Paragon International University BAF 300 (AY 2023 - 2024)

Table of Contents

I. Introduction…………………………………………………………………2

II. Market Analysis……………………………………………………………2

1. Market size………………………………………………………………..2

2. Market Supply…………………………………………………………….5

3. Market Demand…………………………………………………………..3

4. Key Players……………………………………………………………….5

5. Competitive Environment………………………………………………...6

III. Environmental, Social, and Governance Analysis………………………8

1. Environmental…………………………………………………………….8

2. Social……………………………………………………………………...8

3. Governance……………………………………………………………….9

IV. Calculation of NPV, Payback Period, IRR techniques…………………12

V. Recommendation…………………………………………………………..12

VI. References………………………………………………………………...15

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I. Introduction
In the ever-changing energy landscape, the importance of using sustainable and
dependable power generation is growing and cannot be overstated. The purpose of this paper
is to provide a well-informed recommendation to ELC Co.'s Investment Committee on its
potential to invest in a 250 MW hydropower project in Kampot Province with the goal of
enhancing the electricity supply to citizens to meet the growing energy demands of the region
in a sustainable way. This report will delve into various crucial aspects, including an
overview of the project, an analysis of the hydropower plant's technical and operational
feasibility, an assessment of its economic viability, and an examination of its potential
environmental and social impacts.

II. Market Analysis

1. Market size

The electricity sector in Cambodia has undergone significant development in recent

years, with hydropower being the first source of domestic power in Cambodia, accounting for
more than 40% of all energy domestically produced (2,283MW) in 2017. Notably, the
hydropower market in Cambodia has continued to grow even more sustaintial from 2020 to
2023. In 2020, revenue from hydropower sales reached approximately $320 million, as
reported by the World Bank. Subsequent estimates from the Asian Development Bank (ADB)
indicate that by 2021, the revenue had grown to approximately $400 million. This growth
underscores the burgeoning importance of hydropower in Cambodia's energy landscape,
reflecting both increased demand and the industry's commitment to sustainable energy
solutions. Minister of Mines and Energy Keo Rattanak emphasized the shift towards clean
and renewable sources, with over 62% of current electricity derived from such sources,
particularly hydropower and also a total electricity capacity of 4,246.77 MW, with 73% being
locally generated.

Growth trend
The electricity and power construction sector in Cambodia demonstrated robust
growth, recording a positive Compound Annual Growth Rate (CAGR) of 10.05% from

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2017 to 2021. In 2021, the sector's market size stood at KHR2,573,603.62 million, marking a
notable 7.73% increase compared to the previous year. The sector's peak performance
occurred in 2019, with a remarkable growth of 24.43%, while its lowest point was observed
in 2020, experiencing a decline of 9.83% compared to 2019.

2. Market Supply
Cambodia has seen remarkable economic progress in recent decades. Nonetheless, the
country continues to lack the infrastructure needed for the energy sector to keep up with its
rapid expansion. As most of the power generated within Cambodia in the past originated
from heavy fuels such as oil and diesel and was largely imported from neighboring countries
such as Thailand, Vietnam, and Laos, Up until March 2011, 90% of power was still delivered
in the same way. However, since the government has explored additional renewable energy
sources like solar, wind, and hydropower, domestic electricity output has grown by six times
since 2011, from 7.16% to 37.64% in 2012. And the supply of locally produced electricity
continues to rise, with hydropower as the leading source, accounting for 40% of all the
energy consumed in the country in 2017. According to a recent Ministry of Mines and Energy
estimate, Cambodia's domestic energy supply in 2021 was 9,255 GWh, with hydro
accounting for 44%, and is estimated to continue to rise to 63% by 2040, including a 30%
share of hydro.

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3. Market Demand

Cambodia is experiencing fast economic expansion, urbanization, and rising power

consumption. According to a report by the World Bank published in early 2018, 97.6% of
Cambodian houses have access to a minimum of one source of electricity, with 71.5% being
generated by the grid and 26.1% coming from off-grid sources such as solar home systems or
rechargeable batteries. According to the Electricity Authority of Cambodia (EAC),
Cambodia's demand for electricity in 2018 was 9,739 GWh. Domestic/household
consumption accounted for 35.8% of the 9,739 GWh consumed, with small companies,
services, commercial, industrial, and administrative accounting for 28.03%. Notably, the
commercial and industrial sectors accounted for 3.01% and 32.89%, respectively.
Furthermore, the demand for energy is predicted to significantly increase annually to 61,207
GWh by 2030, with an annual average growth rate of 16.6%.

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4. Key Players
Cambodia is one of the southeast Asian countries that is rich in water resources.
According to the latest study, there are nine hydroelectric power plants now in operation in
Cambodia, spread across the nation's several religious regions which the operating dams
range from large scale to medium scale and to small scale. The operating hydroelectric power
plants include:

Based on the data supplied by the graph from Open Development Cambodia, it is
clear that CETIC is a key player in the Cambodian hydropower plant industry. It is notable
that CETIC is the country's only corporation with two hydropower plants, which results in
CETIC having market dominance and highlights their critical role in the development of
Cambodian hydropower infrastructure.

5. Competitive Environment
The geographical features of Cambodia, with its abundant rivers and relatively steep
landscape, offer an ideal setting for the building of sustainable hydroelectric dams. According
to the most recent preliminary research estimates the country's overall hydropower potential
at 10,000 MW, of which 50% is located in the main Mekong River Basin, 40% in its
tributaries, and the remaining 10% in the southwest coastal region beyond the Mekong River
Basin. This equates to around 63 possible locations across the country, of which 27 potential

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sites are already under the study, providing favorable conditions for projects ranging from
small-scale to large-scale companies. Additionally, it is notable that only 1,353 MW of
capacity have been built out of its full potential of 10,000 MW as of 2020. Despite this
appealing potential, Cambodia's hydropower sector remains competitive, with both
established businesses and newcomers competing for access to these profitable resources.

An overview of the SWOT analysis of Cambodia’s hydropower market include:

By carefully examining the Cambodian hydropower market's strengths, weaknesses,

opportunities, and threats, the company will be able to make well-informed choices about the
development and use of its hydropower potential, therefore contributing to a sustainable and
secure energy future.

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III. Environmental, Social, and Governance Analysis:

ELC Co. aims to address the increasing electricity demand in Kampot Province
through the development of a 250 MW hydro power plant, contributing to both regional
economic growth and sustainable energy supply. The primary objectives include assessing the
Environmental impact, Social implications, and Governance practices associated with the
project to inform the Investment Committee's decision-making process, So here is our ESG
analysis:

1. Environmental

Hydropower, as a renewable energy source, presents both positive and negative

aspects when it comes to its impact on the environment. On the positive side, hydropower
offers several environmental benefits including:
● Clean Energy Generation: The hydro power plant will generate 250MW of
clean and renewable energy, significantly reducing the carbon footprint
associated with electricity generation in Kampot Province.
● Water Resource Management: The project involves responsible water
resource management, ensuring that the hydroelectric facility operates within
sustainable limits and minimizes any negative impacts on the local ecosystem.
● Air Quality Improvement: By providing an alternative to fossil fuel-based
power generation, the hydro power plant will contribute to improved air
quality, reducing emissions of pollutants such as sulfur dioxide and particulate
matter.

On the other hands, hydropower can also bring a several environmental issues
including:

● Habitat Disruption: The construction and operation of the hydro power plant
may disrupt local habitats, impacting wildlife and plant species. Mitigation
measures should be in place to minimize these effects.
● Water Quality Concerns: Increased water flow and potential changes in
sediment transport may impact water quality downstream. Adequate measures

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must be implemented to monitor and address any negative effects on water

quality.

2. Social

Implementing hydropower projects can have both positive and negative impacts on
social aspects. On the positive side, it can contribute to economic development by:
● Job Creation: The construction and operation of the hydro power plant will
create job opportunities for local residents, contributing to improved
livelihoods and economic development.
● Community Development: The project may lead to infrastructure
development in the region, benefiting local communities through improved
access to roads, schools, and healthcare facilities.
● Energy Access: The hydro power plant will provide a reliable source of
electricity, enhancing energy access for residents in Kampot Province and
supporting economic activities.

However, the implementation of hydropower projects can also give rise to social
challenges including:
● Community Displacement: The construction of the power plant may require
the relocation of local communities. Adequate compensation and resettlement
plans must be in place to address potential social disruptions.
● Social Conflicts: The influx of workers and changes in the local
socio-economic landscape may lead to social conflicts. Community
engagement and conflict resolution mechanisms should be prioritized.

3. Governance
Hydropower implementation may affect governance in a number of ways. Positively
speaking, hydropower can bring several benefits, such as:
● Alignment with Government Renewable Energy Targets: The proposed hydro
power plant aligns with Cambodia's government renewable energy targets,

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showcasing a positive contribution toward sustainable development goals. According

to BNG Legal, except for hydropower, Cambodia's renewable energy targets are
relatively modest compared to their ASEAN neighbors. Nevertheless, there is ample
opportunity for growth for renewable energy producers, particularly alongside coal
and hydropower plants. This alignment has the potential to bolster the company's
reputation and cultivate a positive relationship with regulatory authorities.
● Potential Contribution to Improved Electricity Access: The project has the
potential to contribute significantly to improved electricity access in Kampot
Province, supporting economic development and enhancing the overall quality of life
for local residents.

Hydropower implementation, though, can also present governance issues, as listed

below:
● Concerns Raised by Civil Society and Communities: There have been concerns
expressed by civil society and communities affected by hydropower projects that
insufficient attention is given to the negative impacts, and public consultation is
deemed inadequate. Emphasizing high-quality environmental impact assessments and
transparent decision-making is crucial to ensuring that the hydropower sector
develops in a way that minimizes harm while maximizing the benefits for Cambodia
and its investors.

Environmental, Social, and Governance (ESG) Assessment:

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IV. Calculation of NPV, Payback Period, IRR techniques

Before making suggestions about whether or not to invest in this project, you need to
look at its net present value (NPV), internal rate of return (IRR), and payback period of time.

Overview of the Project

Project life: 20 years, Initial Outlay= $300M, Production Capacity = 2500M
kWh/year, Price per Unit = $0.05/kWh, Cost of Goods Sold = 40% of Sales, Operation
Expenses = 25% of Sales, Income Tax = 20% from Year 11 onwards, Net Working Capital
Revenue, Salvage Value = 0 (Linear Depreciation), Initial Outlay 100% borrowed at 10% =
1% of interest p.a.

To begin, an income statement is made, which includes important details like Sales,
Cost of Goods Sold, Gross Profit, Earnings before Interest and Tax (EBIT), and Net Profit.
With this information, the unlevered cash flow and present value for each year can be found.
Then, we find the net present value by adding up the present value of each year's cash flow
and taking that number away from the original investment. The Internal Rate of Return (IRR)
and Payback Period can also be found by using Excel's formulas.

Detailed Calculations
- Revenue = Prod. Capacity * Price = 2,500,000,000* 0.05 = $125,000,000
- Gross Profit = Revenue - Cost of Goods Sold = $75,000,000
- EBIT =Gross Profit - Operating Expense - Depreciation = $28,750,000
- Net Profit (Year 1-10)= EBIT - Interest Expense - Income Tax = -$1,250,000
- Net Profit (Year 11-20)= EBIT - Interest Expense - Income Tax = -$1,500,000
- Unlevered Cash Flow = Net Profit + Depreciation - ANWC - Net Capex

The project's present value of free cash flow over 20 years is $357,710,318.57. The
Net Present Value (NPV) is $57,710,318.57, calculated by subtracting the initial outlay of
$300,000,000.
The Internal Rate of Return (IRR) is determined as 13% using Excel's IRR formula
on the free cash flow from Year 0 to Year 20.

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The payback period is identified as occurring between Year 6 and Year 7, specifically
at 6 years and 1 month, where cumulative cash flow turns positive.i

V. Recommendation

The full evaluation of the project's financial viability has been completed following
lengthy data analysis and precise calculations. It is highly advised that ELC Co. start building
a hydropower plant in the region of Kampot based on the compelling results.

A Net Present Value (NPV) of $57,710,318.57, which is highly positive, clearly

illustrates the project's great financial prospects. Given that the NPV captures the value that
the project may provide, this suggests that it will result in significant profits.

Moreover, the Internal Rate of Return (IRR) stands impressively high at 13%,
surpassing the project's capital cost. This serves as irrefutable evidence that the concept is not
only viable but also deserving of substantial investment.

The project's effective payback period of 6 years and 1 month is also very notable.
This length demonstrates the project's financial viability in a comparatively short amount of
time by showing that it can quickly recover its original expenditure. Thus, the investment has
the potential to provide significant and rapid returns.

In summary, given the strong indications of the project's positive net present value
(NPV), strong internal rate of return (IRR), and short payback period, moving forward with it
is strongly recommended. It is highly recommended that ELC Co. take advantage of this
opportunity and engage in the construction of a new hydropower plant in the Kampot
province. The thorough analysis that was previously provided supports the project's
likelihood of success and financial gain.

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VI. References
● Sok, V. (n.d.). Renewable Energy in the Cambodia Energy Plan (Mar 2022) | BNG
Legal. [online] Available at:
https://bnglegal.com/index.php/renewable-energy-in-the-cambodia-energy-plan/

● Open Development Cambodia (ODC). (2015). Hydropower dams. [online] Available

at: https://opendevelopmentcambodia.net/topics/hydropower-dams/
● Institute, I.-Y.I. (2021). The ESG Practices Of Chinese State-Owned Enterprises In
Cambodia – Analysis. [online] Eurasia Review. Available at:
https://www.eurasiareview.com/08112021-the-esg-practices-of-chinese-state-owned-e
nterprises-in-cambodia-analysis/ .
● www.marketresearch.com. (n.d.). Electricity and Power Construction Market in
Cambodia - Market Size and Forecasts to 2026 (including New Construction, Repair
and Maintenance, Refurbishment and Demolition and Materials, Equipment and
Services costs). [online] Available at:
https://www.marketresearch.com/GlobalData-v3648/Electricity-Power-Construction-
Cambodia-Size-33870974/.
● ‌ASIAN DEVELOPMENT BANK CAMBODIA EnERgy SECtOR ASSESSMEnt,
StRAtEgy, AnD ROAD MAp. (2018). Available at:
https://www.adb.org/sites/default/files/institutional-document/479941/cambodia-energ
y-assessment-road-map.pdf.
● Wikipedia. (2023). Energy in Cambodia. [online] Available at:
https://en.wikipedia.org/wiki/Energy_in_Cambodia.

● ENERGY IN CAMBODIA 1. (n.d.). Available at:

https://www.rvo.nl/sites/default/files/2018/11/energy-in-cambodia.pdf

● Anon, (2015). Hydropower dams | Open Development Cambodia (ODC). [online]

Available at:
https://opendevelopmentcambodia.net/topics/hydropower-dams/#:~:text=Stung%20At
ai%20(120MW)%20in%20Pursat,province%2C%20officially%20opened%20in%202
018

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● Ministry of Industry, Mines and Energy In association with Cambodia National

Mekong Committee. (2003). Available at:
https://data.opendevelopmentmekong.net/dataset/3903f9ff-51de-4ff7-92bf-85edf0538
23e/resource/3856857b-e686-44ba-8216-c604fb823e70/download/88f1d0e4-74b6-41
73-8500-8a1b18a5dbe7.pdf.
● Tung Tung, M. and Sereyvuth, S. (2008). Hydropower Development Hydropower
Development in Cambodia in Cambodia Regional Multi Regional Multi--Stakeholder
on Stakeholder on MRC MRC’ 's s Hydropower Hydropower Programme Programme
on 25 on Kingdom of Cambodia Kingdom of Cambodia Ministry of Industry, Mines
and Energy Ministry of Industry, Mines and Energy. [online] Available at:
http://archive.iwlearn.net/mrcmekong.org/download/Presentations/regional-hydro/2.1
%20Cambodia-PresentationMRC_lao_Final.pdf.

● Anon, (2016). Hydropower dams | Open Development Cambodia (ODC). [online]

Available at: https://opendevelopmentcambodia.net/profiles/hydropower-dams/

● Country Update: The Kingdom of Cambodia Current Status of Power Sector. (n.d.).
Available at:
https://www.greatermekong.org/sites/default/files/rptcc28/2%20-%20Country%20Pre
sentation_Cambodia.pdf.

● Ministry of Mine and Energy, (n.d.) General Department of Energy | Hydroelectricity

Department. Available at:
https://www.mrcmekong.org/assets/Uploads/1.-Hydropower-plan-Cambodia.pdf

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