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Issue No. 36
September 2000
Our third year on the Internet

A Periodic Report to Our Clients

See VVG's  monthly feature on Current Economic Indicators

 DISPATCHES

The System is attacked, along with the Tycoon.  On several occasions over the past nearly seven years we met and talked with Mr. Le Van Kiem.  He is short in stature yet flashy, successful in his business and works hard to build upon his position, and he protects and loves his family.  Socially he is attractive, interesting, and kind.  In business he can be ruthless, yet he tries to work within “the system,” as do most people in Vietnam.

Knowing what the system is, and how to work within it, can still be a challenge.

The Far Eastern Economic Review last week published a story about some of Mr. Kiem’s current troubles that are being fully aired in the domestic media. This may be the world’s first glimpse into a very private but cultured and polite, representative of an almost extinct class of entrepreneur. This is a man who in recent weeks found himself often the subject of a domestic media coverage blitz concerning his $30 million + in business debt. 

In other lands, that Mr. Kiem worked up so much debt would be a clear indication that he is a successful man. However, in Vietnam, such coverage is understood to be a prelude to a trail and conviction for monetary crimes that carry a penalty of death by firing squad.

Please Vietnam, Chart a New Course.  We expect, unfortunately, that there will be more of this campaign against Mr. Kiem and others in the next six months until the conclusion of the 9^th Party Congress.

However, Vietnam must chart a new course if it hopes to take part in the regional and global economies.  Killing tycoons such as Mr. Kiem will not benefit the nation. It will not create good will.  But we suspect after Mr. Kiem, there will be no other private industry tycoons left to admire, or to attack.

If Mr. Kiem committed a crime, prosecute him and hold him up as an example for others. The example should be that success is possible but if you cheat or steal, you will have to do the time for the crime.

Send him to jail if he is truly at fault, but allow him to emerge, diminished yet with his strength intact.  

We say to the leaders of Vietnam, "Le Van Kiem is a man and a symbol your nation needs to preserve. His is an endangered species, and today is the time when you must cultivate more of them."

We do not expect those in power will listen to foreigners. Perhaps they feel there is no need.  But they can listen to the silence now screaming from the domestic and foreign investor community in Vietnam, and realize the chill their treatment of Mr. Kiem, or their failure to halt his vilification, sends to us all.

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Gas and Power Projects Stalled – Long awaited, and delayed, the Nam Son Con Gas Fields await exploitation for an agreement on the price of gas to be charged to commercial customers.

Now the protraction of talks over power pricing between State run Electricity of Vietnam (EVN) and the developers of Phu My 2-2 and 3 power projects has sparked new trouble for the Nam Con Son gas project.

There is not yet a date certain for commissioning the Phu My 2-2 and 3 stations, two of the projected largest gas users. The problem is not new: a wide discrepancy between the buying and selling prices of power and other conditions presented by the two sides makes an early finalizing of the talks unlikely.

Even if an agreement is reached before the end of this year, the construction of the two stations will not be completed before next year.

EVN seeks a price from the power producers to meet its own needs, and in part to approach the still higher price being asked for the gas by the BP/Statoil consortium. 

However, the power station operators cannot make their projected profits if the price of gas goes too high, unless EVN allows them to raise the cost of electricity to the ultimate consumers. 

This is not a new problem.

Provided the gas field operators achieve an agreement on the price of raw gas, they would still not be in a position to exploit the fields until late next year or early 2002, subject to EVN reaching agreement with the power generators on the sales price of electric power.

Due to the short supply of potential commercial users of gas (no pipe lines extend beyond the Phu My site, almost 50 km north of HCMC), the power sector is the projected largest gas user, capable of absorbing more than 70% of Vietnam's total gas demand.

The country currently has two power plants operated with gas exploited from the Bach Ho oilfield, Ba Ria and Phu My 2-1. Another gas-fired power plant, Phu My 1, is under construction.  However, this 1,090MW plant consumes around one billion cubic meters of gas a year, less than 25% of the projected eventual flow from the Nam Con Son fields.

The pledge from the State to the BP/Statoil consortium is to use 2.1 billion cubic meters of gas from Nam Con Son in its first year of operation.

Another known but not stated concern is the as yet secret actual reserves of gas in the long exploited Bach Ho fields. These fields were flaring gas for more than ten years, photos of which are still used in file shots to show Vietnam's potential. 

Some involved in the early gas work projected that the gas supply at Bach Ho would peak and drop “as a hockey puck” as early as 1997, eleven years after gas was first flared, and one year before the supply was first commercial utilized.  

If the Nam Con Son gas line is not completed due to stalled talks between BP/Statoil and PetroVietnam on the one hand, and if should EVN and the power projects remain unable to agree on energy prices sufficient to encourage the completion of the gas pipe line, presuming the gas flow from Bach Ho will in time suffer a reduced flow, when will the existing gas powered generation need to switch to diesel oil (at greater cost) or shut down?

There is only so much capacity from the existing Hoa Binh and soon to be expected Yaly hydro-powered generation stations.  Stay tuned.

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An “Evolved Socialist Economy” by 2010 - As the nation awaits the announcements for the next five year plan, the State-controlled media prepares the people and the world for what lies ahead.  

Recently announcements proclaim a draft political report to be presented at Vietnam's Ninth National Party Congress in March of next year will reportedly outline a strategy to develop a “new” form of socialist-orientated market economic structure.

The plan, claiming to prioritize a level playing field for all economic sectors and different forms of ownership co-existing under State management, will still have the State-owned sector as the “determining force in the country, with State-owned companies and business co-operatives forming the two most fundamental economic sectors.”

The draft report envisages major restructuring of both the economy and the labor force, with an expectation that the gross domestic product (GDP) will double over the coming decade, with an accompanying 50 percent reduction in the force involved in farming (now 80% of the population).

Among the many goals mentioned in the report are those aimed at:

1. Boosting efficiency of key industries and hi-tech business sectors,

2. Build a socialist-oriented market economy, the first of which is to modernize and industrialize the country with a special focus on agriculture and rural areas.

3. Special attention given to border areas on the premise that it is their development that will ensure the safeguarding of national and territorial sovereignty.

4. The need to develop different forms of socialist-oriented markets in the country: including those that are yet to emerge or still in the nascent stage, like the stock market, the real estate market, the scientific and technological market, and the labor market.

5. Education as the core factor in developing national culture to “improve knowledge and intelligence, develop one's personality, ethics, and promoting a socialist outlook on life that places a high value on virtue and kindness.”

6. Ways to promote community-based unity and social equity while proposing solutions for unemployment, hunger and poverty.

7. Population and family planning, childcare and protection; social security; wages, salaries and fringe benefits.

8. Vietnam's pledge to consistently honor its long-term commitment to expand relations with all countries towards becoming a reliable partner, and making worthy contributions to maintaining world peace, national independence, and  development.

9. Maintaining national unity, which is vital for long-term development, to include “the acceptance of different views that are not contrary to national interest and rejection of past prejudices.”

10. Strengthening the legal system, firm implementation of laws, reducing bureaucratic red tape and corruption, and building a pure and strong State of the people and for the people under the leadership of the Party.

11. Strengthening the Party politically and ideologically; ensuring consensus; and improving leadership;

12. Maintaining internal unity, restructuring the Party organization, educating the younger generation of members towards building up a new generation of Party and State leaders, particularly for key, strategic positions; and improving governance by the Party and the State.

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Forecasts, Projections, and Reflections - Foreign investment approvals in Vietnam fell 44 percent year-on-year in the first seven months of this year to $440.5 million, stated official media reports in August.

The Vietnam News Agency said 156 new projects had been approved during the seven-month period. It gave no disbursement figure for the period.

Foreign investment in Vietnam has plunged in recent years, amid complaints of over-regulation, bureaucratic inconsistency, high costs, corruption and discrimination.

Foreign investment inflows fell to around $500-$600 million a year in 1999 from peaks of around $2.8 billion a year in 1996 and 1997. The 1999 level was the lowest since 1992.

Wednesday's Saigon Times Daily newspaper quoted Deputy Minister of Planning and Investment Tran Dinh Hien as saying Vietnam expected to realize around $2.5 billion of foreign direct investment in 2001.

The state-run paper quoted ministry officials as saying Vietnam was aiming for growth of 7.0-7.5 percent next year, which would require total investment of $10 billion, a 16 percent increase over the estimate for this year.

Hanoi has said GDP growth of 6-7 percent is attainable this year, against the 4.8 percent it said it achieved in 1999. The IMF forecast Vietnamese growth of 4.5 percent this year, up slightly from 4.2 percent in 1999.

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Internet Update -  While Internet access is freely available, a national firewall prevents the transfer of all traffic except Web surfing, FTP (file transfer protocol) transfers and e-mail.

Business software such as Lotus Notes, which uses a special communications

port, is barred by the firewall from exchanging data. Instant messaging or chat software has also been barred but may be allowed soon, according to Internet specialists in Vietnam.

All Web sites in the country are supposed to be hosted on servers belonging

to government-owned Vietnam Data Communication (VDC), a subsidiary of the

monopoly telecommunications carrier Vietnam Posts and Telecommunications.

And the unreliability of the country's e-mail service caused officials of the United Nations Development Program in Vietnam to complain officially to VDC in July.  

Independent reports given to UNDP suggest that as much as 3 percent of e-mail being sent is rejected by overseas servers and that technicians in various locations around Vietnam report problems in setting up e-mail services because the mail server configuration at government-owned VDC seems to change.

The problem is most likely caused by risky upgrade procedures and a lack of  bandwidth to deal with the extra traffic generated by recently lowered Internet prices, according to Andrew Marshall, a Ho Chi Minh City-based consultant with VietInfoComm & Education.

"It seems that VDC technicians may be doing their upgrades on the live system rather than developing and testing them elsewhere and then migrating them to the live system," he said in a telephone interview today. "They also tend only to do upgrades in reaction to a problem, rather than upgrading with foresight."

Internet subscribers number just 50,000, according to government figures, out of a population of 78 million. A significant proportion of those subscribers are users in foreign and joint-venture companies.

Businesses in Vietnam can now tap into international high-speed data connections, with the launching of the country's first Frame Relay service by ISP (Internet service provider) Vietnam Data Communications Corp.

The service is being offered by VDC in partnership with Singapore Telecommunications (SingTel), the two companies said in a statement issued Tuesday.

The service will be launched in Hanoi and Ho Chi Minh City next week, and will give businesses international connection speeds of up to 2M bps (bits per second), according to the statement. The service will run over a fiber-optic cable recently completed by SingTel between Singapore and Vietnam.

VDC and SingTel are launching the service to meet a rapidly-growing demand for frame relay services between the two countries, the companies said in the statement.

The service will include:

• network management and proactive network monitoring
• single point of contact for ordering and billing
• service level agreements to ensure quality and reliability

Vietnam is an important destination for many Singapore-based businesses who need an end-to-end managed network as well as value-added services such as router management and e-commerce, according to Lim Shyong, SingTel executive vice-president of global business.

Although the companies did not release a price for the service, it is expected to be considerably less than the current leased-line service from Vietnam Post & Telecommunications (VNPT) which costs $7,300 per month for a 64K-bps connection.

VDC, Vietnam's largest ISP, is a subsidiary of government-owned telecommunications monopoly VNPT.

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Leadership Changes: like reading tea leaves* - If the current speculation is correct, Prime Minister Pham Van Khai will step down at next year's Ninth Communist Party Congress. According to unnamed "diplomatic and party sources" in the domestic media, up to half the country's senior leadership will either retire or be reassigned.

Speculation about Mr. Khai's replacement has identified several potential candidates, including Ho Chi Minh City party secretary Nguyen Minh Triet and Deputy Prime Minister Nguyen Tan Dung. Observers maintained  that Mr. Khai's imminent resignation confirmed the growing power of general secretary, Le Kha Phieu.

Although Vietnam's reform efforts had been given a new lease of life recently by the signing of landmark trade agreement with the United States and the opening of a stock exchange in July, there was no guarantee Khai would get the credit.

``I don't see that as a victory for Khai,'' one observer said. ``Because I think his reformist agenda has now been adopted Mr. Phieu.''

State media now proclaim that "Vietnam watchers are unanimous in their assessment of Mr. Phieu's depth of concern about the party, if graft is not tackled. He may be the only senior leader who really appreciates that the threat is not from so-called 'external forces' and that the party's grip on power will continue to be weakened by the actions of its members, an observer noted."

Another observed that if Mr. Phieu is really concerned about corruption and other problems Vietnam faces, the time to establish, nurture, and grow a multiparty system would now be fast approaching in Vietnam.

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