These 
circulars serve as implementing regulations for the 
Insurance Law (April 2001) and subsequent Government Decrees 
on the insurance sector (Decree 42/2001/ND-CP and 43/2001ND- 
CP from August 2001) in Vietnam.  The local representative 
of a U.S. insurance company (which has a representative 
office in Vietnam but is still awaiting a license to 
operate), commented that these circulars include new and 
more specific provisions on product approval, pricing 
assumptions and formulas, hiring of appointed actuaries, the 
wording of policies, sales illustrations, contracting, 
agency supervision and profit sharing rations.  Unofficial 
translations of the circulars have been emailed to 
EAP/BCLTV. 
 
MARINE