INDEPENDENT NEWS

Cablegate: U.S. Exporter Menaced by Japanese Oda

Published: Fri 20 May 2005 12:41 PM
This record is a partial extract of the original cable. The full text of the original cable is not available.
201241Z May 05
ACTION EAP-00
INFO LOG-00 NP-00 AID-00 CIAE-00 CTME-00 INL-00 DODE-00
ITCE-00 DOTE-00 DS-00 EB-00 EXME-00 EUR-00 OIGO-00
E-00 FAAE-00 FBIE-00 UTED-00 VC-00 FRB-00 H-00
TEDE-00 INR-00 LAB-01 VCE-00 AC-00 NSAE-00 OES-00
OMB-00 NIMA-00 OPIC-01 PER-00 ACE-00 SP-00 IRM-00
SSO-00 STR-00 TRSE-00 FMP-00 BBG-00 IIP-00 DSCC-00
PRM-00 DRL-00 G-00 NFAT-00 SAS-00 SWCI-00 /002W
------------------F2542B 201150Z /38
FM AMCONSUL HO CHI MINH CITY
TO SECSTATE WASHDC IMMEDIATE 1501
USDOC WASHDC IMMEDIATE
INFO AMEMBASSY HANOI PRIORITY
DEPT OF TRANSPORTATION WASHDC PRIORITY
NSC WASHDC PRIORITY
AMEMBASSY PARIS PRIORITY
AMEMBASSY TOKYO
AMEMBASSY BANGKOK
UNCLAS HO CHI MINH CITY 000529
SIPDIS
SENSITIVE
DEPARTMENT PASS EXIM BANK AND OPIC
DEPARTMENT PASS USTR, ELENA BRYAN
STATE FOR EAP/BCLTV AND EB/TPP/ABT/BTT
USDOC FOR 4430/MAC/ASIA/OPB/VLC/HPPHO
USDOC FOR ADVOCACY CENTER
PARIS FOR USOECD
E.O. 12958: N/A
TAGS: ETRD BEXP BTIO EAID PREL VM
SUBJECT: U.S. EXPORTER MENACED BY JAPANESE ODA
1. (U) This is an action request for State, Commerce and ExIm
Bank. See paragraphs 2 and 11.
2. (U) SUMMARY: A U.S. manufacturer is about to lose a $4.6
million deal to supply jetways or passenger boarding bridges
(PBB's) for a new terminal at HCMC's Tan Son Nhat Airport.
Vietnamese airport authorities want the U.S. PBBs, but are under
extreme pressure to switch to Japanese PBBs from the Japanese
company overseeing the terminal project. Though the original
project contract stipulated that U.S. PBBs must be used, the
Japanese contractor now claims Japanese PBBs must be used to
qualify to meet the terms of the loan from the Japanese Bank for
International Cooperation (JBIC) that is financing the project. A
U.S. company stands to lose substantial business as a result of
manipulation of loan requirements. Post requests Washington's
assistance in formulating a strategy to save this deal, which is
the deal the Vietnamese themselves prefer. END SUMMARY.
3. (U) Thirteen years ago when the Southern Airports Authority
(SAA) and Civil Aviation Authority of Vietnam (CAAV) went looking
for financing to support the construction of a new terminal at Tan
Son Nhat Airport in Ho Chi Minh City, it was delighted to receive
an offer that proved in the end to be too good to be true.
Japan's Japanese Bank for International Cooperation (JBIC) came to
CAAV with a soft loan proposal to finance 85 percent of the $216
million project that included a 40-year loan at interest rates
below one percent and ten year grace period. This was a tied aid
loan, meaning that the main project contractor and any consulting
service providers must be Japanese and under standard JBIC terms
at least 51 percent of the total project cost must be sourced from
Japan.
4. (U) Compared to prevailing commercial lending rates at much
higher interest rates and no grace period, the JBIC loan must have
seemed like a no-brainer to the Vietnamese airport authorities. A
loan agreement between JBIC and the Vietnam Ministry of Finance
was signed on March 29, 2002 for 22.768 billion yen, and a public
tender for the turnkey construction contract was issued in mid-
2004. The winning bidder was Kajima Taisei Obayashi Mieda (KTOM),
a Japanese joint venture company formed exclusively for the
purpose of performing this contract in Vietnam. We understand that
even before the tender was announced, it was generally known
within the Japanese business community that by agreement KTOM
would be the winning bidder.
5. (U) Following the formal award, KTOM began negotiating a
detailed contract with the SAA. During the negotiations, SAA
specified its requirement for passenger boarding bridges (PBBs)
manufactured by FMC Technologies, Inc. -Jetway, based in Ogden,
Utah. SAA had previously purchased eight PBBs from FMC and was
pleased with their performance. They wanted to stick with FMC
PBBs not only because of their proven quality, but also to
minimize training and other ancillary costs by having a unified
system. SAA provided KTOM with catalogues and other materials
from FMC to clearly specify the models to be supplied. KTOM
accepted these specifications as part of the contract, which was
eventually signed with SAA on August 3, 2004. The contract price
was about $182.6 million.
6. (U) Construction of the new terminal commenced in September
2004. That's when the problems began for SAA and its chosen
supplier, FMC. Without warning, KTOM stopped talking with FMC and
notified SAA that it wanted to use a Japanese supplier of PBBs,
Shinmaywa, instead of FMC. The explanation for this switch was
that they needed to buy from a Japanese supplier in order to
comply with the 51 percent minimum Japanese content rule for JBIC
loans. SAA wrote to KTOM that this substitution of Shimaywa for
FMC was unacceptable, and they insisted that KTOM comply with the
terms of their contract. However, KTOM refused to budge, and
basically ignored SAA's pleas.
7. (U) Using FMC's offer price to KTOM of $4.6 million for its
PBBs, the PBBs represent approximately 2.5 percent of the total
contract. Both FMC and SAA argued to KTOM that they could easily
satisfy the 51 percent requirement by sourcing other systems from
Japan. KTOM replied to FMC that they had already made the
decision to source from Shinmaywa and that any further discussion
on this subject was closed. KTOM then gave an ultimatum to SAA
that if it did not sign off on the contract substitution then the
entire project would be delayed and that the fault would lie
entirely with SAA.
8. (U) FMC sought the assistance of the USG in Vietnam beginning
in early 2005. ConGen Commercial Officer met with SAA officials
to discuss this situation. At that meeting, SAA officials
admitted that they were being squeezed by KTOM and that they did
not have any practical leverage to prevent KTOM from ignoring the
contract terms. They asked for USG assistance to put pressure on
JBIC officials to comply with the contract. There was also
concern that KTOM and JBIC would bring pressure to bear at the
higher government levels in Hanoi to force SAA to accept
Shinmaywa. Ambassador Marine met with the Minister of
Transportation Dao Dinh Binh to discuss this matter and urged him
to hold firm on the contract specifications, but Binh said that
the Ministry would defer to SAA on this issue. Embassy officials
also raised this issue with the Director General of CAAV in Hanoi.
At the same time, Embassy Tokyo raised this issue with JBIC. The
Japanese officials, in turn, referred the issue back to Vietnam.
9. (U) Over the last four months, SAA and KTOM exchanged several
letters, each time disagreeing on the substitution of Shinmaywa
for FMC. On May 19 HCMC CommOff met again with FMC and SAA
officials to discuss the situation. An SAA senior official told
us that he was now under extreme pressure from KTOM and JBIC to
sign off on the final equipment supply list that includes
Shinmaywa by the end of May. He also said that he is under
pressure from the central government authorities to complete the
project on schedule, and that any further delay is unacceptable.
10. (SBU) COMMENT: This situation is a textbook example of unfair
competitive practices in ODA procurement. In this case, FMC and
SAA were hit with a classic bait and switch. Once Vietnam had
accepted the terms of the tied aid loan, the Japanese consortium
and lender held all the cards and SAA finds itself unable to
force KTOM or JBIC to comply with the terms of the agreement. We
understand that the competing Japanese PBBs are actually more
expensive that the FMC product and we would guess that the price
charged for other inputs to this project more than makes up for
the grant element in the financing. END COMMENT.
11. (SBU) ACTION REQUEST: SAA only has ten more days to sign the
equipment supply list or it will jeopardize the timely completion
of the project. Post requests Washington agencies coordinate on
an immediate initiative to get the Japanese to back down and honor
the original construction specifications. KTOM and JBIC are
abusing ODA procedures at the expense of both the U.S. supplier
and the recipient country. Post requests any further guidance on
how pressure may be brought to bear in support of FMC.
WINNICK
NNNN
View as: DESKTOP | MOBILE © Scoop Media