CHEVRON ONE STEP CLOSER TO BEING LARGEST U.S. INVESTOR IN

UNCLAS HANOI 000562 SENSITIVE SIPDIS STATE FOR EAP/MLS MBROWN COMMERCE FOR 4430/MAC/AP/OPB/VLC/HPPHO ENERGY FOR TCUTLER AT POLICY AND INTERATIONAL AFFAIRS E.O. 12958: N/A TAGS: EINV EPET ENRG ECON EFIN PGOV VM SUBJECT: CHEVRON ONE STEP CLOSER TO BEING LARGEST U.S. INVESTOR IN VIETNAM REF: A) HANOI 536 (Vietnam's Deputy PM Embraces U.S.-VN Economic Agenda; Discusses AES, Chevron, and GE Deals) ¶1. (U) This cable is Sensitive but Unclassified. For official use only, not for dissemination outside USG channels or posting on the Internet. ¶2. (SBU) Summary: Chevron and PetroVietnam (PVN) have reached a milestone in long-running negotiations for a $5-billion gas-to-power project. [Ref. A] The two sides agreed upon core project details, which allows Chevron to move to an advanced engineering stage. A final investment agreement will likely be signed in 2010 and first delivery of natural gas would begin in 2014. The agreement is a welcome development as the Embassy and senior USG officials mounted a major advocacy effort on the Chevron's behalf. End summary. ¶3. (SBU) On June 10, Chevron and PetroVietnam (PVN) struck a deal on a framework agreement for the Southwest gas-to-power project, which will use offshore gas for electricity generation in a new power plant in the Mekong Delta. This was a major milestone that will allow Chevron to proceed with the project's Front End Engineering and Design phase (FEED). ¶4. (SBU) PVN and Chevron reached agreement on all four of the major elements necessary to move to FEED, including the provisional gas price, gas volume, contract extensions for the two offshore development blocks, and technical coordination on the building of the offshore pipeline. ¶5. (SBU) The agreement to move to FEED means the project has now entered an advanced stage in which engineering specs and facilities will be defined and evaluated in more detail before the two sides sign a Final Investment Decision, which Chevron predicts will happen sometime in 2010. ¶6. (SBU) Foreign Direct Investment (FDI) for the entire project, including the pipeline, is estimated to be approximately $4 billion, which would make Chevron's share--about $2 billion--the largest U.S. investment in Vietnam. In addition to FDI, $1 billion will be provided by PVN. COMMENT: SLOW AND STEADY WINS IT -------------- ¶7. (SBU) Comment: Much work remains before the first delivery of natural gas, which is now projected for 2014. Still, this agreement is welcome news, particularly because Chevron has already invested several years and approximately $300 million. End Comment. PALMER