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Cablegate: Cambodia's Race for Hydropower Continues

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

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