Cambodia’s Hydroelectric Question: China Power and the Environment

Cambodia’s Hydroelectric Question: China Power and the Environment

By Sim Vireak, July 30, 2014 (as appeared on The Diplomat online magazine, link)

Discussion about hydroelectric power plants in Cambodia tends to focus on two aspects, both negative. One is an overdependence on Chinese investment, and the other is a relatively disproportionate focus on the environmental impacts of hydroelectric power.

Chinese Influence

Most hydroelectric power plants in Cambodia are associated in some way with China. According to the Ministry of Mines and Energy, Chinese companies have invested more than $1.6 billion in the construction of six dams with a total supply of 928 megawatts. Although the data might suggest the theory that Cambodia is giving preference to China in this particular field, one should also consider why other countries don’t, or don’t want to, invest.

Japan, which is Cambodia’s biggest donor, has not been involved in large scale hydroelectric power plants since it resumed Official Development Assistance (ODA) to Cambodia in 1992. Why?

The Narmada Dam project in India and the Koto Panjang Dam project in Indonesia are instructive. These were bitter experiences for the Japanese government, prompting it to avoid projects that tend to spark conflict among environmental groups and authorities, and that eventually may damage Japan’s ODA brand.

The developed countries of the OECD provided approximately $200 million from 2000 to 2012 to Cambodia’s energy sector. Indeed, they have the option to get involved in large-scale hydroelectric power plant projects through loan provisions, but records show that countries like Japan, Germany, Australia, and France chose to handle less sensitive projects such as electricity transmission and distribution systems. For instance, the latest loan from Japan signed in June this year was for approximately $65 million to help expand Phnom Penh’s transmission and distribution system.

This argument suggests that no matter how environmentally conscious and technologically advanced the country is, you still cannot build a hydroelectric power plant without an environmental impact. In this light, the right question should be: if China does not do it, then who will do it for Cambodia?

Focus on Environmental Impacts

The total electricity supply in 2013 was 4,297 million kilowatts-hours (kWh), with imports from Vietnam and Thailand accounting for more than 60 percent. Electricity prices in Cambodia are among the most expensive in the region due to a shortage of integrated high-voltage transmission systems and the high cost of imported diesel fuel, which accounts for more than 90 percent of domestic power generation.

According to an investment cost comparison conducted by the Japan External Trade Organization (JETRO), the cost of electricity in Phnom Penh is approximately 18 cents, exceptionally high compared to 10 cents in Bangkok, 9 cents in Hanoi and Ho Chi Minh, 12 cents in Yangoon and 5 cents in Vientiane.

Many Japanese companies locate their factories in Special Economic Zones (SEZ). According to a survey conducted by a large Japanese bank, the cost of electricity in Phnom Penh’s SEZ is around 20 cents per kilowatt hour. Electricity in the SEZ of Bavet City, Svay Rieng Province bordering with Vietnam is cheaper – around 15 cents – but the supply is unstable with more than 20 blackouts a day. At Sihanoukville’s SEZ, the price is 24 cents.

To many investors, electricity costs and a stable supply are among the major bottlenecks hindering investment in Cambodia, especially in electricity-hungry manufacturing companies, which can offer jobs and skills.

Mindful that the private sector is playing a vital role in economic development and job creation, the Cambodian government is naturally endeavoring to increase domestic power supply capacity and to secure self-sufficiency. This is important not only for attracting investment, but also for national security. Simply put, relying on neighboring countries for more than 60 percent of its supply of energy is not a secure energy strategy.

So among its various options, and considering the current status of Cambodia’s economy, hydroelectricity is seen as a favorable option for its cost effectiveness and zero carbon footprint. Besides power generation, if appropriately designed, a hydroelectric dam can also regulate the water supply, helping to control floods and facilitating irrigation.

Other renewable energies such as biofuels, wind, and solar could also be an option for small-scale generation, but unstable output and high cost, and associated high prices, are making these alternatives less attractive for both household consumers and industry. Some advanced economies have been trying to introduce these alternative energies, but successes have been modest despite enormous investments.

As such, although environmental considerations are definitely required, public discussions should also balance the merits of hydroelectric power in the context of the country’s overall economy and development. Specifically, besides an environmental analysis, a proper study should also be conducted to show the economic effects of a hydroelectric power plant; such as the number of households supplied, the reduction in consumer prices, the money saved, the number of companies the power plant attracts, the jobs created by those companies, the income those jobs create and the number of dependents on those incomes.

From the above argument, if economic benefits and national security are included in the discussion, it should be fair to conclude that at the current stage of development, hydroelectric power is more a “need” than a “want” for Cambodia.