Japanese Special Yen Loans in Haiphong Port

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