T ourism Minister Veng Sereyvuth says he expects to sign the contract for the

creation of Royal Air Cambodge before the end of the month, cementing a

wholesale airline shake-up.

But analysts and airline sources have cast

serious doubts over whether the Royal Government's deal with Singapore

International Airlines will be to the long-term benefit of the country and air

travelers.

The Post has obtained an early draft of the contract for the

creation of the new national flag carrier and some of the contents raised the

eyebrows of independent analysts.

Among areas of concern:

 

• The government is tightly bound to provide RAC with a Cambodian monopoly not

  only on domestic and international air services but also on a wide range of

  ground support services, including catering, passenger and cargo handling,

  maintenance and at least a share in duty free shops.

• SIA would be able to take a controlling interest on the seven-strong board

  by increasing its capital invested. If the government were unable to match the

  new stake, SIA would be able to increase its number of directors in line with

  the revised financial balance between the two sides.

• The contract is said to be drawn up under the constitution of the Kingdom of

  Cambodia but a later contradictory clause specifies it shall be "governed and

  construed in all respects in accordance with the laws of Singapore."

• SIA cannot be ordered to divest any part of its stake in RAC for the first

  15 years of operation. After that the government will be allowed to acquire up

  to 10 percent of the airline's stake.

One analyst said: "My simple advice to the government is 'Don't sign the

deal.'

"The government's hands are tied very tightly by this contract

for a long time to come and one would have to question why they would want to

sign it.

"There is currently some competition among airlines here but

this deal would replace that with a monopoly situation."

The two airlines

operating from this country, Cambodia International Airways and Siam Kampuchea

Air have been told by the government to cease operations a week prior to RAC's

launch, targeted for July 1.

These Thai-owned and managed airlines have

been offering discounted fares to regional destinations and airline sources fear

that with their demise travelers will be forced to pay high prices.

Once

RAC is formed it will negotiate a series of bilateral air service agreements

with its opposite number national flag carriers, setting the price and passenger

levels for each proposed route.

An airline industry source has pointed

out that these agreements are open to exploitation by SIA through RAC,

particularly once competing carriers have left.

The source said: "For

example they may get an agreement to cut the number of seats permitted per week

on the Bangkok route, with the intention of forcing more people to enter the

country via Singapore.

"SIA might also use RAC to get around the fact

that they have filled their seat quota with other countries such as the US. In

this way RAC would simply be SIA under a different hat."

Thai

International have not been offering any discounts on the $276 economy round

trip fare to Bangkok which was agreed on under the existing bilateral agreement,

yet virtually fill their flights to capacity every day due to their worldwide

ticketing network.

Under the proposed deal, the government will take a 60

percent stake and SIA 40 percent. SIA is offering an interest free loan to cover

the government's stake. The government has to provide guarantees it will repay

the loan.

Previous plans to introduce third and fourth party company

investors have been scrapped, Sereyvuth confirmed.

The minister defended

the deal and said: "We will probably sign it by the end of the month, work is

already going ahead "

Sereyvuth added: "We are doing this in the

interests of tourists and the country.

"We feel that Singapore Airlines

is a company with a good reputation and the expertise to bring in modern

technology."

He sidestepped the question of the creation of a monopoly

for RAC, saying: "We have an open skies policy. Anybody can apply to fly. We

have Thai International, Bangkok Airways, Silkair and Dragonair all flying

here."

He said CIA and SK were flying on the Cambodian quota of seats and

could not be allowed to continue.

As to the future of those airlines, he

said: "That is not up to the government, as businessmen they may be able to

figure a way out to keep operating."

Ng also ducked the monopoly issue

saying: "That question is not for me to answer you must ask the

government."

Top CIA executives have said they may relocate their

operation to Vietnam or Laos