US embassy cable - 03HANOI208

UNCLAS SECTION 01 OF 04 HANOI 000208 
 
SIPDIS 
 
STATE ALSO PASS USTR FOR EBRYAN 
STATE ALSO PASS USAID FOR ANE:AFERRERA and DMCLUSKEY 
USDOC FOR 6500 AND 4431/MAC/AP/OKSA/VLC/HPPHO 
TREASURY FOR OASIA 
 
E.O. 12958: N/A 
TAGS: ENRG, ECON, SENV, EINV, EAID, VM, ETMIN 
SUBJECT: VIETNAM:  SON LA DAM APPROVED BY NATIONAL ASSEMBLY 
 
1. (U) SUMMARY:  In December, the 11th National Assembly 
gave "final" approval for the long-planned construction of 
the Son La Dam and hydroelectric plant in northwest Vietnam. 
The planning phase for this project has spanned more than 30 
years and has instigated one of the more lengthy and 
interesting debates in the National Assembly.  Son La would 
be the largest and most complex Dam/Hydroelectric project to 
be undertaken in Vietnam to date.  A combination of growing 
demand for power by both industry and consumers, and a 
perceived need for greater flood control for the down-river 
Hoa Binh Dam (and ultimately, Hanoi) have pushed the project 
forward. A US-based engineering company is now working with 
the GVN to review and upgrade the feasibility study for the 
project.  The 2.0-2.6 billion dollar project was originally 
scheduled to begin in 2003 but has been pushed back to 2005. 
However, it is not clear whether that date will ultimately 
hold. 
 
2.  (U) Concerns over safety issues (both the size of the 
dam and its location), the massive displacement of mostly 
ethnic minority persons (up to 91,000) and an incomplete and 
insufficient review of the overall environmental impact 
remain, making GVN law makers, international institutions 
(including the World Bank) and bilateral donors approach the 
project cautiously. At present, the IFIs have indicated that 
they are not willing to finance the project. Vietnam has 
announced plans to self-finance 70 percent and seek external 
financing for the remaining 30 percent.  During a recent 
trip to the northwest, the Ambassador had an opportunity to 
discuss the project with local officials and residents. 
Provincial leaders in Lai Chau and Son La stated that an 
earlier idea to relocate people to the Central Highlands has 
been rejected and planning is now underway to carry out all 
relocation within those two provinces. Vietnam is grappling 
with some very difficult development choices, including the 
need to develop energy infrastructure if it is to meet its 
growth and poverty alleviation goals. The Son La project is 
a key part of Vietnam's energy development plan over the 
next 20 years but the trade-off on social and environmental 
costs will be high. The PM's personal interest in this 
"legacy" project and the active scrutiny of the plan by the 
National Assembly is a positive sign that hopefully the GVN 
will be held to a higher standard as this project is 
implemented. End Summary. 
 
BACKGROUND ON SON LA PROVINCE 
----------------------------- 
 
3.  (U) Son La, the fifth largest province in the country, 
is located 320 kilometers Northwest of Hanoi and borders 
Laos on the south.  Eighty percent of the province is 
mountainous. Son La is home to a number of minority ethnic 
groups, including the Ma, H'mong, Dzao, Muong, Kinh, Khmer, 
Tay, and Thai.  Total population is about 923,000 and GDP 
per capita in 2001 was about $143 (compared to national 
average of about $380). Son La's natural resources include 
forestry, agriculture and hydroelectricity. 
 
SON LA DAM PROJECT - ENERGY, FLOOD CONTROL, AND IRRIGATION 
--------------------------------------------- ------------- 
 
4.  (U) Robust economic development, industrialization and 
the creation of a fledgling consumer society is contributing 
to strong growth in demand for power in Vietnam, with an 
average increase of 14-15 percent annually over the past few 
years.  This growth is straining Vietnam's current capacity 
and is creating an urgent need for energy infrastructure 
development. Current electricity consumption per capita 
averages about 340 kWh/year, while Thailand uses 2,000 
kWh/year, Malaysia 2,500 kWh/year and Singapore 6,000 
kWh/year. The GVN estimates that at the current production 
and consumption rates, Vietnam will have to purchase 6-7 
billion kWh/year by 2005.  The GVN estimates total demand to 
rise to 70-80 billion kilowatts in 2010 and 160-200 billion 
kilowatts in 2020, although that is probably an 
overestimate.  As currently planned, the Son La 
hydroelectric project will have a capacity between 1,970 and 
2,400 megawatts, will generate from 7.555 billion kWh to 
9.209 billion kWh per year and cost between 2.6 and 2.7 
billion dollars. 
 
5.  (U) Son La has also been proposed as a safety measure 
for the Hoa Binh Dam downstream. When Hoa Binh was built in 
the late 1980's, Soviet experts had warned that Vietnam 
should build a second hydroelectric project upstream in 
order to offer greater protection for Hoa Binh, because a 
severe flood could cause the dam to collapse.  The Son La 
project will also provide water for low-land farming in the 
dry season and help prevent flooding in the rainy season. 
 
A LONG TIME ON THE DRAWING BOARD 
-------------------------------- 
 
6.  (U) The Vietnamese government has been studying a 
possible Son La project since the 1960's.  The Moscow 
Institute of Hydroelectric and Industry, Japanese 
consultants, and the Moscow-based Designing Survey Research 
and Production Shareholding Company (they had previously 
worked on Hoa Binh) have conducted a succession of 
feasibility studies.  A Swedish and American joint 
engineering consulting firm, Harza-Sweco, began work in 1999 
with the GVN to ensure that the project meets international 
standards. 
 
NATIONAL ASSEMBLY HAS CONCERNS 
------------------------------ 
 
7.  (U) Perhaps the most interesting part of the Son La saga 
is the detailed and prolonged National Assembly (NA) debate 
on the issue.  A project of this size and impact needs NA 
approval.  The plan was submitted in 1999 after the 
Communist Party Politburo approved the project.  However, at 
NA's annual session in June 2001, members of Parliament 
(MPs) raised their concerns about the scale of the project 
and the resettlement, asking for more detailed studies. 
Originally, construction was to start in 2003, but it has 
been delayed to at least 2005. 
 
8.  (U) Initial plans for a 265-metre (875-feet) high dam 
were scaled down to 215 meters after NA legislators 
criticized the human and environmental costs of the project. 
More than 44,700 hectares (110,000 acres) of land, including 
a 41 kilometers (25 mile) section of a national highway 
would have been submerged under the original proposal. In 
addition, some 100,000 people, mostly ethnic minorities, 
would have required relocation (see below).  MPs also 
questioned the safety of building such a large dam on the Da 
River in Vietnam's earthquake-prone northern mountains and 
the potentially devastating flooding impact it could have 
downstream, particularly on Hanoi. After much acrimonious 
debate, in June 2001 the National Assembly approved the dam 
project in principle but made clear that it was unhappy with 
the scale. Based on the NA concerns, in March 2002, the 
government revised the Son La project and again sent it 
first to the Politburo for "examination" before being 
submitted to the NA for final approval. 
 
9.  (U)  The GVN's revised plan came up for debate in the NA 
in November 2002.  The GVN proposed 3 options: a high dam 
(265m), low dam (215m), and a combination small Son La dam 
and Lai Chau dam. All three options would have severe social 
and environmental impacts (loss of ancestral sites and 
cultivated land, displacement of persons, flooding of arable 
and forested land, reduction in bio-diversification, etc.). 
The proposal came under criticism by the National Assembly 
because it still lacked a proper analysis regarding the pros 
and cons of the various options.  Rather, it only focused 
and argued for one of the three (low dam) and did not 
provide an objective basis for selecting the most 
appropriate option. 
 
10.  (U) Many NA members raised concerns about the proposed 
resettlement of local inhabitants.  The low dam 215 meter 
option will displace approximately 16,000 to 18,200 
households comprised of 79,000 to 91,000 people, requiring 
the largest resettlement in Vietnam's history.  The affected 
persons include 10 different ethnic groups, of which the 
Thai minority comprise 74%, Kinh (national majority) 11% and 
the rest distributed among the Dao, La Ha, Xa, Kho Mu, Lu, 
Khang, Si La, Day and Nhi ethnic groups.  The population is 
made up of about 86% rural and 14% urban dwellers.  The 
project will flood 9,987 hectares of agricultural land, 
including rice paddies, gardens and fishponds, 2,500 to 
3,100 hectares of forest and 5,563 to 6,163 hectares of 
other lands. 
 
11.  (U) Originally, the GVN gave priority to resettlement 
sites on the remaining land within Son La and Lai Chau 
provinces.  However, because neither Son La nor Lai Chau has 
sufficient additional arable land available for 
resettlement, only a portion of the displaced could be 
relocated without major environmental impact.  For these 
reasons, the GVN considered a second settlement option that 
would move the majority of affected people to areas in the 
Central Highlands, where population density is low.  This 
proposal raised protests not only from the Son La residents 
but also from NGOs, bilateral donors and international 
organizations. On a recent trip to the Northwest, provincial 
leaders in Lai Chau and Son La told the Ambassador that this 
proposal has been rejected and that planning is underway to 
carry out all relocations within those two provinces.  While 
this will hopefully reduce the social impact, the 
resettlement of a large number of people on the remaining 
land will create new environmental stresses in terms of soil 
erosion and increased deforestation in the northwest. 
 
12.  (U) Despite many unanswered questions, the National 
Assembly overwhelmingly approved the Son La hydroelectric 
project last December, opting for the "low design" at 215 
meters.  Construction of the plant is expected to begin in 
2005 in order to ensure that its first turbine will generate 
electricity in 2013, with full operation by 2015. 
 
WHO WILL PAY? 
------------- 
 
13.  (U) The real question now is how Vietnam will finance 
the Son La project.  The estimated cost is VND 31,000 - 
37,0000 billion (USD 2 - 2.6 billion), of which 70 percent 
is projected to be raised through "domestic financing" and 
30 percent through "external financing." Possible sources of 
financing could include deferred payment of equipment, 
foreign loans, domestic credit, bonds, and increased power 
rates in the first 3 years.  The resettlement cost is 
estimated to be 14-17 percent of the total cost, which is 
the highest rate ever used for resettlement in Vietnam. 
Although the government plans to spend USD 5,000 per 
resettled person, officials have not provided details 
regarding that part of the project's funding.  There is 
little support among the IFI's and bilateral donors to 
provide financing to cash-strapped Vietnam for the project, 
given the forced large-scale displacement of people and the 
severe environmental impact. 
 
AMBASSADOR'S TRIP TO THE NORTHWEST 
----------------------------------- 
 
14.  (SBU) During a trip to the northwest region in 
November, the Ambassador discussed the Son La dam project 
with local officials and residents and visited villages that 
will disappear after the project's completion (including the 
provincial capital of Lai Chau).  The Chairmen of the Lai 
Chau and Son La People's Committees expected that the great 
majority of displaced people would be in Son La province. 
They stated emphatically that the option of relocation to 
the Central Highlands had been rejected and plans were now 
being developed to move all affected persons to areas within 
the two provinces.  In Son La, we heard that the 
infrastructure for two small pilot re-housing projects (400 
and 250 homes) was being installed and that a few families 
had been moved already.  The authorities claimed that new 
homes would be built in accordance with the traditional 
style of the Thai and other ethnic groups to be resettled. 
We also heard some predictable allegations from the "man-in- 
the-coffee shop" that local officials are already benefiting 
from corruption related to the dam project. (Note: The Hanoi 
ethnology museum, which is primarily dedicated to Vietnam's 
ethnic minorities, has a small display on the Son La dam 
project and proudly displays photos of one of the pilot 
housing projects - modern cement block buildings in a muddy 
dirt field, a far cry from the traditional village houses of 
the area.) 
 
15.  (SBU) Provincial leaders acknowledged that mistakes had 
been made in past dam relocation projects, such as Hoa Binh. 
They insisted that this time, every effort would be made to 
ensure that relocation actually improved peoples' lives. 
They have given the same pitch to residents of villages to 
be submerged.  The villagers did not seem completely 
convinced and are insisting that at a minimum, entire 
villages be moved together.  But in Hoa Binh province, no 
one expected any prompt resolution to the 15 year old 
problem of 8000 Muong people who refuse relocation from the 
banks of the reservoir where they live under difficult 
conditions as close as they can to their submerged ancestral 
grounds. 
 
PRIME MINISTER'S LEGACY AND EMBASY SUPPORT FOR US FIRM 
--------------------------------------------- --------- 
 
16.  (SBU) Several months ago, the Senior Commercial Officer 
in Hanoi accompanied Montgomery Watson Harza (MWH) 
executives, including Dr. Abdel-Malek, President, to a 
meeting with Prime Minister, Phan Van Khai.  The discussions 
lasted for more than one hour and the PM was extremely 
knowledgeable about the details of the project.  His staff 
indicated that the PM viewed Son La as his personal "legacy" 
to Vietnam.  The PM was especially concerned about the issue 
of safety, and noted that he did not want to be the PM who 
"drowned Hanoi."  Embassy and CS Hanoi will continue to work 
with MWH and other American firms interested in this 
project.  (Note: MWH is a large engineering firm focusing on 
energy and infrastructure projects.  The company is very 
interested in serving as the project management group for 
Son La.) 
 
COMMENT 
------- 
17.  (SBU) Vietnam is grappling with some very difficult 
choices regarding economic development and poverty 
alleviation.  Vietnam's future development will require 
significant energy infrastructure investment and expansion 
of electricity production capacity. Without more, cheaper, 
and preferably local sources of energy, Vietnam will not be 
able to meet its overall development goals both on the 
economic and the social fronts. The Son La project is a key 
part of Vietnam's energy development plan over the next 20 
years, but the trade-off on social and environmental costs 
will be high, if not severe in some cases.  This project is 
somewhat reminiscent of the 1930's Tennessee Valley 
Authority, including the tough issue of relocation of large 
numbers of ethnically distinct groups, or in Tennessee's 
case, culturally distinct groups.  The PM's personal 
interest in this "legacy" project and the active scrutiny by 
the National Assembly are positive signs that they will 
continue to monitor the implementation of the Son La project 
and hopefully, hold the GVN to higher standards than was the 
case in previous projects. 
BURGHARDT