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Investment: The cost of insecurity

Investment: The cost of insecurity

T HE taking of western hostages will only have a minor effect on long-term investment in the country, according to top company managers.

General manager of Cambodia Beverage Company Prakash Wakankar said: "For people who have already invested in the country the taking of hostages will make little difference.

"For people wishing to invest in the country political stability, the lack of a legal system and arbitration mechanism, and the general security situation far outweigh the concerns over hostage taking."

The general manager of Shell Company of Cambodia Roger Ottenheym said: "For those people who have a long term view the taking of hostages has not much of an impact, investment is not an emotional issue.

"If you have done the investment you have to go through [with it].

"It is more those people who are sitting on the sidelines who it may have a negative impact on.

"But [for] the big investors involved in infrastructure projects and energy supply projects it wouldn't affect much.

"It would affect the small players more.

"For Shell the taking of hostages had very little impact. You already had to be careful when traveling out of Phnom Penh."

"There are many places with worse security problems than Cambodia, such as Miami.

"Here, because it's a small country the reporting of incidents gets a lot of international media attention, whereas if you live in New York nobody cares if 24 people are killed every night ....

"I still think this is a low to medium level risk country as far as security is concerned."

Ottenheym said by the end of the year Shell would have invested over $17 million and was this year facing heavy losses of several million dollars.

He said such losses had given him an alternative perspective on life and he now viewed frustration in a different way.

"In the early days it is tough for the people who are here for long term investment, a hard struggle. You have to expect losses early on.

In contrast Ms Dobby who runs two once-popular five-room guesthouses in Sihanoukville reports occupancy rates being badly affected by the hostage taking.

She said: "During Untac and even this year during the dry season my guesthouses were full and I could rent out rooms for $5.

"Now I am prepared to rent out the whole of either of my five room houses to one person for $3.

"At the moment I have one person staying in each house. I think after the hostage taking tourists are now too afraid to come here."

Cambodia Beverage Company, the Cambodian producers of Coca Cola, have invested $10 million since starting up in March 1993, and Prakash says the company is facing accumulated losses of over $2 million dollars.

The company can produce two million bottles of Coke per month but at present the capacity utilization of the Phnom Penh factory was around 45-50 percent, according to Prakash.

He said he was very happy with sales figures [of around $6,500 per month] up until the last two months.

"In the last two months I've been unable to supply major distributors of Coca Cola in practically the whole country except for Phnom Penh and Kandal.

Prakash said some Coke had been supplied to parts of Kompong Speu, Kompong Cham and Kom-pong Chhnang.

"But Pursat, Battambang, Banteay Meanchey, Siem Reap, Kompong Thom are out completely. Nothing has been getting through.

"The distribution problems are caused by truck drivers being unwilling to transport products because of the security situation and a lot of reports of insurgency and patches of road being controlled by X and Y, guerrillas and bandits and I don't know who.

"Distributors are screaming for product and it's costing us sales revenue of upto $4,000 per day."

Prakash said: "The company has plans if the security situation is really hunky dory for an additional 50 percent expansion [$5 million dollar investment]. But at present we are not even considering it."

He said if the expansion took place between 500 and 1500 indirect jobs could be created in the country.

Cambodia Beverage Company currently employs 168 staff and Prakash estimates the company indirectly provides employment for about 3,000 people.

In contrast Sorn Sok Na, vice director of Sokimex Import Export Company, the largest oil importer and distributor in the country, reports only minor problems in distributing oil to the provinces caused by security and infrastructure problems.

He said Sokimex was supplying about 1,000 metric tonnes of oil per month to Siem Reap. One metric ton of oil equals 1190 liters.

Sok Na said it cost at present about $200 to send a truck carrying 6 tonnes of oil to Siem Reap.

Sok Na said Sokimex was supplying 3,000 tonnes per month to Battambang and it cost between $125-150 per truck trip.

He added that people who had been in the market a long time had learned to adapt rapidly to changing situations so that distribution to remoter areas in the contry was not affected.

As an example the vice director cited how transport costs dramatically increased three months ago after the Khmer Rouge retook Pailin and security problems increased.

He said the truck drivers had to pay much higher 'taxes' at checkpoints on the road during this time and it cost $300 to send a truck to Siem Reap and $200 to send a truck to Battambang, representing a $100 and $50 increase in 'taxes' respectively.

Sok Na said transport costs were now back to what they were before the increase in military activity in April.

He said on each trip drivers had to negotiate 'taxes' at the numerous checkpoints which could total to anywhere between $5 and $100 at present.

Sokimex imports by boat 30,000 tonnes of oil per month from Saigon, and Sok Na says the company makes profits of between $50,000-$90,000 per month depending on the severity of the security situation.

Sokimex is the major supplier of government fuel needs.

Ottenheym says Shell trucks in oil to Phnom Penh from Sihanoukville. He said each day Shell averagely transports about 15 trucks each containing 15 tonnes of oil from Sihanoukville to Phnom Penh.

He said: "But even when the road is working our trucks can only make one trip per day which takes between 4-5 hours (220 km), because of the road condition and security.

"When the road is down I try to unload as much of my product as possible to other distributors who will take it from Sihanoukville, the trucks also look for other work but they are limited in what they can do.

"When the road is down it doesn't cost us much, but for some people who are renting trucks it costs over $200 per day, and they also have to meet the costs of storing their product in Sihanoukville ($5-$10 per day per truck load).

"Shell operates thirty trucks, but potentially if the road and security were really good the trucks could each make two trips per day and we could halve the number of trucks we use which would substantially cut costs."

Ottenheym would not be drawn on what those costs were, but Un Bun Tha, the directeur adjoint for CKC (the second largest oil suppliers in the country), said: "It costs us $10-$12 to transport a tonne of oil from Sihanoukville to Phnom Penh, whereas it only cost $8-$10 to import a tonne of oil from Saigon to Phnom Penh Port by boat."

He added that the oil, which originally comes from Singapore, can be supplied to Saigon about $10 per tonne more cheaply than to Sihanoukville due to economies of scale in transport.

He said potentially the cheapest way of transporting oil to Phnom Penh was by train from Sihanoukville.

"If security was good we could transport oil from Sihanoukville to Phnom Penh by train at a cost of about $5-$6 per tonne, but because of security problems CKC has not tried the rail option."

Bun Tha said CKC imports about 3-4,000 tons of oil per month to Phnom Penh from Saigon, and imports about 2,000 tonnes of oil to Sihanoukville per month - most of which is distributed locally.

Bun Tha said CKC had been operating profitably for over 10 years in the country, and when Route 4 went down it only caused minor problems.

Prakash said when Route 4 collapsed his company could handle it for a week with no problems, but he said if it was out for a month potentially the Phnom Penh factory would run out of ingredients to make Coca Cola which could cost the company a maximum of $10,000 per day.

Prakash said the company transports about 8-10 truck loads per month of ingredients from Sihanoukville to Phnom Penh at a cost of $250 per truck trip.


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