P ost reporter Susan Postlewaite discovers that rubber is a key to Cambodia's

economic revival. But the business is in a mess.

KAMPONG CHAM - In the 1960s, Cambodia's vast rubber plantations annually produced

more than 50,000 tons of rubber for export, making the rubber industry one of the

surviving successes of the French colonial era.

But with no replanting for a quarter of a century, today the trees are old and gnarled

and difficult to tap. Scavengers are logging trees for timber, and much of the dried

rubber produced in the factories on both sides of the Mekong is simply disappearing.

Other rubber is being sold at bargain prices on the "gray" market, making

sales difficult to track and ripe for corruption.

"In the three years I have been here, the situation has gotten worse,"

says Philippe Monnin, the French technical advisor to the Director General of the

Department of Rubber Plantations.

"The trees are getting older. Some are from the 1920s. It's quite impressive

to see the trees, but it's not good, the yield is very low."

Chhun Sareth, undersecretary of state for the Ministry of Agriculture, calls the

situation out of control. "Today there is anarchy in the transport of the rubber,

cutting down trees, selling and stealing the latex," says Sareth.

The latest problem to emerge is that the government, without open bidding procedures,

awarded a $22.5 million, ten-year contract to Pheapimex and Shipping Co. of Phnom

Penh to log 11,800 hectares - more than one fifth of the nation's rubber trees. The

trees are scattered throughout six plantations in Kampong Cham and Kratie.

The contract calls for the government to use the proceeds from the sale of the rubber

trees to "arrange replanting on the area felled," but it doesn't specify

when that should be done.

The contract is also a problem because the revenues from the logging are to go directly

to the Department of Rubber Plantations, instead of the Finance Ministry where they

are supposed to. According to law, the revenues from the sale of state assets, such

as logs, must go into the state budget.

"I worry about the plan to cut down the trees. I worry about the future,"

says Sareth. "They have to replant or it will be like the teak plantations.

Now there is no teak. The teak is finished. I think the rubber might be like the

teak."

With rubber now selling at $1,500 a ton internationally, it's one of Cambodia's best

hopes for producing foreign exchange says the World Bank and International Monetary

Fund.

Last year, according to the Agriculture Ministry, Cambodia produced 40,000 tons but

the Finance Ministry only got $3 million from rubber.

The government agreed in January 1994 that the rubber plantations would be privatized

and foreign investors should be brought in. As of now, three foreign companies and

the government of North Korea have expressed interest in investing.

Monnin says the three companies are well qualified to be joint venture partners with

the Cambodian government. The idea is that the companies would manage the plantations

and take charge of replanting and selling the rubber.

The CDC has taken a look at one company's offer and Cambodia's top officials, including

First Prime Minister Norodom Ranariddh and Agriculture Minister Tao Seng Hour have

met quietly with some of the interested officials, but not with others.

"So far there has not been very good progress," says Teng Lao, the general

director of the Department of Rubber Plantations, which supervises six big plantations

and many smaller farms that have been state run since 1979. "There is a willingness

to privatize but it takes time to establish the climate for the investors,"

he says.

Monnin says the longer the government delays bringing in investors, the more expensive

it will be to turn around the plantations and begin making a profit. "They don't

know exactly how to privatize. A plantation is not the same as a factory. There's

the question of land ownership. But the trees are the most important. They haven't

decided which way to go so they are waiting."

Many people close to the situation say that rubber sales are riddled with "commission"

taking, and that with so many officials getting a cut from sales it's hard to mobilize

changing the system. The World Bank seemed to allude to that in a recent report,

saying although Cambodia has adopted an official policy of a "market oriented

approach," rubber is one of the areas in agriculture that "is still jealously

guarded by state enterprises or government departments." Rubber would be "better

managed by private companies, especially if competition were allowed," it says.

To help the process along the French government has poured several million dollars

into rubber plantation rehabilitation, but with limited successes so far.

It has four technical experts in Cambodia, including one who is working on setting

up a Cambodian Rubber Research Institute. In July the French Development Fund (Caisse

Française de Developement) (CDF) gave a $2 million grant to help with training

and setting up the privatization framework.

J.Y. Misselis, head of the CFD in Cambodia, says he believes that companies are seriously

interested and that foreign investment can be achieved, but that, "it's in the

hands of the Cambodian government."

The ministries of Agriculture and Finance missed a Sept 30 deadline to complete a

restructuring plan.

Teng Lao said there are many questions still being decided. One is what kind of contract

to offer the people who are now farming smaller rubber tree farms. "We have

to be careful to avoid making it an example for ownership claims," he said.

As for who will run the plantations, he said, "we don't want to have any monopoly.

We would like to see a diversified form of investment so we can learn from different

experiences."

He said the plantations will not be sold. Joint ventures with several foreign companies

either in partnership with a local company or with the government are possible, he

said.

He said he didn't know how much of an investment would be needed to upgrade the plantations.

Others estimate that it would take at least $130 million over several years to replant

the trees and to repair the processing factories. There's been no widescale replanting

since the French companies that used to run the plantations left, and nearly all

of the 55,000 ha of producing trees need replacing, the advisors say.

A $130 million investment wouldn't begin to cover restoring social services for the

people who live on the plantations - their schools, water, hospitals - or repairing

over 1,000 km of roads running through the plantations.

In addition to replanting and upgrading manufacturing, one of the things the new

investors would have to do is revamp the marketing of Cambodia's rubber. Cambodia

gets less on the market for its rubber than other countries. Monnin says the average

rubber price in the first five months of this year was $1,500 a ton; Cambodia's off-market

sales were around $1,000 or $1,100 a ton.

.

The main reason for the low price is that most of the world's rubber is sold on the

futures market, but not Cambodia's rubber. Most of Cambodia's rubber is being sold

at a discount by the crate from the warehouses in Kampong Cham for reprocessing in

Singapore and Malaysia, says Monnin.

"The worst is to sell for reprocessing," said Monnin. "Even in Africa

the only country to do this is Nigeria," he said.

Monnin says that because the rubber is not being sold through international rubber

trading channels, no one really knows what the sale prices are, which makes it easy

to disguise any raking off of commissions.

But the technical advisors working with the plantations as well as some agriculture

officials say their worst fear is that the old rubber trees will be logged and not

replanted.

Officials of Pheapimex, the company awarded the logging contract a few months ago,

couldn't be reached for comment.

A man who came to the gate at the company's offices in Phnom said last week that

the company closed three months ago.

"They closed because they couldn't get a profit," he said.

He said he didn't know anything about the logging contract or whether the work had

been subcontracted to other entities.

He said the company's offices in Sihanoukville also closed, but the company is hoping

to open a plywood factory perhaps in 1997.

He refused to give his name or the name of the owner, who he said was out of town.

He said the company was Chinese-owned.

Teng Lao says the department is still preparing a ten year plan to cut down the trees.

He said the contract calls for Pheapimex to pay 25 percent or $6 million to the government

over ten years.The cutting could start at the beginning of 1996, he said.

If the trees are not replanted the investment cost to restore the plantations will

become that much higher. The fear is that at some point the cost would become too

high and investors would not want to take the risk for long term gains.

Investing in rubber trees is a long term project because it takes seven years from

the time a tree is replanted until it begins producing latex.

Tao Seng Hour declined to answer questions in detail about the rubber plantations.

When asked about replanting during a meeting at Chup on Oct 3 to inaugurate the CFD's

new technical training center, he said replanting would start, "when the King

visits." King Norodom Sihanouk's visit is scheduled for November.

But as one official familiar with the situation puts it: "The King will plant

one tree. The tappers will be dressed up in new blue suits and shoes. They'll put

carpeting in the fields, and repaint the school."

The technical advisors say that no one can do rubber tree replanting in Cambodia

right now because there are no rubber tree nurseries.

"The situation is not pretty good," says Monnin.