Monday, May 17, 2010

A soft loan from China could dramatically improve Phnom Penh's future

Cambodian rebirth

Posted: 17 May 2010 07:41 AM PDT

17 May 2010

The historic capital city port of Phnom Penh is being reborn after years of neglect, reports Michael King

The port of Phnom Penh is not the usual subject of a major port focus by Port Strategy. It’s not that big, it’s not breaking any new technological ground and it’s not even near the ocean. But it does perfectly illustrate how port development can both facilitate and drive economic growth.

The inland port, located some 348 km up the Mekong River from the South China Sea, is poised to help transform Cambodia from a backwater of globalisation into a country with the potential to ‘do a Vietnam’. In other words, leverage its cheap labour resources, raw materials and willingness to embrace international trade to attract inward investment and boost economic development.

A key logjam to achieving this aim, the chief executive of a leading integrator recently told PS, is that after years of political turmoil and low levels of infrastructure investment, the national transport system is “a mess” and “too expensive”.

“It hasn’t had the logistics backbone to attract the type of inward investments that Vietnam has won.”

The integrator in question is now helping to rebuild Cambodia’s customs service and has started a series of road services linking manufacturers relocating to Cambodia to major markets in Asia and beyond by road and air.

In much the same way, Phnom Penh Autonomous Port (PPAP), both port authority and the sole terminal operator, is now trying to smooth the processes and reduce the cost of trading to and from international markets by sea.

Cargo clearance was recently improved by the opening of a new administration building providing a one-stop-shop for shippers and forwarders attempting to access international markets, said PPAP deputy director general, Ieng Veng Sun. New warehousing suitable for bonded and consolidation operations is also planned

However, the big problem for Cambodia’s shippers is that while the country’s largest port, Sihanoukville, has much to offer, it does not have a wide range of international mainline container calls. For most traders in the vicinity of Phnom Penh this has meant trucking or barging cargo to Sihanoukville or ports in Thailand or Vietnam and then feedering cargo to mainline hubs at either Singapore or Hong Kong - not a very good solution for international companies with sophisticated supply chains.

The development in Vietnam of Cai Mep, Asia’s most promising mainline container hub port, is now offering new options.

Located south of Ho Chi Minh City near the mouth of the Mekong in Vietnam, the top names in port development - SSA Marine, Hutchison Port Holdings, APM Terminals and PSA International - are already involved in either running, bidding to manage or constructing terminals at the port.

It was no coincidence that the opening last summer of Cai Mep’s first berths able to host mainline containerships coincided with a steep acceleration of export volumes at Phnom Penh, says Mr Sun.

“With Cai Mep in reach by barge and able to offer hub services, it reduces the time and the cost for shippers,” he says. “To the US, for example, this saves around $100-$200 and 2-3 days for each container.”

PPAP handled 43,312 teu last year. Although the figure was down on the 47,504 teu handled in 2008, volumes are forecast to reach 65,200 teu this year.

“In the first six months of last year volumes were a long way down compared to 2008. From June it really picked up,” he says.

“This year we were up 75% year-on-year in January to 4,547 teu, and up 50% to 3,271 teu in February.”

With existing facilities at PPAP already stretched, plans are now in place to build a new container terminal.

PPAP, a state-owned but autonomous company supervised by both the Ministry of Public Works and Transport and the Ministry of Finance and Economics, currently possesses a single container terminal of 20x300 metres dimensions and a 92,000 m2 inland container depot. The port’s maximum draught is a tiny 4.2 metres in the dry season. Only barges carrying less than 100 teu can be received.

PPAP is hoping to secure a soft loan of $28m from the Chinese government to be used to build a new container terminal 30km downstream of existing facilities by 2012. If China provides the loan, subject to clearance from Ministers PPAP will either seek additional assistance or look for private participation.

In phase one, the facility will add an extra of 120,000 teu capacity on 12 hectares of yard working 22x300m of berth. Subsequent expansions would more than double the size of the terminal and take annual capacity to over 300,000 teu.

A dredging programme due to be completed in the next five years will increase the size of the maximum vessel PPAP can receive to over 320 teu, further improving the economics of using PPAP facilities.

By reducing ocean transport costs, in the future Cambodia hopes to attract more manufacturers of more sophisticated products to the country such as major electronics and retailers. But for now, just improving the lot of textile and agricultural exporters and imports to the country’s burgeoning consumer markets would be a start.

“Cambodia’s economy is taking off and we think we can be a big part of that,” adds Mr Sun.


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