VIETNAM

Trade and other economic links with the USSR, which accounted for 60 to 70% of its external turnover, made Vietnam one of Russia's best-established partners. Permanent extension of bilateral trade was mainly due to soft commodity credits before 1991, with its shift to hard currency transactions, the USSR's collapse and a stop to government crediting.

Bilateral trade drastically shrank with all that, and now Russia accounts for a mere 3% of Vietnamese imports and 1.5% to 2% of exports. The bilateral turnover came down from a billion US dollars in 1991 to 450 million in 1998.

In 1998 as before, Russia was exporting to Vietnam complete sets of power-engineering and oil-drilling equipment, aviation technologies, lorries, spare parts and other engineering products; iron, steel, and ready items made of those metals; fertilisers, chemicals, petroleum products, etc.

Rubber, tropical oils, medicinal products and some other raw materials; tea, coffee, rice, spices and other foodstuffs; and consumer articles account for the bulk of Russian imports from Vietnam.

Economic contacts. Soviet assistance brought to Vietnam a considerable production potential with close on 300 enterprises of mining, chemical, building material, food and other industries, and transport; major hydro and thermal power plants, and coffee, tea, coconut and rubber tree plantations.

Termination of government support for export of complete equipment sets within the few recent years accounted for shrinking economic contacts as Russian companies cannot afford crediting their Vietnamese partners. In addition, there is a formidable rivalry by Japanese, French, German, Singapore, Taiwanese and South Korean companies after economic reforms moved Vietnam to turn to foreign loans as a considerable part of financing. These loans are coming along official development promotion lines and from international financial agencies. American companies are ever more active on the Vietnamese market since diplomatic relations with the USA were established and an economic embargo lifted.

Despite all this, Vietnam remains a big and lucrative market for such Russian-manufactured goods as aircraft, automobiles, road-building machines, tractors and their spare parts, rolled iron, steel and non-ferrous metals, electric cable, fertilisers and others. Russia, in its turn, willingly purchases tropical farm produce, in particular, fruit and vegetables, spices, tropical and volatile oils, and natural rubber; garments and footwear; and articles of folk arts and crafts.

There are prospects to step up investment and other economic contacts in the fuel-and-power complex, in particular, joint development of oil and gas fields, construction of power plants, updating and extension of electric transmission lines and distributing mains; in building materials production; bridge, railway and highway construction; updating and expansion of projects built with Soviet assistance; shipbuilding and maintenance; establishment of engineering joint ventures; and in the agro-industrial complex, e.g., the growing and procession of natural rubber, coffee, tea and other tropical plants.

The implementation of these projects may be promoted by cooperation programmes drawn up by interested Russian and Vietnamese agencies and companies with due account for the actual demands and opportunities of both national economies. These programmes are to highlight particular cooperation projects, governmental and corporate partners, government guarantee and preferential terms, financial sources, and other aspects.

Ad hoc teams of a Russo-Vietnamese intergovernmental commission for trade and economic, research and technical cooperation are to coordinate such programmes.

The visits of the Russian Prime Minister to Vietnam, November 1997, and President Canh Duc Luong to Moscow, August 1998, largely contributed to the progress of bilateral trade and other economic contacts by signing a declaration to promote trade and economic, research and technical cooperation, and a communique which highlighted priorities in trade and other economic links.

The intergovernmental commission. The Russo-Vietnamese commission for trade and economic, research and technical cooperation was established by an intergovernmental agreement on trade and other economic contacts of August 15, 1991. It had five sessions, all at the vice-prime-ministerial level: in Hanoi, July 1992, May 1993, April 1994 and September 1997, and in Moscow, May 1995.

The commission has ad hoc teams for cooperation in power, coal-mining and engineering industries (its latest session was held in Moscow in May 1996), the agro-industrial complex (Moscow, July 1998), and interregional cooperation (December 1997).

The fifth session focussed on cooperation in the fuel-and-power complex. Understandings were made for strategical partnership in oil and gas projects based in Vietnam, Russia and third countries. The commission deemed it expedient for both partners' involved agencies to draft proposals on the basic aspects of mutually advantageous contacts to upgrade Vietnam's gas industry, including shelf exploration and development, and gas piping to industrial and private customers.

The session reached an understanding to establish government delegations, led by Deputy Ministers of Finance, for negotiations to settle Vietnam's debts to Russia as successor to the USSR.

The commission made many more decisions to step up bilateral contacts, in particular, to set up an ad hoc team which would delve into the reasons of inefficiency of the Laokay apatite complex, built with Soviet technical assistance, and see how it could reach designed capacity. Regrettably, Russian experts on the team did not receive necessary funds and so could not do their part of work, while their Vietnamese colleagues have already finished preliminary studies.

Both countries' authorised banks and other agencies were instructed to formalise the writing-off of a part of Vietnam's debt--ten million transferrable roubles, in exchange for a thousand hectares of rubber tree plantations ceded to Russia. Resolutions were made to negotiate the use of a multi-functional technical centre in Hanoi, and study the opportunities for cooperated construction of hydropower plants at Song La and Pleikrong.

Measures were blueprinted and approved to implement session decisions and recommendations. The parties appointed pertinent organisations and defined schedules.

The legal basis of trade and other bilateral economic contacts consists of the following intergovernmental agreements: on trade and economic relations, of August 15, 1991; on Russia's succession to the former USSR under the Vietsovpetro oil and gas exploration and production joint venture, of May 27, 1993; on the merchant shipping, of May 27, 1993; on double taxation and prevention of income tax evasion, of the same day; on cooperation in communications, of April 15, 1994; on economic, research and technical cooperation in the agro-industrial complex, of June 16, 1994; on fishing cooperation, of June 16, 1994; and on capital investment encouragement and mutual protection, of June 16, 1994; an intergovernmental protocol on re-investing a part of debt under previous government loans in the Russian share in the Visorutex, a Russian-Vietnamese natural rubber producing joint venture, of May 26, 1995; a protocol summing up trade and other economic contacts for 1996, of April 7, 1997; a declaration on promoting trade and economic, research and technical cooperation, of November 1997; an agreement on cooperated construction and operation of oil refineries in Vietnam, of August 25, 1998; a joint statement of August 25, 1998; and an agreement between the Central Bank of Russia and the State Bank of Vietnam on settlement patterns in foreign economic affairs.

Credit relations and repayment of Soviet loans by Vietnam. Vietnam is owing to Russia as successor to the USSR a total of US billion under previous loans. In compliance with an understanding made by the fifth session of the intergovernmental cooperation commission, both countries established governmental delegations led by Deputy Ministers of Finance for negotiating general settlements of Vietnamese debt to Russia. The delegations had three rounds of talks: Moscow, November 1997; Hanoi, February 1998; and Moscow, April 1998.

The Russian stance proceeds from the terms of a memorandum of mutual understanding on Russia joining the Paris Club (Paris, September 17, 1997).

Proceeding from a multilateral protocol between the Paris Club and Vietnam, the latter proposes to specify the outstanding debt overdue on the date of signing a prospective Russo-Vietnamese agreement. Russia, on its part, argues that these terms are to concern only debts overdue as of December 31, 1993.

There was also a difference of opinions on the amount of an initial discount from the entire Vietnamese debt on all loans spent before January 1, 1992, as Vietnam was insisting on 85% and Russia on 70%, and on the terms of debt repayment.

Oil-and-gas cooperation. A joint venture, Vietsovpetro, is the largest and the most effective bilateral investment project for the exploration and production of oil and gas on the South Vietnamese shelf. Established in 1981, the Vietsovpetro has a charter capital of US billion on a fifty-fifty arrangement. The company discovered seven oil and gas fields, of which the White Tiger, the Dragon and the Dai Hung are the largest. By an agreement of July 1991, the company shifted to complete self-accounting and self-financing to fully pay its own way. It is to be jointly operated up to 2011. The company accounts for 95% of Vietnamese oil output and over a half of hard currency revenues. Summary profits, less taxes, has exceeded the partners' shares in the charter capital since deposit development started.

Partnered by Zarubezhneft Co. on the Russian side and Petrovietnam General Company on the Vietnamese, the venture has produced over 60 million tons of commercial oil since 1986 (9.4 million tons in 1997, 11 million in 1998 and an expected 11.7 million for 1999). The company intends soon to raise the yields to an annual 15 or 16 million tons. Its profits had entirely covered Russian expenses by 1997, when Russian revenues amounted to US million. The Vietsovpetro is notably expanding its activities, largely by developing the Dai Hung field.

The partners received an authorisation to establish another joint venture, which will develop Block 0.9-3 of the South Vietnamese shelf, estimated at 70 million tons of oil. Vietnam's government invited the Japanese Idemitsu Co. to join the venture, in which the Petrovietnam accounts for 50%, Zarubezhneft 35%, and Idemitsu 15%. The first five years of exploration are expected to discover several oil fields in the block, which borders on the Vietsovpetro's fields. The yield is estimated at an annual three million tons. The endeavour demands of Zarubezhneft a US million investment within the initial five years--in particular, US million in 1999. Russia's net profits for twenty years are estimated at a billion dollars.

The three partners have signed a general agreement and turned to drawing up constituent documents, scheduled for signing in 1999.

Oil and gas exploration and production is the most effective and promising field of Russian-Vietnamese economic relations. A communique signed by the two Presidents on August 25, 1998, highlights this line of cooperation as top priority.

As the President of Vietnam was in Moscow on an official visit, an intergovernmental agreement was signed, also on August 25, 1998, to establish a joint venture for the construction and operation of Vietnam's first oil refinery in Dongquat, Quang Ngai province, to an annual 6.5 million tons.

Founded by the Zarubezhneft and the Petrovietnam for a term of 25 years, the venture has an authorised capital of US million and an investment fund of 1.3 billion, both on a fifty-fifty arrangement. The Russian partner will finance its share from Vietsovpetro profits.

Feasibility studies approved by the Vietnamese government appoint five years for construction, with the investments to recoup within six and a half years. With oil refining rates exceeding 90%, the enterprise's annual yield is to amount to US billion at 180 million net profit, so Russian profits over the 25 years will exceed 2.5 billion.

A contract establishing the venture was signed on November 20, 1998, alongside its Memorandum and Articles of Association, and a contract with the US-based Foster Wheeler Co. for an extended conceptual design. Vietnam's Ministry of Planning and Investment approved the constituent documents and issued a pertinent project implementation licence on December 28, 1998. The company board gathered for a maiden session, January 20, 1999, to appoint top company managers and discuss work schedules and financial estimates for the year.

An intergovernmental protocol was signed to determine the procedure of financing the Russian share, and both partners' authorised banks coordinated between themselves the procedure of partial channelling Russian profits in the Vietsovpetro to form a Russian share of the Vietross authorised capital. The project implementation will give the Russian engineering industry an opportunity to improve its situation on the Vietnamese market to place Russia on a par with the topmost foreign investors in the Vietnamese economy.

Gazprom spokesmen met experts of interested Vietnamese companies, 1998, to discuss prospects for cooperated gas field development and the implementation of Vietnam's comprehensive natural gas programme, which concerns drilling, piping and processing.

Cooperation in the fuel-and-power complex, of almost fifty years' standing, is a key aspect of Russo-Vietnamese economic links.

Russian technological assistance allowed to commission thermal and hydropower plants to a total exceeding 3,000 mWt, including the Hoa Binh hydropower plant, Southeast Asia's largest, with eight units to a total 1,920 mWt; the Chi An (420 mWt) and Thak Ba (120 mWt) hydropower stations, and the Pha Lai (440 mWt) and Uong Bi (150 mWt) thermal plants which together account for 80% of Vietnam's electricity. The Soviet Union was assisting Vietnam with major power transmission lines and electricity supplies to the country's major towns up to 1990.

Mines and quarries built with Soviet aid produced an annual 12.7 million tons of coal. The USSR also assisted the construction of a mining equipment manufacture and maintenance plant.

Government loans were previously the main basis of large-scale construction assistance. Changing conditions necessitated drastic cuts on technical assistance to the fuel-and-power complex.

Russian companies are involved in the construction of the Ya Ly hydropower plant (720 mWt), and supply equipment and spare parts to other power projects.

Vietnam is interested, to an extent, in Russian participation in hydropower plant construction.

Thus, it is willing to make a direct contract with Technopromexport for the construction of a 120 mWt Pleikrong plant, to be built within 2000-2004, in case a loan up to US million is granted to finance Russian corporate supplies and services.

The Song La plant of 3,600 mWt, Southeast Asia's largest, to be built from 2000 to 2012 under a project estimated at three to four billion dollars, is expected to be financed out of a billion dollar World Bank loan, another billion out of Vietnamese government funds, and yet another billion to be lent by electrical engineering and hydrotechnical equipment suppliers. Technopromexport needs government support to secure the ambitious contract.

If financial issues are settled, the hydropower plants Hamthuan-Dami (2x150 mWt and 2x86 mWt) and Pleikrong (2x62 mWt), and electric networks and transmission lines to be extended and updated may be added to joint projects.

In 1998, Technopromexport was engaged in commercial equipment supplies to the Ya Ly plant (4x180 mWt), and spare part deliveries for the available projects. It established a consortium with the Vietnamese-based Lilama Co. to sign a US million contract for hydromechanical equipment supplies and assembly for the Dami plant, whose construction is financed out of a Japanese loan.

Cooperation in the iron-and-steel industry. As the Russian Prime Minister was visiting Vietnam, November 1997, his counterpart of the host country officially launched a discussion of prospects for Russian participation in the development of the Thatkhe iron ore deposit, estimated at 540,000 tons, iron concentration 61% to 62%. This deposit is to become the principal basis of Vietnamese iron-and-steel industry, even though local ores contain up to 0.07% of zinc, and the country has no coking coal.

Tyazhpromexport made preliminary analyses of Vietnamese documents on deposit development. Vietnam received Russian iron-and-steel combines' know-how on the use of ores similar to those found in Vietnam.

Delegates of the Russian Academy of Sciences, led by N.P. Lyakishev, Director of the Research Institute of Metallurgy and Materials Technology, visited Vietnam in February and March 1998 to discuss bilateral industrial contacts with interested Vietnamese agencies.

The Russian experts proposed to draft a strategy of the Vietnamese iron-and-steel industry, and offered their own draft programme for joint development of such strategies for the next 15 to 20 years, with a more detailed plan for the years 2001-2005.

Russian corporate participation in quality steel and ferroalloy output to be launched in Vietnam is one of the most promising partnership channels.

Agro-industrial cooperation. With major Soviet support of agro-industrial progress in the previous years, Vietnam now has considerable opportunities to export tropical farm produce. On the world's top three rice exporters, alongside the USA and Thailand, its exports have lately exceeded an annual three million tons. Coffee, tea and rubber tree plantations were established on a commercial scale with Soviet technical aid under long-term target programmes to help exports of those plants to skyrocket. Thus, Vietnam was exporting an annual 400,000 tons of coffee, 30,000 tons of tea and 20,000 tons of natural rubber in 1997 and 1998.

Neither Russian nor Vietnamese companies are efficient enough in the implementation of an intergovernmental agreement on agro-industrial cooperation, signed in 1994, though a certain progress started after Russia shifted coordination efforts monitoring from the Ministry of Economy to the Ministry of Agriculture and Food Industry in 1997.

Moscow hosted a second session of an ad hoc team for agro-industrial cooperation in July 1998. The negotiators highlighted partnership priorities--joint ventures to be established in both countries, and Vietnamese trading companies with consignment depots in Russia.

The parties discussed prospects to establish in Vietnam a tea-packing factory at 15,000 to 20,000 tons a year, and coffee, spice and canned vegetable factories. Prominent on the agenda were machinery and spare part supplies to tea-packing factories built with Soviet assistance, and now to be updated.

Military technical cooperation. Russian-manufactured arms and technologies account for 80% of Vietnamese arsenals, which direly need updating, especially as Vietnam is badly alarmed with a current regional arms race, and persistent antagonisms and territorial disputes in the South China Sea. The Vietnamese Armed Forces have to keep up combat readiness, and so are anxious to preserve and step up military technological contacts with Russia. It presently proceeds from a ministerial agreement, signed in March 1996.

Vietnam purchased, within a few recent years, twelve SU 27 aircraft, four radars and two warships. Russian-designed patrol vessels are being built in Vietnamese wharfs. Vietnam also wants to update other arms and hardware, and get hold of the latest know-how to implement the potential of its own military-industrial complex and eventually to manufacture arms single-handed.

However close the dependence of the Vietnamese Armed Forces on Russian supplies may be, and despite dedication to cooperation with Russia in that field, as declared by the national top, the Vietnamese market is of great interest to other CIS countries and Eastern Europe, as well as France, Israel and India.

The future of the Cam Ranh naval base presents an acute issue. The peninsular base belongs to the Vietnamese Navy, while Russia is renting a Pacific Fleet logistic and maintenance point. Vietnam has not for now openly demanded to revise an intergovernmental understanding on Cam Ranh, valid up to 2004. It has been merely hinting at the necessity of negotiations to discuss tentative specifications and supplements with regard to a changed situation. These hints boil down to the following: the USSR conceded to free military supplies as the understanding was made, which Vietnam reciprocated by granting free use of the base. Now, however, the supplies have stopped.