US embassy cable - 05HANOI2894

UNCLAS SECTION 01 OF 03 HANOI 002894 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/MLS 
 
REF: HANOI 
 
E.O. 12958: N/A 
TAGS: PREL, PHUM, ETRD, EINV, ECON, VM, WTO, SOE, BTA 
SUBJECT: PORT DEVELOPMENT AND COAL MINING IN QUANG NINH 
 
1. (SBU) Summary: On his recent trip to Quang Ninh Province, 
the Ambassador inspected Cai Lan Port and Cao Son coal mine 
in order to advocate on behalf of U.S. firms seeking 
business in the province.  The transport and mining 
industries in Quang Ninh clearly believe that WTO accession 
will be hugely beneficial to their businesses and are 
preparing to expand operations with joint ventures and 
foreign equipment, which provides a good opening for U.S. 
companies seeking business in this important provincial 
market. End Summary. 
 
2. (SBU) On behalf of port operator Stevedore Services of 
America (SSA Marine) and heavy equipment manufacturer 
Caterpillar, the Ambassador inspected Cai Lan Port and Cao 
Son coal mine during his recent trip to Quang Ninh Province. 
Prior to these visits, the Ambassador advocated for 
increased U.S. business partnerships in Quang Ninh with 
Provincial People's Committee Vice Chairwoman Nhu Thi Lien 
at a welcome dinner in Halong City October 17.  Noting the 
similarity between Halong City and Seattle, with their busy 
and beautiful harbors, the Ambassador suggested that Seattle- 
based businesses are natural partners for their Quang Ninh 
counterparts.  Prime Minister Phan Van Khai recently visited 
Seattle while touring the United States, where he had a 
productive discussion with SSA Marine about port development 
in Vietnam.  In response to the Ambassador's question about 
the prospects for SSA Marine's proposal to invest USD 65 
million to modernize, expand and operate portions of the Cai 
Lan port, Lien said that, as far as the People's Committee 
is concerned, SSA Marine will be Cai Lan Port's partner. 
The Central Government has agreed in principle with this 
arrangement, but the provincial authorities are still 
awaiting final approval. 
 
Cai Lan Port 
------------ 
 
3. (SBU) On October 18, the Ambassador met over lunch with 
Cai Lan Port Authority representatives and with Nguyen Tien, 
SSA Marine's representative in Vietnam, before inspecting 
Cai Lan Port.  The Cai Lan facility represents one of two 
ports in which SSA is seeking to invest, the second being 
the Cai Mep Port near Ho Chi Minh City.  They explained that 
the SSA Marine proposal for Cai Lan, which would involve a 
50/50 joint venture with the Quang Ninh Port Authority, is 
currently awaiting final approval from the Ministry of 
Transportation (MOT).  SSA Marine wants to build two new 
berths (berths 8 and 9), as well as to operate an existing 
berth (berth 7).  Before this project may proceed, the 
Ministry of Transportation must grant its approval to the 
project.  (Note:  A current stumbling block to moving 
forward concerns the appointment of an operator for the 
exiting berth 7 at Cai Lan.  The MOT is weighing a competing 
proposal from Hutchinson International Terminals of Hong 
Kong, which also seeks to operate this berth.  End note.) 
Gaining permission to operate berth 7 would allow SSA 
Marine's joint venture partner to generate revenue to cover 
its share of the costs of developing berths 8 and 9. 
 
4. (SBU) The Ambassador asked how Cai Lan Port's development 
figures into the GVN's overall port development plans.  Mai 
Van Phuc, Vice Director of Vinalines, the parent company of 
the Cai Lan Port Authority, explained that the GVN plans to 
develop five major ports in Vietnam, including a "cluster" 
of three deep-water ports outside Ho Chi Minh City that 
would greatly increase the region's capacity to receive 
100,000-ton ships, which, in turn, would reduce pressure on 
the Port of Saigon.  The existing facilities in Saigon will 
be used for "other purposes" when this cluster of ports 
comes online.  Other ports included in the GVN's overall 
development plans are located in Vung An and Van Phong, in 
Ha Tinh and Khanh Hoa provinces, respectively.  The GVN 
considers the port of Danang already sufficiently developed 
and has no immediate plans for further development there. 
(Note: This description conflicts with other reports of GVN 
plans for overall port development.  In any event, Hanoi 
appears to lack a coherent port development program as each 
coastal province competes to build a port.  The GVN appears 
generally seized with developing a major new port at Van 
Phong in the center of the country which private sector 
observers believe makes little economic sense, while private 
enterprise clamors for proposals benefiting key cargo 
transshipment points at the Port of Saigon and Cai Lan port. 
An industry observer also reports that Phuc's comments were 
poorly informed on areas outside his immediate experience in 
Quang Ninh Province and Haiphong. End Note.) 
 
5. (SBU) Phuc said that the GVN plans to develop Haiphong 
port so that it can service 15,000-20,000 ton vessels, but 
he noted that the shallowness of the harbor means that the 
port will not be able to receive deep-water vessels.  Plans 
to develop the Cai Lan port facility, on the other hand, 
will take advantage of Ha Long bay's natural suitability for 
deep-water ships.  He explained that expansion of Cai Lan's 
capacity will focus on the province's special transport 
needs, particularly the movement of cement and building 
products, and the shipment of coal.  The Ambassador asked 
if, in addition to foreign investment and joint ventures, 
Vinalines had received any World Bank or Asian Development 
Bank funding for this port development scheme.  Phuc stated 
that Vinalines and the various port authorities had not yet 
received any funding from either institution; however, the 
GVN would greatly appreciate financial assistance with port 
development.  The Ambassador also asked if there were any 
plans to equitize Vinalines in the near future.  Phuc said 
that the current plan is to equitize Vinalines in 5-10 
years, but only after the port development plan has been 
significantly carried forward. 
 
6. (SBU) The Ambassador congratulated Vinalines on its 
extensive development plans, but noted that the Port of 
Saigon is projected to reach total capacity as early as 
2007.  Vietnam's imminent WTO accession may mean Vietnam's 
ports will be overwhelmed even before they are fully 
developed, which will cause international businesses to 
invest elsewhere.  Thus Vinalines must find suitable 
partners now so that it can fulfill its important role in 
ensuring Vietnam's development.  SSA Marine and other U.S. 
firms are the strongest candidates for such partnerships. 
Phuc responded that, although the Vietnam Maritime Authority 
(VMA) has not given final approval for the joint venture 
with SSA Marine, Vinalines and the Cai Lan Port Authority 
believe the MOT as a whole agrees in principle with the 
partnership and they both look forward to working with SSA 
Marine.  The Ambassador asked if there will also be a role 
for SSA Marine in developing Cai Mep Port in the south. 
Phuc said that the GVN was considering joint ventures for 
all development projects, however he demurred from 
commenting on specific proposals without permission from his 
superiors. 
 
7. (SBU) Since the Ambassador's visit, SSA Marine reports 
significant progress in receiving final approval from the 
VMA as Vinalines, the Cai Lan Port Authority and the Quang 
Ninh People's Committee have advocated "very aggressively" 
on behalf of SSA Marine.  SSA Marine also reports that the 
GVN is ready to sign a joint venture agreement for Cai Mep 
Port sometime later this week. 
 
Cao Son Coal Mine 
----------------- 
 
8. (SBU) The Ambassador also visited state coal mining 
company Vinacoal's Cao Son coal mine in Cam Pha District on 
October 18 in order to observe the operation of heavy earth 
moving equipment recently sold to Vinacoal by Caterpillar. 
Mine Director Le Dinh Truong explained that the mine 
purchased fifteen 58-ton trucks from Caterpillar in 2005 as 
part of an overall plan to expand operations of the 
bituminous strip-mine in anticipation of increased demand 
for raw coal and cement (produced in coal-powered plants in 
Quang Ninh) in Japan and Europe following WTO accession. 
The new trucks replaced older Russian equipment.  Truong 
stated that the mine produced 650 Billion VND (USD 42 
Million) worth of coal in 2004.  However, Vinacoal expects 
to produce over 900 Billion VND (USD 57 Million) this year 
with the new trucks.  Truong predicted that next year the 
mine will produce more than three million short tons of 
coal, which is a marked improvement in efficiency, purely 
because of better equipment.  Although U.S. firms lead the 
market in earth moving equipment, Vinacoal purchased eight 
Japanese dump trucks in order to evaluate and compare them 
with the thirty U.S. models in operation at the mine. 
Truong said that Caterpillar's trucks generally performed 
better than their Japanese rivals and, based on this 
performance, Vinacoal will likely solely invest in U.S. 
equipment in the future. 
 
9. (SBU) Comment: Despite past resistance, the transport and 
mining industries in Quang Ninh Province are coming to 
believe that WTO accession will be hugely beneficial to 
their businesses if they are prepared to expand operations. 
The dramatic economic gains resulting since the U.S.-Vietnam 
Bilateral Trade Agreement in Quang Ninh and across Vietnam 
generally support this belief.  We should continue to take 
advantage of the strong willingness of heavy industrial 
firms like Vinacoal and Vinalines to seek U.S. partners and 
U.S. equipment in preparation for accession by aggressively 
advocating for U.S. firms in this important provincial 
market.  End Comment. 
 
MARINE