September 9, 2000	atimes.com

Special Reports Vietnam: Trading on more investment CHAPTER 4: MAIN ECONOMIC SECTORS Agriculture Agriculture is the dominant economic sector, accounting for nearly 30 percent of GDP and employing 70 percent of the work force. A concentrated upgrading of the agroindustry is going on, and the Vietnamese in a short span of years has gone from not being self sufficient, to a big exporter of rice and coffee. Vietnam has a coastline of 3,260km, with 3,000 large and small islands and an exclusive economic zone of more than one million square kilometres. The country has an additional 1,4 million hectares of interior fishing waters. The fisheries sector employs more than three million people. Companies with expertise in refrigeration, freezing, processing and packaging equipment could benefit. In an effort to stimulte the farm sector, the government last year reduced land lease fees and land-use taxes for farmers nation-wide. The relief was given to farmers who exploit bare hill areas, fallow lands and unclaimed water surfaces within farm development plans defined by local people's committees. The areas that the state Fund for Development Support covers have also been redefined. It now concentrates its soft loans, post-investment interest assistance and credit guarantees on farm owners who invest in production for export, afforestation, perennial crops, orchards, aqua-culture, dairy herd breeding, building irrigation for production and daily needs, production of fertillizers and pesticides, manufacture of machines for agricultural production, and the setting up of agricultural, forestry and marine product processing units. Farm owners are now also allowed to mobilize capital from many sources, including banks, credit institutions and individuals. In order to expand the farm economy, city and provincial people's committees have been allowed to raise capital by issuing project bonds, and to hold special lotteries that invest in the construction of infrastructure. Infrastructure includes roads, water supply systems, electricity networks, schools, markets and centers for trading agricultural products and materials. The government is encouraging the development of the agricultural sector through foreign investment in fanning, processing and storage of agricultural, forestry, and fishery products as well as the production of fertilizer and manufacturing of related equipment and machinery. Oil, gas and mining Vietnam has the potential to become a regional oil and natural gas supplier. Ongoing exploration has led to several oil and gas discoveries in recent years. Vietnam is involved in an on-going territorial dispute with other regional states over the potentially hydrocarbon rich Spratly Islands. Vietnam, China, the Philippines, Brunei, Taiwan, and Malaysia all make claims to the Spratlys. Vietnam and China clashed over territorial rights in 1999, preventing Conoco and PetroVietnam from planned exploration in the South China Sea. Oil: Vietnam has 600 million barrels of proven oil reserves, and further discoveries are likely. Vietnam has no oil refineries, and therefore almost all of its oil production is exported. Export markets include Japan (the largest importer of Vietnamese oil), Singapore, the United States, and South Korea. Vietnam exported an estimated US$2 billion worth of oil in 1999, and oil exports are one of the country's largest foreign currency earners. Most oil exploration and production activities occur offshore in the Cuu Long and Nam Con Son Basin. The Vietnamese government controls both the oil and gas upstream and downstream. For upstream activities, Vietnam Oil and Gas Corporation (PetroVietnam), a government-owned company, is the only firm authorized to conduct petroleum operations in Vietnam on an individual basis. Any petroleum exploration and production activities by foreign investors must be conducted in cooperation with PetroVietnam. For downstream activities, several government-owned companies, such as Petrolimex and Petec, under the Ministry of Trade, PetroVietnam Trading Company (Petechim) under PetroVietnam, SaigonPetro under Ho Chi Minh City People's Committee and Vinapco, under Vietnam Airlines, have been licensed to import oil and gas. Petrolimex imports most of the total value of imported petroleum products. Vietnam has issued 37 investment licenses for oil and gas exploration since industry development began in 1998. About 30 companies, many of which are American or European, now operate in offshore Vietnam. However, many foreign companies have withdrawn from their contracts. Reasons include problems with the Vietnamese regulatory framework and disappointment at recovering smaller quantities of oil and gas than anticipated. The most active foreign company in Vietnam is Zarubezneft, a Russian oil company which has a joint venture with PetroVietnam, called Vietsovpetro. Vietsovpetro plans to produce 13 million tons (about 95 million barrels) of crude oil and 1.5 billion cubic meters (about 53 billion cubic feet) of natural gas in 2000. Refining: Currently, Vietnam does not have a major refinery (it does have an 800-barrel-per-day topping plant near Ho Chi Minh City). Plans are underway to construct the country's first refinery. The refinery will be part of a larger petrochemical center in the Quang Ngai province. Ground has been broken, but construction on the refinery will not be completed for several years. French, Korean, and Malaysian companies were interested in becoming involved in the project, but the firms could not agree with PetroVietnam to a deal that would be financially feasible. Vietnam is considering a Thai proposal that Vietnamese crude oil be shipped to Thailand for refining, rather than to the more distant Singapore. Natural gas: Vietnam's natural gas consumption is rising, with further increases expected as gas fields come onstream. Natural gas reserves are approximately 6.8 trillion cubic feet (Tcf). After major gas discoveries in 1996, production has moved more slowly than expected. Companies have left their production agreements due to the slow pace, high cost, and often low yield from exploration. The Cuu Long basin is a major Vietnamese gas production area. An existing 100-kilometer pipeline from the Bach Ho field is operating near peak capacity. The Ruby and Rang Dong oil fields, both of which have considerable amounts of associated natural gas, are near the pipeline. BP Amoco (UK), Statoil (Norway), and ONGC (India) have formed a joint venture with PetroVietnam to develop gas resources in the Nam Con Son basin, in the Lan Tay and Lan Do fields. The fields contain an estimated 2 Tcf of gas combined. A new 370-kilometer pipeline will connect the fields to the Vietnamese mainland at Vung Tau. Liquefied petroleum gas: Vietnam is a growing consumer and exporter of liquefied petroleum gas (LPG). Japan is the major consumer of Vietnamese LPG exports, receiving the country's first export shipment in May of 1999. Domestic consumption is increasing rapidly, expected to reach up to 50 percent annual growth for the next few years. Vietnamese consumed an estimated 190,000 tons of LPG in 1999. Vietnam's LPG sector has been open to foreign companies since 1998. Saigon Petro, Elf Gas, Petrolimex, and Mobil Unique (a consortium of Mobil, Mitsui, and Unique Gas & Petrochemical) are the major companies involved in the sector. The country's first liquefaction plant at Dinh Co receives gas from the Bach Ho field. It is 100 percent foreign-owned and is now operating near capacity. Coal: Vietnam contains coal reserves estimated at 165 million short tons (Mmst), the majority of which are anthracite. Production has increased dramatically in recent years, doubling between 1994 and 1998. This has resulted in an increase in exports (primarily to Japan) and an increase in coal stockpiles. Export markets have been shrinking, which has exacerbated Vietnam's over-supply problem. The state coal company, Vinacoal, considered a nationwide halt in production to reduce the estimated four-million-ton stockpile, but instead cut back on production in the second half of 1999. The country is promoting the construction of coal-fired power plants. Vinacoal plans to build as many as 11 new power plants, ranging from 100 megawatts (MW) to 300 MW each. Two 100-MW plants in Na Duong and Cao Ngan are already under construction, and nine more are under consideration. Vietnam previously focussed more on hydropower, and the shift to coal marks an important change in its energy sector. Electricity: In 1998, Vietnam had a total electric generating capacity of 4.9 gigawatts (GW). In 1998, hydropower accounted for roughly 87 percent of electricity generation, while thermal power accounted for about 13 percent. The state power company, Electricity of Vietnam (EVN), is working on developing a national electricity network by 2020, including the construction of Vietnam's first nuclear power plant, to be completed by 2020. . Foreign companies are becoming involved in the growing Vietnamese power market. In July 1999, EVN and a consortium including Tokyo Electric (Japan), Lahmeyer International (Germany), and Pacific Power International (Australia) signed a contract to construct a 600-MW plant in the Mekong Delta. The plant will be oil-fired, but could switch to natural gas. Electricite de France (EdF) is leading a consortium that aims to build a 700-MW gas-fired plant to be part of the Phu My power complex. About 50 percent of Vietnamese in rural areas have no access to electricity. A solar power cooperation program installed a "Vietnamese-French Friendship Solar Station" in Ho Chi Minh City and aims to bring electricity to the southern provinces of Gia Lai, Quang Nam, and Binh Phuoc. Vietnam is endowed with an abundance of other mineral resources such as coal (3-3.5 billion tons), bauxite (3 billion tons), iron ore (700 million tons), copper (600,000 tons), tin (70,000 tons), chromate (10 million tons), and appetite (1 billion tons). The country is also rich in granite, marble, clay, and silica sand. Almost all of these resources remain largely untapped. Foreign investment in the extraction and processing of these minerals, particularly the mining and processing of those minerals used in infrastructure projects, such as steel, is strongly encouraged by the government. Industry The industrial sector employs about 12 percent of the country's work force and generates about 30 percent (including construction) of GDP. Light manufacturing, particularly in food processing, textiles and footwear, dominates the sector, although most factories are operating with old or obsolete equipment. The textile and garment industry presently accounts for around 16 percent of industrial output, but it is a key source of employment and one of the country's major exports. Heavy industry makes up a small portion of output and, like light industry, currently suffers from a handicap of old and obsolete machinery and technology. Government investments in this sector have included power stations, telecommunication, coal mines, shipyards, engineering, steel, and fertilizer, chemical and cement plants. High-tech industries such as electronics are also receiving increasing attention. Foreign investment in industrial projects is being particularly encouraged. Tourism Vietnam's natural beauty, coupled with its open-door policy, has propelled the tourism industry to a high rate of growth. The rapid increase in tourist arrivals has exposed the inadequacies of the sector. Major investment is required in the area of transportation, training, and tourism service industries. Visitor arrivals in 1999 were 1,781,754, up 17 percent from the 1998 figure. In the first quarter of 2000, there were 530,000 visitors, an increase of 14.2 percent over the same period of the previous year. Turnover in the public tourism sector in 1999 was 7,400 billion dong. Vietnam has 62, 000 tourist hotel rooms with 116,300 beds. The occupancy rate in 1999 was 55 percent. Vietnam forecasts that the country will receive 8.7 million foreign and 15-18 million local tourists in 2010. The sector's share of GDP is planned to increase to 15.4 percent in 2010 from four percent in 1984. Chapter 5 (Special to Asia Times Online)

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