Cambodia’s surge coincides with developing energy industry

via Khmer NZ

Posted on 08/31/10

by Jason Wulterkens

Leopard Capital founder and CEO Douglas Clayton’s latest investment commentary and newsletter opines on what the future holds for foreign direct investment into Cambodia:

“There are some hopeful signs for future FDI, mainly from Asia. New foreign business registrations surged 42% in 1H10, led by investors from China, Vietnam and Korea. Vietnam officials said their businesses intend to invest $1.3 billion in Cambodia over the next two years in seven industries, including oil, power, mining, and rubber. China’s cumulative investments in Cambodia have now reportedly reached $8 billion, making it by far the largest investor. China has been the dominant infrastructure banker and contractor here, like in most frontier economies, and recent news suggests no change to that policy. China has just agreed to finance and construct the $26 million first phase of Phnom Penh’s second river port, which will triple the port’s capacity. China’s Ex-Im Bank will also finance Huadian Power’s US$412mn, 338-MW hydropower project in Koh Kong province, which when completed in 2014 will nearly double Cambodia’s current generation capacity.”

Per this latter point, electricty prices in Cambodia (the average price of electricity in Cambodia is approximately $0.16 per kilowatt/hour and as high as $0.90 per kilowatt-hour in remote rural areas) remain the highest in the ASEAN region. Moreover, the Koh Kong project is one of fourteen similar plans associated with the government’s efforts (all being developed by Chinese firms) to triple the country’s energy output from around 808 megawatts in 2009 to nearly 4,000 megawatts by 2020 (equal to estimated consumption) and supply 70 percent of the population with electricity. That said, however, because hydropower can only be used at full capacity for the duration of Cambodia’s rainy season, and can only be run at one-third capacity the remainder of the year, private funds are also being channeled to the development of coal-fired power plants (per analysts, Cambodia features extensive hydropower resources and poentially large coal and natural gas deposits which have yet to be fully developed).

A relatively mature energy industry is a fundamental catalyst to ensuring an ensuing flow of foreign capital and investment, not to mention its role in helping the government provide services to rural communities. According to the ‘Energy Outlook for Asia and the Pacific’ report released in November 2009 by the Asian Development Bank (ADB) and Asia-Pacific Economic Cooperation (APEC), Cambodia’s primary energy demand – driven primarily by the increasing demand for electricity – is expected to grow at 3.7 per cent per year from 2005 to 2030, outpacing the regional average of 2.4 per cent. In March, the government noted that Cambodia had spent $59m USD on electricity imports from Thailand and Vietnam in 2009. By 2017, however, it says it hopes to be a net-exporter.