Chinese Firms Sign Deal to Build 400-km Railway Line

By Sun Mesa and Simon Lewis - January 1, 2013

Two Chinese firms yesterday signed a memorandum of understanding, overseen by the Minister of Transport, to start work later this year on a massive project to build an entirely new 400-km railway line, a steel mill and a seaport.

The project, valued at an astonishing $9.6 billion, will be carried out by Cambodia Iron and Steel Mining Industry Group, a consortium of Chinese metal firms, which has contracted China Railway Group to conduct construction work on the railway.

The venture would link a steel mill in Preah Vihear province’s Rovieng district, which is believed to have deposits of iron ore, with a brand-new port on an island off the coast of Koh Kong province, Zhang Chuan Li, chairman of Cambodia Iron and Steel Mining Industry Group, told reporters at a ceremony in Phnom Penh.

“Work will begin in July 2013 on all three parts of the project. It will employ more than 20,000 local workers and 3,000 Chinese experts,” Mr. Zhang said, adding that the project would take an estimated four years to complete.

He explained that 404 km of railway would be constructed from Rovieng, where a 14-square-km steel plant would be built, to Koh Smach off Koh Kong’s Kiri Sakor district. The track will run through Preah Vihear, Kompong Thom, Kompong Chhnang, Kompong Speu and Koh Kong provinces.

The project also includes plans to build 11 railway stations along the line and a 3,192-meter railway bridge onto the tiny island, where a port for exports would be constructed.

Despite the project’s vast scale and ambitious nature, no officials from the Ministry of Commerce or Ministry of Industry, Mines and Energy were present at yesterday’s ceremony. Officials also provided no details on what displacement could result from the project.

China Railway Group—China’s “largest integrated railway construction contractor,” according to its website—in 2011 conducted a feasibility study on the route, which has not been made public.

Mr. Zhang said Cambodia Iron and Steel Mining Industry Group already has a 1,300-square-km iron-ore exploration license in Rovieng.

The steel mill would take two-and-a-half years to build, and would produce 1 million tons of steel a year in its first three years of operation, he said.

“The steel company will be able to supply the Cambodian market entirely—it already imports 900,000 tons of steel every year from outside—and the company will also export,” he said, offering no exploration results to back up his claims.

Transportation Minister Tram Iv Tek, who clinked champagne glasses with Chinese executives of Cambodia Iron and Steel Mining Industry Group and China Railway Group during the ceremony, said the railway would not only help to transport steel, but could carry agricultural products, other industrial goods and passengers.

“If this huge project is successful, it will help the Cambodian economy to develop and grow and help a lot of people to get work,” he said.

Rovieng district has attracted numerous companies looking to find iron ore and other minerals, but none have managed to develop a large-scale mine.

Cambodia Iron and Steel Mining Industry Group donated $200,000 toward the construction of a new CPP office for the district, which was completed in January, and is paying for the construction of a park in Preah Vihear City. Officials have said the largess of the project would not influence decision-making.

Kong Makara, director of the provincial industry, mines and energy department, confirmed that Cambodia Iron and Steel Mining Industry Group had held an exploration license since October 2009.

“But it does not have the license to dig a mine yet,” he said.

Another Chinese company, Guangxi Nonferrous Metal Group, began work on its own $500 million steel plant in Rovieng in 2012, but progress has frozen, Mr. Makara said.

The purported scale of the investment—worth about three-quarters of Cambodia’s entire gross domestic product last year—will raise questions, especially considering that no large-scale mining is currently taking place in Cambodia.

Richard Stanger, president of the Cambodian Association for Mining Exploration Companies and CEO of Liberty Mining International, said he had heard the company was conducting exploratory drilling and magnetic imaging for iron ore in the area, but that he did not know details of how much iron ore was there.

“There are a lot of iron ore exploration licenses in that area. But I don’t know how extensive the resources are,” he said.

Peter Brimble, senior country economist at the Asian Development Bank, said the price tag on the Chinese-led project seemed “very high.”

“How can it cost that much?” he said, noting that a rail link between Vientiane and the Lao-Chinese border that was approved by Laos in October, and includes numerous tunnels through mountains, is only valued at $7 billion.

The project would at some point have to cross the northern line of the existing Cambodian rail network, which is currently being rehabilitated, but no talks appear to be under way to link the two lines.

David Kerr, chief executive of Toll Royal Railways, the company holding the concession to operate the rehabilitated railway network, said he had not heard about the Chinese-led project.

“I wasn’t invited,” he said. “I don’t know anything about it.”

Mr. Kerr added that, due to a confidentiality clause, he could not say whether or not Toll Royal had to be consulted first before another company was given the right to operate trains in Cambodia.