Monday, February 25, 2013

Government Has 13 Payment Guarantees for Energy Projects

A CPP lawmaker said on Thursday that the government has signed 13 payment guarantees to companies constructing coal-fired power plants and hydropower dams in the country, a move that an Asian Development Bank (ADB) official reiterated was risky for the country?s fiscal future.

CPP lawmaker Cheam Yeap said the most recent payment guarantee approved by the National Assembly last Friday on the $781 million Lower Sesan 2 dam project in Stung Treng province is typical when any major company makes an investment in an energy project.

Other guarantees extended by the government include a 700-megawatt coal-fired power plant in Preah Sihanouk province, the Kamchay dam in Kampot, the Stung Atai in Pursat and the Stung Tatai in Koh Kong, Mr. Yeap said.

?It is the government?s obligation to do a guaranteed payment for investment companies whenever Electricite du Cambodge [EdC] [might] miss a payment or don?t pay the bill,? Mr. Yeap said.

?Each project has been evaluated clearly about its ability to generate the power, so the energy produced will not be over the demand in our country,? he said.

The International Monetary Fund (IMF) published a report last year that singled out the government?s energy generation expansion as an area where fiscal liabilities are not being fully considered in light of the government?s rapid push for power and their ?conservative forecasting scenarios? when providing ?take-or-pay guarantees? to underwrite power projects.

Peter Brimble, deputy country director of the ADB, echoed the IMF?s concerns that the government does not have the ability to properly assess the fu?ture risks of such large-scale projects.

?The government ought to be more involved in developing the project,? Mr. Brimble said. ?The Sesan [dam] and the other [energy projects] that have been carried out already?generally they have not followed a model of transpar?ency, they generally have been unsolicited bids, which means that a company is coming in to make a proposal, not with the government?opening it up to competitive bidding,? Mr. Brimble said.

However, he acknowledged that the government is under pressure in such areas.

?The need for power here is so great. It is the biggest single constraint here?. So I think there is significant pressure.?

According to the details of the payment guarantee and the implementation agreement be?tween the government and the two companies be?hind the Lower Sesan 2 dam?Kith Meng?s Royal Group and Chi?na?s Hydrolancang Inter?national Energy Co. Ltd.?the government will ?un?conditionally guarantee and promise without denial? the amount of mon?ey owed by EdC if the state-owned electricity body is unable to pay for the electricity that the dam gen?erates during the 45 years that the companies will operate the facility.

?All the electricity generated from the dam will be sold to Electricite du Cambodge,? the agreement states.

The Sesan dam is expected to pro?duce an average of 1.91 billion kilowatt hours of electricity a year, which will be sold to the EdC at 6.95 cents per kilowatt hour, the agreement said. Any excess energy produced will be sold at a 60 percent reduction to EdC.

Oliver Hensengerth, a lecturer at Northumbria University in the U.K. and an expert in Chinese hydro?power investments in Southeast Asia, said that Cambodia?s blanket guarantees to private firms building dams could be a danger to the country?s debt sustainability.

?There seems to be a sense of ca?ter?ing to the needs of companies first, then paying attention to the po?tential implications of the investment,? Mr. Hensengerth said.

? 2013, The Cambodia Daily. All rights reserved. No part of this article may be reproduced in print, electronically, broadcast, rewritten or redistributed without written permission.

Source: http://www.cambodiadaily.com/news/government-has-13-payment-guarantees-for-energy-projects-11377/?utm_source=rss&utm_medium=rss&utm_campaign=government-has-13-payment-guarantees-for-energy-projects

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