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3. To foster regional cooperation among neighboring countries;
4. To use low-carbon energy for mitigating greenhouse gas emissions leading to climate change.
To this set of motivations I would also add one more – To silence the concerns of riparian states over China’s development on its share of Mekong River by creating the align preferences for all states, in terms of taking advantage of criticized hydro-dams, and to avoid the participation in multilateral institutions, which undermine China’s hegemony position in this area. Needless to say, it is a paradox that such commercial engagement is actually facilitated by the only relevant multilateral initiative – GMS. Zha (2015, 44) points out that “[Without] GMS as a diplomatic cover, it would be unimaginable for a hydropower company from China to engage in either cross-border electricity connectivity projects or obtain central government approval for loans to a project in LMR.” Therefore, despite the success of China’s hydro-dam strategy, the lack of institutional channeling should be considered as the weakness point of China’s foreign policy on Mekong development. In the discourse of influence, I suggest that the accumulated power might not be enough to adopt the ‘institutionalize shaping’ according to China’s rules.
4.2. Situation in Cambodia
Cambodia belongs to countries which are not capable of financing its own public infrastructure, and of providing the comparable living standards for its population without outside help. In such scenario, World Bank and other western institutions have promoted the growing economic liberalism, which resulted in one of the most important shifts of local development, also significantly influencing the energy sector. The Build-Operate-Transfer (BOT) model is supposed to make the private investor handle the financing, design, construction, and operation of, under normal circumstances, public infrastructure project. In exchange, investors profit from running this project during a concessionary period about 20-50 years, after which the site is handed to the government (Middleton et al 2015, 129). However, promotion and implementation is not the same, and in case of energy infrastructure construction, western plan has encountered with serious problem – there were no investors who would commit themselves to take such risk of losing their money in a country, where business environment requires such a wide set of connections and political patronage. To put it more accurately, no investors would take the risk except Chinese ones. When WB and ADB pushed for the private investments into public infrastructure they probably did not foresee that such investments would come mainly from China, where the state capitalism and trade expansion spins the economic wheel, and national strategy mobilizes the masses to engage in transnational commercial activities, resulting in sufficient political connections abroad. Given the fruits of ‘Peaceful Rise’ strategy, Chines SOE have found more than favorable investment conditions in Cambodia, and the area of hydro-infrastructure is not the exception.
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Following the drivers from previous part, China has become the biggest hydro-energy dam developer in Cambodia. Chinese investments in this sector bring about the very same pros and cons, resulting from the dominant monopoly position in the country, which simply does not have other option but to welcome the help. In fact, Cambodia desperately needs energy development as the consequence of decades of instability, civil wars and occupation. In 2012 the total electricity supply estimated 2.2 million kWh, from which 58% was provided by country’s own capacity, and 42% of capacity was imported from Vietnam (67%), Thailand (32%) and Laos (1%) (Kimkong et al 2015, 153). In 2015 this number lowered to 31.59% of imported net energy (WB).58 Besides insufficient local sources of energy, Cambodia has to deal with rapidly increasing demand and high prices. Power consumption is estimated to increase annually by 9.4%, forecasted to reach 3.4 tWh by the end of 2020, respectively the demand for electric energy will overcome 3045 MW in 2024. According to WB, as of 2015 only 31.1 % of population has access to electricity, mainly because of lacking infrastructure and unaffordable prices. These are caused by high dependence on imported fossil fuels to feed the generators (Middleton et al 2015, 141-144). Electricite du Cambodge (in Middleten et al 2015) data reveals that only 5% of electricity is generated by state company, the rest comes from independent power producers (92%) and consolidated license holders (3%). No wonder that hydro-energy plants are considered to be the way out of the misery. Cambodia’s hydro-power potential estimates 10000 MW, out of 50 % would be generated from main Mekong River stream, 40%
from tributaries, and rest from the coastal area (2015, 143). With such natural resources it was a matter of time when hydro-power became the ‘cornerstone’ of Cambodia’s energy policy. All in all, Cambodia needs investors to deal with this unpleasant and critical situation, and as we can see on the table number thirteen, China has managed to successfully respond to these needs.
Table 13: BOT hydropower projects in Cambodia in operation and under construction
Dam Province M
W Lead Developer Status Contract
Financing
Province 193 Synohydro Corporation (China)
Province 338 Subsidary of China Huadian Corporation
Province 246 China National Heavy machinery Corporation
58 In Energypedia, Available online: https://energypedia.info/wiki/Cambodia_Energy_Situation, [Accessed 15th-Aug-2016].
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Source: adopted from Middleton Matthews, Mirumachi 2015, 144.
The largest BOT hydro-energy facilities are financed by Chinese companies. The business plan is coherent with the ‘Peaceful Rise 2.0.’ strategy. Chinese SOE with connections to the government signs the deal with Cambodia to build the project for money from EXIM bank. They design the project, bring their own labor and engineers, machines, material, and other supplies, which stimulates the Chinese export – economic statecraft. Land concessions are granted, and after the dam is built, Chinese firms make profits from supplying the energy either to Cambodian households or they import it abroad. Sullivan (2015, 135) explains that hydro-dam investments followed by other development projects, including mining, agri-business, further logging are to certain scale causally interconnected – territorialization. This is the standard procedure in all KLM countries, however in case of Cambodia there is a little catch. Under the normal circumstances, the advantage of BOT model for host country is that the investor carries the risk on his shoulders. If the market demand bubble burst, the investment might simply go wrong; but not in Cambodia, where government bound itself to guarantee the risk. Middleton et al (2015, 144) describes how Chinese SOEs manage to negotiate such favorable conditions that government of Cambodia agree to pay for the electricity for the whole period of the concession, no matter what happens in the market, which makes of such deal a very good leverage in the hands of China – another tool of power. The reasons behind these suspicious contracts are of course to be found in the weak level of Cambodia’s governance and institutionalism. For instance, only Electicite du Cambodge as such is described as highly corrupted, ineffective, easy-to-be-manipulated institution, which lacks the responsibility for mistakes in the payments records (2015, 145). It is not surprising that no other companies go into such highly risky business.
Chinese entrepreneurs are able to mitigate this risk thanks to Beijing’s support, subsidies, self-financing capability and fast dealing.
Commonly asked question thus stands, who really benefits from Chinese hydro-dams investments in Cambodia? There is no doubt that they are closely linked to Beijing interests, despite the commercial intentions. For example, the largest hydro-dam built so far in Cambodia – Kamchay Dam – is run by Sinohydro, the largest China’s state-owned dam constructer, followed by China Power Grid Company, China Power Investment Corporation and Hydrolancang (Yeophantung, 2013). In another study Yeophantung (2013, 6) concludes that “[…]growing involvement on the part of Chinese SOEs and policy banks in the region’s hydropower initiatives has also been informed by geostrategic considerations, corresponding to China’s broader strategy
59 BOT contract length and financing values differ across sources.
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of enhancing its soft-power appeal and promoting ‘South-South cooperation’, resulting in the situation, when “[…] the Chinese government has become (indirectly) associated with the financing and construction of hydropower projects not just in the Mekong River Basin, but also in other parts of the developing world.” This kind of set up often prioritizes personal interest outcomes over the economic, environmental, social and political impacts on the country. For example, Kamchay Dam is also notorious for controversies connected to incompetency, corruption and elitism; which resulted in heavy environmental damage in Cambodia’s Bokor National Park (Middleton 2015, 145-147). Environmental impact assessments are often vague and lead to misconception across artificially structured scales that often present just the surface of the problem, often caused by conflict of interests, because these assessments are contracted by developers (Xing 2015, 67). In the Mekong River development benefits and costs of hydro-power construction often define the energy security interests – national scales, at the expense of undermined regional costs on society and environment (Metthews and Geheb 2015, 26). The important decisions are thus made with little compromise with local grassroots, since if I exaggerate a bit, almost everything could be presented as a national interest. As Zha (2015, 36) suggests, in Cambodia all the actors from institutional levels of governance support the hydro-dam development, including CPP bureaucrats, state-owned banks and private companies.
Likewise, the economical perspective also brings about negative implications. Due to unequal treaties with Chinese SOE, the feasibility of hydro-power contracts is guaranteed by government, which means that it will also come from the tax-payers’ pockets, transferring the risk from investors to its citizens. Problem is also the sustainability of these construction regarding the heavy extraction of natural resources and length of BOT model concessions. While in the USA they reconsider the positive impacts of its hydro-dams and put some of them out of operation, GOC plans to build more dams than the local situation demand in order to sell the energy abroad (Kimkong et al 2015, 158). All these aspects might draw a picture of a fallen state, where the authorities sacrifice the part of sovereignty for the promise of common good for its people, however it seems that so far only small percentage of the society really upheave their living standards.
Moreover, Goh (2016, 15) points out that in case of hydro-energy development, the main variable is the contrast in resistance between local communities and business or political elites.
In Cambodia the elites share the same preferences with China’s agenda, leaving the helpless communities muted without any chance to take part in the decisions taken over their lands. That does not necessarily have to be truth. One example, when local communities won against interests of China’s and Cambodia’s elites was already mentioned above. Indeed, although Cambodia might seem to fall deeply into China’s lodge, in comparison with the past the local resistance is now strong enough to drive a relevant Chinese SOE away. Ten years ago the situation over first large hydro-dam made by Chinese SOE – Kamchay dam – has not only negatively impacted the local communities, but also resulted in serious damage of national park Touk Chhu, and concerns about the contract between the Government of Cambodia and Sinohydro occurred (Middleton et al 2015, 145-147). Altogether 190 families had to relocate,
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being left without any compensation. The construction has badly influenced the profits from tourism and polluted the water resources. In addition, in 2006 Cambodia passed the vote about taking the risk guarantees on its shoulders. That means that in next 40 years Synohydro will fully operate the facility, but does not have to be worried about long-term return of its investment at the expense of Cambodian tax payers. Another problem was that during the whole process from approval of the project, through construction, to the finalization in 2011 local communities had almost no insight into plans, projects and situation at the construction site. According to Middleton (ibid), up to date no alternatives to improve the local people’s livelihood have been suggested or implemented. So far the biggest hydro-energy dam project in Cambodia Lower Sesan II is encountering almost identical issues. Again, Phnom Penh does not find it necessary to provide adequate compensation for all local communities, which will face the impact of the dam.
Compensated are only families who lived on the construction site, other communities, particularly 159 villages located on downstream are again put aside, despite the hydro-dam impact will reach them as well (Kimkong et al 2015, 159). In addition, the transparency of the whole project is put at risk thanks to the suspicious transfers of local lands and resources among few powerful stakeholders with connections to ruling party primarily for their benefit and not for the sake of national development as it has been often presented (ibid). Such dealings are certainly dangerous for China’s reputation and threat for its peaceful image.
As the result of lack of attention to ordinary people’s needs, it is along with Cambodian elites also Beijing, which fuels the foundation of regional activism. Yeophantung (2013, 9) states that
“[Not] only does public perception impinge directly on the reputation of Chinese government and, by extension, the country itself, but it can also contribute to stoking discontent among the local population, as is reflected in intensified anti-dam activism within the region.” There have already been several cases, where local resistance caused wrinkles on the planners’ faces, such as the protests against the Sambor and Stung Cheay Areng dams, which were mainly targeted against the Chinese investors (ibid). The worst nightmare is, when the local communities decide to unify together across the borders and establish regional NGOs, which stand up against the local or central governments. In Cambodia there are commonly known River Coalition, and also the NGO Forum on Cambodia, which try to escalate the pressure on the leadership to protect the local livelihoods, and also try to outreach the hidden information about the dam-projects (2013, 13). These organizations not only appeal on the central governments but also cooperate with international organizations such as the International Rivers, World Commission on Dams, World Wide Fund for Nature and other institutions to face the Chinese governments and its companies in order to transform “[…] these localized problems into matters of regional and global concern by linking them to broader questions regarding the potentially destabilizing implications of China’s rise” (ibid). The main objectives of such escalating resistance could be summarized into three categories (Yeophantung 2014, 717):
1. Condemning the lack of transparency on Chinese dam building;
2. Questioning the China’s dialogue partner status in the MRC;
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3. Halting upstream Mekong dam construction in favor of more sustainable dam building.
Question is how the leadership reacts on such disobedience. In case of Cambodia, Yang and Hsiao (2014) conclude that in comparison with Myanmar, the reaction towards the local resistance is the key to understanding the Cambodia submissive position towards China.
Myanmar, despite its poor development level, is still capable of halting the Chinese backed project under the pressure of its people; whereas the Cambodia has decided to silence these voices to comply the contracts under risk of violence and further escalation. As for Chinese reaction, there was a case, when the investors were forced to back up against the public anger, which means that the ultimate goal of the peaceful image is still present, and certain sacrifices could be made in order to calm down the situation with locals. However, as for dealings with the Cambodian political elites, some researchers reckon that China has accomplished indeed very favorable conditions of mutual engagement. For example, Saullivan (2015, 122) points out that political and business leadership in Cambodia has reciprocally exchanged its loyalty for personal interests at the expense of national ones.
On the other hand, it cannot be said that Cambodia is not trying to somehow counterbalance China’s presence in hydro-power industry. The initial problem was the lack of other investors who would be eager to take the risk and engage in such a problematic business in Cambodia’s conditions. In case of Lower Sesan II (LS2) Cambodia formerly counted on consortium of investors from Vietnam, however due to the financial problems Vietnamese investors were forced to step out from the project. Initially, 51% of LS2 were supposed to be held by Vietnamese side (Vietnam Electricity International Joint Stock Company), but in the result this share was reduced to only 10% probably in favor of Chinese Hydrolancang SOE (Kimkong et al 2015, 160). That was in 2012. Todays the situation has slightly changed, because it seems that incentives to attract other investors have reaped the fruit. From the bilateral perspective, new countries and institutions have started to conduct feasibility researches in Cambodia and signed the Memorandums of Understanding. For instance, out of 11 new hydro-energy projects there are 6 projects allocated to companies from South Korea, and one for subjects from Russia (Middleton et al 2015, 143). Cambodia also participates on the GSM power grid, which seeks to sustainably interconnect the region from the energetic perspective, and to provide the supplies of electricity to all areas at low economic and environmental cost (Matthews and Geheb 2015, 7).
Cambodia also has power cooperation agreements with Laos, Vietnam and Thailand (Middleton et al 2015, 141). Though, expects that yet again such cooperation grid would again go against the Cambodia’s national interests, especially against the interests of its population, since it will not help to improve the uneven distribution of energy. Instead, the hydro-power will be commercialized primarily for Thai, Chinese and Vietnamese market as the vision of business opportunity, not as a way to solve the tremendous energy situation in the country. For example, Yeophantong (2013) brings up Tasang and Hatgyi dams on the Salween river as the cases, where the electricity is supposed to be generated mainly for China and Thailand power grids.
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In conclusion, Cambodia tries to apply the bilateral and multilateral institutional balancing;
however by doing so, it is facing several obstacles. One problem is divergence in goals, and competition among riparian states. Ho (2014, 20) stresses out that “[The] lower Mekong riparian states have not presented a united front towards China, due to the disagreements between upstream and downstream users throughout the Mekong and conflicts among them over one another’s dam building activities.” GMS countries should let the mutual conflicts aside and unify in the question of Mekong development to compel China to change its attitude and compromise.
However, it might be easier said than done, given the Cambodia’s experience of being under control either of Thailand, or Vietnam. However, times might change and if the actors were under the one roof with other ASEAN countries participating in the platform of ASEAN’s Mekong Basin Development, the situation might turn to be more balanced. Besides that, Cambodia can also rely on ADB GMS cooperation, and rising interest of the USA and Japan.
Second problem in terms of counterbalancing the Chinese presence in hydro-dam construction sector is the corruptive environment, which scares out relevant percentage of the potential investors from bringing their money to Cambodia. I think that Cambodia has plenty of options to balance the Chinese presence, however, the elites are definitely dealing with the dilemma,
Second problem in terms of counterbalancing the Chinese presence in hydro-dam construction sector is the corruptive environment, which scares out relevant percentage of the potential investors from bringing their money to Cambodia. I think that Cambodia has plenty of options to balance the Chinese presence, however, the elites are definitely dealing with the dilemma,