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South Korea joins the Mekong goldrush

South Korea joins the Mekong goldrush

SOUTH KOREAN business giants worth billions of dollars are preparing to invest in

"virgin" Cambodia, part of plans to link the Mekong region from China to

the delta with huge grids of roading, rail, trade, tourism, communications and power.

The Republic of Korea - working with the Asian Development Bank (ADB) in the Greater

Mekong Subregion (GMS) group - has already proven it has the money and desire to

tackle huge projects that have been for years, in Cambodia at least, little more

than wishful plans.

The ADB's "new" vision of linking all the Mekong countries, including China

and Burma, seems to be moving quickly - especially now that the Mekong River Commission

(MRC) is being dismissed by critics as cumbersome, ineffectual and increasingly irrelevant.

Critics say that while the MRC has, for example, yet to get a cent from donors to

actually start building anything, private South Korean businesses have spent $1.2

billion - mainly on dams identified by the GMS as priority projects- in Laos alone,

becoming that country's third largest investor within months.

Cambodia has many projects with the MRC, including up to 20 dams, but none have yet

been picked up by bilateral donors.

A recent 53-person delegation to Phnom Penh of the Federation of Korean Industries

included senior executive officers of Hyundai ($27.3 billion turnover in 1996); Samsung

(nearly $20 billion); Hanjin (one of Korea's biggest highway, harbor, airport, bridge

and dam builders); and Daewoo (heading to become one of the world's top 10 general

contractors within seven years). More than 20 other Korean firms boasting huge assets

and sales were represented by senior directors, all saying they are keen to invest.

The republic's government was also represented, headed by Finance Ministry director

general Jong-Hwa Yoon.

South Korean President Kim Yung Sam has given the green light for all Korean companies

to invest overseas because Korea was now too competitive and developed itself. The

companies are eyeing the Mekong basin - and now Cambodia - realizing the size and

potential profits of the GMS plans.

Hyundai Executive Vice-President Chung Chung-Il said the visit was a fact-finding

mission supported by President Kim "who has encouraged South Korean businessmen

to take part in GMS projects."

"We're well aware of GMS [having] such a huge economic potential. We're encouraged

by Cambodia's drive to economic liberalization," Chung said at a meeting with

Cambodian leaders at the Council for Development of Cambodia (CDC) June 6.

Chung said he could see some "real potential" and "we are interested

in [the Mekong region]. Frankly speaking, if you have any project available which

would be suitable to us, why not [invest in Cambodia]?"

Chung said that some Korean companies might be interested in Independent Power Producing

(IPP) projects. He hinted that Hyundai would get involved as it had a lot of facilities

for hydro-electricity projects.

"Cambodia is still a virgin land, it has a lot of natural resources," said

Yong Wethington, chairman of Phnom Penh-based Sun Trading company.

At the CDC, Industry Minister Pou Sothirak stressed that hydro-electricity was the

Royal Government's policy to address the electricity problem in the long term.

First Prime Minister Prince Norodom Ranariddh told the delegates: "We are fully

convinced that Cambodia is for you the right place for investment. We can count on

you to work with us to build a prosperous, dynamic Cambodia."

"[South] Korea is becoming an economic power in Asia," he said.

Cheap labor, a liberal investment law and Most Favored Nation trading status (MFN)

likely soon to be granted by the US made the Kingdom an interesting investment, he

said.

He told them not to believe press reports and to leave at home their preconceived

ideas about Cambodia to look for opportunities for doing business.

Should political stability be maintained, other South Korean businessmen believed

that Cambodia would greatly benefit from the GMS projects.

"The big goal [of the Korean delegation] is alongside the ADB's plan to develop

the Mekong. Cambodia will and should attract more out of those projects," Wethington

said.

"It's in a very important region. It'll develop faster if the government and

the people work in harmony to build the country. This government will stand up in

Southeast Asia," he said.

South Korea only re-established formal links with Cambodia last month.

As a precedent, analysts point to Korean experience in Laos. Since the recent nomalization

of relations between those two countries, Korea has quickly ear-marked $1.2 billion

there, mainly in hydro projects.

Daewoo has a 60 per cent share in the $220m Huay Ho dam. An official for Australian

dam developer HECEC - which was favored to win the Huay Ho deal after having completed

a favorable feasibility study - was recently publicly quoted as saying that "the

Koreans got there first and put a big bag of money on the table."

Hyundai has an informal agreement to build Laos' largest hydro project, the $754m

Se Kong 4 dam; and the Dong Ah Co. has signed a Memorandum of Understanding for the

the Xe Nam Noy dam, worth up to $430m.

There are rumored to be 15 Korean hydro projects planned for Laos.

Analysts say that the South Koreans can mobilize massive amounts of money very quickly.

They are working with the ADB in a GMS scheme that is apolitical, therefore they

can work in China and Burma, and are impervious to environmental and transparency

questions that have hamstrung the MRC.

The ADB/GMS is encouraging private investment, away from the traditional bilateral

and multilateral spending.

The ADB/GMS has said that $40 billion could be spent in the Mekong watershed, and

has identified more than 300 potential dam sites in the region.

In Cambodia the Sekong and Sesan rivers in Stung Treng and Ratanakiri have been earmarked

as "priority" hydropower projects in the GMS energy sector report.

The ADB's chief economist, Vishvanath Desai, said at the bank's meeting in Manila

in April: "The private sector will go where it expects high profits. That's

why they are in the business."

Environmental groups say that there are significant social and environmental costs

when it comes to building large-scale hydropower dams, and the profit-only motivation

of private developers may have disasterous consequences for the millions of people

who rely on the rivers of the basin for their livelihoods.

Such critics fear that companies such as Daewoo and Hyundai lack the guidelines and

transparency of the tradititional mutli- and bilateral donors.

Asia-Pacific NGOs have already met with ADB President Mitsuo Sato in Manila in April

and said the bank should set up a "social and environmental clean-up fund",

agree to stop any project with large public opposition, and evaluate each project

on its merits, rather than part of one wider plan.

The Korean investments in Cambodia have been tipped to follow those in Laos - that

of build, own/operate and transfer (BOT).

The company puts up the cost of construction and builds the dam, owns it for 20 to

30 years, recouping its investment before handing it back to the government.

Environmental groups say while that looks attractive - huge injections of private

funding for a public infrastructure project - the government may eventually be given

back a development with a limited lifespan, and one needing more money to be spent

on correcting problems and paying out compensation to local people.

The Koreans will likely enjoy red-carpet treatment in Cambodia however, rather than

be too worried about such opposition - and they will extend the same to the Royal

Government. Prime Minister Hun Sen will undertake a full state visit to Seoul in

July, at the invitation of President Kim.

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