The Sihanoukville Port Authority claims the government has asked the port to pay much higher interest than the 1 percent rate called for by the $39-million Japanese loan for port rehabilitation.
“The interest rate imposed by the Ministry of Finance has been hiked,” said Lou Kim Chhun, Sihanoukville Port director. “If the interest is too high, the port cannot make any profit.”
He said that last month’s 30-year loan agreement between the government and the Japanese calls for 1 percent annual interest with a 10-year grace period. But the government wants to hike the interest rate by several percentage points upon transferring the money to the port authority, he charged. He refused to reveal the amount of the proposed interest rate.
Officials of the Ministry of Finance denied the accusation, saying the interest rate has not been determined yet and it will not be unjustly higher.
“When we re-loan money to financially autonomous entities, we always ask for a little higher interest rate,” said a ministry official, who asked not to be named.
He explained money transactions between the government and money lenders such as the World Bank and donor countries are made in hard currencies, such as dollars, euro or yen. But internal transactions between the government and the autonomous entities are made in riel. The government needs to set higher interest rates to manage risks on inflation and the depreciation of the riel, he added.
“The government does not make any profit from this practice,” said the financial official, adding that a 5 to 6 percent interest rate is usually asked for loans to the Water Supply Authority and other autonomous public entities.
The loan will fund the majority of the port’s first major renovation since its opening in 1960. The project includes expanding the port’s main pier and adding a new container terminal. An extended feasibility study will be done next year and actual work is scheduled to be done from 2001 through 2003.
According to the Asian Development Bank, imposing higher interest rates on bank loans to semi-autonomous institutions is a common practice in other countries.
“Based on an international financial principle, any company or semi-autonomous institution has to be financially liable and therefore should share risks,” country representative Someth Suos explained.
Japanese Consulate Eiji Yamamoto said such a practice on risk management is understandable. He was not familiar with Cambodia’s internal practice on loans.
Japan conducted a pre-development study on the project in early 1997 and was asked to grant money for it, but it pulled out of the project after the factional fighting erupted in July of that year. When the port authority asked for money again early this year, Japan agreed to provide a loan.
