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At Cambodia airports, China's Belt and Road elbows out Europeans

Fate of French operator Vinci casts pall over country's sky-high tourist ambitions

The Cambodian government wants more airports as it aims to double tourist arrivals by 2025. (Photo by Ken Kobayashi)

PHNOM PENH -- Lofty government ambitions to expand international tourism, combined with an influx of Chinese cash from Beijing's Belt and Road initiative, are shaking up Cambodia's airport industry and threatening to leave the country's single existing operator, France's Vinci Airports, out in the cold.

Two Chinese-backed international airports are currently under construction, one in Phnom Penh and another at Siem Reap. The Cambodian government last week announced it had shortlisted three Chinese construction companies to work on the capital's airport.

The projects, part of a wave of Chinese investment in Cambodia under Beijing's Belt and Road infrastructure push, have a combined investment of more than $2 billion and are slated for completion within five years.

The question is where this will leave Vinci, which is not involved in either of the new projects. The company, through a majority owned subsidiary, has a monopoly agreement to operate Cambodia's existing international airports -- in Phnom Penh, Siem Reap and Sihanoukville -- until 2040.

The French company insists there is room for expansion at the current sites to accommodate the country's increasing air traffic, which reached 11.6 million passengers last year, according to figures released last week.

The government, however, aims to double tourist arrivals by 2025 and says it wants new airports to accommodate the planned influx of visitors, who increasingly come from China.

Sinn Chanserey Vutha, a spokesman for Cambodia's State Secretariat of Civil Aviation (SSCA), told the Nikkei Asian Review that Vinci's role in the sector is still up for discussion. He said no decision has been made about what will happen to existing airports once the two new ones became operational.

"According to government policy, we try to collaborate with the current airport operators and find a 'win-win' solution," Vutha said, adding that a meeting was planned for next month.

"We don't know yet whether we can collaborate together in airport development or whether [there will be] a compensation scheme."

The new projects come as Cambodia Airports -- the subsidiary 70% owned by Vinci and 30% by Muhibbah Masteron Cambodia, a Malaysian-Cambodian joint venture -- pushes ahead with its own expansion plans.

The company is extending the runway at its Sihanoukville location, where its terminal was recently revamped. It has also completed recent upgrades to terminals at the Phnom Penh and Siem Reap airports. Vinci -- which has a network of 46 airports across 12 countries and recorded 1.6 billion euros in consolidated revenue in 2018 -- says it has invested some 270 million euros in its Cambodian operations between 2011 and 2017.

Norinda Khek, a spokesperson for Cambodia Airports, said he was unable to share details of discussions with the government but said the company has "strongly expressed" its "commitment to fulfill our mission" to officials.

Khek added that there is "significant room for further expansions" at the existing airports.

"With additional developments, the two platforms at the current locations will be able to accommodate 18 million passengers a year and 14 million passengers a year respectively," he said, referring to Phnom Penh and Siem Reap airports.

"To give some perspective, in 2019 the two airports handled 6 million and 3.9 million [passengers] respectively. So, we are confident that the two airports will keep up with the pace of growth."

Authorities, however, have previously scrapped planned extensions of the Phnom Penh runway due to conflict with neighboring residents.

Instead, they have tapped local conglomerate Overseas Cambodia Investment Corporation (OCIC) to build a new airport, about 30 km south of the capital, with three Chinese companies currently shortlisted to handle its construction.

OCIC, which has managed big real estate projects before but has no experience with airports, will invest $280 million and hold a 90% stake in the project. The other 10% will be held by the government, via the aviation secretariat. The plan is to raise more than $1 billion from foreign bank loans.

OCIC signed a cooperation agreement with the state-run China Development Bank in 2018, though the amount of any potential loan has not been announced. OCIC did not respond to requests for comment.

The planned airport will cover about 700 hectares and form part of a broader residential and commercial development of about 2,600 hectares. To be built in phases, it will accommodate 27 million passengers by 2030 and 30 million by 2050. It will be a so-called 4F class airport, capable of handling large long-haul aircraft.

Pung Keav Se, the local tycoon who in chairman of OCIC, has vowed the airport will be ready in time for Cambodia to host the 2023 ASEAN Games.

The SSCA's Vutha said that time frame might be optimistic.

"Every project always has delays," he said, adding that site preparations are underway and some contracts have been already awarded, including one to the Aviation Industry Corporation of China to design the airfield.

Indeed, he said the expected completion date for Siem Reap's new $980 million international airport was pushed back from 2023 to 2025 after an "internal dispute" among the Chinese companies behind the project.

Those companies, which include Yunnan Investment Holdings, Yunnan Construction Investment Group and the Yunnan Airport Group, were unable to be reached for comment.

"They are still going on, but not with high speed, slow speed only," Vutha said.

The projects form part of a plan by Cambodia's government to boost its airport sector, including adding more regional facilities. The country has experienced a boom in passengers, with the 2019 tally of 11.6 million representing an increase of 10% over 2018 and far beyond the 2.5 million recorded in 2010.

Central to the recent spike has been the rapid growth of Sihanoukville, which received 1.6 million passengers in 2019, up 158% on the year before. However, the casino city's growth has slowed dramatically following a ban on online gambling operations announced in August.

Indeed, Cambodia Airports registered a 3.1% drop in passengers at its three airports in the fourth quarter of 2019. It forecasts passenger throughput will return to growth but at a slower pace in 2020.

Among planned regional airports is the international terminal planned by Chinese company Union Development Group at its massive eco-tourism concession in the western province of Koh Kong. Bangkok Airways and a Cambodian tycoon have also proposed another airport in the same province, which was recently approved.

There are also plans for a regional airport in the northwestern city Poipet on the border with Thailand and in Mondulkiri, in the country's east.

David Bentley, chief airports analyst and special projects coordinator for CAPA -- Centre for Aviation, a consultancy, said the decision to prematurely end Vinci's concession could hurt Cambodia in the eyes of European airport operators.

"Southeast Asia as a whole is not a happy hunting ground, and some companies avoid it like the plague, which is hampering efforts to improve facilities in (for example) Indonesia," he said.

Chinese companies, he added, are "increasingly active" in investing in and building airport infrastructure around the world, while international companies are pulling back from China.

"Firms like Aeroports de Paris [now Groupe ADP], BAA plc, Copenhagen Airports and VINCI have all been involved with Chinese airports over the last 20 years and all have withdrawn," he said.

"I think there is only [Germany's] Fraport left, with a small investment at Xi'an. China is now a closed shop for foreign inward investment in the sector," he said.

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