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China bags Cambodian airport contract in blow to French operator

State-owned MCC lands $400m construction deal for new gateway in Phnom Penh

An illustration of Phnom Penh's planned international airport is displayed at the construction site outside the capital. (Nikkei photo)

HONG KONG/PHNOM PENH -- A major portion of Cambodia's new international airport in Phnom Penh will be built by a Chinese state-owned company, leaving the French operator of the capital's current gateway facing an increasingly uncertain future.

Metallurgical Corporation of China won the 2.67 billion yuan ($405 million) contract to design and construct the airfield for the new airport, whose overall $1.5 billion price tag is being bankrolled almost entirely by Beijing.

The airport is part of the Cambodian government's strategy to boost tourism, but it comes as other planned projects, including a new resort near Angkor Wat, face questions over their long-term feasibility.

For MCC, the airport contract is an important win. It is the company's largest single foreign contract this year, surpassing a 1.26 billion yuan contract it was awarded in February to design and build Wanli (Mandai) Rainforest Northern Park in Singapore.

With the pandemic reducing the number of overseas projects undertaken this year, MCC has relied on domestic public works to prop up its books. Local demand helped MCC's newly signed contracts reach 803.32 billion yuan in the first 10 months of 2020, up 35% versus the same period last year.

The company and its subsidiaries already have several projects in Cambodia, including a controversial coastal development undertaken by Union Development Group.

A close China ally, the country of 16 million has received billions of dollars in public and private Chinese capital, much of it under the banner of President Xi Jinping's Belt and Road Initiative infrastructure program.

The new Phnom Penh airport -- which will cover about 700 hectares and form part of a broader residential and commercial development of about 2,600 hectares -- is being overseen by local conglomerate Overseas Cambodia Investment Corp., or OCIC.

Run by Sino-Khmer tycoon Pung Kheav Se, OCIC invested $280 million and holds 90% of the project, while Cambodia's State Secretariat of Civil Aviation owns the remaining 10%.

Other companies involved include China State Construction Engineering, another state-owned enterprise that is building the terminal, and Foster & Partners of the U.K., which is in charge of the airport's design.

MCC's contract amounts to about 30% of the total budget for the new airport, according to a filing made to both the Hong Kong and Shanghai stock exchanges early last week.

Construction will be carried out by its key subsidiary Shanghai Baoye Group, and involves building a 4,000 meter-long, 60 meter-wide runway, as well as a taxiway, apron and related facilities. This is the subsidiary's first successful bid for a comprehensive airfield construction project outside China. Construction is expected to be completed by the end of 2022.

The bulk of funding for the new airport comes from China Development Bank. The Chinese state-owned policy lender has committed $1.1 billion to the project. The loan agreement with OCIC was signed in January 2018 with Premier Li Keqiang and Prime Minister Hun Sen in attendance.

Hun Sen says the new airport, set to open its first phase in 2023, is part of the government's strategy to increase tourism. As part of this strategy, another China-backed airport is being built in Siem Reap Province, home of the country's famous Angkorian temples, by far its biggest tourist draw.

Yunnan Investment Group, the state-owned investment arm of the southern Chinese provincial government of Yunnan, completing that project under a build-operate-transfer scheme, which will see it revert to government ownership in 55 years.

Costing $880 million, it is largely funded by a Chinese consortium led by the China Development Bank and the Export-Import Bank of China, with participation from three commercial banks.

The new airports look increasingly likely to end the major role played by French-owned Cambodia Airports in the country's aviation sector.

The company, which is 70% owned by France's Vinci and 30% by Malaysian-Cambodian joint venture Muhibbah Masteron Cambodia, has a monopoly agreement to operate Cambodia's existing international airports -- in Phnom Penh, Siem Reap and Sihanoukville -- until 2040.

But its future appears uncertain. Speaking at the site of the new airport in June, Hun Sen told reporters the existing airport in the capital would be kept for domestic flights, air cargo, state delegations and military use.

Sinn Chanserey Vutha, a spokesman for Cambodia's State Secretariat of Civil Aviation, told Nikkei Asia that "high level" discussions were ongoing with Cambodia Airports about a future role or compensation.

"The negotiations will take a long time. Not one year, or two years. Maybe several years," he said.

Cambodia Airports declined to answer Nikkei's questions on the issue, saying it is "unable to publicly make comments at this time."

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