AES MOVES FORWARD WITH INVESTMENT PROPOSAL FOR

UNCLAS SECTION 01 OF 02 VIENTIANE 000312 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/MLS BESTIC STATE FOR EEB/ESC STATE PASS USTR FOR DAVID BISBEE STATE PASS TO USED WORLD BANK MANILA FOR USED ADB COMMERCE FOR H.P.PHO AND ADVOCACY CENTER PACOM FOR POLAD E.O. 12958: N/A TAGS: ENRG ETRD EINV EWWT ECON SENV PREL LA SUBJECT: AES MOVES FORWARD WITH INVESTMENT PROPOSAL FOR MEKONG HYDROPOWER PROJECT REF: VIENTIANE 133 THIS CABLE IS SENSITIVE BUT UNCLASSIFIED (SBU). PLEASE HANDLE ACCORDINGLY. ¶1. (U) This is an action request. Please see paragraph seven. ¶2. (SBU) Summary: Econoff met March 29 with AES representatives Flora Zhao and Jasper Camacho to discuss their proposal for a run of the river hydropower project on the Mekong River. AES submitted the proposal March 29 to the Government of Laos (GOL),accompanied by a strong letter of support from the Ambassador. AES' planned investment is approximately $1.3-$1.5 billion on a stretch of the Mekong within Laos. Post has previously assisted AES in arranging meetings with senior GOL officials, working level experts, and local hydropower contacts. AES has also engaged the Advocacy Center in Washington, having been told by a contact within the GOL that the decision is likely to be made at the end of April. The contact also suggested a number of points the United States Government (USG) should use in further lobbying efforts. To date AES is the largest U.S. company to make a serious attempt at large-scale investment in Laos. End Summary. ¶3. (SBU) On March 29 Econoff met with Flora Zhao, Director of Development, and Jasper Camacho, Development Associate, of AES' Singapore office. AES is a multi-billion dollar Arlington, VA-based independent power producer (IPP). Flora and Jasper reported they were en route to a meeting with Khankham Sengaphay, Director of the Planning, Monitoring, and Evaluation Division of the Committee for Planning and Investment (CPI) of the GOL. They subsequently delivered to Khankham the initial proposal for their planned $1.3-$1.5 billion, 1260 megawatt (MW) run of the river hydropower project at Xayabury, along a stretch of the Mekong located entirely within Laos. AES is planning to sell the majority of the power to Thailand and possibly Vietnam. A number of companies are competing for this project, which would be the first hydropower project in Laos on the Mekong, not one of its tributaries. According to AES, two Thai companies have already submitted proposals for the same project, one of four planned hydropower projects on the Mekong in Laos. In addition, SinoHydro of China has previously offered to develop all four of the projects, with Chinese financing that would likely carry none of the safeguards written into Asian Development Bank (ADB) and World Bank (WB) funded projects such as Nam Theun II. ¶4. (SBU) The Ambassador previously accompanied AES executives to meetings with a wide range of senior GOL officials, such as the Minister of Commerce and the Minister of Energy, and post assisted AES in making contact with working-level Lao hydropower experts and other contacts involved in the hydropower industry. One of our contacts, who recently returned from a USTDA funded orientation visit to the United States focused on hydropower, told AES the decision on the Xayabury project would likely be made at the end of April and would be political in nature. The contact recommended AES try to engage higher level USG officials to lobby on behalf of its project. To this end AES has contacted the Advocacy Center in Washington and is seeking a letter from the Secretary of Commerce. ¶5. (SBU) Our contact recommended to AES the following points be made to the offices of the Prime Minister, to Deputy Prime Minister Somsavat Lengsavad, and to President of CPI Soulivong Daravong: 1) AES has experience developing large-scale power projects around the world. 2) AES will not have difficulty raising financing for the project. (Note: AES has previously spoken to the ADB in Manila, and ADB officials have indicated their interest in providing financing. End Note.) 3) This is the first time a large U.S. company has shown a strong interest in investing in Laos. If successful, more VIENTIANE 00000312 002 OF 002 American FDI will follow. ¶4. U.S. technical assistance may come with the project. ¶5. The U.S. Trade Development Agency (USTDA) is providing technical assistance to AES in Vietnam for a large power generation project. ¶6. (SBU) Comment: If AES is awarded the rights to develop the Xayabury project, it would instantly raise the profile of American investment in Laos. Currently, the stock of U.S. investment in Laos is generously estimated to be $15 million. AES' success might also signal to the GOL that normal trading relations, granted by the United States in 2004, is starting to provide the economic growth opportunities so far hoped for, but not yet seen. If SinoHydro develops the project, it would represent another coup for the growing Chinese commercial presence in Laos, and also indicate the GOL, despite recent efforts to better account for environmental concerns in mining (reftel),has not transferred that concern to hydropower. Barring an unforseen change of heart, SinoHydro would not feel bound to respect any of the environmental, financial, or transparency standards set with NT-2. End Comment. ¶7. Action Request: We request the Department support AES' request for a letter from the Secretary of Commerce in support of the project. The Ambassador would hand deliver the letter when finalized. HASLACH