PORT OF CONTENTION
Fast-growing Sihanoukville harbour in Cambodia thrives amid Tokyo-Beijing rivalry. By Kenji Kawase in Sihanoukville
Japan keeps grip on Sihanoukville
Once a tranquil seaside enclave in southwestern Cambodia, Sihanoukville has turned into a paradise for Chinese investors in recent years.
Casinos, hotels, restaurants, massage parlours and supermarkets all bear signs in Chinese. More buildings are under construction, fuelled by an incessant inflow of Chinese money and people.
Although the city, 220 kilometres southwest of Phnom Penh, is becoming a Chinese outpost, the key feature that makes Sihanoukville shine — the only deep-water seaport in the country — remains out of Beijing’s reach.
The state-owned operator Sihanoukville Autonomous Port, or PAS in its French acronym, has been largely financed by the Japanese government for almost two decades. The port handles over 70% of Cambodia’s surface cargo, expanding hand-inhand with the rapid growth of the economy. Its operator is the largest listed company on the local stock exchange.
The port also symbolises the rivalry between China and Japan in the country. Beijing is being frustrated by Tokyo’s renewed resolve to further tighten its ties with the port.
On June 25, the port opened its latest Japanese-financed extension. A new multipurpose terminal has a pier with a depth of 13.5 metres, allowing larger cargo ships and bulk carriers to anchor. Another quay is reserved for the country’s first oil and gas exploration logistics base. An offshore oil and gas field, discovered in the Gulf of Thailand, is now being developed by Singapore-listed KrisEnergy and is expected to begin operations by 2019.
Construction of another container terminal, which will have a pier 350 metres in length and a depth of 14.5 metres, is already in the pipeline.
Lou Kim Chhun, the PAS chairman and chief executive, told the Nikkei Asian Review in a recent interview that the expansion will allow “enough big ships to come in, while solving capacity limitations”. When completed in 2023, the port could accommodate more than 90% of all ships in the region, up from 20% now, in terms of numbers.
The Japanese funding is provided by two overseas aid bodies, the Japan International Cooperation Agency and the Japan Bank for International Cooperation. Japan provided the initial loan for the port in 1999 as an emergency rehabilitation project to help Cambodia recover from a prolonged civil war. Both JICA and JBIC have since provided a total of ¥46 billion (US$411 million) in loans, grants and technical assistance.
“For big projects, we borrow from JICA, and for small projects (such as adding new cranes), we invest on our own,” Chhun said. The Soviet-educated engineer, who has headed port operations since 1998, says the steady Japanese assistance has been “efficient and useful for the Cambodian people”.
The port also holds special meaning for Japan since it marked the resumption of financial aid to Cambodia after three decades of hiatus. “Sihanoukville Port is a symbolic project for us,” said Masayoshi Takehara, the JICA director overseeing Cambodia and Laos.
The port opened after Cambodia gained independence from France in 1953 as the country sought to gain access to the open sea and reduce its dependence on its Mekong River port in Phnom Penh. Sihanoukville was selected because of its harbour depth and natural conditions, allowing less dredging, among other reasons. Construction began in 1956 and the first jetty opened in 1960.
Sihanoukville is now one of the fastest-growing ports in the region, thanks to increased garment exports to Europe and the US and imports of raw materials from China.
Cargo throughput in 2017 was 459,839 TEU, or twenty-foot equivalent units, nearly double the figure in 2011. Handling capacity will reach 1.3 million TEU by 2023.
The port’s strategic significance has also grown as China pursues its Belt and Road Initiative.
China overtook Japan as the biggest donor to Cambodia in 2010, and Chinese aid is now three times that of Japan. “There are limits in competing over size of aid packages,” Takehara admitted. Japanese aid mostly focuses on non-capital-intensive projects, but Sihanoukville is an exception.
When the port was listed on the Cambodia Securities Exchange in June 2017, JICA bought a 13.5% stake — the first time it had acquired equity in an assistance target.
Chhun said that “many Chinese guests come” to see him and discuss investing in the port, but so far to no avail. China is showing signs of impatience.
Zhou Xiaoxi, chairman of Guangxi Beibu Gulf International Port Group, signed an agreement in Phnom Penh on April 24 to build a new seaport in Kampot, a province adjacent to Sihanoukville. “We decided to go ahead with the project after realising that Cambodia currently lacks much-needed investment in a deep-sea port,” he said, according to a local media report.
The Chinese state-owned port operator is partnering with Try Pheap Group, led by local timber tycoon Try Pheap. Although not many details have been disclosed, the new port could accommodate large vessels up to 30,000 tons.
Local and Chinese media reported that Cambodian Prime Minister Hun Sen endorsed the project.
Kampot is only 10 kilometres away from the Vietnamese island of Phu Quoc. A development so close to Phu Quoc by a state-owned operator from China, which has overlapping claims with Vietnam in the South China Sea, could touch raw nerves in Hanoi.
On the northern side of Sihanoukville, Tianjin-based Union Development Group says it is building a new deep-water port. According to its website, “construction of a multipurpose harbour is basically completed, and it will come into use in the near future”.
The port is part of a large-scale tourism investment, including the flagship Dara Sakor Seashore Resort project on 45,000 hectares of land in a national park in Koh Kong. The land was leased to the Chinese company for 99 years in 2008, but details of the development are scarce.
A source in Koh Kong told Nikkei that the port has not yet been built. The Tianjin company did not respond to a request for an interview.
Sihanoukville Port management considers its biggest competition to come from the river port in Phnom Penh and the larger ports in Laem Chabang in Thailand and Cai Mep in Vietnam.
The Chinese-planned ports are not yet viewed as serious rivals since their actual progress and feasibility are not clear. But the Chinese could expedite these projects for strategic reasons to circumvent the Japan-affiliated Sihanoukville Port.
The port is also facing competition from the local Chinese rival in attracting investment to its special economic zone. It launched a special economic zone in 2012 on the advice of JICA, but it has attracted only three companies.
In contrast, the SEZ in Sihanoukville established in 2008 by Chinese investors, led by the Wuxi-based Hongdou Group, has 107 companies operating there with another 18 planning to join as of early July. The companies, mainly Chinese, manufacture textiles, garments, bags, leather products, machinery and wood products and employ 21,000 workers.
Sihanoukville Port also is much smaller in financial terms than potential Chinese competitors. Although it is the largest listed Cambodian company, with a market capitalisation of 444.3 billion riel ($109 million), it pales against the financial resources of Chinese operators.
Beibu Gulf Port, the Shenzhen-listed arm of the Chinese state-owned company that is planning to build the port in Kampot, is about 15 times larger in market value.
Despite its growth prospects and a guaranteed 8% annual dividend for the first three years based on its IPO price of 5,040 riel, Chhun said he is “not so happy” about the port’s share price performance.
The Cambodian stock market also suffers from a lack of new listings, which discourages investors while keeping liquidity and trading activity low. There are only five listed companies in Cambodia.
The port operator’s outlook rests on the volume of future cargo shipments. On top of possible collateral damage from an escalating global trade war, export shipments to Cambodia’s two major overseas markets decline if the US and the European Union decide to review their preferential tariff arrangements with Cambodia as a result of the July 29 election, which both Washington and Brussels have called unfair and flawed.
When asked about these politically related risks to the port prior to the election, Chhun, who won a parliamentary seat in the Sihanoukville constituency running on the ruling Cambodian People’s Party ticket by a landslide victory, said: “It is out of my capacity.”
Sihanoukville Port chairman Lou Kim Chhun says “many Chinese guests” have visited him to inquire about investing, but to no avail