Cambodia: Energy Sector Assessment, Strategy, and Road Map

I. SECTOR ASSESSMENT

A. Introduction

1.   This sector assessment, strategy, and road map (ASR) documents the current analysis of the Asian Development Bank (ADB) of the strategic investment priorities of the Government of Cambodia and ADB in Cambodia’s energy sector. It highlights sector performance, major development constraints, government plans and strategy, past ADB support and experience, other development partner support, and ADB’s future support strategy. The ASR is aligned with ADB’s new Strategy 2030¹ and will inform ADB’s country partnership strategy (CPS) for Cambodia, 2019–2023, which is currently under development. The ASR has been prepared as a living document and will help to provide sector background information for investment and technical assistance (TA) operations.

B. General Country Context

2.   Cambodia has a land area of 181,035 square kilometers and a population of about 15.25 million in 2016. The population grew rapidly in the 1980s and 1990s, and continues to annually increase by about 1.3%, or almost 200,000 people. The age dependency ratio in Cambodia of 55% shows that the working-age population (aged 15–64) faces a greater burden to support the youth and elderly. The country is urbanizing rapidly, but from a low level. In 2017, 77.0% of the population still lived in rural areas, down from 80.8% in 2005.²

3.   Cambodia’s economy grew quickly with an average growth rate of 7.0% from 2006 to 2016, with poverty falling substantially from 47.8% in 2007 to 14.0% in 2014.³ The country graduated from low-income status to lower middle-income status in 2015. Nonetheless, the gross domestic product per capita, estimated at $1,447 in 2017, remains among the lowest in Asia. In 2017, agriculture contributed 25.0% of the gross domestic product, industry contributed 32.7%, and services contributed 42.3%. The main subsectors in industry are garment production, construction, and food and beverage processing.⁴

4.   Nearly 5 million Cambodians have no access to grid electricity and are reliant on car batteries, wood, and other traditional fuels for energy.⁵ For cooking, about 62% of households use firewood, 5% use charcoal, 31% use liquefied petroleum gas, and 2% use electricity.⁶ The traditionally high electricity tariff in the country makes access unaffordable to the poor while constraining economic competitiveness and discouraging investment. Recognizing that expanded access to modern and affordable forms of energy is essential for Cambodia’s social and economic advancement, the Government of Cambodia’s National Strategic Development Plan (NSDP), 2014–2018⁷ and Industrial Development Policy (IDP), 2015–2025 (footnote 4) prioritize the need to develop the energy sector in an affordable and sustainable manner, while also taking into account the need to minimize adverse environmental and social impacts.

C. Overview of the Energy Sector

1. Primary Energy Supply and Demand

5.   The total primary energy supply in Cambodia was about 4.8 million tons of oil equivalent in 2015.⁸ Fuel wood and other biomass accounted for an estimated 44.4% of the total, oil and petroleum products for 38.5%, coal for 10.7%, hydropower for 3.6%, and electricity imports for 2.8%. The share of coal and hydropower in Cambodia’s energy supply increased significantly from 2010 to 2015 with the commissioning of new coal and hydropower plants; during this period, the share of coal increased from 0.7% to 10.7%, while the share of hydropower increased from 0.1% to 3.6% (footnote 8).

6.   Total final energy consumption in Cambodia grew by an annual average of 6.9% during 2010–2015. Final energy consumption in 2015 was 3.4 million tons of oil equivalent, comprising 50.5% petroleum products, 36.0% biomass, 13.1% electricity, and 0.4% coal. The transport sector is responsible for nearly half (46%) of final energy consumption. In terms of fuel uses, more than 40% of biomass is used in the residential sector for cooking and heating, another 40% is used to produce charcoal (which is also consumed by households), approximately 15% is used in industry, and a small portion contributes to electricity generation. Final consumption of petroleum products is divided by sector as follows: 87% for transport; 6% for industry; 4% for agriculture, service, and residential; and 3% for power generation. Most of the coal consumption is for power generation (97%) while 3% is used in industry. The rapid increase in coal usage is due to the commissioning of two coal-fired power plants in Preah Sihanouk Province in 2014–2017, part of the government’s plan to reduce oil-based power generation. Primary energy use increased steadily from 2009 to 2016 due to economic and population growth, but considering the country’s stage of economic development, it remains low. At about 480 kilograms of oil equivalent per capita per year in 2016, energy use is about 65% of the Asian average of 740 kilograms, according to the International Energy Agency.⁹

7.   With continuing population growth, economic growth, and urbanization, ADB predicts that the country’s energy needs will double by 2030. While hydropower and thermal generation (coal or natural gas) are replacing oil in electricity generation (each is projected to account for roughly half of electricity production by 2030 in the Government of Cambodia’s Power Development Plan [PDP], 2015–2030¹⁰), the use of petroleum products is expected to increase with rising demand in the transport, industry, and residential sectors. Demand for oil will be driven primarily by demand for diesel and gasoline as the country becomes more motorized and as the government promotes industrial zones for manufacturing and agro-processing. In the residential sector, use of liquid petroleum gas is expected to increase as kerosene is phased out.

2. Fossil Fuel Resources

8.   Cambodia imports all fossil fuels that it consumes, including coal and oil. Preliminary estimates for national coal deposits are small (about 7 million tons) and no commercial-scale mining has begun.¹¹ Cambodia also has very limited oil exploration drilling and no refineries. The country has untapped and mostly unquantified potential for petroleum extraction; however, several geological factors, including similarities to adjacent areas in Viet Nam and Thailand where oil and gas are being produced, point to economically viable oil and gas potential. According to the General Department of Petroleum in the Ministry of Mines and Energy (MME), seismic data show that onshore areas contain three times more potential petroleum resources than offshore areas.¹²

9.   There are six offshore petroleum blocks in Cambodian waters (blocks A–F) and 19 onshore blocks (I–XIX) for oil and gas exploration. There are also four more blocks in the offshore Overlapping Claims Area