VZCZCXRO3160
OO RUEHDT RUEHPB
DE RUEHHM #0352/01 0950510
ZNR UUUUU ZZH
O P 040510Z APR 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3954
INFO RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHHI/AMEMBASSY HANOI PRIORITY 2594
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 4176
UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000352
SIPDIS
SENSITIVE
SIPDIS
STATE FOR EAP/MLS, USAID/ANE, EEB/TPP/BTA/ANA
USAID/ANE/EAA FOR FRANK DONOVAN
STATE PASS USTR FOR BISBEE
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
E.O. 12958: N/A
TAGS: ECON ENRG ETRD ELAB EINV VM
SUBJECT: SUPPLY ISSUES LEAD TO POWER CUTS IN HCMC
HO CHI MIN 00000352 001.2 OF 002
1. (SBU) Summary: The power went out in parts of Ho Chi Minh
City last week, as the energy demanded by a booming economy
outstripped supply. Electricity shortages muddy Vietnam's
efforts to attract investment and directly impact U.S.
businesses, so on April 2 the Ambassador visited the source of
40 percent of Vietnam's electricity -- Ba Ria-Vung Tau
province's Phu My power generation complex. Shrinking
reservoirs, power plant mechanical failures, inefficient
transmission and dysfunctional pricing mechanisms triggered the
recent outages. State-owned Energy of Vietnam's monopolistic
behavior and speculative forays into non-energy sectors such as
telecommunications and real estate also threaten to prolong the
energy shortage and constrain economic growth. End Summary.
Lights out Saigon
-----------------
2. (U) A wave of blackouts hit Ho Chi Minh City with the first
of a predicted series of power outages that are expected to
worsen in coming months. The city center and most industrial
zones were spared but urban and suburban districts, which are
home to millions of people and thousands of light manufacturing
and retail outlets, lost power for 12 hours on March 15 and 16,
and again on March 20. Street lights throughout the city have
dimmed, and many small business owners and shopkeepers are
purchasing diesel generators. Garment exporters and other
manufacturers located outside HCMC's industrial zones tell us
that prolonged shortages would threaten their existence.
Demand Outstrips Supply
-----------------------
3. (SBU) "There is no slack in the system," the Phu My III power
plant general manager told the Ambassador on April 2nd, "and
beyond the few new plants like Ca Mau I there isn't much
capacity coming on line anytime soon." Just upstream, the Nam
Con Son gas pipeline general manager also confirmed that the
BP-ConocoPhillips-PetroVietnam joint venture continues to supply
its capacity of nearly 15 million cubic meters per day to the
Phu My power generation complex. An expansion currently
underway should increase pipeline capacity to 20 million cubic
meters per day by the end of 2008.
4. (SBU) National energy consumption in February increased 16
percent year on year (and GVN expects consumption to continue to
grow at that rate through 2015), while production failed to keep
pace. HCMC, like the country as a whole, is powered by a mix of
hydroelectric and thermal plants. Water shortages nationwide
have crimped hydroelectric capacity in recent years, new thermal
plants have suffered delays in coming on-line, and occasional
shortages of natural gas have decreased power production. The
long-awaited 750MW capacity Ca Mau I thermal power plant in
Vietnam's southernmost province broke down during trial runs on
March 10. These setbacks, along with mechanical disruptions
such as a failed turbine blade at one of Phu My's gas-fired
plants, triggered the current wave of outages in HCMC.
No Energy Market Means Buy High, Sell Low
-----------------------------------------
5. (SBU) While technical difficulties and a lack of rain are the
immediate causes of the current power outages, the problem is
compounded by the fact that Vietnam's long-term energy strategy
is in the hands of state-owned energy producer Electricity of
Vietnam (EVN). EVN is plugging short-term gaps with expensive
($0.45 per kilowatt hour kWH) power imported from China, and the
GVN's Electricity Master Plan VI (approved July 2007) does call
for 136 new power projects by 2015 and deregulation of the
entire power generation market by 2020.
6. (SBU) At $0.05 per kWh, Vietnam's current retail prices are
below market rates; however, the GVN plans to begin removing
price restrictions in 2009 in order to attract private
investors. As a reference point, electricity costs $0.12 per
kWh in Singapore. "The economics are clear and everybody
understands them, but this is not a purely economic issue" the
Phu My III plant manager confirmed.
7. (SBU) "This happened to every country: China, the
Philippines, Indonesia and Thailand," the Phu My III manager
continued, "and every country finds its own solution." He
predicted that over the next few years, Vietnam's industrial
parks will increasingly purchase large capacity generators to
backstop the national grid, as they did in the 1990s during
Vietnam's last power crunch. Eventually, market pricing will
draw interest to Vietnam and already opportunities for potential
investors, like the GVN's ongoing discussions with AES, are
HO CHI MIN 00000352 002.2 OF 002
emerging for cheap coal-fired power generation.
State Monopoly Stiffs Private Energy Sector, Goes Shopping
--------------------------------------------- -------------
8. (SBU) Private energy analysts and the local media have
criticized EVN's failure to buy cheap surplus power from private
suppliers, as well as its forays into Vietnam's speculative real
estate market. EVN's decision to purchase expensive Chinese
power instead of excess capacity from either the Hiep Phuoc
plant (Vietnam's first 100% foreign Build Own Operate plant
located in HCMC's premier industrial park) or from Formosa
Corporation's coal-fired facility in neighboring Dong Nai
province has been criticized by the press. Private energy
analysts consider the formation of mobile phone service provider
EVN Telecom, as well as the construction of golf courses and
luxury hotels by EVN's four real estate companies, to be
unproductive diversions from EVN's core functions.
Comment
-------
9. (SBU) Rapid economic growth and the attendant surge in energy
demand have stretched Vietnam's power generation capacity to its
limit. EVN's monopolistic tendencies and habit of diverting
resources outside its core energy functions have exacerbated the
situation. Much depends on scheduled reforms; the GVN must
succeed in establishing a competitive market for power
generation or risk stalling the growth of Vietnam's electricity
production and the economic growth it fuels. Mission actively
presses the GVN to improve transparency in order to create real
opportunities for U.S. companies to participate in Vietnam's
energy industry. End Comment.
10. (U) This cable was coordinated with Embassy Hanoi.
DICKEY