Connecting Cambodians to Essential Services
Investing in Infrastructure is a five-year program that expects to expand the reach of essential infrastructure to a million Cambodians. We provide investment subsidies to local infrastructure companies, from our investment fund of AUD 27 million (around USD 20 million).
Spreading the Benefits of Growth throughout Cambodia
Over the last 25 years Cambodia has grown from one of the poorest countries in the world to a lower middle-income country, but this growth is concentrated around the major cities. Now Cambodia is working to extend basic services like clean water and reliable electricity out of the cities, so that all Cambodians can share the benefits of growth.
The expansion of basic services will make everyday life easier for Cambodians who live outside urban areas, and access to clean water will substantially improve their health. Affordable electricity means small workshops and factories can operate for longer hours, food can be refrigerated, and school children can study at night.
Why we work with the private sector
During our initial research, it became clear that private sector expansion of Cambodia’s infrastructure was stalling because all the locations offering the best return on investment were already covered. Without additional support, the private sector delivery model had almost reached its limits.
We asked Cambodian entrepreneurs in the infrastructure sector what was preventing their expansion and they told us: money. Some had projects with good potential returns, but had trouble accessing the necessary capital.
For others, additional support was needed to make their business expansion more viable and sustainable.
Our program is designed to offer subsidies that will supplement private sector investments and create viable and sustainable businesses.
Our core principles
Investing in Infrastructure is a flexible program, designed to adapt to changing priorities and circumstances. We don’t have a pre-approved list of activities or projects to be completed by the end of the program. Our guiding principles, approved by both the Australian and Cambodian governments are as follows:
- Investing in Infrastructure can only invest in projects that wouldn’t otherwise happen without our support, and we can never contribute more than the minimum needed to make companies invest.
- We will prioritise the projects that will deliver the maximum social and economic benefit and offer the highest value for money.
- We can only support investments that will be sustainable; that will continue to be viable beyond the life of the program.
- We use fair and transparent mechanisms to select the projects that will improve lives and minimise the possibility of any negative impacts.
- We can only support companies that have a good reputation and abide by all local laws.
Choosing the right companies
Investing in Infrastructure is committed to ensuring that any potential project meets both Australian and Cambodian environmental standards. We also require our partners to provide safe working conditions and to comply with Cambodian laws and regulations.
Our background checks investigate the company’s reputation. Companies that use child labour, avoid paying taxes or are involved in any criminal or anti-social activities will be excluded from receiving grants.
Connecting rural areas to the electricity grid
Access to electricity remains a significant challenge for Cambodia’s development, with less than 60 percent of Cambodians currently connected to the national grid (EDC 2016). Investing in Infrastructure is working with the Cambodian government to bring electricity to more remote and less developed parts of the country.
Our research indicates that subsidies could help around 60 existing electricity companies to expand their networks and bring affordable electricity to communities currently relying on costly diesel generators or other polluting fuels.
In collaboration with relevant Cambodian government agencies, we’ve developed a range of interventions that will attract investment into low density areas, including infrastructure grants and household connection subsidies.
Bringing piped water to more Cambodians
In Cambodia water is delivered by companies with a distibution licence from the Ministry for Industry and Handicrafts. In 2016, there were 137 of these companies, each delivering clean treated water to a few thousand households.
Most households outside the major towns however still don’t have access to clean water. Our assessment is that between 50 and 100 more companies could commercially deliver clean water to households, benefiting more than 100 000 additional households.
In discussions with the Ministry, we decided to promote additional private investment by companies with two types of grants. One type for companies that agree to upgrade and expand their existing facilities, and one type for communes where no water company yet exists.
Cambodia and Australia working together for shared prosperity
Australia’s strong relationship with Cambodia deepened in the late 1980s when it took a leading role in the peace process and then the UN Transitional Authority in Cambodia (1992-93). Following decades of sustained growth in Cambodia, Australia is ensuring its development assistance is adapting to Cambodia’s rapidly changing economic and social environment by increasing attention on economic partnership, closer engagement with the private sector, and promoting innovation in the delivery of Australian aid.
The Council for the Development of Cambodia is the government body responsible for foreign investment and is the leading implementing partner for Investing in Infrastructure, with Cambodia’s Ministry of Economy and Finance playing a strategic supervisory role.
Strategic and operational support is provided by the Ministry of Industry and Handicrafts, responsible for piped and treated water delivery, and by the Ministry of Mines and Energy, responsible for the generation and distribution of electricity.
By supporting private companies to expand their delivery of essential infrastructure, Australia is furthering Cambodia’s aspirations to become more competitive and to diversify its economic base. A key part of this support is being delivered via the Investing in Infrastructure fund that will encourage companies to expand into currently unconnected regions.
Using Funds Responsibly
Investing in Infrastructure ensures that the grants are used only for the agreed outputs and that there is no leakage or misuse of funds. Our safeguards occur at every step in the selection and award process:
- The Program Board, with members from both the Royal Government of Cambodia and Australia’s Department of Foreign Affairs and Trade, approves the type of support.
- The relevant ministries approve the selection criteria
- Investing in Infrastructure takes financial offers to the market by calling for expressions of interest.
- The Oversight Committee, a panel of independent experts, reviews all funding requests, checking that they are in alignment with all agreed principles and procedures and that the amount of investment subsidy is appropriate
The Australian Government’s Commonwealth Grant and Procurement Guidelines are the basis for awarding all our grants.
Performance or output-based payments are another important risk management strategy. Payments are triggered by agreed physical outputs, like a finished water tower or a certain length of electricity network. Output-based contracts mean that companies who don’t deliver the agreed outputs don’t get paid.
Better access to basic infrastructure like water and electricity is essential if the impressive economic development of Cambodia is to expand beyond the major urban centres. Reliable basic infrastructure is needed for business to grow and and invest in rural areas.
Access to clean water and reliable electricity at affordable prices will improve the quality of village life. Children and adults are likely to be less ill; households will save time fetching water, less fuel will be burnt in cooking, children will be able to study at night and the use of diesel generators will become less common.
This transition has already happened in many other parts of the region, but there is still little data on the impacts in Cambodia. To address this, we will initiate studies of the impacts of the program on businesses and rural communities.
The Performance Assessment Framework for the Australian aid program for Cambodia, published on the DFAT website, will be iteratively updated to reflect Investing in Infrastructure targets.
Our Investment Portfolio
In the first full year of its program, 2016, Investing in Infrastructure focused on three sectors: water, electricity and financial services.
We helped small water and electricity companies to expand or improve their services and to connect households in regions that would otherwise be under serviced. This will remain our core focus for the next few years.
Investing in Infrastructure also explored how financial institutions and other investors can provide smaller infrastructure companies with capital. We found that the opportunities to link investors with smaller water and electricity companies are limited, but there is substantial interest in larger renewable energy projects.
We are currently considering investments in solar energy, recycling and logistics.
Investing in Infrastructure (3i) is supported by the Australian Government and implemented by Palladium