COMMENTARY

Leaping or Limping Ahead - "Cream always rises to the top of the milk bottle" we learned in the 1950s from the milk deliveryman. Our early morning choice was thus to skim it off for fat-free milk, mix it in, or do a little of both. The question most often asked about FDI in Vietnam is, "Must it always take so long?"

A close look at three projects first begun in 1992 can help us to understand more about the past.  As for the present and future, we must direct those questions to Vietnam's leadership.

The Gas Processing Station at Dinh Co first looked at by British Gas, the Oil Refinery at Vung Tau started by France's Total, and the Gas Pipe Line from Nam Con Son championed by British Petroleum are worth of more than the brief second looks we have the space for here.

British Gas set up shop in 1992 proposing a gas processing plant on-shore or off, to use the billions of cubic meters of associated gas being burnt from the Bach Ho oil fields exploited by the former Soviet joint venture, Vietsovpetro.  Projections were then that gas production would start to decline in a a hockey-stick line by year 2002. After 8 years of much fiddling and fuddling, long after British Gas pulled out in disgust from Vietnam, the plant was commissioned at only one-half its initially planned capacity. The billions of dollars of gas wasted as a result were of course needed and now forever lost.

Total of France proposed in 1992 Vietnam's first oil refinery near land fall of the Bach Ho oil wells. Projected at a cost of $1.2 billion, the stumbling block was when Vietnam for good reason elected to preserve its beautiful beaches so close to HCMC for recreation needs of the burgeoning economic, financial, population, and transportation center of the nation.  For equally sound reasons (the forced development of the central provinces) Vietnam elected to shift the site to the DaNang area of Dung Quat.  

Unrealized or simply ignored was the financial challenge to locate a refinery far removed from both the crude source and the markets for refined products. Transportation costs were and still are projected to make the cost of refined product more costly than the imported price from neighboring lands who have and for years are projected to have excess refining capacity in exiting operations. 

Now, ten years and three consortiums later, the refinery is no closer to being constructed but Vietnam is yet persisting that it and a second, even more distant refinery to be built at even greater cost, will still be erected.

EVN, the Electricity Company of Vietnam was the stumbling block in the long negotiations to complete the gas pipe line. See our dispatch, below. Of the three projects, this is the first to be completed as originally planned and with the least amount of waste. The natural gas fields remained capped after discovery.

Tourism is now projected to exceed all prior records, obtaining a license to operate a business has not ever been easier or more encouraged (now far more simple and on better terms than in many  neighboring lands), and the blessed work force of Vietnam remains the nations best and most valuable resource: well educated, wanting to be trained, loyal, and affordable.  As pleasing at it is to read that the per capita GDP in China now approaches or exceeds $900, that too puts the cost of labor at nearly double the rates still available in Vietnam.

It may seem a poor practice to quote from these pages, but it cannot be better stated than we did only last month, "Vietnam has the opportunity to be the regional leader; this window has opened and closed a few times in the past decade.  It is not wise to gamble that it will remain open, or ever open again soon. 

"The time is now for both investors and the leadership of Vietnam to make the important decisions that will spell economic success for all." 

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DISPATCHES

Nam Con Son pipeline commissioned

Gas from the Lan Tay field off the country's southern coast reached shore at Dinh Co for the first time after the just-completed Nam Con Son pipeline, operated by Viet Nam Oil and Gas Corporation (PetroVietnam) and its foreign partners BP (UK), ONGC Videsh (India) and. ConocoPhilips (the US), and built for US$ 400 million, was commissioned on November 23, 2002.

BP began discussions on building a pipe-line in 1992. The final agreement was signed in 2000 and construction began in April 2001.  The 400-kilometer-long pipeline lands at the Dinh Co gas processing station in Ba Ria-Vung Tau Province, about 75 straight-line km (47 miles) from HCMC.

The US$1.3-billion gas pipeline project brings gas from the Lan Tay and Lan Do fields in Nam Con Son Basin (Block 06.1), which is estimated to have reserves of 58-59 billion cubic meters and are expected to yield gas for the next 20 years. Other gas reserves too have been discovered in the basin.

This now very active source and delivery system are major components of thermal power projects in the State, including the US$412.8-million gas-fueled Phu My 3 power station, also in BaRia-VungTau province.  

The developer of Phu My 3 is a consortium comprising BP, SemCorp of Singapore and Nissho Iwai of Japan. That project is in the build-operate-transfer form.  Started in November 2001, the plant -- 44 km distant from HCMC -- is expected to be on-line by the end of 2003.

The gas pipeline has the capacity to pump some seven billion cubic meters of gas a year from the two gas fields, but usage is expected at three billion cubic meters from the two fields annually.

Most of the gas volume exploited from the fields will be used for electricity generation, although other industrial uses are also planned, including a urea fertilizer plant.

The project comprises three components: the development of offshore gas fields in the Nam Con Son Basin (ONGC Videsh - 45 per cent, BP - 35 per cent, CoconoPhillips and PetroVietnam - 20 per cent each); construction of a 399km pipeline to carry the gas ashore (PetroVietnam - 51 per cent, BP - 32.67 per cent, CoconoPhillips 16.33 per cent); and onshore processing facilities and construction of the 716-megawatt Phu My Power Plant No. 3 (BP, Semcorp of Singapore and Kyushu Electric of Japan 33.3 per cent each).

Gas from the field will be sold directly to PetroVietnam, which will act as the marketing arm, delivering the gas to end-users in the Phu My Industrial Park in Ba Ria-Vung Tau Province.

PetroVietnam earlier pledged to buy 2.1 billion cubic meters of gas from BP in the first three year and 2.6 billion cubic meters in the next three years depending on demand.

State-run utility Electricity of Vietnam (EVN) is expected to be major customer and has been the largest stumbling block.  Needing a reported 1.3 billion cubic meters this year, it was the price that EVN would not pay for this and future gas that delayed the process for several years.

The volume of gas to go onshore in the first year will be lower than the 2. l billion cubic meters EVN pledged to buy from BP for sale to the local electricity sector.

EVN estimates the electricity sector will consume 2.1-2:3 billion cubic meters of gas from Nam Con Son by 2005. In addition, the Phu My urea fertilizer plant now under construction is expected to need some 0.6 billion cubic meters.

PetroVietnam is also mulling increasing gas consumption.

The corporation will spend VND80 billion (US$ 5.2 million) building pipelines to supply low-pressure gas to My Xuan, Go Dau, Vedan and Long Huong industrial parks in Ba Ria-Vung Tau and Dong Nai.

It will also invest US$ 70 million in gas pipelines to supply plants and industrial parks in Dong Nai and HCMC.

EVN forecasts the electricity sector will consume 10-12 billion cubic meters of gas by 2010.

BP-Amoco plans to exploit gas from the Hai Thach field and other companies will also invest in the gas fields, which have been found in the Nam Con Son Basin.  Tied into this major delivery system, the project is considered by the Vietnamese Government as a key driver of commercial and industrial development in Viet Nam's southern provinces.

This will relieve the demand from Hoa Binh in the north and insure that the Yaly hydro plant now a-building in the central area will be able to direct their energy production to other areas of the nation as well.

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Russians withdraw from Dung Quat oil refinery plant

Widely reported in Vietnam but mostly consigned to the back pages, it appears that the Russian partner in Vietnam’s first projected oil refinery has or announced plans to withdraw.  Alternative theories hold that the Russians are being asked to leave.

This refinery was first licensed in 1992 as a joint venture between PetroVietnam and France’s Total. When the State elected to move the site location from southern Vung Tau (in the Greater HCMC region) to central Quang Ngai (near Da Nang), 700 + km from both Hanoi and HCMC, Total sought both to increase the price it would receive for its refined product and to increase the project capitalization from $1.2 to $1.5 billion.

Vietnam refused, and Total withdrew in 1995.  The project remained in limbo until a multinational consortium including America's Conoco undertook a full feasibility study of the project at the new site.  In late 1997 the new consortium backed out claiming the project was not financially feasible.

In 1998 the Russians through RVO Zarubezhneft, a Russian state oil company, offered to share the costs with PetroVietnam. Thus was the VietRoss JV formed. Each side initially agreed to jointly contribute $500 million and seek international financing for the remaining $500 million.

In late November 2002, Vietnam's PetroVietnam, its state owned oil company, laid the blame to delays on the equal partnership's inability to reach crucial decisions, such as the selection of a general contractor. 

Vietnam’s interests now project once again that they will do the project alone if need be. Is this realistic or simply a hold-over of ancient, Soviet-style, unrealistic boasting for domestic consumption purposes?

Following the initial withdrawal by Total in 1996, Vietnam’s National Assembly passed a resolution in 1997 stipulating that Vietnam would spend US$600 million from the profits of crude oil sale for investment in the Dung Quat refinery.  Recently, Vietcombank offered to contribute $250 million.  More recently, Vietnam appointed a general contractor against the desires it its Russian partner. 

The joint venture, VietRoss' tendering difficulties reportedly involved disagreements over the Russian partner's (Zarubezhneft) choice of a Samsung-ABB consortium, while PetroVietnam favored France's Technip-led consortium.  While some foreign exports deem the ABB-Loomis partner a strong choice, others point to instances of poor quality technology or workmanship employed on different elements of the nation's petroleum works that were supplied by different Korean groups.

There are unconfirmed reports that the French Technip group was selected by PetroVietnam and the French consortium as general contractor will commit to arranging $500 million in financing.

Presuming the mentioned sums are additive, the apparent available capital is now up to $1.35 billion for a project that many foreign experts claim cannot be built for less than $1.5 billion in today’s money.  

However, most learned foreign experts still question the ability of the project to generate any profits because: (i) the site is too distant both from the source of crude and the two major markets for the down stream refined products, thus transport costs will drive the final price higher than current or reasonably projected market prices; (ii) there is current and projected long-term regional refining over-capacity in neighboring nations that will keep current and reasonably projected market prices lower than the cost of producing refined products in a Dung Quat facility.

Vietnam continues to see Russia as a major partner.  Russia is the biggest investor in the oil and gas sector in Vietnam. The joint venture, VietSovPetro, is the nation's long term major crude producer, even as recent projections are that the massive gas reserves may eventually eclipse crude as the nation's largest earner of hard currency.

However, the question is once again raised: can Vietnam break free from an alliance with all foreigner partners at this point and actually proceed on its own to build a profitable plant for $1.35 billion?  Or two plants?  We are mindful of Vietnam’s announced plans to build an even larger facility closer to Hanoi for a projected $2.5 billion.  Nghi Son is about 140 km south of Hanoi and about 150 km southwest of Hai Phong.  Hai Phong and Nghi Son are each more than 1,200 km north of Vung Tau, land fall for all of Vietnam's crude.

With Dung Quat's still scheduled opening now pushed far back from the current late 2002 date (there is still no steel in the ground), the time is ripe to review the entire strategic plan to build oil refineries at all. 

With such clear indications of its inability to proceed profitably, after ten years trying, the proper question that should be on the lips of Vietnam’s senior leaders is if it would not be better for Vietnam to quietly withdraw from all refinery projects and spend its hard earned and much needed capital on projects that have a lower profile but a more financially sound and needed product?

Alternatively, a question for America must be: does it want to step more fully up to the plate and take on this effort as a loss-leader?  To build up Vietnam's perception of its own prestige with a refinery or two may be the least costly and best aide America can give to Vietnam's leadership. This will show them America's willingness to be a partner far more clearly than does fighting with Vietnam over cat fish and shrimp. 

Vietnam is surely looking for a friendly face as a new strategic partner to replace the once able Russians. Even more clearly is Vietnam's reluctance to consider China in such a light, unless America once again misreads this good friend and forces Vietnam in that direction.

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New rule on websites - It has long been the rule in Vietnam that all agencies, organizations and businesses wishing to provide information on the Internet and establish websites in Vietnam must obtain licenses from the Ministry of Culture and Information.  [NOTE: It should not be a wonder why getting information about Vietnam to investors has always been a special undertaking, but in case there is a question….]

According to a new regulation issued in Decision 27/QD-BVHTT by the Ministry of Culture and Information, to obtain licenses, local agencies, organizations and businesses must have permits from their managing bodies, state clearly the type of information and the content they want to provide and be responsible for it. All websites with frequent news updates are subject to the rule, which also supervises Internet content providers (ICPs) and electronic editions of local newspapers.

The regulation, aimed to prevent the circulation of unhealthy information on the Internet, rules that Internet content providers are not allowed to give information that is not covered in their licenses and must include contact information on their websites. Foreign organizations in Vietnam, including diplomatic agencies, non-governmental and inter-governmental bodies and news agencies, wishing to post information online in Vietnam must obtain permission from the Foreign Ministry.

The decision does not allow content that is against the Government, threatens national security and corrupts public morals, or confidential information about the State, army, national security, economics and foreign affairs.

License applications must be sent to culture and information authorities, which must give replies within 30 days.  To date, some 50 Internet content providers have been licensed against the total 2,500 website operators in Vietnam. 

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Funding Vietnam’s Growth - The Asian Development Bank, the World Bank, and ODA grants from the largest donor countries, still provide the major new investment funds for Vietnam.  This is both a boon to Vietnam in lean investment times, and a competitive discouragement to greater FDI that still keenly seeks greater investment opportunities particularly in lean times. 

By the end of September 2002, there were 3,524 valid FDI projects with a total registered capital of US$39.032 billion in Vietnam. According to the MPI, 1,861 projects worth US$22.5 billion are operational, 709 projects worth US$11.2 billion are under construction and 925 projects worth US$5.2 billion have not yet been developed. The total realized capital reached US$20.73 billion. 

The World Bank has approved the first International Development Association (IDA) guarantee for Vietnam's US$480-million Phu My 2.2 power plant project. The IDA Partial Risk Guarantee of US$75 million in support of commercial debt financing was offered to Mekong Energy Company (MECO), a private consortium comprising EDF International (France), Sumitomo and Tokyo Electric Power Company (Japan). The 715MW gas-fired power plant will be developed in the Phu My power complex, Ba Ria-Vung Tau Province. 

Japan International Cooperation Agency (JICA) has pledged to provide soft loans of US$240 million to build two deepwater ports in Thi Vai and Cai Mep in Tan Thanh Industrial Park, Ba Ria-Vung Tau Province bordering HCM City.  

According to Vietnam Maritime Department, the Cai Mep International Container Terminal, with a handling capacity of 600,000 TEUs by 2010, will receive US$160 million, and the Thi Vai Cargo Port, able to receive 1.6 million tons of cargo by 2010, US$80 million. The two projects are part of the plan for development of southern ports to 2010 and 2020 mapped out by JICA.  

Under the plan, the southern key economic region will need nine container terminals and six general ports by 2010 and the respective numbers for 2020 are 15 and 20. It says most existing ports are unable to meet the increasing demand for cargo transport, especially containers.

Between now and 2010, Vietnam's port system will need US$1.86 billion for upgrading. The Vietnam Maritime Department has worked out a plan to upgrade six key seaports and dredge the channels to the Can Tho and Soai Rap ports. The six ports include Sao Mai-Ben Dinh, Thi Vai-Cai Mep, Dung Quat (second phase), Cai Lan (second phase), Danang (second phase) and Nha Be.

JETRO urges improvement   Vietnam's investment environment is not attractive enough to many foreign investors, especially Japanese businesses, and the country should do more to improve the climate, according to Japanese experts.

At a forum initiated by Japan External Trade Organization (JETRO) to form a link with local officials, participants said the business environment here is still less attractive than in other regional countries. According to PricewaterhouseCoopers Vietnam, compared with other Southeast Asian countries, doing business in Vietnam is still difficult in terms of taxation, labor recruitment, land policies, copyright and others.

"Vietnam is lagging behind other regional countries regarding tax, the dual-pricing policy and regulations on land transfer and ownership," a PCV spokesman said at the fourth meeting of the Task Force.

Jetro in HCM City said Japanese investment capital inflow into Vietnam this year increased little and proposed Vietnam look into the issue to find remedies. Hikekazu Mita, director of Vietnam Japan Gas, pointed out that the biggest challenges to Vietnam now are how to develop the infrastructure and sharpen competitiveness ahead the accession to the ASEAN Free Trade Area (AFTA).

Jetro representatives proposed arranging a mission to China to learn the way the Chinese do to attract more investors. Japan's investment in China is 33 times bigger than in Vietnam.

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Dung Quat, Vietnam's largest IP? - Dung Quat Industrial Park in Quang Ngai Province is being promoted by the State as the most liberal investment zone in Vietnam with optimum incentives offered to both local and foreign investors.

Speaking at a conference organized by Quang Ngai Province and the Ministry of Industry to attract State-owned companies to investment in Dung Quat, an MPI spokesman said some special incentives will be applied in Dung Quat on a trial basis and investment will be fully liberalized to attract investors. [NOTE: Missing from the announcement was anything new, much less special.]

Dung Quat IP, with an area of 14,000 ha, is Vietnam's first petro-chemical complex able to accommodate many big industries such as chemical, steel and mining processing. It is the only IP in Vietnam to receive State investment in infrastructure and [projected] favorable conditions in transport (near Dung Quat Deepwater Port and Chu Lai International Airport).

The State has invested VND 1,500 billion [US$ 978K] to develop the infrastructure of Dung Quat, which has so far attracted 18 investment projects with a total capital of US$1.46 billion and VND502 billion. The largest project is Oil Refinery No.1 (US$1.3 billion). Other major projects are a shipbuilding factory of Vietnam Shipbuilding Industry Corporation (US$430 million) and a polypropylene plant by Vietnam-Russia Oil Refinery JV (US$154 million). The IP authority will issue licenses for 26 more projects totaling US$282.5 million and VND2.15 trillion. 

[NOTE: We’ve done the dollar conversions and the math. The numbers here don’t add up.  More importantly, other than moving the people, leveling the land, and carving out the roadbeds, there are no reports of any steel in the ground. Since this was first reported, the Dung Quat Refinery has again been called to the table for discussion. See our dispatch, above.]

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Preparations for U.S. invested projects - The HCM City government has been asked to speed up preparations for projects, which attracted American investors during a promotion trip in the U.S. last month. 

According to the HCM City Department of Planning and Investment, American investors have shown keen interest in a new urban center in Thu Thiem, District 2, a metro system, a sewage treatment and some other projects.  

An American accounting firm is reportedly seeking to conduct the feasibility study for the metro system in the city to call for investment. Another US company is reportedly keen to establish the US$150-million Saigon Pearl Estates to build a supermarket and recreation park in Cat Lai, District 2. A third US company seeks consider a sewage and wastewater treatment project. 

It was stated that American investors need answers their queries about the urban and metro projects and other relevant information. [NOTE: if this is news to the HCMC government then no wonder FDI is not going at a faster speed.]

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FDI sought for public transport - HCM City authorities are considering plans to develop five major means of public transport, including a metro, streetcar, monorail, and train.
The city will seek foreign investment in these routes.

§   A 15-kilometer metro line from Tan Binh District to Ben Thanh Market and the Saigon South (District 7) will cost US$500 million.

§   A 25-kilometer elevated train line from Saigon Bridge to Dong Nai Bridge needs US$500 million.

§   A 28-kilometer monorail from Quang Trung Software City to Mien Dong and Mien Tay bus stations will cost US$560 million.

§   The cost for a 33.7-kilometer railway from Hoa Hung to Bien Hoa railway stations is being estimated.

§   There are reports that several foreign investors are interested in a project to build a monorail system in HCM City, estimated to cost US$ 2.17 billion. They are Siemens and Lahmayer International (Germany), Georgia Monorail Consortium (GMC- U.S.), Hong Kong Chiaphua Group (Hong Kong), Open Asia (France), Louis Berger and Pricewaterhouse-Coopers (U.S.), Itochu (Japan), Lahmayer International (Germany), and JICA (Japan).

The city government has approved a proposal for GMC to conduct a pre-feasibility study for the huge inner-city monorail project. 

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Vietnam's industrial production up 14%.  Valued at 214.4 trillion VND (US$ 13.99 billion) in the first ten months of 2002, Industrial production shows a 14.3 percent year-on-year rise, according to the General Statistics Office.
Of this figure, the State-owned sector rose 11.6 percent and the non-state sector, 19 percent, while the foreign investment sector increased by 14.4 percent.

The value grew most rapidly in southern Binh Duong province (33.3 percent); followed by Ha Noi (25.6 percent); Hai Phong (25 percent); southern Dong Nai province (16.7 percent); and northern Quang Ninh province (16.2 percent).

Ho Chi Minh City posted a growth rate of 13.8 percent, lower than the national average.

Sectors attaining high growth rates included seafood-processing, garments, automobile and television set manufacture, rolled steel and enameled tile.

In the period under review, Ha Noi grossed an output of 18,762 billion VND (1.25 billion USD), a 25.9 percent year-on-year increase.

Remarkable increases were recorded in all economic sectors in the city with the Centrally-run sector (18.4 percent); the locally-run sector (17.1 percent); the non-State economic sector (19.7 percent); and the foreign-invested sector (42.8 percent).

However, the foreign-invested sector in October saw a month-to-month reduction of 19.4 percent due to the decrease in the assembly and sales of motorbikes.  

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