The Phnom Penh Special Economic Zone houses 92 companies from 14 countries. Hong Menea
Singapore-based Asiatic Group (Holdings) Ltd is seeking a minimum of $14.4 million relief from Cambodia Securities Exchange (CSX)-listed Phnom Penh Special Economic Zone Plc (PPSP) for allegedly breaching a power plant joint venture (JV) agreement.
Asiatic Group’s wholly-owned Colben System Pte Ltd and 95 per cent-owned Colben Energy Holdings (PPSEZ) Ltd (CEZH) have started arbitration proceedings that were referred to the Singapore International Arbitration Centre on November 19.
In a statement last week, managing director Tan Boon Kheng of Singapore Exchange Ltd’s Catalist listed-Asiatic Group said the breach in the JV agreement resulted in substantial changes in the power plant’s operational and business model that were detrimental to the interests of the project.
Tan said the claim represents Colben’s and CEZH’s loss in value of their shareholding in Colben Energy (Cambodia) PPSEZ Ltd – the JV company with PPSP set up in 2006 – as a result of the anticipated losses in the JV company’s revenue.
In an immediate response, PPSP, which affirmed its associate relationship with Asiatic Group, said it is seeking professional legal advice and will make further announcements on any material development on the matter.
PPSP owns 23 per cent stake in the JV firm which is involved in the generation and supply of power to the special economic zone (SEZ).
“[Our] investors and the public are well informed [on the notice of arbitration],” said Main Board-listed PPSP in a filing with CSX on Friday.
The counter closed down 10 riel at 1,770 riel on Friday for a market capitalisation of 65.6 million riel ($16,146).
The SEZ which covers an area of 357.3ha in Phnom Penh saw net profit plunge 97.1 per cent to $271,691 in the first half ended June 30, 2020 from $9.4 million a year ago.
Revenue fell 61 per cent to $9.9 million in the first half compared to $25.5 million in the year-ago period, partly attributed to lower land sales.
Tycoon Lim Chhiv Ho owns 45.09 per cent of PPSP, which also operates the 68.4ha Poipet SEZ in Banteay Meanchey province.
The zone in Phnom Penh houses 92 companies from 14 countries that manufacture garment, automobile parts, food and beverage, and plastic products, according to PPSP’s filing.
Meanwhile, Asiatic Group is a contractor for engineering, procurement and construction, and operation and maintenance.
It also operates a fire protection solutions segment which provides firefighting and protection systems.
Colben System is a specialist in the business of controlled power supply, engineering and procurement, and power generation construction.
It built, operated and maintained a heavy fuel oil-fired power plant with an initial capacity of 15MW within the economic zone.
The power plant, which was completed in 2008, offers stable power for companies within the zone, principally acting as a back-up electricity supply provider to customers.
Tan said this was consistently promoted as a selling point to attract businesses to establish their operations and factories in the zone.
“To date, the zone has attracted over 100 businesses and factories as customers, taking electricity from Asiatic Group’s power plant,” he added.
But he alleged that PPSP instigated for revisions to the electricity tariffs, which was in breach of the JV agreement.
This resulted in a revision of tariff rates applied in the zone by regulator Electricity Authority of Cambodia (EAC) on June 30.
It allowed companies to opt for electricity supply from the national grid source without Asiatic Group’s power plant’s back-up feature.
“The [consequence] significantly changed the project’s operational and business model. [Due to] EAC’s decision, it is anticipated that [we] would suffer losses in the revenue generated by the project,” Tan said.
It should be noted that both the JV companies have been involved in arbitration proceedings for other reasons in the past.
The group has been recording year-on-year losses since financial year ended March 31, 2019 (Financial year 2019).
In its first half ended September 30, 2020 (for the financial year 2021) it posted a net loss of S$531,000 (US$395,000) versus S$851,000 net profit in 2020.
It cited a combination of factors including the drop in cost of sales due to lower direct operating costs and absence of refurbishment cost incurred on the engines in Phnom Penh and Sihanoukville in the first six months of financial year 2021.
Revenue in the six months of financial year 2021 fell 6.5 per cent to S$20.9 million from S$22.3 million in the corresponding period last year due to lower revenue from Phnom Penh and Sihanoukville, which was caused by a dip in electricity demand compared to last year.
Covid-19 also impacted the revenue in its firefighting and protection segment.
The group operates two other power plants in Cambodia – one for state-owned Electricite du Cambodge and another in Sihanoukville, and a biomass power plant in Teluk Intan, Perak state in Malaysia.
