Are Dodgy Business Practices Holding Cambodia Back?

As problems surfaced recently about Pheapimex’s exclusive contract to sell salt in Kam­pot pro­vince, some economists and government officials have questioned whether grant­ing no-bid contracts to already powerful companies will benefit the country over the long term.

“Granting these contracts…I do not agree with it anymore,” said Ping Sivlay, deputy director of the technical department of industry, under the Ministry of Planning.

When the government speed­ily awards deals to a privileged few companies, he said “it does not improve the quality of service or enhance a free market.”

A contract granted to Sokimex to manage ticket sales at Angkor Wat, the country’s top tourist attraction, also has been criticized in recent months.

Ping Sivlay helped broker the exclusive 99-year deal earlier this year that handed salt sales in the Kam­pot province over to Phea­pi­mex, one of the country’s most influential companies that has been criticized by an environmental watchdog for its logging practices. Under the deal, producers now must sell their salt at a fixed price to Pheapimex, instead of to government managers.

In theory, governments contract out work like this to reduce operating costs and foster new growth through enhanced competition—especially in economies like Cambodia, where greater control once rested with the state.

Yet when no-bid contracts are turned over to a limited pool of companies, “the same powerful people will continue to be powerful,” said a Western economist based in Phnom Penh.

“If it’s done in a different manner and transferred to independent, competitive, small companies, it could help create that layer of the economy that Cam­bodia doesn’t have,” said the economist, who asked not to be named.

In the Pheapimex salt case for instance, the government’s mon­o­­poly on salt sales merely was replaced by a private monopoly, said Dora Panagides, country representative for Helen Keller Inter­­national, which along with Uni­cef pushed for change in the salt industry.

She said the two NGOs hoped that Pheapimex not only would take over government salt sales but would iodize and sell it to Cam­bodians, who studies show lack iodine in their diet. But Ing Ly Seang, a Pheapimex deputy director, recently said that while the company is iodizing the salt, it intends to hawk some of it abroad if it can secure a better price than in Cambodia.

“This just goes to show what happens when you break the rules…and make a deal without some assurances first,” said a government economist who asked not to be named.

In a second example of exclusive contracts, ticket sales at Ang­kor Wat were turned over in April to fuel giant Sokimex, also the government’s official supplier of gasoline. Under the five-year contract, just 15 percent of the company’s profits will go back to the Min­istry of Tourism the first year. The amount increases in subsequent years. The deal, which brought criticism from opposition party leaders, went through while the min­i­ster of Tourism was out of the country.

“This is the heritage, the culture, of Cambodia—not to mention a money maker for the government. Should we give it away to a private company?” Tourism Min­ister Veng Sereyvuth said recently.

The influential Sokimex company, led by Phnom Penh Cham­ber of Commerce president Sok Kung, also recently secured two government contracts to build new prisons in exchange for land. One of the parcels, located in central Phnom Penh just off Noro­dom Boulevard, is worth roughly $3 million.

Contracting out its work to private companies “is a priority in the government,” said Kaing Leang Kahn, director of state property, under the Ministry of Finance. “But sometimes it only benefits the few.”

Soy Sokha, an adviser to Mini­ster of Cabinet Sok An—who also played a role in the Angkor Wat ticket deal—refuted this allegation. “For an official to make a decision like that, he has to go through many steps, many checks,” he said.

Government and CPP spokes­man Khieu Kanharith agreed and stressed that the decisions to grant contracts are reviewed by a number of officials in diverse ministries.

But in a recent report, the World Bank warned that “in institutionally weak transition econ­o­mies” like Cambodia, “speedy, insider-oriented” government deals will not “lead to the restructuring required to allow firms to survive and thrive in competitive market operations.”

In other words, contracts should be granted under the watchful eyes of auditors and regulators, not as one grand power shift, said Suos Someth, the Asian Development Bank representative here.

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