A rural energy entrepreneur (REE) maintaining a meter in Kandal.

Along-delayed plan to bring electricity to rural areas and upgrade the country's

energy infrastructure moved closer to reality after an appraisal by the World Bank

and the Asian Development Bank (ADB) was completed earlier this month.

But the $63 million Rural Electrification and Transmission Project, funded largely

through loans from the two institutions, has raised objections over the transparency

of the regulatory structure and the government's commitment to an open energy market.

Private electricity providers and officials working on rural electrification projects

have come out against the consolidation of the energy sector by the state-owned utility

Electricité du Cambodge (EdC). They argue the loan will only accelerate the

process and undermine private businesses.

Although the appraisal is preliminary, ADB country head Urooj Malik says the loan

is on track to be approved before the end of the year. If a deal is reached, it would

be the country's most ambitious electrification effort to date.

The need for a better - and cheaper - electricity supply is clear. Currently only

15 percent of the population has access to electricity. Most live in cities and are

connected to the state-owned power grid.

In rural areas, between 600 and 1,000 rural energy entrepreneurs (REEs) supply some

8 percent of the population with electricity. The Cambodia Development Research Institute

estimates 80,000 households receive power this way.

The new project aims to electrify 70 percent of Cambodia by 2030. Among its measures:

to import cheap electricity from Vietnam, to strengthen EdC's infrastructure and

finances, and to provide rural electrification incentives to supply capital and technical

assistance to REEs. Another ADB project, which is set to start next month, will rehabilitate

the power infrastructure in eight provincial towns.

What is clear is that EdC, which continues to operate at a loss and incur millions

in debt, stands to benefit most from the loans. Millions of dollars of aid will go

to new infrastructure.

That includes $42 million to build a high-voltage transmission line between Vietnam

and Phnom Penh, and $9 million to improve the capital's power grid and extend the

distribution system to 66,000 new subscribers. EdC will also get more than a million

dollars in technical assistance.

The loan also allocates $8 million to a rural electrification and renewable energy

fund to finance solar cell systems and subsidize REEs. Another $5 million will go

toward technical assistance on these projects.

Despite the cash infusion the loan could bring, advocates for private businesses

say the government cannot be trusted to ensure private participation in the energy

sector.

Tony Knowles, advisor at the local NGO Small and Medium Enterprise Cambodia (SME),

says the loan will simply amount to an enormous subsidy for EdC to muscle out smaller

businesses from the market. He says the debt-ridden state utility has already demonstrated

its unwillingness to work with small businesses.

Despite provisions in the loan for EdC to engage rural energy providers in private-public

partnerships, Knowles says the state utility is moving ahead in places like Battambang

to eliminate REEs from the market.

"It appears that EdC is intent on capturing, managing and distributing power

at all significant points all along the way," Knowles says.

By way of proof, SME notes that instead of contracting established REEs to distribute

power to existing customers, EdC has erected new transmission wires alongside privately

owned lines. It has told suppliers it intends to take over the market, and encouraged

REEs to move to more distant, less profitable areas.

Touch Montha, a member of the Rural Electrical Entrepreneurs of Battambang, worries

she will be kicked off the power grid. The 35 members of her association plan to

protest EdC's attempt to expand the state power grid in their area.

Over the past ten years Montha has invested $20,000 in power-generating equipment

to supply her 370 customers. She warns that her investment will be worthless if the

industry's regulatory body, the Electricity Authority of Cambodia (EAC), carries

out its threat to refuse to renew her license.

Under the law, EAC is meant to be independent of ministerial control. But in reality,

say insiders, it is compelled to do the bidding of the Ministry of Industry, Mines

and Energy (MIME), which runs EdC. That conflict of interest means rural providers

such as Montha are likely fighting a losing battle.

The regulator denies it is beholden to the ministry. EAC head Ty Norin, who was formerly

the deputy director of EdC, says the regulator is only trying to improve the provision

of electricity services.

"We don't want to kill off existing operators, we want to push them to install

more correctly," says Norin, adding that Battambang simply has too many energy

providers to be efficient.

But, says Knowles, the argument of efficiency does not mean cutting the number of

suppliers. Instead it requires assurances from government that businesses can remain

in the market long enough to recoup their investment.

"If you give [EdC] tens of millions of dollars, there's no way to compare that

to a family-run business," he says. "The argument isn't that [REEs] are

presently a more competitive alternative. The question is: Are we building a state-owned

economy or building a market economy?"

Thailand's experience with energy reform may provide an answer. It created a large

state-owned enterprise which ultimately proved less efficient. Lessons learned from

that experience saw it return to a more efficient, decentralized model for supplying

electricity that drew on numerous rural providers.

The warning was made clear in a speech two years ago by the head of Thailand's Provincial

Electric Authority, who urged Cambodia not to abandon the small-scale power strategy.

"Cambodia has an advantage not to repeat our mistakes," he said at the

time. "We've discovered that being a state-owned enterprise and a big institutional

monopoly decreases the incentive to improve or become efficient. Thailand now needs

to reverse and return to where it began 40 years ago, where Cambodia is just starting

from today."

But the chances of that happening seem slim, given the vested interests involved

in the potentially lucrative energy market. One official working in Cambodia's energy

sector, who requested anonymity, says the government faces a conflict of interest.

"In rural electricity, we are in a vicious cycle," he says.

He describes a licensing system run by MIME that protects the state utility by preventing

private investors from entering the electricity market. Those applying for permits

are regularly offered only a one-year contract, which discourages them from investing

in better equipment.

That allows the regulatory authority to refuse to grant long-term permits since the

expected useable life of the equipment is so short. In addition, he says, EAC has

also refused to issue permits to some small-scale operators while still allowing

them to operate. That leaves them vulnerable to being shut down without warning.

Tun Lean, the director of energy development at MIME, denies charges of favoritism

in the selection process, but confirms that EAC must get a "letter of approval"

from his ministry before it can award a permit.

The justification for such control, he says, is that MIME has the responsibility

to oversee energy policy and planning, and thus approve business concessions to generate

electricity.

However, says the official, that runs counter to the 2001 Electricity Law, which

states that the agency operates as "an autonomous agency to regulate the electric

power services" and "issue the regulations and licenses to electric power

services".

Clearly, he says, that has not been implemented, with the result that people in rural

areas are losing out. Without concerted action by government, which seems increasingly

unlikely, they will continue to suffer.

"The barrier is the government," he says. "And because of this system,

the Cambodian people are penalized by high costs and poor quality [supply of] electricity."