VZCZCXRO9367
RR RUEHAST RUEHCHI RUEHDT RUEHHM RUEHLN RUEHMA RUEHNH RUEHPB RUEHPOD
RUEHTM
DE RUEHPF #1003/01 3530904
ZNR UUUUU ZZH
R 180904Z DEC 08
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC 0217
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 2538

UNCLAS SECTION 01 OF 04 PHNOM PENH 001003 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MLS, EEB/CIP/BA, EEB/ESC/IEC, AND INR 
STATE FOR OES/PCI/ACOVINGTON AND OES/ENV/ASALZBERG 
STATE PLEASE PASS TO USAID/EGAT/TMILLER 
STATE PLEASE PASS TO USAID/EGAT/ESP/MPC/LJOHNSTON 
BANGKOK FOR REO/HHOWARD 
BANGKOK FOR USAID/RDMA/JPASCH 
BANGKOK FOR FAS/MEYER 
VIENTIANE FOR JARCHIBALD 
HANOI FOR AHERRUP 
RANGOON FOR SYODER 
BEIJING FOR CGREEN 
 
E.O. 12958: N/A 
TAGS: SENV EAGR ENRG EAID EIND VM LA CH CB
SUBJECT: CAMBODIA'S RACE FOR HYDROPOWER CONTINUES 
 
REF: 07 PHNOM PENH 1189 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (SBU) SUMMARY.  The Royal Government of Cambodia (RGC) continues 
to pursue its hydropower potential with 22 ongoing and proposed 
projects.  With primarily Chinese support, the RGC hopes to generate 
enough electricity to meet domestic needs and eventually profit from 
energy exportation.  Donors have sought to support the Cambodians in 
prioritizing their hydropower plans and investigating alternative 
energy solutions, but their slower engagement has fallen behind the 
RGC's ambitions. 
 
¶2. (SBU) Prompted by some of the highest electricity prices in Asia, 
Cambodia wants to lower costs in order to compete to be the battery 
of Southeast Asia.  While electricity rates will drop, the proposed 
dams' construction and maintenance contracts will funnel near and 
mid-term profits to foreign construction companies.  And, at risk is 
one of the world's largest fishery basins - the rivers being dammed 
are major migration paths for the fish that supply 80% of the animal 
protein in the diet of the Cambodian population. 
 
¶3. (SBU) Communication issues between the various levels of 
government, ministries, and communities are hindering the 
development of a cohesive national energy policy.  The Ministry of 
Environment is taking steps to improve the environmental impact 
assessment process, but it has not been able to ensure a thorough 
review of ongoing projects.   END SUMMARY. 
 
AT LEAST 22 DAMS IN THE PIPELINE 
------------------------------- 
 
¶4. (U) As of September 2008, the Ministry of Industry, Mines and 
Energy (MIME) has prioritized the following nine projects, with 
another 13 in the pipeline.  The total list of 22 dams (forwarded to 
EAP/MLS) includes two proposed main-stem dams on the Mekong, 13 dams 
along various Mekong tributaries, and a group of dams in the 
Southwest and West.  The list includes estimated completion dates 
for each of the dams, but estimated construction start dates are not 
yet available as they depend on feasibility study and contract 
negotiation completion.  The Sambor dam feasibility study, for 
example, is due in mid-2009. 
 
Dams under construction: 
 
Name    Capacity  Est. Completion 
-------------  ---------  ---------------- 
- Kamchay   193 MW  2010 
- Kirirom III  18 MW   2010 
- Lower Rusey  338 MW  2013 
  Chhrum 
 
Dams under feasibility study and negotiation: 
 
Name    Capacity  Est. Completion 
-------------  ---------  ---------------- 
- Atay   120 MW  2012 
- Tatay   246 MW  2015 
- Lower Sesan II/ 420 MW  2016 
  Lower Srepok II 
- Lower Sesan I 90 MW  2015 
- Chay Areng  108 MW  2017 
- Sambor   2600 MW  2019 
 
- Total   4133 MW 
 
¶5. (SBU) The additional 13 proposed dams, which are not yet 
scheduled for feasibility studies, represent at least another 3000 
MW capacity.  Tun Lean, Director General of the Department of Energy 
at MIME, told Econoff that he expected all 22 projects to move 
forward.  Cambodia's current energy costs and demand are too high 
for the government not to pursue hydropower, he stressed, echoing 
similar comments by officials from the central government down to 
the district level.  Ith Praing, Secretary of State at MIME, 
acknowledged however that hydropower cannot be a year-round energy 
source due to the large variance in water levels between the rainy 
and dry seasons.  MIME is therefore also planning the construction 
of a series of at least nine new coal power plants, using Indonesian 
 
PHNOM PENH 00001003  002 OF 004 
 
 
coal, to compensate for reduced hydropower productivity in the dry 
season. 
 
CHINESE INVESTMENT INCREASES 
--------------------------- 
 
¶6. (SBU) Cambodia's hydropower ambitions are not new, but China's 
substantial foreign aid in the form of grants and soft loans has 
driven much of the recent progress.  Chinese construction firms are 
managing six of the nine priority projects.  Some of them, such as 
the Kamchay Dam in Bokor National Park, are in areas that other 
donors explored and then dismissed, citing environmental and 
economic concerns.  MIME officials could not discuss financing 
details, but NGO researchers believe that a $600 million Chinese aid 
package for low-interest loans to Cambodia announced in April 2006 
now funds the estimated $280 million cost of the Kamchay Dam 
project. 
 
SLOW DONOR RESPONSE TIME HINDERS ALTERNATE PLANS 
--------------------------------------------- -- 
 
¶7. (SBU) The Japan International Cooperation Agency (JICA) has been 
working on a Cambodian hydropower master plan since July 2007, but 
MIME has proceeded with its own priority list ahead of the final 
JICA report, the content of which JICA and MIME are still 
negotiating.  The report evaluates and ranks 26 proposed hydropower 
projects based on socio-economic impacts, environmental impacts, 
project technical issues, economic and financial considerations, and 
speed of construction. 
 
¶8. (SBU) Tun Lean said that the ministry had requested JICA's 
assistance in preparing their hydropower plan in 2003, but that JICA 
did not approve the work until 2006, and the RGC decided not to wait 
before soliciting private investors for its own 29 proposed 
projects.  MIME developed its own priority list based on investor 
interest, which does not match JICA's more thorough analysis.  For 
example, JICA immediately dismissed the two proposed main-stem 
projects (Sambor and Stung Treng), so they will not be included in 
the final report. MIME's priority list includes Sambor (for 2019), 
and its complete list includes Stung Treng (date TBD). 
 
¶9. (U) MIME also completed a plan with support from JICA and the 
World Bank for a decentralized, nation-wide rural electrification 
network based on renewable energy technologies such as solar and 
biomass. The targets of the plan are to:  1) achieve 100% village 
electrification including battery lighting by 2020, and 2) achieve 
70% household electrification with grid-quality electricity by 2030. 
 
 
¶10. (SBU) Implementation of the plan would help to alleviate the 
pressing need for electricity in more rural areas and perhaps lessen 
the RGC's drive for large hydropower projects for domestic use. 
However, MIME officials complained to Econoff that the World Bank 
contracting process has taken too long.  MIME has requested an 
extension from 2009 to 2011 to find a local contractor to install 
small-scale solar power generators throughout the country, because 
the World Bank has not yet procured the generators for installation. 
 A World Bank representative told Econoff that he had received 
MIME's extension request and may be able to complete the solar panel 
procurement in the next year. 
 
MEETING ENERGY NEEDS VERSUS PLANNING ENERGY EXPORTATION 
--------------------------------------------- --------- 
 
¶11. (U) The cost of electricity, the limited means of energy 
production, and the poor distribution of electricity are great 
challenges for Cambodia's development.  Current power plants run on 
diesel-powered generators and only major urban areas have power 24 
hours a day.  Much of Cambodia remains without power:  only about 18 
percent of the population is connected to the electricity grid. 
With prices in some areas reaching over $0.50 per kilowatt-hour, the 
cost of electricity is among the highest in Asia.  RGC officials 
acknowledge that it is difficult to attract environmentally friendly 
light industries with that type of energy cost.  Environmentally 
sound energy projects that reduce the cost of electricity make sense 
for Cambodia, according to analysts. 
 
¶12. (SBU) However, the planned capacity of all the hydropower 
 
PHNOM PENH 00001003  003 OF 004 
 
 
projects far exceeds the country's estimated energy needs, 
illustrating Cambodia's ambitions to become the battery of Southeast 
Asia. Based on the past five years of economic growth, MIME has 
projected that by 2020, domestic energy demand will reach 3,502 MW, 
while the production with proposed dams would total over 7,000 MW. 
Ith Praing estimated that only about 40% of the electricity 
generated from hydropower would be used domestically.  The Asian 
Development Bank (ADB) is funding the construction of a regional 
power grid, which will enable Cambodia to export energy to its 
immediate neighbors, Thailand and Vietnam, and as far as Yunnan 
Province in China. 
 
¶13. (SBU) Although Cambodia may benefit from reduced energy costs - 
schools and hospitals could provide more modern services with lower 
budgets, for example - and although it might be able to negotiate 
even better prices and electrify more of its population with a 
regional grid, Cambodia will not see the profits of hydropower 
energy exportation for years.  Tun Lean admitted that all of the 
dams are under a Build-Operate-Transfer (BOT) model.  For example, 
SinoHydro, the company responsible for the Kamchay project, will 
maintain the dam and collect all profits during its first 40 years 
in operation.  As part of the BOT agreement, the Cambodian National 
Assembly also passed a measure in July 2006 to guarantee financial 
compensation to SinoHydro if the project faced difficulties or 
under-performed. 
 
¶14. (SBU) COMMENT:  After the 40-year operation period, SinoHydro 
would presumably transfer operational responsibility to local 
authorities, but given the higher maintenance needs of older dams, 
this will likely come with a heavy price.  Opposition party 
lawmakers recently raised this issue and called for a quicker 
handover of BOT infrastructure projects (15 years).  Given the lack 
of transparency and public input in project negotiations, it is 
unlikely that the handover dates will change.  END COMMENT. 
 
COMMUNICATION ISSUES 
------------------- 
 
¶15. (SBU) Provincial and district government officials are 
responsible for notifying communities that could be affected by 
proposed hydropower projects.  However, this communication is 
frequently incomplete or inaccurate.  Similar to previous 
experiences (Reftel), community members in the Sambor and Kampong 
Pnov villages explained that local officials had told them about the 
planned dam at Sambor only after the company had arrived in their 
area with large equipment to conduct geological surveys for 
feasibility studies.  When villagers raised concerns about flooding 
and displacement, they said that their commune council and 
provincial representatives replied that there would be "no impacts" 
and that the communities would benefit from cheaper electricity. 
NGO contacts report similar communication issues at other proposed 
dam sites in the Northeast and Southwest regions of the country. 
 
¶16. (SBU) Information exchange is also lacking between the various 
levels of government.  For example, the Sambor district governor 
boasted that he had more information about the proposed Sambor dam 
than the Kratie provincial MIME representative.  The Chinese 
engineers conducting the feasibility study for the site approached 
him directly to ensure security for their equipment, bypassing the 
provincial MIME office completely. 
 
¶17. (U) In another example, the Ministry of Tourism in Kratie is 
seeking to capitalize on the province's wildlife and forests by 
joining the "Mekong Discovery Trail", an eco-tourism corridor that 
the World Tourism Organization is developing from central Cambodia 
north through Laos.  At the same time, MIME is pursuing the 
construction of Southeast Asia's largest dam at Sambor, which would 
derail all plans for eco-tourism in the area. 
 
MISCONCEPTIONS ABOUT MITIGATION TECHNOLOGY 
------------------------------------------ 
 
¶18. (SBU) Both MIME and Ministry of Environment (MOE) officials are 
aware of the potential impacts of extensive hydropower development 
around the country, including the threat to Cambodia's high-volume 
fisheries (Reftel).  They remain confident though that mitigation 
techniques such as fish ladders and shorter run-of-the-river dams 
will compensate for any threats to fisheries.  Dr. Eric Baran, a 
 
PHNOM PENH 00001003  004 OF 004 
 
 
researcher with the NGO World Fish Center currently working out of 
the Ministry of Fisheries, disagreed and noted that no dam 
mitigation techniques exist that can reduce impacts to the volume of 
fish that migrate along the Mekong-Tonle Sap corridors. 
 
¶19. (SBU) According to reports by the World Fish Center and the 
Mekong River Commission, the inland fish production of Cambodia 
alone is higher than that of all of North America.  According to Dr. 
Baran, hydropower dams need to be placed as high upstream as 
possible, away from fish migration paths, in order to minimize 
potential impacts to these high-volume fisheries. Other NGOs, such 
as International Rivers and the Rivers Coalition of Cambodia, have 
made the same argument. 
 
ENVIRONMENTAL IMPACT ASSESSMENTS (EIAs) 
-------------------------------------- 
 
¶20. (SBU) The EIA process, meant to provide decision makers with an 
objective analysis of the potential environmental and economic 
impacts of a project, is not strenuously applied to hydropower 
projects in Cambodia.  The construction firms responsible for 
developing the projects are also responsible for conducting or 
contracting out EIAs, resulting in subjective analyses.  In 
recognition of this issue, the MOE is attempting to improve the 
transparency of the EIA process.  The EIA Department plans to share 
the EIA for the proposed Lower Sesan II/Lower Srepok II dam with 
civil society and private sector technical experts next year and has 
requested World Bank assistance to develop an EIA template for 
future projects. 
 
¶21. (SBU) In spite of these positive steps, the EIA process has not 
stopped priority hydropower projects from proceeding. Puth Sorithy, 
Director of the EIA Department at the MOE, said that the EIAs for 
the three in-progress projects are all still in draft form.  When 
asked if the MOE had any authority to stop a project that it found 
to have potentially serious environmental impacts, Puth Sorithy 
admitted that if the Council for the Development of Cambodia (CDC) 
wants a project to proceed, MOE comments have little sway. 
 
RGC: "WE LACK ALTERNATIVES" 
--------------------------- 
 
¶22. (SBU) COMMENT: A consistent message from all government 
interlocutors is that hydropower is Cambodia's only near-term route 
to energy independence and surplus.  The lure of Chinese and other 
investment overrides serious consideration of the cumulative 
environmental and social impacts of many dams throughout the 
country; this same private investment is marginalizing the influence 
of institutions such as the ADB that build environmental and food 
security considerations into their lending decisions.  Without 
concrete energy alternatives and pressure from other donors, the RGC 
will continue to push for more hydropower development, potentially 
at the cost of its food security. 
 
¶23. (SBU) Embassy Phnom Penh will continue to engage the RGC with 
technical experts on fisheries, hydropower and alternative energy 
solutions, so that the RGC can make rational, informed, transparent 
decisions about the direction of its energy policies that include 
citizen consultative mechanisms.  We hosted an EPA wetlands expert 
through the Embassy Science Fellows Program, who identified some of 
the environmental and social impacts of hydropower dams and shared 
that information with MIME and the MOE.  We are identifying 
hydropower and alternative energy technical experts to potentially 
participate in the embassy's speaker series.  We are also exploring 
ways to encourage U.S. alternative energy investment or partnerships 
through the U.S. Trade and Development Agency.  END COMMENT. 
 
 
 
RODLEY