US embassy cable - 05HOCHIMINHCITY329

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000329 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT PLEASE PASS USTR, ELENA BRYAN 
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT 
USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO 
 
E.O. 12958: N/A 
TAGS: ECON, ENRG, EPET, EINV, ETRD, BEXP, EIND, VM 
SUBJECT: OIL/GAS INDUSTRY DRIVING GROWTH OF BA RIA - VUNG TAU 
PROVINCE 
 
REF:  04 HCMC 1528 
 
1. (SBU) SUMMARY: As the headquarters for Vietnam's oil and gas 
industry, Ba Ria-Vung Tau province reaps significant economic 
benefits in terms of taxes, investment and infrastructure, 
including power, ports, and roads.  A 16 percent growth rate and 
USD 3 billion in total foreign direct investment reflect these 
advantages, and local leaders see the province as a primary 
location for Vietnam's heavy industry.  However, Ba Ria-Vung Tau 
could be growing faster and seeing greater investment if local 
government was more transparent and proactive.  END SUMMARY. 
 
OIL/GAS DOMINATES PROVINCIAL ECONOMY 
 
2. (U) Consul General, CommercialOff and EconOff visited Ba Ria- 
Vung Tau province March 23-25.  They met with representatives of 
U.S. companies involved in Vietnam's oil/gas industry, including 
ConocoPhillips, Halliburton, Schlumberger, Baker Hughes and Global 
Santa Fe.  The company reps noted Vietnam's oil and gas sector 
provided significant opportunity for U.S. companies, especially in 
the area of equipment and technology.  In a meeting with 
VietSovPetro, a Vietnam-Russia joint venture that is the country's 
largest oil producer, the company's general director expressed 
strong interest in working with U.S. companies to improve 
VietSovPetro's operations, particularly in the area of directional 
drilling.  VietSovPetro's production level has recently started to 
decline, and it needs to turn to advanced recovery technologies, 
particularly from the United States, to exploit remaining oil and 
gas reserves. 
 
POWER SECTOR BOOMING, BUT SUPPLY STILL LAGS BEHIND DEMAND 
 
3. (U) The six power plants located in Ba Ria-Vung Tau's Phu My 
power complex draw on nearby gas resources to provide half of 
Vietnam's electricity.  The ConGen team visited Phu My 2.2, the 
nation's first independent power plant (IPP), operated by Mekong 
Energy Co., a build-own-operate-transfer (BOOT) joint venture 
involving Electricite de France International, Sumitomo 
Corporation (Japan), and Tokyo Electric Power Company 
International.  Though French built and operated, the closed cycle 
plant is built around two General Electric gas turbines and a GE 
steam turbine.  U.S. content represents 40 to 50 percent of the 
plant's USD 400 million.  Phu My 2.2 alone provides 10 percent of 
Vietnam's electricity.  The plant's general manager reported that 
while Vietnam requires 10 percent more power annually (equivalent 
to a new Phu My 2.2 plant each year), the GVN is responding to 
this need too slowly. 
 
PROVINCIAL AUTHORITIES RELUCTANT TO SHARE INFORMATION 
 
4. (SBU) While Ba Ria-Vung Tau clearly benefits from the success 
of the oil/gas industry, local leaders were vague on what 
proportion of oil/gas revenues accrue to the province and how its 
share of revenues is transferred.  Provincial authorities were 
justifiably proud of Ba Ria-Vung Tau's economic performance. 
Excluding oil/gas revenue, per capita GDP is USD 1,675, three 
times the national average.  The province has more than 112 
foreign direct investment (FDI) projects with registered capital 
of USD 3.2 billion.  However, local leaders were unable or 
unwilling to provide many details regarding plans to attract 
increased investment. The GVN plans to develop a large port to 
relieve pressure on Saigon Port and a rail link with neighboring 
Dong Nai province, but local leaders could not elaborate on these 
plans.  A press interview and dinner with local business leaders 
and the chairman of the People's Committee were canceled at the 
last minute without explanation. 
 
COMMENT 
 
5. (SBU) Ba Ria-Vung Tau has taken its natural advantages - 
proximity to oil/gas resources and location as a port on the river 
leading to Ho Chi Minh City - and combined them with a well- 
developed power and road infrastructure. While the province has 
seen significant growth, there is still much room for development. 
For example, proven gas reserves in a ConocoPhillips yet to be 
developed offshore block could become the basis for greater power 
generation and other energy intensive and petrochemical based 
industry.  Provincial leaders seem content to rest on their 
laurels and wait for opportunities to come to them.  Their 
attitude is in marked contrast to that of the leaders of Dong Nai 
and Binh Duong provinces. (reftel)  All three provinces are part 
of Vietnam's Southern Economic Zone, but Dong Nai and Binh Duong 
leaders are promoting economic growth by proactively encouraging 
investment.  Ba Ria-Vung Tau leaders, on the other hand, are 
letting the province's natural advantages do the work for them. 
WINNICK