Government Seeks Funds to Revamp Problematic Energy Sector

Government officials took steps to promote investment in the country’s woeful energy sector this week, but large obstacles remain before larger energy projects become a reality.

Ith Praing, secretary of state at the Ministry of Industry, Mines and Energy, who is attending a three-day meeting of Asean Energy Ministers in Manila that began Tuesday, said on Monday that the government is seeking funds from Asean countries to help link Cambodia with a regional power grid.

“Before large-scale investment on power plants or hydroelectric power plants are to take place here, we need to connect domestic grids to other countries in the region,” Ith Praing said.

But he welcomed investors to put their money in large power plants, with a capacity of about 300 megawatts, after those links are complete. Phnom Penh now requires about 100 megawatts of electricity, which is produced from various sources and distributed through the state-owned Electricite du Cambodge.

“If we keep building small power plants…the price of energy will always be high,” Ith Praing said.

Potential investors often cite the country’s high electricity rates, which are more than double those of Thailand and Viet-nam, as a deterrent from spending their money here.

The recently published “An Investment Guide to Cambodia” says “the government recognizes that the high cost, unreliability and limited availability of electricity together constitute a major hindrance to the private sector and to rural development.”

Ith Praing estimated that Cambodia would need to spend more than $2 billion between now and 2020 to have a fully functioning national power grid. “We need financial assistance from Asean nations,” he said.

In a different approach to solving the country’s energy deficiencies, officials from the Cogen 3 program, an economic cooperation stemming from an agreement between the European Commission and Asean, met in Phnom Penh to discuss how to obtain financing for a proposed $3 million, 1.5 megawatt cogeneration power plant.

The plant, to be installed just outside of Phnom Penh on the grounds of Angkor Kasekam Roongroeung, the country’s largest rice exporter, would burn rice husks to produce steam that a power plant could convert into electricity. The result would mean cheaper, environmentally friendly energy.

In a cogeneration power plant, two forms of energy, such as natural gas, thermal power or agricultural waste, work in conjunction to efficiently produce energy. For instance, a cogeneration po-wer plant could burn rice husks and fuel a gas turbine to produce steam to power a second turbine.

Though the project has been in the works for more than six months, financing is yet to be secured. Because the banking system here is still young, major energy projects have been funded by international assistance rather than the domestic banking market, said Phan Ho, director of supervision and microfinance department at the National Bank of Cambodia.

“Regarding financing, operations made by commercial banks are still very basic and now the banking system cannot grant sophisticated loans,” he said  Tuesday. “Commercial banks are very reluctant to lend on a medium or a long term.”

Jacco Minnaar, a bank training consultant at the Mekong Private Sector Development Facility, a World Bank initiative, said that banking policies favor short-term lending.

No banks will lend for longer than three years, all require im-movable property as collateral and they prefer to lend to individuals rather than companies, Minnaar said.

“Medium and long-term lending to small and medium enterprises in Cambodia is exceptionally limited,” Minnaar said. “Dem-and for such loans, is, none-theless, substantial and unsatisfied.”

 

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