CAMBODIA'S RACE FOR HYDROPOWER CONTINUES

UNCLAS SECTION 01 OF 04 PHNOM PENH 001003 SENSITIVE SIPDIS STATE FOR EAP/MLS, EEB/CIP/BA, EEB/ESC/IEC, AND INR STATE FOR OES/PCI/ACOVINGTON AND OES/ENV/ASALZBERG STATE PLEASE PASS TO USAID/EGAT/TMILLER STATE PLEASE PASS TO USAID/EGAT/ESP/MPC/LJOHNSTON BANGKOK FOR REO/HHOWARD BANGKOK FOR USAID/RDMA/JPASCH BANGKOK FOR FAS/MEYER VIENTIANE FOR JARCHIBALD HANOI FOR AHERRUP RANGOON FOR SYODER BEIJING FOR CGREEN E.O. 12958: N/A TAGS: SENV EAGR ENRG EAID EIND VM LA CH CB SUBJECT: CAMBODIA'S RACE FOR HYDROPOWER CONTINUES REF: 07 PHNOM PENH 1189 SENSITIVE BUT UNCLASSIFIED ¶1. (SBU) SUMMARY. The Royal Government of Cambodia (RGC) continues to pursue its hydropower potential with 22 ongoing and proposed projects. With primarily Chinese support, the RGC hopes to generate enough electricity to meet domestic needs and eventually profit from energy exportation. Donors have sought to support the Cambodians in prioritizing their hydropower plans and investigating alternative energy solutions, but their slower engagement has fallen behind the RGC's ambitions. ¶2. (SBU) Prompted by some of the highest electricity prices in Asia, Cambodia wants to lower costs in order to compete to be the battery of Southeast Asia. While electricity rates will drop, the proposed dams' construction and maintenance contracts will funnel near and mid-term profits to foreign construction companies. And, at risk is one of the world's largest fishery basins - the rivers being dammed are major migration paths for the fish that supply 80% of the animal protein in the diet of the Cambodian population. ¶3. (SBU) Communication issues between the various levels of government, ministries, and communities are hindering the development of a cohesive national energy policy. The Ministry of Environment is taking steps to improve the environmental impact assessment process, but it has not been able to ensure a thorough review of ongoing projects. END SUMMARY. AT LEAST 22 DAMS IN THE PIPELINE -------------- ¶4. (U) As of September 2008, the Ministry of Industry, Mines and Energy (MIME) has prioritized the following nine projects, with another 13 in the pipeline. The total list of 22 dams (forwarded to EAP/MLS) includes two proposed main-stem dams on the Mekong, 13 dams along various Mekong tributaries, and a group of dams in the Southwest and West. The list includes estimated completion dates for each of the dams, but estimated construction start dates are not yet available as they depend on feasibility study and contract negotiation completion. The Sambor dam feasibility study, for example, is due in mid-2009. Dams under construction: Name Capacity Est. Completion -------------- -------------- -------------- - Kamchay 193 MW 2010 - Kirirom III 18 MW 2010 - Lower Rusey 338 MW 2013 Chhrum Dams under feasibility study and negotiation: Name Capacity Est. Completion -------------- -------------- -------------- - Atay 120 MW 2012 - Tatay 246 MW 2015 - Lower Sesan II/ 420 MW 2016 Lower Srepok II - Lower Sesan I 90 MW 2015 - Chay Areng 108 MW 2017 - Sambor 2600 MW 2019 - Total 4133 MW ¶5. (SBU) The additional 13 proposed dams, which are not yet scheduled for feasibility studies, represent at least another 3000 MW capacity. Tun Lean, Director General of the Department of Energy at MIME, told Econoff that he expected all 22 projects to move forward. Cambodia's current energy costs and demand are too high for the government not to pursue hydropower, he stressed, echoing similar comments by officials from the central government down to the district level. Ith Praing, Secretary of State at MIME, acknowledged however that hydropower cannot be a year-round energy source due to the large variance in water levels between the rainy and dry seasons. MIME is therefore also planning the construction of a series of at least nine new coal power plants, using Indonesian PHNOM PENH 00001003 002 OF 004 coal, to compensate for reduced hydropower productivity in the dry season. CHINESE INVESTMENT INCREASES -------------- ¶6. (SBU) Cambodia's hydropower ambitions are not new, but China's substantial foreign aid in the form of grants and soft loans has driven much of the recent progress. Chinese construction firms are managing six of the nine priority projects. Some of them, such as the Kamchay Dam in Bokor National Park, are in areas that other donors explored and then dismissed, citing environmental and economic concerns. MIME officials could not discuss financing details, but NGO researchers believe that a $600 million Chinese aid package for low-interest loans to Cambodia announced in April 2006 now funds the estimated $280 million cost of the Kamchay Dam project. SLOW DONOR RESPONSE TIME HINDERS ALTERNATE PLANS -------------- -- ¶7. (SBU) The Japan International Cooperation Agency (JICA) has been working on a Cambodian hydropower master plan since July 2007, but MIME has proceeded with its own priority list ahead of the final JICA report, the content of which JICA and MIME are still negotiating. The report evaluates and ranks 26 proposed hydropower projects based on socio-economic impacts, environmental impacts, project technical issues, economic and financial considerations, and speed of construction. ¶8. (SBU) Tun Lean said that the ministry had requested JICA's assistance in preparing their hydropower plan in 2003, but that JICA did not approve the work until 2006, and the RGC decided not to wait before soliciting private investors for its own 29 proposed projects. MIME developed its own priority list based on investor interest, which does not match JICA's more thorough analysis. For example, JICA immediately dismissed the two proposed main-stem projects (Sambor and Stung Treng),so they will not be included in the final report. MIME's priority list includes Sambor (for 2019), and its complete list includes Stung Treng (date TBD). ¶9. (U) MIME also completed a plan with support from JICA and the World Bank for a decentralized, nation-wide rural electrification network based on renewable energy technologies such as solar and biomass. The targets of the plan are to: 1) achieve 100% village electrification including battery lighting by 2020, and 2) achieve 70% household electrification with grid-quality electricity by 2030. ¶10. (SBU) Implementation of the plan would help to alleviate the pressing need for electricity in more rural areas and perhaps lessen the RGC's drive for large hydropower projects for domestic use. However, MIME officials complained to Econoff that the World Bank contracting process has taken too long. MIME has requested an extension from 2009 to 2011 to find a local contractor to install small-scale solar power generators throughout the country, because the World Bank has not yet procured the generators for installation. A World Bank representative told Econoff that he had received MIME's extension request and may be able to complete the solar panel procurement in the next year. MEETING ENERGY NEEDS VERSUS PLANNING ENERGY EXPORTATION -------------- -------------- ¶11. (U) The cost of electricity, the limited means of energy production, and the poor distribution of electricity are great challenges for Cambodia's development. Current power plants run on diesel-powered generators and only major urban areas have power 24 hours a day. Much of Cambodia remains without power: only about 18 percent of the population is connected to the electricity grid. With prices in some areas reaching over $0.50 per kilowatt-hour, the cost of electricity is among the highest in Asia. RGC officials acknowledge that it is difficult to attract environmentally friendly light industries with that type of energy cost. Environmentally sound energy projects that reduce the cost of electricity make sense for Cambodia, according to analysts. ¶12. (SBU) However, the planned capacity of all the hydropower PHNOM PENH 00001003 003 OF 004 projects far exceeds the country's estimated energy needs, illustrating Cambodia's ambitions to become the battery of Southeast Asia. Based on the past five years of economic growth, MIME has projected that by 2020, domestic energy demand will reach 3,502 MW, while the production with proposed dams would total over 7,000 MW. Ith Praing estimated that only about 40% of the electricity generated from hydropower would be used domestically. The Asian Development Bank (ADB) is funding the construction of a regional power grid, which will enable Cambodia to export energy to its immediate neighbors, Thailand and Vietnam, and as far as Yunnan Province in China. ¶13. (SBU) Although Cambodia may benefit from reduced energy costs - schools and hospitals could provide more modern services with lower budgets, for example - and although it might be able to negotiate even better prices and electrify more of its population with a regional grid, Cambodia will not see the profits of hydropower energy exportation for years. Tun Lean admitted that all of the dams are under a Build-Operate-Transfer (BOT) model. For example, SinoHydro, the company responsible for the Kamchay project, will maintain the dam and collect all profits during its first 40 years in operation. As part of the BOT agreement, the Cambodian National Assembly also passed a measure in July 2006 to guarantee financial compensation to SinoHydro if the project faced difficulties or under-performed. ¶14. (SBU) COMMENT: After the 40-year operation period, SinoHydro would presumably transfer operational responsibility to local authorities, but given the higher maintenance needs of older dams, this will likely come with a heavy price. Opposition party lawmakers recently raised this issue and called for a quicker handover of BOT infrastructure projects (15 years). Given the lack of transparency and public input in project negotiations, it is unlikely that the handover dates will change. END COMMENT. COMMUNICATION ISSUES -------------- ¶15. (SBU) Provincial and district government officials are responsible for notifying communities that could be affected by proposed hydropower projects. However, this communication is frequently incomplete or inaccurate. Similar to previous experiences (Reftel),community members in the Sambor and Kampong Pnov villages explained that local officials had told them about the planned dam at Sambor only after the company had arrived in their area with large equipment to conduct geological surveys for feasibility studies. When villagers raised concerns about flooding and displacement, they said that their commune council and provincial representatives replied that there would be "no impacts" and that the communities would benefit from cheaper electricity. NGO contacts report similar communication issues at other proposed dam sites in the Northeast and Southwest regions of the country. ¶16. (SBU) Information exchange is also lacking between the various levels of government. For example, the Sambor district governor boasted that he had more information about the proposed Sambor dam than the Kratie provincial MIME representative. The Chinese engineers conducting the feasibility study for the site approached him directly to ensure security for their equipment, bypassing the provincial MIME office completely. ¶17. (U) In another example, the Ministry of Tourism in Kratie is seeking to capitalize on the province's wildlife and forests by joining the "Mekong Discovery Trail", an eco-tourism corridor that the World Tourism Organization is developing from central Cambodia north through Laos. At the same time, MIME is pursuing the construction of Southeast Asia's largest dam at Sambor, which would derail all plans for eco-tourism in the area. MISCONCEPTIONS ABOUT MITIGATION TECHNOLOGY -------------- ¶18. (SBU) Both MIME and Ministry of Environment (MOE) officials are aware of the potential impacts of extensive hydropower development around the country, including the threat to Cambodia's high-volume fisheries (Reftel). They remain confident though that mitigation techniques such as fish ladders and shorter run-of-the-river dams will compensate for any threats to fisheries. Dr. Eric Baran, a PHNOM PENH 00001003 004 OF 004 researcher with the NGO World Fish Center currently working out of the Ministry of Fisheries, disagreed and noted that no dam mitigation techniques exist that can reduce impacts to the volume of fish that migrate along the Mekong-Tonle Sap corridors. ¶19. (SBU) According to reports by the World Fish Center and the Mekong River Commission, the inland fish production of Cambodia alone is higher than that of all of North America. According to Dr. Baran, hydropower dams need to be placed as high upstream as possible, away from fish migration paths, in order to minimize potential impacts to these high-volume fisheries. Other NGOs, such as International Rivers and the Rivers Coalition of Cambodia, have made the same argument. ENVIRONMENTAL IMPACT ASSESSMENTS (EIAs) -------------- ¶20. (SBU) The EIA process, meant to provide decision makers with an objective analysis of the potential environmental and economic impacts of a project, is not strenuously applied to hydropower projects in Cambodia. The construction firms responsible for developing the projects are also responsible for conducting or contracting out EIAs, resulting in subjective analyses. In recognition of this issue, the MOE is attempting to improve the transparency of the EIA process. The EIA Department plans to share the EIA for the proposed Lower Sesan II/Lower Srepok II dam with civil society and private sector technical experts next year and has requested World Bank assistance to develop an EIA template for future projects. ¶21. (SBU) In spite of these positive steps, the EIA process has not stopped priority hydropower projects from proceeding. Puth Sorithy, Director of the EIA Department at the MOE, said that the EIAs for the three in-progress projects are all still in draft form. When asked if the MOE had any authority to stop a project that it found to have potentially serious environmental impacts, Puth Sorithy admitted that if the Council for the Development of Cambodia (CDC) wants a project to proceed, MOE comments have little sway. RGC: "WE LACK ALTERNATIVES" -------------- ¶22. (SBU) COMMENT: A consistent message from all government interlocutors is that hydropower is Cambodia's only near-term route to energy independence and surplus. The lure of Chinese and other investment overrides serious consideration of the cumulative environmental and social impacts of many dams throughout the country; this same private investment is marginalizing the influence of institutions such as the ADB that build environmental and food security considerations into their lending decisions. Without concrete energy alternatives and pressure from other donors, the RGC will continue to push for more hydropower development, potentially at the cost of its food security. ¶23. (SBU) Embassy Phnom Penh will continue to engage the RGC with technical experts on fisheries, hydropower and alternative energy solutions, so that the RGC can make rational, informed, transparent decisions about the direction of its energy policies that include citizen consultative mechanisms. We hosted an EPA wetlands expert through the Embassy Science Fellows Program, who identified some of the environmental and social impacts of hydropower dams and shared that information with MIME and the MOE. We are identifying hydropower and alternative energy technical experts to potentially participate in the embassy's speaker series. We are also exploring ways to encourage U.S. alternative energy investment or partnerships through the U.S. Trade and Development Agency. END COMMENT. RODLEY