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 199 1-94.
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 has discovered several potential hydrocarbon reserves which could play a vitally important role in the nation's primary energy supply in the near future. There are several gas reserves, the production of which may not be sufficient for exports. Economically efficient development and use of indigenous hydrocarbon resources would be a key to the success of the nation's economic development. As the nation faces a serious energy shortage, in particular, electricity supply and the largest market for natural gas is expected power generation, tandem development of natural gas production from indigenous reserves and gas-fired power generation would be an economically attractive solution. As natural gas is environmentally friendly energy, it would also preferable for environmental preservation. Objectives 4. Given the gas reserves which are recently discovered, rational and economic gas utilization would be a key to the country's economy. Since the domestic utilization of gas depends mainly on power plants, an integrated approach toward developing gas and power is sought. The study also aims at fostering planning skills of MIME officials through a joint task force. The study would pursue the following objectives: (a) Recommend a strategy framework to make a gas firing power generation project as a bankable project; (b) Explore markets for increased gas production; (c) Evaluate the economics of use of domestic gas; and (d) Determine priority investments and financial options. Scope of Work 5. The Scope of Work would include: (a) Supply Analysis: Review contractual arrangements and the development plans of Cambod.ian gas fields. Review the needs for infrastructure and evaluate gas supply costs to future power generation locations. Review of Gas Fields Review and evaluate available well data and reservoir information; Establish future gas supply potential (categorizing gas reserves by location and forecast production for each category of reserve); Recommend appropriate production scenarios in line with the demand scenarios (Task 2); Estimate required investments and operation costs for the recommended production scenarios; Recommend modernization of field operation practices; Review environmental, ecological and safety issues. (b) Demand Analysis: Review the power consumption demand projected by other studies. Assess economic use of natural gas for various subsectors. Refine these forecasts through discussions with MIME officials based on the assumption that the country would adopt an opportunity cost approach for energy pricing. Gas Demand for Power Generation Use projected growth of electricity demand, adjusting the gas utilization factor for conventional versus gas combined cycle plants. New power projects, involving expansion of gas substitution should be identified by size, technology and geographic region. Gas Demand for Other Subsectors Assess use of natural gas for high economic values including industrial, commercial and residential subsectors. Review of Market Value of Gas for Power Generation The market value of gas (e.g. netback value) is defined as the maximum a gas supplier could charge a customer and still remain competitive with other fuels. The value for gas will be calculated for new users. The value of gas in power generation will be obtained by comparing gas use in Combined Cycle Gas Turbine plant with use of current available fuel(s) in a conventional steam turbine plant. (c) Supplyl'emand Integration: Based on the above supply and demand, review, determine the total gas acquisition and delivery costs of gas flows that meets projected Cambodian demand. Gas Supply Cost a Assess costs of gas production, transmission and distribution per each major gas transaction; and a Estimate gas delivery costs to each of the power generation locations per each demand scenario, considering new infrastructure. Power Supply Cost a Assess costs of power generation on natural gas firing; and a Estimate electricity delivery costs to each major consumer per each demand scenario. (d) Development Strategy: Quantify, on a net present value basis, costs of the total gas and power supply under a set of scenarios. Present a proposed gaslpower investment strategy for NINE that seeks to minimize total gas acquisitionlpower generation and delivery costs over the long term. Furthermore, present a sequence of proposed capital investments in domestic gas processing, pipeline, storage, and in power generation, transmission, distribution, necessary to achieve the least-cost gaslpower supply plan. The recommendations for the sequence of capital investments should be made on the basis of industry standard concepts of financial analysis (e.g. net present value, economic internal rate of return, discounted cash flows, etc.). Strategy for Use of Domestic Gas a Present contribution of natural gas to the national economy; a Present the least-cost gas acquisition strategy; a Discuss energy efficiency and environmental benefits; a Present incentive systems to develop proven gas reserves and explore for new ones; a Provide a set of recommendations on pricing strategy to promote the gas sector, including upstream and downstream impacts; and a Present issues and recommended actions regarding institutional and regulatory frameworks. Strategy for Power Expansion a Review existing studies; a Present the least-cost power supply strategy; a Provide recommendations on electricity tariff strategy to reflect economic efficiency; and a present issues and recommended actions regarding any additional regulatory frame work for promotion of power generation on gas firing. Investment Option a Summarize investment needs by establishing a set of project spread sheets, covering project investment costs and returns to the year 2010; a Evaluate the economic feasibility of each proposed project; a Rank the proposed projects using economic and financial indicators; and a Discuss with MIME officials the priority of the investment options.
(e) Project Formation and Financial Options: Suggest appropriate project implementation schemes including joint ventures, build-operate-and-transfer (BOT) and/or build-operate-and-own (BOO) schemes. In addition, analyze full range of risks in achieving the preferred infrastructure scenario, and develop a risk mitigation plan to address these risks. Finally, suggest potential financial resources and recommend necessary steps for appropriate financial arrangements. Project Implementation Schemes a Discuss the ownership structure and realistic formation of project company; a Evaluate various project implementation forms (BOO, BOT, use for World Bank guarantees, etc.); and a Discuss roles of the country, the Bank and international investors. Financial Options a Survey major technical and institutional impediments and/or bottlenecks for project investments; a Discuss project risks and mitigation measures; a Discuss a set of financial options including sovereign loans, limited recourse project finance loans, and co-lateralized loans; a Discuss necessary commercial agreements, guarantees and undertakings; a Suggest possible financial resources with indicative financial costs and terms both for equity and debt sources; a Predict cash flow and other major financial indicators for the selected projects; and a Provide recommendations for successful financial arrangements. Duration of Program 5. Approximately 10 months. Budget 6. As shown in Annex 1, the budget requirement for this study is US$314,000.
