OIL/GAS INDUSTRY DRIVING GROWTH OF BA RIA - VUNG TAU

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