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Phnom Pehn Economic Zone to diversify amid years of falling revenue

The entrance to the PPSEZ.
The entrance to the PPSEZ.

Phnom Pehn Economic Zone to diversify amid years of falling revenue

After years of falling revenue at the Phnom Penh Special Economic Zone (SEZ), board members at a Friday meeting urged greater diversification in income sources in the upcoming year in an effort to shore up profits.

While the Phnom Penh SEZ group has long relied on land sales at its subsidiary, Phnom Penh SEZ (PPSEZ), to ensure overall fiscal viability, the company aims to attract alternate revenue sources in the future, with the goal of increasing recurring revenue streams to 50 percent of its total revenue by 2020.

Fong Nee Wei, the company’s chief financial officer, told shareholders that the group struggled through the first half of 2017, but thanks to two large land sales at its PPSEZ – the first to Taiwanese company Asia Nutrition Technologies and the second to Thai company TOA Paint – the company managed to meet its goal for land sales last year.

“What is important is the key result, which is that we have been able to mostly retain our revenue throughout 2017,” he said. “But we need to increase revenue from rental and utilities services – like water, power and waste water treatment – to offset our land sales in the future, and we are working on this for 2018."

SEZs are free trade areas set up by the government to encourage private sector manufacturing through investment. Introduced in 2007, they typically offer incentives such as duty exemption for exports and imports of raw materials for the industries in the zone. Tax on profits are exempted for up to nine years for the zone developer. The zone on the outskirts of the capital is 357 hectares in size.

The Phnom Penh SEZ Plc group’s overall revenue has fallen every year since 2014, when it posted revenue of more than $20 million. That amount fell to $16.4 million in 2015, $9.2 million in 2016 and $8.8 million in 2017.

While revenue continued to fall, profits actually increased last year by about 16 percent from 2016, an increase attributed only to a rise in “other income,” according to the company’s financial statements.

Hiroshi Uematsu, chief executive officer of the PPSEZ group, said that the company has several agreements lined up to be signed in 2018. An energy company is expected to sign with the PPSEZ next month, he said, while a Japanese company has already placed a down payment on 6.4 hectares of land in the PPSEZ and should sign a lease by June.

“This year Cambodia has a general election, but actually we believe there’s not any worry for our potential investors who want to set up a factory here,” he said.

He added that the group's signing of a memorandum of understanding with the United Nations Development Program last June – meant to reaffirm PPSEZ Plc group's commitment to sustainable development – has encouraged the group to tackle a housing program within its PPSEZ this year.

“The main target for the housing project will be factory workers working inside the Phnom Penh economic zone, and next month we are launching a contest for architects who want to create this community for our workers,” he said.

“Since we are a private company, it should be profitable, so we are working with potential investors for this project,” he said. He did not provide further details about the project’s prospective profitability.

Lim Chhiv Ho, founder and chairwoman of the PPSEZ, spoke briefly on the minimal progress seen at the company’s Poipet Special Economic Zone last year, a 66-hectare park which signed its first major agreement with electrical company B Grimm Power in February of 2017.

Established in 2014, the Poipet PPSEZ only managed to sign its first tenant last week.

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