Foreign investments drive infrastructure growth-
Cambodia is on the path of economic transformation after struggling with the challenge of rebuilding its economic and human resources following three decades of civil war and the regressive Khmer Rouge regime. The economy has made considerable progress since the 1990s by adopting market-driven reforms and with the help of aid and investments received from foreign governments and multilateral agencies. Over the past decade, Cambodia has consistently recorded high growth rates of 7 to 8 per cent, driven by growth in agriculture, and the garment and tourism industries.
Despite the progress, Cambodia, the newest member of the Association of Southeast Asian Nations, is far from matching the economic status and strength of other regional economies. It remains one of the least developed countries in the region, with a per capita income of $1,008 in 2013, compared with $10,514 in Malaysia, $5,779 in Thailand, and $3,475 in Indonesia. This difference is likely to persist over the coming decade as the extent and quality of Cambodia’s infrastructure is inadequate to attract and sustain the necessary investments in critical growth segments. On a positive note, there has been an upswing in foreign direct investment in the country from China, Vietnam, and Japan, which are investing heavily in the infrastructure and industry segments.
Persistent infrastructure deficit
The development of physical infrastructure and reconstruction of social and economic institutions have been high on the Cambodian government’s agenda over the past two decades, but the basic infrastructure gap continues to persist in the country. At present, only 40 per cent of households in Cambodia have access to electricity. The country’s power generation capacity remains one of the lowest in the region at 948 MW at the end of 2013, despite increasing at a compound annual growth rate (CAGR) of 19.3 per cent since 2005. The country remains heavily dependent on its neighbours for meeting its power demand. Against the total power availability of 4,052 MUs in Cambodia, 1,770 MUs was generated within the country, while 1,691 MUs was imported from Vietnam, 580 MUs from Thailand, and 11 MUs from the Lao People’s Democratic Republic. Power imports in the country have increased at an astounding CAGR of 51.5 per cent from 82 MUs in 2005 to 2,281 MUs in 2013, as growth in the country’s power demand has outpaced generation capacity addition.
Transport infrastructure in the country is also inadequate. The road density in Cambodia stands at only 0.26 km per square km, much less than that in its neighbouring countries – 0.78 km per square km in Vietnam and 0.38 km per square km in Thailand. The condition of existing roads also remains dismal. According to the latest data available with the Ministry of Public Works and Transport (MPWT), the road pavement ratio remains as low as 15.1 per cent for roads and 1.3 per cent for bridges in the provincial road network. Unpaved roads become impassable during the wet season, thus isolating several villages.
The state of railway infrastructure in the country is even worse, with limited operation of the two existing railway lines. Major and minor ports suffer from limited equipment and cargo handling capacity. The country’s enormous inland transport potential is underutilised due to lack of adequate infrastructure including depth to handle bigger vessels. As for airports, the utilisation of the country’s major airports has been increasing for international flights but decreasing for domestic ones.
Energy sector expansion
To resolve the acute electricity shortage in the country, the Cambodian government plans to develop its vast hydropower generation potential with the help of foreign investors. At present, there are five hydropower projects aggregating over 1,200 MW of capacity at various stages of implementation, most of which are being implemented by Chinese companies. These include the 338 MW Lower Stung Russei Chrum hydroelectric project (HEP) being developed by the China Huadian Corporation. The two units of the project’s lower scheme of 66 MW each were commissioned in 2013 and the two units of the upper scheme of 103 MW each are expected to be commissioned in 2014–15. The 246 MW Stung Tatay HEP being implemented by Cambodian Tatay Hydropower Limited is also likely to be operationalised in 2014–15.
The largest hydro project under construction in Cambodia is the 400 MW Sesan HEP which is being developed by a joint venture formed between the Royal Group of Cambodia and China’s Hydrolancang International Energy. The plant, with five units of 80 MW each, was initially being developed in collaboration with the Vietnam Electricity. It is likely to be commissioned in 2017. Feasibility studies are being carried out for two other hydro projects – the 108 MW Stung Cheayareng HEP and the 90 MW Prek Laang HEP. Apart from this, various projects are at the planning stage, including the 450 MW Sambor HEP and the 368 MW Lower Sre Pok III and IV HEPs.
Additionally, two coal-based power projects are being constructed in Sihanoukville in south Cambodia by the Cambodia International Investment Development Group. The generation facility with a capacity of 240 MW is expected to be commissioned in 2015, while the second facility of 135 MW is expected to become operational in 2017. The company recently commissioned a 100 MW coal-based generation facility, and targets developing another 700 MW.
Cambodia’s oil and gas sector has also attracted significant foreign investment in exploration and development activities, though progress has been slow. Although the the Cambodian government is still struggling to settle issues of overlapping claims to areas with Thailand, it has awarded six offshore blocks (A to F) and 19 onshore blocks (I to XIX) to private companies. Among offshore blocks, Block A is at the most advanced stage of development while Blocks B to F are still in the early stages of exploration.
Block A was awarded to a consortium led by US-based Chevron Overseas Petroleum (Cambodia) in 2002 and commercial discoveries were announced in 2010. However, production from the block has been delayed due to disagreements between Chevron and the Cambodian government over final investment decisions. In August 2014, it was announced that Chevron had decided to sell its stake in the block to Singapore-based KrisEnergy Limited for $65 million.
Cambodia is also planning a mega expansion of its oil refinery capacity in partnership with China. In April 2013, Cambodian Petrochemical Company signed an MoU with several Chinese firms including Sinopec Limited to jointly develop an oil refinery of 5 million tonnes at an investment of $1.67 billion. The project is being funded by the Export-Import Bank of China and is likely to be completed by 2018.
Transport sector investments
Several road improvement projects are also under way in Cambodia with the help of multilateral donors. These include three Asian Highway (AH) projects (AH 1, 11, 21, and 123) aggregating a line length of nearly 800 km currently under way in Cambodia. Other key ongoing road projects include the Road Asset Management Project, the Rural Roads Improvement Project II, and the National Road No. 5 Improvement Project supported by the World Bank, Asian Development Bank (ADB), and Japan International Cooperation Agency, respectively. The government is also focusing on developing ring roads in Phnom Penh to reduce congestion in the capital city. MPWT has conducted studies for development of Ring Road Nos. 2 and 3, while Ring Road No. 4 is at the consideration stage.
The rehabilitation of existing railway lines, which is being undertaken with the help of multilateral agencies, including ADB, has been delayed for several years due to floods, poor construction quality, and disputes among contractors.
MPWT is planning to develop five new rail lines in the future. These are the Batdeng–Loc Ninh line, Preah Vihear– Sihanoukville line, Sisophon–Siem Reap line, Siem Reap–Skun line, and the Snuol-Laos border line. So far, only a few studies have been undertaken with the help of Chinese and Korean firms.
In the airport sector, reports suggest that Cambodia Airports, in which France-based Vinci Group is a major stakeholder, plans to double the passenger capacity at Phnom Penh and Siem Reap airports from about 2.5 million passengers per year to 5 million. A new domestic airport is also under development in Preah Vihear province, although progress has been hampered by land acquisition issues.
Issues and the way forward
Even though Cambodia is increasingly becoming a destination of choice for global investors, a multitude of challenges face developers in setting up infrastructure facilities. Conflicts over land acquisition are often reported as thousands of people get displaced by such projects. Environmental activists and local people also oppose infrastructure projects, especially HEPs, due to the perceived negative environmental impact. Developers are criticised for not undertaking the environmental and social impact assessment process seriously, as reports are often delayed and not made public. It is critical for the success of such projects that local people are engaged in the project development process and contentious issues are resolved peacefully.
Additionally, as foreign investments are helping Cambodia build its physical infrastructure, it is crucial for the government to simultaneously invest in social infrastructure to ensure sustainable development. At present, the majority of the Cambodian population lacks education and productive skills. The country is also in desperate need of political reforms; investments are hampered by pervasive corruption and rising political strife. As increased investment in infrastructure segments by foreign investors is expected to continue, the success and sustainability of such investments will depend entirely upon the support provided by the national government.
