February 2001 - VVG reports to clients on Vietnamese foreign direct investment.

Issue No. 40
February 2001
Our eighth year in Vietnam & fourth year on the Internet

IN THIS ISSUE
COMMENTARY: Where We See Things Going
We receive more than six thousand visitors each month to this site, some of whom ask strikingly good questions. One that we often see and rarely privately answer is about where we expect Vietnam to be heading. See our commentary (linked above) and our dispatches (linked below).
Who Gets What? An Inventory of Benefits Under the Trade Agreement with Vietnam Heralds Sing a Song but What Does It Mean? More Electricity & Fewer Jobs Internet & Telephony Update	One Million Tonnes of Crude Rubber Export Contracts Vietnam & Russia Gas Venture Russian Vietnamese Oil Performance Update Hanoi Stock Exchange Proposed for before July

WHERE WE SEE THINGS GOING- An informed, knowledgeable, and interested Vietkieu recently wrote, "I agree with you about the current state of the nation. Hopefully the up coming election will bring about some positive economic changes which the country desperately needs. What do you think will happen? I would appreciate your comments on this subject."

To answer your question in short form, reading tea leaves would give a more clear picture of what will happen than anything I could tell you.

In the long form, I know the people of Vietnam to be pragmatic, energized, and intelligent. However, they are also tired of conflict of any sort. It is rare to see any open dispute, and then it is mostly domestic and (for observers at least) comically over-exaggerated.

Whether a small bike accident where the parties act out a street drama to attract support and then reward for their suffering, or a home drama where a wife may disfigure her hair to bring "dishonor" upon her husband (to say nothing of her own looks), there is no desire to engage in real battle of words or deeds that may bring any discomfort, much less, change.

Many in the disenfranchised overseas Vietnamese community do not know, or if they do, do not want to acknowledge this fact: Ask almost any domestic Vietnamese if he or she is better off today than they were 10 years ago, and the answer will be "Yes."

However, ask them about how things were five years ago and they will say "Better, but...."

If this trend is not corrected, then the tone of the nation may change, but I don't see that as being better for either the people, or therefore for investment and economic growth.

Peaceful, evolutionary change will benefit all interests in and about Vietnam. Certainly over the more than seven years that we've been here, I see that happening. Its just not occurring at a more rapid pace that most outsiders and most Vietnamese want.

While the element of those wishing to push the economic and personal developmental clock back are now a small and nearly silent part of the leadership, there is still a good number who are keen on putting checks on the speed and direction of greater growth and economic freedom. As with the former group, these folks will not be educated but are growing older. The challenge is to keep them from growing bolder.

While they may enjoy a power base and appeal to nationalism, times are changing as is the population around them. In time they will retire, and while some might wish them to enjoy life more and sooner at a greater distance away from active influence on the character of Vietnam's development, I see no radical changes coming at all.

However, the elements seeking greater change are growing and becoming more strong, even if not too vocal. We see that change not daily, but in review of meaningful events, over the years.

And we compare or contrast the neighboring lands to see where they are going and how.

Vietnam seems to be all the more strong for its lack of conflict. Conflict seems to effect every other nation in the area but for Thailand and Singapore. Yet even in Thailand there is trouble on the horizon with quiet contemplation over the future of this internationally gentle yet internally militaristic Kingdom, once the 74 year old monarch dies.

For those and many more reasons, I remain high on Vietnam's potential both to correct its own direction, and to become a regional leader.

In terms of economic, educational, infrastructure, and social development, Vietnam remains decades behind Indonesia, Malaysia, the Philippines, and Thailand. However, real change does not have to come in tidal proportions. It is already well recognized in Vietnam that change is imperative to real and sustained growth.

In addition, there are equally important ways in which Vietnam has become a more stable land then any of those in the region. This helps to make Vietnam a potentially better forum than any in the region for long term, direct foreign investment.

I do not expect earth-shaking changes to come from the 9th Party Congress along the lines that came in 1986 from the 6th Congress. However, perhaps this is not the time when the nation or the region needs any more earth-shaking changes.

Quiet, deliberate speed can be increased, and I suspect over the next five years we will all experience that in Vietnam.

WHO GETS WHAT? An Inventory of Benefits Under the Trade Agreement with Vietnam - From the Coalition for U.S. - Vietnam Trade.

HERALDS SING A SONG - but what does it mean? Listen to foreign investors and the young generation of Vietnam's national leaders (those under 60 years old) and hear of the potential for economic development and personal growth of family wealth in Vietnam.

However, their words are too often overpowered by the yet amplified speeches and writings of the old guard. Those noisy folk could have been retired from active service following the 1986 Party Congress that instituted the Do Moi (Renovation) principals. That great step into the present dissolved the central command economy and opened up Vietnam to the late 20th Century.

For what purpose, many foreign and domestic observers now ask as they witness Vietnam being left far behind at the start of the 21st Century. Perhaps the 9th Party Congress this March will complete the task started by the 6th Party Congress. But still the shrill text and words of the ancient heralds are put forth.

At a celebration commemorating the 71st anniversary of the Communist Party in Hanoi, all of which gatherings are closely watched in anticipation of what is to follow next month, the party bosses sounded the old war-cries of "follow, implement, overcome, surmount."

In the nationally reported words of Hanoi's party secretary (president), Nguyen Phu Trong, "we are asking the capital and its people to bring up the spirit of unity, try their best and overcome all difficu8lties, by being really bold, dynamic, and creative.... Step by step, Hanoi has to deal with the traffic jams, internal over-flooding, buildings without licenses, social evils, the environment, and the living standards of the people."

MORE ELECTRICITY & FEWER JOBS - Keeping with State tradition of not concentrating on only the bad news, the State media reports that plans are going forward with the Son La Province (in the northern highlands) hydroelectric power plant, with construction targeted to start in the 2004-2005 period. There is no report where the funds will come for this project, or its expected capacity.

In the next paragraph, it is announced that Government worker lay offs this year are expected to top 70,000 positions from the 1.38 million now employed in the State Sector. About 7,600 central level admin staff, and 62,800 local admin staff are expected to loose their jobs.

TELEPHONY & INTERNET UPDATE - State-owned Vietnam Posts and Telecommunications Corp (VNPT) estimates it will have to spend $2.21 billion over the next five years to enlarge its market share and reduce charges.

The State-Owned Vietnam News (owned by VNA) quoted VNPT director-general Dang Dinh Lam as saying the investment, totaling 31.72 trillion dong, would help VNPT secure 45 to 60 percent of the Internet service market.

It also expected 80 percent of the mobile phone market and 60 percent of the market for domestic and international calls using the Voice Over Internet Protocol (VOIP), Lam said.

VNPT, which used to have a monopoly in every aspect of telecommunications, now runs one of three national mobile phone networks and serves about 70 percent of the country's estimated 120,000 Internet subscribers.

Last year, the State-Owned Military Electronic Telecommunications Co (Vietel) launched a VOIP service to offer low-cost long distance calls in competition with VNPT and plans to seek a license for an international service using the technology in 2001.

Charges for domestic calls were expected to drop to 0.3 cents per minute by 2005 from 0.7 U.S. cents now, he said.

It is reported by the State-Owned media that VNPT planned to spend 5.5 trillion dong this year on installing more than 897,000 new phone lines, which were expected to attract 47,065 more Internet subscribers. It put the total number of telephone accounts in Vietnam at 3.3 million, including 730,155 mobile phone users and 60,826 Internet subscribers.

However, in a copyrighted dispatch last month, China's Xinhua News Agency reports that "Vietnam had 120,000 subscribers of the Internet service by the end of 2000 compared with 44,000 subscribers in 1999," quoting Vietnam's official news agency VNA.

Xinhua then reports from Vietnam's General Department of Post and Telecommunications, that last year its subsidiary company, the Vietnam Datacommunication Company (VDC) served 76,500 subscribers or 63 percent of the total, the State-Owned Company for Financing and Promoting Technology (FPT), served 30,300 subscribers, and State-Owned Sai Gon Postel, had 8,700 subscribers. The sole privately held ISP is Netnam that reportedly struggles by with 5, 700 subscribers.

The Vietnam News article also quoted Mai Liem Truc, general director of the General Department of Post and Telecommunications, as saying his department had drafted a new decree covering Internet usage, which would allow cheaper access and make it easier to get licenses to offer Internet services.

VIETNAM TAPS OVER ONE MILLION TONNES OF CRUDE OIL IN
JANUARY The Vietnam-Russia petroleum joint venture enterprise, VietsovPetro, reportedly tapped 1,095 million tonnes of crude oil and brought ashore 145.38 million cu.m of gas in January.

The company has pumped more than 38,000 tonnes of crude and between 4.8 and 4.9 million cu.m of associated gas from 150 wells in Bach Ho (White Tiger) and Rong (Dragon) oil fields a day.

VietsovPetro has ensured the supply of enough oil and gas to fuel the Ba Ria and Phu My power plants and Dinh Co liquefied gas plant in Ba Ria-Vung Tau coastal province.

RUBBER EXPORT CONTRACTS The Vietnam Rubber Corporation has recently won two contracts to export a total of 15,000 tonnes of rubber to China and the Commonwealth of Independent States (CIS).

In January, the corporation signed a contract to export 5,000 tonnes of rubber to China. The company is also chalking out a detailed strategy to focus exclusively on software development and web-based call center businesses from the next fiscal year, with the aim of exiting completely from the systems integration business.

"We are in the advanced stage of negotiations with three Fortune 500 companies to provide technological back-office support," Karan Puri, managing director, IT&T said. He added the company was planning to step up marketing for its business-to-business software engine.

Hyundai reports that the contract provides momentum to confirm the value of their patents, and that long-term cooperative relations between the two companies in non-memory storage will help boost sales and promote the improvement of technologies.

*VIETNAM & RUSSIA - A NEW GAS VENTURE State oil monopoly Petrovietnam and a unit of Russia's gas giant Gazprom plan to set up a venture soon to tap natural gas off Vietnam's central coast, official media reported on Thursday.

The Saigon Times Daily newspaper said Petrovietnam's Petroleum Investment and Development Co and Gazprom's Zarubezhneftegaz would tap the gas from Block 112 in the Tonkin Gulf off the central provinces of Ha Tinh and Quang Binh.

A Petrovietnam official reportedly said a Russian delegation would soon visit Hanoi to formalize the joint venture contract after an agreement on overall cooperation in Block 112 was reached last September in Moscow during a visit by Vietnam's Prime Minister Phan Van Khai.

The official gave no further details but the Saigon Times Daily reported that the venture, Vietgazprom, would operate for 25 years in several phases. The paper said the Russian side would spend $38 million in the first three years on a geological survey and test drilling.

The second phase would take place in the following four years, during which two wells would be drilled at a cost of $10 million each, the paper said.

Last September, media reports in Russia said preliminary estimates by Petrovietnam and Gazprom put the reserves in the Tonkin block at one trillion cubic meters.

Vietnam and Russia have been cooperating in oil and gas exploration in the South China Sea for years and their joint venture, VietsovPetro, taps most of Vietnam's crude for export.

The Saigon Times reported that Royal Dutch/Shell drilled two wells in Block 112 in 1994, one of which showed gas and oil deposits, but the firm did not proceed further and returned the block to Petrovietnam. The paper did not give any reason.

It said British Petroleum had also refused to tap gas off the central coast after drilling four wells during 1993-1994, saying the ratio of carbon dioxide was too high at around 80-90 percent.

BP estimated the gas reserves there at around 27 billion cubic meters. (Reuters)

The VietsovPetro Russian-Vietnamese oil company produced about one million tonnes of oil at the off-shore oil deposits of Vietnam in the first month of the current year, which exceeded by far the planned target. The oil company plans to further increase the output of oil and casing-head gas in 2001, a spokesman for the central office of the company, located in the city of VungTau, told Tass by telephone. According to the plan for 2001, VietsovPetro is to produce 13.1 million tonnes of oil.

The company produced 12.6 million tonnes in 2001. Its revenues to the state budget of Vietnam exceeded the planned target and amounted to 2.8 billion dollars, which the company received for the export of crude oil.

VietsovPetro, created some 20 years ago by Russian Zarubezhneft and Vietnamese PetroVietnam, is now one of the ten most effective oil companies of the world. It accounts for 90 per cent of Vietnamese oil output. (Itar-Tass)

*VIETNAM'S SSC PROPOSES HANOI BOURSE Vietnam's market watchdog, the State Securities Commission (SSC), has submitted a plan to the government to establish a stock exchange in Hanoi in the first half of this year, state media reported on Thursday.

The Vietnam News newspaper said the bourse in Hanoi would be electronically linked to Vietnam's first exchange, the Ho Chi Minh City's Stock Trading Center (STC), which opened in July.

An SSC official confirmed the plan, but declined to give an exact timeframe envisaged for the opening. He also said the government had yet to reach a decision on the opening.

In August, official media said the government had urged the SSC to speed up preparations to allow the opening of a Hanoi bourse early this year.

A central Hanoi building has been chosen for the exchange, but existing tenants have yet to be moved from it.

The Ho Chi Minh City exchange currently has just five shares and two types of bond listed, which are traded in three weekly sessions. Seven securities firms operate on the exchange.

One of these, Bao Viet Securities Co, said on Thursday it had launched an online service to allow customers to check their accounts and obtain stock market information.

A company official said customers could access the information via the firm's intranet at Bao Viet offices in Hanoi and Ho Chi Minh City.

"This is a test and it may be linked to the Internet in six months or so," he said. (Reuters)