© 6~~~~~~~~~~~~~~~~~~~~16 A~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~A Private Solutions for Infrastructure in Cambodia Private Solutions for Infrastructure in Cambodia A Country Framework Report The Public-Private Infrastructure Advisory Facility and the World Bank Group Copyright © 2002 The findings, interpretations, and conclusions expressed here are those of the The International Bank for Reconstruction authors and do not necessarily reflect the views of the Board of Executive Di- and Development/ rectors of the World Bank or the governments they represent. THE WORLD BAN 1818 H Street, NW The World Bank cannot guarantee the accuracy of the data included in Washington, DC 20433, USA this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank Telephone 202-473-1000 any judgment of the legal status of any territory or the endorsement or ac- Internet www.worldbank.org ceptance of such boundaries. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the O'ffice of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights( worldbank.org. Cover photos: John Fiege ISBN 0-8213-5076-5 Library of Congress Cataloging-in-Publication Data has been applied for. Acronyms and Abbreviations xi Introduction and Acknowledgments I 1. Executive Summary 3 2. Country Context and the Role of Private Participation in Infrastructure 7 Economic setting 7 Cambodia's infrastructure challenge 7 Access 8 Service quality 8 Efficiency 8 Scope for public sector financing for infrastructure 9 Promise of private participation in infrastructure II Realizing the potential of PPI I I Dealing with cost-covering tariffs and affordability concerns I Promoting competition and incentives for efficiency 12 Allocating and mitigating risks 1 3 Mobilizing local finance 13 Managing the PPI process 14 3. Power 15 Sector overview and market structure 15 Demand for electricity I5 Electricite du Cambodge 16 Private independent electricity suppliers 17 Sector performance 17 Electricite du Cambodge 17 Private small-scale service providers 19 Government and donor initiatives 19 Legal and regulatory framework 20 Tariffs 20 Licensing 20 New regulatory framework 20 New licensing regime 21 Quality of supply 21 v Contents Opportunities for private sector participation 22 Small-scale and rural power system expansion 22 Private provision in provincial towns 23 Providing future generation capacity to EDC through IPPs 23 Private management, operation, and/or ownership of EDC 23 4. Water and Sewerage 24 Sector overview and market structure 24 Sector performance 26 Water supply in Phnom Penh 26 Water supply outside Phnom Penh 27 Non-network rural activities 29 Legal and regulatory framework 29 Opportunities for private sector participation 30 Provision of small-scale, rural water systems 3 1 Private participation in existing water service providers 32 S. Telecommunications 33 Sector overview and market structure 33 Sector performance 34 Fixed line services 35 Mobile services 36 International services 37 Other services 38 Rural services 38 Commercial performance and tariffs 38 Legal and regulatory framework 40 Licensing 41 Allowed revenue 41 Current reform initiatives 42 Opportunities for private sector participation 42 Fixed network joint venture or operating contract 42 Partial or full privatization of the MPTC's operating activities 42 6. Transport 45 Sector overview 45 Institutional, regulatory, and legal framework 45 Potential role of the private sector 47 Roads 49 Institutional framework and market structure 49 Subsector performance 49 Opportunities for private sector participation 50 Railways 5I Institutional framework and market structure 5 I Subsector performance 5I Opportunities for private sector participation 56 Ports 56 Institutional framework and market structure 56 Subsector performance 56 Opportunities for private sector participation 58 Airports and aviation infrastructure 60 Institutional framework and market structure 60 Subsector performance 61 Opportunities for private sector participation 62 vi Contents 7. Cross-Cutting Issues 64 Legal environment 64 General legal structure 64 Law on Investment 64 Government organization and decisionmaking 65 General structure 65 Institutional responsibility for PPI 65 PPI approval and transaction processes 66 Formal approval processes 66 Public procurement and PPI contracts 66 National auditor 69 Regulatory approaches 69 Exclusivity 69 Regulatory rules and discretion 70 Regulatory agencies 70 Land acquisition and resettlement 71 Financing environment 71 Local capital markets 71 Infrastructure financing 72 Currency risk mitigation 73 Subsidy schemes 74 Objectives 74 Beneficiaries 74 Funding sources 74 Delivery mechanism 75 Subsidy costs 75 Administrative costs 75 Output-based aid 76 References 78 Appendixes I. Power Map 81 2. Water Map 82 3. Telecommunications Map 83 4. Transport Map 84 Tables 2.1 Access and coverage indicators 8 2.2 Selected infrastructure quality indicators 8 2.3 Budgeted public expenditures, 1999-2001 9 2.4 Public investment program, 2001-03 10 2.5 Sources of funds for infrastructure investments, 2001-03 10 2.6 Sources of budget revenue, 2001 11 2.7 Examples of PPI by sector and form 12 3.1 Average electricity consumption 16 3.2 Summary of EDC's financial results, 1998-2000 17 3.3 Selected EDC operating statistics, 1 998-2000 18 3.4 Estimated investment requirements in power, 2001-03 20 4.1 Physical performance of the PPWSA 27 4.2 Comparative industry performance, selected Asian cities 27 4.3 PPWSA's income statement, 1997-2000 27 vii Contents 4.4 Current tariff structures for the PPWSA 28 4.5 Sihanoukville Water Supply Authority, 2000 28 4.6 Estimated investment requirements in the water sector, 2001-03 3 1 4.7 Selected towns with potential for PPI in the water sector 32 5.1 Performance of the telecommunications sector 36 5.2 Mobile telephone operators, 2000 37 5.3 Telstra Internet services price list, 2001 38 5.4 MPTC telephone tariffs, 2000 39 5.5 Average retail tariffs in Southeast Asia and other emerging markets 40 5.6 Estimated investment requirements in telecommunications, 2001-03 42 6.1 Estimated investment requirements in transportation, 2001-03 48 6.2 Roads per inhabitant, selected countries 49 6.3 Traffic levels on selected highways, 1997 and 2011 50 6.4 Railway infrastructure, selected Asian countries 53 6.5 Freight efficiency, most recent years 53 6.6 RCC's financial performance, 1995-98 55 6.7 Main ports 57 6.8 Summary financial details, Sihanoukville Port Authority, 1996-99 57 6.9 Cargo throughput at main ports of entry, 1991-2000 58 6.10 Impact of private operations on Colombia's general cargo ports 59 6.11 Number of runways of differing lengths, 2000 61 7.1 Larger Cambodian banks, 2000 72 Figures 2.1 Perceptions of political risk by investors 13 3.1 Structure of the electricity sector 16 3.2 Demand-supply balance in EDC's growing service area 22 4.1 Institutional structure of the water sector 25 5.1 Structure of the telecommunications sector 34 5.2 Schematic diagram of the MPTC's fiber network 37 6.1 Structure of the transport sector 46 6.2 Passenger and cargo traffic by surface mode of transport, 1995-99 48 6.3 Type of roads, 1999 49 6.4 Paved roads as percentage of total road surface, 2000 50 6.5 Total freight and rail passenger traffic, 1993-99 52 6.6 Passenger and freight traffic on the northern and southern rail lines, 1993-99 54 6.7 Relationship between distance and competitiveness of rail 54 6.8 Indicative "capture" potential of Cambodian rail 55 6.9 Air passenger throughput, selected countries and regions, 2000 62 6.10 Air traffic trends, 1995-2010 62 7.1 Outline of approval processes 67 7.2 Sources of capital funds for small-scale private power providers 73 7.3 Traditional versus output-based approaches 76 viii Contents Boxes 3.1 IPPs in Cambodia 18 4.1 Water sector policies 26 4.2 Small-scale private sector water provision 3 1 5.1 MPTC policies 35 5.2 Rural supply in Bangladesh 39 5.3 DraftTelecommunications Bill 40 5.4 Requirements for obtaining a telecommunications license 41 5.5 Private sector participation in Mauritania 43 6.1 Existing toll roads 51 6.2 PPI opportunities in roads 52 6.3 PPI opportunities in rail 56 7.1 Selected clauses from the Subdecree on BOT 68 7.2 Leading banks in Cambodia 72 ix Acronyms and Abbreviations ACLEDA Association of Cambodian Local MOWRAM Ministry of Water Resources and Economic Development Agencies Meteorology ADB Asian Development Bank MPTC Ministry of Post and ASEAN Association of Southeast Asian Telecommunications Nations MPWT Ministry of Public Works and BOO Build-own-operate Transport BOT Build-own-transfer MRD Ministry of Rural Development CDC Council for the Development of MLMUC Ministry of Land Management, Cambodia Urbanization, and Construction CFR Country Framework Report MW Megawatt EAC Electricity Authority of Cambodia NAA National Audit Authority EDC Electricite du Cambodge NGO Nongovernmental organization GDP Gross domestic product PIP Public Investment Program GNP Gross national product PPA Power purchase agreement GSM Global system for mobiles PPI Private participation in technology infrastructure IPP Independent power producer PPIAF Public-Private Infrastructure JV JointVenture Advisory Facility km Kilometers PPWSA Phnom Penh Water Supply kVA Kilovolt ampere Authority kW Kilowatt RRC Royal Railways of Cambodia kWh Kilowatt hour SCA Societe Concessionaire Lao PDR Lao People's Democratic Republic de l'Aeroport MEF Ministry of Economy and Finance SSCA State Secretariat for Civil Aviation MIME Ministry of Industry, Mines, and VDC Village development committee Energy WTO World Trade Organization xi Introduction and Acknowledgments This Country Framework Report (CFR) for Cambo- process is the establishmnent of an advisory group. The dia is one of a series of country reviews aimed at im- Advisory Group of the Cambodia CFR comprised proving the environment for private sector involve- representatives from the Japan Bank for International ment in infrastructure. Prepared at the request of the Cooperation, the Asian Development Bank (ADB), the government concerned, CFRs have the following three U.K. Department for International Development, main objectives: France's Ministry of Foreign Affairs, the International * To describe and assess the current status and per- Business Club of Cambodia, Keidanren (the Japanese formance of key infrastructure sectors Federation of Economic Organizations), and the U.S.- * To describe and assess the policy, regulatory, and in- Association of SoutheastAsian Nations (ASEAN) Busi- stitutional environment for involving the private ness Council. sector in those sectors This report is being published jointly by the Public- * To help policymakers frame future reform and de- Private Infrastructure Advisory Facility (PPIAF) and velopment strategies and to help potential private the World Bank. The PPIAF is a multidonor technical sector investors assess investment opportunities. assistance facility aimed at helping developing coun- This report has been prepared at the request of the tries improve the quality of their infrastructure through Royal Government of Cambodia in recognition of the private sector involvement (for more iniformation key role private participation in infrastructure can play about the facility go to http://www.ppiaf:org). in improving living standards for its people. The Min- Jordan Z. Schwartz of the World Bank's Private istry of Economy and Finance (MEF) has served as the Sector Advisory Services Department supervised the primary counterpart to this project. Government offi- CFR project on behalf of the PPIAF and the World cials from every agency involved with infrastructure Bank. The core project team included Warrick P. development contributed invaluable data, comments, Smith, manager of the Private Provision of Public Ser- and feedback throughout the CFR process.This report vices Unit; Chiaki Yamamoto, private sector develop- does not, however, necessarily reflect the views of the ment specialist; and a team of consultants including Royal Government of Cambodia or of any particular Frontier Economics of London, Sarin & Associates of official involved with the project. Phnom Penh, Gibb, Ltd. of London, and Lucy Wang & The report preparation process for all CFRs is in- Associates of Hanoi. The report also drew on inputs tended to facilitate dialogue among key stakeholders from various staff of the World Bank, the ADB, and on the priorities for government reform and the con- other development institutions, as well as on discus- cerns of investors, policymakers, and consumers of in- sions with representatives of the private sector, non- frastructure services. Thus an important part of the governmental organizations (NGOs), and government Introduction and Acknowledgments officials. In particular, the report benefited from the Okonjo-Iweala, Carlo Maria Rossotto, Steven Schon- contributions of Aldo Baietti, Enrique 0. Crousillat, berger, Peter L. Smith, SuYong Song, and Tom C. Tsui Ada Karina Izaguirre, Narasimham Vijay Jagannathan, of the World Bank and Urooj Malik and Preben Niel- Alain L. Labeau, Bonaventure Mbida-Essama, Ngozi sen of the ADB. 2 I Executive Summary Infrastructure has a vital role to play in supporting sector participation is accompanied by pro-compet- Cambodia's growth and development and in directly itive reforms; however, experience shows that pri- addressing poverty. Improving access to efficient and vate firms can also improve the efficiency of even affordable water, electricity, transport, and telecommu- monopolistic activities when operating under an ap- nications services can have major impacts on the liv- propriate regulatory framework.The benefits of im- ing standards of individual households. Efficient infra- proved efficiency can be substantial, and can result in structure is also essential to sustain broader economic expanded services being provided at lower cost. growth and industrial competitiveness, thereby creat- ing jobs and expanding the country's tax base. Current role of the private sector Cambodia's low income, low population density, and history of conflict are reflected in the poor cov- Unlike most countries at a similar level of economic erage, quality, and efficiency of much of its infrastruc- development, Cambodia already has significant experi- ture. The services that exist are mainly concentrated ence in private sector participation in infrastructure, in urban areas, and the substantial rural population suf- ranging from major projects involving foreign investors fers from lack of access to markets, from unsafe and in the airports and telecommunications sectors to unreliable water supplies, and from dependence on tra- small-scale local entrepreneurs who are active in the ditional biomass forms of energy or high-cost alterna- water and power sectors. When considering Cambo- tives.The Royal Government of Cambodia recognizes dian experience against the backdrop of international that public resources alone are insufficient to provide practice, several points stand out as follows: adequate infrastructure services for the citizens of * With the exception of transport, where the main Cambodia. fuel terminal, some highways, and the primary avi- Private sector participation offers two main advan- ation infrastructure have been turned over to the tages: private sector, the emphasis has been on using pri- * Augmenting budget resources. The private sector can vate sector participation to provide new services to undertake to finance projects or services that would complement those of the state-owned supplier otherwise not be funded at all or would be funded rather than to expand or improve the efficiency of at the expense of other public expenditures. Private existing assets. sector participation can thus free up budget re- * In the telecommunications sector, Cambodia has sources for other activities. chosen joint venture arrangements rather than the * Improving efficiency. When structured appropriately, more common approach of privatizing the main private participation can improve incentives for effi- operator and allowing liberal entry for mobile op- ciency. This is most clearly the case when private erators and international services. 3 Private Solutions for Infrastructure in Cambodia * Small-scale private providers operating under lib- this plethora of ownership arrangements, the govern- eral entry regimes play an important role in sectors ment estimates that only 70 percent of residents in such as electricity and water. Phnom Penh, 13 percent of residents in other urban In seeking to capture the potential benefits of pri- areas, and 23 percent of rural residents have access to vate participation in infrastructure, Cambodia faces sev- safe water. As the population of Cambodia is largely eral broad challenges, namely, balancing cost-covering rural, these data signify that only about 32 percent of tariffs and affordability concerns; facilitating competi- the total population has access to piped water. tion, transparency, and incentives for efficiency; allocat- The short-term opportunities for investment in ing and mitigating risks; mobilizing local finance; and water supply lie in provincial towns and peri-urban areas managing the private participation in infrastructure not served by piped distribution systems. In the medium (PPI) process. term the existing utilities may provide opportunities for investment, lease, or concession arrangements. Sectoral overview and opportunities Telecommunications Power The telecommunications sector has witnessed more Cambodia's power sector is only now recovering from private sector involvement than any other infrastruc- the effects of conflict. The country has one of the low- ture industry in Cambodia. To date, the Ministry of est electrification rates outside Sub-Saharan Africa and Post and Telecommunications (MPTC) has issued five some of the highest energy costs in the world. Yet mobile licenses and one international gateway license despite the significant challenges, Cambodia's electricity to private companies and recently completed a 10-year sector has seen major changes and achievements cooperation agreement with another private company in recent years. The private sector has emerged as an for the operation of the primary international gateway. important provider through independent power pro- Each of these agreements is in the form of a joint ven- ducers providing generation to state-run utilities, ture between the operator and the MPTC. through small-scale provision in rural areas, and through Despite the involvement of the private sector in al- autogeneration for individual domestic and business most all aspects of operations, telecommunications can consumers. In addition, the policy environment has also be described as the area of Cambodian infrastruc- evolved, most recently with the approval of the Elec- ture with the greatest degree of centralized control. A tricity Law in 2001 that creates, along with other re- single central government agency, the MPTC, shares forms, an independent regulator for the sector. in the ownership of all mobile services, the fixed line There are major opportunities for the private sector network, and the international gateways. It also sets in meeting the demand for electricity. These range telecommunications policy and acts as the regulatory from large and small independent power producers, to agency.The telecommunications sector faces a number isolated systems supplying the needs of rural con- of challenges, including a lack of transparency in the sumers, to private sector participation in Electricit6 du process for awarding licenses; the forced large-scale rev- Cambodge itself. PPI offers both new funds for invest- enue sharing between private operators and the MPTC; ment in needed capacity as well as expertise to increase the government's conflicting responsibilities of owner- the efficiency of current operations. ship, policymaking, and regulation; and the low-use, high-cost performance of the fixed line networks. Water The Council of Ministers is currently working to The structure of Cambodia's water sector can be char- adopt strategy recommendations that include separat- acterized as one in which isolated, vertically integrated ing the MPTC's policy functions from its operational systems provide water supply services to communities role of providing post and telecommunications ser- without providing sewerage services. Most systems are vices. The network is small and relatively new as a re- publicly owned and operated, but a handful of private sult of significant donor-funded investment during the providers also offer treated, piped water delivery to past few years, and is therefore likely to be an attractive parts of provincial and district communities. Despite investment target for the private sector. 4 Executive Summary Transport tem has not yet established a reputation for iide- While the government and several donors have corn- pendence, cornpetence, or efficiency.This is a signiif- mitted significant resources to transport over the last 10 icant source of concern for investors. In addition, years, the network elements of the sector-roads, rail, while the current Law on Investment offers sig- and waterways-are still struggling with insufficient nificant guarantees and incenitives for foreign in- maintenance, degradation from floods, and lack of in- vestors, it still has several critical linmitations, such as vestment funds, all in the face of increasing demand. a prohibition of the transfer of investmiient inceni- The government has already begun to allow private tives and restrictions on land sales and the emplov- sector investment and operations in transport. The de- ment of foreign nationals. gree of private sector activity and the form of involve- * Governmiiient organlizatiolt ad (leccisioInlakiiW¢. The in- ment varies across modes, with the railroad remaining complete nature of the legal system, coupled xvith entirely public at one extreme and both major airports an unclear allocation of responsibilities betweeni concessioned to the private sector at the other extreme. levels of government and among agencies at the The main opportunities for private sector partici- same level of government, creates costs and uncer- pation in the roads sector will focus on maintenance tainty for investors. While Subdecree 70 of July or rehabilitation funded from tolls and/or from govern- 2001 provides the Council for the Developmenit of ment remuneration, possibly through the use of shadow Cambodia with specific responsibility for approving tolls. The roads with the greatest potential for tolling PPI projects and conducting bidding processes, the and longer-term contracting to the private sector will precise terms of reference will require further elab- be those that link Cambodia to Vietnam and Thailand oration to ensure the council's role in relation to and that improve the connections between Phnom ministries and agencies is clearly defined. Penh and the primary tourism zone of Siem Reap. PPI approval and transaction processes. Over the last Currently there is almost no private sector activity several years the govermilenit has entered into build- in Cambodia's railway, only private sector financing of operate-transfer agreements, licenses, and sale con- the repair of tanker wagons used to transport oil. Op- tracts with private sector investors and operators for portunities for private sector involvement may exist in some of the country's most important infrastructure either the southern or northern lines or in re-establish- services. None of these transactionis has benefited ing the rail link between Cambodia and Thailand. from published performance requiremenits, a com- The private sector operates two dry ports around petitive bidding process, or established procurement Phnom Penh and the main fuel terminal at Sihanouk- procedures, and nonie of the agreements has been ville.The Sihanoukville port also operates a 1 9-hectare subjected to public scrutiny. Cambodia may benefit dry port on the outskirts of Phnonm Penh in a joint from establishing a legal framiiework that will clarify venture with the Singapore Port Authority. Eventually, and confirm the acceptability of a range of modali- the expansion of the main general cargo and container ties of PPI, establish clear and effective rules gov- facilities at Sihanoukville could be turned over to pri- erning the transparent procuremlenit of private in- vate terminal operators. frastructure projects, and confirm that international arbitration is available to resolve disputes arising Cross-sectoral issues from private infrastructure projects. Enforcemenit of procuremenit requirements as applied to PPI proj- Many of the opportunities for and constraints on ex- ects may eventually be aided by the National Audit panding private sector participation in infrastructure Authority once that agency is fully operational. can be assessed at a sector-specific level; however, a Regulatory approaclies. While regulatory frameworks numiiber of important issues are substantially common need to be tailored to the circumstances in each across infrastructure, and in some cases across the econ- sector, there are cross-cutting issues that are vital to omy as a whole.They include the following: the effective performance of all infrastructure ser- * Legal environment. Cambodia's legal system remains vices. First, the issue of exclusivity should be con- at an early stage in its evolution, and the courts sys- sidered with extra caution. Second, care should be 5 Private Solutions for Infrastructure in Cambodia taken to ensure that regulatory systems are adapted contribute significantly to anything other than to Cambodia's particular circumstances, for exam- small-scale projects for limited terms. Consequently, ple, the financial and human resource requirements in addition to entrepreneurs' own funds, private in- of the selected institutional arrangement should frastructure projects tend to be supported through match their availability. Finally, structural issues of microfinance schemes. To date foreign capital mar- the regulatory agencies should be considered, such kets have not been accessed for local infrastructure as regulatory independence and the choice between projects.To increase confidence in the banking sys- single sector and multisectoral regulation. tem, the National Bank is re-licensing each of the Land acquisitions and resettlement: While Cambodia commercial banks. Other measures aimed at in- enacted a new Land Law in 2001, no clear legal creasing confidence in the sector-such as technical process exists whereby either investors or the gov- and financial support from international donors- ernment can acquire land for infrastructure proj- will be required in the years to come. ects.The government has been working to create a * Subsidy schemes. In rural projects or those with a dis- formal framework outlining the process for land proportionate number of low-income consumers, expropriation and has created the Resettlement some degree of public subsidy may be justified for Committee to deal with this issue; however, the infrastructure services. Designing a subsidy scheme new procedure only applies to public projects. Re- for infrastructure services involves making choices settlement issues continue to impede infrastructure from among many design variables including objec- projects, as the government has yet to decide tives, targeted beneficiaries, funding sources, delivery whether it is willing to use its authority to help pri- mechanism, subsidy costs, and administrative costs. vate companies gain access to land. * Output-based aid. For countries like Cambodia, a Financing environment. Cambodian financial markets where scarce public resources limit the opportu- are small. The local debt market is limited, both in nities for leveraging public sources through private terms of liquidity and maturity on loans. As regards financing, an output-based approach to publicly fi- infrastructure, the financial markets are unable to nanced subsidies may provide some benefits. 6 Country Context and the Role of Private Participation in Infrastructure Economic setting In addition to its export-oriented forestry and gar- menit sectors, Cambodia hopes to capitalize on its sub- Cambodia is a snmall, predominantly rural, nation of 12 stantial tourism assets, whichi include an attractive IlliX million people bordering the Lao People's Democratic of coastline, old-growth forests, and ancient cultural Republic (PDR),Thailand, and Vietnam. With annual heritage sites. Estimates indicate that in 2000 tourism per capita income of US$290, Cambodia is among the accounted for inflows of mzore thaln US$87 million. In poorest countries in the world. More than a third of particular, the governmenit is focuised on1 developing Cambodians live below the poverty line, and 90 per- the triangular area defined by Siem Reap, Sihaniouk- cent of the poor inhabit rural areas. ville, and Phnom Penh.This requires improvements in Cambodia has only recently emerged from many all areas of infrastructure, especially transport.To spread decades of war and internal conflict that shattered many the benefits of tourist revenues across the country, the of the foundations for growth and development- government is committed to broadeninig its focus to physical, social, human, and economic. Since the 1993 encompass other areas later.This may include increas- elections, the Royal Government of Cambodia has ing investment in roads and inland water\vays for pas- been engaged in building the basic institutions and pro- senger transport, further developing airport infrastruc- cesses of a democratic, mzarket-oriented economy, in- ture at Siein Reap and Phnomi IPenh and possibly cluding an effective legal system and other governance rehabilitating the airport at Sihanoukville, and rehabil- arrangements. Progress is being made, but much re- itating the water and sanitation and power systems in mains to be done. Partly because of this legacy, foreign the towns. investors perceive Cambodia to be a relatively high-risk Cambodia has a flourishing private sector, partic- market. ularly in Phnom Penh, and private consumiiptioni ac- Agriculture dominates the economy, accounting for counts for nearly 90 percent of GDP. However, growthi about 40 percent of gross domestic product (GDP) and is constrained by limited and high-cost infrastructure, about 80 percent of the labor force. Industry accounts uncertain land and property rights, limited access to for about 20 percent of GDP, with the remainder de- credit, and a weak and underdeveloped regulatory rived from services. Recent econonmic performance has framework. been encouraging. In 2000 real GDP grew at 4 percent, compared with 1 percent in 1998, with an annual aver- Cambodia's infrastructure challenge age of 4.4 percent during 1989-99. Inflation fell to -1 percent in 2000, down from more than 15 percent in Infrastructure has a vital role to play in supporting 1998. Cambodia's growth and developmenit, as well as in di- 7 Private Solutions for Infrastructure in Cambodia Table 2.1 Access and coverage indicators, selected countries, most recent years Electrical grid Piped water network Roads (100 km (percentage Telephone (percentage road/kM2 of households (connections/ 1,000 of households Country GDP/capita surface area) with connection)' population)b with connection)' Cambodia 260 5.9 10 8 23 Tan_zania 240 9.3------5 SI Lao PDR 280 9.2 20739 Tajikistan -~~~~~~ 290 9.6 -37 47 ~. 320 - . --.,.-.- . -.- . ----....--........... . . .... .----- -- -. ... .... Uganda 4.0 5 4 ~~~~j~d34 Vietnam 370 7.1 51 28 36 Thailand 1,960 12.3 ~~~~~~~~~~~~~~~~~~~~~87 116 89 - Not available. Km = Kilometer. a. Excludes small-scale private providers, which prov~ide only a small proportion of network connections. b. Includes both mobile and fixed line. Sources: CIA (2001); ITU (2001): World Bank (2001); Frontier Economics data. rectly addressing poverty. Improving access to efficient and countries at similar income levels. Those servsces and affordable water, electricity, transport, and tele- that exist are mainly concentrated in urban areas, and communications services could have major impacts on the rural population suffers from lack of access to mar- households' living standards. Efficient infrastructure is kets, from unsafe and unreliable water supplies, and also essential to sustain broader economic growth and from dependence on traditional biomass forms of en- industrial competitiveness, thereby creating jobs and ergy or high-cost alternatives. expanding the tax base. Cambodia's low incomes, low population density, Service quality and decades of conflict are reflected in the coverage, Service quality has many dimensions. According to quality, and efficiency of its infrastructure. The follow- published data on some common indicators, however, ing discussion benchmarks Cambodia's infrastructure the quality of the available services in Cambodia is according to access, quality, and efficiency measures broadly in line with comparators (table 2.2),I against its neighbors and countries with a sin-ilar GDP per capita. Efficiency Labor productivity, one measure of efficiency, reveals Access that performance varies considerably over the different As table 2.1 indicates, access to infrastructure in Cam- services.The evidence indicates that the power sector is bodia is relatively poor compared with its neighbors extremely inefficient, with almost 3 employees per 100 Table 2.2 1Selected infrastructure quality indicators, selected countries, most recent years Tlpoefut GDP/capita Electricity losses Water losses (per 100 mainlines Country (US$2,000) (%.)a (%) per year) Cambodia 260 I 7c 27 35.1 Tanzania 240 1 4 17.5 Tajikistan ~~~~~~~~~290 12 99.3 Vietnam 370 18 34 - Not available. a. All figures combine technical and nontechnical losses for netvork supplies. b.Water losses are represented by Phnom Penh,ViLtnam's by Ho Chi Minh City and Thailand's by Chonburi. c. Cambodia power losses are represented by El6ctricit6 du Cambodge, which does not operate a transmission line. Sources: CIA (2002); ITUJ (200 1); World Bank (200 1); ADB electric utilities database. 8 Country Context and the Role of Private Participation In Infrastructure connections compared with about 1 employee in the tion (SSCA); the Ministry of Industry, Mines, and En- Lao PDPR and 0.6 in Thailand. However, telecommuni- ergy (MIME); the Ministry of Post and Telecomnmuni- cations is more in line with all the comparators except cations (MPTC); and the Ministry of Public Works and Thailand and Vietnam, having about 3 to 4 employees Transport (MPWT).4 However, the Ministry of Plan- per 100 fixed line connections, perhaps reflecting the ning estimates that 40 percent of all planned invest- greater degree of private participation in that sector's ments will be in the areas of power, water, t'elecommu- activities in Cambodia.2 nications, and transport (table 2.4). The government In seeking to improve its infrastructure, Cambodia estimates that total investment needs in the: infrastruc- will need to look for opportunities both to expand ture sectors will be between US$660 and US$888 mil- coverage through new investments and to improve the lion over the next three years (tables 2.4 anxd 2.5). In- quality and efficiency of existing assets. frastructure sector investmnents will accoun;t for more than the combined investments in health', educadion, Scope for public sector financing and the environment. for infrastructure The government recognizes that public resources alone are insufficient to provide adequate infrastruc- Improving the coverage and quality of Cambodia's in- ture services. A breakdown of the Public iInvestment frastructure will require substantial investment. This Program (PIP)-which is prepared by the~Ministry of section looks at the role-and limits-of public sector Planning and is based on the Five-Year Socioeconomic financing for Cambodia's infrastructure. Development Plan-based on the programmed proj- inadequate domestic revenue mobilization and ects in each infrastructure sector, provides a n indication skewed public expenditure allocations have kept Cam- of the gap between the demand for and the availability bodia heavily dependent on foreign aid for financing of investmnent capital. the provision of basic goods and services.3 Of the gov- The figures in the first three columns ;of table 2.5 ermient's total budgeted expenditures for 2001, are derived from the sum total of projects that each US$356 million was allocated to current expenditure ministry has presented to the Ministry of ~Planning to and US$262 million was allocated to capital expendi- demonstrate its sectoral priorities. These, figures are ture (table 2.3). thus not the same as the amount of capital available As table 2.3 shows, roughly 7 percent of current ex- from public sources. Nonetheless, the gap between the penditure is allocated to four infrastructure-related cost of the required investmnents and. the resources at ministries, namely, the State Secretariat for Civil Avia- hand is remarkable: 66 percent of the costs! of all infra- Table 2.3 Budgeted public expenditures, 1999-2001 I ~~~(US$ mnillions) Category 1999 (actual) 2000 (actual) 2001 (Financial Law) . - . - . 458 . ~~~~~~~~~~~~~530. 1......... Total current expenditure 274 304 356 Of which State Secretariat of Civil Aviation Miityof Indus", .Mines, and Energy 1 2 Miity ofPs n eeomnctos9 7 1 Mnisty f Public Works and Tnorta 2 56 Capital expenditure 184 226 262 Of which Inetet nlcly iacd56 76 ~8 1 Extemally financed 126 148 175 D5ebt amno r-t iz-a t i-o n 3 2 6 Note., CR 4.004 = US$ 1. Source: Ministry of Economy and Finance data. 9 Private Solutions for Infrastructure in Cambodia Tabile 2.4 Public investment program, 2001-03 Amount Sector- US$ millions CR millions Share (%/) (nfrostructure ~~~~~~~~~~~~~~~664 2,657.855 40 Transpo t - . ~~~~~~~~~~~~~~~~356.1,427,026.-22. W ater .8 . 724,724... ............. Enrgy 56 225,025 3 Other 986 3,948,745 60 Agriculture 210 841,641 1 3 Education -197 - 788,788 -12 Environment and conservation 60 23i9439 . . ...... ...... ... . -- --- --- --- - . ... .. _ -'- .'- . ........ . .. ... ... . ... . .. Social and community services .. 48 .. 190,991 -..--3 Trade and industry.-. - . -.- 22.88088 -......... .-.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. ......... program.~~~~~~~~~~ ~ ~~~~17 66,466 -- .. .and culture - . -.- . -~~~~~~~~~ ~~ 2.6,446 . . .. Tourism 2 9,209 -0 - Total ~~~~~~~~~~~~~~~~~~~1,650 6,606,600 100 Note: Tne water- sector includes water resource management flood control, and drainage as well as water supply and sanitation, Exchange rate: CR 4.004 =US$ 1. Sources: Government of Camnbodia (2001 b); Ministry of Pl-anning (2001). ITable 2.5 Sources of funds for infrastructure investments, 2001-03 (US$ millions) Year Source Sector 2001 2002 2003 Total Government External Unfunded Power 27.8 - 17.1I 11,3 56.2 0 16.0 40.2 Rural electricity----- ------ 1-.5 ............... ............E . .. .. . 28.223 . 6. ...- . ...... .-.......... Telecommunications 15.8 9.6 19.10 44.5 004 Tronsport 242.8 266.8 229.1 738.7 48.5 2 16.9 474 Roads 189.4 -170.5 167.6 527.5 - 45.9 168.3 333 Aviation 10.2 12.8 4.1 27.1 2.6 7.8 16.7 -Not available. Note: in addcion, the Ministry of Rural Development will require an estimated UIS$32.3 million between 2001 and 2005 to implement the Rural Water Supply Development Plsn (Government of Cambodia 200 1 b. p. 218). Sector-specific table for rural development estimates, however. about UIS$28 million to be allocated to w'ater resourcen" (Government of Cambodia 200 1 b. p. 120). Ports and waterways include a US$9.2 million reallocation of funds for the Chong Khneas River Port ~~cr. ~ill., found in the Public Investment Progr-am for roads, ail and road figures are higher than the total allocation presented in table 2.5. and the sources, which contain both sets of figures, do not explain the discrepancy. Note that numbers may not add up because of r-ounding. Source: Ministry of Planning (200 1). structuire pr-ojects to be unidertakeni over the next three niot be provided or maintained. In a few cases, the sec- years have no identified source of fuinding. tors are niot merely self-financinig, but also act as a signif- Although budget resources are complemented by icant source of net revenue for the governimenit, with user fees generated by m-inistries and state-ownied enter- the public enitities acting as de facto taxation authiorities. prises, in many cases user fees are not feasible (for exam- As table 2.6 illustrates, the MEF estimates that 38 ple, for ruiral roads) or, if feasible, do not fufly cover costs. percent of all nontax revenues, or I11 percenit of all gov- In these cases, public funids miust be allocated to the cap- ermient revenlues, will come fromi- telecomimunica- ital costs or service provision, or the infrastructure will tions, civil aviation, and port transfers to the buidget in I 0 Country Context and the Role of Private Participation in Infrastructure * Iniproiiing efficiency. When structured appropriately, |kTOMIN611XI==-s 9 private participation can provide improved inceni- - -ee20t!1aiI P itagee tives for efficiency. This is most clearly the case IM iI !Fn when private sector participation is accompanied MM destic eve ... ....by reforms that promote competition. Experience shows, however, that private firms can also improve Ta_ ..venue 2.96 72 the efficiency of even monopolistic activities when operating under an appropriate regulatory frame- _ m. : - ~ e C ta g e et . .. . I_.....work. The benefits of improved efficiency can be nct ._.u ....... -substantial, and can result in expanded services at t5..... ...... . . 1 . . _ lower cost. Post and te ecommun cat ons 36 Canmbodia already has significant experience in pri- Note, exchange rate @R4,OtM - US$1. vate sector participation in infrastructure, ranginig from Source Mmnistry of Economy and Finance data niajor projects involving foreign investors in the air- ports and telecommunications sectors to small-scale local entrepreneurs who are active in the water and 2001.The sector-specific chapters discuss some of the power sectors.Table 2.7 provides an overview of Cam- weaknesses of using these approaches to generate gov- bodia's experience in private participation in infrastruc- ernment revenue. ture (PPI) by form of private sector participation and Public financing is also complemented by NGOs, sector. The table highlights the progress Cambodia has which play an active role in providing basic services in made to date, but also the potential for expanding and rural and pern-urban areas. Some 800 NGOs work in deepening private sector participation.When consider- Cambodia, and in 1998 provided about US$56 million ing Cambodian experience against the backdrop of in- in assistance, primarily in health, rural development, and ternational practice, several points stand out, namely: education. NGOs have played a significant role in pro- With the exception of transport infrastructure, the viding rural water supplies, and some are also becoming emphasis has been on using private sector participa- involved in developing rural electricity networks. tion to provide new services to complement those of the state-owned supplier rather than to expand Promise of private participation or improve the efficiency of existing assets. in infrastructure * In the telecommuniicationis sector, Cambodia has chosen joint venture arrangements rather than the The last decade or so has seen a dramatic shift in favor more common approach of privatizing the main of private sector financing of infrastructure worldwide. operator and allowing liberal entry for mobile op- Between 1990 and 2000 private infrastructure projects erators and international services. in developing countries attracted more than US$682 Small-scale private providers operatinig tinder lib- billion in investment, with the East Asia region ac- eral entry regimes play an important role in the counting for nearly 30 percent of the total. Telecom- electricity and water sectors. munications and power have dominated investment flows, but there have also been significant flows to all Realizing the potential of PPI modes of transport and to water and sanitation. Private sector participation offers the following two In seeking to capture the potential benefits of PPI, main advantages to Cambodia: Cambodia faces five broad challenges as discussed in * Augmenting budget resources. The private sector can the following paragraphs (and also dealt withl in later undertake to finance projects or services that would chapters). otherwise not be funded at all or would be funded at the expense of other public expenditures. Private Dealing with cost-covering tariffs and affordability concerns sector participation can thus free up budget re- Private sector participation can take maniy forms, sources for other activities. including service and management contracts, leases, Private Solutions for Infrastructure in Cambodia Table 2.7 Examples of PPI by sector and form Public-private Greenfield Divestiture of Concession of joint ventures for BOO/BOT Sector existing assets existing assets existing or new assets projects Liberal entry Electricity - - - Independent power Numerous small- producer in Phnom scale providers in Penh and provincial distribution - ~~~~~~~~~~~~~~~~~~~~centers ate; ~~ ~~ ~ ~ ~~ ~~~~ ~ ~ ~~~ - -~~~ ~- - - - - - ---- -........ . ....... . ........... .. .......... . ...- . -. - - 9 _ . .. ..... _ _... -- ..... ... --- -- -- Water - - ~~~~~~~~~~~~~~~~~~~~~~~~Numerous small- scale providers Telecommunications - - *Camintel (second -- national fixed wire) * Four mobile operators * Second international ..... . . . . . . . ........... .... _ ....... .. . .. . _ .................. ........... Roads - - . Highway 4 - Two toll roads in Phnom Penh. ...... ..... .... - ----- - ----- . . ......---._ - - -- ---- - --- . ... .......... .... ........ ........ ..... . .. .. .. . ........... ..... ..... _ __ . ....... ....__ . ...... , Airports - *.Phnom Penh and - - - Siem Reap airports Air traffic control services Ports Fuel terminal at - Dry port at Phnom Penh Sihanoukville No examples available. BOO = Build-own-operate. BOT = suild-own-transfer Source: Government of Cambodia.. concessions, and divestitures. While each form offers In some cases the manner in which the government some benefits, the greatest benefits flow from options goes about engaging private sector participation can whereby the private sector finances the delivery ofser- also have a significant impact on the costs investors vices.This usually means that user fees need to be set at face, and hence ultimately the level of required tariffs. levels that cover the full costs of supply, which does not For example, unclear project approval processes and necessarily imply price increases. Much depends on the difficulties in obtaining rights of way can significantly adequacy of current tariffs and the potential for private increase investors' development costs, which can be a providers to reap further efficiency gains that in some significant part of total costs. This may have a particu- cases might even provide opportunities for lowering larly severe effect on smaller-scale projects of the kind tariffs. This phenomenon has been observed in water that might be well suited to serving Cambodia's dis- concessions in Buenos Aires and Manila, for example. persed population. In most infrastructure sectors Cambodia has already managed the transition to full cost-covering tariffs. In Promoting competition and incentives for efficiency some sectors, however, imposing user fees is more diffi- The greatest benefits of private participation come cult because of collection difficulties, for instance, for from approaches that create strong incentives for effi- the use of rural roads, or affordability constraints may ciency. In most sectors of the economy the best ap- be a concern, particularly for the poorest members of proach for achieving this is through competition, society. In these cases the challenge becomes one of de- which spurs lower costs and encourages greater re- signing a subsidy scheme that might allow user fees to sponsiveness to consumers as well as innovation. be complemented by donors or other sources of public While many infrastructure activities were once financing in a way that is compatible both with private considered to be natural monopolies, advances in tech- sector participation and with incentives for efficiency. nology and in economic thinking show that competi- 12 Country Context and the Role of Private Participation in Infrastructure tion is not only feasible, but is also highly desirable in a ous cases include acts such as expropriation or the im- growing range of infrastructure activities. For example, position of controls on the transfer of foreign currency. traditional head-to-head competition is possible in In these cases the best approach is usually to reduce the most telecommunications services as well as in many risk by adopting sound policies, and then to provide port services. Competitioni between distinct but po- investors with credible assurances of fair compensation tentially substitute services, such as between rail and should such an event occur.The guarantee of comlpeni- road, is also possible. Competition of this kind not only sation in the event of expropriation containied in Cam- provides improved incentives for efficiency, but also re- bodia's Constitutioni provides an example. duces demands on regulatory oversight, which can be An importanit source of nonicommiiiiercial risk in- an important advantage in Cambodia, given its still un- vestors face, especially in infrastructure projects, can be derdeveloped legal and regulatory capacity and the uncertainties about the application or interpretation of risks regulation creates for investors. regulatory controls or contractual coniniitimients gov- When traditional forms of competition are not fea- erning matters such as tariffs and quality standards. sible, some of the benefits rmight be realized by creating Risks of this kind increase investors' cost of capital, and competition for the market. This involves using com- thus result in reduced investment and higher prices. In- petitive processes for awarding monopoly or restricted vestors are likely be particularly sensitive to these risks rights, and in some cases re-bidding the rights at the end of the concession period. International experience | Figure 2.1 | Perceptions of political risk by investors confirms the advantages of competitive award of con- cessions and similar rights. Such approaches are the Risk rating (high number =low risk) most reliable way of ensuring that Cambodia gets the 25 - best deal possible. Transparent competitive processes 20 - - Singapore also give assurances to prospective investors, and by re- ducing concerns about possible corruption or other Thailand improper influences, can help to reinforce the legiti- _ _ _ - _ _ _ macy of private sector participation in moniopolistic io Vietnam activities. To date, the concessioning and licensing of Lao PDR rights to provide infrastructure services in Cambodia 5 have been tendered without the benefits of competi- tion or transparency, raising doubts about the service Cambodia 0 I providers' qualifications and the potential economic Sept. Sept. Sept. Sept. Sept. Mar. benefits of the agreemenits. 1996 1997 1998 1999 2000 2001 Note: Maximum score (no risk) is 25. Allocating and mitigating risks Source: Euromoney (various issues). Private infrastructure projects must deal with the allo- cation and mitigation of various kinds of risks. Many risks are of a commercial nature and are best handled in Cambodia, given that the legal and regulatory frame- by the private sector. Indeed, having the government work is at an early stage of development and key judi- bear risks over which it has no control and no compar- cial and other institutionis remain untested. ative advantage in managing creates unnecessary liabil- As figure 2.1 shows, perceptions of political risk are ities for taxpayers. Recognition of this fact has been a higher in Cambodia than in any of its neighbors. major force driving efforts to privatize enterprises op- erating in competitive market segments. Mobilizing local finance The government does have control over or a coIll- Infrastructure investments are often capital intensive parative advantage in mitigating some risks of a non- and may require mobilizing significant resources. Debt conmmercial nature, and trying to transfer these risks to financing is important to facilitate new entry into the the private sector would be inefficient.The most obvi- market, and long-term debt will be important to re- 13 Private Solutions for Infrastructure in Cambodia duce the required tariffs for long-lived assets. Matching the economy often rank among the most complex and the currency of the project's revenue streams with the sensitive transactions any government will undertake. currency of the debt service obligation is also an im- However, even smaller projects or reforms intended to portant strategy for minimizing exchange rate risks. support private sector participation can involve a large This means that there will be advantages in mobilizing number of engineering, economic, financial, legal, and local currency financing for projects that receive tariffs other issues, and effective coordination across several denominated in local currency, which will be the case ministries and other agencies may be required. While for most private infrastructure projects. the benefits of such arrangements can be substantial Cambodia's financial sector is still small and at an and long-lived, the costs of mistakes can also be signif- early stage in its evolution.The local debt market is ex- icant and enduring. tremely limited, both in terms of liquidity and maturity The administrative hurdles prospective investors on loans. face can also deter interest and add to project costs. Financing considerations, coupled with foreign in- This can be an issue for smaller projects in particular, vestors' perceptions of relatively high political risks in where transaction-related costs can account for a sig- Cambodia, will have implications for the strategy for nificant share of total project costs. Thus how a gov- approaching PPI. Unless an activity has access to signif- ernment organizes itself to deal with private infrastruc- icant foreign currency earnings (like telecomnmunica- ture matters can be crucial to success. This will be tions, ports, and airports), it will usually be easier to at- especially so in Cambodia, where expertise in most of tract private participation in existing assets, where these issues is in short supply and administrative struc- investors hiave inmmediate access to cash flows that they tures remain weak. can use to service debt or finance expansion, or in smaller greenfield projects with robust economics. Managing the PPI process Private infrastructure arrangements vary in size and complexity. Large projects involving key segments of I Notes l. Note that official data often underesti- mate the extent of losses. For a fuller discus- sion of the situation in individulal sectors see the sector-specific chapters of this report. 2. Although additional factors should also be taken into account, such as the high cost of telephone services in Cambodia. 3. According to the Financial Law, in 2001 about USS175 million (or 67 percent) of total capital expenditure was expected to be financed externally and US$81 million locally. 4. There are only minor discrepancies be- tween the 2000 Financial Law and actual expenditure, therefore the estimated actual expenditure for 2001 was expected to be reasonably close to what was set out in the Financial Law. 14 _Power Sector overview and market structure * Private rural operations. Hundreds of private providers spread across the country offer services ranging Cambodia's power sector is only now recovering from from battery recharging sites to fully metered elec- the effects of conflict. Cambodia has one of the lowest tricity provision for entire commiuniities. electrification rates outside Sub-Saharan Africa and The current market structure for electricity supply some of the highest energy costs in the world.Yet de- can thus be characterized as bifurcated. On the one spite the significant challenges, Cambodia's electricity hand, EDC's operations represent integrated public sector has witnessed some major changes and achieve- utilities that are isolated from each other, but are cen- ments in the last seven years. The private sector has trally owned by one public enterprise. On the other emerged as an important provider through independent hand, some of EDC's generating capacity is owned by power producers (IPPs) providing generation to state- private power producers who have signed power pur- run utilities, through small-scale provision in rural areas, chase agreements with EDC. These agreem1ents typi- and through autogeneration for individual domestic cally incorporate take-or-pay provisions, whiclh guar- and business consumers. In addition, the policy environ- antee private generators' dispatch to EDC.While EDC ment has evolved, most recently with the approval of does not have exclusivity or moniopoly rights, it faces the Electricity Law in 2001, which along with other re- little competition within its service areas. forms creates an independent regulator for the sector. Most rural comnmunities and small towns remain Aside from the thousands of autogenerators through- unserved by EDC, and in these locales a large degree of out Camobodia that complemiient connections to local open access is allowed.Where EDC does not operate, grids and provide individual households and businesses hundreds of small-scale providers have sprung up. Most with electricity where no other option is available, of these providers receive licenses from provincial au- Cambodia has three largely unconnected sources of thorities and all provide integrated service. Figure 3.1 electricity, namely: sunmmarizes the market structure for electricity. * Electricite du Camnbodge' (EDC') Phnomn Pen/h opera- tions. The government-owned national company, Demand for electricity EDC, provides electricity from its own generators The average electricity consumption rate in Cambodia and several privately owned producers to custom- is still relatively low compared with neighborinig coun- ers in Phnom Penh. tries, although the rate is comparable to countries with * EDC's provincial operations. EDC supplies customers a similar per capita GDP (table 3. 1). As in parts of Sub- in the capital towns of the provinces from inde- Saharan Africa, this is largely a reflection of thle low pendent stand-alone facilities. level of connections in Cambodia. Private Solutions for Infrastructure in Cambodia | Figure 3.1 | Structure of the electricity sector I100,000 customers < 90,000 customers 115,000 customers (estimate) Distribution MIME/EDC EDC (beging transferred to EDC) .-------- ----------------------- S m all t ~~~~~~~~~~~~~~~~systems Generation IPPS 50 MW IPPS 37 MW 60 MWs 50 MW (2000) >15.5 MW Phnom Penh Outside Phnom Penh MW = Megawatt. Note: The estimate of the number of rural electricity customers is very uncertain.The number in the figure is the lower end of the estimates. Other estimates put total rural households served at about 260.000.The shaded boxes represent private ownership of assets. Sources: EDC (I1999); Enterprise Development Cambodia (2001). i incumbent provider exists and where private provid- Table 3.1 : Average electricity consumption, selected ers are allowed to enter the market and compete for countries, most recent years customers. (kWhlcapitalyear) Country Consumption Electricite du Cambodge Cambodia 50 EDC operates 22 isolated systems that serve Phnom Lao P..... ~--- -----Penh and the capital towns of the provinces. EDC sup- 54 Thaila . ,88 plies only about 10 percent of all households, with .... . .... . .. most of those served (about 100,000 households) lo- VietnarE 262 I cated in Phnom Penh. The power system in Phnom SoIrce: CIA (2000); Fn~ntier Economics data. -- Penh has about 100 megawatts (MW) total capacity, of which 50 MW are supplied by two privately owned As only 15 to 20 percent of Cambodia's population IPPs. Peak demand is currently about 1 00 MW Total is connected to EDC or a local private system, the con- installed capacity owned by EDC outside Phnom Penh sumption figures reflect demonstrated demand. Sup- is estimated at about 37 MW (EDC 1999).These data pressed demand, or the level of consumption at current indicate that access to power is still extremely low income levels and industrial activity, would be much compared with other countries. Although it serves greater. Unlocking this potential demand for power re- only 10 percent of the population, EDC is the domi- quires two conditions: first, increasing connections to nant entity in Cambodia's power sector. Until March the unserved majority; and second, improving service 1996 it operated as a government department under to current customers through extended hours, greater the direction of the Minister of Industry, Mines, and reliability, and lower prices. Energy. Under the 1996 Royal Decree Establishing the The process for increasing connections, improv- Electricity Company of Cambodia, Ltd., EDC was ing service, and lowering prices is different where an converted into a wholly state-owned limited liability 16 Power Table 3.2 | Summary of EDC's financial results, 1998-2000 I . . 1998 1999 2000 (unaudited) Category (CR billions) (CR billions) CR billions US$ millions Revenues 104 146 198 52 O9PPabn L exee 15.1 146 232 - 61 OperalInc ircome (losses) -47 0 -34 Net incorme (osses) -51 -4 -49 _ 13 Totalfixedassets 365 378 515 _136 Current assets 43 76 63 17 Tot.! eguit _ _ + _ _ _ 189 186 33336 88 L onj-te m ia il- es > ......................... .... 4 T7 . ----- ---2 --- - - - ----- . ...................... Ton -termhlabilites 47 -172.- -26 . .33- Current liabilities 64 --88 -. 115 30 Total liabilities and equity 408 454 578 .152 Note: Exchange rate CR 3,800 US$ 1. Sources EDC consolidated financial statements World Bank projections. corporation in accordance with the Law of Public En- tomers plus battery recharging to another 2,000, to terprises. It has a seven-member board, three of whom the smallest, which have fewer than 20 customers. are drawn from the private sector. Appendix 1 contains a Cambodia PPI power map that Table 3.2 summarizes EDC's financial results and illustrates the distribution of registered electricity pro- table 3.3 presents other operating statistics. The large viders. Estimates indicate that Cambodia has about an- increase in turnover from 1998 to 1999 was due to a other 400 unregistered suppliers. large increase in legal connections in Phnom Penh, partly a result of the rehabilitation of the distribution Sector performance system and training provided by Electricite de France. The 1996 decree extended EDC's coverage, grant- Electricite du Cambodge ing it nonexclusive rights to generate, transmit, and dis- The difficult political, social, and economic circum- tribute electricity throughout Cambodia. Since 1996 stances under which EDC has operated have affected its EDC has been gradually taking over responsibility for performance. High tariffs and poor reliability have led electricity supply from existing service providers out- to large-scale self-generation among many consumers side Phnom Penh. This process is likely to continue within EDC's own service areas.3 Despite this, capacity under an ADB-financed project to rehabilitate and ex- growth has not kept pace with rapid increases in de- tend electricity supply in eight provincial towns.l mand in recent years: EDC's sales volumes rose by an EDC relies on private generators to meet much of annual average of 41 percent between 1995 and 1998. its demand in order to avoid large costs associated with Under existing plans EDC's longer-term ability to constructing and operating its own generating facili- meet demand across the country will rely on significant ties.2 Box 3.1 summarizes the status of these private imports from bothThailand and Vietnam, although nei- generators. ther interconnection agreement has yet been finalized. Also the demand forecasts that have been used to pro- Private independent electricity suppliers vide justification for the investments appear to assume Outside the main cities, responsibility for electricity substantial customer switching. Whether this actually service depends upon about 600 private providers. took place would depend on EDC offering tariffs that These companies provide a wide range ofservices rang- compete with the variable cost of operating existing ing from recharging batteries to distributing electricity autogenerators, currently about CR 264/kilowatt hour directly to houses, serving, on average, about 192 cus- (kWh) (US¢6.6), compared with the lowest tariff for tomers with generating capacity of 105 kilowatts (kW). these customers of about CR 500/kWh (US¢12.5). 4 However, significant variation exists between the Unlike many countries at similar stages of develop- largest, which provide wired services to about 750 cus- ment, capacity shortfalls on EDC's system appear to be I 17 Private Solutions for Infrastructure in Cambodia I . I I - ~~~~~~~~~Box 3.1 IPPs in Cambodia i Table 3.3 Selected EDC operating statistics, 1998-2000 Category Amount Phnom Penh IPPI Energy sales (gWh) A 35-MW diesel plant commenced commercial operation in 1998 266 1997. The project is sponsored by a Malaysian group, CUPL, ...... . ............ ... . ... . ........... ...... .. .............. . , .. 2000.999 -.- ~ .. . - . ~ 264 which holds a generation license issued by MIME and an 18-year 2000 337 power purchase agreement (PPA) with EDC.The PPA contains Soles growth (9/8) no penalties for any failure to meet targets. 1998 _ 22 2000 - 9.. 9 ...b Phnom Penh IPP2 2000 19 . .. In 1996 EDC signed a 25-year PPA with Cambodia Power Com- Average revenue (per kWh) pany, a joint venture between Beacon Hill &Associates and Mos- 998 (CR bllions) ----- 37. 1 . bacher Power Group, for a 60-MW combined cycle gas turbine l999 (CR bil!!ons) 504 - fueled by naphtha.The project has never reached financial clo- 2000 (CR biSlions) .. 577 ... sure, in part because of concern about high capital costs totaling 2000 (US cents) 15 US$93 million or US$1,550/kilowatt (Phnom Penh Daily 1999, Average tariffincrease (%6) September 8).1 Whether this project will be commissioned or 1998 5 not is unclear. .........------ - --- ... _ _ .... _ ,.~~~~ ................~~... ...... ............ ........... _ ... ........ ... . ........................ 2000 14 . Phnom Penh IPP3 Gross margin (91) In response to the delays in commissioning the second IPP in 1998 45 Phnom Penh, EDC sought a temporary capacity addition in the 0 - form of a 15-MW diesel plant. Initially it approached Khmer 2000 -~ -- - - -- -17 Power Utility,with whom it signed a PPA.This was subsequently Current rotib replaced by a three-year PPA signed in October 1999 with 1998 0.67 Jupiter Power Cambodia, Ltd., a joint venture of Jupiter Power 99.9. - . -. _ ^ 0.86 International, Canada, and Caterpillar Power Ventures Inter- .000 0.55 national, Bermuda. The plant was commissioned in early No- vember 2000 at a total cost of around US$10 million (about Debt-equit,v rotioc 1998 0.78 US$560/kilowatt) with initial financing from the U.S. Overseas ...99........... . ..... ... . .. ........ -...-- 0.92 Private Investment Corporation. 200.. - -.--- ----- - ---- --- -~~~~~ ~~ ~~~ ~ ~~ ...................... 0 0.38 Gwh = Gigawatt hour Provincial center IPPs Note: Figures for 2000 are unaudited. Exchange rate is CR 3,800-US$ I. a O iguie m or lases u ived by revenus.. Following the negotiation of the first Phnom Penh IPPs, the gov- a. Operabing incorne or losses divided by revenues. b. Current assets divided by current liabilities. ernment decided to prequalify developers for IPPs in eight c. Long-term liabilities divided by total equity provincial centers, which were to be awarded based on a com- Sources. EDC consolidated financial statements,World Bank projectionS petitive bidding process. Jupiter Power has three small IPPs in Battambang, Pursat, and Kompong Cham, the first of which (Pur- driven more by poor availability than high technical sat) commenced operations in 1997.These operate under con- and nontechnical losses (although peak demand, driven tract with the relevant provincial authorities under the supervi- by the high percentage of domestic consumers, is also a sion of MIME. There are private operators in a further eight factor). The load factor for EDC-owned generation is provinces producing from about 1.5 MW to 5 MW each. about 45 percent, primarily because of the dispatch Kirirom IPP rules that give private IPPs priority to sell power to A PPA is under negotiation with a Chinese developer for the re- EDC. The inability to finance new generation inter- habilitation of the Kirirom plant,a 12-MW hydroelectric facility. nally has led to contracting with IPPs. In 1994 MIME After some debate the National Assembly passed the agreement first sought expressions of interest from private devel- and it is awaiting debate in the Senate. opers to help it rapidly expand capacity. A number of I.As a comparison, recentWorld Bank assessments of capacity expansion in memoranda of understanding were signed between the Cambodia have assumed a combined cycle gas turbine capital cost of US$850/ government and investors. On the basis of these mem- kW (World Bank 1999). 18 Power oranda of understanding, power purchase agreements Government and donor initiatives have been negotiated directly with investors. MIME is responsible for carrying out the governmllenit's Despite significant interest from private sector rural electrification strategy. (Although the Ministry of power producers, EDC and the government in general Rural Developmenit [MRD] is responsible for rural lacked both experience and access to independent ad- water and road infrastructure, it currently has no in- visors during the negotiation process, and the process volvement in the power sector). MIME is also respon- did not benefit from competitive bidding. This nmeant sible for planning, finding the necessary resources, and that ensuring that projects were commissioned on a monitoring the implementation of projects in rural least cost basis or met technical criteria that would limit areas. The governmienit is currently seeking about the likelihood of delivery failure was difficult. Further- US$10 million per year over a 10-year period from more, the government has yet to develop formiial poli- donors for a rural electrification program that miglht cies and methods for analyzing important issues such as include establishing rural electricity providers. These the use of sovereign guarantees.As a result of these dif- would be established witlh the help of MIME's Rural ficulties projects have been delayed, anid at least one is Electrification Cell. The governmenit has identified a reported to have been abandoned. pilot project that will serve to begin this process. It will take place in Ramdoul district and involves the instal- Private small-scale service providers lation of a 600-kilovolt ampere (kVA) diesel station Betwn 6 aand 72 kilometers (ki) of single-wire distribution line Between 6 and 13 percent of the nmore than 2 million ) g rural households have access to electricity from various and associated transformers.The total estimated cost of private sector providers (the figure is uncertain because the pilot project is US$628,000.The private sector has most private rural providers are not formally registered). not been involved with this pilot. About two-thirds of the households receive supplies Both the World Bank and the ADB are developing through isolated grids and the remainder through bat- other rural electrification projects. The World Bank's throgh solaed rldsandthe emader hrogh bt- roposed project is based on twvo initiatives as follows: teries (Enterprise Development Cambodia 2001).The p*p project is bansedon two cati ves pries hes rralsuplies hare vry idly nd re ot Extending new transmission linies carrying power prices these rural suppliers charge vary widely and are not from Thailand and Vietnam, which it would partly controlled directly by the government. Average prices finance, into adjacent rural commi-unities. This charged by the providers are high at US$0.51/kWh, and would serve as the basis for the development of a range from US$0.25/kWh to US$0.90/kWh.5 These national grid under the auspices of EDC. prices indicate a substantial ability and willingness to pay * Creating a privately administered fund to help on the part of at least some rural consumers (for more de- small-scale private providers finance the extension tails see Enterprise Development Cambodia 2001). of their services to poorer communiities. As cur- Small-scale powver producers provide about 60 MW rently envisioned, the fund would work in coIn- of capacity. They have largely financed their initial capi- junction with a private investmiient fund that would tal costs from their own funds (although the Association make small commercial loans available to these of Cambodian Local Economic Developmenit Agenicies providers. The grant funds for extended connec- [ACLEDA] has provided limited finance to some rural tions would be paid to providers after they had ex- energy providers), and consequently the scope of their panded their services to the poor and their per- activities is limited by their access to funds. formance had been audited and approved. Private sector activity in extending electricity sup- The ADB's proposed project is based on workinig plies in rural areas has been significant, and potential to witlh EDC to rehabilitate and extend existing local extend the activity is considerable if existing constraints grids in provincial towns. These would first require are addressed. While the government's current focus in considerable rehabilitation to serve the towns before provincial towns appears to be on extending public sec- the networks could be extended into rural areas. Table tor activities, in rural areas it is strongly coniniitted to an 3.4 shows the government's estimated investment re- International Development Association project that will quirements for the power sector over 2001-03. The rely on private entrepreneurs for small-scale electricity only identified source of funds is the ADB rehabilita- supply. tion plan for provincial towns. 19 Private Solutions for Infrastructure in Cambodia Table'3.4 Estimated investment requirements in power, 2001-03 Tab,le (US$ millions) Project' 2001 2002 2003 Total Government Extemal Unfunded Expansion of'power system 18.0 3.0 0 21.0 0 0 21.0 i 1.- r' ,h-, > , n|r r,-iw-a , . ..ll r . -........... r, ,L Ol4.1 1,,C1C : _~~~~~~~~. .e ........ - __ 9 > _ _ _ *_ ____ _- _-~w---~ e --- ~~' '~~6"~w s - ts~*- - S _S~ ~ +_"__ __"~_- ^ _6r__ Ruralsolarsupport ~~ ~~~~~ ~ ~~0 1.1 2. 3.4 0 0.3.4 ,R,u,r,ai,s,,g,,po,e,,,,,,,,,,,,,,_,H, ,,,,,,~--... ...... .... ....... ........... _I!2 . Hydroelectric Mondulkiri 1. 1 0 3.1 0 ' ' . 0 3.1 Hydroelectric development plan Stung Battani and Stung Mongkol 0.4 0.3 0 0.7 0 0 0.7 Rural electrfication -.. 1.0 . 3.0 . 3.0 7.0 . 0 . 0 .7,0 .es'gn and tmplementation of Siem Reap !.0 20 2.0 5.0 0 0 5.0 Total,. 27.8 17.1 11.3 56.2 0 - 16.0 - 40.2 Sources. Government of Cambodia (2001 b); Ministry of Planning (2001). Legal and regulatory framework Licensing EDC is licensed through the 1996 royal decree.The li- EDC's legal status is based on the 1996 royal decree. cense continues in perpetuity unless the government Responsibility for energy sector policy rests with revokes it or sells more than 50 percent of the com- MIME, which, together with the MEF, is also respon- pany. The license does not provide EDC with an ex- sible for regulation, although in practice tariffapprovals clusive right to serve customers within any of the areas are obtained from the prime minister. it serves. In theory, all rural electricity enterprises must be Tariffs registered and have a license. Enterprises with capacity Tariffsetting lies at the center of the government's reg- in excess of 125 kVA must register at the MIME offices ulation of EDC. The government is revising the cur- in Phnom Penh. Registration is a formal process and rent tariff structure in an attempt to decrease the de- does not involve any inspection of facilities or service gree of cross-subsidy from commercial and industrial provision, although owners are supposed to provide to residential load, and thereby decrease autogenera- MIME with business plans. Licenses are issued for tion by businesses. The tariff recognizes four classes of three years and are renewable for an additional three- consumers: residential, commercial, industrial, and gov- year period upon application by the owner. Unlike ernment (including NGOs and embassies) as follows: EDC, the initial license and renewal provides the li- * Tariffs for residential consumers use a rising block censee with an exclusive right to supply customers tariff structure involving limited cross-subsidy from within a specified area.6 large to smaller consumers. Tariffs range from CR Enterprises with a capacity of less than 125 kVA 350/kWh (US¢8.8) for the first 50 kWh/month up may register at MIME's provincial offices.They receive to CR 650/kWh/month (US¢16.3) for consump- a one-year license that can then be renewed an indef- tion above 100 kWh. inite number of times following annual applications. * Tariffs for commercial and industrial consumers These licenses also provide for exclusive service to cus- range from CR 480/kWh for large commercial us- tomers within a defined area. Although these proce- ers to CR 650/kWh for small commercial users dures are clear, most rural electricity suppliers are not (US¢12.0 to US¢16.3) licensed. Their status is based on ad hoc agreements * Tariffs for the government and NGOs range from CR with local district and commune authorities. 700/kWh to CR 800/kWh (US¢17.5 to US¢20.0). Tariffs set by rural electricity suppliers are not ex- New regulatory framework plicidy controlled by either the federal government or The licensing and tariff-setting mechanisms and partic- local provincial authorities. As mentioned earlier, they ipation by the private sector in the sector will change vary considerably across the country (mainly due to with the implementation ofthe new regulatory regime. varying prices of fuel) from about CR 1,000/kWh to The new Electricity Law was passed in November CR 3,600/kWh (US$0.25 to US$0.90). 2000 and promulgated in February 2001. It established 20 Power a new regulatory body, the Electricity Authority of national transmission license should be gr-anited to a Cambodia (EAC). The law follows international best state-owned company. Althouglh the law also provides practice by separating the roles of policymaker and reg- for a special purpose transmlissioni license to be granted ulator and placing the latter witlh an indepenident body. to the private sector for concession projects involvinig Key features of the EAC are as follows: the national grid, for example, build-owni-transfer * It will comprise a three-member commission, to be (BOT) and build-own-operate (BOO), the govern- appointed by the prime minister through royal de- ment and not the EAC will determine the coniditioins cree for three-year terms (the assignment of staff has under which this license is awarded. This provides the started). government, not the regulator, with considerable iinflu- * Its independence will be protected by limiting the ence over the developmenit of the tranismiiissioni systeml grounds for dismissing commission members and and, potentially, over final tariffs that would have to re- by funding it directly from license fees rather than cover the costs of any new translmiission investment. through Parliament. The law provides the first formal legal framework * Its duties include licensing, setting tariffs, enforc- within which IPPs and other private power projects ing performance standards, resolving some kinds will operate. To date, all arrangemenits witlh IlPFs have of disputes, and establishing a uniformi system of been undertaken following ad hoc negotiations with accounts. EDC and the governmllent, without any clear licensing * In fulfilling its responsibilities with regard to tariff process. However, in addressing this issue the law ap- setting, the EAC wil be guided by requirements that pears to require that all power producers, irrespective include the development of tariffs that reflect costs of how small they are, obtain a license, a requiremiienit and the use of performance-based approaches where that could affect the future operations and develop- this is considered to be in consumers' interests. menit of small systems.7 The law will greatly enhance the regulatory frame- The law raises a number of issues that the govern- work for the power sector. It places explicit require- ment and regulator together will have to deal with ments on the EAC to ensure that tariffs allow compa- carefully. Most of these issues center on the treatmenit nies to recover legitimately incurred costs. of new and existing rural private providers. The newv There is currently no explicit regulation of tariffs framework should encourage fuirther development of for rural suppliers. The new regulator will have to bal- private sector provision by creating a clear framework ance two risks: low-quality, high-cost service in an un- within which suppliers can operate, although some regulated environment and the imposition of a tariff areas could provide barriers to entry. regime that discourages private sector entry altogether. As indicated earlier, the law appears to require all Each of these issues depends on the extent to which generators to obtain a license from the EAC.The cost the government, or the EAC on behalf of the govern- of this process, and even of registering in Phnoolm Penhl, ment, should be involved in the detailed regulation of must remain affordable for small-scale providers. rural suppliers. Implicitly, given the EAC's objectives, it also focuses on the best-approach for expanding supply Quality of supply to most households that currently do not receive net- One of the main justifications for EDC's extension inlto work services. rural areas is the assumption that a public service provider can offer higlher-quality supply than the exist- New licensing regime ing rural operators. EDC's electrification effort in The law establishes a new licensing framework for the provincial towns is based on bringing a 24-hour supply power sector. Generation, transmission, distribution, re- to those towns, compared with the 4 hours private rural tail supply, dispatch, bulk sales, and subcontractors will distributors typically offer. However, EDC has not yet all be separately licensed, although there is a provision demonstrated its ability to provide a 24-hour supply for a consolidated license covering multiple activities. in provincial towns, even where economiiies of de- Initially EDC will be granted a consolidated license. mand exist, such as in Phnoni Penh. The ability of The law contains one important restriction regarding small-scale providers to step up service as demand for the licensing of EDC's functions: a single, monopoly higher-quality service increases may be greater than the 21 Private Solutions for Infrastructure in Cambodia potential of a public provider to offer the service in quality of service standards to be provided by pri- newly electrified areas. vate operators, it should not impose onerous quality standards on existing and new rural providers. Opportunities for private sector participation Maintaining lower barriers to entry under the new regulatory regime and limiting the cost and com- There are major opportunities for the private sector in plexity of any licensing requirements will be neces- meeting the forecasted demand for electricity. These sary ingredients for continued expansion of service range from large and small IPPs,8 through isolated sys- into rural and pern-urban areas. tems supplying the needs of rural consumers, to private o Access tofinancing.The strengthening of the microfi- sector participation in EDC itself. PPI offers both new nance institutions and an extension of their ability funds for investment in needed capacity as well as ex- to lend will be crucial elements in the further de- pertise to increase the efficiency of current operations. velopment of small-scale power provision. Increas- Figure 3.2 outlines EDC's demand forecast for elec- ing both the size of loans and the length of time tricity in areas to be served by EDC's grid through 2011 over which loans are made will be central to allow- and projected sources of new supply. EDC's forecasts ing existing providers to expand their services and exclude the demand for electricity in rural areas, because new providers to enter. The survey of rural enter- EDC is unlikely to meet this over the medium term. prises undertaken by Enterprise Development Cambodia indicated that more than 60 percent of Small-scale and rural power system expansion existing providers' expansion plans were limited be- The private sector is expected to play a growing role in cause of a lack of funds, either because of low prof- meeting the demand for electricity in rural areas. The its or the lack of finance.9 ability of small-scale private providers, both domestic Rational use of subsidies. As the government pursues and foreign, to expand their involvement in the sector rural electrification strategies to bring service to depends largely on the following factors: small communities throughout Cambodia, officials Regulatory requirements. While the new regulatory may find that the opportunity cost of providing framework must establish and maintain acceptable public resources to expand public utilities is greater ; Figure 3.2 | Demand-supply balance in EDC's growing service area, selected years Capcity (MW) 800 X l |Peak demand 700 Import am-m IAvailable capacity 600 - Other (for example, private provincial) 500~~~~~P w C:S~ED Soore D aa 400 300 200 100 0 1999 2000 2001 2003 2005 2007 2009 2011 Source: EDC data. 2 2 Power than the cost of targeted assistance to customers less substantial new capacity is commiilissioned, with served by private providers. As such, the use of out- EDC forecasting requiremenits for up to 90 MW of ad- put-based aid or performance-based aid structures ditional capacity by 2003. IPPs are expected to supply may help private providers to initiate or expand imuchi of this. service without the distortions associated with typ- ical subsidies. These schemes are discussed in more Private management, operation, andlor ownership of EDC detail in chapter 7. Opportunities may exist for private sector participation in EDC itself. Even though EDC's system is small, it is Private provision in provincial towns comparable to systems elsewhlere in the world where In addition to rural areas, opportunities for PPI also the private sector has been invited to take over the op- exist in larger towns around the country. Outside erations, management, and investment requir-cimenits of Phnom Penh, the towns and regions with the largest power utilities in exchange for regulated access to the predicted demand over the next five years include revenue stream of the customer base. Even as it exists Bantey Meanchey, Battambang, Kompong Cham, now with multiple isolated systems under its control, Kandal, and Siem Reap. In each case opportunities EDC could provide an attractive investmiient opportu- exist either for the private sector to take over the oper- nity for a potential lease operator, concessionaire, or ation of the existing, but barely functional, grid from owner. Moreover, EDC's current restructuring plan EDC or to be allowed to enter and supply its ownI may, over a 10-year period, see it transformlied into the electricity. In each case coordination with donors will operator of a national grid. If this plan is implemiienited, be important. This is especially true for many of the it could allow for separate private sector participation towns that fall under the ADB's rehabilitation plans in EDC's existing generation capacity and distributioni that are being undertaken through EDC. networks.'0 The appropriate role for the private sector will need to be studied further, both the appropriate Providing future generating capacity to EDC through IPPs form of PPI (for example, asset sale, concession, lease) As EDC's forecasts indicate, electricity demand is ex- for generation and distribution and supply services and pected to continue to grow rapidly. There is a signif- whether PPI can be introduced into transmissioni as it icant risk of large-scale power cuts in Phnomn Penh un- has in other countries, such as Argentina. I Notes 1. Banlung, Kompong Speu, Kampot, Prey relatively short period, becausc the life of This may imply that any generator Un1Conl- Veng, Serey Sophoni, Stunig Treng, Sveyi most autogenerators is quiite short. They re- inected to the niationial nietwork riecd not be Rienig, and Takeo. quire new capital investmieinit for overhaul or licenised; however, this is niot cicar. 2. A significant proportion of demand is sup- replacement every two to three years, mak- 8. For example, a feasibility study is currenitly plied through autogenerationi. All the large ing the consumer's capital cost contribution under way for a possible 180-MW combined hotels in Phinomil Penih and Siem Reap, much higher. cycle gas turbiic poxver plant in SihanoLik- which would represent the majority of EDC 5. The vast majority of generation is pro- ville.This would supply power to thc southi- demand if connected to the grid, use their vided from diesel-powered generators, and east and to Phnom Peiih through a nxew owni generators. consequently prices are heavily depenident tranismission netvork. Onie of the reasons for 3. Out of total estimated peak demanid in on the price of fuel. Estimates indicated that proposing this project appears to be the exis- Phnom Penh of 90 to 100 MW in 1998, prices have doubled over the past two years tence of offshore gas, though whether suich a EDC estimates suggest that 28 MW was because of increases in fuel costs. planit woould be viable is not clear. fronm consumers who also use unconnected 6. Whether enterprises will be allowed to 9. The low profits may be due to the ex- capacity to meet their regular requiremiienits renew a license more than once is niot clear. tremely snmall size of mally providers. The and 16 MW was from consunmers using EDC This has yet to occur and a firm policy does ability to borrow to create the workilg cap- capacity only as backup rather than for their not appear to be in place. As discussed later, ital required to expand and earn appropriate regular power needs (World Bank 1999). in practice it may be up to the new regulator profits will be central to the success of the 4. Operating costs are determined largely by to decide. ruLral electrification effort. fuel costs, which have increased substantially 7. The law does say that "The [generation] 1 O.The generation capacity is so old and ex- over the past couple of years. If oil costs fall License issued under this section is for the pensive that decommissioninig these plants these costs will also decrease. Hoxvever, the primiary purpose of promoting the safe, reli- and having the private sector btuild new ones comparisoni between EDC's tariffs and auto- able, and economiiic operation of the national may be more efficient. generators' variable costs is valid only for a transmission grid and conllected faciities." 23 Water and Sewerage Sector overview and market structure those towns with treated water supplies, coverage is generally less than 15 percent.The total number of peo- The structure of Cambodia's water sector can be char- ple served by household connections across all the acterized as one in which isolated, vertically integrated towns is only about 80,000. Several towns are served by systems provide water supply services to comununities private network providers that have customer bases without providing sewerage services.' Most systems are ranging from about 200 to 1,700. Private providers also publicly owned and are operated by either MIME, the provide bulk water supplies in some towns and villages. MRD, or, in the case of the capital city, by the Munic- At the district level supplies are also provided by bore- ipality of Phnom Penh and the MPWT. A handful of holes or by taking water directly from lakes and streams. private providers also offer treated, piped water deliv- The situation is much worse for sewerage. Outside ery to parts of provincial and district communities. Phnom Penh Cambodia has no organized sewerage Despite this plethora of ownership arrangements, systems. Even within Phnom Penh most sewage drains the government estimates that only 29 percent of the directly into the river and none is treated. rural population and 48 percent of the urban popula- The water sector consists of both public and pri- tion have access to safe water. Since the population of vate, regulated network providers and a wide range of Cambodia is largely rural, these data signify that only unofficial (unlicensed or unmonitored) bulk water about 32 percent of the total population has access to suppliers. Figure 4.1 outlines this institutional structure piped water (MRD 2000). At the same time, the per- and the role of official suppliers. formance of a number of public and private institu- Unlike in the power and telecommunications sec- tions over the past five years has demonstrated that, de- tors, there is a clear division of responsibilities between spite various problems, there is considerable ability to urban and rural water supply. This division, along with meet consumers' demands. the involvement of various other ministries for health Service provision in Phnom Penh has improved and environmental reasons, means that the water sector dramatically since the early 1 990s, and currently about is characterized by the large number of ministries and 550,000 people, roughly half the population, are served other institutions involved. The following institutions by the rehabilitated public water supply utility. Expan- are responsible for different aspects of water resources, sion plans exist to extend coverage to nearly the entire water supply, and sanitation: population in the capital within three years. * MIME. MIME is responsible for providing urban Outside Phnom Penh each of the 23 provincial water supplies outside Phnom Penh.2 MIME runs towns is officially served by a water utility, but in prac- water supply facilities in 23 provincial towns, in 3 of tice many do not have functioning networks. Even in which it has granted licenses to private operators. 24 Water and Sewerage Figure 4.1 1 Institutional structure of the water sector 160,000 66,000 80,000 300,000 customers customers (estimate) customers customers (estimate) - | _ MIME-operated _ = _ EplvovincialiandY ~~~~~~~~ ~~systems nf § _non-networkx Phnom Penh 2 Sihanoukville and MRD-owned Water Supply 18 other boreholes b hl (bulk s =~pjLq~, Authority provincial town and systems - systems water supply Municipality ~ ~ ~ ~ ~~~~uit Licenses Municipality Ministry of v | ,0 ilage| |of Phnom llMIME ll Rural | evelopment| Penh ll||Development | |committees| Phnom Penh Provincial towns Rural areas Note: In its 1998 Annual Report the Phnom Penh Water Supply Authority (PPWSA) estimates that it serves about 550,000 people. It also esti- mates that it has 66,000 customers (as noted in this figure).This would imply an average of more than 8 customers per connection. In practice, some of PPWSA's customers are bulk water suppliers who on-sell.The total population served by the PPWSA includes these indirect sales.The shaded boxes represent private ownership. Source: Government of Cambodia. MIME has also granted licenses to six other private water resources. It currently has a limited role in the operators that run systems in district towns. water sector and focuses mainly on1 granting water * MRD. The MRD is responsible for rural water sup- abstraction rights. plies and sanitation. It oversees the operations, tar- Other ministries and agencies also play a role in the iffs, and quality of water supplied by nonicommercial sector's operations and finance. For example, the Mu- organizations, that is, nonprofit agencies such as nicipality of Phnom Penh reports to the Minister of NGOs, donors, and local cooperatives. It also coor- the Interior.The minister can therefore influence tariff dinates donor activity in rural water supply. and other policy decisions concerninig the PPWSA.3 a Phnom Penh Water Supply Authority (PPWSA). The In addition, the Ministry of the Environment is re- Municipality of Phnom Penh is responsible for sponsible for monitoring the water quality of effluent water in the capital, while the national government from industrial and other sites and the Council for the retains responsibility for sanitation.Thus the opera- Development of Cambodia (CDC) is the main body tion of the water supply network is the responsibil- through which any foreign private sector interest is ity of the autonomous PPWSA, while sanitation is channeled. currently the responsibility of the MPWT. Recognizing the complexity of the sector and the * MPWTF The MPWT is responsible for sanitation in confusion that these overlapping roles create, the gov- provincial towns, including Phnom Penh. ernment has moved to clarify institutional responsi- * Ministry of Water Resources and Meteorology (MOW- bilities by creating a coordinating conTmmrittee for the RAM). MOWRAM was established in 1999 to de- sector composed of senior representatives from the fine the policies for and strategic developmenit of ministries involved, from the CDC, and from the Mu- 25 Private Solutions for Infrastructure in Cambodia Box 4.1 Water sector policies Sector performance The water supply policy statement outlines the government's Compared with countries with similar levels of GDP policies in six main areas as follows: per capita, Cambodia's water systems supply relatively * Supply should meet local requirements. Approaches should be few households with piped water and there is no treat- adopted that are responsive to both supply and demand and ment of sewage. are based on local circumstances, such as geographical, politi- cal, and historical background. Water supply in Phnom Penh * Private sector participation is important The private sector shall The PPWSA dominates the official water supply be encouraged to be involved in all areas of service provision within Phnoni Penh. The city also has many informal through service contracts, management contracts, lease con- water sellers who are not explicitly licensed by the tracts, or concession contracts. (The policy does not explicitly government. discuss asset ownership, although current projects suggest The PPWSA was recreated in 1980 after being dis- that the private sector can also own the assets.) * Tariffs should cover all costs. These costs include efficiently solved by the Khmer Rouge. Its main objectives are to incurred operations and maintenance costs, depreciation * Provide an adequate quantity of clean water at a charges, taxes, and return on capital. reasonable price * Vulnerable groups should be protected. A clearly defined set of * Sell water at an affordable price, taking into account subsidies should be in place so that the poor can access the local incomes and the need to maintain and invest network. Until the development of such a policy, the focus in the network should be to provide connections to the network through . Ensure the quality of water produced by the treat- cross-subsidies or credit. * Service provision should be decentralized. Decentralization should ment plants be pursued and a plan developed for the financial autonomy of * Keep water losses to a minimunm. the public water suppliers that will lead to establishing them Other listed objectives include promoting water as public enterprises. conservation, maintaining good relations with its cus- * An independent regulator should be set up. An independent reg- tomers, and training its staff. ulator for the water supply sector shall be established for the Since 1993 a series of technical assistance grants whole country to build confidence and create a credible, com- provided by the United Nations Development Pro- petent, transparent, and impartial regulatory mechanism that gramme, the World Bank, the ADB and the govern- wlill guard the interests of all stakeholders. gam,teWrdBn,teAB n h oen ments of France and Japan have helped to rehabilitate the water supply system and develop the human re- sources and management capacity of the staff. In 1996 nicipality of Phnom Penh. However, while the com- the PPWSA was transformed into a public enterprise. mittee provides a central forum through which the It was granted greater administrative and financial au- various institutions could coordinate their actions, it tonomy under Subdecree 52 ofDecember 1996, which has no formal authority to make decisions within the established it as a publicly owned corporate entity water sector. with its own board of directors. Table 4.1 presents its Through its ministries, the government has recently physical performance over 1998-2000 and targets for approved a water supply policy statement that sets out 2003. its approach to water supply throughout Cambodia (see The network has been substantially rehabilitated and box 4.1). expanded, the number of customers served has nearly In addition to this approved policy, the MRD has tripled since 1986, and physical losses have been re- prepared a draft policy on rural water supply and sani- duced considerably. This impressive record is the result tation that emphasizes the decentralization of water of strong management together with substantial donor supply, operations, and financing. Once it has been fi- assistance for both direct investment and training. nalized it will be incorporated into the water supply The PPWSA's performance is, in some important policy. areas, similar to that of water utilities elsewhere in Asia 26 Water and Sewerage Table 4.1 fPhysical performance of the PPWSA, selected years Category 1998 1999 (estimated) 2000 (estimated) 2003 (target) Number of connections.50,410 60,480 . 67,020 . 73,300 (pecenageof total consumers)' 59 61 62 63 Average daily producti.on.(~~~m3 thousands).~109.5 115.1 115.1. ,225.3 Nonrevenue water (losses, 9%) 56 - ~ 45 27 2 m3 =cubic meters. a.The balance is mainly commercial and industrial users. Source: PPWSA (I1998). flTable 4.2 f Comparative industry performance, selected Asian cities, most recent years Population Nonrevenue StafT per 1,000 Town (1995 figures) water (%5) connections Phnom Penh, Cambodia 1,000,000 27 6.3 I Kuala Lumpun Malaysia 1,370.000 ~~~~~~~~~~~~~~~~~~~~~~~36 I1 M~i jM=tnar 670,000 60 Z± ZI Colombo, Sr a~'2,800,000 51 ChonburiThailand ~~~~~~~~~~~~~~224,000 38 2.6 Ho Chi Minh CityVietnam 4,731,000 34 6.4 Source: ABD~ (1 997). (table 4.2). Its efficiency, measured in terms of the =____ __ number of staff per 1,000 connections, is the samie or Table 4.3 PPWSA's income statement, 1997-2000 slightly better than that in Bandung, Colombo, and Ho *(S ilos Chii Minh City. Its performance as measured in terms Category 1997 1998 1999 20001 of nonrevenue water is lower than that of many other Water sales 2.7 3.2 3.9 5.5 major cities in the region. Concinrevenue 0.1 0.6 0.5 0.3 Past funding for Phnom Penh's water supply system . .................... L. was focused on rehabilitating the bulk supply and dis- , Thtl exp.enses' 2.9 4.1 4.5 5.4 tribution network. This led to a significant improve- Net pr-ofit 0.3 0.2 0.5 1.0 of unaccouned for wate and a net- i Note: Exchange rate: CR 4,000 =US$ 1. Asset base was approximately US$78 ment in the level mfuacutdfr ae n e- illion in 1999. work expansion to cover more than half of the city's a. Includes depreciation and interest charges in addition to operating expenses. population. Under these operating conditions, the ,Sure WA(98) PPWSA more or less breaks even (table 4.3). The PPWSA's average cost is about CR, 900/cubic Water supply outside Phnom Penh meter (US$22.5). If tariffs are increased to better reflect Outside Phnom Penh the government's policy is to costs, then it should have sufficient revenue to maintain create financially self-sustainable and autonomious the existing network. Table 4.4 provides the utility's water supply entities. As a first step it granted the water current tariff levels for different consumer groups.4 authority in Sihanoukville a large mi-easure of financial Once the proposed tariffs have been implemented and and operational autonomy by Ministerial Decree cost recovery has been achieved, the utility's main con- Number 524 of September 2, 1996. The Sihanoukville cern would be finding funding for system expansion Water Supply Authority is the only water authority and, potentially, for sewerage treatment works. outside Phnom Penh currently empowered to collect 27 Private Solutions for Infrastructure in Cambodia _____- , In all other reasonably large towns, such as Kom- Table 4.4 f Current tariff structures for the PPWSA pongThorn, Kompong Chhang, and Kampot, the pop- Current tariff ulation served by the networked utility is well below (US/m3) 1,000 connections. Block (effective since In response to the generally poor development of Category (m3/month) January 1, 2000) networks outside Phnom Penh, private operators put IDomestic customers 0-7 13.8 8---me----- --- - -- | forward proposals for privately financed companies in 16-50 25.3 six towns (Sisiphon, Kompong Speu,Takeo, Kien Svay, .... .. ...... .... ... ................-25-8 Sre Ambel, and Udong) that were accepted by the gov- l raministrative customerste 25.8 Commercial, industrials, and ernment. Five BOT contracts have been awarded for private wholesalers p100 23.8 eriods of 23 to 30 years and one BOO contract has .- -.~~~~~~ ~ ~~~01-200 28.8y ....- --, -.--- -.-.,-- - -- ---- --- --- --------- been awarded. This entrepreneurial effort was led in 201-500 33.8 -- ---------------501 and above 36.3 three towns by water supply managers who have de- Souce PPWSA data. veloped their own water treatment manufacturing plants and entered into partnerships with local con- struction companies and business people.The schemes its OWn1 revenues, incur expenditures, and manage its haebninortonfrutooryas.Hhep- operations as a commulercial undertaking. It is no longer vave operators share some similar characteristics and subject to the Treasury Law applicable to government face similar challenges, namely: departments. Table 4.5 outlines the state of the water Financing.eMost thei tn authority in 2000.~ ~ ~ ~ ~ Financing, Most of their investment and working aOrficitly int2000 government,throughMIME,op- capital is generated internally from shareholders, Officially the government, through MIME, owp other businesses, or both. Little is borrowed from erates the public utilities in 20 other provincial towns; banks or NGOs. Private operators consistently cite however, these are all in need of substantial repair and the lack of adequate financing for investment as the few have more than 1,000 connections. Examples ofq few have -ior tha conectins. Eampls of greatest difficulty facing new schemes, much greater such provincial towns include the following: than the need for technical support or the licensing * Battatibang. Despite a population of more than 70,000, the local water utility has only about 3,100 process. connections and unaccounted for water totaling . Technical stpport. External engineering advice was cbonnection aercend. uncone o ae oaig used to design the systems. In most cases the advice about 50 percent. ~~~~~came through MIM.E, which provided an expatriate * Kainpong Speu. The existing public network, which enterout was which privatexpany. had about 1,000 connections, has been transferred engineer, but was paid for by the private company. to the private sector..* Licensing and contracts. The companies have relatively to thesprivate publicsnetork servesIa town with a pop- long-term contracts with the provincial governors * Pursat. The public network serves a town with a pop- (between 23 and 30 years) and renewable (every ulation of about 25,000 and has about 1,000 connec- 3 years) l e h Nonewobte prve tions and unaccounted for water of about 30 percent. opearsd licenses wioul be operators doubted that their licenses would be ___________ _ ___________ _ __________ renewed. Table 4.5 f Sihanoukville Water Supply Authority, 2000 Cost and quality. Consumers indicate that private operators provide higher-quality service than cOIII- Category Amount parable public sector counterparts at a generally Number of households 12,014 Number of connehtons 6 4. higher cost (though this may be misleading, because Number of connections ~964v !Production (mia-~~--------- -;o9--' public suppliers are often subsidized). Tariff(blocktariffstructure;CR/in) 900/1,200/l,540 * Tariffs. MIME regulates private providers' tariffs, C?onn--ection fee (US$) 80 which in general are about CR 1,500/cubic meter Unaccounted for water - . 40 ... . -..,- . - -.......-...~~~~~~~ ~~~~~~~~~...- .. .(U.$ 0 3 9 ) Revenue (approx, US$) 115.000 (US$0.39). m3 = cubic meters. * Collections. Their collection rates are quite high, typ- Source. MIME data. ically above 90 percent. 28 Water and Sewerage * Connections. Their rate of connections has slowed with higher levels of government, NGOs, and potential following the connections made as part of the ini- private sector suppliers. The MRD requires VDCs to tial setup.5 be established before it will participate in conmmlluniity The process for awarding both the contracts and li- rural water projects. There are currently about 5,000 censes to these operators was not transparent. Further- elected VDCs out of a total of 13,000 villages. They more, no clear criteria or procedures for awarding fu- exist within a hierarchy that also includes communal ture contracts and licenses have been established.6 rural development commilittees at the district level and Given the complicated institutional structure and the provincial rural developmenit commilittees. These lack of a clear legal framework, these companies' emer- latter two coimmittees are not elected and report to the gence and apparent success is remarkable; however, a MRD. Through the VDCs local communities are en- combination of more entrepreneurs and extension of couraged to contribute to the initial capital costs of existing enterprises will be required if a substantial pro- establishing piped water facilities, either finanicially or portion of the population is to have access to clean in kind, for example, by providing labor. In practice, water. The legal and institutional structure needs to en- how maniy VDCs manage to do this is not clear, and courage entrepreneurs, but at present is in danger of experience to determine whether theVDCs manage to discouraging them. The Cambodia PPI water map (ap- maintain the systems following their installationi is as pendix 2) illustrates the location and size of existing yet insufficient. private sector operators of piped water systems as well Estimates indicate that about 1 5 percent of the rural as potential locations. population has access to clean water supplies, mainily An importanit issue in encouraging expansion is the through about 40,000 boreholes. In the 1 980s and selective use of exclusive agreements for service provi- early 1 990s rural water supply activities were assisted sion. Exclusivity provides private companies with in- by the United Nations Children's Fund (whose drilling creased security over their revenue flow, which facili- equipment is still maintained and used by the MRD) tates the financing of up-front capital expenditures; and Oxford Famine Relief, mainily througlh the drilling however, exclusive agreements can inhibit service ex- of boreholes. However, the MRD has changed the pansion by limiting new entry and diminishing the in- focus of rural water supplies from a project-oriented cumbent operator's incentives to connect new clients. approach to attracting local entrepreneurs, NGOs, and In some countries this is sometimes addressed by in- others to provide services demnanded by commi1uniities. cluding connection targets in the license agreement. These institutional arrangemiienits are creating the con- This type of approach was followed for the existing ditions for community-led water supply investments. private sector licensees, which had to submit targets for The continued development of the VDCs is an en- nevw connections to receive their licenses from MIME, couraging step that provides clear, locally supported but these were apparently not binding targets, just in- bodies through wlhich water needs can be maniaged. dications of expansion plans. Other sectors and coun- tries have used alternative arrangements that limit ex- Legal and regulatory framework clusivity, but protect the core business of the investors. In Panama's rural electricity licensing regime, for ex- As in other sectors, Cambodia's recent history means ample, periods of exclusivity are determined by a given that there is only a limited legal framework governing commiiunity's distance from the principle network. the water sector.The urban water sector operates under a set of informal rules, practices, and regulations. Con- Non-network rural activities sequently, while private sector involvement faces few Rural water supply activities take place under agree- legal constraints, there are also no clear procedures for ments with village development committees (VDCs), new entry. sometimes also referred to as commiluniity development The following are the main legal parameters defin- committees.These elected local bodies are designed to ing the institutional framework: represent local inhabitants in defining community * Autononmy. The Law on the General Status of Pub- needs; to initiate actions; and to be the point of contact lic Enterprises June 1996) defined the operation, 29 Private Solutions for Infrastructure in Cambodia governance, and supervision of public enterprises In practice, whether any detailed formula is used is un- and granted them legal independence and a degree clear. Tariffs in Phnom Penh are substantially below of financial autonomy. They are nevertheless still those in the rest of the country (up to one-sixth as subject to various state controls, and each is over- much), where tariffs all fall within a narrow range. Tar- seen by the relevant ministry. In relation to the iffs for private network providers are set to allow them water sector, in December 1996 the government to recover their costs.7 approved Decree 52 that established the PPWSA In addition to tariff setting, two further issues re- as a public enterprise and obliged it to operate ac- quire consideration. The first is the role of provincial cording to commercial practices and prepare annual authorities. Current regulation and general oversight of business plans. It has not granted this autonomy to the sector are split between two ministries. MIME public sector water suppliers outside Phnom Penh. oversees water provision in the main towns (sometimes * Legal basis for PPI. The legal basis for granting li- through its provincial offices), while the MRD over- censes to the private sector is uncertain. MIME is- sees water provision in rural areas. The new regulatory sued what is termed a general principle (Number framework will have to consider whether or not this is 02 GTS, datedJune 10, 1997) laying down the basic an appropriate division of responsibilities. In particular, principles for PPI.The licenses granted to date have local authorities, especially local governors, currently been based on this general principle. In the absence have an ad hoc role, that is, their permission appears to of a specific law on PPI, the licenses and contracts be required to set up a private operation, but there is derive their legal sanction from the other cross- no legal basis for their role and they do not monitor or sectoral laws and subdecrees discussed in the section regulate the operation once it has been established. on water supply outside Phnom Penh. The second issue is the quality of supply. Licensees • Regulation. The government has adopted a water are currently required to supply water samples to supply policy that includes a specific provision for MIME at regular intervals, normally three or four establishing a water supply regulator. Although the times a year. These are tested for basic quality indica- regulator's scope, powers, and functioning have yet tors, such as the amount of suspended matter. How- to be finalized, its responsibilities will include issu- ever, this procedure appears to be implemented hap- ing licenses to both the public utilities and private hazardly and does not apply to unlicensed bulk water sector operators and regulating tariffs. suppliers, and there is no explicit quality control of * Law on Water Resources. MOWRAM has drafted a boreholes and wells dug by private operators in rural law on water resources, which is now under discus- areas. The regulatory framework should encompass sion and includes the granting of water abstraction both the appropriate authority for and the degree of licenses by MOWRAM. It also provides for the li- quality control. As with other sectors, maintaining uni- censing of wastewater discharges to be done in con- versal quality standards may not be appropriate (that is, sultation with the Ministry of Environment. The requiring the same standards in Phnom Penh as in rural procedures for granting such licenses is proposed to districts); however, some protection against contami- be the subject of a subdecree. Fees, which have yet nated supplies must be provided. to be set, will be charged. The existing legal and regulatory framework re- Opportunities for private sector participation quires further development, as does the system for set- ting tariffs. Currently, the only formal statement of Table 4.6 presents the PIP for 2001-03.While the ma- tariff-setting principles is the general principle that en- jority of projects listed remain unfunded, most of these joins MIME to set the tariff using the "water cost cal- are in the areas of flood control, irrigation, and drainage. culation method" by allowing an appropriate profit of The true short-term opportunities for investment in 20 to 25 percent to the private party. The private party water supply lie in provincial towns and peri-urban areas is required to submit detailed proposals for this purpose not served by piped distribution systems. In the medium that indicate fixed and variable costs and expected term the existing utilities may provide opportunities for margins based on an estimated volume of production. investment, lease, or concession arrangements. 30 Water and Sewerage Table 4.6 Estimated investment requirements in the water sector, 2001-03 (US$ mill ions) Project 2001 2002 2003 Total Government External Unfunded Phnorn Penh water rehabilitation 4.9 3.2 0 8.1 1.7 .. 6.5 0 Fhnom Penh water supply drainage . ~~~~ ~~~ ~ ~~ ~~~ ~ ~~~ ~ ~~~ ~ ~~4.3 . 1.9 0 6.1 0.65.0 water ~~~~~~~~ ~ ~~ ~~~~ ~ ~ ~~~ ~ ~~~~~~~~~~~~~~~0.8.-. 0 0 0.8 0 0.8 0 Sihanoukville sewerage.2.8 1.3 . 0 4.1 0 4.1 0 Rehabilitation of water supply ~~~~ ~~~~ ~~ ~~~~ ~~~ ~ ~~~ ~ ~~~~~~0.5 0.2 0 0.6 0.3 0.2 0. Provincial town improvement ~~~ ~ ~~~~ ~~~ ~ ~~~~ ~~~ ~ ~ ~ ~~~~~~~1.7 2.6 1.0 5.3 5.3 0 0 Waersctr oicy framework 0.04 0.04 0 .8 00 .0 0 .. Rehabilitation of ruaI aers l 0,4 0.9 1.0 2.3 0 . 2.3 Siem Re~ w.. . -.L9 4.3 0 043 Takmao water supply 0.9 ~~~ ~~ ~~~~ ~~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~2.1 0 3.0 0 0 3.0 machinery and equipment ~~~ ~ ~~ ~~ ~~~ ~ ~ ~ ~~ ~~~~~~~~~~~1.7 0 0 1.7 0 0 1.7 Construction of flood protection dyke 0.09 0.3 0 0.4 0 0 . 0.4 Rainfed rice qualit impr-ovement 0 1.1 0.9 2.0 0 0 . 2.0 Y~~~~~~~~~2LJJ3 wells ~~~~~~~~~~~~~~~~~~~~~~~~~~0.03 0 0 0.03 0 0 0.03 .riainsstem rehabilitation and construction 0.5 0.6 0.6 1.7 0 0 1.7 To Ep~p1y_ rrgation 0.38 0.3 0 0. ,68 0 0., 0.68 Construction of irrigation system 1.2 1.7 2.3 5.2 0 0 5.2 ~~~~~~~~~jg~~~~~~ipn system ~~~~~~~~~~~~~~~~~~~~0 25 35 6.0 006. Repair and maintenance of hand pumps ~~~~ ~~~~ ~~~~ ~~~ ~ ~~ ~ ~~~~~0.6 0.7 0.7 2.0 . 0 0 . 2.0 Phnom Penh flood protecton and draina~! ................ 4.1 10.5 10.7 25.3 0----- 2.3... Total 26.5 31.3 22.6 80.3 7.9 17.1 . 55.3 Source: Ministry of Planning (200 1). Provision of small-scale, rural water systems straint reported by existing private sector operators is The recent emergence of private sector network water their inability to borrow funds at reasonable rates, that suppliers, despite a lack of clear rules and procedures, is, at interest rates below about 25 percent per year. In- indicates the potential for substantial private sector in- creased private sector provision may depend on access volvement in the sector (see box 4.2) . The main con- to financing, and given Cambodia's average income IBox 4.2 Small-scale private sector water provision Despite the absence of a clear, transparent legal and regulatory Set up a factory to manufacture the equipment required in framework, the private sector has taken important steps in as- treatment plants. suming a key role in water provision. Using existing businesses to Whlnoovrtigteim raceftecuetszef provde orkig cpita an inpts mostpriate pertorsef- the private sector in water supply, it should be noted important ther also run or are associated with a construction company that seshv entkni htCmoi o osse undertakes the initial construction of the water treatment facili- seshv entkni htCmoi o osse ties and main trunk lines), entrepreneurs have established them- *Individuals with experience in setting up water supply compa- selves in six small towns. They have invested amounts ranging nies in relatively small towns from about US$300,000 to US$I million. They have established *A factory in Phnom Penh that produces the equipment re- operations that include not only water supply to connected quired for treatment plants, such as storage and treatment households, but in some cases they have also tanks *Put in place installment plans for paying connection charges Construction companies with experience in setting up water *Franchised areas of the distribution network to other busi- supply systems in areas that previously lacked any piped supply. nesses that pay a fee to supply a given area *Sold to wholesalers that then on-sell to remote regions be- yond the reach of the network 3 1 Private Solutions for Infrastructure in Cambodia levels, the development of targeted subsidy programs, for instance, subsidies covering some of the capital Table 4.7 Selected towns with potential for PPI in the costs of connection. water sector As discussed in chapter 7, preferred approaches to Number of subsidization focus on output, that is, actual service 'Town Province households Population provision to needy consumers. The World Bank and Prek Phnov Kandal 1,257 55,253 Kep City Kep9ly C5,369 28,660 MIlE are currently designing a program for Cambo- ..Mokol Borey B-- 'an.tey Me-anhe-. h .- 5'3 .,35. dia's water sector that would provide grant funds to .....r... ---- -- -C't private operators on a per connection basis after they Suo2 Udor Meanchey Udo ~~~~4,027 22,361 have implemented capital expansion programs into Chamka Leu KomponSThorn . 4325 22,243 | designated areas. The commitment to the connection 5PreahVihea; PeahVihear 4,133 21,580 subsidy by the grant maniagers may also help private Srce MIMEdata. providers obtain up-front financing for their business development plans. Outside Phnom Penh, ample opportunities for the stable environment. However, there are currently no private sector are available in Sihanoukville and the definitive plans for private sector involvement in the other provincial towns currently served by public PPWSA or any of the other larger water utilities, such water networks.Table 4.7 lists potential towns for PPI. as in Sihanoukville. Given the need for more financing While many of these are relatively small, a few are to extend network coverage and to invest in sewage larger than some of the towns the private sector is cur- treatment, there may be a role for private sector partic- rently serving. If necessary, private sector interest could ipation in the PPWSA and other urban water utilities. be stimulated by grouping towns together. International investors have shown considerable interest in a wide range of water and sewerage projects and have Private participation in existing water service providers infornally expressed interest in the operations of the The governmllent is currently making progress in setting PPWSA and the Sihanoukville Water Supply Authority. up a regulatory framework for the water sector, which Appendix 2 contains information about these towns' should increase the confidence of private sector in- populations, households, water connections, current vestors and operators, who will seek a transparent and tariffs, connection fees, and unaccounted for water. H Notes 1. Throughout this chapter, except where tives that provide water without commercial of the private providers (Garil, Isham, and specifically stated, the term "water sector" considerations. Kiihkonen 2000). refers to the "water and sewerage sector." 3. In practice, decisions as imiportanit as tariff 7. MIME sets them once a year and, in the- Currenitly Cambodia does not have aniy sew- changes currenitly requLire the permissioni of ory, they are intended to allow operators to erage services that treat effluent. Sewerage the Council of Ministers.Thus the Ministry recover both operating aind capital costs, in- consists of piping wastewater away from its of the Interior's influence is exerted througli cluding a prescribed rate of return. In prac- source. its seat on the counicil. tice, the tariff-setting process appears to be 2. There is currently no clear definition of 4. Note that informiial bulk water suppli- based on historic levels with Imilited analysis urbain versus rural water supplies.The work- ers charge about CR 15,000/cubic meter, of whether or not these are too high or low. ing practice is that MIME oversees all water which provides strong evidence of consum- 8. Note that the supply of water outside net- supply through networks, while the MRD ers' ability to pay for water. works (for example, in bottles or from kiosks) oversees the remiiaininig sources of supply. 5. Somiie of the operators introduced install- has long been a private sector activity, and However, MIME also oversees wholesal- ment plans to help people afford the con- while prices are considerably higher than for ers who purchase from network opera- nection charge when they noticed connec- water from networks, these supplies do con- tors.Therefore MIME's oversight extends to tion rates fallinig. This appears to have stitute a major source of drinikinig water for networks and for-profit private operators, increased demand for new connections. niuch of the population. whiile the MRI) oversees non-networked 6.These findings are generally in agreement and NGO, donor, or community coopera- with a recent World Bank study and survey 1 32 Telecommunications Sector overview and market structure ties of ownership, policymaking, and regulation; and the low-use and high-cost performanice of the fixed The telecommunications sector has witnessed more line networks. private sector involvement than any other infrastructure Even though the government has not issued a clear industry in Cambodia. To date, the MPTC has issued and comprehensive statement of its policy for the five mobile licenses and one international gateway li- telecommunications sector, key elemenits have been set cense to private companies, and recently completed a out in legislation and public policy documents. These 10-year cooperation agreement with another private include the draft Telecommunications Bill, wlhich states company for the operation of the primary international that national policy toward the sector is "to encourage gateway. Each of these agreements is in the form of a private investment as contained in the Investmiient Act" joint venture between the operator and the MPTC. and that "ownership of telecommunicationis networks Despite the involvement of the private sector in al- shall be vested with either a government state enter- most all aspects of operations, telecoimmunications can prise or private companies," and the Telecommiluniica- also be described as the area of Cambodian infrastruc- tions Master Plan, which endorses the use ofjoint ven- ture with the greatest degree of centralized control. A tures and BOT contracts between the governmiienet and single central governmzent agency, the MPTC, shares the private sector.The MPTC has elaborated key poli- in the ownership of all mobile services, the fixed line cies to support these elements (see box 5.1). network, and the international gateways. It also sets In February 1997 the Council of Ministers approved telecommunications policy and acts as the regulatory the sector strategy docunment, "Telecoiiimi-inications agency. Master Plan for the Rehabilitation, Commercializa- Even with the universal presence of the govern- tion, and Restructuring of MPTC," drawn up with as- ment, some degree of competition in service provision sistance from the International Telecommunications has emerged among the dominant private partners in Union and the United Nations Development Pro- mobile joint ventures. Figure 5.1 shows the sector's gramme. Although mainly an investment plan, it also structure and ownership. contains several policy recommendations that were Despite the technology, and operational expertise adopted through its approval by the Council of Minis- brought to the country by multiple investors and oper- ters. These are the separation of the MPTC's policy ators, Cambodia's telecommunications sector faces a functions from its operational roles of providing services number of challenges, including a lack of transparency in post and telecommunications and the use of joint in the process for awarding licenses; the forced large- ventures between the MPTC and the private sector. scale revenue sharing between private operators and The Subdecree on the Organization of MPTC the MPTC; the government's conflicting responsibili- (October 22, 1997) also outlines somle sector policies, 33 I Private Solutions for Infrastructure in Cambodia * Figure 5.1 | Structure of the telecommunications sector 82,000 27,000 3,000 24,100 6,0001 customers, customers, customers, customers, customers, Phnom customers 15 provinces 14 provinces Ph9 provinces WLL 18 provinces Mobitel (PC Samart ShnwtaI Camintel (Royal CamtelIMT Group/ (Samarti (SiCop (lndosat/ MT MPTC jV) ~ ~ (MTCJV joint venture joint venture joint venture Jointiventure Joint vepture Joint venture Operator MPTC Mobile International I Fixed line JY joint venture. WLL = wireless local loop. Note: The shaded boxes indicate private-public joint ventures. Source: Government of Cambodia. such as the MPTC's regulatory functions and the oper- bodia with that in other countries in the region and at ation of the fixed network as public enterprises. similar income levels in other parts of the world. Al- though important progress has been made, with the Sector performance fixed line penetration rate increasing to 0.25 per 100 by 1999, it remains one of the least connected coun- The telecommunications sector has undergone rapid tries in the region and perhaps the only country in the change during the last decade. Cambodia had approxi- world with mobile penetration rates double those of mately 3,000 working lines in 1993 and more than fixed line penetration.1 100,000 by 2000. Four mobile companies offer services As noted, penetration rates in Cambodia have risen and Internet access is now available even in provincial since 1998, and by the end of 2000 the fixed line pen- towns. However, the combined fixed and mobile pen- etration rate was 0.27 per 100 inhabitants and the mo- etration rate is currently only around 1.54 per 100 in- bile penetration rate was 1.27 per 100 inhabitants. habitants, which is low by both regional and interna- Even with these recent improvements, fixed line pene- tional standards. The low fixed network penetration tration remains low compared with other countries, rates are due to the collapse of the network during while mobile phone penetration is high in relation to 1975-90. Recent increases in fixed network coverage Cambodia's relative gross national product (GNP) per have come about through investment under foreign as- capita. In line with this trend, demand for mobile con- sistance and has mainly benefited Phnom Penh. Geo- nections is forecast to increase over the next decade graphical coverage has not increased significantly. from current levels of about 135,000 connections to Table 5.1 provides an overview of the sector's per- more than 200,000 connections. While demand for formance by contrasting telephone coverage in Cam- fixed line connections is predicted to rise at about 6 1 34 Telecommunications Box 5.1 | MPTC policies framework for awarding licenses and setting regulatory rules, and the MPTC's poor financial and technical The development of the national network should conform performance in operating the fixed line network. to the 1997 Telecommunications Master Plan.The MPTC will The MPTC network covers Phnolmi Penih and implement recommendations made in the master plan for re- some provincial towns, although the availability of lines structuring, including creating a national telecommunications in most centers outside the capital is restricted.The ac- company. cess network has recently been upgraded in Phnom * All new network facilities should, as far as possible, conform Penh with support from the Japanese aid program, and to the latest designs and be fully digital. In the case of mobile telephony, global system for mobiles technology (GSM) should additional lines have been added in provincial tovns be used. along the fiber optic lines installed with Germani assis- * The MPTC will encourage the participation of the private sec- tance.The German government is considering provid- tor, including in the formulation of appropriate legislation and ing further support to install a fiber optic cable around regulations. Lake Tonle Sap. This would improve security on the * Tariffs for all services and operations will be under the control trunk routes to the border. of the MPTC. Operators must submit tariffs for approval. The mobile netvorks provide coverage in 15 prov- * Switching will, to the extent possible, be standardized, and ' . ' ~~~inces, covrnabu25t35pretothppl- where economic and feasible, transmission systems should , ving ao 25 to 35 peret ofnthe popula- use fiber optics for the main links and microwave technology tion, with plans to expand into at least 8 more provinces. on smaller-capacity links. Coverage has increased significantly since the mobile * The priority is to build a national fixed network and achieve a companies began offering services. The MPTC does not penetration level of 3 percent by 2007, and within this prior- monitor or enforce any roll-out obligations that may be ity will be given to rural areas. Rural networks are required to contained in the companies' licenses (although these are be provided to at least every village or small community. confidential, and whether they contain specific roll-out * The priority for all projects is to provide training for Khmer obligations is not clear), therefore the expansion seems staff, including transferring employees, where appropriate, to to have been driven by con-ierc'al motives.The mobile joint venture companies. joint venture companies. ~~Operators have built their own network of links between * Customer networks should consider various types of out- side plant networks for different solutions in towns, cities, provincial centers based on a combination of micro- and villages. In low-density areas, wireless technology should wave, satellite, and, where possible, fiber links. There is a predominate. limited amount of leasing of capacity between mobile networks on trunk links, and all the mobile companies Source: Ministry of Commerce. with provincial networks lease trunk capacity to the MPTC. Appendix 3 shows the current coverage of the percent per year, whether the MPTC will be able to primary mobile service providers. meet this new demand is not clear. The recent rapid increase in both penetration and Mobile services are being widely used for basic te- coverage has largely been due to the roll-out of mobile lephony in Cambodia because the quality of the fixed networks. The introduction of prepaymenit packages, network is so poor and coverage is so low. This may digital networks, and special introductory offers has led only be a short-term solution to the need for improved to a surge in take-up. The following paragraphs de- communication technology for two reasons: first, fixed scribe each service in turn. networks are generally cheaper than mobile networks, particularly in urban areas; and second, provision of Fixed line services data services such as the Internet is difficult over sec- MPTC. Fixed line services are provided mainly by the ond-generation mobile phone networks. MPTC. The network has a maximum switching capac- The most pressing problem in the sector is the low ity of approximately 30,000 lines, but currently only level of investment and the resulting poor performance has 19,500 subscribers because of limitations imposed of the network. There are three main reasons for this: by the copper access network. Approximately 85 per- the uncertainty private investors face because of the cent of the MPTC's lines are in Phnom Penh. The net- multiple roles played by the MPTC, the lack of a clear work has 600 km of fiber optic cable linking Phnom 35 Private Solutions for Infrastructure in Cambodia Table S.1I Performance of the telecommunications sector, selected countries Category Cambodia India Lao PDR Philippines Tajikistan Thailand Uganda Vietnam Main lines per 100 inhabitarits(l999) 025 2.65 0.65 3.88 3.48 8.57 0.26 2.67 Cellular lines per 100 inhabitants (1998) 0.57 . 0.12 0.12 2.38 0.01 3.25 0. I5 0.24 Pay phones per .1,000 inhabitnts ( 1998) 0.02 0,36a 0.04 0,15 0.03 1.88 0.06 0.01a Falspr 00main li2~~nes er ear(l97)b 35.10 174.00 -5.20 99.30 25.90 80.00- GNP per capita (1999) (US$) 260.00 450.00 280.00 3,815.00 290,00 1,960.00 320.00 370.00 - Not available. a, 1996 data. tb. Faults per main itne per year, an indication of quality of service, are relatively low in comparison wish countries wish similar incomes.This is likely because the fixed nietwork is r-elatively new and not very extensive. ISources: ITU (2001): GNP per capita. World Bank Development Indicators database (August 2,2000). Penh with the Thai border at Poipet and the Viet- Nations Transitional Authority for Cambodia in 1993. namese border at Phum Bavet. Remote switching units It is currently a joint venture between the MPTC and link provincial centers along Route 5 and Route 1 to Indosat and has approximately 6,000 lines on a network the network through the fiber optic trunk links. Fiber of private automatic branch exchanges in 18 provinces. optic rings also link exchanges in Phnom Penh. The software is outdated and is unable to meet certain In principle, the MPTC should return all revenues regulatory requirements, for example, it does not pro- earned to the MiEF and the MEF should authorize all vide calling party identification information. expenditures by the MPTC. In the first 11 months of 2000 the MPTC remitted approximately US$22 nmil- Shinawatro wireless local loop. Shinawatra, also known as lion to the national budget from the operation of the Camshin, is a Thai telecommunications company that fixed network, the revenue-sharing agreements with provides fixed wireless local loop services under a joint the mobile companies, and interconnection charges. venture with the MPTC. It uses both analog NMT During the same period the MEF authorized approxi- 450 technology and digital GSM 1800 technology. m-ately US$16 mlillion of expenditure by the MPTC. The formier ser-vice has about 3,100 subscribers and The MEF exercises only linlited financial control and the latter about 500 subscribers. The service uses its monitoring, therefore these figures are unlikely to rep- mobile network, but provides fixed handsets to cus- resent the total revenues passing through the MPTC. tomers. Licenses are not publicly available, therefore it However, the MPTC's operations and the revenue- is not clear whether Shinawatra provides fixed and mo- sharing agreemients clearly represent a significant source bile services under the same license or if it has separate of revenue for the governiment, amounting to approxi- licenses. mately 2 percent of total government revenue in 1999 (World Bank 2000). Mobile services Figure 5.2 shows the architecture of the MPTC's The four companies currently providing miobile ser- fiber network and interconnection points for other vices in Cambodia are Mobitel, Samart, Shinawatra, and operators. Camtel.They are all joint ventures between the MPTC and private companies, which means that the sininistry Camintel. Canuintel is the second national fixed operator receives a given percentage of the gross revenues. Mo- and is j'ointly owned by the MPTC and Indosat of In- bitel is a joint venture between the MPTC; the Royal donesia. Its network is based on the network initially set Group, a large Cambodian comipany; and Millicom, a up and operated by Indosat on behalf of the United telecommunications compan-y based in Luxembourg. 1 36 I Telecommunications * Figure 5.2 1 Schematic diagram of the MPTC's fiber network Bayon International Fiber optic cable Telecommunications Center > oThai border-\ \ _ | ~~~~~A>(E G/W | \ ~~~~~~Fiber optic AXE Local Eatltto \ ~ ~ ~ ~ ~ ~ ~ . . ~~~~~~~~~ Earth station |Alcatel ElI0 Angkor F Center Fiber optic i Fber opicalto|AERU| Vietnam border AXE RSUGeneral / | EI0ORSU | 9 3 post office Note: Letters and numbers within boxes indicate types of switches used. Source: MPTC. The other three are joint ventures between the MPTC US$20 million installing a local switch, two earth sta- and telecommunications companies based in Thailand. tions, an international gateway exchange, a telecommu- Their characteristics are outlined in table 5.2. nications building with air conditioning, and systems for international accounting and billing. Under this International services contractTelstra received 49 percent of the revenue from MPTC. In 1990 Telstra International of Australia (then incoming calls and 12 percent of the revenue from out- called OTC International Australia, Ltd.) was awarded going calls. In addition, the mobile networks intercon- a 10-year business cooperation contract with the nect directly with the international gateway, which was MPTC to install and operate an international gateway also used as the main trunk exchange for switching be- and the pay phone system.Telstra spent approximately tween the mobile networks (90 percent of the calls han- dled by the international switch are local calls being switched between networks).This contract came to an end in 2000 and has not been renewed because Telstra Table 5.2 Mobile telephone operators, 2000 h didd ihd from providing this service in . Type of Number of Cambodia as part of a new global strategy.The MPTC Operator network Coverage subscrbers is currently responsible for operating this gateway.2 Mobitel DigitaI I15 pvics 82.000 Samart Digital and analog 14 provinces 27,000 Shinawatra Digital andanalog 9provinces 24.100 Royal Telecom Intemational Royal Telecom International Camtei Analog Phnom Penh 3,000 is a joint venture between the MPTC and Tele2, which Souire; MPTC data. Source;.MTCdam_ has been awarded a license to operate a second inter- 37 Private Solutions for Infrastructure in Cambodia Table 5.3 Telstra Internet services price list, 2001 Free hours . Cost per additional User Start-up fee (US$) Deposit (US$) Monthly fee (US$) per month hour (US$) Low 30 50-100 22 3 3.8 Standard 30 00~~~~~~lo 55 1 33. Frequent 30 200 110 32 . 2.8 Note: Only Telstra data are shown because Telstra is the main private provider and the informabton Is available. Source Telstra data. national gateway. Tele2 is a large European operator the mobile networks there was no service in these specializing in long distance and wireless broadband areas. Expansion of the fixed network into rural areas services. It is a subsidiary of Millicom International would require a high level ofinvestment, which may or Cellular, which is a telecommunications company may not be economically viable. Even if it is feasible, it based in Luxembourg with cellular operations in 19 is unlikely to happen under the current institutional countries, including Mobitel in Cambodia (which is arrangements. operating under the name Sanbao Telecom). Millicom Currently roll-out or coverage requirements are also operates in India, Mauritius, Pakistan, the Philip- not included in MPTC licenses. Future licenses could pines, Sri Lanka, and Vietnam. The gateway came into include flexible requirements that would allow compa- operation in November 2000. Consumers can select nies to install public phones in some areas instead of which of the two gateways to use by dialing different private lines, thereby decreasing the cost of rural provi- prefLxes for international calls; however, the scope for sion and possibly making increased coverage financially price competition is understood to be limited. viable. Moreover, the pricing regime may inadvertently Other services hinder expansion into less densely populated areas. Cambodia has three Internet service providers: Big More detailed studies will be required as part of the Pond, operated by Telstra; Camnet, operated by the pricing reforms to ensure that policies do not distort the MPTC (following its initial establishment with Cana- development of fixed line versus mobile services and dian assistance); and a small service run by Camintel. to ensure that access is provided to the poor. Box 5.2 Table 5.3 shows the tariffs forTelstra's Internet services. provides an example of successful telephony extension One constraint on the number of Internet ser- into rural areas through the use of microfinance orga- vice providers is the availability of leased lines. Both nizations. Privatizing the MPTC's operations would in- fixed network operators provide Internet services and crease efficiency and investment. This might, in itself, are therefore reluctant to allow entrants to use their boost roll-out in areas outside Phnom Penh even with- networks. out any specific regulatory intervention if increased ef- Several other telecommunications companies have ficiency makes expansion into rural areas profitable. expressed an interest in investing in Cambodia. Korea Telecom set up a companiy called Mekong Telecom Commercial performance and tariffs Mobile to provide a trunk radio system during the mnid-1990s. Korea Telecom also launched a pager busi- Unlike the other sectors where public corporations ness during 1999. have been publishing their accounts, the performance Finally, American Cambodian Telecom received a of the private operators in the telecommunications sec- license to provide wireless local loop services using tor is not subject to public scrutiny. Furthermore, the code division multiple access technology; however, the MPTC has not been publishing accounts that permlit company is not currently operating in Cambodia. an analysis of its performance, although a set of ac- counts is under preparation. Given this lack of data, the Rural services commercial performance of the sector is examined by The provision of telecommunications services in rural looking at current tariff levels in Cambodia compared areas is extremely poor. Until the recent expansion of with others around the world. 1 38 Telecommunications Box_5.2 Rural supply in Bangladesh Tariffs are relatively high. This is probably due to a combination of the following factors: Grameen Bank, the well-known microcredit institution, has es- * The cost of the initial investments tablished a subsidiary nonprofit company, Grameen Telecom, * The burden of the revenue-sharing agreements that to support the roll-out of telephone access to rural areas in the companies must sign with the MPTC Bangladesh. Once a signal from the national cellular operator * The lack of effective competition. GrameenPhone (35 percent owned by Grameen Telecom) In theory, the MPTC is responsible for setting all reaches a village, Grameen Telecom buys a subscription and tariffs for telecomnunications operators. In practice, handset that are provided to a local operator, typically a woman t entrepreneur.The purchase is funded by a loan from Grameen however, it does not enforce controls over the tariffs Bank to Grameen Telecom. other operators charge. Table 5.4 summarizes the The pay phone operator charges for calls according to a tar- MPTC's retail tariffs. It shows that the price of calls is iff schedule laid down by Grameen Telecom.The difference be- much lower in Phnom Penh than in provincial towns. tween these tariffs and those levied by GrameenPhone is used There is no clear cost-based reason for this differentia- to repay the initial loan and subscription charges, as well as to tion.3 It also shows the high prices of international provide an income for the pay phone operator. The total loan in- calls. This is common in countries where competition volved is US$3 12.50, which is repaid in weekly installments over either does not exist or is ineffective. two to three years. Repayment rates are 98 percent, extremely high for this frm of finance.Table 5.5 compares selected tariffs in Canibodia high for this form of finance. The Grameen program has been successful in extending with average tariffs for the region and in three Euro- telephone services to almost 3 million villagers. It provides a pean emerging markets. The data clearly show that powerful example of how microcredit institutions can support Cambodia has both high usage charges and fixed fees infrastructure projects to help the poorest in society. relative to the other countries. There are a number of possible reasons for this: * The small size of the network means that the Company performance in Cambodia is also cru- MPTC does not benefit from the economies of cially dependent on two other important factors: cov- scale achieved by operators of bigger networks. erage, which in turn affects the subscriber base, and the * The low level of investment in new technology has form of revenue-sharing agreement entered into with prevented the MPTC from taking advantage of de- the government. velopments in communications technology. -Table 5;4 MPTC telephone tariffs, 2000 . (USO/minute) Domestic . Intemational To Lao Local Local PDR, within within Thailand, To other - To the Phnom provincial Long and Asian rest of Category Penh town distance Vietnam countries the world Fixed linea Call on MPTC network I I 15 150-135 160-142 180-162 to wr is c~ ~~ ~~ ~~~ -- ~-- -- -- -- - ^. ............. ..._...2 Call to wireiess local.jloop 6 22 22 ~ Call to mobile 7 17 ' 7 - - - Mobileb Mobile to fixed line 10-25 10-25 16-110 MPTC + (22 - I 10) .r I;b,ie to-;, nl r,c-.th,Ie s->~ 1Il + - I i . _ ...._-_ .. ..z... f -^-O......^S-Stw w"_ _s~ -- .... ....w _S __ e_ _w_ ~ __w . .. ............ . .. ... . .. . >_ .......... .. .. t_ .. . . Mobileto-offnet mobile 16-110 16-110 16-110 MPTCf + (22 -I 1i0) -Not available. Note: All prices include 10 percent value added tax. aThe monthly fee is US$8 in Phnom Penh and US$6 in provinoal towms b.The monthly fee is US$l I to US$110, Mobile operators offer a wide range of packages. Source: MPTC data. 39 Private Solutions for Infrastructure in Cambodia m ~~~~~~~~~~~~~~~~~~~7 Table 5.5 Average retail tariffs in Southeast Asia and other emerging markets, various years (US$) Czech Cambodia, Republic, Indonesia, Lao PDR, Malaysia, Poland, Romania, Thailand, Vietnam, Service 1998 1998 1997 1998 1998 1998 1998 1998 1996 Residential connection 182.67 10843 422.33 90.96 12.76 122.99 30.98 81.00 244.73 Business connection 182.67 108.43 572.66 90.96 12.76 122.99 8 800 2 Residential monthly subscption 12.28 3.10 1503 1.52 5.10 3,86- 3.68 2.42 6.i6 I Business monthpsubscription _ 12.28 3.10 22 19 3.03 8.93 3.86 3.68 2.42 6.16 Three-minute peak local call 0.10 0.07 0.08 - 0.02 0.07 0.09 0.07 0.11 - Not available. Souwre: ITU (2001). The lack of competition in Cambodia linmits the | Box 5.3 DraftTelecommunications Bill downward pressure on prices and does not provide an incentive to improve efficiency. The Telecommunications Bill is currently being debated and is likely to undergo significant changes before being enacted.The Legal and regulatory framework key provisions in the current draft cover the *Creation of a telecommunications authority to regulate the The legal and regulatory framework for the telecom- sector and an outline of its functions munications sector is established through several pieces Allocation of responsibilities within the sector,with the MPTC of legislation, namely: being responsible for setting policy; the telecommunications * The Council of Ministers' Subdecree on Post and authority for regulation; and operators, possibly including a Telecommunications of March 5, 1987 publicly owned one, providing services * The Council of Ministers' Decision on Procedures Procedure for licensing * Standards and technical requirements to Control T of Decmber 11,1991Creation of a fund to pay for universal service obligations * The Law on the Formation of the MPTC ofJanu- Information and dispute resolution procedures. ary 24, 1996 * The Subdecree on the Organization of the MPTC of October 22, 1997. Whether the draft bill will be presented to Parliament The latter is the most important of these. It estab- in the near future is not clear, and there are divisions lishes the MPTC as the body responsible for providing within the government over whether or not the frame- post and telecommunications services. Under the sub- work envisioned by the bill is appropriate. One reason decree the MPTC is permitted to enter into partner- for this is that the current structure, especially the rev- ships with private companies and is authorized to issue enue-sharing agreements and combined operational licenses. It is also responsible for representing Cambo- and regulatory role of the MPTC, provide the govern- dia in international agreements. Article 14 states that ment with considerable revenues. The government is the MPTC shall establish two public enterprises for the not convinced that the benefits of the new system purpose of providing telecommunications and postal would outweigh the immediate loss in annual revenues. services. How the MPTC's assets under joint ventures The importance of adopting a new law is reflected with private companies would be treated if the opera- in the recommended changes to the institutional struc- tional arm of the MPTC were corporatized is not clear. ture of the sector. The current regulatory arrangement To address the lack of a comprehensive law govern- gives the MPTC conflicting roles. The ministry is re- ing the sector, the MPTC has prepared a draft Tele- sponsible for setting prices and for enforcing intercon- communications Bill, the key provisions of which are nection agreements in its role as a regulator. It operates set out in box 5.3. the fixed network and one of the international gate- The main issue with this draft is the establishment ways, and it is responsible for issuing licenses to com- of the proposed independent regulatory authority. peting operators. It also develops policy for the sector. 1 40 Telecommunications | Box 5.4 Requirements for obtaining a * Revenue-sharing arrangements between the Ml'TC | | telecommunications license and the private operator technical specifications * Regulatory obligations, for example, traffic data re- In principle, private companies have to meet a number of re- porting requirements. quirements prior to receiving a license from the MPTC. The main requirements are Allowed revenue * Company registration at the Ministry of Commerce Under the existing legal framework the MPTC sets the * Minimum registered capital tariffs of all telecommunications operators. In practice, * Availability of office space and approved necessary equipment it only has direct control over interconnection charges * Professional qualifications and the retail prices of MPTC services. According to * Application submitted to the CDC and the Council of the 1993 Financial Law, tariff decisions are supposed Ministers * Company articles and memorandum of association to be made in consultation with the MEF because they * Agreement on joint venture and revenue sharing with the affect state revenues; however, no formal mechaniisml MPTC. exists for joint decisions on tariffs. Competition in the market is relied on to put downward pressure on1 111- In practice, however, some of these requirements may be waived or additional requirements may be added. bile retail prices. In addition, telecommunications companies pay a 20 percent profits tax and a 10 percent value added tax.4 Between 1995 and May 1999 tele- communications companies qualified for tax breaks on The government therefore raises revenue through the imports of capital investment goods. Telecommunica- same organization that is charged with regulating the tions companies do not qualify for the 9 percent prof- sector. A good example of the impact of this is the li- its tax rate that is available to new investors in other in- censing of an operator to run the second international dustries because of the government's belief that this gateway, but then limiting its ability to compete by incentive is unnecessary to attract private sector partic- constraining it to charge the same price as the MPTC. ipation in this sector. Separating the functions of the MPTC into policy, reg- The MPTC also issues regulations on intercon- ulation, and operations would increase the sector's nection charges that apply to all operators that are, in transparency and improve the likelihood of fair com- principle, cost based. However, variations in network ar- petition in the sector. The publication of existing li- chitecture among operators mean that the current comn- censes would also help to increase the transparenicy and mon interconnection charges do not reflect true costs openness of the regulatory regime. for all operators.The MPTC issucd the most recent in- terconnection regulation on February 22,2000. In addi- Licensing tion to the interconnection charges, operators pay Companies offering telecommunications services or US$0.10 per minute as a regulatory fee and US$0.20 per operating networks in Cambodia require a license (box miniiute as a universal service obligation contribution. 5.4). The MPTC is responsible for issuing these li- Although not specified in any law, telecommunica- censes, but there is no wefl-established or transparent tions companies that wish to invest in Cambodia have procedure in place, and the government has recently been required to set up joint ventures with the MPTC. stopped issuing new telecoinuunications licenses for The termis of these agreements are believed to vary an unspecified period. widely. In general the MPTC owns a minority equity Licenses are confidential documents in Cambodia; stake (approximately 15 to 20 percent) and receives a however, in general terms, a telecommunications li- proportion of gross revenues.This share was 51 percent cense would be expected to include the following of gross revenue from incoming calls through the in- provisions: ternational gateway, but is understood to be lower for * Specification of the service to be offered mobile operators. * Term of the license and situations that would lead Under revenue-sharing arrangements operators do to it being revoked not gain the full incremental revenue from gaininag a 41 I Private Solutions for Infrastructure in Cambodia new customier. There are alternative mieasures, such as existing companies is possible, which might free up privatizing the MPTC, that the governmient could take spectrum. that could boost investmient and imiprove performance While it is unclear whether the fiber optic invest- without reducing the level of revenue generated. ments or system upgrades will be of interest to the pri- vate sector, the two areas of the telecommunications Current reform initiatives sector that are likely to be attractive to private sector The World Bank and the PPIAF are currently prepar- investors are the fixed network and wireless local loop ing a programi- of assistance in relation to regulatory re- technology. form of the telecommunications sector. This will in- volve the following key comiponents: Fixed network joint venture or operating contract * Supporting the introduction of fair comipetition The MPTC is broadly in favor of increasing private sec- rules tor involvemient in the operation of the fixed network * Developing an interconnection regime appropriate through a joint venture or a business cooperation con- for a competitive telecommunications market tract.5 Private sector operators would be able to bring * Developing a rate re-balanicing policy and design- both the technical expertise and financial resources re- ing a program to imiplement it in a competitive quired to run the network effectively. While the gov- telecom-munications market. ermient has been involved in negotiations with a local This work was expected to be finished by June company, an agreement has not yet been reached. 2002, although its imiplementation will require re- For the fixed network to benefit fully from private newed commitmient from the governmient to pursue sector involvement, fair and transparent competitive reform- and pass the draft Telecommiunications Bill or bidding needs to be adopted for any form of contract, an amiended version of it. joint venture, or miore intensive approach to PPI. As the potential for competition between fixed ser- Opportunities for private sector participation vice providers is unlikely, competition for the right to operate is a second-best scenario. The alternative is a Table 5.6 shows the government's estimated level of re- semi-i-monopolistic operating contract granted on an quired investments in telecommunications over the exclusive basis under opaque conditions without in- next three years.The government has not allocated any dependent regulatory oversight. This approach is un- budget for these programimed investments nor has it likely to produce efficient operations or lower costs for secured direct support from donors. consumers. The governm-ent is unlikely to issue any new sec- ond generation mobile licenses in the foreseeable fu- Partial or full privatization of the MPTC's ture.The smiall size of the market suggests that new en- operating activities trants into the miobile market would find it difficult to The corporatization and privatization of the MPTC operate profitably; however, somie consolidation among would allow the governmient to earn tax revenue fromi ~Table5S.6 Estimated-investment requirements in telecommunications, 2001-03 (US$ million) Project 2001 2002 2003 Total Governent' External Unfunded Telecommunications networks central provinces I .8 IS .8 I.0 4.6 0 0 4.6 - r1 -.H -TfI Ii T,:, cCH TI 1.4 U.'I' .u I Enhancement of MPTC's training instiute 2.4 1.8 1.2 5.4 0 0 ~5.4 Fie pi cable, Phnom Penh to.Lao PDR bor-der 1.0 2.0 7.0 0 C' 0 Otclfiber links 1.4 2.0 4.7 8.1 0 0 8.1 Fiber optic cable, Phnom Penh to Sihanoukville 2.8 2.0 5.2 10.0 0 0 10.0 ewmi wic n tra-.t3.2 0.0 0.0 3.2 0 32 Rural telecommunications nietwork developent 2.5 0.0 00 25 . 25 Toa 15.8 9.6 19.1 44.5 0 0 4. Souwces: Govemment olf Camnbodia (2001i b): Ministry of PManning (200 1). 42 Telecommunications the profits of the operating company. Privatization 2Box 5.5 Private sector participation in Mauritania would result in increased operating efficiency and new investment that would boost tax earnings. In addition, Beginning in 1999, Mauritania, a country with a GNP per capita nonconfidential license fees could increase transparency, of US$390 and 2 million inhabitants, embarked on a telecommu- reduce uncertainty for new investors in the sector, and nications reform program to improve the performance of its increase investment through improved incentives. poor telecommunications services. Mauritel had about 16,700 fixed line connections and a waiting list of 47,800 connection Currently, there IS some resistance to the prospect lines.The telephone penetration was 0.64 lines per 100 inhabi- of corporatizing and privatizing the MPTC's opera- tants, and at a rate of 1,400 new connections per year, Mauritel tional divisions because the government sees the min- would have required more than 30 years to meet the demand istry as a significant source of revenue. However, the for connection lines. To improve communications services the cost of inefficient and overpriced services is not in- government introduced comprehensive sector reform in cluded in that basic calculation, and neither is the op- 2000-Ol.The reform included issuing two mobile phone li- portunity cost of the potential revenue from a share censes, privatizing the fixed line operator Mauritel, creating a sale. In recognition of the importance of reliable and specialized sectoral regulator, and reforming tariffs. sale. In recogmtion of the lmportance of rehable and After selling two mobile licenses in June 2000, the Mauritan- cost-effective communications services to econonic ian government privatized the fixed line operator Mauritel, also growth and of the revenue to be gained from the sale through competitive and transparent tender. Two bidders led by of fixed service networks, governments are increasingly Maroc Telecom and Portugal Telecom submitted financial offers. turning to the private sector to provide both technical The winning bidder, Maroc Telecom, offered US$48.1 million and management expertise as owners of the fixed line (US$14.4 million share purchase and US$33.7 million capital in- network. Box 5.5 summarizes the recent partial priva- crease) for a 54 percent stake in Mauritel. while Portugal Tele- com proposed US$12 million (US$3.6 million share purchase tization of the fixed linle service in Mauritania, which and US$8.4 million capital increase). has fewer subscribers than the MPTC's fixed line net- The winning bid valued the company at US$96.3 million work and managed to raise more than US$250 million prior to the capital increase and US$130.1 million after the cap- from the sale of a minority shareholding. ital increase, implying a per line value of US$3,012 prior to the There currently appears to be unsatisfied demand capital increase and US$4,065 after the capital increase.The pri- for fixed line services. The n-ietwork is smiall anid rela- vatization package of Mauritel included substantial roll-out obli- gations for the operator, including quadrupling the size of its fixed network in five years and meeting international quality ment during the past few years, and is therefore likely standards as established by the International Telecommunica- to be an attractive purchase for private investors. Before tions Union.The failure to meet these goals will force Mauritel privatization could be completed successfully, the gov- to pay significant penalties. ernienit will need to consider the following issues: The following factors account for the success of the Mauri- * The MPTC's network is likely to be more attractive tanian telecommunications reform experience: to prospective investors if the domestic fixed net- * A comprehensive legal framework with complete separation work is bundled together with the international of operations and policymaking along with independent,trans- gateway. parent regulatory processes * The MPTC's operations could be sold outright or * A competitive market structure with a five-year limit of pro- as a long-term concession. Investors are likely to be tection for international licenses more interested if the company is sold outright. * A pro-competition universal access policy * The license would need to be clarified and made A transparent reform and licensing process public, including fees, interconnection requirements, A clear tariff reform program with re-balancing of rates to be universal service obligations, and other charges. implemented over three years * The regulatory framework should be established * The strong government support for the reform. and clarified, particularly with respect to price con- trols and the interconnection regime. Source:World Bank PPI database. 43 Private Solutions for Infrastructure in Cambodia | Notes 1. While it may be true that moderni tech- 2.Whether the MPTC has the required ex- regard expenditure on fixed network ser- nology allows individuals to move straight to pertise to operate the gateway alone is not vices as a business expense, and therefore pass mobile telephony, thereby eliminating the clear. It is seeking private sector partners. the tax on, but this is not permitted on mo- need to develop fixed line services to the 3. Providing local call services in provincial bile services. same extent, there are important advantages towns may be more expensive because of 5. A form of contract between the state and to fixed line services that suggest Camiibodia the small numbers of subscribers and the a private company that allows the company is currently underprovided. For example, higher costs of maintenance; however, this to undertake business in Cambodia and share lower unit costs anid higher data rates (im- would not account for the large difference in revenue with the state without creating a portant for Internet access) on fixed lines tariffs. separate legal entity. compared with mobile networks mean that 4. The value added tax is not payable on there is likely to be demand for these services postal services, but it is on telecommunllica- in Cambodia that is currently not being met. tions services. Companies are permitted to 44 Transport Sector overview agency, the MPWT. As figure 6.1 shovws, the MPWT's responsibilities cut across the operations, ownership, The development of Cambodia's transport system is an management, and regulation of the entire sector, al- essential element in the economic growth of the coun- though it shares responsibility for air transport and try and improvement in the quality of life of its people. rural roads with other government departments. Without passable roads, reliable rail service, and naviga- The transport sector lacks a unifying regulatory ble waterways, farmers remain isolated from markets, framework. Rather, the sector is covered by some of consumers pay higher prices for delivered goods, work- the laws common to all investment in Cambodia, for ers are hindered in their mobility, and trade is stymied. example, the BOT Subdecree and the Law on Invest- A recent study of rice production, marketing, and dis- ment (see chapter 7), along witlh ad hoc lawvs and de- tribution needs identifies poor transport infrastructure crees passed to create specific entities and institutionis as one of the main hindrances to the movement and within the transport sector.The MPWT mainitains re- exportation of rice (Ministry of Commerce and Min- sponsibility for the following: istry of Agriculture, Forestry, and Fisheries 2001).The * Preparing laws and issuing regulations, directives, tourism industry, one of Cambodia's greatest sources of and standards necessary for improving the perfor- hard currency earnings and employment opportuni- snance of the transport sector ties, can only develop to its full potential with a safe and * Preparing all medium- and long-term plans for efficient aviation sector as well as reliable overland con- transport and public works nections to neighboring countries.1 While the govern- * Planniing, managing, and executing the public ment and several donors have committed significant re- works of provincial departments, including cities sources to Cambodia's transport over the last 10 years, and parastatal organizations, in relation to road, rail, the sector's network elements-roads, rail, and water- and maritimiie transport ways-are still struggling with insufficient mainte- * Providing skills training to MPWT staff nance, degradation from floods, and lack of investment * Maintaining technical cooperation with foreign funds, all in the face of increasing demand. countries, international organizations, and NGOs to promote the development of the transport Institutional, regulatory, and legal framework sector. Although Cambodia does not have a transport master The current legal and regulatory framework for the plan or a coherent strategy for developing services transport sector consists primarily of subdecrees on the amonig coimpetiig and coiiiplenientary nmodes, over- maximum gross weight of vehicles as well as the Traffic sight for the sector is primarily housed in a single Code.The government acknowledges the need to de- 45 I Private Solutions for Infrastructure in Cambodia * Figure 6.1 Structure of the transport sector Phnom Northern National District Provincial Penh and Sihanouk- Phnom D orts and and and airports Siem Reap ville port Penh port southern provincial commune airports lines roads roads Two dry One dry m > ~~~~~~~~~ports port SCA (concessionaire) Sihanouk- Singapore Royal SSCA ville fuel Port Authority Railways of termr linal | JV Cambodia Technical design |MLMUC 7 MPWT | MRD Airports Ports Railways Roads JV = joint venture. MLMUC = Ministry of Land Management, Urbanization, and Construction. SCA = Societe Concessionaire de l'Aeroport. Note: The shaded boxes indicate private sector participation. Source: Government of Cambodia. velop the framework so that it can formulate a com- ment to facilitate cross-border traffic between Cambo- prehensive transport policy and plan to establish prior- dia, Lao PDR, Thailand, and Vietnam. Cambodia has ities for the use of limited funds. also entered into similar bilateral agreements to facili- tate cross-border traffic with the governments of Lao Roads and rail. No specific legislation governs invest- PDR andVietnam (Government of Cambodia 2001b). ments in either the road or rail sectors. However, in practice both the MPWT, the MEF, and the relevant Ports. The port sector has been recently reshaped municipality or governor have the authority to conces- through government decrees (Subdecrees 50 and 51, sion roads and oversee any tolls that result. Royal Rail- 1998) that created the port authorities in Sihanoukville ways of Cambodia (RRC) continues to operate an an- and Phnom Penh. These decrees create governing nual deficit arising from a combination of its tariff boards for the port that report directly to the Minister structure and poor track conditions leading to low de- of Public Works and Transport, and through the minis- mand. As it receives little government support and no ter to the Council of Ministers, on all matters from external funding, RRC is dependent on recovering port operations to tariff policy. costs directly through tariffs that are set by the govern- ment through the Council of Ministers. Aviation. The legal framework governing airways and As a member of ASEAN, Cambodia has acceded to airports is the only one to be partly developed. Carved several agreements on mutual recognition of driving li- out from the Ministry of Defense's Directorate of Civil censes and inspection certificates, on facilitation of Aviation in 1991, the Department of Civil Aviation goods in transit, and on protocols for road vehicles. It is was established through royal decree in 1992. The ad- also a party to the Greater Mekong Subregional Agree- ministration of the code was vested in the Civil Avia- 1 46 Transport tion Authority of the Kingdom of Cambodia. In Janu- modes the responsible authorities oversee, maniage, and ary 1996 the SSCA was formed to report directly to implement their own policies within the confines of the Council of Ministers on regulatory matters within available resources. These arrangements are described the sector. While the functions of the Civil Aviation in more detail in the subsections of this chapter dedi- Authority were passed to the SSCA, there is no under- cated to roads, rail, ports, and airports. lying legislation to provide the SSCA with the author- ity to perform its responsibilities. The SSCA is often Potential role of the private sector ignored when decisions are made that pertain to civil The government has already begun to allow private aviation developments; however, a draft subdecree on sector investment and operations in transport.The de- the organization and general functioning of the SSCA gree of private sector activity and the form of involve- is currently being formulated, and a draft Civil Avia- ment varies across modes, with the railroad remaining tion Code was submitted to the National Assembly for entirely public at one extreme and both major airports approval after approval by the Council of Ministers in concessioned to the private sector at the other extreme. October 2001.2 Despite this nascent involvement of private sector investors and operators, the investmlenit needed to reha- Regulatory requirements. An overview of the sector indi- bilitate, expand, and maintain the nationi's transport net- cates that there is sufficient competition among modes work is a major burden for the government. Accordinig of transport that minimal formal economic regulation to the Ministry of Planning's PIP for 1996-2000, the may be required, at least in the near term, although the target for transport sector allocations totaled more than tolling of roads where competition from rail or water- US$500 million, or 23 percent of all public spending. 3 ways is not possible would require special considera- This is greater than the allocations for healtlh and edu- tion. The other likely exception is aviation, where the cation combined. In terms of the perceived financial private airport concessions, given to one operator, re- requirements for rehabilitation and expansioni, transport quire an independent counterpart able to negotiate represents the single largest sector in the economy. In landing fees and terminal rents that secure the required terms of the actual money disbursed on projects during returns on investment for the operator without hiii- 1996-2000, the PIP states that transport and conmmuni- dering growth and competition in the sector. cations together represented a staggering 51 percent of The small number of agreements with the private public expenditures. sector and the potential for competition among modes Despite the dominance of the transport sector in of surface transport may signify that the creation of an terms of targeted public expenditures and actual public independent regulatory body is not warranted at this spending, public resources are simply insufficient to timiie. However, the future need for toll road mainte- meet the sector's needs.Table 6.1 illustrates the size of nance and rehabilitation concessions, the growing im- the gap between available resources and the needs of portance and complexity of the airport concessions, the sector. and the possibility of agreements for private operations The division of resources sought by the govern- in rail and ports warrant the analysis of the long-term ment reflects the use of the different modes of trans- feasibility of a transport regulatory body. More imme- port. As figure 6.2 shows, road transport carries about diately, however, the government will need to draw up 65 percent of all surface passenger traffic and 70 per- and implement procedures for the rational design and cent of all freight traffic. A further 212,000 passengers bidding of contracts and concessions, the formulas for traveled through domestic airports in 2000, while do- cost recovery, the methodology for determining per- mestic airborne cargo levels totaled about 11,000 tons. formance obligations to be applied to operators of While the government estimates that its investment transport systems, and the mechanisms for oversight. requirements for all transport sectors will total about Much of the tendering procedures will be the same for US$250 million for 2001-03, it is only able to cover less other areas of infrastructure (see chapter 7). than 7 percent of those needs out of its own budget. Although the structure of the sector as a whole ap- While donors have pledged approximately an additional pears relatively centralized, in each of the transport US$210 million, this amount, along with some several 47 Private Solutions for Infrastructure in Cambodia Table 6.1 Estimated investment requirements in transportation, 2001-03 (US$ millions) Mode 2001 2002 2003 Total Government External Unfunded Roads and bridges5 189.4 170.5 167.6 527.5 45.9 i 68.3b 313.3 Roil Rehabilitation of southern line 11.3 24.9 i 7.1 53.4 0 0 53.4 Rehabilitation ofnorthernine 0 8.0 18.0 26.0 0 0 26.0 Thai rail link restoration :,tsr ,ril ,,, | ,;~~~~~~~~~~~~~~~~~~~- 4K. i 11s' :: 1:- Ports and waterways Sihanoukville rehabilitation 15.7 16.9 8.2 40.8 0 40.8 0 New cargo wharf 0.3 1.0 1.0 2.3 0 0 2.3 , , , _ , , , . ,., ., . , , _, , . ................... ............. , ,.,, . ,,. ., .. , , , ,._,, , ...... , ,._, .. .....-... - ........ .... ........ , . ......... . .... . ...... __, 7,p delivery the services that the poorest segments of society re- quire, be it for rural roads, community pay phones, or Source: World Bank. small-scale water or power systems. 76 Cross-Cutting Issues | Notes l The Law on Banking and Financial Insti- pany that owns lanid. However, foreigniers or these banks are closinig. How imianly xwill re- tutions provides the legal basis for banks in companies controlled by foreigners can lease maini is not clear, but the numtiber is likely to Camiibodia, but provides only for the general land for up to 70 years, and the lease may be be between 7 and 15. hcensing and monitoring of financial insti- renewed.There are currently no legal provi- 9. Although a numiiber of other conditiolns tutions. More generally, the legal framework sions for land expropriation for infrastruc- made the efTectivc interest rate highler, for within which the financial sector operates is ture or other projects. example, there was an additional 1.5 percenit given by the 1996 Law on the Organization 5. The CDC charges fees for this process: fee, and interest paymenits had to be made up and Conduct ofthe National Bank of Cam- a submission fee of USS100 for projects of front. bodia, the subsequent Law on Bankinig and US$1 million or less and of US$200 for proj- 10. Other, currently extremely small, mlicro- Finanicial Institutions, and the Law -)n For- ects over USS1 million, and an approval fee finance institutions have expressed an interest eign Exchange. More recently, the National following approval of the application of in lendinig to infrastructure projects. For cx- Assembly adopted the Insurance Law, which US$500 for projects of US$l imiillioni or less ample, Maxima Microfinanlce is interested in will provide the framework for licenising in- and of USS1,000 for projects over S1 nillion, increased lending, but its total lendinlg port- surance companies. 6. The situationi in Cambodia is complicated folio in 2000 wvas USS60,000 anid its average 2. By the beginning of 2001 Cambodia had by the general lack of documents testify- loan size was US$300. It would need a sub- signed bilateral investor protection agree- ing to land ownership, because imiost deeds stantial injectioni of both htinlman anid filnalncial ments wvith China, Germany, Indonesia, the were destroyed when the Khmer Rouge capital to extend lending into infrastructure. Republic of Korea, Malaysia, Singapore, abolished lanid ownership. Although historic 1 1. Conisider a traditional releconsnsiiuniica- Switzerland, and Thailand. rights are being restored, this is a slow tions cross-subsidy finaniced, in the presence 3.This has been modified through a number process. of monopoly, by raising the per minute price of subdecrees: Number 88 on the Imple- 7. A translation ofthe full article reads as fol- of off-peak long distance calls. Suppose the mentation of the Law on Investment of the lows: "Legal private ownership shall be pro- marginial cost of an extra minute is essen- Kingdom ofCambodia,December 29, 1997; tected by law. The right to confiscate prop- tially zero, bLIt that in the absence of the Number 48on the Amendment of the Sub- erties from any person shall be exercised cross-subsidy the company would set the decree on the Organization and Function- only in the public interest as provided for off-peak per minutjte price at USS0.25, thus ingofthe CDC,May 21,1999;and Number under the law and shall require fair and just using the variable charge to cover somiie of 53 on the Amendment of the Subdecree on1 compensation in advanice" (Cambodian the comiipaniy's fixed costs. Now consider aii the Implemenitation of the Law on Invest- Constitution, Article 44). increase in the price to US$0.50 to provide ment of the Kingdom of Cambodia. June 8. As of November 2000, there were 19 lo- re'enue for subsidies. If the price elasticity of 11, 1999. cally incorporated baniks: however, following demand for off-peak calls is 1, the allocative 4. Foreigners cannot own land, and therefore requirements to increase their capital bases efficiency cost x'ill be 75 pcrcent of the rev- cannot own more thani 49 percent of a com- in order to retain their licenises, a number of enue raised. 77 References I References ADB (Asian Development Banik). 1997. Sec- Paper prepared for the Public-Private In- National Bank of Cambodia. 2000. Economic ond Water Utilities Data Book:Asian and Pa- frastructure Advisory Facility, World and Monetary Statistics. Phnom Penh. cifc Region. Manila. Bank,Washington, D.C. Overseas Cambodian Investment Corpora- Center for Social Developmenit. 1998. Na- Gaviria, Juan. 1998. "Port Privatization and tion. 2000. Investment Guidelines. Phnom tional Survey of PublicAttitudes towards Cor- Competition in Colombia." Viewpoint Penih. ruption. Phnom Penh. 167: World Bank,Washington, D.C. PPWSA (Phnom Penh Water Supply Au- CIA (Central Intelligence Agency). 2000. Government of Cambodia. 2001a. Cover- thority). 1998. Annual Report. Phnom CIA Factbook 2000. Washington, D.C. nance Action Plan. Phnom Penh. Penh. .2002. CIA The World Factbook 2001. . 2001b. "Second Five-Year Socio- Serra, Pablo. 2000. "Subsidies in Chilean EDC (Electricite de Cambodge). 1999. Cam- economic Development Plan, 2001-05." Public Utilities." Working paper. Univer- bodia Power Sector Strategy, 1999-2016. Second draft. Phnom Penh. sity of Chile. Santiago, Chile. Phnom Penh. ITU (International Telecommunications Thompson, Louis. 2001."Railways in Eastern Enterprise Development Cambodia. 2001. Union). 2001.17TU Yearbook 2000. Geneva. Europe." Paper presented at the 120th "Rural Electrification Survey." Phnom Jadresic, Alejandro. 2000. "Promoting Private Roundtable of the European Conference Penh. Investment in Rural Electrification:The of Ministers of Transport. Cambridge, Estache,Antonio,Manuel Romero,andJohn Case of Chile." Viewpoinit 2(4) World U.K., Sept. 12-13,2001. Strong. 2000. The Long and Winding Patlh Bank.Washington, D.C. Wellenius, Bjorn. 1997."Extending Telecom- to Private Financing and Regulation of Toll Ministry of Commn1erce. 2000. Business and munications Service to Rural Areas- Roads. Washington, D.C.: World Bank. Investment Handbook. Phnom Penh. The Chilean Experience: Awarding Sub- Foster, Vivien, Andres Gomez-Lobo, and Ministry ofCommerce and Ministry ofAgri- sidies through Competitive Bidding." Jonanthan Halpern. 2000."Designing Di- culture, Forestry, and Fisheries. 2001. Viewpoint 105. World Bank. Washington, rect Subsidies for Water and Sanitation "Master Plan Study for Improvement D.C. Services-Panama, a Case Study." Policy of the Marketing System and Posthar- World Bank. 1999."Cambodia: Power Sector Working Paper.World Bank,Washington, vest Quality Control of Rice." I'hnom Strategy." Report 19382-KH. Washing- D.C. Penh. ton, D.C. Garn, Mike, Jonathan Isham, and Satu Ministry of Planning. 2001. "Public Invest- . 2000. World Development Indicators Kahk6nen. 2000."ShouldWe Bet on Pri- ment Program, 2001-03." Phinoimi Pernh. 2000. Washinlgton, D.C. vate or Public Water Utilities in Cambo- Ministry of Rural Development. 2000. Sec- . 2001. World Development Report dia? Evidence on Incentives and Perfor- ond Five-Year Socio-Economic Devel- 2000/2001:Attacking Poverty. New York: mance from Seven Provincial Towns." opment Plan, 2001-2005. Phnom Penh. Oxford University Press. 78 Appendixes T H4~ A I L A N D O 106° JLAO PEOPLE'S CAMBODIA 10'THAILAND10 sN OTDAR ~~~~~~~~~~~~~~~~~~~EM. REP.PO E OeTDAR MEAN" X CY PPI OPPORTUNITIES AND 0,Chhhncr OScnronp. , 5 \. _ /S PRIVATE INVOLVEMENT -1 A' ~ ~ .,./ JPREAH 1 VPOTENTIAL PPI OPPORTUNITIES FOR _14L~~,- BAR.A % VHA .- . > 14°- V STNDALONE SYSTEMS OR DISTRI- BANTEAY"> * vmi~~a~ ~*..J .1 HE* BLUTION PRIVATIZATIONS , V(MEANCI-IEY y EiJ . Phnom Thbeng@ r i .; <) EDC PPI OPPORTUNITIES IN OWNERSHIP ~ ~EAANCHEY ~~~~P6oe Then MENT,OPEAIO ND MANAE-SI Poipet V 7 SIEM REAP Mecnchey RATANAKIRI \ POTENTIAL TRANSMISSION LINE 0~~~~ oiP.t -7 SIEM RF-AP ~~~~~~~~~~~~~~~~~~~~~~~~~ROUTES 51 I ~~~~~~~~~~~~~~~LopaRICITY ENTERPRISES IN PROVINCE' e~~~~~~~~~~~Ra eS>Trn 'mL n p h | NUMBER OP CENSED NRURAoLELECT- v 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SELECTED CITIES eSie. R..P &~*'.~ PROVINCE CAPITALS I ~~~~~RIVERS tlsmbong b PROVINCE BOUNDARIES t BATIAMB+A;,G :J t f KOMPONG THM * S , _ INTERNATIONAL BOUNDARIES Koni pong *~~~~~~~~~~~~~~~~~~~~~~~~~SOURCE- S-we, of REE'. Eeftpdse 0or Ib. | ' (~~~~ \ iJgs lsmmpDng fr ( X Ri ~~~~~~~~~~~MONDULIKIRI > -||7oURL-5s7w ri ),>N_ Tho3J 7 n~\ sKo S0-1,.... ...d.. 200 1 'N ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~This .nop -a prosdced by the Porsotoj ...~~~~~~~~~~~~~~~~~~~~ / ~~~~mop D-sign unit of The Word Book. .C *0<- -tT. ..doie,colors,deoonsinoli- (D> CO ..~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~trle *.., OO0000 ~od nnyothierilo -a,ntioo shown-o PURSAT ,, 0T~~~~~~~~~~~~~~~~~~~~~~ ~~~~ ~~~~ ) ~~~~this .op do not i.oply, -n the port of 11 | i-4- ** p,*lf * # J t. ,_- The World Book Groop,ny jydgoden-t K." 6-\0 e th. +> O P Nii H M 2 * i1 ontheBIeg1stotsof ony territory, or KO MPONG ~KOM PONG ClyMo ) endo -s -e t or occept -oc of = - ~~0 ~~6' ''99 w~~~s2 CHHNANG t ; pong Chom .. i6o _ 1,_-* I i do- d01o iKrcngKch Ko hey inC .m - Kong KOMPN 3EU o s PENH .\r.1)(,-g C ~ KOH KONG 2 *- * , '. VIETNAM LAO- -N~~~~~~~~- k-~ ~ ~ ~ ~~~~~- 6 50?RLE'. ~~~ih.7-60* 104' .05; *11 THAIAND106'LO EPL' CAMBODIA T H A I L A N D v (r E.RP ODI WATER BonteOC DR N CHEX' : .s PPI OPPORTUNITIES AND t'Xhh- MEA > / CURRENT INVOLVEMENT -14' ~ e__ / JPEH * POTENTIAL PPI (APPROXIMATE 44000 VIHEAR r . ( 14' NUMBER OF HOUSEHOLDS) ~- ME1NHE SIE REA NUMBER F HOUSEHOLDS) gozpO;pt $ 9 SIEM REAP *, Phnoa ThIsenge ) J RATANAt; ! ( * _ n 9 -^ *_ j 3s' , - c RIVERS ,- ~ -e - 9 X i ; Kompong X ) t ( 2 \ M O N D ULKIRI 9 - t l U bsPRO VINCE BO UNDARIES Bo _.---PurIs, - - INTERNATIONAL BOUNDARIES BATTAMBA ' KOM G T GM *SOURCE: Mike G-, J1-nId,en J- ho. Son., c Krhkf -X -'repoeg "> Ss, CHHNANbet ompongCho m - .o b - o ps ..p.bfi e iili.i in .- *Kong KRATIE ** MONMPOKNRG SPEUbodie, P PENH d ,' JA n e. - 2000. *L~~~~~29J ThOeS@ ~~~~~~~~~~~~~~~~~ ThTI is op -o prod-ud by the - K i KOH MopN Deign Unit of Th. World Bank. Psrsottgt *> S or-'--- -_____i X $ ~ < >1Lr}; OD 11% ~~~~~~~~~~~~~~'t 0Sen-ntonret ) and any other information show on ~~~ 4000 / . ~~~~~~~~~~~~~~~~~ ,) ~~~~~this mop do not im,ply, on the port of C e~~~~~~~~~01 . The World Bank Grop, onty jodgment 0. PURESAT \o Jn the Ingot Mo | of any ter,itory, [; M hh .. any endos t or ocptnce of CHNNANG . or~~NpongCHAM s.ch bo00d 15- ___ ~ ~~KOMPONGSEU6600H PEH> \ CHHNANeG . o'pn Ch.5- 15 o KOH KONG ' Spin, " 0 nyang VIETNAM - . ?PRE~~ VEN ~~o OT.k-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~in .ts,OL Thai/a S ~ ~ ~~~~~~~AMO STAKEO.~ ,. 0 SOOLO)METERS 12000Jl 1tot oio.k,LI ,~~~~ UI '"*5 to -.~~~~~~~~~~~~~~~~~~~~~ 104 L 10 ,-LAO PEOPLE'S CAMBODIA T HA IL A ND .n DEM. REP. I*' ,/(;' Bnc[AE CEY r I< ,r ,,r .TELECOM EaIeT A~' PPI OPPORTUNITIES AND 0han EAN , CURRENT INVOLVEMENT VIHEAR . 1 1POTENTIAL PSP IN FIXED NETWORK ME~~NC~~E~ * SIEM REAP PI,nosn Thbeng ~ ~ ~ ~ ~ ~ ~ TA NA K/RI -, V ~~~(INTERNATIONAL GATEWAY) (MBA?NTEAY MeSIEMREAP az PhncnThoey-X $ isf v @TANIPh ,MOBITEL (EXISTING COVERAGE AREA) N IE RA CAM,BODIAN SHINAWATRA (EXISTING ~~rSaphan ~~~(i~~t '.~~~I ..~~. * SA~~~Loa,phnt ~~~~-~~" COVERAGE AREA) ,mp on t) * . (iem Reop ' --- 0 ./ i r = 1 X {'Lon,phot (3) Jk ( t} } 0 \ ~ ' tS-J'- PROVINCE CAPITALS .1,,, ~~~~~~~~ ....*J / * ~~~~~~~~~~~NATIONAL CAPITAL Batt-bon I * I - -( RIVERS BATMA:JQ I ~ ~ .----PROVINCE BOUNDARIES j ATTAM BA 5. - - MONDULKKO M O INTERNATIONAL BOUNDARIESn P soMO~~Kn,MNDLKR ti, S.- ,) ond nyot PURSAT K -Ch--*t* e legal itausoacnyteritary,o r X ( S KOMPONG ~~~~~~~~~~~~~~~~~~~ an~~.y enoremn or cceptanc aof .JiN 8~>\ ,.J KCHHNANGs6ffi> > - .<0K 12° such boundaries KOMPONG SPEU ' HN PENH NH KKONG y U Ve .VIETNAM - LAO j 8N -NG KAMPOT M ) T CAMBODI 05,ba a Ir~~~~~~~~~~~~~~~~~~~~1fE K0ns~~~~~~~~~~~~~~~~~\ .*~~~G'a 105' 110' 104' 106' ,LAO PEOPLE'S To S.,n T H I L N D DM. REP rN.jCAMBODIA ToSonn THAILAND ~~~~~TRANSPORT -'h "- '- PPI OPPORTUNITIES AND ,- .%-J-n. . '-5 / ~~~~CURRENT INVOLVEMENT 14n ,J ~~~~~~~~~~~~~ ." { ~~~~~~~~PREAH ) C 4 AIRPORTS WITH POTENTIAL FOR PPI '~~~~~~~~~~~~~~~~~~~~0 * ~~~~~~~~~~~~~~~~~PIORTS WITH POTENTIAL FOR PPI To &sngkok f -J, /EAR ROADS WITH POTENTIAL FOR PPI oi m SIEM REAP Ino, T T.~~~~~~~~~~~~~~~~~~~ Tn~i N%gn RAILROADS WITH POTENTIAL FOR PPI N'¶Oipel M NC/IEY 5 S/EM 4.. ~~~~~~~~M-cAIRPORTS WITH PFI Si ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~* PORTS WITH FF1 Si~~~~~~~~~~~~~o~~~~~~~~ on ~ ~ ~ ~ ~ ~ ~ S. ..ht-ROAD WITH FF1 / Lonsphot o~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AIR TRAFFIC CONTROL WITH PPI ~~~..... *..' .-.. Siom Reap * 0 SELECTED CITIES~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0 ELCTD ITE e PROVINCE CAPITALS I _ NATIONAL CAPITAL B.It..bdn - ~~~~~~~~~~~5 *~*ROADS BATTAMBA kS ---- RAILROADS BATTAMBA -. ~~~~~~~~~~~~~~~KOM N THM.MONDULKIKRI L--PROVINCE BOUNDARIES ---INTERNlATIONAL BOUNDARIES> parsTh..o I This nsop -'s prodced by the -- ) . ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Mop Desiqn U.it of The World Bork. OD PUS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~Krotie emooo The boundories, colors denosni-oi-n (D> adonyother no-mti-n showno / ~~~~~~~~~~ t *./ ~~~~~~~~~~~~~~~~~~~~~thinrop do not insp/y, on the port of PLJRSAT * KChhno n*' ~~~~~~~~~~~~~~~~~~~~~~The World Bork Groop, any judg.esnl.. KO -~~~~~~~~~~~~~~~~~~~~~~oY endorsemen or acceptonce of IG -1,~~~~~~~~~~~~~~~~~~~~~~~~~~~sc bo-dries, 10' 105' I IT K,org Koh T. H. M ~~~~~~~~~~~~~~~~~~~~~~~~~ .r~'.*"-'CHINA Kong N~~~~~~~~~~~~~~~~- ) P.D.- -./THAILAND ' - K4m r~~~~~~~~~~~~~~~~~~~~~~~~~~~I 'aLr I ~~ 0 25 50IALES~~~~~TiT~~''i~~ V - - -09 @1THE WORLD MANX ON 0FRA$TRUCTURE UbSo 1X____ FX3BmO@or M'RoSTUM MU H $ oA WIH mm0 E dward A. Sudwcke o8o03 is WVASHINGTON DC MC C3-,30115 7 9 '780821 350768"