Regions and Countries

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p. 10 of 22 BACK | NEXT I. Country Performance Assessment II. Poverty Reduction and Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance E. Gender Dimensions of ADB Operations F. Private Sector Development IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work IX. Local Cost Financing

Country Assistance Plans - Cambodia : III. Sector Strategies

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B. Infrastructure

1. Transportation

65. The transportation system in Cambodia is in very poor condition. Travel by road is exceedingly slow and jarring. Of the 7,700 km of the existing primary road network, Route 4 (214 km), a section of Route 6 (74 km), and a section of Route 7 (31 km) have been reconstructed to international standards. About 560 km has undergone limited rehabilitation, financed under the $32.6 million transportation component of the Special Rehabilitation Assistance Project. There are no secondary roads to speak of so that tertiary roads often feed directly into the primary network. The rail system is in need of major rehabilitation and water transportation is handicapped by the need to dredge canals and upgrade ports at Sihanoukville and Phnom Penh. There is one international airport, at Phnom Penh although the Siem Reap airport is also being used for some direct international flights.¹⁸

66. Improving the transportation system is vital to the development of Cambodia in general and specifically to the promotion of private sector involvement in development. There is broad agreement between the Government and aid agencies that restoration of the primary road network is the first priority. Without this network in place, the country will remain fragmented and rural roads will, at best, lead to small provincial towns, isolating the poor population and limiting the benefits of trade available to them. Without improvements in the transportation system, the private sector will continue to find the delivery of goods to rural areas an expensive and uncertain endeavor.

67. ADB is providing assistance for road restoration through the GMS: Phnom Penh to Ho Chi Minh City Highway Project and the Primary Road Restoration Project. The next road project is scheduled for 2002, with a PPTA in 2001. In addition to these investments, ADB has agreed to facilitate government leadership of the development of the road network. To support this effort, ADB will provide TA in 2000 to build capacity for the Government to undertake private-public partnerships and to prepare a transportation sector strategy. Additional capacity building TA is included in the 2002 pipeline. ADB will also hold an initial donor coordination meeting in 2000 for which a transportation sector issues paper is being prepared. Policy dialogue in transportation should emphasize effective development and implementation of resettlement action plans and adequate funding of road maintenance.

2. Finance and Industry

68. An important element of the poverty reduction strategy is to absorb excess labor into non-agriculture activities. One way is through the promotion of small and medium enterprises (SMEs). A principal constraint on the formation and expansion of SMEs is the lack of access to financial services, particularly credit. In addition to providing assistance to the Government in support of the expansion of rural credit, ADB is preparing a program of assistance for the long-term development of the financial sector. This is necessary both to ensure integration of the urban and rural financial systems and to strengthen the urban banking sector’s ability to serve urban SMEs.

69. In response to a request for assistance for financial sector development from the Government during the 1999 Country Programming Mission, ADB fielded a team in 1999 to prepare a road map to guide ADB interventions in the financial sector. The analysis in the road map concluded that the financial sector is at a very early stage of development with severe human resource and institutional constraints. The financial system in Cambodia is characterized by an excessive number of small, weak, and inefficient banks combined with weak supervisory and regulatory capacity at the central bank. This results in inadequate delivery of basic banking functions such as checking and savings deposits and credit extension.

70. The road map takes a long view of the development of the sector with a goal of developing a viable, inclusive, and effective financial system to facilitate enhanced resource mobilization in support of sustainable economic growth and development. To achieve this outcome, ADB will develop a cluster program approach with phase 1 in 2001, with PPTA in 2000, and phase 2 in 2004, with PPTA in 2002. Capacity building TA is provided in 2001. Because of the importance of good governance in the banking sector, and the relative lack of ADB experience in this sector in Cambodia, it is essential that the Government demonstrate the willingness to undertake key reforms. A trigger for further financial sector involvement, therefore, will be a satisfactory midterm review of the Rural Credit and Savings Project.

3. Energy

71. About 15.0 percent of the population has access to electricity and this is only in Phnom Penh and the provincial towns. Generation is small-scale and inefficient. The cost of electricity in Cambodia is the highest in the region and Cambodia has the lowest consumption in the region. There is no national power grid, and rural consumers as well as industries frequently use costly generators to ensure an uninterrupted supply. An autonomous State-owned enterprise, Electricité du Cambodge (EdC), operates the electricity system in Phnom Penh, Krong Preah Sihanouk, Siem Reap, and Kompong Cham. There is a growing but still small private sector (domestic and foreign) presence in power generation. The Government’s immediate goals in this sector are (i) development of a generation and transmission grid, (ii) provincial towns’ electrification plan to rehabilitate supplies, and (iii) development and implementation of a rural electrification plan.

72. The Ministry of Industry, Mines and Energy (MIME) is responsible for policy in the energy sector. Several noteworthy reforms have been made in the past few years, including formation of EdC as a limited liability company owned by MIME and MEF, and commercialization of EdC’s operations including preparation of audited financial statements. Considerable progress has also been made on an Electricity Law creating a sector regulator, which is scheduled for presentation to the National Assembly in 2000.

73. However, EdC’s financial position is a serious potential impediment to long-term development of the electricity supply and ADB’s continued participation. A 2000 EdC operating loss of KR27 billion ($7 million), largely because of the recent increase in fuel prices, is expected. The high level of arrears by government departments aggravates the situation. Cumulative arrears, to date, stand at KR26 billion ($6.7 million) and represent 10 months of total sales to Government. By contrast, arrears of nongovernment consumers stand at less than one month of billings.

74. The World Bank is expected to play a major role in facilitating government leadership of sector development in the area of public utilities and is developing plans to initiate a rural electrification scheme. Japan, France, Australia, and Sweden are also active in this sector. ADB’s assistance to the energy sector has thus far included rehabilitation of power transmission.¹⁹ The proposed $25 million 2000 Provincial Power Supply Project will upgrade power supply in several provincial towns. A PPTA is programmed in 2002 for a loan in 2003. An ADB draft power sector strategy recommends continued support for improvement of provincial town power provision.²⁰

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