Petroleum Products Pricing Study Background 1. The Cambodian economy - virtually destroyed by decades of war - has made impressive progress reintegrating into the international community and laying the foundation for successful development. Government leaders are moving toward restoring fiscal and monetary discipline and have established good working relations with international financial institutions. Growth, starting from a low base, has been strong in 1991-94. Despite such positive developments, the reconstruction effort faces many challenges because of the persistence of internal political divisions and the related lack of confidence of foreign investors. Rural Cambodia, where 90% of about 9.5 million Khemer live, remains mired in poverty. The almost total lack of basic infrastructure in the countryside will hinder development and will contribute to a growing imbalance in growth between urban and rural areas over the near term. Moreover, the government's lack of experience in administering economic and technical assistance programs will slow the growth of critical public sector investment. 2. The current Bank's country assistance strategy will focus on: (i) capacity building in the central government; (ii) analytical work to increase the knowledge base; and (iii) selected windows of opportunity to support rehabilitation and reconstruction within each sector. It is hard to imagine a country more in need of international assistance. 3. Cambodia today imports most of primary energy. Among all, the government expenditure for importing petroleum products is significant. A right pricing policy is a key tool for achieving a rational use of energy, reducing foreign exchange payments for fuel imports. Taxation of hydrocarbon fuels could be an important source of the government's revenue. Objectives 4. The objectives of the study are to assist the government: (i) in establishing a new and more appropriate tariff structure for industrial, commercial and residential consumers; and (ii) in implementing appropriate changes. Scope of Work 5. The Scope of Work would include: (a) Reviewing present arrangements of hydrocarbon fuel supply to various domestic markets including import sources and means, financial issues, and contractual arrangements; (b) Assessing the current level of tariffs in relation to the pattern of consumption and costs of alternative fuels both current and expected; (c) Evaluating the appropriate fixed and variable costs to be allocated to petroleum products distribution; (d) Advising on internationally sound operating practices for distribution of petroleum products; (e) Formulating a set of contractual arrangements for petroleum products distribution companies; (f) Recommending a complete tariff structure in consideration of economic efficiency and the financial viability of the distribution companies. Duration of Program 6. About 5 months. Budget 7. As shown in Annex 1, the budget requirement for this study is US$167,300.
