Electricity subsidy to boost manufacturing

May Kunmakara / Khmer Times No Comments Share:
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The government will subsidise the electricity sector with a $50 million package that will lower electricity costs from 2019 onwards. KT/Chor Sokunthea

Cambodia’s upcoming cut in electricity costs will likely lower manufacturing and operation costs for the export-reliant nation, delivering a boost to the business sector while potentially attracting more foreign investment, top executives said.

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The cut is made possible through the government’s plan to subsidise the electricity sector with a $50 million package that will bring down electricity costs from 2019 onwards.

Prime Minister Hun Sen on Monday confirmed the government’s decision to bring down electricity costs while speaking at the launch of the Lower Sesan II hydro project.

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“If the price of electricity could drop significantly to be on par with Vietnam’s, it will also help promote investment in local fabric mills, as Cambodia now imports almost all of its fabrics,” said Kaing Monika, the deputy secretary-general of the Garment Manufacturers Association of Cambodia.

Fabric mills consume significantly more power than garment factories, he noted.

“The lower the electricity bill, the higher the chance for price competition,” said In Channy, president and group managing director of Acleda Bank. News of the cut is “a blessing for the New Year, for every Cambodian and for those who do business in Cambodia.”

Reduced power costs will also help the lender as it rolls out its ‘digital bank’, a strategy that will minimise the use of physical branches and offices while cutting time and costs, Mr Channy said.

While the government should be lauded for its “strong intention” to cut electricity costs, “one of the most critical” issues in attracting foreign direct investment, it would be very challenging for the government to reduce the tariff drastically due to the small size of Cambodia’s power generators, said Hiroshi Suzuki, an economist and the chief executive of the Business Research Institute for Cambodia.

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EDC employees in Phnom Penh. KT/Chor Sokunthea

Reducing tariffs drastically would require the introduction of much larger facilities that can generate 350-500 megawatts of power, Mr Suzuki said.

Official development assistance (ODA) loans from the Organisation for Economic Co-operation and Development could be of help here, Mr Suzuki suggested. The interest rate of Japan’s ODA loans is about 0.01 percent a year.

Under the plan, electric tariffs for the industrial sector will be lowered to 595 riel in 2019 and 592 riel by 2020, for Phnom Penh. Currently, electric tariffs stand at 676 riel in Phnom Penh and 672 riel in provincial areas. For administrative users, tariff charges will drop to 640 riel in 2019, from 676 riel in Phnom Penh and 672 riel in provincial areas.

Households consuming between 1-10 kilowatt hour per month will see a drop in tariffs to 380 riel in 2019 from 480 riel per kWh. Those consuming between 11-15 kWh per month will pay 480 riel per kWh, down from at 610 riel currently. Households that use 51-200 kWh per month will pay 720 riel in 2019 and 610 riel in 2020, compared to 770 riel currently, while those who use more than 200 kWh per month will pay 610 riel in 2019 and 2020, compared to 720 riel previously.

At the Cambodian People’s Party congress yesterday, government spokesman Phay Siphan said Prime Minister Hun Sen – also the party’s leader – has asked his officers to move quickly to introduce the new, cheaper electricity prices.

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The government should consider more subsidies, Mr Monika of the Garment Manufacturer’s Association said. “While this would cost EDC (Electricite Du Cambodge) more, the government could consider this as investment that would yield higher return in the form of more jobs and more taxes when business and industry prosper,” Mr Monika said.

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