News Clipping

Cambodia has been gripped by daily blackouts in recent weeks, leaving many parts of the capital Phnom Penh without power for most of the day. As temperatures spike during the region’s hot season, heated questions are rising about why the government can’t seem to keep the lights on.

Prime Minister Hun Sen has blamed the blackouts on a severe drought that has stifled the operations of hydropower dams, which supply about half of the country’s electricity needs.

Last month the Ministry of Environment advised farmers not to plant their next rice crop because of the drought, causing some to resort to eating lotus roots to survive, according to local reports.

But the economic impact of the blackouts will be most acutely felt in the national capital, home to the country’s most profitable industries. There is not yet any concrete official estimate on the rising costs of the daily power cuts on the economy.

Kimlong Chheng, director of the Center for Governance, Innovation and Democracy at the Asian Vision Institute, a local think-tank, says that economist costs “depends on the frequency and duration of power cuts.”

“It is hard to say exactly without having hard evidence. Possibly, an estimated 40-50% of factories have been affected, but only about 20 to 30% of their production processes might have been damaged,” he estimates.

Ou Virak, president of the Future Forum, another local think tank, reckons that the effect on the economy could “be in the tens of millions of dollars.” He adds, however, that a business sector friend estimates the blackouts could cost the economy hundreds of millions of dollars if they last until June.

In mid-March, the government estimated that 400 megawatts of energy were needed to make up for the shortfall caused by depleted hydropower dams, or roughly one-sixth of all the electricity Cambodia consumed last year.

So far only a quarter of this power gap has been purchased from neighboring Laos and Thailand. Vietnam, meanwhile, has declined to sell Cambodia any more power because it, too, is facing energy reductions in its southern provinces.

On April 2, the government agreed to terms on a three year lease of a vessel from Turkey that can generate 200 megawatts of energy, but it is not yet known when the floating facility will be operational.

The hardship, depending on how long it lasts, could have implications for stability. Electricity generator vendors have dramatically raised prices in recent weeks, sparking a heated response on social media.

Government spokesman Phay Siphan has asked people to “keep faithful behavior toward[s] each other with a culture of solidarity for Cambodian people, especially when it comes to hard times with electricity shortages.”

But clearly not everyone is pulling together, exposing the already severe divide between rich and poor.

The commanding towers of the capital’s only licensed casino, NagaWorld, which saw more money pass through its VIP rooms last year than the nation’s entire gross domestic product (GDP), are glaringly illuminated day and night.

Phnom Penh’s poorest neighborhoods, including those on the city’s hard-scrabble outskirts, are being hit the hardest by the power cuts, with some areas apparently receiving electricity for only a couple of hours per day.

Such a dire situation was somewhat foreseeable. In 2015, Cambodia experienced its worst drought in 50 years, while one in 2012 affected half of the country’s provinces.

A report by the United Nations in 2015 predicted Cambodia would be the world’s ninth-most vulnerable country for natural disasters, including droughts and floods, as well as other effects of climate change.

That means the current electricity shortage might become a regular occurrence without more forward-thinking investment and planning.

Cambodia’s electricity needs are growing rapidly, in line with a fast accelerating economy that has seen average GDP growth of 7% in recent years. The country consumed roughly 2,650 megawatts of electricity last year, up 15% from 2017, according to government data.

About 20% of this energy came from imports from Thailand, Vietnam and Laos last year, down from imports of about 60% in 2010. The remainder came from coal-fired plants (660 megawatts), other fossil-fuel burning stations (271 megawatts), renewable sources (163 megawatts) and the remainder from hydropower, officials from the Ministry of Mines and Energy told local media.

The Electricity Authority of Cambodia, a state utility, reckons that about 72% of all households now have electricity and that percentage is expected to rise this year, which will see projected electricity needs grow to 2,870 megawatts by the end of 2019.

According to a report published on April 1 by Fitch Solution, a macroeconomic research firm, Cambodia’s net power consumption will grow at an annual average of 6.1% between now and 2028, largely “driven by an expanding industrial and manufacturing sector, particularly for textiles.”

The government reckons that hydropower projects can be expanded so that they produce around 2,000 megawatts by 2020 – up from 1,329 megawatts last year – and eventually 10,000 megawatts at some point in non-specified future.

The Fitch Solutions report, however, argues that supply projection is likely too optimistic and that only 1,380 megawatts will be available from hydropower dams next year.

“Project delays have been frequent and general environmental and social opposition from the region could curb future growth in the sector,” it stated, referring to frequent land rights protests by people who are relocated to make way for the dams.

Moreover, the firm revised down its estimates for this year’s hydropower generation, noting that while the drought is the main cause of the problems, it is “compounded by the country’s strong power demand that have exceeded government estimates.”

Shortages, meanwhile, are compounding costs for the state. It is not yet known how much the electricity shortages will cost the wider economy, but the losses will inevitably impact on tax revenues and thus the government’s future spending power.

More costly, however, are the state’s emergency outlays to cover shortfalls. Energy produced from the vessel leased from Turkey, for example, will cost US$0.03 more per kilowatt per hour than power produced by local hydropower plants, according to local media reports.

The cost of the lease agreement has not yet been announced, although the Cambodian government says it will subsidize the additional energy prices for consumers. But pass-through effects are inevitable.

Inflation was expected to hit around 2.6% this year, according to the National Bank of Cambodia, but that estimate will no doubt rise with more costly power.

Last month, the state-owned Electricite Du Cambodge agreed to purchase 200 megawatts of energy from the Electricite Du Laos over the next three years, although the price Cambodia will pay similarly has not been publicly disclosed.

Apart from the extra cost to national coffers, “the worst is the impact [the shortages] will have on potential investments,” says Ou Virak, of the Future Forum think-tank.

“That’s much more difficult to know. My bet is potential investors will now incorporate the blackouts and lack of predictability into their costs and risks considerations” when making investment decisions, he adds.

Cambodia already has some of the highest electricity rates in Southeast Asia, which private businesses say makes industry, especially those in the electricity-dependent manufacturing sector, less competitive.

High electricity costs are also affecting Cambodia’s ambitions to move up from low-cost, low-skilled manufacturing to higher-skilled technology assembly.

The government clearly understands the costs and problems incurred by expensive and unreliable power. In December, Hun Sen responded to rising concerns by announcing that electricity rates would be cut in 2019.

“The reduction of electricity rates will make people happy. They will welcome the effort to lower electricity rates . . . even if the rates for the water and the prices of other goods are the same,” Hun Sen said at the time.

In March, the leader announced plans to cut electricity prices from $0.17 to $0.02 per kilowatt per hour for most industries – and even lower for vitally important economic sectors like garment manufacturing.

Such cost savings would no doubt be widely welcomed by private businesses, but such vows will be more pie-in-the-sky than reality as long as Hun Sen’s government struggles to even keep the power on.