Cambodia - Report of economic mission - 1969 (Vol. 2 of 3) : Sectoral annexes

RESTRICTED Report No. EAP- 1 3a This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report moy not be published nor may. it be quoted as representing their views. INTERNATIONAL B.ANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT OF ECONOMIC MISSION TO CAMBODIA - 1969 (in three volumes) VOLUME II SECTORAL ANNEXES October 1Z, 1970 East Asia and Pacific Department  CURRENCY EZUIVALENTS Before August 18, 1969 (a) US$ 1.00 = Riels 35.00 Piel 1. 00 = US$ 0.1029 Piels 1 million = US$ 28,571 (b) F Fr. 1.00 = Riels 10 Riel 1.00 = F Fr. 0.10 (= US$ 0.020) Riels 1 million = F Fr. 100,000 After August 18, 1969 US$ 1.00 = Riels 55.5 Riel 1.00 = US$ 0.018 Piels 1 million = US$ 18,004 (F Fr. 1.00 = Riels 10 = US$ 0.18) lote: On August 18, 1969 the new parity for the Riel was defined as 16 milligrams of fine gold, which corresponds to the new parity of the French Franc (which was devalued on August 10, 1969) at the same rate of exchange:as before. However, the exchange rate for non-Franc currencies was brought in line with the Franc rate.  Foreword This is the report of a World Bank economic mission which visited Camboclia in October-November 1969. The report considers the Cambodian economic situation only up to that time. The writing of the report was completed in February 1970 and there have been no changes since-then to take account of subsequent developments in Cambodia. Members of the mission were:- Rudolf Hablutzel Chief of Mission Miss H.J. Goris Economist George C. Maniatis Economist Yves Franchet National Accounts Maurice Gaide Agriculture (Consultant) Martin Karcher Transport Raymond H. Rollet Power Jeremny Bonnett Tourism Miss G. Gagnon Secretary   CURRENT ECONOMIC POSITION AND PROSPECTS OF CAMBODIA VOLUME II Pagte No. Annex I: The Transport Sector 1 Annex II: Power 24 Annex III: Tourism 40 Annegc IV: Manufacturing Industry 58   Annex I: THE TRANSPORT SECTOR TABLE OF CONTENTS Page No. A. Introduction 2 B. The Highway Sector 4 The Highway Network 4 Highway Admainistration and Planning 5 Highway Coxxstruction and Maintenance 6 Highway Finance 7 Road Transport 7 C. The Royal Cambodian Railways 9 General 9 Traffic 10 Physical Plant and Operations 11 Operating Results -12 Financial Position 13 Outlook for the Future 14 D. The Ports 16 Phnom Penh Port 17 Sihanoukville Port 19 E. Inland Wate.r Transport 20 F. Civil Aviation 21 Airports and Traffic 21 Royal Air Cambodge 22  -2- Annex I: THE TRANSPORT SECTOR A. INTRODUCTION 1. Cambodia's population, economic activities and transport require- ments are concentrated in the Central Plain, which extends clear across from the Thai border in the northwest to the Vietnamese border in the south- east, along the Tonle-Sap, the lower Mekong and the Bassac. The plateau and mountainous regions in the north, northeast and southwest are sparsely populated, with densities as low as 5 inhabitants per square-kilometer, and generate little demand for transport, except along the borders, for strategic reasons. 2. Cambodia is favored with an extensive network of navigable rivers, and up to the opening of Sihanoukville Port on the Gulf of Siam in 1960, relied exclusively on river transport on the Mekong for its overseas traffic. In addition, Cambodia's Central Plain is served by a fairly well developed system of primary roads and by a railway, which links the rice producing Province of Battambang with Phnom Penh and, since the end of 1969, with Sihanoukville Port. The small size of the country has so far militated against the development of domestic civil air transport which, aside from mainly international tourist traffic between Phnom Penh and Siem Reap, remains virtually non-existent. 3. Since independence, investments in the transport sector, which have been absorbing a sizeable proportion of Cambodia's domestic and external resources, have led to the following major developments: (i) the creation and subsequent extension of a seaport at Sihanoukville; (ii) the construction of a 4-lane highway (224 km) and a railway line (262 km) from Phnom Penh to Sihanoukville; (iii) the construction of two international airports at Phnom Penh and Siem Reap; and (iv) the construction of a bridge over the Tonle Sap in Phnom Penh and of a road (not yet completed) joining with the northern and northeastern road network and avoiding a ferry crossing on the Tonle Sap. 4. Following these additions, the transport system will not require further major extensions in the near future, but instead it will need improvements in the standards and in the maintenance of the existing infra- structure. While less glamorous than the construction of new facilities,  -3- the task of upgrading and maintaning the system is at least as rewarding economically, and the flow of investment funds (and recurrent expenditures) to the transport sector should not be allowed to drop drastically from its estimated level of CR 500-700 million in the past four years. 5. The task of providing the transport infrastructure and transport services is shared by the Ministry of Public Works, provincial and local authorities, various autonomous public and mixed enterprises (e.g. Rail- ways, Ports, Airline) and private operators of road and inland water trans- port services. The Ministry of Public Works is responsible inter alia for the development and maintenance of the highway network, of the airports and of the inland waterways; it also regulates road and inland water trans- port, and approves changes in tariffs 1/ jointly with the Ministry of Commerce. In addition, it reviews and approves investment projects of the state-owned public enterprises, that is, the Railways and the Phnom Penh and Sihanoukville Port Authorities. 6. It appears, therefore, that Government influence on the transport sector is fairly extensive. It manifests itself mainly through investment decisions, rather than by regulations affecting the operation of the trans- port industry. The Government tends to rely on competition on the basis of price and service for the proper allocation of traffic, and has refrained from restrictive licensing practices. Whether this attitude will also prevail in the case of the Phnom Penh-Sihanoukville rail versus road compe- tition is less clear, but chances are that it would. However, the Govern- ment has allowed the state-owned transport enterprises to follow pricing policies that do not permit these enterprises to recover their capital investments through adequate depreciation charges, much less to earn a return on their investments. The argument has been that transport services are needed to meet national, social and economic objectives and should not be used to further financial gains. 7. While there may, in fact, be some economic merit in promoting the utilization of existing facilities by charging less than would be required to recover the full cost of such facilities from users, the initial decision to invest in a facility should be based on firmly estab- lished economic grounds. Since the Government is primarily responsible for providing costly infrastructure for all modes of transport, and since the economic feasibility of new projects has so far never been thoroughly investigated, it is extremely important for the Government to encourage - and shortly to require - that all new projects proposed for implementation be supported by detailed and solid evidence of their economic justification. In particular, traffic forecasts should be made much more carefully than hitherto, so that facilities would not be over-designed or built prematurely and resources would be used more productively. As further stressed in the present report, careful economic analysis is required before deciding on the scope and timing of future investment projects in all modes of transport. 1/ For road and inland water transport, Government decrees set maximum tariffs only.  - 4 - B. THE HIGHWAY SECTOR The Highway Network (See Map) 8. Cambodia's primary road network consists of some 4,200 kilometers of national highways and 1,700 km of provincial highways (Table 9.1). The major road arteries radiate from Phnom Penh and connect all the important centers of economic activity. The density of the road network is highest around the capital, particularly since most of the provincial roads are also to be found in the Provinces surrounding Phnom Penh. About 60% of the national highways and less than 10% of the provincial highways are paved with a bituminous surface. The remainder is about equally divided into gravel and earth roads. In addition, there are some 13,000 kilometers of earth tracks, which have been built by local authorities and by the Cambodian armed forces to serve rural or military traffic. They are usually poorly maintained and impassable for motorized traffic, especially during the rainy season. 9. Most of the primary network dates back 30 to 40 years and was built to standards, which were adequate to handle light traffic, but which could not cope with modern traffic. While roads have been progressively improved and some new roads constructed to modern standards, the greater proportion of the network remains unsuited to large traffic volumes. In particular, pavements.and shoulders are narrow; pavement widths typically range from 4 meters to 6 meters, and 7-meter pavements still constitute the exception. Moreover, low embankments, built with sand and clay materials and insufficiently compacted, are subject to annual flooding during the monsoon; this causes.iserious breakdowns in the pavements and gives rise to costly reconstruction expenditures following the monsoon. On provincial highways, most bridges are single-lane wooden or steel structures, with load restrictions as low as 6 tons; even on national highways, a number of bridges need urgent replacement or reinforcement. 10. Manual traffic counts taken on major national highways in 1964 through 1968 show relatively high traffic volumes typically ranging from 500 to 2,500 vehicles per day, with a roughly even distribution of the number of motorcycles, light and heavy vehicles. The highest recorded traffic volumes (up to 3,100 vehicles) were on the Phnom Penh-Sihanoukville highway; the lowest (about 60 vehicles) on the northern highway to Stung Treng. As the location of the traffic counting stations was not always the same, and as traffic counts fluctuated widely from year to year, it would be imprudent to infer precise growth rates of road traffic from the existing data; nevertheless, indications are that road traffic has indeed been growing in most cases over this short period. On provincial highways, traffic rarely exceeds 100 vehicles a day, mainly because of the low stand- ard of these roads.  -5- Highway Administration and Planning 11. Responsibility for the design, construction and maintenance of the national highways system is vested in two departments of the Ministry of Public Works, the Direction du Genie Civil (DGC) and the Direction du Materiel et des Travaux Neufs (DMTN). Provincial Governments look after the provincial highways, but in effect, they lack funds and equipment to maintain and improve the provincial roads, so that (i) about 90% of what little maintenance is done on these roads is done with equipment borrowed from the DGC and (ii) the condition of the roads is such that they can only accomodate light vehicle traffic. For the bulk of the local village roads, the situation is even more critical, since the initial standards were lower and hardly any maintenance takes place. 12. DGC assumes the main responsibility for planning and engineering road and bridge construction and reconstruction works, and for maintaining the national highway system, including carrying out major repairs and periodic resurfacing. DMTN's main function consists in the actual cons- truction of new roadis, bridges, airports and even rail embankments, as welL as in the operation and maintenance of ferries at four major river crossings. The dual organization stems from the creation in 1960 of a special office to take over the equipment used in the Phnom Penh-Sihanoukville highway construction, which later became the DMTN. The division of responsibility between the two departments is less than clear-cut and the allocation of duties to a large exitent depends on orders given by the Minister of Public Works himself. Inev:Ltably, such a dichotomy leads to some conflicts and frictions, a lesser :Lnterchange of equipment between the two departments and a lower utilizat:Lon of this equipment than would otherwise be possible, and also to some dupLication of personnel and efforts. For instance, both departments have theiLr own design section, which in view of the very limited budget allocations for road investments appear to have been overstaffed. This question deserves further study to determine whether both departments could not be merged amd operated more efficiently and economically under a single direction. 13. For new works, little economic investigation takes place and economic feasibility studies of road investments have yet to be introduced into the planning process. Actually, decisions to build new roads are taken at very high levels by the Chief of State, the Prime Minister, the Ministers of Public Works or Agriculture, the Armed Forces, etc., on political and military as much as economic grounds. Once the decision has been taken, it: is conveyed to the DMTN and the DGC, who then prepare preliminary and detailed engineering studies, including estimates of quantities and costs. The studies, in turn, are! 3ubmitted to the Ministers of Public Works and Finance for approval. Most frequently, the Minister of Finance releases credits for individual works in small yearly installments from CR 500,000 to CR 15 million. Consetquently, new workslare undertaken which will take a very long time to complete. For instance, a 45 km road linking Chrui Changwar (across the Tonle Sap at Phnom Penh) to the northwestern and northeastern road networks was started in 1964 and still awaits completion;  out of a total cost of CR 240 million, about CR 190 million have been spent and, given DMTN's total annual road budget of some CR 40 million, it may take another few years before the road is finally opened to traffic. The result is that funds, which are stretched over a great number of new works, remain unproductive for years, whereas a more concentrated approach would produce higher returns. 14. As budget allocations for heavy deferred maintenance and road improvements have been equally scarce (see below), planning lhas consisted mainly in distributing the funds among the important roads according to their condition and to the traffic which they served and in undertaking the most urgently needed repairs to keep the road system open, especially following monsoon damages. Moreover, DGC has often had to content itself with makeshift solutions, such as building single-lane bridges on heavily travelled highways, or resurfacing a road without strengthening the weak foundations. Unavoidably, such practices reduce considerably the economic life of the investments. Highway Construction and Maintenance 15. Except for some major bridge works which were awarded to con- tractors on the basis of international bidding, construction and rein- forcement works are usually executed by force account. DMTN estimates that it would have the capacity to construct about 100 km of roads yearly against actual construction of about 30 km only. At present, DMTN has some 8 projects under construction or in an advanced state of engineering, out of which 4 would serve border areas along the Vietnamese and Thai frontiers, with the intent that the settlement and development of these areas would make them safer from incursions of foreign elements. Because of the insecurity created by acts of war along the Vietnamese border, some works had to be suspended. 16. A major constraint has been the poor condition of the equipment, most of which dates back to the construction of the 4-lane Phnom Penh- Sihanoukville higlhway in the late 1950's; since 1964, DMTN has practically not received any new equipment. A study is under way to determine the desirability of creating 4 new workshops in Kratie, Siem Reap, Battambang and Stung Chhai, in addition to the central workshop located near Phnom Penh, and of providing each workshop with its own lot of equipment. The cost is estimated at some CR 400 million and would not seem justified unless yearly allocations of investment funds for road construction were greatly expanded. 17. Until investment funds for road development become again more abundant, essential stopgap measures should aim at preserving the existing road plant and increasing maintenance efforts, in order to reduce road transport costs generally on the system. To achieve even this limited objective will require an influx of new maintenance equipment and spares since most of the present stock is in a state of disrepair or immobilized  for lack of spare parts. Out of 186 trucks, less than 25% were listed in good condition in ].967; all of the heavy equipment (rollers, tractors, graders, etc.) is now over 9 years old and sometimes close to 15 years old, and has reached the limits of its economic life. The foreign exchange required to replace and supplement the existing equipment could amount to about 2.5 - 3.0 million US dollar equivalent. Highway Finance 18. Expenditures on highways are financed mainly out of annual (national) budget appropriations, and, during the first 5-year plan (1960- 64) from special plan allocations. In addition, there are some direct contributions from the Chief of State's own development funds, as well as limited allocations from the provincial governments' budgets. DMTN's records of new road construction expenditures were not available to the mission, except for 1968 and 1969 when they amounted to some CR 40 millioll. Budget allocations for highway maintenance and reconstruction are presentisd in Table 9.2; they indicate that after a rapid increase from CR 14 million in 1955 to nearly CR 200 million in 1961, budget allocations dropped subse- quently to CR 61 million in 1968 and CR 48 million in 1969, about a third and a fourth respectively of DGC's estimate of minimum requirements. 19. These expenditures are far below the level of investments pro- posed in the second 5-year plan for 1968-72, which would have averaged some CR 300 million annually. They are also much below the receipts which accrue to the general budget from taxation on road transport. Although no systematic study of taxation on road transport has been made, it appears that by 1966, duties on imported gasoline and gasoil (the fuel most common- ly used by diesel trucks and buses) amounted to some CR 545 million. In addition, taxes on commercial and private vehicles yield some CR 60 million annually. Even disregarding import duties on vehicles and other minor taxes on tires and spares, revenues from taxation on motor transport thus exceeded CR 600 million, twice the level of annual road expenditures pro- posed in the second 5-year plan and about 6 times the actual level of expenditures in 1968 and 1969. The bulk of these revenues appears to have! been coiLecZed on sales of gasoline (CR 506 million in 1966, the last year for which statistics are available), so that it does not necessarily follcv that commercial road transport - by diesel trucks and buses - is overtaxec; nevertheless, the size of the surplus of tax revenues over highway spendirng goes to support DCG's and DMTN's arguments for substantially increasing expenditures on road improvements and maintenance, as road users amply demonstrate their willingness to pay for better roads. Road Transport 20. Over the past decade, Cambodia's motor vehicle fleet increased at an average rate of over 9% from about 15,300 vehicles at the end of 1959 to about 36,350 vehicles as of September 1969. As shown below, passenger cars increased fastest, followed by trucks and buses:  Approximate 1959 1969 Annual Growth Rate Cars 9,078 25,366 10.9% Trucks 5,193 9,626 1/ 6. Buses 1,035 1.356 2 o. Total 15,306 36,348 9.1% In addition, there are some 16,170 motorcycles and scooters, 2,170 tri-cars (3-wheel vehicles) and 94,000 motorbicycles (Table 9.3). In relation to the size of the population, the level of motorization is relatively small; there are about 200 people for every 4-wheel motor vehicle, as compare- with about 160 people per vehicle in Thailand and 37 people per vehicle in Malaysia. 21. Statistics of annual sales of gasoline indicate a rapid increase from 74.5 million liters in 1960 to 91 million liters in 1963, followed by a sudden decline to 58 million liters in 1964 and a levelling off at 47 - 49 million liters up to 1968. The decline came after - and was pro- bably caused by - the imposition of a special duty on gasoline in 1963. Conversely, sales of less heavily taxed gasoil increased steadily from 15 million liters in 1960 to 74 million liters in 1967 at a rate of 25% per annum, resulting from a changeover from petrol to diesel-engine vehicles, as well as an undetermined increase in motorized transport. Of late, trucks have been switching to diesel oil, which is cheaper than gasoil, but more damaging to the engines. In order to prevent such harmful dis- tortionary effects of fuel taxation, the Government should undertake a study to determine the optimum fuel taxation policy. 22. Both passenger and freight road transport enterprises are in pri-vate hands. Government controls over the road passenger cransport industry consist in technical inspections of vehicles, setting of maximum fares and route licensing of bus and taxi-bus operations. In fact, actual fares have generally been well below the maximum authorized tariffs because of keen competion. The route licensing system is fairly flexible to take into account traffic demand. In addition to buses, there is a large number of taxi-buses (2,042 units, mainly 3-wheel vehicles) which ply either on regular routes within urban areas or within a given district (srok), and cars for hire (1,045 units) which may ply anywhere in the country. The competition from these vehicles may explain the slow rate of growth of buses of only about 2.8% per year in the 1960's. 1/ About half of the trucks have a capacity of 5 tons or more.  - 9 - 23. For road trarnsport of freight, similar Government controls exist, except that there is no route licensing. However, on the most important route, between Phnom Penh and Sihanoukville, two trucking associations composed of former customs agents share the monopoly of import/export traffic on account of SONEXIM. With the opening of the new railway line, at the end of 1969, this monopoly is being seriously threatened, and in fact, the Railways have been seeking for themsselves the monopoly for the transport of rice, iron, cement and any other freight that can be pelletized. So far, the Ministry of Public Works has not reacted favorably to the Railways' request and matters have been left pending in the expectation of a decision about SONEXIM's possible dismantlement. The Minister of Public Works rightly felt that forced allocation of traffic to a particular mode would prevent competition from playing its beneficial role in fostering better and cheaper services. An essential advantage of road transport lies in its greater flexibility, speed and economy of handling operations; these factors will be particularly decisive in ship loading and unloading operations at Sihanoukville Port, because of possible demurrage charges. 24. A 1967 GoverrLment decree fixes maximum freight rates of CR 1.0 per ton-kilometer for intercity road transport. However, the Government does not have any practical means of enforcing the provisions of this decree, and since the miaximum does not include terminal handling charges nor ferry crossing charges, total tariffs may in fact exceed the maximum legal charge, especially on lesser roads and during the peak traffic demand season. During the slack season, however, truck rates fall well below the legal limit. Freight rates on the Railways average CR 0.75 per ton-kilometer and would compare favorably with truck rates, except for the difference in service amd terminal handling costs. C. THE ROYAL CAMBODIAN RAILWAYS General 25. A state-ownecd autonomous public enterprise, the Royal Cambodian Railways (the Railways) operate two lines of 647 km of meter-gauge single track: (i) the old line from Phnom Penh to Battambang and the Thai border (385 km) built in two sections between 1930 ancl 1940; and (ii) the new line from Phnom Penh to Sihanoukville (262 km) which has been under construction since 1960 with assistance from France, Germany and Mainland China; it was opened to traffic over its entire length at the end of 1969.  - 10 - 26. The old line links up with the Thai Railways at Poipet; it was part of the former Indochina network and was to be extended from Phnom Penh up to Saigon to provide a rail connection between the three neighboring countries. Its main function, however, was--and remains--the linking of Phnom Penh, the capital, with the rich rice producing area of Battambang. Since October 1961, no international traffic has been moving over the line, as diplomatic relations between Cambodia and Thailand were severed. 27. By connecting Phnom Penh with Sihanoukville Port and with the oil refinery near the port, the new line provides an alternative to road trans- port for import-export and oil traffic. It also serves the two provincial capitals of Takeo and Kampot, but so far, traffic on the Phnom Penh-Takeo and Takeo-Kampot sections, on which operations started in 1966 and 1967 respectively, has been disappointingly low. Traffic 28. Freight: Over the 1951-1968 period, freight traffic fluctuated extraordinarily widely, without any apparent growth trend. Tonnages carried in 1951, 1961, and 1967 settled around the 275,000 ton mark; the nadir was reached in 1955 with 135,000 tons and the apex in 1965 with 388,000 tons (Tables 9.4 and 9.5). The Railways' overwhelming dependence on agricultural production as the main source of traffic accounts for the magnitude of these fluctuations. On the average, agricultural products represent over two-thirds of total freight carried, so that poor harvest years (1955, 1961, 1962) are also years of low rail traffic (Table 9.6). The balance of freight traffic, which consists principally of manufactured goods, heating and construction materials and forestry products, was con- sistently lower in the 1960's than in the 1950's, indicating a decline in the Railways' share of such traffic in favor of road transport. 29. A direct consequence of the Railways, reliance on agricultural production for their freight traffic has been the lopsided directional traffic distribution: between 1960 and 1967, traffic moving in the Battambang-Phnom Penh direction accounted for almost 90% on average of total freight traffic (Table 9.6). Moreover, the demand for transport of agricultural products is seasonal and concentrated in the months of March through June. Both features have serious implications for the Railways' operations, commercial policies and finances. 30. Passengers: Contrary to freight traffic, passenger traffic exhibited a sustained growth during the 1951-1968 period. From 675,000 passenger journeys in 1951, traffic rose to 2.4 million passenger journeys in 1968 at an average annual growth rate of 7.8% (Table 9.4). Passengers kilometers rose slightly faster, at 8.2% per annum, from 45.2 million to 173 million, indicating an increase in average lead from 67 km to 72 km.  - 11 - 31. A favorable development for the Railways' revenues has been the more rapid growth of first and second class passenger traffic as compared with third class passernger traffic: in 1955, first and second class passengers made up 24% of total passenger kilometers on the old line, where- as they accounted for almost 40% in 1967. As a result, passenger receipts increased even faster t:han passenger kilometers, from CR 17.1 million in 1955 to CR 35.1 milliorL in 1967 (Table 9.7), with only a slight enhancement in fares. Whether the faster growth of first and second class passenger traffic represented a favorable development from the Railways' net income point of view cannot be determined in the absence of detailed cost studies. Nevertheless, the spread between average receipts from first and second class passenger-kilometers (CR 0.45) and those from third class passenger- kilometers (CR 0.25) appears reasonable. Physical Plant and Operations 32. The old line was equipped with 25 kg/m rails allowing for axle- loads of up to 13-15 tons. However, structures and bridges have become weak, restricting axle-loads to 10 tons. The new line has 45 kg/m welded rails allowing for 20 tons per axle-load. As the heavier locomotives and freight cars ordered for the new line are being placed into service, the task of reinforcing structures and bridges on the old line is becoming more urgent, in order to permit through traffic over both lines. However, even after such reinforcement works are completed, axle-loads on the old line will be restricted to ]L5 tons, so that the new freight cars will not be allowed on the line fully loaded. 33. Except for recent acquisitions related to the construction and operation of the new li.ne, the Railways' fleet of locomotives and rolling stock has remained relatively stable: there have been few additions and practically no replacements (Table 9.8). In fact, traffic on the old line would not have warranted any addition to the fleet as the degree of utiliza- tion of the fleet remai.ned low, even in years of higher traffic. In the peak traffic year (1965), the average daily mileage per steam locomotive was as low as 105 km and the average net load per train was only 81 tons 1/; in 1966, it dropped to 33 tons. While the under-utilization of the Railways' fleet is the result partly of excess capacity, it is due mainly to the lop- sided distribution of t:raffic, its seasonal character and the wide fluctua- tions from year to year. The Railways have requested the French Government to second a railway operations expert. to assist them in the improving the operational efficiency, but no reply had been received at the time of the mission. 1/ As computed by the Railways, this represents the tonnage carried divided by the number of trains. A more informative indicator would be the quotient oif ton-kilometers divided by train-kilometers; this works out to 153 tons in 1965 and 76 tons in 1966, which is still quite low.  - 12 - 34. Up to 1965, the year preceding the opening of the first section of the new line, the Railways' permanent staff had been following a slow- rising growth trend from 1,240 staff in 1951 to 1,600 in 1965, at an average rate of less than 2% per annum. Since then, there has been a 49% increase in the number of personnel up to 2,385 in 1968 (Table 9.9), due to the start of operations of the new line. Over half of the increase was in permanent way staff, who nearly doubled. Administrative staff increased by 31%, operating staff by 25% and mechanical staff by 20%. The Railways' board recently set a maximum limit of 2,500 staff, but as this covers permanent staff only, the Railways' management retains some flexibility in hiring temporary staff, who number about 600 at present. In view of the small volume of traffic handled by the Railways, it is safe to suggest that personnel could in fact be reduced, 1/ although a detailed study would be required to determine the extent and service-wise distribution of such a reduction. Operating Results 35. Freight traffic has traditionally been the main source of revenue for the Railways, and therefore, the financial results could not but reflect the vagaries of agricultural traffic. While in the record crop of 1965, gross receipts from freight (CR 70.6 million) were nearly double those from passengers (CR 36.6 million), freight receipts in the following year actually fell almost 20% below passenger receipts (CR 28.4 million versus CR 34.8 million). Other revenues,, which account for about 15 - 20% of total revenues, are derived from railway service traffic, investments in securities, rents, and miscellaneous operations, such as a railway-owned saw-mill and printing works. 36. In sharp contrast with the fluctuations of up to 35% from one year to the next in gross operating revenues, operating expenses have shown a much more stable and predictable pattern of growth (Table 9.10). However, the 21% increase in operating expenses between 1965 and 1968 was largely due to (i) a rise in the depreciation allowance from CR 4 to CR ll million and (ii) increases in staff costs and fuel and material consumptions follow- ing the opening of the new line. Staff costs in 1968 represented about two-thirds of working expenses and about 60% of operating expenses, which is comparatively high. These proportions should come down to more acceptable levels once the new line becomes fully operative and if proper depreciation charges are allowed for. 37. Over the 1953-1968 period, gross operating revenues exceeded work- ing expenses in all but the three poor harvest years (1955, 1962, and 1966). In all but five years (1955, 1962, 1966, 1967, 1968) did the Railways earn 1/ For instance, in 1967 the Senegal Railways, which are by no means understaffed, handled roughly 5 times more freight and twice more passenger traffic with less than twice the staff.  - 13 - a positive net operating income after meeting depreciation charges. How- ever, in retrospect, annual depreciation charges were set at such unrealis- tically low levels as to invalidate the accounting results and to deprive the Railways of the capacity to replace worn-out assets out of their own reserve funds. Up to 1965, depreciation charges were less than half of what they should have been, based on the non-revalued historical book-value of the Railways' assets. Since 1966, depreciation charges have been computed on the basis of the old line's and fleet's book-value, but are still grossly inadequate, as the book-value nowhere nearly reflects the assets' replace- ment costs, taking into account two sizeable devaluations of the Cambodian currency and the general increase in domestic and world prices. 1/ A re- valuation of the Railways assets appears indispensable to arrive at real- istic depreciation charges; however, the time lost for building up an adequate depreciation reserve will not easily be made up, as the depreciation reserve fund available at the end of 1968 was only CR 27 million and as road competition would prevent the Railways from substantially raising their tariffs and income. Financial Position 38. As revealed by their balance-sheet, which is summarized in Table 10.11, the Railways are in an extremely uncomfortable and tight finan- cial position, with long-term debts as of December 31, 1968 of CR 1,622 million, amounting to over 4 1/2 times their equity funds (capital and reserves). This situation developed because the funds for the construction of the new line, which were obviously beyond the Railways' internal financ- ing capabilities, wetre lent to the Railways, rather than put up as equity capital. The redeeuLing factor from the Railways' point of view is that, except for a 79 million loan from the Federal Republic of Germany, 2/ the creditor is actually the Government through its Caisse Nationale d'Equipe- ment (CNE). According to a revised October 1966 loan agreement with the CNE, interest on the loan is due at 3% per annum from the date of disburse- ment, and from 1970 onwards principal and interests are payable over a 50 year period in constant annuities. 39. By an official report dated April 1968, the Railways drew the Government's attention to their inability to meet interest payments during construction and full principal and interest payments later; they rightly urged that the loans be converted into a Government contribution to their capital, leaving the Government to assume the financial obligations under the loans. While this request still awaits a final settlement, the Govern- 1/ Even before the August 1969 devaluation, the Railways reckoned that some freight cars would have cost over 15 times more than their book- value; railcars, which were procured in 1946 and 1951, would have cost about 6 or 7 times more. 2/ As of December 31, 1968, only 7.9 million riels out of this loan had been disbursed, as shown in the balance sheet (Table 9.9).  - 14 - ment has in fact been meeting the Railways' obligations under the German loan and has granted the Railways a de facto moratorium on the CNE loan. In exchange for the conversion of the loan funds into equity capital, the Railways offered to turn over to the Government their net income after due allocations to the reserve funds. What are, in effect, the prospects for the Railways' profitability? Outlook for the Future 40. With the delayed opening of the new line in November instead of July as foreseen in the budget, 1969 was still a year of transition for the railways, during which traffic receipts on the new line must have fallen substantially short of budget anticipations. By October 1969, the Railways found it necessary to appeal to the Government for a cash contribution of CR 15 million to solve their immediate liquidity problems. It is likely, therefore, that the final 1969 results will show a much larger operating deficit than the CR 4.8 million forecast in the 1969 budget, which did not even allow for depreciation charges on the new line (Table 9.10). 41. As the chances for mitigating traffic characteristics and oper- ations on the old line are slim, any materials improvement in the Railways' earning position must come from the new line. On the new line, the Rail- ways expect a more balanced directional distribution of traffic, less seasonal variations and empty hauling, heavier trains and cheaper tractive power. Whether in the end, the new line will pay for itself in financial terms remains doubtful and that will depend on the Railways' ability to compete effectively with road transport and to raise some of its tariffs. Whether it will pay for itself in economic terms is even more open to question. 42. The four main sources of traffic on the new line are (i) import- export freight through Sihanoukville Port, (ii) oil distillates from the Sihanoukville refinery, (iii) cement traffic from the factory at Kampot and (iv) passenger traffic. Just to break even financially, the Railways will have to capture a substantial proportion of this traffic away from road transport, which up to now has enjoyed a monopoly position and which uses a 17% shorter route than the Railways between Phnom Penh and Sihanoukville. Except for local requirements in the Sihanoukville area, refined oil products will most probably switch over to rail transport, which offers attractive rates and private sidings at both ends: given Cambodia's domestic yearly consumption of some 250,000 cubic meters of oil distillates, the revenues to the Railways at CR 130 per cubic meter could amount to some CR 30 million. For other traffic, projections appear more uncertain. 43. Not only are there no reliable traffic projections for Sihanouk- ville Port, but the share of rail transport in such traffic is very much in doubt. The Railways have been seeking an agreement with SONEXIM (Societe Nationale d'Exportation et d'Importation) and SONAPRIM (Societe Nationale des Produits Importe's) that would reserve for the Railways the  - 15 - transport of rice, iron, cement, and any other freight that can be pallet- ized. SONEXIM stated that it would have no objection, provided the Rail- ways could guarantee both the same rates and performance as truckers, particularly with respect to safety and speed in transit and during loadini; and unloading operatiLons. As the Railways found it obviously difficult to commit themselves to particular performances and as SONEXIM's fate in the current liberalization drive was still undecided, the negotiations were put off. Nevertheless, the Railways estimate that they could capture between half and two--thirds of Sihanoukville Port's traffic, or roughly 300,000 to 400,000 tons, which at the average rate of CR 0.75 per ton-kilo- meter, would yield some CR 59 to CR 79 million. Unless an agreement such as the one just mentioned is reached and enforced, despite the Ministry of Public Works' unfavorable initial reaction to it, it seems improbable that traffic will reach the upper mark. 44. Similarly, cement traffic from the Kampot factory, located 166 km south of Phnom Penh, has been variously forecast by the Railways at 100,000 to 150,000 tons, yielding CR 12 to CR 19 million in gross receipts. This seems optimistic when compared with total freight receipts on the Phnom Penh-Kampot section of only CR 1.3 and CR 0.8 million in 1967 and 1968 respectively. 45. Despite a 40% reduction on regular fares, granted as a reward for the voluntary labor force which assisted in the construction of the new line, passenger traffic on the Phnom Penh-Takeo section has remained below the Railways' expectations, with revenues of some CR 9 million in 1968 and 1969. With the opening of the Kampot-Sihanoukville section and the return to normal fares, passenger receipts could increase to about CR 20 million in future years. 46. Total expected receipts from the new line thus range from about CR 125 to 160 million, including receipts from miscellaneous traffic of about CR 5 - 10 million. To achieve even the lower estimate of the range may take years and will require aggressive commercial policies on the part of the Railways, short of outright protection from the competition of road transport. 47. These estiDates of gross receipts compare with (i) estimates of working expenses attributable to the new line of about CR 60 million 1/; (ii) depreciation charges of roughly CR 60 million 2/ in pre-devaluation terms; and (iii) interest charges on the CNE loan of about CR 60 million. It follows that even in the best of circumstances (from the Railways' view- 1/ In 1968 the Railways estimated working expenses on the new line at CR 57 million, base!d on 1965-67 data for the old line. 2/ Computed at an average depreciation coefficient of 3% on investment costs including interest during construction.  - 16 - point), the new line would not be financially viable. Rather, the Railways' claim that they will not be able to meet their financial obligations under the 1966 loan agreement with the CNE appears amply'substantiated. More- over, it is doubtful that they will be able to charge proper depreciation based on the assets' replacement value, at least for a number of years and with the present tariff levels, which the Railways feel they could not increase substantially without attracting road competition. 48. Future Investments: Now that the new line is almost completed, the Railways are turning their attention to investment requirements for the rehabilitation of the old line. In particular, the task of reinforcing structures and bridges on the old line is becoming more urgent in order to permit through traffic of new rolling stock over both lines. The Railways are preparing plans and cost estimates for the reinforcement works. Sub- sequently, the Railways will face problems of track and rolling stock renewals. However, because of the utter lack of renewal reserve funds, no investment plan nor cost estimates had been firmed up at the time of the mission. Any such plan should rest on (i) an integrated operations plan for both the old and new lines, that would allow for the fullest utiliza- tion of the new rolling stock and (ii) a careful assessment of the economic returns from the investments based on a comparison with alternative road transport costs and investments requirements. D. THE PORTS 49. Not until 1960 did Cambodia have a seaport for its overseas trade, which previously was handled exclusively at the river port of Phnom Pehn 332 km from the Mekong's estuary. The decision to build a deep-sea port has proved sound, as navigation on the Mekong has been seriously hampered by the war situation in Vietnam. Since November 1966, ships transiting through Vietnam are required to wait for weekly convois, and are thus liable to substantial delays.  - 17 - 50. Since 1960, traffic at Phnom Penh and Sihanoukville Ports has been as follows (in l:ons): Phnom Penh Sihanoukville Total 1960 842,000 34,700 876,700 1961 741,000 95,500 836,500 1962 898,000 166,300 1,064,300 1963 962,500 369,600 1,331,600 1964 707,800 714,800 1,422,600 1965 595,400 754,600 1,350,000 1966 517,100 548,500 1,065,600 1967 535,200 545,200 1,080,400 1968 453,100 747,800 1,200,900 1969 (9 morLths) 227,700 358,300 1/ 586,000 1/ Excluding 392,000 tons of oil traffic using the refinery's own sea-lines located 11 km north of Sihanoukville Port. Phnom Penh Port 51. Phnom Penh's share of traffic has declined considerably in favor of Sihanoukville. Firstly, Phnom Penh no longer handles any traffic other than traffic with origin or destination in the Far East, namely Saigon, Singapore, Indonesia, Hong Kong and Japan. Secondly, traffic to or from socialist countries unfriendly with South Vietnam is being diverted to Sihanoukville. Thirdly, since the opening of the refinery in Sihanoukville at the end of 1968, Phnom Penh definitely has lost the oil import traffic: in 1967 and 1968, imports of oil distillates represented 46% and 50% res- pectively of Phnom Penh total traffic. 52. Nevertheless, Phnom Penh's future importance in Cambodia's maritime traffic should not be underrated, as its closeness to Cambodia's main production and consumption centers gives it a marked advantage over Sihanoukville Port, especially for shipments to and from ports in the Far East. While no systematic comparative study of the two ports has been made and while reliable traffic projections are conspicuously lacking, Phnom Penh may recoup a considerable slice of the traffic now handled at Sihanoukville, as soon as the war situation in South Vietnam quiets down and the navigational conditions on the lower Mekong are relaxed.  - 18 - 53. At present, the mooring facilities at Phnom Penh Port consist of two reinforced concrete piers of 183 meters in total length and four steel pontoons of 40 meters each. In addition, there are 24 pontoons servicing inland water crafts and barges. The water depth ranges from 5 to 7 meters between the Mekong estuary and Phnom Penh; the maximum draft of vessels which can navigate the river at high water is restricted to 4.1 meters in April and 5.1 meters in September at the estuary. Phnom Penh Port receives ships up to 4,000 DWT, but of 2,000 - 2,500 DWT on average. After increasing to a maximum of 625 in 1962 and 1963, the number of ship calls declined to 279 in 1968, and will not have exceeded 200 in 1969 (Table 9.12). 54. In 1964, Phnom Penh Port was set up as an autonomous entity with its own budget, under the direction of a Board headed by the Minister of Public Works. Despite the setbacks in traffic over the past five years, and the difficult operating conditions imposed by the system of weekly con- voys, the Port prides itself of continuing to operate at a profit, with tariffs unchanged since 1958. Two main reasons account for this: one, in 1967 the Phnom Penh Chamber of Commerce turned over to the Port the adminis- tration and substantial revenues of public warehouses; two, depreciation is charged only on assets acquired after the Port became autonomous in 1964, all other assets being treated as already fully amortized. 1/ While the present reserve funds of some CR 14.5 million (including net earnings) available at the end of 1968 would be utterly inadequate to replace the present facilities, the Port does not see any compelling reason for drastic- ally increasing its reserve funds, ad they are deposited with the treasury and do not earn any return, and as the Port expects the Government to pro- vide the funds required for any major expansion. Following the August 1969 devaluation, however, some tariffs may be increased. 55. The Japanese have shown interest in the development and transfer of Phnom Penh Port from its present location on the Tonle Sap to a new location on the Mekong (a short distance away) by participating in a pre- liminary techno-economic study in 1965-66. The implementation of the project, which would also have been part of an urbanization plan, would have permitted deeper draft ships to call on Phnom Penh, but was postponed indefinitely for financial and political reasons. In particular, the pro- ject would have required the dredging of the Mekong estuary by the South Vietnamese. This is covered by an international convention between the two countries. The project's estimated cost is about 240 million riels at the post devaluation rate; it would provide for the construction of 4 piers of 105 meters each, new warehouses and access roads, as well as for handling and miscellaneous equipment. With the large decline in traffic since 1965, however, there is no immediate problem of congestion at Phnom Penh Port; in the future, the development of Phnom Penh and Siha- noukville Ports should be studied jointly. 1/ The two reinforced concrete piers have been built in 1952 and 1960 respectively and could not have been fully amortized by 1964.  -19- Sihanoukville Port 56. The site for Sihanoukville Port was chosen in 1956 for the water depth allowing for 10,000 - 12,000 DWT ships in the entrance channel and at the pier and for the protection from the high waves of the Gulf of Siam by a string of islands to the West. In a first phase, cost- ing some CR 400 million, Sihanoukville Port was equipped with a 285-meter long pier (28 meters wide), providing two berthing places on either side, and with two warehouses of 120 by 54 meters each. As traffic soon exceeded initial projections, a second phase was undertaken in 1964, providing for two quays (350-meter long), a turning basin of 500 meters in diameter, two warehouses and two breakwaters at a total cost of about CR 600 million. As part of this phase, Sihanoukville Port also acquired a dredger which was delivered in April 1967. However, because of disagreements between the Port and the French supplier about the dredger's performance, the Port had not yet taken formal delivery of the dredger in November 1969, and, in the meantime, siltation had reduced the available draft in the turning basin and at the new quays from -10 meters to -6.5 meters. As a result, the two new berths have not been fully utilized. It was hoped that a settlement would be reached before the end of 1969 with the French supplier of the dredger, so that work on deepening the turning basin could be started soon. 57. As shown in paragraph 50 and Table 9.13, traffic reached levels of about 750,000 tons in 1965 and in 1968. In the first 9 months of 1969 traffic declined sharply and was unlikely to exceed 500,000 tons. The loss of traffic was due to poor harvests and balance of payments difficulties, and although the Port has not made any traffic projections, it feels that the present capacity , which it estimates at 600,000 tons annually, is inadequate and should be increased. However, this estimate of the port's present capacity is based on an average capacity per berth of 100,000 tons, which is low not only in comparison with similar ports, but also in relation to Sihanoukville Port's own performance over the past 5 years. Once the two new quays become fully functional and assuming reasonable operating efficiency, the Port should have sufficient capacity to handle traffic volumes of the order of a million tons per year. Moreover, Phnom Penh Port has some excess capacity, that cogld be used in the case of emergency. It follows that there is sufficient time to undertake a tho- rough study of traffic prospects, before proceeding with further major extension of the Port's facilities. Such a study should take a coordinated look at the development of both Sihanoukville and Phnom Penh Ports, and if it appears that Sihanoukville Port's extension is required mainly because of the proposed industrial zone, the actual development should await concrete indications that the industrial zone will materialize.  - 20 - E. INLAND WATER TRANSPORT 58. Historically, inland water transport played the dominant role in Cambodia's communication systems. While road and rail may by now have supplanted it, its function still remains far from negligible. In some areas, particularly on the left banks of the Mekong and the Tonle Sap, water transport remains the only viable means of communication with the rest of the country. As in many countries, however, reliable statistics on inland water traffic are hard to come by ,thus preventing meaningful intermodal comparisons; nevertheless, the length and depth of navigable waterways and the size of the registered fleet attest to the continued importance of inland water transport in Cambodia. 59. Some 660 km of waterways (equivalent to the length of the rail network) are navigable all year round, whereas an additional 930 km are accessible to motor-launches during the high water season. The main waterways are the Mekong River (up to Kratie), the Tonle Sap and the Bassac. Ocean-going vessels can travel on the Mekong River some 200 km from the Vietnamese border as far as Kompong Cham, with maximum draft restrictions of 4 to 5 meters in the dry season. Further upstream to Kratie, draft restrictions of up to 1.5 meters limit navigation to smaller crafts. Bet- ween Phnom Penh and Kompong Chnang, the Tonle Sap River (90 km) is access- ible to 50-ton motor-launches, whereas the Great Lake takes mainly smaller launches (5-25 tons) and fishing boats. Because of the irregular river- bed and channels and of road competition, the Bassac (90 km) has lost its former importance and is now used mainly by junks and barges in the trans- port of building materials and wood. Other year-round navigable rivers are found mostly in the coastal Provinces. 60. The registered fleet comprises 824 motor-launches, of which 220 carry mixed (passenger and freight) traffic, and 604 carry freight traffic exclusively. While a few boats are licensed to carry up to 250 passengers or up to 120 tons of cargo, the average capacity (68 passengers and 8.6 tons) is relatively small. Actually, a good proprotion of the cargo-launches are used as tug-boats for the junks and barges, of which 2,400 are registered with loading capacities over 16 tons. The size of the fleet has remained stable for a number of years, but the proportion of small boats (7-10 tons) has been increasing; nevertheless, there has been an important switch-over from steam or petrol engines to diesel engines over the past ten years. 61. For passenger boats, a route licensing system similar to that for buses exists. Some 60 scheduled services call daily at Phnom Penh Port, where about 700,000 passenger journeys originated or terminated in 1968. Regular services reach as far as Kompong Chhnang (100 km in about 8 hours) and Kratie (212 km in about 15 hours). Fares on passenger boats are about half of bus fares. On the basis of the registered capacity of 15,000 passengers and of an estimated average daily run of 15-25 km at full load, annual passenger traffic could amount to some 80-140 million passenger-km  - 21 - and compare with 173 million passenger-km on the Railways in 1968. Similarly, judging by the registered capacity of cargo-launches, junks and barges (about 120,000 tons), freight traffic moving on inland waterways may be substantial, although difficult to estimate in the absence of utilization indicators. However, as mooring facilities at river ports are generally rudimentary and inefficient, it is unlikely that the fleet's utilization could be high. Commodities shipped by water include rice and other agricul- tural products, building materials, wood, charcoal, potteries, fish and cattle. The rates charged are usually below the maximum authorized of CR 1.04 per ton-km. 62. Except for some CR 4 million of maintenance expenditures annually on the lower Mekong, no public funds have been allocated in recent years for the maintenance or development of waterways. Mooring facilities usually are in privalte hands. Given the importance of inland water trans- port, it seems likely that greater efforts on the Government's part in improving the waterways navigability would prove highly justified, and a study on river transport should be undertaken as a first step. F. CIVIL AVIATION Airports and Traffic 63. While Cambodia may boast of having as many as 26 airfields, civil. air transport is almost exclusively concentrated at the two major airports of Phnom Penh (Pochentong) and Siem Reap. At present, there are no scheduled services to any of the other airfield, which serve administrative, military and some private traffic. Distances between the main cities are too short and potential markets for air services too small to make domestic air transport on economic alternative to rail and road transport. In fact, most of the present traffic consists of international traffic, and foreign tourists account for a major share of traffic on the only scheduled domestic air-route between Phnom Penh and Siem Reap. 64. Passenger traffic at Phnom Penh and Siem Reap airports has been increasing rapidly. Over the 1968-69 period, the number of plane movements at Pochentong grew at. the annual rate of 6%, while passengers increased by 15.5% yearly, from 30,000 to 127,000 1/ (Table 9.14). At Siem Reap passengers increased from 28,200 in 1966 to 47,700 in 1968, a 70% rise in two years. Statistics for the first semester of 1969 show a further 33% increase in total passenger traffic over the first semester of 1968. Up to the opening of Siem Reap to Boeing 707-type planes in November 1969, Pochen- tong was the sole port of entry for international traffic. Since about 50% of this traffic continued by plane to Siem Reap, it is likely that from 1/ Arriving and departing passengers, excluding transit passengers.  - 22 - now on the importance of Siem Reap airport will increase in relation to Pochentong, as part of the tourist traffic will call directly at Siem Reap - Angkor, where Cambodia's unsurpassed tourist attractions are located. Freight traffic remains negligible at less than 1,000 tons in 1968. 65. Over the past six years, the bulk of the investments in airport facilities (CR 256 million) was directed at the development of Siem Reap Airport with financial and technical assistance from Mainland China and France. While the landing strip (2,550 meters by 45 meters) is adequate for Boeing 707-type planes, the terminal building is already undersized for handling important volumes of traffic and will require early extension, including a more functional layout. Investments at Pochentong (CR 64 mil- lion) went for (i) the lengthening of the landing strip from 2,400 meters to 3,000 meters (the width is only 40 meters and does not meet international standards), and (ii) the extension of the parking area and miscellaneous works. In addition, Sihanoukville airport received a traffic control tower, Stung Treng a new landing strip (1,250 meters X 40 meters) and an air ter- minal building, and Kompong Cham a terminal building. 66. New investments of about CR 300 million are required at both Pochentong and Siem Reap airports to improve the presently low safety standards and to increase the limited capacity of the air terminal build- ings. At present, Cambodia has to rely on Saigon for the control of its airspace, and with the strained relations between both countries, this arrangement has become less than satisfactory. In addition, both airports require new fire-fighting equipment and telecommunication equipment. It is also planned to complete the parking area at Pochentong (40 million riels) and to widen the Pochentong runway from 40 to 45 meters (30 million riels). At the time of the mission, a Government commission was studying the needs and priorities for the extension of the two airports, in connection also with the eventuality of "Jumbo" jet traffic by 1972/73. It seems that any such extension must be linked to prospects for increasing hotel accommoda- tions, so that airport and hotel developments do not lag behind one another. Further, it should be established whether and when the provision of "Jumbo" jet facilities would be economically justified - and for which of the two airports - by estimating the losses to Cambodia from tourist traffic foregone in the event such facilities were not provided. Royal Air Cambodge 67. Cambodia's national airline, Royal Air Cambodge (RAC), was founded in 1956 with 60% Cambodian and 40% French participation, and started operations by chartering aircrafts. At present, RAC owns and operates three aircrafts (1 Caravelle, 1 DC-6 and 1 DC-4) on the Phnom Penh - Siem Reap route and on a number of international routes, including Hong Kong, Singapore, Bali and Canton. Traffic has been increasing rapidly from 27,300 passengers in 1964 to 70,600 in 1968, at an average rate of 27% annually. Except for 1966, RAC has been operating at a loss in the 1965-  - 23 - 68 period, which has caused a heavy drain on RAC's liquidities. With the disappearance of the exchange rate disparities, the situation is expected to improve, as the receipts from international traffic will be exchanged at the new parity, which now corresponds to that used to calculate depre- ciation charges on the aircrafts purchased in French Francs. 68. RAC is planning to acquire a second Caravelle in 1970 or 1971. But here again, insufficient hotel accommodations, particularly in Angkor may prove to be a bottleneck to the expansion of traffic and the competition from an increasing number of foreign airlines with landing rights in Cambodia may limit RAC's share of the market.  - 24 - Annex II: POWER TABLE OF CONTENTS Page No. A. Historical Evolution ............................ 30 B. Present Structure of the Sector .... ............. 31 C. Past Investments ................................ 34 D. Existing Facilities ............................. 35 Generation Installed Capacity ..... .............. 35 Transmission Lines .............................. 36 Distribution .................................... 36 Consumption Rates ............................... 37 E. Future Requirements ............................. 37 Southwestern Area ............................... 38 Northwestern Area ............................... 44 F. Conclusions ..................................... 46  - 25 - Annex II: POWER A. Historical Evolution 1. During the period of French administration in Cambodia, all problems related to electricity and water supply were the responsibility of the Public Work Office. Until 1929, however, there was no public dis- tribution of electricity. In that year, two private companies -- "Com- pagnie des Eaux et de l'Electricite d'Indochine" (CEE) and "Union Electri- que d'Indochine" (UNEDI), owned by the same French groups -- were authorized to produce and distribute electricity in Phonm Penh and 7 other large towns. In 1948, the "Societe Franco Khmere d'Electricite" (SFKE) was appointed to operate the public utility service in Battambang. Several other systems have grown in secondary centers, under the management of municipal agencies or local private companies. 2. Besides these officially authorized distributors and producers of electricity, a number of private producers appeared on the scene over the years, either because of the lack of public systems (e.g., in rubber plantations) or for such reasons as the inadequacy of public distribution and high electricity rates. 3. When Cambodia attained its independence in 1953, the Ministry of Public Works took over the responsibilities of the French Public Work Office. As an elemerLt of the Ministry, the "Direction de l'Hydraulique et de l'Energie" (DHE) was created to control the production and distribution of electricity and to supervise the development of the power and water sectors. 4. The Government acquired CEE and UNEDI in 1958, and created "Electricite de Cambodge" (EDC) as a semi-public entity to take over the properties of the two private companies. In 1963-64, EDC's area of opera- tions was extended to 7 secondary centers, one of which was the newly built: seaport of Sihanoukville. In 1968, "Socie'te Nationale des Grands Barrages" (SNGB) was created ai a public corporation to build and operate all future dams and hydroelectric plants in Cambodia. 5. On the basiLs of the statistics established by EDC and SFKE and the estimates made for the private producers, the national consumption of electricity can be broken down as follows:  - 26 - Phnom Penh 75% Other EDC distribution 9% SFKE (Battanbang) 3% Secondary centers 3% Private producers 10% National consumption 100% Statistics for the past 10 years are available only for EDC's and SFKE's areas of operations, whose consumption represents 87% of the national consumption and 96% that of the public distribution. In those two areas the average annual rate of growth in demand from 1958 to 1963 was about 13%; consumption decreases slightly in 1964-65; since then the average annual rate of growth has been about 5%. This slowdown can be explained in part by the Government's nationalization policy for several sectors of the economy, and in part by the overload in the distribution systems and the high rates. B. Present Structure of the Sector 6. The Ministry of Public Works, through the "Direction de l'Hydraulique et de l'Energie" (DHE), administers the public services for the supply of electricity and water (drinking and irrigation water). DHE has control over the entities that operate these services; it sets up the administrative/technical regulations, issues the contracts, and centralizes the data and statistics. As the responsible agent for developmental planning for the sector, DHE initiates and coordinates all projects related to the production, transmission and distribution of electricity and water. 7. The "Societe Nationale des Grands Barrages" (SNGB) is assigned the following responsibilities: - to study, construct and operate all dams built for power generation and/or irrigation; - to construct and operate all the auxiliary works of these dams, such as complementary thermal plants, transmission lines, substations, etc. - to sell electricity and water produced by the dams; and - to handle all the technical, industrial or financial problems related to the purposes of SNGB.  - 27 - SNGB's responsibilities could lead to conflict with DHE over various studies and projects for the sector. But thus far confusion in this respect has been avoided, as they function with a common staff. DHE's role is now mostly that: of taking care of only the administrative aspects of problems, while SNGEB is in charge of the financial and technical studies. 8. SNGB is managed by a Board of Directors whose Chairman is nominated by the Public Works Ministry and appointed by the Government, which also appoints the 7 other members of the Board. Control of SNGB is exercised through a Commissioner appointed by the Ministry of Public Works and an Auditor appointed by the Ministry of Finances. Government grants cons- titute the capital of SNGB. Its revenues are derived from energy sales; irrigation water eventutally will be a source of revenue. SNGB pays the service charges on loans contracted by the Government for financing works in the sector. 9. "Electricite du Cambodge" (EDC) is managed by an 8-member Board of Directors, who elect the Chairman. The Government appoints some of the Directors, who represent it, and the others are elected by the General Assembly of Stockholders. There are two auditors -- one appointed by the Government, the other chosen by the General Assembly of Stockholders. EDC's capital at present is CR 225 million (US$ 41 million), 85% of which is owned by the Governmtent. The responsibilitits of EDC, as set forth in its Articles of Incorporation, are as follows: - to carry out the production, transmission, distribution, import and export of electric power in the country; - to carry out all extensions and improvement of works required to meet the needs of the people, of industry, commerce and agriculture; - to undertake the sale and manufacture of all electric material and machinery; and - to purchase all patents, licenses or trademarks and to regulate the same. 10. It is to be noted that the last two tasks are unrelated to the function of a public producer and distributor of electric power; they should not have been in,cluded in EDC's Articles of Incorporation. Furthermore, a source of conflict exists between SNGB and EDC, both of whom are charged with the production and transmission of electricity in Cambodia. There is no good reason for SNGB to operate the hydroelectric plants and event- ually the "complementary thermal plants," while EDC normally operates the other thermal plants. In practice, a case of conflict has not yet arisen; EDC initiates its own plans for developing thermal power production, while SNGB plans the projects for hydroelectric plants.  - 28 - 11. An example of their lack of coordination however has been the situation where EDC pushed the capacity of its thermal plants at Phnom Penh up to 45 MW at the same time that SNGB started supplying hydro energy to the Phnom Penh area, first from the Kirirom Dam, and in the near future from the Prek-Thnot Dam; the peak load in 1968 when Kirirom Dam went into operation reached only 20MW. It was well known, at the same time, that the rate of growth in consumption was restrained by two bottlenecks -- the high electricity rates and the obsolete and overloaded distribution system. Better coordination between the two agencies would have led EDC to lower its investment in thermal plants and to increase its budget for rehabilitation, improvement and extension of the distribution grid. 12. Such lack of coordination should be avoided in the future. It might already help to strengthen cohesion and coordination if the two agencies had one or more common directors, and perhaps even a common engineering staff. For a lasting solution, however, the government ought to reconsider the terms of reference for both agencies with a view to rationalizing their future division of labour. 13. "Societe Franco Khmere d'Electricite" (SFKE) is a private company which produces and distributes electricity in Battambang. Its franchise is about to expire and decision has not yet been reached whether to renew or transfer the franchise to EDC. SFKE's capital at present is CR 2 million (US$ 360,000). 14. In 59 smaller centers, the public utility services are provided by either municipal offices or local private companies. Distribution is for only several hours during the day; energy is charged at a rate fixed according to the number of electric light bulbs each consumer has, as there are no industrial consumers in these smaller centers. When the operating hours for distribution are increased at a future time, the use of meters should be developed. 15. The staff at SNGB/DHE, and at EDC as well, seem technically proficient. The engineers, who seem to be all too few in number to meet requirements, have been trained in foreign universities (French, Canadian, Russian, Japanese, Yugoslav); from time to time they are sent to advanced training sessions in foreign countries. EDC has a modern professional school provided by "Electricite de France" in which foremen and workers receive specialized training. Although the SNGB/DHE and EDC staff are able to operate the public utility systems in Cambodia, they are in need of the assistance of consultants for projects work, special studies, and administrative/organizational improvement. The UNDP permanent mission in Cambodia is presently studying ways of achieving better coordination in the sector's future development, and is also assisting DUE and SNGB.  - 29 - C. Past Investments 16. As mentioned in paragraph 4, EDC took over the assets of the two French companies which until 1948 operated in Phnom Penh and several other centers. The equipment consisted of the diesel power stations and the medium and low voltage distribution grids. The only power plant in Phnom Penh was the Northerni diesel plant, whose installed capacity was 10 MW. ECC pushed the capac:Lty up to 22.5 MW and built the new Southern steam plant, whose original capacity in 1961 was 5.3 MW and in 1966/67 reached 23.5 MW. This plant's capacity has been reduced to 18 MW, after two steam units were sold to a private producer and 3 diesel units transferred to Siem Reap when Kirirom power became available in Phnom Penh. New dis- tribution networks were built in the suburbs and new housing developments, but it seems that no important investments were made for the original downtown networks. EDC has put up a headquarters building in downtown Phnom Penh, and recently completed the construction of the professional school mentioned above. 17. In the small centers, investments apparently have been kept at the minimum needed to maintain the installed capacity of generation plants at the level required to meet consumer demand. Nothing important has been done to improve distribution capacity. 18. In Battambang, the diesel plant's capacity in 1957 was 1.0 MW and is now 1.8 MW. The distribution system does not seem to have had any im- portant alteration fcor the past several years. 19. SNGB's first investment is the Kirirom Dam, whose sole purpose is the generation of power, and the 110 kv transmission system from the site of the dam to Phnom Penh. Total cost of these works was about US$ 10 million. SNGB has recently started construction of the Prek Thnot project including a power unit for 18 MW. External finance is being provided by loans and grants fromi 12 countries, totalling $19.3 million toward a total cost of the first stage of about $ 28 million. D. Existing Facilities Generation Installed Capacity 20. Shown below is the breakdown of the installed capacity of present generation facilities.  - 30 - Kirirom hydroelectric plant 10.0 MW (50 Gwh/year) Phnom Penh Northern diesel plant (EDC) 22.5 MW Phnom Penh Southern steam plant (EDC) 18.0 MW Total for Plinom Penh 50.5 MW (1968 peak load 20 MW) Siem Reap diesel plant (EDC) 2.5 MW (1968 peak load 0.8 MW) Sihanoukville diesel plant (EDC) 1.0 MW (1968 peak load 0.8 MW) Battambang diesel plant (SFKE) 1.8 MW (1968 peak load 0.8 MW) In 1972, the Phnom Penh area will utilize the capacity of the Prek Thnot hydroelectric plant -- 18 MW (50 GWL/year). In the small centers, the installed capacity is less than 1 MW per unit. Private producers in Phnom Penh have a total capacity of about 12 MW and in the Provinces about 8 MW; this total capacity of 20 MW is much too large considering their average load factor. Transmission Lines 21. The first transmission line went into service in 1968 between Kirirom and Phnom Penh (110 km). Its characteristics: towers, ACSR, 110 kV, 30 MW, optimal capacity (Kirirom 10 MW and Prek Thnot, not yet ins- talled, 18 MW). There is no system inter-connecting the various load centers. Distribution 22. In the Phnom Penh area, two distribution systems are in service: downtown, the original (1929) network, two-phase at 2x4,400/2x220 volts; and in the suburbs and new developments, three-phase networks at 15,000/ 280-220 volts. Interconnection between the two systems is limited by the power of Scott transformers (2.5 NW for a load of more than 20 MW). In fact, the two systems operate separately, the two-phase system being supplied by the Northern power plant and the three-phase system being connected to the Southern and Kirirom plants. In such a situation, it is impossible to utilize the entire production of Kirirom, to which Prek Thnot's production will be added in a few years. The two-phase system has become quite overloaded; the voltage fluctuations reach 30-40% and there are many breakdowns. 23. In the secondary centers, most of the distribution systems are at only low voltage (220 V). In Battambang and Sihanoukville, however, 6.3 kV voltage is used. In Siem Reap a 15 kV line has just been put in service between the power station and the new international airport. It will supply the hotels in the Angkor area. Consumption and Rates 24. In the areas served by EDC and SFKE, the total consumption was 75 million kWh in 1967 and probably reached 83 million kWh in 1969. Lighting and home use account for 70% of the total, street lighting 3%,  - 31 - and industry only 18%; 35% of the consumers use less than 50 kWh per month, 58% use less than 100 kWh, and 2% use more than 1,000 kWh a month. The load factor in all the systems is about 55%. The power factor is very low, about 0.7. 25. In Phnom Penh, electricity is sold at CR 3.96/kWh (US