A BIG step has been taken towards solving chronic electricity supply problems in Phnom Penh with the signing of an agreement to build a 37 MW diesel-fired power station.

A consortium consisting of the Malaysian concerns Leader Universal Holdings Berhad, Delcom Services, US firm Intercore Inc and the Italian state enterprise Enel inked an agreement to build the $40 million plant at a ceremony presided over by Co-Premier Prince Norodom Ranariddh.

Leader, a group of 40 companies capitalized at $1.6 billion, is injecting 60 percent of the cash. Delcom, which provides equipment and support to the oil industry, and Enel are putting in 20 percent each; with Intercore taking only an advisory role in the project.

Construction is expected to be finished in 13 months and the state-owned Electricite du Cambodge (EDC) will then finally have the generating capacity to meet current estimated power needs in the capital of approximately 60 MW.

The project, which has an 18-year term, is being given the status of "independent power producer" (IPP) with EDC paying for the metered output from the new plant owned by the consortium and then recouping funds from end users.

When the contract expires the Ministry of Industry, Mines and Energy (Mime) will buy the plant for the nominal sum of $1.

According to a Mime advisor the plant will use around six tonnes of diesel fuel a day. It is to be built on vacant land at the site of an existing C-2 power station in Chak Angre, south Phnom Penh.

Electricity prices are unlikely to rise as a result of the project and the government is keen to keep them pegged back to promote investment, added the advisor, who declined to be named.

The first of seven generator units for the plant, manufactured in Italy by Grandi Motori (Fincantieri), are expected to arrive in Cambodia next May.

In a speech Prince Ranariddh said he thought the project to improve power supply was critical for attracting foreign investors, saying: "We Cambodians can be optimistic about a brighter future."

He added that an exchange of visits between himself and Malaysian Premier Dr Mattathir had been instrumental in cementing the deal.

At a press conference after the signing ceremony Industry Minister Pou Southirak cautioned that improving generating capacity was not enough to end frequent partial blackouts around the city, saying that Phnom Penh's ancient electrical supply system was also to blame and badly needed upgrading.

Soft loans of $40 million from the World Bank and $25-30 million from the Asia Development Bank currently under negotiation will be partially spent on the overhaul and companies in the consortium will be involved in the work, the Minister said.

Virtually all businesses in Phnom Penh have diesel generators as standbys to use during blackouts and brownouts, which occur at random.

Mime Secretary-General Sam Ramsek said no more power plant deals for the capital would be signed for at least two years until work upgrading the supply system had been completed.

The capital's principal underground circuit supplying electricity - known as a ring bus - has a current capacity of only 15-20 MW.

But under work financed by the World Bank and ADB the ring bus will be replaced with high tension cable capable of carrying 300-400 MW to meet anticipated growth in electrical demand well into the next century.

The city currently has four functioning power plants, while $20 million of Japanese aid is being spent on rehabilitating the C-5 power plants.

Ramsek said that when this and the new power plant comes on stream, the older C2 and C4 plants will be decommissioned.

During a rousing speech at the Sept 15 signing ceremony, Prince Ranariddh talked of building hydroelectric power stations to provide cheap power, not only for the capital but to stimulate investment in the provinces.

Southirak later said that Japanese and Canadian companies and Enel had all expressed interest in following up on a feasibility carried out by engineers from the then Soviet Union to build a 100-plus MW hydroelectric power station at Kamchuy in Kampot.