The haste to expand economic growth and achieve rural electrification has drawn Chinese interest and though China is closing down fossil fuel plants in its country as emissions rise, Cambodia prefers to look the other way

‘Yes,” Ministry of Mines and Energy spokesman Victor Jona briefly replied to a question about the assembly of two Chinese decommissioned 350-megawatt (MW) coal-fired plants on the shores of Sihanoukville’s Stueng Hav coastal district.

“They are under construction now,” he said, noting that 35 per cent of the work has been completed.

Back in China, these units formed the Hunan Chuangyuan power station, which was retired for allegedly violating pollution standards about five years ago, according to an article from China Dialogue, an environmental portal focused on China.

When the units were deconstructed, “some 45,000 tonnes of components [were] labelled with individual quick response codes to facilitate reconstruction in Cambodia,” the article read.

Back home, the site next to the sea in Sihanouk province, three other coal plants with a combined capacity of 1,205MW are already in operation.

This latest addition, stalled for two years, is being jointly built by senior politician and tycoon Lao Meng Khin’s Cambodia International Investment Development Group Co Ltd (CIIDG) and China Huadian Hong Kong Co Ltd (CHDHK) at a cost of $1.3 billion.

Hong Kong-based CHDHK is a wholly-owned subsidiary of one China’s five largest state-owned power producers, China Huadian Corp Ltd.

For CIIDG, it would be its second coal power venture after partnering up with Erdos Hongjun Power Co Ltd to operate a 405MW plant, all at the same site. Their joint venture company now works with CHDHK.

To be sure, the Kingdom first broke ground in coal energy after Kuala Lumpur-based Leader Universal Holdings Berhad’s subsidiary Cambodia Energy Co Ltd won a bid to build two plants with a combined capacity of 270MW over the last seven years.

There has been no turning back since. Early last year, two more coal plants – one of which belongs to Royal Group businessman Kith Meng – were approved for Koh Kong, and Oddar Meanchey.

Multi-millionaire Kith Meng, who for many years experimented with the idea of setting up a 700MW coal plant in Sihanoukville, finally decided to move his $1.1 billion project to Koh Kong, where a massive Chinese development by Union Development Group is materialising.

There, his firm Botum Sakor Energy Co Ltd had signed on Shenzhen-listed Sinosteel Equipment & Engineering Technology Co Ltd as its engineering, procurement and construction partner.

Asked if he saw more earnings potential in Koh Kong, Kith Meng did not respond.

Coal to the rescue?

A common theme at these sites is villagers complaining of land exploitation and environmental issues allegedly due to the size of the construction sites and emissions from the plants.

The people’s concerns, some say will only get worse. Experts claim that Covid-19 is a presage to bigger problems.

Dr Renard Siew, a climate change adviser to Kuala Lumpur-based Centre for Governance and Political Studies said scientists and expert groups have warned that Covid-19 is just a “dress rehearsal”.

“The impacts of climate change will be far worse and solutions are needed urgently. Cambodia’s move to rev up coal power plants is seen as a step backwards on the renewable trend that has been picking up across Southeast Asia,” he said.

There are many non-governmental organisations that have lobbied banks against the financing of coal power plants and this could potentially be disruptive in securing capital.

“The question remains why not invest in the renewable energy sector when there is a clear opportunity to transform the economy and provide more jobs to the locals?” Siew asked.

With the race to restore the economy and employment, especially with Covid-19 and the loss of two key economic sectors, power is of essence now.

This year, although officials forecast gross domestic product (GDP) growth to expand at four per cent, from an estimated -1.9 per cent contraction in 2020, the path to recovery is dependent upon a global economic uplift based on successful vaccine rollouts.

At the same time, Cambodia has to be prepared when it happens. Its buoyant growth for the past 10 years hinge upon it.

For instance, electricity tariffs have been comparatively high in Cambodia although the Electricity Authority of Cambodia (EAC) revises the costs down annually in accordance to its strategic plan, and power cuts used to stretch for hours in a day not too long ago.

For investors particularly those involved in capital intensive gigs these are pertinent considerations.

Added to all that is the moratorium on hydropower projects for the next 10 years due to the low water levels of the Mekong River. Up till 2017, hydropower, classified as renewable energy, picked up the tab on power generation. And like coal powered plants, experts decry hydro dams as being environmentally unsound. Thus, while the brief cessation of hydro development drew relief, the growth of coal plants is now raising ire.

Still, can these coal-powered plants drive investments and save the economy?

“To a limited extent, they can contribute to the economic growth of Cambodia. [But] it is just an additional factor,” said Sovinda Po, a PhD candidate in International Relations at Griffith University and a research fellow at the Cambodian Institute for Cooperation and Peace.

But it cannot make up the loss brought about by the dysfunction of most of the garment factories and tourism industry.

“These two sectors take up about half of the country’s economy whereas energy investment is only a small proportion,” said Po, who co-authored a working paper titled Assessing the Impacts of Chinese Investments in Cambodia: The Case of Preah Sihanoukville Province for Pacific Forum, a foreign policy research institute focused on Asia Pacific.

According to International Monetary Fund (IMF)’s growth prediction, the economy might expand at 5.6 per cent this year, 6.2 per cent from 2022 to 2024, and 5.7 per cent in 2025.

If this prediction is accurate, Cambodia needs to prepare to secure more energy and fix the current blackouts as result of hydropower’s energy production which varies from wet to dry season, said Han Phoumin, senior energy economist with Economic Research Institute for ASEAN and East Asia (ERIA).

“And if the coal-fired power plants go ahead, the government will need strict environmental regulations in place for the emissions from coal power plants.

“I think this is a loophole although the Ministry of Environment said it has regulations but I don’t think anyone monitors and enforces the law,” Han opined.

Questions to Ministry of Environment spokesman Neak Pheaktra were not answered.

For UN Development Programme (UNDP) resident representative in Cambodia Nick Beresford any large infrastructure project, even renewable energy projects, would have a positive impact on economic demand.

A study done by UNDP indicated that renewable energy projects generate more jobs and economic growth than fossil fuel projects n addition to the clear environmental and health benefits.

“The jobs brought in by renewable energy projects, and particularly through solar, are higher skilled and help Cambodian workers adapt to new technology,” he said.

Having said that, coal plants are able to plug the energy demand quickly compared to renewables and for a long time it was one of the cheapest energy sources before solar and wind took over.

It is to be expected, particularly in South and Southeast Asia, which could see coal use rise through 2025 as indicated by the International Energy Agency (IEA) in its Coal 2020 Analysis and forecast to 2025. The uptick will be underpinned by industrial production growth and new coal-fired capacity being built. In fact, it said the Southeast Asian region would become the third largest coal consumer, surpassing the US and EU by 2025.

“Big profit margin”

Meanwhile, with China onboard now, electricity tariffs are likely to be reduced further as the cost of production will be assumedly lower, bearing in mind that Cambodia’s energy partners own the technical expertise to produce electricity and are coal producers themselves.

Both Sinosteel, whose parent company is state-owned Sinosteel Corp Ltd, and China Huadian own large coal mines in China and other parts of the world.

Notwithstanding the Malaysian plant, it is widely known that coal-fired plants in Cambodia are seemingly backed by China. This is thanks to the close relationship between the two nations.

Whispers by high ranking officials have several times noted China’s strong influence in mega projects in Cambodia, and power plants are no exception.

Being one of the world’s largest coal producers, importers, and consumers of more than half of global coal at four billion a year, China ought to know a thing or two about this industry.

Because it was the largest carbon emitter in 2018, China itself is rolling back its coal consumption to meet its climate pledges, including cutting 65 per cent of emissions by 2030. The IEA expects China’s coal demand to plateau in its bid to reach carbon neutrality by 2060.

Cambodia’s emissions are negligible, but it still wants to do the same. Last December, Prime Minister Hun Sen reaffirmed the promise to reduce 18 per cent from baseline emissions.

One of the ways is to grow renewable energy power to 25 per cent whereas at present, solar and biomass power constitutes less than five per cent of the energy mix, Ministry of Mines and Energy statistics showed.

To be fair, the installed capacity of solar power had grown to 105,316 kilowatt in 2019, 10 times more than 2018, yet still decidedly lower than coal and hydropower.

What has caused an annoyance to major clothing lines such as H&M and Nike which, in a letter, were critical of Cambodia for focusing more on coal projects, and called the country unattractive to its peers in the region, Nikkei Asia wrote last August.

Overall, coal power and hydropower represented 46.8 per cent and 41.03 per cent of energy supply, respectively, in 2020.

This year, coal power is likely to dip to 38.6 per cent whereas hydropower will marginally rise to 41.6 per cent, as fuel oil expands by more than half to nearly 17 per cent in the energy mix.

Cambodia imported close to 32 per cent of energy from Thailand, Vietnam and Laos last year, an equation that is expected to fall by a smidge to 29 per cent this year.

This is in line with Cambodia’s power development plan to ease imports and boost domestic generation, roughly 70:30 ratio.

Year-on-year, energy sent out rose 6.2 per cent to 8.7 billion kilowatt per hour (kWh) in 2020 from 8.2 billion kWh, along with 3.1 million consumers, to date.

While there is no actual target supply to meet, Cambodia’s main goal is to ensure 100 per cent electrification with supply from the national grid. By 2030, it hopes that some 70 per cent of households would have access to grid-quality electricity.

Current setbacks involve poor grid connection in rural areas but efforts have doubled down to build more sub transmission and distribution networks. As of December 31, 2020, some $1.6 billion was set aside by the authority and investors for this purpose.

Accordingly, increased electricity supply to the grid is expected to reduce the costs of supply and consequently, the tariff for supply to consumers.

Power supply has exceeded demand, said ministry spokesman Jona. But it the will not diminish the growth of power plants.

“We will continue [building] power plants. However, we will revise the mix to boost liquefied natural gas power generation plants by 2028,” he told The Post.

And so the quest for more power continues. So too are concerns of environmental degradation, and the idea of settling for technology that is deemed outdated but remained costly, according to industry critics.

Currently, it seems the ministry is reliant on the report from the developer because they have little expertise to judge if the power plants are built to the technical environmental standard, ERIA’s Phoumin alleged.

“The developer may use the high spec of the power plants, but they may build the cheap one with higher emissions which could lower the upfront cost of the plants. This way, the developer might also be able to make a bigger profit margin by pushing the higher upfront investment cost quotation to negotiate the selling price to energy regulators.

“Combined with the weak governance of the electricity sector, where Electricite Du Cambodge might or is supposedly involved with the developer and closesits eyes, such low investment will take place.

“The electricity price [can be] high as they are charged based on the supposedly built high efficiency and low emission power plants. This is the case. We have seen high electricity prices in Cambodia and many developing countries,” he claimed.

Stephen Higgins, who co-authored a report titled Switching On: Cambodia’s Path to Sustainable Energy Security for the National Council for Sustainable Development in 2016, said technically one could build a solar farm much quicker than a coal-fired power station.

Upfront costs for renewable energy might be higher but running costs are obviously a lot lower.

“If you start factoring in the costs of carbon emission as well, the business case for a coal-fired power station really becomes questionable,” said Higgins, who is the co-founder and managing partner of investment and advisory firm Mekong Strategic Partners Co Ltd.

Which is probably why China is cutting back on fossil fuel plants but to allegedly transfer it to developing countries to save its coal industry, seems a little crass.

As it is the fossil fuel sector is at risk of becoming defunct, seeing that there is already a huge divestment from big pension funds, said Siew.

He cited the divestment from fossil fuel projects by Rockefeller Foundation, which is built on “oil money”, late last year.

“We will continue to see such trends happening across the globe and a lot of fossil fuel assets that are developed face the risk of being stranded.

“This is an interesting question given recent developments such as China’s commitment to be carbon neutral by 2060 and Cambodia’s commitment to reduce emissions by 18 per cent by 2030,” he added.

What next?

Having said that, the energy sector has always been attractive to Chinese investors because of its ever-growing demand.

But, with lack of transparency on environmental and social impact assessments, it tends cast a bad light on such projects.

“I have heard of allegations of dissatisfied residents claiming that they were not consulted about the development of such projects in the area, which in my opinion needs to change,” Siew said.

On top of that, he noted that some projects merely focused on profits as the bottom line while ignoring social and environmental impacts.

“There are various tools and frameworks available in the market to help factor in such externalities but there are debates around what is the basis of the assumptions or projections that are made bearing in mind that there is a no one-size-fits all solution, every project is unique in their own right.

“So there are still grey areas and such challenges need to be resolved,” he added.

Still, the question remains at what cost would Cambodia sacrifice to achieve economic growth.

Beresford is of the opinion that it is simply no longer true that the choice is between economic growth and environmental protection as green technology has moved so far and so fast that good options exist that bring both.

Cambodia already achieved a regional record low solar power purchase agreement of 3.77 US cents per kWh through an auction mechanism, which is lower than any other electricity generation option in Cambodia.

Commending the government for not approving new dam projects which is in line with the EIAs, he said UNDP research suggested that the ongoing externality costs of existing large scale hydropower amounted to approximately $13.8 billion in today’s terms, over the next 20 years.

Recent analysis also shows that investments in solar and other renewables offer much better economic value in Cambodia, not only environmental benefits.

But Higgins thinks that some coal is inevitable to get Cambodia through to a point where storage technologies are much more viable.

That being said,the extent to which more coal stations are being built seems to defy common sense.

“Also, once we reach that tipping point where storage is viable, the only reason anyone will buy electricity from a coal fired power station is if they have a take or pay contract in place,” he added.