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Logo of Phnom Penh Post newspaper Phnom Penh Post - All that glitters seems to be ... Sokimex

All that glitters seems to be ... Sokimex

As part of the construction deal for a new T3 prison, the old T3 prison in central Phnom Penh was handed over to Sokimex, which is demolishing the buildings, above, and plans to build a hotel

Sokimex has a diverse portfolio of businesses in some of Cambodia's key areas. But

the company is shrouded in mystery. There have been consistent rumors about who owns

and controls it and even the Ministry of Commerce is coy about revealing details.
Stephen O'Connell and Yin Soeum look at Cambodia's largest company.

CAMBODIA'S largest company, Sokimex, has come under attack by opposition leader Sam

Rainsy, who claims the company's close ties with the ruling CPP allow Sokimex to

conduct business in a manner that hurts both consumers and the country.

Rainsy said Sokimex - which is involved with a variety of business ventures ranging

from petrol stations to the Angkor Wat ticket concession - is at the very heart of

Cambodia's political and commercial complex. "It is a symbiotic relationship

between a ruling party and an apparently private company."

He said Sokimex was set up with the support of the Vietnamese invading army. "At

the time, the economy was centrally planned. It was a socialist, communist country.

Sokimex was the commercial, trading, and financial arm of the Vietnamese-backed and

imposed regime."

Rainsy said Sokimex, managed by the brothers Sok Kong and Sok Vanna, became the "financial

pillar for the ruling CPP".

"You cannot make the distinction between Sokimex, the CPP, and the State. The

CPP apparatchik is inextricably intertwined with the State. Sokimex was doing business

not only for, but in the name of the State."

In an interview with the Post, Sok Kong, Chairman of Sokimex Co Ltd, was reluctant

to discuss the company's origins, saying only that it was founded in 1980 and traded

in "handicrafts made of rubber and wood".

Kong said he was Sokimex's owner and the one and only member of its board of directors.

Although Sokimex's company registration papers should be of public record, the Ministry

of Commerce did not make them available to the Post.

A petrol industry source agreed that Sokimex enjoys unfair advantages over its competition, and said Sokimex avoids paying tax on much of the petroleum products it imports.

Sokimex business interests include petroleum and gas importing, a service station

chain, import-export, garment manufacturing, Angkor Wat ticket sales, rubber plantations,

transportation, and property development.

Kong dismissed Rainsy's claims that his company has a special connection to the Government

saying: "Sokimex is a private company. It does not invest for the Government."

But he did acknowledge the Government owes his company between $30 million and $40

million.

The Government is cash-strapped, so Sokimex is willing to help with loans, or assist

it with development projects, said Kong.

On February 14, four Sam Rainsy MPs sent a letter to Prime Minister Hun Sen requesting

clarification about Sokimex's relationship with the Government. The Government replied

with an unsigned and undated statement.

The Government's reply said the only reason it appears to specially favor Sokimex

is because the company has proved itself highly competent and always fulfills its

contractual obligations.

The letter went on to say that Sokimex has lent Government ministries materials and

supplies and the Government owes the company "millions of dollars" which

it will pay back "step by step".

And because the Government has had problems in the past when it dealt with incompetent

companies, it now relies only on Sokimex to supply many police and military needs.

"[The Government] must not be careless or nonchalant because these sectors relate

to national security," said the letter.

The letter said the importance of a reliable company like Sokimex was demonstrated

during the troubled period surrounding the 1997 coup.

However Sokimex's competence in fulfilling Government contracts has been questioned

by human rights groups. They point to the new T3 prison as an example of a shoddy,

poorly executed building. One rights worker said the water at the prison is not of

drinking quality and there are major problems with ventilation and sanitation.

The contract to build T3 prison was an attractive one for Sokimex. As part of the

construction deal the old T3 prison in central Phnom Penh was handed over to the

company which is currently demolishing the buildings and now plans to build a hotel

on the site.

Rainsy said among the company's earliest exclusive rights was the monopoly of the

import and distribution of petroleum products, mainly gasoline and diesel. "They

supplied the whole country."

After the UNTAC elections in 1993, Rainsy was appointed Cambodia's Finance Minister.

He said he tried to introduce reforms. Rainsy learned through the Customs Department,

which was under his authority, that Sokimex avoided paying duty on imported oil because

of well-placed "friends" within the Government.

Rainsy recommended to the joint Prime Ministers that the head of customs be sacked

from his job, saying he turned a blind eye to Sokimex's activities.

"We could not let such practices go on for ever if we wanted to establish the

rule of law," said Rainsy. The plan to reform the customs department was quashed

first by Hun Sen, and then Prince Ranariddh.

Rainsy said although he was powerless to act, he continued to monitor Sokimex's business

activities. He said usually the company did not pay tax, but when it did, Sokimex

minimized the amounts owed by under-declaring the quantities it imported. Sokimex

would also misrepresent the type of product it was importing. At the time diesel

was taxed 30 per cent less than gasoline, so it would declare gasoline imports as

diesel, he said.

"So they cheat on the quantity. They cheat on the nature of the product, and

they cheat on the quality of the product - and this is very harmful to the country."

Since the early 1980s, Sokimex imported petroleum products from the Soviet Union

[and later from Russia]. "Petroleum products, especially gasoline from Russia,

were of bad quality and made worse in Vietnam," said Rainsy, explaining that

the petroleum was imported through Vietnam where it was mixed with additives that

made it even less expensive but caused damage to engines.

"People think that because Sokimex gasoline is cheap, it is economical. But

in the end, using it can prove very costly."

"Because they are a company with political protection they can do whatever they

want. I condemn the privileges enjoyed by Sokimex in relation to other companies."

Rainsy said when he was Minister of Finance he fought hard to bring competition to

Cambodia's petroleum sector and had his first success when Shell Oil was allowed

to sell fuel at Pochentong Airport.

An industry source agreed with Rainsy's allegations that Sokimex enjoys unfair advantages

over its competition. He said half of what the customer pays at the pump for gasoline

is taxes. Sokimex, said the source, avoids paying tax on much of the petroleum products

it imports.

One way it avoids paying taxes is by using Duty Free Certificates. These certificates

allow companies to import petroleum products to be sold to the military. They can

also be obtained by companies making investments in Cambodia - often the promised

investment is never made and the certificates are sold on the black market.

The source said in the case of the certificates for military use, Sokimex will import

petroleum using the Duty Free Certificates and instead of that petroleum going to

the military, it ends up being sold at Sokimex service station pumps.

However, Kong told the Post that Sokimex never uses Duty Free Certificates when it

imports petroleum products. "If we did that [avoid taxes] the Government would

collapse."

The industry source said Sokimex benefits, indirectly, from petroleum imports by

Caltex and Shell. These companies must pay Sokimex hundreds of thousands of dollars

each year to pump oil from ships, through a pipeline that passes across Sokimex property,

to their storage facilities in Sihanoukville.

Caltex and Shell had been given a Government guarantee that they would not be charged

for the rights to pump oil across the property when it was owned by the national

oil company CKC.

But when Sokimex took over CKC in 1996 the rules changed. Despite repeated complaints

to the Ministry of Commerce, Caltex and Shell are still "held to ransom"

by Sokimex, said the source.

Another industry source said it is very difficult for international oil companies

to do business in Cambodia and questioned the long-term commitment of some companies

to continue operations here.

Among the problems, as outlined by the source, are over-investment in what remains

a small market, high import taxes, and a costly one per cent tax on the companies'

turnover which amounts to a "tax on a tax" (about half the price customers

pay at the pump is tax). These challenges to business are compounded by unclear business

laws, and a suspicion that Sokimex and Tela - another Cambodian oil company - have

an unfair advantage due to the amount of taxes they pay the Government.

Rainsy said Sokimex sells gas at the pumps from anywhere between five to 10 per cent

less than other companies.

"It's like a miracle. Maybe Sokimex is a brilliant company - very cost efficient,

better managed than Total or Shell and they can sell cheaper than other companies.

But the main reason is [Sokimex] cheats on tax payments," said Rainsy.

Rainsy said they also get prime locations for their service stations at bargain prices

whereas other companies have to buy good locations at a premium "and that money

goes into the CPP's coffers or directly into Chea Sopara's coffers. The whole thing

is very unfair to other companies."

Sokimex now controls about 35 per cent of the market. "Before they controlled

100 per cent [of the market] but the international oil companies have moved aggressively

into the market, looking at Cambodia as a long-term investment. Although they have

gained market share, it has been very costly for them."

"The system works to the detriment of the consumer and is not in line with good

governance."

Sokimex also has the monopoly on the supply of uniforms to the army and police. Rainsy

said Sokimex inflates the cost of uniforms to two to three times the cost of the

same uniforms available at markets.

"It is ridiculous when the Government buys hundreds of thousands of uniforms.

They should be able to buy much cheaper than retail prices at the markets."

In addition to the uniforms Sokimex also supplies a large proportion of the military's

rice ration.

In November 1997 Sokimex was given the monopoly on the supply of medicines to the

Ministry of Health (MoH). When the Government buys medicines, it has to go through

Sokimex.

The contract had been awarded to a company called Duong Chhiv for the years 1996

through 1998. But after the 1997 coup - when Sokimex kept the CPP supplied without

demands for payment - a grateful Hun Sen cancelled Duong Chhiv's contract and handed

it to Sokimex, explained Rainsy.

In May 1999 Sokimex took over the ticket concession for the Angkor temple area. The government says 115,000 tourists visited the temples last year, and Sokimex says 70% of them bought a $40 pass.

Kong denies this allegation as well. He told the Post that Sokimex was awarded the

contract only after the MoH contract with Duong Chiv expired.

Rainsy said the Government should be able to buy medicines at a cost some 60 per

cent less than what is charged by Sokimex, but a MoH study suggests Rainsy's figure

is inflated.

A written statement from the MoH to the Donor Nation/NGO Working Group on the Social

Sector said it compared the price of 69 drugs procured by Sokimex.

The statement said although prices charged to MoH had decreased 14 per cent from

1998 to 1999, prices for these drugs are still 19 per cent higher than the price

UNICEF pays.

The MoH statement listed several reason why Sokimex charges more than what UNICEF

has to pay for the same drugs:

1. UNICEF does not get taxed because it is an international organization;

2. UNICEF purchases in huge quantities thus getting prices cheaper than available

to Sokimex;

3. UNICEF purchases drugs directly from pharmaceutical companies, whereas Sokimex

makes its purchases through import-export companies.

Kong told the Post that more than half of that 19 per cent margin is paid out in

tax.

In May 1999 Sokimex took over the ticket concession for Angkor Wat. Sok Kong told

the Post that Sokimex must pay the Government $1 million per year to maintain the

concession for ticket sales at Angkor Wat.

Last year, said Kong, Sokimex sold only $1.4 million worth of tickets to visitors

to the temple complex.

Ticket costs for the temples are $20 for a one-day visit, $40 for a three-day visit,

and $60 for a pass valid for seven days.

Kong said 70 per cent of visitors pay $40 for the three-day pass because they need

several days to tour the huge complex thoroughly.

According to Government tourism figures, about 115,000 tourists visited the temples

last year. If just 70 per cent of that number purchased a three-day pass then ticket

sales should have been at least $3.2 million.

But Kong said after paying the Government its concession fee, Sokimex only profited

by some $400,000. The company then spent $200,000 on a new ticket office and transportation

for the staff. "So there's not much [money] left," he said.

Rainsy said Sokimex profits from the Angkor Wat concession are substantially greater

than what the Sokimex reports and he suspects much of that profit "fills the

coffers of the CPP to further its political agenda and to make the CPP apparatchiks

richer".

Kong is aware that controversy surrounds Sokimex and its relationship with the Government,

but he insists the company is a good corporate citizen which pays its fair and legal

share of taxes.

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