Country Report - Cambodia

Cambodia in 1999 is at the beginning of a new era of development. For the first time in 20 years there is nationwide security. The second democratically elected Government of Cambodia will do everything to ensure that security remains and provides a foundation for rapid economic development of the nation's economy. Cambodia's membership of ASEAN is a pivotal event in developing cooperation with regional countries in support of economic development.

With the demise of the Khmer Rouge remnants, along the border with Thailand, a nationwide approach can be taken to development issues: illegal logging; rural development and establishment of effective infrastructure including the electricity infrastructure.

In this Country Report, focus will be on the development of Cambodia's power sector. A Power Sector Strategy has been drafted to chart the development of the electric sector over the next 18 years. The Ministry of Industry, Mines and Energy (MIME) is planning to put the Strategy to the Council of Ministers for its approval in August 1999. There have been considerable positive developments in recent months with our neighboring ASEAN countries on power sector cooperation. This cooperation is seen as an integral part of Cambodia's Power Sector Strategy. The main components of the Strategy are outlined in this Report to ASEAN Ministers.

Following the establishment of the first Democratic Government in 1993, the policy concentration was on rehabilitation of power supplies in three key centres namely in the nation's capital Phnom Penh, the port city of Sihanouk ville and tourist destination Siem Reap. With the assistance of multinational donors, the power supplies in these three centres have been rehabilitated using emergency assistance. This has markedly improved electricity supplies in these cities with consumers increasing from 30,000 to 120,000 and losses reduced from 38% in 1994 to 20% in 1998 and are estimated to be down to 15% by 2001.

Notwithstanding the significant achievements, Cambodia still needs to undertake a major development program to establish adequate electricity supplies nationwide. Some idea of the magnitude of the task can be seen by looking at selected indicators:

Cambodia still has the lowest electrification ration of ASEAN countries. Further, the electrification is very concentrated in the three cities where supplies have been rehabilitated. Phnom Penh's consumption accounts for 70% of national electricity supplies. The supplies in the remaining 21 provincial capitals still require rehabilitation and electrification have not yet been extended to the rural population, which represents 85% of total population. In comparison to other ASEAN countries, electricity prices are generally very high: between 9 - 21 cents in Phnom Penh and in provincial capitals in the range of 25 to 35 cents. The reasons for the high prices are reliance on small isolated generation grids and resulting lack of economics of scale, low efficiency in generation and distribution and high capital and fuel cost.

To overcome rapidly the deficiencies in the nation's electricity supplies, a Cambodian Power Sector Strategy has been developed in cooperation with the World Bank and ADB. The goal of the Strategy is to provide high quality electricity supplies at affordable costs nationwide; it has three main components:

The implementation of the Power Sector Strategy will be a very major undertaking for Cambodia. It is estimated that total investment requirements over the period 1999-2016 would total USD1.2 to

1.5 billion. For the first 5 years of the Program (1999-2003), the investment required is USD400 million, which represents over 10% of total domestic investment and nearly 3% of GDP. Concessional finance together with private sector investment will need to be mobilized. The Cambodian Government will cooperate with multinational credit agencies and donor countries including the World Bank, ADB, IFC and OECF, as lenders, providers of equity and/or guarantors. Already, the World Bank had commenced the preparation of a proposal to provide support with co-financing by Japan's OECF for the first stage of a national grid.

The Investment Plan comprises (i) the development of a National Generation and Transmission Grid; (ii) a Provincial Supplies Rehabilitation Program; and (iii) a Rural Electrification Strategy and Implementation Plan.

The 1996 World Bank/HECEC Study on the establishment of a National Generation and Transmission Grid estimated electricity demand growth over the period 1996-2016. Actual demand growth between 1996-1999 has been very consistent with the World Bank forecast in spite of the economic slowdown caused by the political stalemate and East Asia financial crisis. Demand growth during 1996, 1997 and 1998 was 76%, 29% and 25%. The Study estimated that by 2002, the demand growth would decrease to around 15% per annum and remain at around this level for a number of years.

Eighteen investment options were considered to supply the power necessary to meet forecast electricity demand to 2016. These can be grouped into three categories:

The Study's economic evaluation did not give a positive internal rate of return for the Isolated category. In contrast Transmission gave an internal rate of return of 15.0 and Trade 16.4. Trade is preferred as it gives greater flexibility and allows for sharing of reserve capacity. One of the preferred trade options is illustrated below.

National Power Station & Transmission Program - 1999 to 2016
Cambodia Power Sector Strategy
(Hydro with Gas Turbine and Trade Option)

Power Stations					Transmission Lines
Year of Service	Capacity Type Added MW	Location	Original Cost $M - 1997	GWh Estimated	Year of Service	Transmission Lines & New Consuming Centres Under Transmission Lines	Capital Costs T/L & Centres $M –1997
1999	60 CCGT	Phnom Penh	72.8	587	1999	IPP2-GS1-GS3 in Phnom Penh	2.9
2000				679	2000
2001				773	2001
2002	29 Hydro Trade	Kirirom & Prek Thnot Thailand	36.6	871	2002	Kirirom – Phnom Penh Thailand – Banteay Meanchey (import)	19.9 7
2003	90 SCGT	Sihanoukville	70.8	967	2003	Sihanouk–Takhmau – Phnom Penh (import)	86.1
2004	Trade	Vietnam		1065	2004	Takeo - Vietnam (import/export) In East Phnom Penh – Kompong Cham	6.9 19.7
2005	90 CCGT	Sihanoukville	81.8	1181	2005	Sihanoukville	4.5
2006				1284	2006
2007				1396	2007	GS1 to North Phnom Penh	6.3
2008	47-127 Hydro	Kamchay	61.9	1517	2008	Kamchay – Kampot Banteay Meanchey – Siem Reap	6.9 17.4
2009				1658	2009	Battambang – Banteay Meanchey	9.2
2010				1802	2010
2011	60 Hydro	Battambang 1 & 2	122.9	2073	2011	Battambang 1 & 2 – Battambang In Phnom Penh (South)	11.8 8.39
2012	110 Hydro	Stung Atay	179.9	2252	2012	Stung Atay – Pursat Phnom Penh – Prey Veng	75.6 6.1
2013	Trade	Vietnam		2439	2013	In Phnom Penh (West)	14.1
2014	90 SCGT	Sihanoukville	69.7	2646	2014	Sihanoukville	3
2015				2843	2015	In Phnom Penh (Central)	18.6
2016	125 Hydro	Mid S. R. C.	315.9	3073	2016	Mid S.R.C. – Stung Atay Kampong Chnnang connected Battambang - Pursat	12.7 6.2 19.7
TOTAL	695		1012.3				363.5

Note:
1. Based on HECEC/WB Transmission Master Plan's hydro option. The Study evaluated 18 options and found that options relying on more trade and thermal generation were similar in economic terms.
2. The Program does not include investments needs for Rural Electrification & Provincial Cities.
3. There are two options for Kamchay, 1 of 47MW and the other 127. The funding in the Table is for the 47MW option. For the 127MW, the estimated cost is $250 million.

This option has a very large hydropower capacity component. Other options that comprised trade with thermal generation gave a similar internal rate of return. There is therefore flexibility in choice of type of capacity.

All the preferred trade options were the same from 1999 to 2005 and included the development of transmission from Phnom Penh to the port in Sihanouk ville with a branch link to Vietnam and also a link from Thailand to Banteay Meanchey, Battambang and Siem Reap provinces in the north. The transmission grid is illustrated in the attached map. It will allow thermal generating capacity to be located at Sihanouk ville and importation of electricity from Vietnam and Thailand.

Establishing thermal generation capacity at Sihanoukville will allow cheaper imported fuel to be used and avoid environmental problems including possible oil spills on the Mekong, which could be disastrous. At present, Woodside Petroleum, the largest Australian oil and gas producer and exporter, is undertaking a review of the oil and gas reserves in the sea off Sihanouk ville. Establishing capacity at Sihanouk ville would also provide an initial gas market for development of Cambodia's offshore reserve.

The investment required for the generation and transmission grid 1999-2016 is estimated to be between USD1.1 and 1.3 billion.

The electricity supplies in the 21 provincial capitals that have not been rehabilitated are in a very poor condition; losses of the order of 40% and the coverage of urban consumers is very limited. As a result, prices are high and access low. A Project Preparation Study has been completed by the ADB of 8 provincial capitals and it is planned that the rehabilitation work commences at these capitals with ADB support in 2000. The total investment required to establish reliable supplies in these 8 provinces is US$27 million. It is estimated that the Program would reduce electricity prices to around 16 cents, which is half the present level. It would also promote load growth and justify more quickly the extension of the grid.

In relation to the remaining provincial centres, a combination of donor assistance and private sector funding is planned. Already, there are few small IPPs supplying power in some provinces. As discussed later in relation to structural reform of the sector, it is proposed that supplies in all provincial centres be put on a commercial basis and options for private participation will be evaluated.

The total investment requirements for provincial capitals' rehabilitation is estimated at USD90 million.

Access to public utility electricity supplies in rural areas is limited to small extensions of the Phnom Penh and provincial capital grids. There are in rural areas many small grids (5-200kW) that have been developed and are managed by private entrepreneurs. The cost of supply is mostly between 60-30 cents per kilowatt, but in some instances reaches 90 cents. Batteries are also widely used in village homes and by some isolated homes. Through this combination of supplies, 19% of the richest quintiles (20%) in rural areas have electric lighting but only 0.6% of the poorest quintile. Around 85% of rural dwellers still rely on kerosene lamps for electricity supplies. Television is a high motivation for connection to supplies in areas having TV coverage.

To improve access and affordability, a Rural Electrification Strategy and Implementation Plan is to be developed with support of a Japanese PHRD Grant commencing in 1999. It will be designed to:

The estimated cost of the Program is USD100 million comprising USD10 million per year for a 10- year period.

The development of a Power Sector Cooperation Program with neighboring ASEAN countries is an integral part of Cambodia's Power Sector Strategy. An Agreement on Power Sector Cooperation was signed with Vietnam on June 10, 1999 during the visit to Cambodia of the High Ranking Vietnamese Delegation and an MOU is planned to be signed with Thailand by the end of August 1999. These agreements both provide a framework for broader regional electricity trade including open access by third countries.

The Memorandum with Thailand recognizes the requirement of electrical power in Cambodia particularly in the Northern provinces of Banteay Meanchey, Battambang and Siem Reap. It also covers the future purchase of power by EGAT or other agencies from Cambodia and the encouragement of Cambodian parties to bid for supply to the power pool that is proposed to be established in Thailand.

Cooperation with Vietnam will commence with (i) the importation of power to supply communities close to the border in the provinces of Svay Rieng, Takeo, Prey Veng, Kandal and Kampot and (ii) a Feasibility Study on the Interconnection between the two national grids at high voltage.

Lao and Cambodia have agreed to explore the possibility in the future of exporting power from Lao to Cambodia via third countries. The MOUs with both Vietnam and Thailand provide for such third country trade.

Cambodia can benefit much from the very high level of electricity sector skills in ASEAN regional countries. Thailand, Lao and Vietnam have already agreed to make their training facilities available to Cambodia. Training in Thailand of EDC staff on 115kV transmission operation and maintenance commenced in June 1999.

A Cambodian study tour delegation is to visit the Philippines and Malaysia in July/August 1999 to discuss training and technical assistance. Cambodia together with its ASEAN training hosts would appreciate any assistance that the ASEAN Centre for Energy can provide in assembling donor-support for inter-ASEAN technical assistance and training.

Prior to 1996, MIME had the triple responsibility for policy, management of the electricity infrastructure and regulation of the industry. There were many conflicts and strains under this arrangement and following studies and recommendations by donors, a Structural Reform Program was initiated covering:

In 1996, a Royal Decree established Electricité du Cambodge (EDC) as a wholly state-owned limited liability company to, on a non-exclusive basis generate, transmit and distribute electricity throughout Cambodia. EDC was incorporated in 1997 and structured along commercial lines with a Board of Directors of 7 including private members. It reports to the Government through a performance contract and has been successful in managing a USD100 million investment program in transmission and distribution. As stated previously, system losses have reduced from 38% to 20% and these are forecasted to be down to15% by 2001. At the same time EDC's consumer base has increased five-fold.

MIME is still responsible for the supplies in 21 provinces. This arrangement is unsatisfactory and not conducive to good commercial performance. The ADB is to provide a project grant in 1999 to support a Project on commercializing all provincial electricity supplies. The Project will prepare a strategy on ownership organization and management of provincial electricity supplies.

The Council of Ministers approved an Electricity Law on May 21, 1999. The Law is scheduled to be passed by the National Assembly before the end of August 1999 and will establish the Electricity Authority of Cambodia (EAC) as an independent regulatory agency of the State. The purpose of the Law inter alia is to provide the basis for:

All suppliers of electricity public and private will be licensed by EAC. Except where tariffs are set by competitive processes, EAC will determine and review electricity tariffs to balance the interests of investors to a fair return on prudent investment and consumers to reliable and affordable electricity supplies. It will also ensure that competitive procedures are used for selection and contracting of IPPs and Power Purchase Agreement.

The EAC will report annually to the Government on the status of the electricity industry. It will need to look into such issues as open access to EDC's present grid and the national grid, benefits of electricity wholesaling and the electricity industry structure that will promote competition. Competition will need to be balanced with the benefits of economics of scale in developing an efficient electricity industry.

Once the EAC is operational, the Electricity Law requires MIME transfer its electricity regulatory functions to the EAC. The Law defines MIME's broad policy and planning functions and gives it the responsibility for specification of electricity standards.

The implementation of the Cambodia Power Sector Strategy, will be a very major undertaking. The Cambodian people and economy can benefit greatly from cooperation with ASEAN countries in this endeavor. Power trade between ASEAN countries will create a more competitive electricity market and benefit consumers and industries. Cambodia is very pleased to be a member of ASEAN and with the progress that is being made with our ASEAN neighbors in developing power trade.

	Units	Cambodia	Lao	Thailand	Vietnam	Singapore
Electrification	%	13	18	98	30	100
Electricity Use	kWh/yr/cap	48	55	900	198	6451