FEUDING between Cambodia's ruling parties spilled over into the business arena, with

co-Prime Minister Prince Norodom Ranariddh declaring void major contracts signed

by a rival politician.

Ranariddh, in a letter late last month, informed the Malaysian company Ariston that

a contract to lease land for a resort and a golf course, and another for an airport

concession, were canceled.

"The agreements are null and void," Ranariddh wrote to Ariston chief executive

officer Chen Lip Keong, alleging that the contracts were signed without proper authorization

from the government.

The agreements - part of a $1.3 billion Ariston plan to develop Sihanoukville into

a major tourism destination - were signed in September with CPP official Sok An,

a Minister of the Council of Ministers and also the co-vice-chairman of the Sihanoukville

Development Authority.

Ranariddh wrote that he had not authorized the deals, and other ministers had no

knowledge of their signing. Noting assurances from Ariston that it was apolitical

and non-partisan, Ranariddh said "the agreements that were signed by Ariston

and only [Sok An]...suggested otherwise."

In his Feb 26 letter to company president Chen Lip Keong, Ranariddh said: "It

is not my intention or the intention of Funcinpec ministers to cause the delay of

Ariston's project or any investment projects in the Kingdom of Cambodia. We only

request that the laws of the land be complied with and respected by all investors."

He also questioned apparent complaints from Ariston over difficulty in bringing equipment

into Cambodia. Noting that Ariston had informed him that it had taken the firm three

months to secure the Customs release of some $10 million worth of construction equipment,

Ranariddh replied: "The records of our Customs department show that Ariston

imported only five items (approximately US$700,000) of the total 93 items that were

granted duty exemption by the Ministry of Economy and Finance.

Sok would not comment on his signing of the two contracts, nor on Ranariddh's cancellation

of them.

Ariston issued a statement which said that the company had made "numerous attempts

to have the agreements co-signed by officials representing Funcinpec."

It continued: "It is unfortunate that Funcinpec representatives had not responded

at that time and Ariston had proceeded to seal the agreements in the interest of

implementing the project on schedule."

The statement said Ariston had accepted the government signatories of the contracts

- Sok An and Mam Sophana, another member of the Sihanoukville Development Authority

- "as representatives of the Royal Government of Cambodia".

Ariston noted that its business experience in Cambodia "has not been easy",

but added: "However, Ariston has great respect for the First Prime Minister

Prince Ranariddh who is a dynamic leader who wants his country to develop and prosper."

It said the firm would comply with all requirements to validate the agreements, and

would continue to consult regularly with government officials, including Funcinpec

ones.

The statement concluded that Ariston's "efforts to assist the redevelopment

and reconstruction of Cambodia" was in line with the Malaysian government policy

of not to "beggar thy neighbor but to prosper thy neighbor".

The Ariston project - which, on face value, is Cambodia's biggest foreign investment

- has long been a political hot potato. Initiated by Funcinpec officials, it has

run into repeated delays.

Second Prime Minsiter Hun Sen (CPP), in a letter to the Malaysian Prime Minister

Mahathir Mohamed about June last year, is believed to have tendered a pledge that

his party would not undermine the project.

Business analysts said that the Ariston case reflects the dangers for investors of

being caught in the middle of the rough-and-tumble of Cambodian politics.

"The word is out - nothing major can be attempted until after the 1998 elections,"

said one diplomat. "Even small and medium-sized investors have take care that

they keep officials from both sides satisfied. If you have only one party behind

a deal, it becomes inoperative."

Iain Gray, chief executive officer of the Malaysian firm Dragon Gold, which is developing

a cargo hub at an unused airport in Cambodia, said he finalized his deal carefully.

"We have steered the whole thing, and we have spent equal time with Funcinpec

and the CPP."

Ranariddh himself addressed investors' concerns about political instability in comments

to reporters Mar 14, saying that: "The situation is getting much better. And

I advise all investors to come and contribute to investment in Cambodia."

But observers fear that the problems between Ranariddh and Hun Sen would worsen in

the run-up to national elections scheduled for 1998.

"Investors are very keen about future elections. They want to wait and see...

[especially] with big projects," said Korea Trade Center commercial attaché

Kwangduk Yoon.

Small and medium sized businesses generally enjoy fewer problems, partly because

of their lower-profiles, said Muh Tarng Shieh, director of the economic division

of the Taipei Economic and Cultural Representative Office in Phnom Penh.

Cambodia still had a cheap labor pool, little regulation and attractive investment

incentives, he said, adding that even political instability had its advantages -

it meant that land still comes cheap.

"Crisis means opportunity," he said.