Cambodia Power Transmission Project

Report and Recommendation of the President to the Board of Directors Sri Lanka Project Number: 40914 June 2007 Proposed Loan (Cambodia) Power Transmission Lines Co., Ltd., Power Transmission Project (Cambodia) In accordance with ADB’s public communications policy (PCP, 2005), this abbreviated version of the RRP excludes confidential information and ADB’s assessment of project or transaction risk as well as other information referred to in paragraph 126 of the PCP. CURRENCY EQUIVALENTS (as of 1 April 2007) Currency Unit KR1.00 $1.00 – = = riel (KR) $0.00024 KR4,163 ABBREVIATIONS ADB AP BOT CPTL EAC EDC EGAT EGCO EIRR FIRR GMS IE IEE IPP MEF MIME NR PEA PES PPA PPP PTA REE ROW SCF SRP ThaiExim Bank – – – – – – – – – – – – – – – – – – – – – – – – – – – Asian Development Bank affected person build-operate-transfer (Cambodia) Power Transmission Lines Co., Ltd. Electricity Authority of Cambodia Électricité du Cambodge Electricity Generating Authority of Thailand Electricity Generating Public Co., Ltd. economic internal rate of return financial internal rate of return Greater Mekong Subregion independent engineer initial environmental evaluation independent power producer Ministry of Economy and Finance Ministry of Industry, Mines, and Energy national road Provincial Electricity Authority PES International Company Limited power purchase agreement public-private partnership power transmission agreement rural electrification enterprise right-of-way standard conversion factor short resettlement plan Export-Import Bank of Thailand WEIGHTS AND MEASURES GWh ha km kV kWh m MW – – – – – – – gigawatt-hour (1 million kWh) hectare kilometer kilovolt (1,000 volts) kilowatt-hour (the energy of 1 kilowatt of capacity operating for 1 hour) meter megawatt (1 million watts) NOTES (i) (ii) In this report, “$” refers to US dollars and “¢” to US cents. The fiscal year (FY) ends on 31 December. “FY” before a calendar year denotes the year in which the fiscal year ends. Vice President Director General Director Team leader Team members L. Jin, Operations Group 1 R. Bestani, Private Sector Operations Department (PSOD) J. Yamagata, Infrastructure Finance Division 2, PSOD T. Norton de Matos, Senior Structured Finance Specialist, PSOD C. Bellinger, Senior Guarantees and Syndications Specialist, Office of Cofinancing Operations H. Brooke, Principal Counsel, Office of the General Counsel V. Hem, Economics and Financial Sector Officer, Cambodia Resident Mission, Southeast Asia Department CONTENTS LOAN AND PROJECT SUMMARY MAP I. II. III. THE PROPOSAL INTRODUCTION BACKGROUND A. B. IV. The Power Sector in Cambodia Asian Development Bank Operations Page iii ix 1 1 3 3 5 6 6 7 8 12 15 17 18 19 19 19 20 21 22 22 23 THE PROPOSED PROJECT A. B. C. D. E. F. G. H. Sponsors and Ownership Project Description and History Key Project Implementation Arrangements Environmental, Social, and Developmental Dimensions Cost Estimates and Financing Plan Financial Evaluation Economic Evaluation Anticorruption Policy, Anti–Money Laundering Policy, and Combating the Financing of Terrorism V. THE PROPOSED ASIAN DEVELOPMENT BANK ASSISTANCE A. B. C. ADB Loan Justification for Assistance Main Risks and Safeguards VI. VII. VIII. INVESTMENT LIMITS ASSURANCES RECOMMENDATION APPENDIXES 1. Design and Monitoring Framework 2. Power Sector in Cambodia 3. Électricité du Cambodge 4. Project Sponsors 5. Project Contractual Structure 6. Summary Initial Environmental Examination 7. Summary Resettlement Plan 8. Summary of Project Cost Estimates 9. Project Financing Structure 10. Financial Evaluation 11. Economic Evaluation SUPPLEMENTARY APPENDIX (available on request) Short Resettlement Plan 24 29 33 39 42 43 50 60 61 62 70 LOAN AND PROJECT SUMMARY Borrower (Cambodia) Power Transmission Lines Co., Ltd. (CPTL), a limited-liability company incorporated in the Kingdom of Cambodia, for the CPTL Power Transmission Project A loan of up to $8 million from the Asian Development Bank’s (ADB’s) ordinary capital resources, with interest determined according to ADB’s London interbank offered rate–based lending facility and a term of 15 years, including a grace period of up to 2 years. The interest-rate margin will be determined by ADB’s Credit Enhancement and Pricing Committee. Targeting classification: General intervention Sector: Energy Subsector: Transmission and distribution Themes: Private sector development, sustainable economic growth, regional cooperation Subthemes: Private sector investment, public-private partnerships, fostering physical infrastructure development With respect to environmental safeguards, the Project is classified as category B. With respect to social safeguards, it is classified as category B for involuntary resettlement and category C for indigenous peoples. These classifications were approved by the chief compliance officer on 23 April 2006. An initial environmental examination was done on the Project. A short resettlement plan (SRP) was prepared and submitted to ADB, and was posted on ADB’s website on 25 September 2006; it is available on request. Proposed Loan Classification Environmental and Social Safeguards Classification Sponsors CPTL is owned by A. S. K. Co. Ltd. (40%), SKL Group Holding Ltd. (25%), and two individual investors. The ultimate principal sponsors are Messrs. Ly Say Khieng and Kim Hap. Mr. Ly Say Khieng is the founder, chairman, and sole owner of the SKL Group Holding Co. in Cambodia. He also owns 47.5% of A. S. K. Co. Ltd. The SKL Group has wide business interests in transportation, shipping, air freight, dry ports, bonded warehouses, toll road concessions, and real estate. Mr. Kim Hap is the founder and chairman of the Kim Hap Group. The business interests of the Kim Hap Group include Honda cars and power equipment, motorcycles, construction materials, canned food and beverages, natural rubber, hotels, property development, and infrastructure. The Kim Hap Group has an interest in CPTL through the 47.5% interest in A. S. K. Co. Ltd. of Ms. Kim Ning, daughter of Mr. Kim Hap. ADB’s due-diligence review indicates that both principal sponsors are well regarded in Cambodia as reliable businesspeople who run professionally managed businesses. iv The Project The Project comprises: (i) about 221 kilometers (km) of a single-circuit 115 kilovolt (kV) transmission line, (ii) three 115 kV/22 kV substations, and (iii) one 115 kV switching station. The Project will make up the transmission grid for northwest Cambodia and will therefore be part of Cambodia’s national grid. It will connect to Thailand’s 115 kV line at the Thai border—some 12 km north of the present Poipet vehicular border crossing point— and, from there, will cross and deliver power to three provinces in northwest Cambodia, namely, Banteay Meanchey, Battambang, and Siem Reap. The Project will be built mostly along existing roadways and on several plots of land to accommodate the three substations, one switching station, and tower foundations. On 29 April 2005, A. S. K. Co. Ltd., a company in the SKL Group, entered into a power transmission agreement (PTA) with Électricité du Cambodge (EDC). The PTA was later novated to CPTL, which will implement the Project over 30 years under a build-operate-transfer scheme. The Project will enable EDC to import reliable power from Thailand at competitive rates under a power purchase agreement between the Electricity Generating Authority of Thailand (EGAT) and EDC dated 2 July 2002. The purchase agreement resulted from a power sector cooperation agreement between Cambodia and Thailand (February 2000), which is the framework for power trade and technical assistance between the two countries. The Project will transmit about 23– 80 megawatts (MW) of equivalent capacity over its 30-year life. Cost and Financing Plan The total project cost is estimated at $32 million. This cost estimate includes the cost of a competitively bid fixed-price construction contract of about $20 million, initial spares, insurance and development costs, contingencies, working capital, and financing costs. The Project is expected to be financed according to a debt-equity ratio of 62.5:37.5, as follows: Source Equity A. S. K. Co. Ltd. SKL Group Holding Ltd. Mme Se Thma Pich Mr. Tea Tyhas Amount ($ million) 4.8 3.0 2.4 1.8 12.0 Share of Equity/Debt (%) 40.0 25.0 20.0 15.0 100.0 Share of Total Financing (%) 15.0 9.4 7.5 5.6 37.5 Total Equity Debt ADB Loan ThaiExim Bank Loan Local Bank Loan Total Debt Total 8.0 7.0 5.0 20.0 32.0 40.0 35.0 25.0 100.0 25.0 21.9 15.6 62.5 100.0 ADB = Asian Development Bank, ThaiExim Bank = Export-Import Bank of Thailand. Sources: Asian Development Bank and (Cambodia) Power Transmission Lines Co., Ltd. v Financial and Economic Performance The Project is expected to yield a financial internal rate of return of 15.3% over the weighted average cost of capital of 8.9%, and an economic rate of return of 26.7%. The projected minimum debt service ratio is 1.35 and the projected average debt service ratio is 1.89. To build the Project under a construction contract, PES International Company Limited, a Thailand-based contractor, was selected through a competitive international tender. PES International Company Limited has extensive experience in building similar 115 kV transmission lines and attendant substations, such as those for the Provincial Electricity Authority of Thailand, and, as a subcontractor, for Siemens in the Philippines. The construction contract is a fixed-price contract and provides adequate completion guarantees backed by a performance bond against delays. PB Power, the lenders’ independent engineer, reviewed the construction contract, associated schedules, and design and equipment selection and was satisfied with the documents. Benefits Cambodia has very significant power needs, which are insufficiently and inefficiently addressed. The Project will enable the delivery of reliable and competitive power to Siem Reap, Banteay Meanchey, and Battambang—all significant and growing load centers in northwest Cambodia, which are now poorly served by unreliable, expensive, and polluting small-scale diesel units. Specifically, the Project will: (i) connect several significant and disparate load centers in the northwest part of Cambodia’s national transmission grid, thus allowing demand aggregation and the chance to benefit from greater scale economies; by connecting neighboring countries and eventually developing a national grid, enable the delivery of least-cost electricity in a manner that is consistent with Cambodia’s power transmission master plan, which seeks, among other objectives, to reduce reliance on imported oil to generate power, and to maintain a secure and reliable supply of energy; improve EDC’s ability to deliver electricity reliably and competitively to its customer base, and enable EDC to recapture off-line, self-generating users as new EDC-connected customers; spur economic growth and improve competitiveness; provide opportunities for rural and town electrification at different locations along the project route through separate localized distribution projects; displace highly polluting, small, stand-alone diesel or fuel oil–burning units now used to generate additional capacity (up to 80 MW equivalent) and obviate the need to transport fuel for these units on several tanker trucks; promote regional cooperation and energy sector integration between Thailand and Cambodia in line with ADB’s Project Completion Arrangements (ii) (iii) (iv) (v) (vi) (vii) vi emphasis on cooperation in the Greater Mekong Subregion (GMS), especially in energy; catalyze both regional bilateral and local long-term commercial-bank financing for infrastructure projects in Cambodia; and through public-private partnership (PPP) between EDC and CPTL, promote significant private sector investment in transmission lines in Cambodia, complementing EDC’s own investments elsewhere in the country. (viii) (ix) Risks [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY] Justification/Rationale Cambodia suffers most acutely from insufficient, unreliable, and expensive power. This is because its energy is almost exclusively generated by small diesel plants (with some diesel units burning heavy fuel oil). The total installed capacity (not all of which is available at any one time) is about 247 MW. The country’s load centers are disparate, small, and unconnected, and, as a result, the cost of producing electricity is among the highest in the region. This situation hinders Cambodia’s ability to attract investment and promote sustainable economic activities, which are critical in reducing poverty. In northwest Cambodia, Siem Reap, a significant tourism center, and Battambang, an agricultural and mining center, have sizable amounts of unmet demand. Siem Reap’s power supply comes from a single diesel plant with a capacity of 12 MW, 5.6 MW of this from a rented generation set. Battambang has 8 MW and Banteay Meanchey 4 MW of diesel-based capacity. The Project is aimed at efficiently addressing these pressing and basic inadequacies, with minimal adverse environmental or social effects. It will enable EDC to purchase reliable power from EGAT at wholesale prices for onward distribution and mutual benefit. In addition, the Project is consistent with (i) ADB’s operational strategy for Cambodia, which seeks to promote sustainable economic growth, infrastructure investment especially to address critical gaps in infrastructure, private sector participation, and poverty reduction; (ii) ADB’s thematic priorities of private sector development and sustainable economic growth; (iii) ADB’s energy sector policies, which emphasize projects in poor areas, private sector participation through PPPs, and the use of an environmentally benign supply of energy; and (iv) ADB’s priority strategy in the GMS of regional cooperation and integration, especially for energy sector linkages that are mutually beneficial. Lastly, the Project will be the first in Cambodia to attract long-term local commercial-bank financing based on a well-conceived contractual, legal, and financial structure, and for that reason merits vii ADB’s support. The Project will also be the first ADB private sector operations project in Cambodia and the first privately owned high-voltage transmission line in the GMS. As such, it will set a valuable PPP financing benchmark for Cambodia. I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan of up to $8 million without government guarantee to (Cambodia) Power Transmission Lines Co., Ltd. (CPTL), for the CPTL Power Transmission Project (the Project). If approved, the Project would be the Asian Development Bank’s (ADB’s) first private sector infrastructure project in Cambodia and the first privately owned high-voltage power transmission project in the Greater Mekong Subregion (GMS). The design and monitoring framework is in Appendix 1. II. INTRODUCTION 2. Cambodia, with a total installed power-generating capacity of only about 247 megawatts (MW) in 2005,1 suffers most acutely from insufficient, unreliable, and expensive power. This is mainly because power in Cambodia is almost exclusively generated by small diesel plants and, more recently, units burning heavy fuel oil, which serve fragmented and unconnected load centers. 3. Power supply in the northwest region of the country is no different. Siem Reap in particular, an important and growing tourism center (where Angkor Wat is located), has a significant amount of unmet demand. Électricité du Cambodge’s (EDC’s) power supply to Siem Reap, owned as well as purchased, is generated by a single diesel plant with a capacity of 12 MW, of which 5.6 MW is produced by a rented generation set. A small temporary unit is being connected. Most hotels in Siem Reap, while connected to the EDC system, rely on self-generation and use EDC power only as backup. A similar predicament faces Battambang, an important agricultural and mining center, and Banteay Meanchey, which supports manufacturing and trading activity. Battambang is served by a capacity of only 8 MW. 4. The Project is a critical part of Cambodia’s national strategy of optimal development of its power sector. With the eventual completion of a complete national transmission grid, of which the Project is a part, the Project will allow Cambodia to aggregate demand and thus achieve economies of scale or to import lower-cost electricity, or both. To ease and ultimately resolve the energy problem, Cambodia, in February 2000, entered into a power sector cooperation agreement and program with Thailand, in line with ADB’s integration strategy for the GMS energy sector. Under this initiative, which provides the framework for power trade and technical assistance between the two countries, EDC and the Electricity Generating Authority of Thailand (EGAT) signed a power purchase agreement (PPA) in July 2002. EGAT will supply electricity at EGAT wholesale rates through the Provincial Electricity Authority’s (PEA’s) 115 kilovolt (kV) substation in Aranyaprathet, Thailand. 1 Official figures for 2006 have not yet been released; however, as little capacity was added in 2006, the 2005 figures can be taken to be representative of Cambodia’s power sector capacity. 2 5. The PPA provides for electricity to be transmitted by the Project.2 The Project itself is being carried out under a power transmission agreement (PTA) between EDC and CPTL. Under the PTA, the Project will transmit at least 100 gigawatt hours (GWh) of electricity yearly at the outset, and at least 360 GWh each year by the end of the PTA term. This transmission involves some 23–80 MW of equivalent capacity, at an assumed plant load factor of 50%.3 6. The Project is being developed by CPTL, a private Cambodian company. CPTL’s ultimate principal sponsor is Mr. Ly Say Khieng, who will have 44% effective ownership in CPTL via SKL Group Holding Co. Ltd., of which he is the sole owner, and his 47.5% interest in A. S. K. Co. Ltd. Mr. Ly Say Khieng is a returning Cambodian national with New Zealand residency. His SKL Group, although modest by international standards, is today a professionally run organization principally engaged in logistics, bonded warehousing, dry ports, shipping, and industrial estate development and management. The SKL Group traces its origins to food distribution under various postwar United Nations programs. The SKL Group is, through various entities, the exclusive agent in Cambodia for major global shipping lines and the 30% local joint-venture partner of Mitsui OSK Lines of Japan. The joint venture, Mitsui OSK Lines’ general agency in Cambodia, is its first such arrangement in Asia. 7. The Project is already under way and is at an advanced stage of development and construction. Because of delay in closing long-term financing, the Project has been entirely financed with equity and temporary shareholder loans.4 Long-term financing for the Project is being closely coordinated with the Export-Import Bank of Thailand (ThaiExim Bank) and a local commercial bank. The lenders are completing their due diligence with the assistance of ADB’s Cambodia Resident Mission, PB Power as independent engineer (IE), and Allen & Overy as international counsel. ADB is coordinating the due diligence and has fielded various missions (jointly with the lenders and the lenders’ advisers) since 7 March 2006. The project concept was approved on 9 February 2006. 2 3 4 The Project, as part of the national transmission grid, is a multi-feed system, where all power is fed into the line for distribution through substations. Thus, the Project can transmit power from any source that EDC chooses, including additional power that may, in time, be generated from other competitive sources such as hydro, coal, or, perhaps, imports from Viet Nam, once the national grid is completed. The PPA between EDC and EGAT stipulates that EGAT will supply power for an initial period of 12 years with an automatic renewal option every 3 years after that. EDC expects the PPA with EGAT to be extended well beyond 12 years, as the power sector cooperation agreement between Cambodia and Thailand is indefinite and is, significantly, a long-term bilateral cooperation and energy-trading accord in the wider context of the GMS program, to which both countries are committed. The Project’s thermal limit rating, based on a single circuit and the proposed conductor size, is about 150 megavolt-amperes, which is roughly equivalent to 127.5 MW. This is enough to meet the requirements of the Project. The Project can, however, be upgraded with the addition of transformers to the substations and a second circuit. If upgraded, the line would have a maximum thermal limit of 270 megavolt-amperes, or about 230 MW in equivalent capacity. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #2 OF ADB’S PUBLIC COMMUNICATIONS POLICY] 3 III. BACKGROUND A. The Power Sector in Cambodia 1. Demand and Supply 8. In Cambodia’s power sector, supply falls significantly short of demand. The country’s installed capacity of some 247 MW, not all of which is available at any one time,5 cannot meet the energy needs of its 13 million people. Consumption is driven by availability of supply, and any additional supply is almost immediately used up, leaving little effective reserves in the system. Blackouts are common, especially at midday peak times. The recent increase in supply in Phnom Penh and Siem Reap has only moderately eased this scarcity. EDC relies on self-generators, such as hotels and industries, to stay off its system so that it can supply residential customers, who have no access to captive generation. 9. Cambodia’s power sector underdevelopment comes after many years of conflict and has resulted in a low national electrification rate of 15% (53.6% urban and 8.6% rural), which is less than half of the electrification rate of the Lao People’s Democratic Republic (Lao PDR), and low per capita energy consumption of about 48 kilowatt hours (kWh) a year, compared with 113 kWh in the Lao PDR and 500 kWh in Viet Nam. Furthermore, Cambodia’s power rates are among the highest in the region. This is a result of Cambodia’s disaggregated and isolated small-scale systems, which rely on inefficient diesel-fired units, a still significant, but improving, level of distribution losses (averaging about 12% to 13% at EDC), and high fuel cost (partly due to taxes on imported fuel) and purchased-power cost. 10. Cambodia’s power generation is almost entirely based on diesel and fuel oil (accounting for 96.2% of gigawatt-hours sold in 2004), with only two hydro units in operation (13 MW in total).6 National power consumption is largely based in Phnom Penh (83%), as is installed capacity (77%), and 87% of EDC’s total sales come from Phnom Penh. 11. The private sector plays a significant part in Cambodia’s power sector. It is principally involved in generation, with independent power producers (IPPs) supplying some 67% of EDC’s capacity. In addition, integrated utilities in some provincial capitals and towns are privately owned and operated. Rural electrification enterprises (REEs) and licenses in small towns may also be privately or semi-privately owned. Private sector participation in transmission is now limited to (i) a 115 kV single-purpose connection to Phnom Penh from the Kirirom I hydropower plant (12 MW) operated by a private entity under a 30-year build-operate-transfer (BOT) arrangement, and (ii) various localized, low-voltage, cross-border distribution arrangements, built and operated by local entrepreneurs at the border between Thailand and Viet Nam.7 12. Cambodia’s electricity demand, which amounted to some 1,300 GWh in 2005, is expected to grow at an annual compounded rate of nearly 12%, to 3,907 GWh in 2016. This implies a similar increase in power supply capacity to some 774 MW in the same period. This is a consistent, if perhaps conservative, estimate based on economic growth rates, which have recently been in excess of 10% a year (2006), when considered against the present low 5 6 7 EDC’s ratio of maximum output to installed capacity is 78% (2003). There are also several privately owned micro hydro units in the northern provinces ranging in size from 1 kW to 50 kW. EDC has a 115 kV line loop in Phnom Penh, but it is regarded as a distribution, not a transmission, asset. 4 electrification rates, rising incomes and economic activity, and the expectation that captive power will switch over to the grid as supply and reliability increase and costs decrease. 13. The Government’s power sector development strategy is aimed at addressing this demand growth and providing adequate, reliable power supply at affordable prices nationwide.8 The key elements of the policy framework in this respect are: (i) promoting investments in generation and transmission, (ii) interconnecting and trading with neighboring countries, (iii) establishing a favorable legal and regulatory framework, (iv) encouraging private sector participation, and (v) expanding rural and provincial electrification. Specifically, Cambodia intends to address the needs of the sector with a system expansion plan compiled by the Ministry of Industry, Mines, and Energy (MIME) on the basis of least-cost options. The plan assumes that domestic generation will increase and that a high-voltage grid will be developed, allowing the country to aggregate demand and benefit from economies of scale, and to import inexpensive power. 14. The Project will enable EDC to import power from EGAT at wholesale rates, now about 9¢ per kWh. With these rates plus the Project’s transmission service fees of up to 2.9¢ per kWh at the outset, but declining to 1.2¢ per kWh over the term of the PTA, EDC can source power for the substations at about 11.9¢ per kWh. This cost is below EDC’s average tariff in 2005 of about 15¢ per kWh (insufficient for full recovery of current costs) and well below EDC’s 2006 tariffs in Siem Reap of 17.3¢ to 20.9¢ per kWh, Battambang’s 27.2¢ per kWh, and Banteay Meanchey’s 29.3¢ per kWh. It is also below typical costs of alternative self-generation (diesel, batteries, etc.).9 As a result of the Project, tariff rates in these areas can eventually decrease, after petitions by the EDC are approved by the Electricity Authority of Cambodia (EAC). The Project clearly meets the Government’s objective of increased and reliable supply of power at competitive rates, and is thus an essential part of Cambodia’s system expansion plans, which look forward to its coming online in 2007. 2. Power Sector Structure, Main Participants, and Sector Reform and Dialogue 15. The main participants in Cambodia’s power sector are MIME, EAC, EDC, IPPs, licensees, and REEs. MIME, established in 1992, sets and administers government policies, strategies, and development and investment plans for the power sector. Its functions cover power sector restructuring, electricity trade with neighboring countries, major investment projects, and management of rural electrification.10 MIME and the Ministry of Economy and Finance (MEF) are joint owners of EDC. EAC is the autonomous regulator of the power sector. Established in 2001, it issues licenses, sets tariffs, enforces standards, and settles disputes. EDC was established in 1996 as a wholly owned state enterprise. It holds a consolidated license to generate and distribute electricity in various locations in Cambodia, including Siem Reap, Banteay Meanchey, and Battambang. As the national transmission licensee, EDC is also responsible for developing the transmission grid and purchasing electricity from neighboring countries. IPPs generate 67% of EDC’s energy output and also generate energy in other provincial and town systems. EAC and MIME together have issued about 85 licenses, mostly to 8 9 10 Ministry of Industry, Mines, and Energy. 2005. Cambodia Energy Strategy. Phnom Penh. Other smaller licensees in discrete areas of Siem Reap, Battambang, and Banteay Meanchey charge tariffs of up to 40¢ to 60¢ per kWh. MIME also controls power utilities in provinces in collaboration with provincial authorities. These utilities are being gradually integrated into EDC. Those in six provincial towns, including Siem Reap, Battambang, and Banteay Meanchey, have already been transferred to EDC. 5 consolidated generators and distributors in smaller towns. Some licensees are engaged in cross-border power purchase and distribution arrangements involving small-scale, low-voltage (22 kV) systems. REEs are run by private entrepreneurs providing services in rural settings, which account for some 5% of energy sales in Cambodia.11 See Appendix 2 for information on the power sector in Cambodia and Appendix 3 for information on EDC. 16. The Project is being implemented under past and ongoing sector reform. The Electricity Law of 2001 provided the legal basis and the institutional framework for the power sector in Cambodia. It (i) established the operating principles of the sector; (ii) set favorable conditions for competition, private investment, ownership, and commercial operation; (iii) set up the EAC and defined its functions; and (iv) defined the functions of MIME. The Electricity Law also established EAC as an independent regulator and envisaged the unbundling of the power sector at an undefined point in time. 17. The Project validates the long-standing policy dialogue between ADB (and other development partners) and the Government to expedite and promote institutional reforms and a comprehensive energy sector strategy, improve EDC’s financial and operational efficiency, and promote institutional capacity. The Government recognizes the impediments to energy sector development, including the lack of sound policies, of enabling laws, and of ready access to capital for least-cost and reliable power supply. To further reform the sector, the Government, with the assistance of its development partners, is undertaking a strategic review of the energy sector (2005–2007), with the aim of taking a systematic approach to its development. B. Asian Development Bank Operations 1. Country Strategy 18. ADB’s overarching goal in Cambodia is sustainable poverty reduction. To this end, ADB supports broad-based economic growth, inclusive social development, and good governance— the strategy detailed in the country strategy and program (CSP).12 In particular, ADB intends to foster, as one of the strategic pillars, broad-based, private sector–led economic growth through investments in physical and economic infrastructure and the removal of key infrastructure bottlenecks, particularly in power transmission. In addition, the CSP emphasizes the need to support growth in the Tonle Sap Basin to create greater synergy among ADB interventions and to integrate Cambodia into the regional cooperation strategy and program for the GMS. The regional program also emphasizes energy sector integration in the GMS,13 while the CSP also calls for environmentally sustainable projects. 19. The Project’s two end points, Siem Reap and Battambang, are in the north of Tonle Sap and the Project is being built mainly along national roads 5 (NR5) and 6 (NR6), which are being rehabilitated under an ADB project.14 The Project will also improve the environmental sustainability of Cambodia’s energy sector as it imports power and thus obviates the need to build additional thermal capacity (diesel or oil-fired) and to import and transport fuel in numerous tanker trucks. 11 12 13 14 World Bank. 2005. Cambodia: Energy Sector Strategy Review. Washington, DC. ADB. 2005. Country Strategy and Program (2005–2009): Cambodia. Manila. ADB. 2004. The GMS: Beyond Borders. Regional Cooperation Strategy and Program 2004–2008. Manila. ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Greater Mekong Subregion: Cambodia Road Improvement Project. Manila. 6 2. Energy Sector Strategy 20. ADB’s energy sector strategy15 specifies ADB’s operational priorities as (i) reducing poverty by developing energy infrastructure for sustainable economic growth, particularly in poor areas, among other methods; (ii) encouraging private sector involvement by promoting an enabling environment for private investment; (iii) promoting regional energy integration and cooperation; and (iv) promoting least-cost production alternatives that minimize harmful environmental and social effects. In particular, the strategy strongly advocates increased private sector participation in the energy sector to exploit the high construction and operating efficiencies normally achieved by private investors and to help meet the sector’s large capital requirements. The strategy also specifically recognizes the role of the BOT concession-financing model and the importance of regional energy planning and cooperation in promoting the efficient use of energy resources across borders, since the most attractive energy options may not necessarily be found near load centers. 3. Project Consistency with ADB Strategies 21. The Project is consistent with ADB’s overarching goal for Cambodia, as it will contribute to national, as well as regional, development and thereby reduce poverty. It is also fully in line with ADB’s country, regional,16 and energy sector strategies, as well as with ADB’s thematic priorities of private sector development, sustainable economic growth, and regional cooperation. 22. As ADB’s first private sector project in Cambodia, the Project is consistent with ADB’s operational strategy of encouraging the private sector to participate in the infrastructure sectors of developing member countries. It is financed in part by an export credit agency and a commercial bank, making the Project a good model for future infrastructure project financing in Cambodia. ADB’s support for the Project will therefore validate, reinforce, and promote ADB’s various strategies, policies, and priorities. IV. A. Sponsors and Ownership THE PROPOSED PROJECT 23. The principal sponsors of CPTL are two individuals, namely, Messrs. Ly Say Khieng and Kim Hap. Mr. Kim Hap, given his advanced age, will invest through his daughter Kim Ning. Mr. Ly Say Khieng is the founder and chairman of the SKL Group in Cambodia. The SKL Group 15 16 ADB. 2000. Energy 2000: Review of the Energy Policy of the Asian Development Bank. Manila. The Project is also considered consistent with ADB. 2006. Energy Strategy 2007–2011 (draft). Since 1992, ADB has been a strong proponent of GMS integration and cooperation under the GMS program, particularly in relation to energy sector integration, for which ADB has provided numerous investment loans and undertaken several technical assistance projects (ADB. 2006. ADB’s Strategy for Regional Cooperation and Integration. Manila; and ADB. 2006. GMS Regional Cooperation Strategy and Program Update, 2007-2009. Manila). ADB is now undertaking RETA 6301 (ADB. 2006. Technical Assistance for Developing the Greater Mekong Subregion Energy Sector Strategy. Manila), which further promotes energy sector integration including expansion of private participation therein, and is financing the expansion of Cambodia’s transmission line in the south (with a link to Viet Nam) under ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Greater Mekong Subregion Transmission Project (Cambodia). Manila). A second power transmission project was also recently approved (ADB. 2006. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia in the Second Power Transmission and Distribution Project. Manila). 7 has wide business interests in transportation, shipping, air freight, dry ports, bonded warehouses, toll road concessions, and real estate. Mr. Kim Hap is the founder and chairman of the Kim Hap Group. The business interests of the Kim Hap Group encompass Honda cars and power equipment, motorcycles, construction materials, canned food and beverages, natural rubber, cigarettes, property development, hospitality, and infrastructure. Both sponsors are well regarded in Cambodia as reliable businesspeople who run professionally managed businesses. Appendix 4 describes the SKL Group and the Kim Hap Group, and the ownership structure of CPTL, which was recently joined by two individuals with a collective interest of 35%. 24. The SKL Group is the lead sponsor of CPTL, with a 44% direct and indirect interest in the company. It will provide project management support to CPTL, including project management, finance, accounting, human resources, and other services, as well as office space. The SKL Group displays strong management capabilities in running its successful logistics and project development and management businesses, among them, Cambodia’s only private toll way. The group has hired and retained a strong management team composed mainly of locals and expatriate Cambodians like Mr. Ly Say Khieng who were previously based in New Zealand. The SKL Group, although not in the power sector business at present, decided to participate in the Project after careful consideration of project feasibility (with the aid of outside experts). It also based its decision on an assessment of its financial and management resources, and its focus on infrastructure development. The SKL Group is well regarded locally and internationally. This is apparent in the various shipping agency roles it has undertaken for major international shipping lines and its joint-venture partnership (SKL holds 30%) with Mitsui OSK Lines of Japan. Careful planning and credibility will thus mitigate risks that may arise from the group’s relative inexperience in operating transmission assets. 25. The Project will be structured so that the lenders do not risk default of equity obligations. All equity will be funded before the first loan disbursement. Further, the Project’s structure requires the sponsors to fund more than 37.5% of total project costs. This funding will again be advanced before loans are disbursed and will be repaid through a final loan drawdown if no material cost overruns are incurred. This arrangement will ultimately result in the prescribed debt-equity ratio of 62.5:37.5. This risk mitigation structure will ensure that equity is funded into the Project ahead of debt in an amount that is judged to pre-finance any contingent equity requirements. B. Project Description and History 26. The Project comprises: (i) about 221 km of a single-circuit 115 kV transmission line, (ii) three 115 kV/22 kV substations, and (iii) one 115 kV switching station. It will be the national transmission line for northwest Cambodia and therefore part of the national grid. It will connect to Thailand’s transmission lines at a border point some 12 km north of Poipet and to PEA’s 115 kilovolt (kV) substation at Aranyaprathet, and will cross three provinces, namely, Banteay Meanchey, Battambang, and Siem Reap. The line uses self-supporting reinforced-concrete poles 22 meters (m) high, allowing 80 m spans. The poles are inserted into precast concrete foundations with double-circuit 400 square millimeter all-aluminum conductor configurations. 27. The Project is being built mostly along existing roadways and on four plots of land to accommodate the substations and the switching station. Some 18 km of the transmission line crosses paddy fields, through an optimized bypass route around Banteay Meanchey town. This section uses self-supporting steel lattice towers 35 m high, which allow 260 m conductor spans, thus reducing the number of towers and attendant land purchases. Steel lattice towers or double 8 concrete poles may also be used for the occasional river crossing (all the rivers are small and not navigable). 28. Except for a small section, the line is initially being strung for only one circuit on one side in vertical formation. The cross arms are made of hot-dipped galvanized steel. The foundations, poles, and galvanized steelwork are manufactured in Thailand and transported to the site for installation. CPTL has chosen high-quality equipment from reputable international manufacturers. The 115 kV circuit breakers (manufactured by Areva Energietechnik GmbH of Germany) are fitted with auto re-closing facilities, and the transmission lines are protected with conventional distance, over-current, and earth fault relays. The power transformers (manufactured in Thailand by Daihen Electric Co. Ltd. of Japan) are of the oil-filled radiator type, with natural and forced cooling. The protection and control systems are all well proven and of standard design for this type of project. The transmission line and substation designs are similarly well proven. They are widely used by the PEA and follow its specifications. The Project will connect to PEA’s substation in Aranyaprathet, and PEA itself, under an arrangement with EGAT, will build the Thailand side of the transmission (about 19 km). The PEA and project transmission lines will connect at a border point some 12 km north of the town of Poipet, as the parties have agreed. 29. The Project is expected to cost about $32 million and to take about 14 months to complete. It is already being built, and the first section (from the Thailand and Cambodia border point near Poipet to the Siem Reap substation, through Banteay Meanchey) is expected to be completed by June or July 2007 (although this section is physically complete, final completion will only occur when line is energized, and equipment tested, which has yet to happen due to delay on Thailand side of the border). The second and last section, from Banteay Meanchey to Battambang, will be completed in the next few months. As of June 2007, the overall Project was more than 88% complete, and the foundations, poles, stringing, and substations had largely been installed. These installations were considered the most logistically complicated aspect of the Project in light of the onset of the rainy season. Permanent financing, including ADB portion, was contemplated at the outset but has been delayed due to the need to clarify MEF's position regarding guarantees as explained in paragraph 7 (footnote 4). 30. The Project was originally to have been developed and built by a joint venture between EGAT and EDC, under the PPA signed by these two entities on 2 July 2002. EGAT passed this opportunity on to the Electricity Generating Public Co., Ltd. (EGCO), a publicly listed affiliate, but EGCO declined the opportunity, possibly because of the turbulent relations between Thailand and Cambodia in 2003, and apparently not because of any commercial or technical issues specific to the Project. The Project was later picked up and developed by A. S. K. Co. Ltd., a Cambodian company in the SKL Group. A. S. K. Co. Ltd. entered into the PTA with EDC, and the PTA was later novated to CPTL. The Project was therefore a negotiated arrangement, first between EGCO and EDC (but never consummated) and then between CPTL and EDC. C. Key Project Implementation Arrangements 31. The Project’s contractual structure is shown in Appendix 5. ADB has retained Allen & Overy as international counsel and DFDL as local counsel to coordinate and conduct legal due diligence on the validity and effectiveness of project permits, licenses, implementing regulations and legislation, and underlying contracts and financing arrangements. These tasks will be done under the auspices of the Office of the General Counsel. All project contracts will be in place in a form satisfactory to the lenders before any loan drawdown is made. 9 1. Power Transmission Agreement 32. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 33. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 34. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 10 2. BOT Contract 35. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 3. Power Purchase Agreement 36. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 37. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 11 4. Construction Contract 38. The construction contract signed between CPTL and PES International Company Ltd. (PES) on 20 December 2005 contains the standard terms for such a project. The specifications and other obligations mirror those in the PTA between CPTL and EDC and are considered to be suitable for this Project. PES is a well-known and respected Thai contractor, which has carried out similar works in Thailand and elsewhere, including the substation for the Santa Rita Power Project in the Philippines, as subcontractor to Siemens. It has had a long relationship with the German company VA Tech, which was recently acquired by Siemens. The IE believes that the contractor has the experience and capability to carry out the Project. 39. CPTL awarded the construction contract to PES after competitive bidding and comprehensive evaluation of bids from three reputable contractors—two from Thailand and one from Malaysia. The technical competence and experience of the bidders were evaluated, as were the availability of construction equipment, the bidders’ relationship with EGAT, and price. 40. The construction contract is based on a fixed price of some $20.2 million (excluding change orders) for designing the plant, supplying the plant and materials, executing and completing the installation, and remedying any defects. The contract provides for change orders and consequent adjustments to the contract price, and clearly defines how these will be dealt with and priced. Besides being required to correct defects, the contractor must also pay damages (at 5% of the construction contract price) for delays or other failure to perform according to specified criteria. A performance bond from a Thai financial institution guarantees satisfactory completion by the contractor. The IE, after comparing the contract cost assumptions with the estimated costs for a similar hypothetical project in Thailand (which has better infrastructure and logistics than Cambodia), found the construction contract to be competitive, reasonable, and appropriate. 5. Operational Arrangements 41. The Project, a basic transmission line, does not present difficult or highly technical operational issues, unlike generation, which entails fuel management and conversion and the production of energy. However, sound operation and maintenance is necessary and critical in maintaining transmission line availability, proper voltage and current, and other operating standards. CPTL intends to enter into a joint arrangement with either PES or the Provincial Electricity Authority of Thailand or both to develop an operation and maintenance program. Over time, know-how and experience will be transferred to CPTL’s in-house team through such an arrangement. CPTL believes this to be the most expedient arrangement—relying on the construction contractor to develop domestic expertise and technical capabilities while operating the Project. PB Power, the lenders’ IE, will review and assess these arrangements and ensure that prudent international utility practices are applied in operation and maintenance. 12 6. Land Arrangements 42. The Project is being built mostly along NR5 and NR6 under public rights-of-way (ROW) provided by law, except for about 18 km, which will bypass the town of Sisophon in Banteay Meanchey, and a portion that will take the transmission line to the border point. The latter portion is being built on land the project sponsors already own and have set aside for a separate industrial estate development project. Plots of land for the base of the steel lattice towers have been purchased and the Project will also use purchased plots for the substations and switching station. These arrangements were accomplished with willing buyers and sellers. Of the total project land of about 5 hectares (apart from those parts of the Project within the ROW), only 0.5 hectare is for the steel lattice tower plots; the rest is for the switching station and substations. Compensation will be paid for the placement of certain poles on land already in use—mostly encroachments within the public ROW that are 30 m from the center of NR5 and 25 m from the center of NR6 on either side, according to Ministry of Public Transportation guidelines. The purchased plots (for substations, switching stations, and steel lattice towers) are the property of the Project and will be subject to security arrangements in a form acceptable to the lenders. The costs of land and compensatory arrangements are included in total project costs. These are discussed in more detail in Section D of this report. 7. Insurance Arrangements 43. The Project has made insurance arrangements through international brokers and will place all insurance (construction and operation) with reputable insurers, either directly or through reinsurance arrangements. The insurance packages will cover all risks arising from the supply and transportation of project equipment and machinery for construction and operation. The lenders will be the loss payees. They, as well as the insuring parties, will review the insurance arrangements to make certain that these are to their satisfaction. D. Environmental, Social, and Developmental Dimensions 1. Environment 44. The Project is category B. It is expected to have very minor and only temporary adverse environmental and social effects during construction and essentially no effect of either kind during its 30 years of operation. This is mostly because of the following: (i) About 92% of the Project will be built along existing road ROW, and the rest in paddy fields and industrial estate property of the project sponsor. Construction is dispersed over 210 km; is fairly simple, low-risk, quick, and unobtrusive; involves only small excavations for the poles and tower footings, as well as foundations for the substations and switching station; and has no ecological effects. Strong and effective mitigation measures, including physical measures and good environmental management practices, are included in the construction contract subject to CPTL’s oversight, to ensure that the construction minimizes potential harmful environmental effects such as soil erosion, fugitive dust, noise, safety (ii) (iii) 13 and public health hazards, improper waste disposal, and issues related to (temporary) access to houses or properties. 45. The Project is also considered beneficial in that it will substantially displace the inefficient and polluting generation of diesel or bunker oil at the load centers, and eliminate the need to transport fuel on numerous tanker trucks to feed those stations. 46. An initial environmental evaluation (IEE) was prepared from March to June 2006 to qualify the Project for government approvals, permits, and consents. A summary of the IEE is in Appendix 5. The loan agreement will contain covenants to certify, before loan drawdown, the Project’s compliance with the environment management plan for the construction period and government approval of the IEE. 2. Social Safeguards 47. Involuntary resettlement (IR) issues are not deemed significant because of the Project’s characteristics, as discussed above. This was also confirmed through extensive public consultations, site visits, and numerous household calls. The Project requires about 5 hectares (ha) of land—4.5 ha for the substations and switching station and 0.5 ha for the steel lattice tower foundations built over an 18 km bypass route around Banteay Meanchey that crosses paddy fields. These requirements imply modest land-use changes and acquisitions. All project property has been purchased at market rates with willing buyers and sellers voluntarily participating in the transactions. In addition, while the Project’s IR profile is not deemed significant, certain compensatory arrangements for the positioning of the poles are in place. These arrangements cover places where, even with the ROW, there are alternative present uses, such as small houses or business structures, or trees that have to be cut or pruned to make way for the poles. The Project is therefore rated B for involuntary resettlement. A short resettlement plan (SRP) has been prepared and posted on ADB’s website, and is presented in summary form in Appendix 7. However, the Project will not affect indigenous people and is thus rated C in this respect. 48. It is important to note that the Project is well under way and has already substantially completed resettlement matters related to (i) the acquisition of land; and (ii) compensation to ROW inhabitants (those affected, according to ADB definitions, standards, and policies) for an initial section of the Project. An international resettlement specialist made site visits to conduct detailed due diligence on resettlement matters (compensation and land acquisition) related to the project section that is already well under way (the part from Siem Reap to Poipet border), and to prepare an SRP for that section that has yet to begin construction (from Banteay Meanchey to Battambang). The specialist concluded that resettlement activities to date have been carried out according to ADB standards and policies, and that compensation has been satisfactorily disbursed. Disbursements based on standard property conveyance procedures according to the SRP and payments to affected persons will be finalized for that section of the Project that is yet to be completed. The loan agreement will require the project company to comply with the SRP. 3. Development Impact 49. The Project will substantially promote development, as it will provide the means by which EDC can import least-cost electricity for distribution to underserved regional load centers. The Project catalyzes private capital and long-term project financing under a BOT arrangement with public-private partnership. These elements made the Project attractive for investment and, 14 because of long tenors, allowed it to be financed within reasonable and affordable transmission charges. The electricity imported and transmitted by the Project will allow EDC to meet increasing demand in a reliable and sustainable manner. Thus, the Project will create conditions for efficient economic growth opportunities, which are prerequisites for investment, job creation, and poverty reduction. These growth opportunities are impartial with respect to gender and economic class. The Project will develop a vital part of Cambodia’s national transmission grid and will be the only high-voltage link to Thailand’s grid. Cambodia needs to develop its national grid to aggregate demand and deliver power with sufficient economies of scale. An efficient national transmission grid will reduce power prices. The high power prices now prevalent in Cambodia are a disincentive to investment and economic growth, as well as a financial burden on the population. 50. The Project (i) has created up to 402 jobs (100 of these unskilled) over some 16 months of construction and will create a fraction thereof after project completion, but will do so for 30 years; (ii) will reduce the need for at least 20 million liters of fuel imports a year, and around 2,666 trips by tanker trucks, assuming a 15,000 liter capacity per truck, fuel consumption of .20 liter per kWh, and 100 GWh of displaced diesel generation; (iii) will reduce carbon emissions by at least 32,055 tons a year, assuming 100 GWh of diesel consumption a year;19 and (iv) will save EDC at least $6 million a year in purchased-power cost, thus improving EDC’s financial viability and allowing lower tariffs, producing economic savings for consumers. 51. The Project is ADB’s first private sector investment in Cambodia. It is also the first infrastructure project in Cambodia to use long-term local bank financing. The Project financing will thus be a model and an important and useful benchmark for future infrastructure project financing in Cambodia. 4. Development Effectiveness 52. ADB’s Private Sector Operations Department and Operations Evaluation Department are drafting guidelines for implementing the Good Practice Standards for Evaluation of Private Sector Investment Operations, which are being prepared by the Evaluation Cooperation Group.20 According to these standards, the principal criteria for private sector evaluation are development outcome (project performance and contribution to economic sustainability and private sector development), profitability of the investment to ADB (specific returns on the loan, guarantee, or equity investment), and operational effectiveness of the ADB department. 53. The performance of the Project and its contribution to economic sustainability and private sector development has been assessed (see Appendix 1), and the Project is deemed developmentally effective. The evaluation criteria are discussed briefly below. 19 20 This calculation is based on the net reduction in carbon emissions after accounting for the generation of the same amount of electricity (100 GWh) in Thailand, based on the latter’s present generation mix. The net saving is 320.558 tons per GWh. The calculation also considers, besides generation, reductions from tanker truck emissions. Multilateral development banks created such groups to design common evaluation standards for their private sector operations. This work is ongoing and some aspects of the evaluation framework may be changed to conform to best practices. 15 a. Project Performance 54. The Project was assessed against its specific investment capital, construction, operational, and financial objectives. Effectiveness was measured by how successfully the Project (i) attracted capital (both debt and equity), (ii) secured fixed construction costs and contracting arrangements for on-time construction within budget and specifications, (iii) secured suitable operational arrangements to enable optimal transmission of electricity, and (iv) achieved financial viability as measured by debt repayment capacity and investor returns. b. Economic Sustainability 55. The Project was assessed for its ability to transmit least-cost electricity reliably in an environmentally and socially acceptable way. In addition, the assessment considered the Project’s outputs and contributions to Cambodia, such as its contributions to the economy through efficient delivery of least-cost electricity (enabling economic growth), reasonable construction cost and operational expenditures, and employment opportunities created. The Project’s contribution to Cambodia’s national grid and power sector development were considered as well. c. Private Sector Development 56. The assessment of the Project’s contribution to private sector development focused on its commercial and financial viability, and its lasting catalytic effect on future private sector developments in the energy sector and on the economy as a whole. Particular note was taken of the fact that it is the first private transmission project in Cambodia with local commercial bank financing. 57. The Project was not assessed for investment profitability, as a profitability assessment is better gauged and measured against a portfolio of similar loans. Similarly, the Project was not assessed and measured against the overall effectiveness of operations, as this would have required department-wide consideration. E. Cost Estimates and Financing Plan 1. Cost Estimates 58. The Project’s total costs are estimated at $32 million (including contingencies, interest during construction, and initial spares), of which about $20 million is made up of costs under a competitively bid fixed-price construction contract denominated in dollars. Other costs amount to $8.6 million and include: contingencies of $2.1 million (or about 9% of construction costs), working capital, and project development costs (including the technical feasibility study, surveys, and the IEE), plus financing fees and lenders’ technical costs (legal, technical, and insurance). Interest during construction of some $0.4 million (a modest amount, given the relatively short construction period and equity-first funding arrangements) makes up the balance of the project costs, which are summarized in Table 1 (a more detailed breakdown of costs is in Appendix 8). The Project’s cost estimates were declared reasonable by the lenders’ IE and will be subject to further detailed review before loan drawdown. 16 Table 1: Project Cost Estimates Amount ($ million) 21.1 2.4 23.5 2.0 0.3 1.2 0.6 1.9 2.1 8.6 0.4 32.0 Item Transmission and Substations Equipment and Spares Total Construction and Equipment Owner’s Development Costs Construction Insurance Costs of Lenders’ Consultants Financing Costs Working Capital and Debt Service Reserve Contingency Other Costs Interest during Construction Total Project Costs Source: (Cambodia) Power Transmission Lines Co., Ltd. 2. Financing Plan 59. The Project will be financed through a combination of limited-recourse debt and equity at a debt-equity ratio of 62.5:37.5. The proposed financing plan is presented in the following table and is schematically described in Appendix 9. Table 2: Financing Plan Amount ($ million) Share of Equity/Debt (%) Share of Total Financing (%) Source Equity A. S. K. Co. Ltd. SKL Group Holding Ltd. Mme Se Thma Pich Mr. Tea Tyhas Total Equity Debt ADB Loan ThaiExim Loan Local Bank Loan Total Debt Total 4.8 3.0 2.4 1.8 12.0 40.0 25.0 20.0 15.0 100.0 15.0 9.4 7.5 5.6 37.5 8.0 7.0 5.0 20.0 32.0 40.0 35.0 25.0 100.0 25.0 21.9 15.6 62.5 100.0 ADB = Asian Development Bank, ThaiExim Bank = Export-Import Bank of Thailand. Note: Equity funding will be provided ahead of debt. Sources: Asian Development Bank and (Cambodia) Power Transmission Lines Co., Ltd. 17 60. The following project debt arrangements are envisaged: (i) (ii) (iii) (iv) ADB will make a direct loan of up to $8 million to CPTL. ThaiExim Bank will make a direct loan of up to $7 million to CPTL. A local bank will make a direct loan of up to $5 million to CPTL. All project lenders will share project security proportionately and will sign an inter-creditor agreement, which will govern the relationship between them. All loans are 15 years in tenor and have the same amortization profile. 61. The financing plan is suitable for both CPTL and Cambodia. In particular, for the first time in Cambodia, a local commercial bank will be providing long-term loans for a Cambodian project with recourse only to the Project. This development is extremely beneficial to Cambodia, as it puts the country on a par with its neighbors, which already benefit from long-term commercial bank financing. The Project will thus be a pioneering transaction, which should pave the way for future long-term bank financing. The financing plan also matches the currency of project construction (and other) costs, which are substantially denominated in dollars. 62. Project equity will be provided by the project sponsors in the amounts prescribed. All equity funding will precede any loan disbursements. In addition, the sponsors have injected additional funds into CPTL to cover more than 37.5% of total project costs. This additional funding has been advanced before any loan disbursements are made and will be repaid through a loan drawdown if there is no cost overrun, resulting in the prescribed debt-equity ratio of no higher than 62.5:37.5. This means total debt will not exceed $20 million. This feature is designed to (i) eliminate equity-funding risk from the Project (including risk to contingent equity), and (ii) accommodate the advanced stage of construction, since equity may well exceed 37.5% of project costs by the time the loans are drawn. F. Financial Evaluation 63. The financial projections presented in summary form, and in current terms, in Table 3 (and in more detail in Appendix 10) show that the Project will generate enough cash flow to cover debt service over the repayment period. The base case assumes project completion by April 2007, followed by operations, with revenues based on the PTA, and operating and other costs projected according to CPTL assumptions, which have been reviewed by the IE. The financial internal rate of return is estimated at 15.3% in real terms. This comfortably exceeds the estimated weighted average cost of capital of 8.9%. The debt service coverage is adequate, with a minimum ratio of 1.35 and an average ratio of 1.89. Financial capacity was tested under several scenarios. Overall, the Project demonstrates financial viability, with the financial internal rate of return exceeding weighted average cost of capital in all cases (including a combination of all cases) and debt service above 1.0. 18 Table 3: Summary of Key Projected Operating and Financial Indicators ($’000) Item Energy Transmitted (GWh)) Transmission Service Fee (¢/kWh) Total Revenue Operating Income Net Income Cash Flow Available for Debt Service Debt Service (Interest and Principal) Total Assets Total Liabilities Total Equity Debt Service Coverage Ratio (times) Long-Term Debt Ratio (%) FY2007 50.8 2.9 1.952 1,637 265 2,058 903 32,227 19,962 12,265 2.28 62 FY2008 108.5 2.9 3,147 2,607 (309) 2,771 1,987 31,609 19,652 11,958 1.35 62 FY2010 137.5 2.9 3,980 3,410 620 3,462 2,280 30,313 18,065 12,248 1.50 59 FY2012 167.5 2.7 4,606 3,361 829 3,884 2,221 28,147 15,125 13,021 1.71 53 FY2017 270.5 2.4 6,627 4,799 2,778 4,620 1,702 23,018 2,211 20,806 2.60 8 FY2018 295.5 2.4 7,204 6,522 4,377 5,698 895 21,418 611 20,806 3.28 0 FY = fiscal year, GWh = gigawatt-hour, kWh = kilowatt-hour. Sources: (Cambodia) Power Transmission Lines Co., Ltd., and Asian Development Bank estimates. G. Economic Evaluation 64. The economic analysis attempted to quantify the net benefits to the Cambodian economy from the Project over its life in the context of the present supply and demand in the various load centers. Electricity transmitted by the Project is considered both an incremental benefit (given the large unmet demand) and a non-incremental benefit (with part of the output displacing existing diesel-fired capacity). Project benefits of both types were quantified according to base-case electricity projections, which the Project is addressing. The value of the incremental benefit is based on this projected demand and an estimated end-user tariff, and the value of the non-incremental benefit is based on the displaced energy and its commensurate diesel fuel costs. The incremental benefit is considered non-tradable and was thus adjusted with a standard conversion factor of 0.9. The project benefits were considered in light of project costs, which are all tradable, including capital expenditures (excluding contingencies, taxes, and interest during construction), purchased power, and operation and maintenance costs. 65. No opportunity or economic costs were considered in relation to is being built mostly along existing ROW already intended for the type Project. Thus, there is no economic cost to Cambodia in building the roadways nor a cost associated with the loss of the small parcels substations, switching station, and towers. land, since the Project of use needed for the Project along existing of land used for the 66. When project cost was compared with diesel generation, the only possible alternative to the Project, the Project turned out to be the least-cost alternative, confirming its importance in Cambodia’s present power system expansion plans, which are based on least-cost principles. 67. The Project’s economic internal rate of return is 26.7%. The rate remains sufficiently robust in various adverse scenarios, including a combination of scenarios. The economic analysis is presented in Appendix 11. 19 H. Anticorruption Policy, Anti–Money Laundering Policy, and Combating the Financing of Terrorism 68. As part of its due diligence review, ADB, using its internal resources and an external adviser, conducted an integrity review of the sponsors and the proposed senior management of the project company. This review was designed to provide a background check on matters affecting ADB’s key policies, including its anti–money laundering policy. It also addressed broader reputation issues that would be of concern to ADB as a lender for the Project. 69. The review was satisfactory to ADB. CPTL was advised of ADB’s Anticorruption Policy (1998, as amended to date) and policy relating to Combating Money Laundering and the Financing of Terrorism (2003). Consistent with its commitment to good governance, accountability, and transparency, ADB will require CPTL to institute, maintain, and comply with internal procedures and controls following international best practice standards for the purpose of preventing corruption or money-laundering activities or the financing of terrorism and covenant with ADB to refrain from engaging in such activities. The loan documentation between ADB and CPTL will further allow ADB to investigate any violation or potential violation of these undertakings. V. THE PROPOSED ASIAN DEVELOPMENT BANK ASSISTANCE A. ADB Loan 1. Nature and Amount 70. An ADB loan to CPTL of up to $8 million without government guarantee is proposed. The loan, from ADB’s ordinary capital resources and under ADB’s London interbank offered rate (LIBOR)–based lending facility, will have a 15-year term including a grace period of up to 2 years, an interest rate determined by ADB’s Credit Enhancement and Pricing Committee, [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 2. Main Terms and Conditions 71. The proposed loan will be documented in a loan agreement, which will contain standard terms and conditions that apply to loans made to private sector borrowers without government guarantees. ADB will also enter into the following: (i) a common-terms agreement that provides terms and conditions common to all the loans, (ii) an inter-creditor agreement addressing voting and security-sharing arrangements, (iii) a project funds utilization agreement, (iv) one or more security agreements, and (vi) other related and ancillary documentation. The borrower must satisfy certain conditions before the first disbursement, including the provision of appropriate security acceptable to ADB; all necessary governmental, creditor, and shareholder approvals and consents; and all contractual and financial arrangements satisfactory to ADB. The security package will include arrangements typical for limited-recourse financing, including charges over the project real property (in a form acceptable to the lenders), shares, assets and bank accounts, and debt service and other reserves; assignment of project agreements; and, if necessary, direct agreements with the main project contract counterparties. During the Project’s commercial operations, CPTL will be bound by financial and accounting procedures and 20 standards, and operational covenants, common in international project financing, including expedient financial reporting and auditing requirements, to the satisfaction of ADB. The lenders will be protected by standard remedies for default. B. 72. Justification for Assistance The Project merits ADB’s support for the following reasons: (i) The Project is a critical part of Cambodia’s national power transmission infrastructure21 and the only high-voltage connection to Thailand, and addresses an acute need in northwest Cambodia for inexpensive and reliable incremental power supply. It will enable, for the first time in Cambodia, the aggregation of demand from several significant and growing but disparate load centers, which are now poorly served, and will thus create the ability to provide reliable power supply with economies of scale and at the least cost. The Project will promote economic competitiveness and efficiency by enabling reduced power costs and increasing the reliability and security of supply. It will also provide opportunities for rural and town electrification at different locations along the project route through potential future localized distribution projects and investments. The Project will enable economic growth, leading to poverty reduction. The Project will promote and encourage private sector investment in addressing a critical infrastructure need in Cambodia through an effective PPP model. In addition, by catalyzing long-term limited-recourse financing from a private commercial bank, the Project will set the stage for future limited-recourse financing in Cambodia—and, indeed, for private sector high-voltage transmission line projects elsewhere in Asia. This will place Cambodia on a par with its neighbors, which already avail themselves of such sources of financing to their benefit. The Project is consistent with ADB’s private sector operational strategy of encouraging the private sector to participate in the infrastructure sectors of developing member countries. It is also fully in line with ADB’s country, regional, and energy sector strategies, as well as with ADB’s thematic priorities of private sector development, sustainable economic growth, and regional cooperation. The Project will contribute to national and regional development, which is vital for sustainable economic growth and poverty reduction. The Project promotes regional cooperation and energy sector integration between Cambodia and Thailand, providing benefits to both and promoting ADB’s own GMS strategy, particularly as it relates to energy. In time, as a critical link between Cambodia and Thailand, the Project will enable additional power-trading opportunities within the GMS. The Project represents an optimal power supply option not only economically but also from the perspective of environmental and social safeguards, as the power delivered by the Project will make it unnecessary to use existing thermal power stations or to build new ones (given the disparate load centers, these power (ii) (iii) (iv) (v) 21 In addition, in time, the Project will also become a critical part of a GMS-wide power-trading transmission network. 21 stations tend to be small and inefficient). The commensurate fuel distribution effects are thus avoided.22 C. 73. Main Risks and Safeguards The Project’s main risks and the corresponding mitigation measures are as follows: (i) Construction risk. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. (ii) Payment risk. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. (iii) Sponsor risk. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 22 According to EDC, it will most likely convert its thermal generation plants in Battambang, Banteay Meanchey, and Siem Reap for standby and peak use. 22 (iv) Operation and maintenance risk. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. (v) Currency exchange risk. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. (vi) Political risk. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. (vii) Transaction structure risk. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. VI. INVESTMENT LIMITS 74. The proposed aggregate ADB exposure to CPTL, consisting of a loan of $8 million, is ADB’s first private sector investment in Cambodia. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #5 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. VII. ASSURANCES 75. Consistent with the Articles of Agreement, the Government of Cambodia will be requested to confirm that it has no objection to the proposed assistance to CPTL. Loan funding will not be disbursed until ADB receives such confirmation. 23 VIII. RECOMMENDATION 76. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of up to $8 million to (Cambodia) Power Transmission Lines Co., Ltd., from ADB’s ordinary capital resources, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)–based lending facility; a term of 15 years, including an amortization period of 13 years and a grace period of up to 2 years; and such other terms and conditions as are substantially in accordance with those set forth in this report, and as may be reported to the Board. Haruhiko Kuroda President 5 June 2007 24 Appendix 1 DESIGN AND MONITORING FRAMEWORK Table A1.1: Project Framework Performance Targets/Indicators • Acute power supply deficit addressed • Increased and more reliable power supply • Implementation of Cambodia’s power transmission master plan, of which the Project is a part Data Sources/ Reporting Mechanisms • EDC financial reports • EDC technical reports (including growth in connections) • Project electricity transmission (GWh per year) versus EDC’s load shedding statistics (GWh per year) • MIME power sector reports Design Summary Impact • Transmit reliable and leastcost electricity to, and within, the northwest of Cambodia and meet very significant regional power needs in Banteay Meanchey, Battambang, and Siem Reap, which are at present insufficiently and inefficiently addressed Assumptions • EDC and the Government of Cambodia will abide by the terms of the PTA, BOT, and other project contracts • EGAT will supply power to EDC pursuant to the PPA Outcome • Attract private sector investment • Build the northwest part of Cambodia’s national transmission grid • Transmit much-needed power for EDC to distribute to three underserved load centers • Forgo the necessity of building an estimated 23 MW to 80 MW in additional diesel or fuel oil plants with adverse environment and road traffic impact • Connect and aggregate demand from disparate load centers, and thus enable the delivery of power on an economic basis • Enable EDC to deliver additional power at more competitive rates • Add least-cost capacity, with peaking capability, to EDC’s regional distribution system • Allow the Government to put scarce financial and technical resources to other use Outputs • Install (i) about 221 km of a single-circuit 115 kV • Project costs financed by private capital • Full project utilization according to PTA terms • EDC performance under PPA with EGAT • Transmission of leastcost electricity to EDC • Growth in EDC’s regional distribution investment and business • Reduced load shedding • Increased private investment in Cambodia • Project financial close • Project construction and operational reports • EDC reports, including transmission instructions to Project that entail timeof-day statistics, and transmission loss and system reliability information • EDC distribution reports including tariff rates • National power supply, tariffs, and transmission statistics • EDC financial performance • Regional economic statistics • Project is able to reach financial close • There is a significant amount of unmet electricity demand, as well as good prospects for future growth • EDC develops distribution assets and connections • Project is fully used according to PTA • EDC complies with all terms of the PPA (with EGAT) and the PTA (with Project), including terms of prompt payment and other obligations • Project design is adequate • Government provides support in terms of licenses, consents, approvals, and other project requirements, through EDC, ministries, and agencies • Project is completed on time and on budget • Project construction reports as verified by • CPTL can implement the Project and ensure its Appendix 1 25 Design Summary transmission line, (ii) three 115 kV/22 kV substations, and (iii) one 115 kV switching station • Transmit electricity according to PTA requirements Performance Targets/Indicators • Commercial operations begin as scheduled • Project performs according to PTA requirements in terms of reliability, consistency of functioning, and delivery Data Sources/ Reporting Mechanisms lenders’ engineer • Project operational reports as verified by lenders’ engineer Assumptions completion and operation according to requirements • Project design is adequate Activities with Milestones • Undertake project development and due diligence • Attract private equity and debt financing • Project approvals, permits, agreements, and contracts, allowing project implementation • Signed shareholder agreement(s) • Signed loan agreement(s) • Financial close • Clearance of all loan drawdown conditions • Loan drawdown(s) • Compliance with project financial base case and financial covenants • Project is assumed to be financially, technically, and commercially viable • Shareholders have the requisite technical, managerial, and financial resources to implement the Project BOT = build-operate-transfer; CPTL = (Cambodia) Power Transmission Lines Co., Ltd.; GWh = 1 million kilowatt-hours; km = kilometer; kV = kilovolt; MW = megawatt; EDC = Électricité du Cambodge; EGAT = Electricity Generating Authority of Thailand; MIME = Ministry of Industry, Mining, and Energy; PPA = power purchase agreement; PTA = power transmission agreement. Table A1.2: Development Effectiveness Objective A. Project Performance Objectives • Private equity • Debt capital • Domestic private capital formation • Overseas debt capital from both bilateral and commercial bank sources • Enhanced cooperation opportunities with the bilateral expert and its agencies • 37.5% of total project cost • 62.5% of total project costs • ThaiExim Bank and local commercial bank integrated into project financing package • Confirmation on financial close • Confirmation on financial close Impact Performance Target Measurement 26 Appendix 1 Objective • Fixed-price and on-time construction Impact • Construction efficiency Performance Target • Competitive bidding and negotiation with international construction contractors • Acceptable final construction contract • Acceptable O&M contract Measurement • Confirmation of acceptability by lenders’ engineer • Project completion according to construction contract • Confirmation of acceptability by lenders’ engineer • Periodic operational reviews • Conformity of periodic line maintenance and outages with PTA specifications • Conformity of project operational cost structure with base case • Amortization of loans and compliance with financial covenants (i.e., DSCRs) • Dividends paid according to base case, sale of project shares, or listing of project shares • Operational efficiency • Optimal technical performance • Debt repayment and equity returns • Economic and financial validation of the Project • Debt repayment • Return on investment B. Economic Sustainability Item • Physical infrastructure • Pro-poor, sustainable, economic growth in Cambodia • Delivery of power to meet underserved and rising electricity demand • Delivery of least-cost power • On-time project completion and operation • Full dispatch • Project completion • Project operational reports • Project operational reports • New transmission line capacity • Efficiency • Power transmission service fee acceptable to EDC • Effective transmission • Executed PTA and project implementation agreements • Delivery of least-cost power by the Project, which is part of EDC’s power transmission master plan • Project operating reports Appendix 1 27 Objective • Power sector development Impact • Achievement of sectoral objectives for power transmission • Use of least-cost source of power to optimize both reliability and economic delivery of electricity • Aggregation of disparate load centers • Environmentally benign delivery of significant power supply • Increase in GDP via construction and operations • Direct employment • Delivery of competitive power, thus creating conditions for efficient economic growth • Validation of sector reforms and policies Performance Target • Project implementation • Full project usage Measurement • Project permits and licenses • Financial close • Project design according to PTA requirements, as confirmed by lenders’ engineer • Project operational reports • Improved power supply to northwest of Cambodia • Project approvals, permits, and licenses • National and regional economic growth rates • Construction contract (labor costs) and O&M contract (labor costs) • Environmental development • Project design and implementation • National and regional GDP growth • Labor use • Economic growth • Sector reforms • Project implementation • Project approvals, permits, and licenses • Financial close C. Private Sector Development Item • Commercial/Technical viability • Demonstration effect • On-time, on-cost construction • Full project usage • Repayment of loans • Profitability • Returns on or of equity • Base case met or exceeded by Project in capital costs and operating costs • Project operational reports • Amortization of loans and compliance with financial covenants (i.e., DSCRs) • Retained earnings • Dividends paid according to base case, sale of project shares, or listing of project shares • Financial viability • Demonstration effect 28 Appendix 1 Objective • Private power sector development Impact • Demonstration effect • Validation of sector policies, reforms, and incentives, including public-private partnership model • First private transmission project in Cambodia • Complement and reinforcement of PPP model of development • Development of longer maturities and integrated multiple sources of financing into one package for infrastructure financing in Cambodia • First project financing in Cambodia attracting private local commercial bank financing • Highly visible example of private sector investment in Cambodia Performance Target • Project implementation and project contracts Measurement • Project financial close, completion, and operation • Follow-on private sector projects in Cambodia • Capital markets • Use of long-term international sources of funding, from both institutional sources and the international commercial bank market • Project financial close • Private sector investment • Project implementation and project contracts • Project financial close, completion, and operation BOT = build-operate-transfer, DSCR = debt service coverage ratio, EDC = Électricité du Cambodge, EGAT = Electricity Generating Authority of Thailand, GDP = gross domestic product, O&M = operation and maintenance, PPP = public-private partnership, PPA = power purchase agreement, PTA = power transmission agreement. Appendix 2 29 POWER SECTOR IN CAMBODIA A. Introduction 1. The foundations for the development of Cambodia’s modern power sector were developed in a series of studies on the country’s power sector strategy and national power development plan (the latter introducing least-cost principles to development planning), under the auspices of the World Bank in the late 1990s. Before then, and after the liberation of Cambodia on 7 January 1979, Cambodia’s power sector was being slowly restored, after significant damage and neglect during both the civil war (1971–1975) and the Pol Pot regime (1975–1979), principally with government budget allocations, grants, and other development funds. However, given the large investment requirements (then and now) and the rapidly growing economy demanding greater amounts of electricity, the Government, in about 1996, started looking to the private sector as a source of investment for the power sector. To attract investment and also ensure transparency, equity, and security of private investment in the sector, and to govern the relationship between suppliers and consumers equitably, the Government promulgated the Electricity Law of the Kingdom of Cambodia in 2001. The law provided the legal framework, and subsequent regulatory underpinnings, of Cambodia’s power sector as it exists today. B. Electricity Tariff Structure 2. End-user tariffs for selected areas, which can be denominated in both local currency and dollars (as well as in baht in some border areas), are shown in Table A2.1 (these do not reflect increases in 2005). Table A2.1: Électricité du Cambodge’s and Selected Licensees’ Tariffs, by Region (¢ per kWh, at current exchange rates) Location Phnom Penh Sihanoukville Siem Reap • Sotnikum District Battambang • Thmorkol District Banteay Meanchey • Ochror District Domestic 8.4–15.6 12.0 Industrial 11.5–14.4 19.7–17.5 Commercial 11.5–15.6 15.0–19.5 15.6–18.7 50.0–65.0 24.5 36.0–48.0 7.2–14.4 72.0–76.8 Hotels 19.2 16.0–20.0 Embassies, Others 19.2 18.3 Note: Only selected district licensees are presented to illustrate tariff levels. Source: Electricity Authority of Cambodia. 2004. Report on Power Sector. Phnom Penh. 30 Appendix 2 C. Electricity Supply and Demand 3. Cambodia’s power sector has significant amounts of unmet demand and, thus, a large and acute supply problem. Cambodia has at present an installed capacity of some 247 megawatts (MW) (not all of which is available at any one time)1 to serve a population of 13 million. Demand is driven by availability of supply and any additional supply is almost immediately used, leaving little effective reserve margins in the system. Recent supply additions in Phnom Penh and Siem Reap have only moderately alleviated this scarcity. Électricité du Cambodge (EDC) relies on the cooperation of self-generators (hotels, industries, etc.) to stay off its system so that it can supply residential customers (who have no access to captive generation). Blackouts are common, especially at peak times. 4. The power sector is significantly underdeveloped—a result of many years of conflict. This has left Cambodia with per capita consumption of about 48 kilowatt-hours (kWh) a year (compared with 113 kWh a year in the Lao People’s Democratic Republic [Lao PDR] and 500 kWh a year in Viet Nam), and a low national electrification rate of 15% (urban 53.6% and rural 8.6%), which is less than half of the electrification rate in the Lao PDR. This situation confirms the significant amount of pent-up demand in Cambodia. It is being increasingly served as capacity is added to the system. 5. Cambodia’s power generation is almost entirely based on diesel and fuel oil (accounting for 96.2% of total gigawatt-hours [GWh] sold in 2004), with only two hydro units in operation (13 MW in total).2 National power consumption is largely based in Phnom Penh (83%) as is installed capacity (77%), with Phnom Penh representing some 87% of EDC’s total sales. Cambodia’s private sector plays a significant role in the country’s power sector. It is principally involved in generation (with independent power producers supplying some 67% of EDC’s capacity), but integrated utilities in some provincial capitals are also privately owned and operated. Licensees in small towns and rural electrification enterprises may also be privately owned, wholly or in part. D. Electricity Supply and Demand Projection 6. Electricity demand (some 1,300 GWh in 2005) is expected to grow at an annual compounded rate of nearly 12%, to 3,907 GWh in 2016 (Table A2.2). This implies a similar increase in power supply capacity to some 774 MW in the same period. Demand projections, by region, are given in Table A2.2. E. Power Sector Development 7. The Government’s power sector development strategy is aimed at addressing this growth in demand and providing adequate, reliable power supply at affordable prices throughout the country. The key elements of its policy framework in this regard are: (i) promoting investments in generation and transmission, (ii) interconnecting and trading with neighboring countries, (iii) establishing a favorable legal and regulatory framework, (iv) encouraging private sector participation, and (v) expanding rural and provincial electrification. Specifically, Cambodia intends to address these issues in its system expansion plan (compiled by the Ministry of 1 2 EDC’s ratio of maximum output to installed capacity is 78% (2003). There are also several privately owned micro hydro units in the northern provinces, ranging in size from 1 kW to 50 kW. Appendix 2 31 Industry, Mines, and Energy, on the basis of least-cost options), which is predicated on increases in domestic generation and high-voltage grid development to allow aggregation of demand and imports of inexpensive power. High-voltage grid development is a fundamental aspect of delivering this additional supply and, importantly, lowering power costs in Cambodia by allowing economies of scale and inexpensive imports. The Project is prominently featured in the system expansion plan as coming online in 2007. Table A2.2: Energy and Capacity Demand Projections, by Region, 2006–2016 Historic 2004 2005 1,053 18 13 26 970 26 105 18 37 50 1,158 1,181 19 14 29 1,084 35 119 21 41 57 1,300 Projected 2011 2,388 71 21 48 1,871 354 23 228 50 79 99 2,616 32 Appendix 2 Region A. Energy (GWh) Southeast Kampong Cham Kampong Speu Kampot Phnom Penh Sihanoukville Takeo Northwest Banteay Meanchey Battambang Siem Reap Total B. Capacity (MW) Southeast Kampong Cham Kampong Speu Kampot Phnom Penh Sihanoukville Takeo Northwest Banteay Meanchey Battambang Siem Reap Total 2006 1,325 34 14 34 1,180 63 132 24 45 63 1,457 2007 1,493 44 15 37 1,319 78 148 28 51 69 1,641 2008 1,781 51 17 39 1,459 197 18 164 33 56 75 1,945 2009 1,961 58 18 42 1,602 221 20 181 37 62 82 2,142 2010 2,230 65 20 45 1,733 345 22 204 43 71 90 2,434 2012 2,719 79 23 52 2,025 515 25 251 56 88 107 2,970 2013 2,919 83 26 56 2,202 526 26 272 62 94 116 3,191 2014 3,122 89 30 60 2,378 538 27 296 70 102 124 3,418 2015 3,330 92 34 64 2,559 552 29 320 79 110 131 3,650 2016 3,560 99 39 68 2,755 567 32 347 88 120 139 3,907 199 5 4 10 170 6 4 22 4 7 11 221 223 5 4 11 190 8 5 24 4 8 12 247 257 12 5 14 207 14 5 28 5 9 14 285 289 15 5 15 232 17 5 31 6 10 15 320 346 19 6 16 256 43 6 34 7 11 16 380 382 21 7 18 281 49 6 39 8 13 18 421 436 23 7 19 304 76 7 43 9 14 20 479 467 25 8 20 329 78 7 49 11 16 22 516 538 27 9 25 356 113 8 54 12 18 24 592 576 29 10 27 387 115 8 59 14 19 26 635 616 31 12 29 418 118 8 64 16 21 27 680 654 32 13 30 449 121 9 68 17 22 29 722 700 34 16 33 484 124 9 74 20 24 30 774 GWh = gigawatt-hour, MW = megawatt. Source: Électricité du Cambodge, 2006. Appendix 3 33 ÉLECTRICITÉ DU CAMBODGE 1. Électricité du Cambodge (EDC) was corporatized and became a wholly state-owned autonomous limited-liability company on 9 March 1996 in accordance with Royal Decree No. 0396/10. Its service responsibilities are defined by Sub-Decree No. 23 dated 23 May 1996. EDC is owned by the State through the joint ownership of the Ministry of Industry, Mines, and Energy (MIME) and the Ministry of Economy and Finance (MEF). 2. EDC’s board of directors is composed of representatives of MIME, MEF, and the Ministry of Justice; EDC’s managing director; two private sector representatives; and a representative of the EDC employees. The board is chaired by MIME. EDC is managed by a managing director and three deputy managing directors, one for each of the departments of planning and technique, administration, and finance and accounting. The planning and technique department oversees the generation, corporate planning and projects, transmission and distribution, and international energy subdepartments; the administation department takes care of the administration, training, provincial affairs, and technical subdepartments; and the finance and accounting department is in charge of the finance, accounting, and internal audit subdepartments. EDC has 13 separate utility units reporting to the managing director, of which Phnom Penh is by far the largest. 3. EDC is responsible for generating, transmitting, and distributing electricity throughout Cambodia. Since it started in 1996, EDC has been absorbing provincial utility units (originally housed within MIME). Its franchise area, for which it has a consolidated license to generate and distribute, now includes Phnom Penh, Sihanoukville, Siem Reap, Kampong Cham, Takeo, and Battambang. The following areas have been, or are being, integrated into EDC’s franchise: Kampong Speau, Kampot, Prey Veng, Svay Rieng, Banlung, Stung Treng, and Banteay Meanchey. EDC also holds a national transmission license, under which it is tasked to develop a national transmission system. The Project will obtain a special license under EDC’s national transmission license. EDC’s licenses have been granted to it by the Electricity Authority of Cambodia. 4. EDC’s capacity and energy statistics are shown in Table A3.1. 34 Appendix 3 Table A3.1: Summary Information on the Électricité du Cambodge System Energy Sold (Net of Losses) Area of Supply (kWh) Phnom Penh 557,765 Sihanoukville 20,173 Siem Reap 28,199 Battambang 12,981 Takeo 2,049 Kampong Cham 6,228 Ponhea Krek District 3,686 Memot District 3,566 Khum Bavit 4,740 Kampong Trach 625 Kampot 1,493 Prey Veng 666 Ratanakiri 1,417 823 Banteay Meanchey 18,231 MW = megawatt, kWh = kilowatt-hour. Note: Names may not match the franchise areas described above because of different descriptions and some overlap between locations. Source: Electricity Authority of Cambodia. 2004. Report on Power Sector. Phnom Penh. Installed Capacity (MW) 65.0 7.4 10.5 Energy Purchased (kWh) 421,793 1,817 2,567 16,585 2,325 7,867 3,967 3,873 4,928 701 2,301 1,079 143 20,087 Energy Generated (kWh) 231,551 22,811 33,871 15 Auxiliary Use (kWh) 11,812 1,398 3,210 717 5. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 6. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 7. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. Appendix 3 35 8. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 9. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 36 Appendix 3 Table A3.2: Électricité du Cambodge Audited Balance Sheet as of 31 December (KR’000) [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. Appendix 3 37 Table A3.3: Électricité du Cambodge Audited Income Statement as of 31 December (KR’000) [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 38 Appendix 3 Table A3.4: Électricité du Cambodge Audited Cash Flow Statement as of 31 December (KR’000) [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #18 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. Appendix 4 39 PROJECT SPONSORS A. CPTL Ownership and Management Structure 1. The ownership structure of (Cambodia) Power Transmission Lines Co., Ltd. (CPTL), is shown in Table A4.1. Table A4.1: CPTL Ownership Structure Amount ($ million) 4.80 Investor A. S. K. Co. Ltd. (Cambodia) SKL Group Holding Ltd. (Cambodia) Mme Se Thma Pich Mr. Tea Tyhas Total CPTL = (Cambodia) Power Transmission Lines Co., Ltd. Source: CPTL. Percentage 40.0 3.00 25.0 2.40 1.80 12.00 20.0 15.0 100.0 2. The principal sponsor of CPTL is the SKL Group, fully owned by Mr. Ly Say Khieng. Mr. Ly Say Khieng’s ownership share in CPTL is further augmented indirectly via his 47.5% interest in A. S. K. Co. Ltd. His direct and indirect interests in CPTL amount to 44%. CPTL has attracted unrelated individual financial investors with no direct management responsibility or positions—Mme Se Thma Pich and Mr. Tea Tyhas. Both are represented in CPTL’s board of directors. 3. CPTL is managed by the SKL Group, with Mr. Ly Say Khieng as CPTL’s chief executive officer. The SKL Group provides comprehensive project management services to CPTL including project management (implementation, licensing, etc.), logistics, customs clearance and import, technical (using in-house resources or experts), procurement and contract administration, financial and accounting systems and support, human resources, government and regulator relations, and legal services. This management support during construction will continue during the operations period. 4. CPTL will enter into a joint-operations arrangement with PES International and develop the internal resources to operate the Project. These operating arrangements, which are being developed and are subject to review and acceptance by the lenders’ independent engineer, are designed to achieve operational efficiencies and a competitive cost profile while retaining access, through PES International, to strong technical skills. The operating plan is also intended to achieve technology and skills transfer to Cambodia, where there is limited technical experience in high-voltage transmission operations. 40 B. Appendix 4 CPTL Sponsors 1. SKL Group Holding Ltd. 4. SKL Group Holding Ltd. is a Cambodian registered company fully owned by Mr. Ly Say Khieng. SKL Group Holding Ltd. functions as the holding company, with interests in the various companies in the SKL Group and other investments. 5. The SKL Group has wide business interests in transportation, shipping, air freight, dry ports, bonded warehousing, toll-road concessions, and real estate holdings (industrial park and export-zone development). The structure of the SKL Group is shown in the following figure. The SKL Group SKL Group Holding Co. Ltd. Infrastructure Logistics Property Investment and Development Sector Others Phnom Penh Highway Co. Ltd. MSEKPM Co. Ltd. Global SKL Shipping Co. Ltd. Cambodia Holding Co. Ltd. LSK Travel Co. Ltd. A. S. K. Co. Ltd. Companies MS Overseas Transport Co. Ltd. Angkhor Agency Co. Ltd. A. S. K. & KH Group Co. Ltd. National Shipping Line (Cambodia) Co. Ltd. A. S. K. & KH Group Co. Ltd. Kiwi Bakery and Restaurant (Cambodia) Power Transmission Line Co. Ltd. Resource Freight (Cambodia) Ltd. Appendix 4 41 2. A. S. K. Co. Ltd. 7. A. S. K. Co. Ltd. owns 40% of CPTL. A. S. K.’s owners are listed in Table A4.2. The company is considered an affiliate of SKL Group Holding Ltd. Mr. Ly Say Khieng and Mr. Kim Hap have long-standing relations, and both have other joint investments, in highway development and operations (Phnom Penh Highway Co. Ltd.), property holdings, and industrial park and export-zone development (Cambodia Holding Co. Ltd. and A. S. K. & HK Group Co. Ltd.). Table A4.2: A. S. K. Co. Ltd. Ownership Structure Investor Mr. Ly Say Khieng Ms. Kim Ning Mr. Sok Puthyruth Total Source: (Cambodia) Power Transmission Lines Co., Ltd. Interest (%) 47.5 47.5 5.0 100.0 8. Ms. Kim Ning is the daughter of Mr. Kim Hap, head and founder of the Kim Hap Group of companies. The investment in CPTL will be effected through either Ms. Kim Ning or her sister, or both of them. This arrangement has been made in view of Mr. Kim Hap’s advanced age. 42 Appendix 5 PROJECT CONTRACTUAL STRUCTURE Agent Bank Common Terms Agreement Agency Agreement ADB Loan ThaiExim Bank Loan Local Bank Loan Loan Agreement Loan Agreement Loan Agreement A.S.K. Co., Ltd. SKL Group Holding Co.,Ltd. Mdm Se Thma Pich Mr. Tea Tyhas Shareholder Agreement (Cambodia) Power Transmission Lines Co., Ltd. Construction Contract PES International Co. Ltd. Power Transmission Agreement BOT Contract Electricité Du Cambodge PPA MEF CPTL/PES International Co. Ltd. O&M EGAT Public Co., Ltd. MIME CDC ADB = Asian Development Bank; BOT = build-operate-transfer; CDC = Council for the Development of Cambodia; CPTL = (Cambodia) Power Transmission Lines Co., Ltd; O&M = operation and maintenance; PPA = power purchase agreement; PTA = power transmission agreement; MEF = Ministry of Economy and Finance; MIME = Ministry of Industry, Mining and Energy; ThaiExim Bank = Export-Import Bank of Thailand. Appendix 6 43 SUMMARY INITIAL ENVIRONMENTAL EXAMINATION A. Introduction 1. The proposed CPTL Power Transmission Project (the Project), being undertaken by (Cambodia) Power Transmission Lines Co., Ltd. (CPTL), comprises: (i) about 221 kilometers (km) of a single-circuit 115 kilovolt (kV) transmission line, (ii) three 115 kV/22 kV substations, and (iii) one 115 kV switching station. The Project will be the national transmission grid for northwest Cambodia and therefore part of Cambodia’s national grid. It will connect to the Thai border some 12 km north of the present Poipet vehicular border crossing point (where it connects to Thailand’s 115 kV line) and will, from there, cross and deliver power to three provinces in northwest Cambodia, namely, Banteay Meanchey, Battambang, and Siem Reap. The Project is being built along the rights-of-way (ROW) of existing roads—National Road Five (NR5) and National Road Six (NR6)—except for an 18 km detour around the town of Sisophon in Banteay Meanchey province and a small section from NR5 to the border crossing point that is built on property of the sponsors. 2. The Project is classified as category B. It is also classified as category B for involuntary resettlement and C for indigenous people. 3. The construction of the Project will have only minor and non-permanent adverse environmental effects, which will be minimized though best construction practices. Project operations will not harm the environment. No ecological effects are expected, as all the affected land is either an existing highway or cultivated rice paddies, and no flora or fauna species of ecological importance were identified along the alignment. 4. Involuntary relocation or resettlement matters (including land-use changes) are not considered significant, given the very minor footprint of the Project. Ninety-two percent of the Project will be built along existing roads in a ROW corridor, and a small portion on private property owned by the project sponsors and set aside for separate developments. In addition, roadside communities have already been, or will be, considered for compensation to cover relocation outside the ROW, under a previous Asian Development Bank (ADB) project to upgrade these highways1. Eight percent of the Project (the detour around the town of Sisophon) will be built over rice paddies; 0.5 hectare (ha) of land has been acquired, in a private, voluntary, and non-compulsory manner, for tower footings. The construction of the towers over the paddy fields will be relatively quick and will be done in the dry season, when the fields are fallow and rice production will not be affected. Rice cultivation by the previous landholders will resume under the constructed towers. 5. No indigenous people live in the surrounding area, and therefore indigenous people are not considered an issue. 6. The project sponsor carried out an initial environmental evaluation (IEE) from March to June 2006 to assess the environmental and social soundness of the Project. The main IEE findings are summarized and presented in this appendix. 1 ADB. 2002. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Kingdom of Cambodia for the Greater Mekong Subregion Road Improvement Project. Manila. 44 B. Appendix 6 Description of the Project 7. The Project, once completed, will transmit power from the Aranyaphathet substation in Thailand, 15 km from the Cambodian border, to the switching yard on the Cambodian side of the border. From the border, the transmission line will cross a 12 km area of vacant land owned by the project sponsors. It will then cross and follow highway NR5 (a distance of about 48 km) in the ROW. The transmission line will detour around the town of Sisophon (18 km) before connecting with the Banteay Meanchey substation. Two lines will emerge from this substation— one heading west in the ROW of NR6 to a substation on the outskirts of Siem Reap (about 92 km) and the other continuing south in the ROW of NR5 for a distance of about 51 km to a substation on the outskirts of Battambang. The ROWs are defined as 30 meters (m) from the center line of the highway for NR5 and 25 m for NR6, on each side of the highway. The Project is designed to be constructed 26.5 m from the NR5 center line and 23.5 m from the NR6 center line. The substations stand on the edge of the towns, with lower-voltage power (22 kV) from the substations being distributed by Électricité du Cambodge (EDC), using and extending its existing network. 8. The Project facilities will consist of the following: (i) 203 km of a single-circuit 115 kV transmission line, suspended using 22 m-high reinforced-concrete poles inserted into precast concrete foundations; 18 km of a single-circuit 115 kV transmission line, suspended using 35 m-high steel lattice towers; one 115 kV switching station; and three 115 kV/22 kV substations in Banteay Meanchey, Battambang, and Siem Reap. (ii) (iii) (iv) 9. The Project is a standard 115 kV transmission line project. It will transmit power from Thailand to Banteay Meanchey, Battambang, and Siem Reap, which currently operate heavy fuel oil or diesel generators, or both, to provide electricity. 10. The Project will be constructed on a build-operate-transfer scheme, and will be handed over to EDC after a concession period of 30 years. A comprehensive engineering, procurement, and construction contract has been awarded to PES International Co. Ltd. (PES), a well-known Thailand-based contractor. The construction contract covers detailed design, civil works construction, installation of electrical equipment, and commissioning. The contract was signed in December 2005, and commercial operation by early 2007 is targeted. C. Description of the Environment 1. Natural Environment 11. The Project covers 221 km of generally flat terrain. Land use along the route is rural, consisting mainly of linear rural communities adjacent to the highways and rice paddies, and some larger villages in parts. No archaeological or historic sites or temples have been identified within the route: the Siem Reap substation is on the edge of, but outside, the Zone II area of the Appendix 6 45 Authority for the Protection and Management of Angkor and the Region of Siem Reap,2 and there is no evidence of any ancient artifacts. A single annual crop of lowland rain-fed rice is cultivated in the area; in the dry season the fields are left fallow. The Project also crosses an 800 m area of degraded dry deciduous forest between the Cambodian and Thai borders. This area has low species diversity and is believed to be strewn with land mines. Special-purpose metal lattice towers on both sides of the border will be built to accommodate the span, so that no foundations need be built in the 800 m no-man’s-land. 12. The project area has no identified ecological or biologically sensitive areas, as these areas have been subjected to human interventions (highway construction and rice cultivation). The nearest ecological reserve (Trorpang Thmor Crane reserve) is 23 km north of the route. The project route and substation sites do not support flora or fauna of ecological or economic significance because of the already degraded habitat conditions (road and paddy fields) and small project footprint. 2. Socioeconomic Environment 13. With respect to economic development, the region can be divided into towns and rural settlements. The main towns are Battambang, Poipet, Sereisophorn, Siem Reap, and Sisophon. Siem Reap, the main tourism center of the country, is the largest market with the greatest power consumption. EDC generates 12.5 megawatts (MW), 10 MW of this from a heavy fuel oil generator and the rest from rented diesel generators. Only four of the larger hotels use EDC supply; the vast majority rely on their own high-capacity diesel generators. The oil and diesel fuel is currently delivered by tank truck into Siem Reap, Banteay Meanchey, and Battambang. 14. Electricity prices vary between towns and are considerably higher when compared with prices in other parts of Cambodia. Electricity prices in Banteay Meanchey and Battambang vary between KR1,125 and KR3,500 per kilowatt-hour (up to 84¢ per kilowatt-hour) depending on the electricity provider (EDC has a limited supply network in the larger towns, and small local independent providers supply other areas). As a consequence, electricity is relatively inaccessible. 15. There are about 127 rural village populations along the route, with most settlement occurring in the Borei, Krorlang, Mongkul, Ochor, Pouk, Prah, Pratneth, Serei, Sophorn, and Thmorkol districts. Rural villagers have no main electricity supply and many households source a small amount of electricity from wet cell batteries or small private generators. The main source of energy is biomass fuel, in the form of fuelwood or charcoal. 16. The Project, except for the 18 km detour around Sisophon (and the section from the border point to NR5 on the sponsor’s private property), is being built along existing highways in a ROW corridor. These highways are being upgraded through a separate ADB-financed project (footnote 1). 2 The Authority for the Protection and Management of Angkor and the Region of Siem Reap has established protected cultural zones and management guidelines for areas in the Siem Reap and Angkor regions. Zone II areas are protected archaeological reserves considered rich in archaeological remains, which need to be protected from damaging land-use practices and inappropriate development. 46 D. Appendix 6 Forecasting Environmental Impact and Mitigation Measures 1. Impact of Construction 17. With 92% of the Project using modular precast concrete foundations and posts to speed up construction, the impact of construction on the environment is expected to be minimal. An excavator is used to dig a 2 square meter hole, in which the precast concrete foundation is placed. A concrete pole is then placed in the foundation and set in concrete. No hazardous materials are used during construction except for fuel and lubricants for vehicles. 18. The poles have a span of about 80 m, resulting in a minimal project footprint. There are several tributaries to the Tonle Sap lake along the highway, but the span length between the poles is sufficient to cross these tributaries; soil erosion or contamination of the water bodies is therefore considered unlikely. Construction access along the highway will be through the existing road. Negative effects such as dust, noise, and restricted access (during the conductor stringing) will be evident; however, these effects will be transient, quick, and minor, and are unlikely to be greater than those resulting from the existing highway, part of which is unpaved. 19. The effect of constructing the 18 km stretch of line over the paddy fields is also expected to be minimal. This section of the Project is constructed using steel lattice towers with concrete foundations. An excavator is used to dig four foundations into which a steel frame and concrete is pored. A steel tower is then bolted onto the foundations. The towers are used to increase the span (about 260 m can be achieved), resulting in a reduction in both the number of locations and the amount of land to be acquired (0.5 ha in total). The largest river crossing occurs at this section of the Project and the increase in span length is sufficient for this crossing; soil erosion of the water bodies is therefore considered unlikely. Construction will take place during the dry season, when the paddy fields are fallow and access is possible. 20. Established roads and tracks will be used for access where possible; however, temporary access tracks will be required for the 18 km diversion over the dry fallow paddy fields, which will disturb fields and bunds. These will be restored after construction to minimize the inconvenience to landowners. Cropping on the temporary track and under the towers will continue after construction. In the unlikely event of crop losses resulting from construction activities, compensation for any actual loss of any crops (based on agreed yield and market value) will be paid. There will be dust and noise during construction, but such effects will be transient and minor. 21. Mitigation measures including physical measures and good environmental management practices are included in the IEE and construction contract to ensure that the construction practices minimize potentially negative effects on the environment such as soil erosion, fugitive dust, noise, safety and public health hazards, improper waste disposal, and temporary difficulty of access to houses. Management measures include training construction staff, informing communities about the construction schedule before the works begin, and timing construction works to avoid the rainy season. Physical measures include using proper construction techniques and machinery, placing fill in a way that will not cause flooding or sedimentation, and storing hazardous materials properly (storing fuels above flood levels and away from water bodies). 22. The construction contractor is required to take all reasonable steps to protect the environment and limit its negative effects on people and properties, and to ensure that all emissions, surface discharges, and effluents do not exceed the values prescribed in applicable Appendix 6 47 laws. The contractor is liable for any losses, expenses, and claims from environmental pollution caused by the construction. 23. About 4.5 ha of land was acquired for the three substation sites. This land was purchased at market rates from landowners, who were happy with the purchase price. Although the landowners sold a large portion of their landholdings, their remaining land has increased in value (largely as a result of the Project) and the former landholders are able to afford land nearby. The switching station is located on land already owned by the project sponsor. 24. About 0.5 ha of land has been purchased for tower locations; as the tower footprint is small in size, landowners will generally lose less than 1% of land owned. The former landowners will also be able to crop beneath the constructed tower. These plots have been purchased from landowners at agreed prices. 25. Owners of large trees adjacent to the ROW that require removal or pruning for the construction of the line will be compensated. Cleared vegetation will be made available for the landowners’ use. 2. Impact during Operations 26. The Project is unlikely to have adverse environmental and social impact during operations. E. Institutional Requirements and Environmental Monitoring Plan 27. A summary of the monitoring requirements of the Project was formulated during the IEE (see table below). It clearly defines the parameters to be monitored, the roles and responsibilities of the various entities concerned, impact mitigation, and the location and frequency of monitoring and measurement. The monitoring requirements consider the pre-construction, construction, and operational phases. The contractor is also required to provide monthly progress reports to CPTL. Table A10: Project Monitoring Requirements Parameter to be Monitored Occupational health and safety plan compliance and staff training Construction activities on the Sisophon detour during dry season Location of spoil disposal Construction techniques and equipment Storage of fuel and hazardous materials Frequency Monthly Monthly Twice monthly Before construction Once during construction of substations Monthly Once Roles and Responsibilities Construction contractor Construction contractor Construction contractor Construction contractor Construction contractor Communication of schedule to public Safety guards to prevent anyone from climbing the towers Construction contractor (Cambodia) Power Transmission Lines Co., Ltd. 48 Appendix 6 Parameter to be Monitored Security of substation transformers in pervious areas, and sufficiency of bund to retain spills and leaks Source: (Cambodia) Power Transmission Lines Co., Ltd. Frequency Once Roles and Responsibilities Construction contractor 28. Mitigation measures and associated costs are included without breakdown in the construction contract but are not funded by CPTL. CPTL will assume overall responsibility for compliance with the environmental and social management requirements of the Government and of the lenders. The construction contractor will assume overall responsibility for the environmental performance of any subcontractors, ensuring that the subcontractors effectively implement all environmental management measures stipulated in the construction contract. The construction contractor will also be responsible for training the project staff and subcontractors in the IEE requirements, if such training is required. The construction contractor is an experienced contractor of good reputation and has the capacity to meet its obligations. CPTL, for its part, is a professionally managed operation with the requisite capacity to supervise the construction contract and meet its other project responsibilities. 29. During the construction phase, the environmental performance of all subcontractors will be closely monitored by the construction contractor under the oversight of CPTL. The monitoring will be in line with the summary of monitoring requirements outlined in the IEE and will focus on soil erosion, water quality, noise, air quality, and socioeconomic aspects. 30. Environmental and social management tasks during the operational phase will be minimal. F. Public Consultation and Disclosure 31. Several public consultations were held during the preparation of the IEE with representatives of the government agencies concerned with the Project including: provincial departments of the ministries of environment, agriculture, forestry and fisheries, post and telecommunications, public works and transport, and industry, mines, and energy; EDC (Battambang, Banteay Meanchey, and Siem Reap); chiefs of communes and villages; and other interested parties. All representatives and chiefs expressed their support for the Project and willingness to cooperate. The names of the commune and village chiefs and representatives of public and private entities along the transmission line route who were consulted are listed in the IEE. 32. A total of 1,053 households were visited and the Project’s scope, requirements, and impact were explained to them. Various subjects relating to the Project were discussed and reactions to the various aspects of the Project were obtained in semi-structured discussions. The consultations indicated that the majority (more than 68%) of all the households questioned were aware of the Project construction. Some 98% of the respondents knew that the Project was being built on the ROW and that compensation for resettlements and fruit trees had already been considered as part of the road improvement project; only 1.8% of the households requested allowances for relocation. 33. On 10–12 April 2006, seven 2-hour public consultation meetings were held to present the findings of the IEE before the report was finalized. The meetings were conducted in district halls in the following districts: Borei, Koul, Kuolang, Mongkol, Ochrov, Pouk, Prah, Prahneth, Appendix 6 49 Serei, and Sophan. Village chiefs, deputies, and villagers attended. The details of the persons attending are also listed in the IEE. Common questions asked were as follows: Can the villages along the line use the electricity? When will electricity be available to villages along the project route? When will the construction take place? Will compensation be paid for the relocation and loss of vegetation within the ROW? Who will operate and own the Project? The questions, and the corresponding answers, are documented in the appendixes of the IEE. 34. The outcomes of the consultations led to the conclusion that the Project would have no significant negative social impact. The Project construction and its potential impact did not seem to be a big concern and most people were aware of the Project. The concept of the ROW and the compensation received from the previous ADB project to upgrade the highways seemed to be well established. Residents of the villages and linear developments, however, were disappointed that, although the Project would pass through their communities, they would not benefit from the transmission line by being able to receive power. But it was noted that the Project would enable EDC and other distribution enterprises (including rural electrification enterprises) to develop distribution networks once the Project is completed. G. Findings, Conclusions, and Recommendations 35. The IEE findings confirm that the Project is unlikely to cause any significant or lasting negative environmental or social impact. Environmental disturbances normally associated with construction activities will be minimized through sound environmental management practices and effective mitigation measures, which are prescribed in the construction contract. The contractor’s operation and environmental controls will also be closely monitored. 36. The IEE is considered adequate for environmental assessment purposes. 50 Appendix 7 SUMMARY RESETTLEMENT PLAN A. Background 1. (Cambodia) Power Transmission Lines Co., Ltd. (CPTL) is a private company incorporated in Cambodia set up to build and operate a 221 kilometer (km) 115 kilovolt (kV) power transmission line (and the attendant switching station and substations) in the country. The CPTL Power Transmission Project will import power from Thailand on the basis of a power purchase agreement signed by Électricité du Cambodge (EDC) and EGAT Public Company Limited of Thailand. CPTL will build and operate the transmission line and transmit power purchased by EDC under the power purchase agreement for a period of 30 years under a power transmission agreement with EDC. At the end of the 30-year period, the Project will be transferred to EDC, the final owner of the system. CPTL is now seeking private sector funding from the Asian Development Bank (ADB) to finance the construction and operation of the transmission line and the associated substations in Banteay Meanchey, Battambang, and Siem Reap. The transmission line will form a key component of the national and provincial power transmission network. 2. The Project will mostly be accommodated in the road reserves of National Road 5 (NR5) and National Road 6 (NR6). The road reserves are within the jurisdiction of the provincial authority. The provincial authority, with the assistance of village chiefs and at CPTL cost, is responsible for land acquisition, compensation, land transfer, resettlement, and social monitoring. CPTL is responsible for project financing, financial management, construction, and operation and maintenance of the transmission line. CPTL accepts responsibility for ensuring that the resettlement, compensation, and mitigation measures comply with ADB policies and guidelines. 3. The 221 km 115 kV transmission line will bring in power from Thailand to a switching yard at Poipet on the Cambodian side of the border and from there to three substations in Banteay Meanchey, Battambang, and Siem Reap. The Project is largely being built within the right-of-way (ROW) of NR5 and NR6, except for an 18 km detour around the town of Banteay Meanchey. It will pass through seven districts, 34 communes, and 127 villages. The pattern of settlement in the villages along both sides of NR5 and NR6 is linear, with agricultural land found in areas outside the communes. The Project has been classified as category B for involuntary resettlement, that is, its resettlement impact is not deemed significant and will require only a short resettlement plan (SRP) to be prepared and implemented. The SRP is available as a supplementary appendix to this report and is summarized in the present appendix. B. Project Status 4. Land for the switchyard at the border-crossing location, on a prospective industrial estate, is owned by A. S. K. & KH Co. and is currently being transferred to CPTL. Land for the substations was purchased by CPTL between 12 November 2005 and 13 December 2005, and the construction of the three substations began in January 2006 and was to be completed in early 2007. Compensation for land acquisition for the three substations has been completed, with compensation and entitlements disbursed to the affected persons (APs). Work has begun on the section of the transmission line between Siem Reap and the border (industrial estate). Foundations and poles have been installed along this section of the alignment. The stringing of the transmission line was set to take place in late 2006, and this section of the transmission line was expected to be completed by that time. Losses have been identified along the transmission line alignment between Siem Reap and the border (industrial estate) and funds have been set aside by CPTL to compensate APs. Appendix 7 51 Compensation was being disbursed and the process was about 60% complete during the site visit; it was completed in early August 2006. 5. On the section of the transmission line between Banteay Meanchey and Battambang (which is addressed in the SRP) foundations are being installed. Losses have been identified along the transmission line alignment between Banteay Meanchey and Battambang; however, as construction is still at an early stage and a survey of the route and foundation location is still in progress, no compensation has been disbursed to APs. Land to accommodate the transmission towers along the 18 km Banteay Meanchey detour has been identified and surveyed, and a deposit has been paid to the landowners for the purchase of this land. The balance will be paid when the transfer of title takes place. 6. Due diligence was undertaken on the section of the Project that has begun construction to determine if resettlement was being implemented and compensation disbursed according to ADB policy and procedures. The findings of the due diligence report are summarized below. 7. The main positive social impact of the Project was assessed to be as follows: (i) At the regional level, a more reliable supply of power will contribute to increased flows of goods and services and economic development, which, in turn, will help sustain the current high rate of regional economic development and activity between Thailand and Cambodia. Economic development will be further strengthened with the upgrading of NR 5 and NR 6. Towns will benefit from increased production as a more reliable source of power for their agricultural produce becomes available, and from the increased economic opportunities arising from regional development. Villages may not benefit from the provision of electricity in the short term but are likely to do so in the future. (ii) (iii) 8. The main negative social impact is as follows: (i) One household in the NR6 right-of-way was displaced. But the displacement was deemed to be more of an inconvenience, as the house was rebuilt on the same parcel of land, about 10 meters (m) from its original location. Power poles and transmission towers were built on what used to be agricultural land. This loss, however, was not considered significant, as the parcel of land involved was small relative to the total landholding and would not affect livelihoods. Private assets were affected. (ii) (iii) 9. In most cases, CPTL has compensated the affected persons and carried out mitigating measures, to the APs’ satisfaction. 10. An external review of the Project’s compliance with ADB’s policies on involuntary resettlement, as stated in Operations Manual Bank Policies – Involuntary Resettlement, 1 was completed while the SRP was being prepared. Project institutional arrangements, planning, implementation, and public consultation were assessed as having complied with ADB guidelines. 1 ADB. 2003. Operations Manual. Section F2/BP. Involuntary Resettlement. Manila. 52 11. Appendix 7 The reviewer concluded that the social impact of the Project is acceptable because: (i) careful consideration was given to the transmission alignment and project design to avoid unnecessary resettlement and encroachment on agricultural land; adequate mitigation measures were in place and were being effectively implemented; resettlement was planned and was being implemented according to the losses identified and the compensation agreements; affected communities were keen to see the project completed and were socioeconomically well positioned to benefit from economic development on a national, regional, and local level; and a third-party monitoring program would be undertaken after the construction, with CPTL support, to ensure the restoration of the APs’ standard of living and the maintenance of their income levels, through the mitigation measures. (ii) (iii) (iv) (v) C. Scope of Land Acquisition and Resettlement 12. CPTL recognizes that to obtain private sector funding from ADB for the Project, the resettlement and relocation must conform to ADB’s Involuntary Resettlement Policy (1995), as outlined in OMF2/BP – Involuntary Resettlement. This policy states that APs may receive policy entitlements even without formal or legal land title (OMF2/BP paragraph 4vii). Non-titled APs, including displaced tenants, sharecroppers, and squatters, who cultivated or occupied the land before the eligibility cutoff date are entitled to various types of resettlement assistance, which may include replacement land or help in finding alternative sites or income sources, depending on their losses. Operations Manual Operational Procedures (footnote 1) (para. 11) states that all eligible APs, whether titled, legalized, or non-titled, must receive cash compensation or replacement assets. 13. An SRP addressing the resettlement requirements for the Project has been prepared. As noted in the social due diligence report (August 2006), resettlement conforms to ADB procedures. The remaining 51 km section of transmission line in the ROW of NR5, which travels south between the Sisophon/Banteay Meanchey and Battambang substations and the towers yet to be installed, will also be implemented according to these procedures. 14. The Project has a minimal footprint and requires foundations and poles to be installed along NR5. Each pole requires about 1 square meter along the transmission line alignment. The yet to be constructed sections of the Project will be built along the ROW of NR5. This ROW is defined as 30 m from the center line of the highway. However, the Project is designed to be constructed 26.5 m from the center line, to minimize disturbance to the villages and linear development along the edge of the ROW and NR5. The poles will be installed 80 m apart on the average. About 637 poles will be installed. No land will have to be purchased, as the poles will be located in the government-owned ROW. But APs will be compensated for assets, crops, and business income lost as a result of the construction. 15. This section of the Project will not require houses, businesses, or community facilities to be relocated. Elsewhere, to avoid resettlement impact, alternative locations for poles that minimize their impact on assets will be sought, and where impact cannot be avoided, agreeable solutions will be worked out with APs. NR5 has been upgraded between Battambang and Sisophon/Banteay Meanchey and the ROW is well defined in many areas. Appendix 7 53 The ROW is state-owned and settlement on it is prohibited. However, encroachment along linear developments, particularly main roads, is common. CPTL has therefore made a contingency provision for up to about 70% of pole installation, and some claims for compensation (for loss of trees, impact on stalls, construction disturbance, etc.) have been presented. 16. The impact of the Project is shown in Table A7.1. Specific losses for the yet to be built section (the subject of the SRP) are summarized in Table A7.2. Table A7.1: Inventory of Losses Resulting from the Project Trees Other Trees In Property Fruit Trees Land Agricultural Land Businesses Restaurants Wood with Galvanized Roof Houses Wood with Thatched Roof No. of Affected Families Project Component Substationsb Towers Thatched Out of Property 2 (no./m ) (no./m ) (no./m ) Stores No. of APs 2 2 8/82,844 55/6,660 3 40a 55 8 55 Industrial Estate–Banteay Meanchey Transmission Line 440 202 1/1 0 64/64 1 0 0 0 1 681 118 Banteay Manchey–Siem Reap Transmission Line 305 106 14/14 1/1 272/272 2 0 0 0 1 748 146 Banteay Meanchey–Battambang Transmission Line 1136 Total 1881 2 250 558 4/4 19/19 1/1 2/2 64/64 463/7,904 8 11 1 1 5 8 0 0 0 2 1,091 2,615 198 525 AP = affected person, m = square meter. a Estimate based on average household of five persons. b Including access roads to the substations that were acquired as follows: (i) Banteay Manchey – two plots of land of 2 2 about 6,000 m involving two families; (ii) Siem Riep – one plot of land of about 7,000 m involving four families; and (iii) Battambang – public access (no APs). Source: (Cambodia) Power Transmission Lines Co., Ltd. Table A7.2: Inventory of Losses for Banteay Meanchey to Battambang 54 No. of Businesses Affected Location No. of Trees Fruit Trees 50 45 135 56 Other Trees 3 5 19 5 3 On Property No. of Poles Installed Outside Property On Agricultural Land (Rice Field) No. of Houses Affected Wood with Galvanized Roof Wood with Thatched Roof No. of Affected Persons Thatched 35 35 7 7 14 13 No. of Affected Families Appendix 7 District Commune Mongkol Borey Village Town Banteay Neang Khuta Leip Store Restaurant Banteay Neang 8 5 70 65 Mongkol Borey Ou Prasat Ou Prasat Phnum Thom Thomey Phnum Thom 65 7 10 70 14 Phnum Thom 68 125 85 42 10 156 23 5 55 35 112 40 15 14 1,136 5 12 11 27 7 19 24 2 12 13 37 25 12 5 250 4 1 64 9 7 5 1 8 1 7 5 1 55 81 70 72 26 75 25 11 16 14 12 5 15 5 Phnum Touch Tbong Watt Thamey Oneo Bong Pring Bong Pring Poi Tasay Chrouy Sdau Ta Meun Ta Mor Kol Ta Mor Kol Chrouy Sdau Ta say Town Khasi Kham Poi Sam Rhung Whel Tria 6 1 1 5 96 62 46 105 52 30 21 12 9 21 10 6 4 198 Ta Pung Ou Taki Puopel Ker Ou Taki Kho kho Total 8 1 5 0 0 1,091 Notes: Fruit trees include mango, coconut, and other trees. Other trees are mature trees more than 100 years old. The five houses made of wood with galvanized roof will not be moved or rebuilt. The poles will be installed near the houses, and any houses damaged will be repaired and the owners will be compensated for the inconvenience. Business losses are partial losses only. Source: (Cambodia) Power Transmission Lines Co., Ltd. Appendix 7 55 D. Socioeconomic Profile 17. A preliminary social assessment has been conducted on the basis of direct observations made during the site visit by the international resettlement specialist on 24–25 July 2006. 18. No ethnic minority groups were identified during discussions with APs or the site visit. 19. No gender disparities were evident during the site visit. Women were owners or minders of stalls, were actively involved in construction activities, and were comfortable in discussions with the consultants. E. Objectives, Policy Framework, and Entitlements 20. The policy framework and entitlements for the Project are based on the laws of Cambodia, ADB’s Operations Manual – Bank Policies and Operations Manual – Operational Procedures (Involuntary Resettlement), and approved resettlement plans for other ADB-financed linear projects in Cambodia. ADB’s Involuntary Resettlement Policy (1995) has been adopted as the framework for the resettlement plan and is the basis for establishing entitlements for APs without land titles. 21. The resettlement framework is designed to cover compensation for lost assets and to restore or enhance the livelihoods of all APs. The APs will receive compensation for lost or resettled assets (structures, fruit and shade trees, etc.), and for the temporary loss of income during construction. All compensation will be discussed, negotiated, and agreed on with the APs, and will be paid at the agreed market price based on the replacement value of the assets lost. Entitlements are shown in Table A7.3. 22. According to CPTL, the compensation costs for the section between the Thai and Cambodian borders and Siem Reap total $870,000. The amount of compensation received by each AP is based on the losses or potential losses incurred and the negotiated values. Compensation is not uniform: it is dependent on a number of factors such as land location, quality, and use, and takes provincial standards into consideration. Compensation for all project components of the sections under construction was found to be well defined and organized. Interviewed villagers were satisfied with the levels of compensation and the compensation process. Project-affected people were receiving adequate compensation for full replacement of losses and temporary inconvenience where this occurred. 23. The due diligence report (August 2006) compared the entitlements for this project with those for the ADB project to upgrade highways NR5 and NR6 (the Greater Mekong Subregion Road Improvement Project of 2002), to determine the adequacy of compensation paid to APs. The comparison showed that the entitlements for the present project exceed the rates provided in the earlier project when indexed to 2006 values. Hence, it can be concluded that adequate compensation funds were set aside for the Project and APs are being adequately compensated to ensure that their livelihood is not only maintained but, where possible, improved. 24. Given the losses and entitlements, a resettlement budget has been calculated for the yet to be constructed section of the Project and is shown in Table A7.3. Appendix 7 Table A7.3: Entitlement Matrix 56 Loss or Inconvenience Suffered Trees Type Fruit trees (mango, coconut trees, etc.) Other trees (big/century-old) Rate of Compensation ($) 200 Basis of Compensation Cost of mature producing tree 50 Cost per year-length of trees Poles Installed On property Outside property On agricultural land (rice field) Store 100 50 100 2,500 Cost of land affected per square meter Cost of land affected per square meter Cost of affected agricultural land and rice production per square meter Replacement and repair cost of similar structure and cost of loss on income, based on daily average rates Replacement and repair cost of similar structure and cost of loss of income, based on average daily rates Replacement cost of similar structure and compensation cost per affected person Replacement cost of similar structure and compensation cost per affected person Replacement cost of similar structure and compensation cost per affected person Present cost of affected properties Additional Measures Compensation provided before affected trees are cut AP can plant fruit trees in designated areas APs assisted in planting trees in new areas or adjacent to the ROW provided that height and growth will not affect the Project in the future Compensation provided before affected trees are cut AP can plant trees in designated areas APs assisted in planting trees in new areas or adjacent to the ROW provided that height and growth will not affect the Project in the future Compensation provided before poles are installed Compensation provided before poles are installed Compensation provided before poles are installed Compensation provided before dismantling; materials salvaged from existing store; affected area rehabilitated Compensation provided before dismantling; materials salvaged from existing restaurant; affected area rehabilitated Compensation provided before dismantling; materials salvaged from existing house or thatched structure; Affected area rehabilitated Compensation provided before dismantling; materials salvaged from existing house or thatched structure; affected area rehabilitated Compensation provided before dismantling; materials salvaged from existing house or thatched structure; affected area rehabilitated Compensation provided before dismantling; materials salvaged from existing property Businesses Restaurant 2,500 Houses Wood with galvanized roof Wood with thatched roof Thatched 5,000 3,500 1,000 100 Other Property AP = affected person, ROW = right-of-way. Source: (Cambodia) Power Transmission Line Co., Ltd. Appendix 7 57 Table A7.4: Resettlement Budget for Section to be Built Loss or Inconvenience Suffered Trees Rate of Compensation ($) 200 Type Fruit trees (mango, coconut, etc.) Other trees (big/century-old) On property Outside property On agricultural land (rice field) Store Restaurant Wood with galvanized roof Wood with thatched roof Thatched Number to be Compensated 1,136 Total ($) 227,200 50 100 50 100 2,500 2,500 5,000 3,500 1,000 100 1,100 250 4 1 64 8 1 5 12,500 400 50 6,400 20,000 2,500 25,000 0 0 0 27,500 321,550 50,000 37,155 408,705 Poles Installed Business Houses Other Property Towers 10 x 10 m land (100 m2) 25 Subtotal Monitoring and Evaluation Contingency (10%) Total m = meter, m2 = square meter. Notes: Compensation for businesses covers, among other things, income lost. The latter is estimated at an average of $10/day for 7 days (1 week). The compensation budget is derived from the inventory of losses (Table A7.1) and compensation rates. Source: (Cambodia) Power Transmission Line Co., Ltd. 25. CPTL will ensure that resettlement budgets are delivered on time to the provincial authority’s office for timely disbursement to APs before any project-related disruption takes place. The budgeted resettlement cost for the 51 km section of the Project that is still to be built is $408,705. CPTL has set aside $500,000. F. 26. Public Disclosure, Consultation, and Redress of Grievances Community participation will include the following measures: (i) (ii) (iii) (iv) The village chief holds a village meeting to inform the village about the Project. Notices are posted throughout the village to raise awareness of the Project, the compensation cutoff date, and contact persons. CPTL and the village chief meet with APs to discuss project impact and entitlements, and to negotiate compensation. The APs sign the compensation agreement. 58 Appendix 7 (v) Through village meetings, advertisements, radio announcements, and posters the village is informed of the construction at least 2 weeks before it starts, and given the name of a contact person to whom they can direct their complaints. The village is informed of the completion of construction. An information sheet is prepared and distributed to all APs. The grievance process, and the ways in which grievances can be lodged, is explained. (vi) (vii) (viii) G. Institutional Arrangements 27. The CPTL is responsible for the overall management and financing of the SRP, and for this purpose will involve the relevant provisional authorities and oversee the implementation of the SRP. The provisional authority may, and often does, seek the assistance of village chiefs in implementing these responsibilities. H. Monitoring and Evaluation Program 28. During project implementation, CPTL will establish a monthly monitoring system involving the provincial authorities, who will prepare monthly progress reports on all aspects of compensation and resettlement activities and operations. External monitoring and evaluation will be undertaken by an international resettlement specialist after the construction to verify whether the SRP has been adequately implemented. I. Implementation Schedule 29. The transmission line is to be completed by 30 April 2007, and the construction of the poles was to start in November 2006. The resettlement implementation schedule based on these dates is shown in Table A7.5. Appendix 7 59 Table A7.5: Resettlement Implementation Schedule Activity Inform villages of project Identify APs, set a cutoff date, and explain the SRP, its entitlement policies, and grievance procedures Negotiate compensation with identified APs Date July 2006 July 2006 Responsibility Provincial authority CPTL and survey team with the assistance of provincial authority and village chiefs Provincial authority, village chiefs ADB Provincial authority, village chiefs Provincial authority disburses compensation, using funds provided by CPTL CPTL or village chiefs August/September 2006 September 2006 September 2006 Post the summary SRP on the ADB website Undertake public disclosure of SRP to affected villages Pay the APs (recorded in a database) before their displacement September/October 2006 Inform villages of start of construction, and grievance procedure Satisfactorily complete compensation and resettlement, and have rehabilitation measures in place before start of civil works Start construction Complete construction Report monthly on SRP implementation to CPTL Monitor and evaluate the SRP implementation October 2006 October 2006 CPTL November 2006 30 April 2007 August 2006–May 2007 CPTL and contractor CPTL and contractor Provincial authority, with support of village chief External monitor November 2006 ADB = Asian Development Bank, AP = affected person, CPTL = (Cambodia) Power Transmission Lines Co., Ltd., SRP = short resettlement plan. Source: (Cambodia) Power Transmission Line Co., Ltd. 60 Appendix 8 SUMMARY OF PROJECT COST ESTIMATES ($’000) Item Transmission Substations Facilities and Installation Initial Spares Warehouse Total Construction and Equipment Engineering, Survey, and Initial Environment Examination Construction Insurance Project Development/Management Costs Total Development Costs Lenders’ Fees Lenders’ Advisers Interest during Construction Total Financing Costs Working Capital Debt Service Reserve Account Contingencies Total Project Costs Source: (Cambodia) Power Transmission Lines Co., Ltd. Total 12,100 8,100 1,800 1,000 500 23,500 950 250 1,000 2,200 593 1,158 426 2,177 1,000 970 2,155 32,000 Appendix 9 61 PROJECT FINANCING STRUCTURE Project Debt Agent Bank Common Terms Agreement Agency Agreement ADB Loan ThaiExim Bank Loan Local Bank Loan $20 million (Cambodia) Power Transmission Lines Co., Ltd. Project Equity $12 million 20% 15% 25% 40% Mdm Se Thma Pich Mr. Tea Tyhas SKL Group Holding Co.,Ltd. A.S.K. Co., Ltd. 100% 47.5% 47.5% 5% Mr. Ly Say Khieng Ms. Kim Ning (Kim Hap Group) Mr. Sok Puthyruth ADB = Asian Development Bank; CFS = complementary financing scheme; CPTL = (Cambodia) Power Transmission Lines Co., Ltd.; ThaiExim Bank = Export-Import Bank of Thailand. 62 Appendix 10 FINANCIAL EVALUATION A. General 1. The financial evaluation of the (Cambodia) Power Transmission Lines Co., Ltd. (CPTL) Power Transmission Project uses 2006 as the base year. All financial projections are in nominal terms, while the computation of the financial internal rate of return (FIRR) is in 2006 constant prices. The financial analysis is in dollars over the 30-year project term. 1. Inflation and Foreign Exchange Rates 2. The financial model uses an initial exchange rate of KR4,163:$1 in 2006. For later years, the riel is assumed to depreciate annually by 1%, which is the percentage-point difference between the local (3.5%) and the foreign currency inflation rates (2.5%). Certain operating costs, denominated and incurred in local currency, are inflated at local inflation rates. Project revenues are entirely denominated in dollars; an element of these revenues, as allowed under the power transmission agreement (PTA), is paid in riels but converted to dollars at the exchange rates prevailing at the time. As such, the Project is not exposed to adverse local currency depreciation from a financial analysis point of view. 2. Construction Period and Start-Up 3. The Project start-up is expected in May 2007, after a construction period of about 14 months, starting in March 2006 and including the testing and commissioning period. The Project will operate for a period of 30 years according to the PTA and the build-operate-transfer (BOT) contract. B. Income Statement 1. Project Performance 4. For the purposes of the financial analysis, the Project is assumed to transmit energy in an amount in excess of the minimum amounts set in the PTA and based on the lenders’ base case, which in turn is based on the input of the independent engineer (and the significant amount of unmet demand at the Project’s end points). 2. Revenues 3. The revenues from the Project are derived from the contractually stipulated tariff formula indicated in the PTA. The transmission service fee is applied to the energy transmitted to derive the revenues. As the revenues are measured at each substation end point, no transmission line losses are assumed by the Project. Appendix 10 63 3. Operating Expenses a. Operating Expenditures 4. The Project’s operating costs comprise operation and maintenance, payroll, maintenance materials, general and administration, and insurance. These costs, while presented in dollars, are incurred in both dollars and riels. b. Depreciation 8. Depreciation expenses are calculated on a straight-line basis over the useful life of the respective assets during the BOT contract term. For simplicity, the capitalized project investment is depreciated over 30 years. All assets are maintained in the balance sheets at historical costs with book values adjusted for accumulated depreciation. Major maintenance items during operations are expensed, not capitalized. c. Interest Rate Assumptions 9. [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. d. Taxation 10. The Project will enjoy a tax holiday of 6 years and thenceforth pay corporate income taxes at the standard rate of 20%. Tax losses can be carried forward for 5 years. e. Amounts and Tenors of Project Loans 11. The scheduled amounts and tenors of the project loans are as follows: (i) up to $8 million and 15 years for the ADB loan, (ii) up to $7 million and 15 years for the ThaiExim Bank loan, and (iii) up to $5 million and 15 years for the local bank loan. All facilities have a 1.5-year grace period. Because of mandatory prepayments, the actual tenor of loans is likely to be less than the scheduled maturity dates, as mandatory prepayments are applied in inverse order of maturity. The facilities’ amounts represent a maximum amount based on the project cost of $32 million, including a contingency amount of $2.1 million. Should the provision for contingencies not be used, the loan amounts drawn will be less than the amounts indicated above. Conversely, should the contingency provisions be used, the loans will be fully drawn. The lenders’ base case presented in this appendix assumes full usage of credit facilities. 64 Appendix 10 f. Dividends 12. For the financial analysis, cash flows available for dividends (accounting availability assumes that there is net income or positive retained earnings, or both), after appropriation for debt service and major maintenance reserves, and mandatory prepayments, are distributed as dividends that year. Dividend payments will be restricted according to the terms of the financing agreement, and paid according to a waterfall account structure. C. Project Financial Statements 13. The base-case projected income statements, cash flow statements, and balance sheets for the period of debt repayment are presented in Tables A10.1, A10.2, and A10.3. These statements are projected over the period to full debt repayment, which, because of mandatory prepayment provisions in the financing agreements through a cash-sweep mechanism, is earlier than the tenor of the facilities based on the lenders’ base case. The financial statements are presented in 12-month periods starting from 2008 (and part of 2007). D. Financial Internal Rate of Return and Debt Service Coverage Ratios 14. The FIRR calculation is based on the following assumptions: (i) all revenues and costs are in 2006 constant prices; (ii) the FIRR is based on after-tax figures for a 30-year operating period; (iii) project costs exclude nonphysical contingencies, interest during construction, and other financing costs; and (iv) operating costs exclude depreciation and debt servicing. The base-case FIRR is estimated at 15.3% (Table A10.4) and the base case exhibits a minimum debt service reserve ratio (DSCR) of 1.35 and an average DSCR of 1.89. 15. Sensitivity analysis, conducted to test the effect on the FIRR and DSCR of changes in certain key variables, demonstrates and confirms the Project’s robustness in adverse scenarios, and a FIRR in excess of the weighted average cost of capital in all cases, including a scenario of a combination of sensitivities. The sensitivity analysis is presented in Table A10.5. E. Weighted Average Cost of Capital 16. The weighted average cost of capital is estimated at 8.91%. The details of the calculation are presented in Table A10.6. Table A10.1: Projected Income ($’000) Item Operational Revenues Transmission (GWh) Transmission Service Fees Operating Expenses Recurring Operations and Maintenance (incl. spares for Scheduled and Major Maintenance) Scheduled Maintenance Major Maintenance Subtotal Operating Income Interest Income Earnings before Interest, Taxes, and Depreciation (EBITD) Depreciation Expense Financing Expense Income Taxes Net Income ( ) = negative, GWh = gigawatt-hour. Source: Asian Development Bank estimates. Appendix 10 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 50.8 1,952 108.5 3,147 124.3 3,603 137.3 3,980 151.8 4,279 167.5 4,606 185.5 5,101 204.8 5,631 225.0 5,830 246.5 6,039 270.5 6,627 295.5 7,240 315 540 555 570 586 1,085 620 638 657 677 1,363 718 0 0 315 1,637 31 1,668 0 0 540 2,607 71 2,678 0 0 555 3,048 85 3,133 0 0 570 3,410 91 3,501 0 0 586 3,693 93 3,786 160 0 1,245 3,361 89 3,450 0 0 620 4,481 97 4,578 0 0 638 4,993 93 5,086 0 0 657 5,173 93 5,266 0 0 677 5,362 91 5,453 220 245 1,828 4,799 76 4,875 0 0 718 6,522 44 6,566 500 903 0 265 1,000 1,987 0 (309) 1,000 1,952 0 181 1,000 1,881 0 620 1,000 1,774 0 1,012 1,000 1,621 0 829 1,000 1,475 238 1,865 1,000 1,252 567 2,267 1,000 992 655 2,619 1,000 723 746 2,984 1,000 402 695 2,778 1,000 95 1,094 4,377 65 66 Table A10.2: Projected Cash Flow ($’000) Item Cash Available for Debt Service (Revenues minus cash costs minus changes in working capital items) Financing Expenses Scheduled Loan Repayment Total Debt Service Cash after Debt Service To/(From) Debt Service Reserve Account To/(From) Major Maintenance Reserve For Mandatory Loan Prepayments (Cash Sweep Mechanism) For Dividends Cash Beginning Balance Cash Ending Balance 2007 2,058 2008 2,771 2009 3,051 2010 3,462 2011 3,730 2012 3,884 2013 4,467 2014 4,520 2015 4,635 2016 4,709 2017 4,620 2018 5,698 Appendix 10 903 0 903 1,155 1,000 48 65 0 0 43 1,987 0 1,987 784 169 96 311 0 43 250 1,951 200 2,151 900 140 96 398 118 250 397 1,880 400 2,280 1,182 101 96 591 394 397 397 1.50 1,774 600 2,374 1,356 (145) 96 843 562 397 397 1.53 1,621 600 2,221 1,663 50 115 900 506 397 491 1.71 1,475 1,000 2,475 1,992 200 133 996 664 491 491 1.75 1,252 1,200 2,452 2,068 (252) 133 1,312 875 491 491 1.79 992 1,200 2,192 2,443 (63) 133 1,424 949 491 491 2.09 723 1,400 2,123 2,586 (306) 133 1,657 1,104 491 491 2.14 402 1,300 1,702 2,900 (101) 158 1,706 1,137 491 491 2.60 95 800 895 4,803 (1,790) 184 3,846 4,376 491 1,425 3.28 DSCR (x) 2.28 1.35 1.37 ( ) = negative, DSCR = debt service reserve ratio. Note: DSCR is the lowest observed in any 6-month period within any given year. Source: Asian Development Bank estimates. Table A10.3: (Cambodia) Power Transmission Lines Co., Ltd. Projected Balance Sheet ($’000) Item Assets Current Assets Cash Debt Service Reserve Major Maintenance Reserve Receivables Total Current Assets Net Plant and Equipment Total Assets Liabilities and Shareholder’s Equity Total Current Liabilities Long-Term Liabilities Local Bank ThaiExim Bank ADB Total Liabilities Shareholder’s Equity Paid-Up Share Capital Retained Earnings Total Shareholder’s Equity Total Liabilities and Shareholder’s Equity 27 19,935 8,970 5,482 5,482 19,962 12,000 0 265 12,265 32,227 28 19,624 8,830 5,397 5,397 19,652 29 19,026 8,562 5,232 5,232 19,055 30 18,035 8,115 4,960 4,960 18,065 12,000 0 248 12,248 30,313 32 16,592 7,466 4,563 4,563 16,624 12,000 0 698 12,698 29,322 33 15,092 6,792 4,150 4,150 15,125 12,000 0 1,021 13,021 28,147 53.7 272 13,097 5,893 3,602 3,602 13,369 12,000 0 2,223 14,223 27,592 47.9 333 10,584 4,763 2,911 2,911 10,918 12,000 0 3,615 15,615 26,534 40.4 363 7,960 3,582 2,189 2,189 8,323 12,000 0 5,285 17,285 25,608 31.5 429 4,905 2,207 1,349 1,349 5,334 12,000 0 7,165 19,165 24,499 20.4 312 1,899 855 522 522 2,211 12,000 0 8,806 20,806 23,018 8.4 611 0 0 0 0 611 12,000 0 8,806 Appendix 10 20,806 21,418 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 43 1,999 48 636 2,726 29,500 32,226 250 2,168 144 546 3,109 28,500 31,608 397 2,308 241 628 3, 575 27,500 31,075 397 2,409 337 669 3,812 26,500 30,313 397 2,264 434 726 3,821 25,500 29,322 491 2,313 66 776 3,646 24,500 28,147 491 2,513 200 888 4,092 23,500 27,592 491 2,261 333 948 4,033 22,500 26,533 491 2,198 466 953 4,108 21,500 25,608 491 1,892 599 1,016 3,998 20,500 24,498 491 1,790 92 1,144 3,517 19,500 23,018 1,426 0 276 1,216 2,918 18,500 21.418 12,000 12,000 0 0 (42) 21 11,958 31,609 12,021 31,076 Debt-Equity Ratio 61.9 62.1 61.3 59.6 56.6 ( ) = negative, ADB = Asian Development Bank, ThaiExim Bank = Export-Import Bank of Thailand. Source: Asian Development Bank estimates. 67 68 Appendix 10 Table A10.4: CPTL Financial Internal Rate of Return ($’000) Capital Investment 17,468 8,232 O&M Expenses 291 504 507 509 511 965 516 518 521 524 1,105 531 535 539 543 1,000 552 557 561 562 1,141 564 565 565 565 1,018 565 565 565 565 243 Net Cash Flow (17,468) (6,571) 2,642 3,096 3,472 3,769 3,641 4,178 4,245 4,389 4,549 4,517 5,494 5,976 6,488 6,247 5,629 6,497 7,038 6,510 5,756 5,349 5,865 5,919 5,974 5,332 4,329 4,685 4,680 4,675 4,670 2,359 15.3% Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 Taxes Revenues 1,952 3,147 3,603 3,980 4,279 4,606 5,101 5,631 5,830 6,039 6,594 7,240 7,852 8,502 8,211 7,902 8,546 9,233 8,583 7,650 7,725 7,800 7,875 7,950 7,155 6,360 6,360 6,360 6,360 6,360 3,180 FIRR 408 868 919 966 972 1,214 1,341 1,475 1,421 1,273 1,497 1,638 1,513 1,331 1,235 1,371 1,391 1,411 1,258 1,013 1,109 1,114 1,120 1,125 577 ( ) = negative; CPTL = (Cambodia) Power Transmission Lines Co., Ltd.; FIRR = financial internal rate of return; O&M = operation and maintenance. Source: Asian Development Bank estimates. Appendix 10 69 Table A10.5: CPTL Sensitivity Analysis Description Base Case (i) 6-Month Delay in Completion (ii) 10 % Increase in Capital Cost (iii) 10% Increase in O&M Expenses (iv) Combination of (i), (ii), and (iii) FIRR % 15.3 14.4 14.1 15.2 13.2 Average DSCR 1.89 1.89 1.88 1.85 1.85 Minimum DSCR 1.35 1.33 1.34 1.33 1.30 CPTL = (Cambodia) Power Transmission Lines Co., Ltd.; DSCR = debt service coverage ratio; FIRR = financial internal rate of return; O&M = operation and maintenance. Source: Asian Development Bank estimates. Table A10.6: CPTL Weighted Average Cost of Capital [THIS INFORMATION WAS DEEMED CONFIDENTIAL ACCORDING TO EXCEPTION #9 OF ADB’S PUBLIC COMMUNICATIONS POLICY]. 70 Appendix 11 ECONOMIC EVALUATION A. Introduction 1. The (Cambodia) Power Transmission Lines Co., Ltd. (CPTL) Power Transmission Project (the Project) comprises: (i) about 221 kilometers (km) of a single-circuit 115 kilovolt (kV) transmission line, (ii) three 115 kV/22 kV substations, and (iii) one 115 kV switching station. The Project will be the national transmission grid for northwest Cambodia and therefore part of Cambodia’s national grid. It will connect to the Thai border and will, from there, cross and deliver power to three provinces in northwest Cambodia, namely, Banteay Meanchey, Battambang, and Siem Reap. The Project will be built mostly along existing roadways and on several plots of land to accommodate the substations, switching station, and tower foundations. 2. On 29 April 2005, A. S. K. Co. Ltd., an SKL Group company, entered into a power transmission agreement with Électricité du Cambodge (EDC), which was later novated to CPTL. This agreement provides the basis under which the latter company will implement the Project using a build-operate-transfer scheme over 30 years. The Project will enable EDC to import reliable power from Thailand at competitive rates pursuant to a power purchase agreement between EGAT Public Company Limited and EDC dated 2 July 2002. The energy transmitted by the Project during the 30-year period will range from about 23 megawatts (MW) to 80 MW of equivalent capacity. The energy transmitted by the Project will displace existing energy generated by diesel and bunker fuel–fired units (which are expensive, insufficient, polluting, and inefficient) and will provide less expensive and more reliable additional supply to meet the electricity needs of the load centers in the provinces listed above. B. Demand and Supply 2. Cambodia’s power sector has significant amounts of unmet demand and, thus, a large and acute supply problem. Cambodia’s present installed capacity of some 247 MW (not all of which is available at any one time) is insufficient for the population of 13 million. Demand is, at present, essentially driven by availability of supply, and any additional supply is almost immediately used, with little effective reserve margin in the system. Blackouts are common, especially at peak times. Recent increases in supply in Phnom Penh and in Siem Reap have only moderately alleviated the scarcity. EDC relies on the cooperation of self-generators (hotels, industries, etc.) to stay off its system so that it can supply residential customers, who have no access to captive generation. 3. The underdevelopment of Cambodia’s power sector, a result of many years of conflict, has resulted in a low national electrification rate of 15% (urban 53.6% and rural 8.6%), which is less than half of the rate in the Lao People’s Democratic Republic (Lao PDR), and a low per capita consumption of about 48 kilowatt hours (kWh) a year, compared with 113 kWh in Lao PDR and 500 kWh in Viet Nam. Furthermore,. Cambodia’s power rates are also among the highest in the region. This is a result of Cambodia’s disaggregated and isolated small-scale systems, which rely on inefficient diesel-fired units, a still significant (but improving) level of distribution losses (averaging about 12% to 13% at EDC), and high fuel and purchased-power costs. 4. Cambodia’s electricity demand, which amounted to some 1,300 gigawatt-hours (GWh) in 2005, is expected to grow at an annual compounded rate of nearly 12%, to 3,907 GWh in 2016. This implies a similar increase in power supply capacity to some 774 MW in the same period. Appendix 11 71 Demand in the three regions addressed by the Project is expected to increase from about 119 GWh in 2005 to some 347 GWh by 2016. C. Least-Cost Analysis 5. Cambodia’s power sector development strategy is aimed at addressing this demand growth and providing adequate, reliable power supply at affordable prices throughout the country. Specifically, Cambodia intends to address this sector need according to a system expansion plan compiled by the Ministry of Industry, Mines, and Energy (MIME) and based on least-cost options. The plan and options are predicated on increases in domestic generation and high-voltage grid development to allow the aggregation of demand and imports of inexpensive power. High-voltage grid development is a fundamental aspect of delivering additional supply and, very importantly, lowering power costs in Cambodia by allowing economies of scale and inexpensive imports. Thus, the Project is prominently featured in the MIME’s power system expansion plan, in which it is expected to come online in 2007. 6. The project cost is lower than the alternative method of addressing such defined power needs, which would involve additional diesel-based generation. The numeraire used for this least-cost analysis is dollars and border prices. All costs in the analysis (capital, operating, purchased power, and fuel) are considered tradable, and there was therefore no need to convert costs with the use of a standard conversion factor (SCF). The least-cost analysis assumes the following: (i) load projections are based on the base case and new diesel investment is driven by the need to meet incremental demand (that is, under both options, the same load demand is met); (ii) diesel capital costs are assumed at $1,100/kWh (installed); (iii) diesel fuel costs are assumed at $0.12/kWh (given consumption of 0.20l/kWh and a cost of $0.60/liter); and (iv) operation and maintenance costs are assumed at 2% of capital costs for the diesel option and based on base-case figures for the Project. The Project’s cost of power is about 9¢ per kWh, according to the power purchase agreement between EGAT Public Company Limited and EDC. 7. The Project is clearly the least-cost option in addressing the acute power supply needs in the load centers discussed. The present values of the costs, discounted at a standard rate of 12%, are $102 million for the Project and $127 million for the diesel alternative. The results are presented in Table A11.1. D. Calculation of the Economic Internal Rate of Return 1. Valuation of Benefits 8. The Project’s output is considered both incremental (given the significant level of unmet demand at present, combined with projected demand) and non-incremental (given the very significant displacement of diesel generation that is expected as a result of the Project). Both incremental and non-incremental project benefits were quantified on the basis of the base-case load forecasts and apportioned by fixing non-incremental benefits on the existing levels of diesel generation (about 119 GWh in 2005). Non-incremental benefits (which are larger than the incremental benefits at the outset) are considered tradable and were valued on the basis of displaced energy and their commensurate fuel costs, using the present energy generated by diesel, and making the same fuel cost and efficiency assumptions as in the least-cost analysis. The incremental benefit, which represents energy produced in excess of that which is displaced, 72 Appendix 11 was valued at an average end-user tariff of 18¢ per kWh. The incremental benefit, which is considered non-tradable, was adjusted by an SCF of 0.9. Consumer surplus was not considered, as the Project’s benefits, based simply on the above, are sufficiently robust. 2. Valuation of Costs 9. The project benefits were considered in light of the project costs, all of which are considered tradable. These costs comprise capital expenditures, purchased power, and operation and maintenance costs, but exclude taxes, contingencies, and interest during construction. No land opportunity or economic costs were considered, given the limited footprint of the Project, which is being built mostly along existing rights-of-way already intended for this type of use (that is, there is no economic cost to Cambodia in building the Project along existing roadways nor a cost associated with the loss of the small parcels of land to be used for the substations, switching station, and towers). 3. Results 10. The numeraire used in the economic internal rate of return (EIRR) calculation is border prices. Benefits and costs were valued in dollars and the non-tradable benefits were adjusted by an SCF of 0.9. The resulting EIRR is 26.7%. The EIRR is robust and is not particularly sensitive to any one variable change, especially since the main variable, capital cost, is fixed under the construction contract. The EIRR calculation is shown in Table A11.2. Table A11.3 presents the various sensitivities conducted, including a combination of sensitivities. Appendix 11 73 Table A11.1: Least-Cost Analysis ($’000, constant 2006 prices) Transmission Costs Diesel Costs Year CAPEX Base Case (GWh) 50.8 Change in Demand (GWh) Cost of Power O&M Total CAPEX Fuel O&M Total 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 108.5 124.3 137.3 151.8 167.5 185.5 204.8 225.0 246.5 270.5 295.5 320.5 347.0 375.3 405.3 438.3 473.5 499.0 510.0 515.0 520.0 525.0 530.0 530.0 530.0 530.0 530.0 530.0 530.0 15.8 13.0 14.5 15.8 18.0 19.3 20.3 21.5 24.0 25.0 25.0 26.5 28.3 30.0 33.0 35.3 25.5 11.0 5.0 5.0 5.0 5.0 155 310 1,418 310 2,588 310 3,893 310 5,310 763 6,930 310 8,663 310 10,485 310 12,420 310 14,580 888 16,830 310 19,080 310 21,465 310 24,008 310 26,708 763 29,678 310 32,850 310 35,145 310 36,135 310 36,585 888 37,035 310 37,485 310 37,935 310 37,935 310 37,935 763 37,935 310 37,935 310 37,935 310 37,935 310 Present Value (millions): 17,471 8,234 17,471 8,389 310 1,728 2,898 4,203 6,073 7,240 8,973 10,795 12,730 15,468 17,140 19,390 21,775 24,318 27,470 29,988 33,160 35,455 36,445 37,473 37,345 37,795 38,245 38,245 38,698 38,245 38,245 38,245 38,245 102 1,890 66 1,560 120 5,190 181 7,080 247 9,240 322 11,550 403 13,980 488 16,560 578 19,440 678 22,440 783 25,440 887 28,620 998 32,010 1,117 35,610 1,242 39,570 1,380 43,800 1,528 46,860 1,635 48,180 1,681 48,780 1,701 49,380 1,722 49,980 1,743 50,580 1,764 50,580 1,764 50,580 1,764 50,580 1,764 50,580 1,764 50,580 1,764 50,580 1,764 Present Value (millions): 3,296 2,721 3,035 3,296 3,767 4,029 4,238 4,500 5,023 5,232 5,232 5,546 5,912 6,279 6,906 7,377 5,337 2,302 1,046 1,046 1,046 1,046 5,252 4,401 8,406 10,623 13,329 15,982 18,706 21,637 25,141 28,455 31,559 35,164 39,039 43,131 47,857 52,705 53,831 52,163 51,528 52,149 52,770 53,391 52,344 52,344 52,344 52,344 52,344 52,344 127 CAPEX = capital expenditure, GWh = gigawatt-hour (1 million kilowatt-hours), O&M = operation and maintenance. Source: Asian Development Bank estimates. 74 Appendix 11 Table A11.2: CPTL Power Transmission Project Economic Internal Rate of Return ($’000, constant 2006 prices) Costs O&M Costs Benefits Cost of Power Transmitted Incremental Nonincremental Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Project CAPEX 17,471 8,234 Net Benefit (17,471) (5,816) 4,205 3,921 4,574 5,618 6,299 8,048 9,434 10,892 12,440 13,590 15,968 17,768 19,676 21,710 23,417 26,246 28,784 30,620 31,412 31,194 32,132 32,492 32,852 32,852 32,399 32,852 32,852 32,852 32,852 26.7% 155 310 310 310 310 310 310 310 310 310 888 310 310 310 310 310 310 310 310 310 888 310 310 310 310 732 310 310 310 310 4,568 9,765 11,183 12,235 13,658 15,075 16,695 18,428 20,250 22,185 24,345 26,595 28,845 31,230 33,773 36,473 39,443 42,615 44,910 45,900 46,350 46,800 47,250 47,700 47,700 47,700 47,700 47,700 47,700 47,700 1,134 2,957 5,306 7,857 10,773 13,892 17,172 20,655 24,543 28,593 32,643 36,936 41,513 46,373 51,719 57,429 61,560 63,342 64,152 64,962 65,772 66,862 66,862 66,862 66,862 66,862 66,862 66,862 7,140 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 14,280 EIRR ( ) = negative; CAPEX = capital expenditure; CPTL = (Cambodia) Power Transmission Lines Co., Ltd.; EIRR = economic internal rate of return; O&M = operation and maintenance. Source: Asian Development Bank estimates. Appendix 11 75 Table A11.3: CPTL Power Transmission Project Sensitivity Analysis Description Base case 10% increase in CAPEX 10% increase in O&M 10% decrease in transmission volume (GWh) Combination of the above EIRR (%) 26.7 25.2 26.6 25.4 23.9 CAPEX = capital expenditure; CPTL = (Cambodia) Power Transmission Lines Co., Ltd.; EIRR = economic internal rate of return; GWh = gigawatt-hour (1 million kilowatt-hours); O&M = operation and maintenance. Source: Asian Development Bank estimates.