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Logo of Phnom Penh Post newspaper Phnom Penh Post - World Bank and ADB poised to pour more millions into state's Electricité company

World Bank and ADB poised to pour more millions into state's Electricité company

Critics are not convinced the revived plan to electrify the country will work
Each night as lights shine out across Asia, Cambodia slips into darkness. Electricity illuminates a handful of cities, but most of the country receives only a trickle of electricity from a network of car batteries and diesel generators.

The Ministry of Mines, Industry and Energy (MIME) estimates that around 90 percent of the population remains out of reach of a reliable power source. In rural areas, that figure is even higher: More than two-thirds of the country's energy comes from burning wood, despite the fact that demand for electricity is growing at 12 percent a year.

But a new campaign, endorsed by the government and supported by loans from the World Bank and the Asian Development Bank (ADB), aims to electrify 70 percent of the country by 2030.

The budget for the project is at least $100 million. It will involve stringing transmission lines from Vietnam and Thailand, building at least five power plants, and in theory create a thriving public and private electricity market.

Proponents say it will transform the country into a net exporter of electricity and lift rural communities out of poverty. Critics are less sure, saying that progress has faltered. They cite the lack of reform of the unprofitable and inefficient state power utility, Electricité du Cambodge (EdC), which after years of technical assistance is heavily in debt, and getting further into the red every month.

In 1995, the World Bank lent $46 million for electrification. Eight years later, and after millions of dollars in technical assistance to the sector, donors have yet to disburse further funds for much-needed infrastructure projects.

The need to get things moving is clear: The country still has one of the lowest rates of electrification outside sub-Saharan Africa, and is one of the most expensive energy markets in the world.

One official working on this latest incarnation of the electrification project, and who is exasperated by the lack of progress, blames a culture of corruption, poor technical assistance and "too many powerful people" who hamper reforms.

He says the sector is characterized by delays and disagreements among lending institutions, government agencies and project partners working on rural electrification.

"The ultimate goal is for rural people to get cheap and reliable electricity as soon as possible," he says. "It isn't happening. Everybody's trying, but we don't have good results yet. I can't say they are working well together."

One problem, say some critics, is that some government officials are more committed to lining their pockets than electrifying the country. Decisions by the Electricity Authority of Cambodia (EAC), in theory an autonomous regulatory body, highlight this problem. Officials at MIME acknowledge that the EAC must secure a 'letter of approval' from the ministry before it can grant power distribution or generating licenses for private entrepreneurs-a legal violation of the authority's independence.

Small and Medium Enterprise Cambodia (SME), a business NGO, also reports that former employees of the state utility EdC receive preferential treatment. EAC often refuses to grant permits to rural power providers, or it issues short-term licenses because it says providers are using outdated equipment.

There are also serious problems with the country's electricity infrastructure. The power grid is a disconnected patchwork of 22 crumbling transmission and power generating facilities. In Phnom Penh, where about 80 percent of the country's electricity is generated and consumed, much of the power comes from private sources.

Tun Lean, deputy director general of the Department of Energy at MIME, says EdC only produces about 70 megawatts (MW) out of the total installed capacity of 200 MW in Phnom Penh. The situation in the capital has improved dramatically since the early 1990s, when just a quarter of the city could be powered at any one time, but much of the power infrastructure needs to be upgraded.

Major power connections with neighboring countries are also lacking. Cambodia burns expensive imported fuel, usually diesel, to generate electricity. But government-mandated electricity rates are set low to subsidize access for poor households. Financial experts who evaluated the EdC report have revealed that the company's revenue falls far short of its electricity costs.

Even more surprisingly, states a recent report by SME, the pace of rural electrification has slowed or even stopped in some places since the Electricity Law was passed in 2001. Private power suppliers, who once counted on 10 percent annual increases in their number of customers, are being forced out or are withdrawing from a regulated, although uncertain, power market.

The Electricity Law was supposed to put the nation on course for rapid electrification through private partnerships with Rural Electricity Entrepreneurs (REE). The public utility was expected to expand its service to hundreds of thousands of new customers.

Despite the good intentions, hopes for rural electricity and promising reforms are fading, says SME's resident advisor, Tony Knowles.

"What started out looking like an innovative approach to rural electrification seems to be slipping toward bureaucratic powers seizing control of the power sector by using Asian Development Bank and World Bank loans," says Knowles.

SME has spent about $100,000 in World Bank grants to create REE associations in Battambang and Banteay Meanchey, despite government resistance. It plans to replicate the associations elsewhere in the country, which has around 1,000 REEs still operating.

"Once you make the investment in a big infrastructure system ... you're setting the pattern of activity and decision-making probably for the next century," says Knowles. "And the question becomes: Are you going to subsidize state enterprise or private sector development?"

Even as ADB and World Bank loans firmly encourage private sector participation, the government has announced its intention to take over the country's most lucrative electricity markets. A World Bank-funded investment guide on renewable electricity offers a grim prognosis on private sector power.

"The most [easily served] customers and profitable areas of business are being reserved for the state-owned utility," it states. "Private sector investors are being offered only the marginal customers outside urban areas, which are the least profitable and most expensive to serve."

Chulasa Praing, deputy director of planning at EdC, says the state company plans on being the power supplier for major provincial cities and towns with more than 2,000 residents. Eventually, it plans to expand its grid up to about 40 kilometers from city centers with loans provided by the World Bank.

"That is the policy of the World Bank and the government. But we will cooperate with the private sector according to the law of the country," says Praing, adding that the specifics of that cooperation are being discussed.

But for now, that leaves REEs with few options to stay in business. That result conflicts with ADB assertions that its loans will benefit small power producers and distributors, "reduce poverty in adjacent rural areas ... and increase the number of electricity consumers".

The response by the REEs was to write to the energy ministry. However MIME responded in March that it would oppose the formation of new private power associations. EAC has also threatened to withdraw the licenses of rural providers operating in potential EdC service areas. The result is that many of the small producers have started to charge higher electricity rates to recover investments because they fear they will shortly be shut out of the market.

And REE associations have told the ADB if they can't preserve their markets, then the bank must pay compensation. An ADB study confirmed that "resettlement" for REE was offered under its compensation policy. It estimated that it could cost millions of dollars if EdC carried out its own expansion plans at their expense.

Despite the controversy, officials from the World Bank and the ADB say they are proceeding with their loans to the power sector. The ADB's first project entered the bidding stage in May. And the World Bank's loan will be up later this year, says its senior operating officer, Steven Schonberger.

The World Bank's own report states that it seeks to reduce poverty and support the foundations for sustainable development. It also hopes to bolster private electricity markets, encourage renewable energy, increase technical assistance to EdC, and extend the utility's power grid.

The bank expects to reach at least 100,000 new customers and aims to promote alternative energies through a Renewable Energy Fund, which lends capital to entrepreneurs for renewable energy projects.

The ADB was scheduled to open bidding for its $18 million Provincial Power Supply loan on May 28. Its plan is to improve electricity infrastructure in six provincial towns, upgrade Phnom Penh's transmission wires, and conduct initial studies for several hydropower projects.

Another $45 million transmission project, with joint funding from the World Bank, will construct a 220kV transmission line from Vietnam. A second $20 million ADB Provincial Power Supply loan will upgrade electricity infrastructure in another eight provincial towns. That project has not yet been appraised.

The two multilaterals' efforts do appear to differ. The ADB is focusing on improving provincial infrastructure and transmission, while the World Bank is pursuing a policy of 'rural transformation' to speed up private sector development, improve power sector efficiency and consolidate government reforms.

Both banks see the work as critical to their primary mission of poverty alleviation.

"Rural electrification is an incredibly important part of poverty reduction," says Schonberger. "It provides everything from reading lights for children to do their homework to labor-saving devices for rural women, and it increases the opportunities for micro and small enterprises. It seems to have had good results in many neighboring countries."

But SME's Knowles points to what he calls an inherent flaw in loans that rely on the capacity of EdC and the government's will to implement the loan agreements.

"Each of these loan provisions has merit when presented as something that would play a certain role," he says. But, he adds, expecting to create a "competent professional regulatory framework" in the timeframe offered is highly optimistic.

Ironically, a 1995 report by the ADB about the energy sector highlights many of the problems that are still an issue today. All three World Bank and ADB loan documents name EdC as the 'executing agency' for their loans. A significant portion of the proposed World Bank loan, at least $7 million, is dedicated to structural reforms and raising the capacity of EdC. It is part of a long-term campaign to reform the company.

The ADB's 1995 report singled out EdC's financial performance-it had operated at a loss since 1989-as the main reason for the utility's "unreliable power supply". A rate increase in 1991 to raise electricity rates above operating costs still "did not help solve the company's financial problems".

The report cited very low labor productivity, unpaid bills by "the public sector and a long list of VIPs", power theft exceeding 40 percent of production, and inefficient generating plants as the main reasons for the shortfall.

Even after an ADB-sponsored overhaul of the company in 1996, EdC remains saddled with tens of millions of dollars of debt. One insider says the utility is losing almost a million dollars a month, although EdC will not comment on its debt.

The reason for the utility's financial problems, says EdC's Praing, is that it costs the utility at least 15 to 16 cents (about 620 riel) to generate a kilowatt hour (kw/h) of electricity. The company can only charge some residents a maximum 350 riel kw/h. While commercial customers and foreigners are charged anywhere from 500 to 800 riel kw/h, they make up a relatively small portion of the company's 150,000 customers.

"This is why we cannot make so much and we have to subsidize the poor," Praing explains. Although he would not elaborate on the extent of EdC's debt, the Department of Energy Development confirms that the company is in dire financial straits.

MIME's Tun Lean says that the Ministry of Economy and Finance (MEF), for example, owes the utility more than $20 million in unpaid government electricity bills. EdC has reportedly never shut off power to government ministries over unpaid bills.

"If the Ministry of Finance paid all the debt to EdC, then EdC would benefit," says Lean.

He predicts that EdC could turn a profit within two years if it shifts to less expensive fuels and collects its public sector debts from MEF. However, neither course seems likely within that time period, which means the country's main electricity provider will remain technically bankrupt.

Despite these complications, which are combined with downbeat reports from financial experts describing EdC's negative cash flow, the ADB and the World Bank name the utility in its proposals as suitable for handling the loans. But the World Bank's Schonberger says the decision on whether to disburse the cash will not be finalized until the government signs the agreement.

"In the case of entities like EdC, the company collects fees and repays the government, which then repays the Bank," he says. "At the end of the day, the government is responsible."

But not all those involved in the tortuous process of trying to electrify the country are convinced this program will work in the way it is intended. A long-time observer of the power sector, who was not prepared to be named, said the situation was like a money pit.

"You put so much money into something that you can't back out," he said bleakly of the push to lend the utility yet more money. "The World Bank and the ADB have put so much money into EdC that they cannot let it fail."

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