In 1992, the Great Mekong sub-regional economic cooperation between China and ASEAN countries was officially launched and became a free economic zone. China began to implement a strategy of enterprises with investment from overseas. Since the beginning of 1993, the trade volume between China and Cambodia has increased year on year, Chinese enterprises have invested deeply in every field in Cambodia, and it has made an outstanding contribution to Cambodia’s economic development and infrastructure construction. With the national strategic facilities construction for example, hydropower has been an area in which Chinese enterprises have invested heavily. China Electric Power Construction Corporation investment in the construction of the Cambodian hydropower station is in build-operate-transfer (BOT) mode for Chinese Cambodian investment. The first hydropower project, the hydropower project in Cambodia, also has the largest installed capacity and is the first use of BOT mode construction and operation. The prediction of some operational or investment risk may exist during the engineering project of Chinese enterprises based on BOT mode in Cambodia from financing to construction to operation to transfer, and to all levels of government and enterprises in the operation of the BOT project that provides valuable experience as the reference.
Cambodia is located in the southern portion of the Indochina Peninsula in Southeast Asia. Its total land mass is 181,035 square kilometers (69,898 sq mi), it is bordered by Thailand to the northwest, Laos to the northeast, Vietnam to the east and the Gulf of Thailand to the southwest. The long-term war led to the destruction of a basic infrastructure and left a weak industrial base. Later, Great Mekong sub-regional economic cooperation has strengthened national economic links, improved regional competitiveness, promoted the common development of the region’s economic and social environment, made economic cooperation have a more practical economic value and strategic significance, and provided valuable experience for reference for international enterprises that entered the region (Figures 1 and 2).
1. The project background
Kamchay hydropower station is located along the Kamchay River in Kampot Province in the southwest of Cambodia, about 150 km from the capital Phnom Penh. The project’s total investment is US$280 million, the total installed capacity is 19,300 kilowatts. The hydropower station is the work of China Electric Power Construction Corporation (formerly the China Hydropower Construction Group Company), the first overseas hydropower BOT investment mode project. The project is of great significance as it is the largest Chinese offshore BOT hydropower investment project. It was launched as a pioneer project, and is the key project of the China Electric Power Construction Corporation internationalization development strategy. From signing labor contract transformation capital operation mode of project operation, the innovation of enterprises is in line with international standards in the process of project management mode, so the group company leads the implementation of this project attaches great importance.
The BOT investment mode is a project that absorbs private capital for public utilities and infrastructure works. Because it eases pressure on government funding, using the experience of management and the operational efficiency of private capital and other advantages, it has been applied rapidly in practice. In Cambodia’s economy where social wealth is extremely poor, China created the first successful precedents for foreign BOT investments.
The formal operation of the hydropower station marks Chinese first successful overseas investment of a hydropower station BOT project. It also marks for Cambodia an important symbol of a national strategic project being completed. However, of more importance is the power resources it provides which will promote the rapid development of a social economy in Cambodia. It has been built to play an active and important role to improve the power supply to Kampot Province, Takeo Province, Sihanouk Province and even the capital Phnom Penh. Instead of importing the power supply from neighboring areas it will be an independent supply and will improve the local people’s production and living conditions. However, Cambodia’s unsound economic policies, the backward social and economic level, and the uncertainty of the future international and social economic situation will bring different challenges and test the operation. The significance of the project in future is that it provides some measures to guard against possible risks.
2. The establishment of Kamchay hydropower project
After establishing Mekong sub-regional economic cooperation and with the ASEAN Free Trade Area officially launched, Cambodia took this opportunity to strengthen cooperation with China, and has expand economic and trade cooperation with all countries in recent years. But Cambodia has a serious shortage of a domestic power supply, restricting rapid development of the economy. The Cambodian power supply is mainly imported from neighboring countries; the cost is about three times higher than other the countries nearby. The high cost of power resources has made the economy sluggish as one disaster has followed another.
In 2003, the Cambodian Prime Minister Hun Sen said in a speech that: with the Great Mekong sub-regional economic cooperation opportunities, introducing foreign capital to develop local enterprises, and domestic natural resources, so we want to take this opportunity to promote our local economic development. Since there is a great shortage of power supply in Cambodia, this has restricted Kampuchea’s economic development and the improvement of people’s living standards; so Cambodia will plan to build a hydropower station to reduce electricity cost and also to attract foreign investors to invest in Cambodia.
In July 2004, Cambodia’s Ministry of Industry, Mines and Energy began the bidding for the hydropower engineering international BOT project. Companies that participated in the bidding included the Chinese Hydropower International Company, China Electric Power Technology Import and Export Company, Guangxi Investment Group, Mitsui Corp of Japan, Canada Expert co. International, and many international well-known companies.
The final bidding was led by China’s Electric Power Construction Group International Engineering Co. the company, China Hydropower Eight Bureau Co. Ltd and Northwest Hydropower Survey and Design Institute jointly won the first standard.