PORT DEVELOPMENT AND COAL MINING IN QUANG NINH

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