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High costs of electricity deterring foreign direct investment

High costs of electricity deterring foreign direct investment

Cambodia's electricity prices remain among the highest in the region and present a major obstacle to attracting foreign investment to the impoverished country, industry and government officials say, adding that energy costs are also driving up the price of other crucial utilities.

"This challenges our ability to compete with neighboring countries such as Thailand and Vietnam," said Chan Sophal, director of the Cambodian Economic Association, a private industry group.

At the heart of the problem is Cambodia's lack of a national power grid, which puts supply in the hands of dozens of small, private power producers operating in a loosely regulated system.

Because most of these producers rely on diesel-powered generators, spiraling global oil prices are being passed on to Cambodian consumers through the power companies.

The result is electricity that can be as much as four times as expensive as in Vietnam or Thailand, said economist Sok Sina, adding that the government is in no position to lower its taxes on imported petroleum products - a move that could see fuel and electricity prices drop.

"Any slowdown in investments is on the back of concerns over high electricity costs ... but if gasoline taxes decrease, the national budget will be affected," he told the Post on May 21.

"The problem will not likely be fixed until 2012" when Cambodia hopes to bring several hydropower projects online, he added.

Until then, the country will have to limp along under the current patchwork of independent power suppliers, officials say.

"The electricity supply still does not meet the basic demand for electricity, especially in rural areas, where a 24-hour supply of electricity is still not assured, and the quality of electricity is not reliable," the Council for the Development of Cambodia says on its website.

The state-run Electricite du Cambodge (EdC) is only able to provide about three-quarters of the 250 megawatts consumed by Phnom Penh each day, said one EdC official who did not want to be named, explaining the frequent blackouts that blight large swathes of the capital and force many to resort to expensive diesel fuel generators.

The situation becomes much worse, in the countryside, where regular power is available to only a fraction of the households.

The government has struggled to keep electricity prices in check, spending more than $40 million in subsidies for the EdC, Prime Minister Hun Sen said on May 20.

But spiraling power costs are not likely to ease anytime soon, business officials say, adding that demand for electricity is growing by 15 percent each year, putting further pressure on the country's fragmented power system.

"The investors are going to have to be patient and wait for a few more years to get lower electricity prices," said Nguon Meng Tech, director general of the Cambodian Chamber of Commerce.

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