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Abstract<\/span><\/strong><\/span><\/p>\n Public-private partnership (PPP) projects have been present in Cambodia since the 1990s; however, up until now, there is still no clear applicable specific PPP laws governing such projects. Such projects are currently governed under the 1994<\/span>Law on Investment (LOI)<\/a> (later amended in 2021) and 2007<\/span>Law on Concession (LOC)<\/a>. These existing laws have encountered many questions such as who plays a role in accessing the projects, whether lenders have step-in rights, is there any financial support mechanism from the government, what are the provisions in case of early termination of the contract and more. Later, a draft law on PPP was proposed, which sailed through the ministerial cabinet in October 2021. Therefore, this paper aims to highlight some of the issues with the main existing laws (in particular LOC and LOI), highlight if the draft law on PPP has addressed any of the issues, and highlight some of the relevant provisions under such laws and draft.<\/span><\/span><\/p>\n Nonetheless, the author assumes no responsibility or liability for any errors or omissions in the content of this article. The information contained in this article is provided on an as-is basis with no guarantees of completeness, accuracy, usefulness or timeliness.<\/span><\/p>\n <\/strong><\/span><\/p>\n Introduction<\/strong><\/span>\u00a0<\/span><\/p>\n Over the past two decades, the economy of Cambodia has<\/span>grown significantly<\/a>, sustained average annual growth of 7.7 per cent between 1998 and 2019 as driven by growing exports, increased investment, and domestic consumption. It reached the<\/span>lower-middle-income status country<\/a> in 2015 and hoping to get the upper-middle-income status country by 2030.<\/span><\/span><\/p>\n Cambodia was ranked 144 out of 190 in the<\/span>World Bank\u2019s ease of doing business<\/a> rank (number 1 being the country with the friendliest business regulations) and 106 out of 141 in the World Economic Forum global competitiveness ranking in 2019. Despite many improvements over the years, Cambodia still lacks much infrastructure including public transportation, energy, and technology. Moreover, this infrastructure is one of the determinative factors to attract investment from both local and foreign investors. In other words, good infrastructure will increase the country\u2019s productivity, lower production costs, increase life quality, increase the country\u2019s competitiveness, and attract more investments.<\/span><\/span><\/p>\n Like many other developing nations, Cambodia is not able to afford to invest in this vast demand of essential infrastructure completely from its national budget or loans. In realising this, Cambodia, through its<\/span>Phase 4 Rectangle Policy<\/a>, has focused on the private sector through public-private partnership (PPP) mechanisms to fulfil this gap. Draft Law on PPP defines PPP as agreements between the government and the private partner to restore, repair, expand, build, manage the operation and\/or maintain the operation of public infrastructure or project assets or to provide public services within a certain period of time. Under these agreements, the private partner shall invest, bear risks proportionally, and receive benefits based on performance and in accordance with the provisions stipulated in the PPP contract.<\/span><\/span><\/p>\n One of the many challenges of implementing PPP in Cambodia is the lack of a clear PPP legal framework. Therefore, the implementation and operation of the PPP projects in the country are generally made through ad-hoc arrangements. This paper is intended to highlight some of the issues with the main existing laws (in particular LOC and LOI), highlight if the draft law on PPP has addressed any of the issues, and highlight some of the relevant provisions under such laws and draft.<\/span><\/p>\n <\/strong><\/span><\/p>\n Current Legal Framework<\/strong>\u00a0<\/em><\/span><\/p>\n Since the 1990s, PPP projects in Cambodia have been mainly governed by the LOI and the LOC. Though the laws can apply to the PPP projects, there are a lot of missing components compared to a comprehensive PPP framework, and the laws are mostly inconsistent with international practice. The<\/span>issues<\/a>include<\/a>:<\/span><\/span><\/p>\n Table 1: Highlight of the 2007 Law on Concession <\/u><\/span><\/p>\n a) power generation, power transmission and power distribution.<\/span><\/p>\n b) transportation facilities systems, including, but not limited to roads, bridges, airports, ports, railways, channels.<\/span><\/p>\n c) water supply and sanitation.<\/span><\/p>\n d) telecommunication and information technology infrastructure.<\/span><\/p>\n e) supra-structure related to tourism projects, but not limited to tourism resort museums;<\/span><\/p>\n f) gas and oil-related infrastructures including oil and gas pipelines;<\/span><\/p>\n g) sewerage, drainage and dredging.<\/span><\/p>\n h) waste management and treatment.<\/span><\/p>\n i) hospitals and other infrastructure related to health, education and sport sectors.<\/span><\/p>\n j) infrastructure related to special economic zones and social housing.<\/span><\/p>\n k) irrigation and agricultural-related infrastructure.<\/span><\/p>\n l) other sectors for which a specific law allows for the granting of concessions.<\/span><\/p>\n<\/td>\n<\/tr>\n All competent institutions are entitled to undertake infrastructure projects within the eligible infrastructure sectors specified in this law, including ministries, institutions, state-owned legal entities, local governments which have been delegated the required institution in accordance with the laws.<\/span><\/p>\n<\/td>\n<\/tr>\n CDC<\/span><\/p>\n<\/td>\n<\/tr>\n International or national bidding and direct negotiation.<\/span><\/p>\n<\/td>\n<\/tr>\n The concessionaires shall file their proposal to the CDC. Once awarded (through any means of selection), the contracting institution shall issue a notification of award to the selected candidate. The contracting institution and the concessionaire shall sign the Concession Contract within six months of the notification of award, except agreed otherwise. Later, at least within 60 (sixty) days of receiving the notification of awards, the concessionaire shall promptly establish and incorporate the legal entity and apply a final registration certificate in accordance with the LOI to the CDC.<\/span><\/p>\n<\/td>\n<\/tr>\n a) the nature, scope and standards of works to be performed and services to be provided by the concessionaire;<\/span><\/p>\n b) any incentives to be granted to promote cost-efficiency, accelerate construction and increase the quality of operation and maintenance to the benefit of the public interest;<\/span><\/p>\n c) any fees, tolls, rentals or other charges to be applied by the Concessionaire and, when applicable, to be approved by the regulatory agency;<\/span><\/p>\n d) agreed risk allocation or risk-sharing;<\/span><\/p>\n e) service levels and standards required from the concessionaire in the operation and management of the infrastructure facility and consequences of non-compliance with the set service levels and standards;<\/span><\/p>\n f) payment mechanisms;<\/span><\/p>\n g) required commitment and cooperation of the contracting institution and other competent institutions to support the implementation of the infrastructure project throughout the concession Period;<\/span><\/p>\n h) may provide for such other matters, as the parties deem appropriate.<\/span><\/p>\n<\/td>\n<\/tr>\n The concession contract shall not exceed 30 (thirty) years from the date of signing unless otherwise approved by the Government.<\/span><\/p>\n The concession period shall not be extended except as a result of the following circumstances:<\/span><\/p>\n a) completion delay or interruption of operation due to breach of contract by the contracting institution or by acts of other competent institutions;<\/span><\/p>\n b) completion delay or interruption of operation due to an event of force majeure as specified in the concession contract and provided the concessionaire would not be able to recover the costs or losses brought about by such circumstances during the original Concession Period, including by way of customary project insurance; and<\/span><\/p>\n c) to allow the concessionaire to recover additional costs arising from new requirements of the contracting institution not originally foreseen in the concession contract if the concessionaire would not be able to recover such costs during the stipulated concession period.<\/span><\/p>\n<\/td>\n<\/tr>\n The concessionaire shall provide training to Cambodian nationals in order that they can further take over positions at all levels for the operation and maintenance of the infrastructure facility.<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Table 2: Highlight of the 2021 Law on Investment<\/u><\/span><\/p>\n Under the new amendment, the investment incentives are classified into three (3) types, being: (1) basic incentives, (2) additional incentives; and (3) special incentives.<\/span><\/p>\n<\/td>\n<\/tr>\n The investors (QIP registered) have two (2) options to choose from.<\/span><\/p>\n First option: the investors are entitled to receive a Tax on Income exemption between three to nine years depending on the investment sector and activities. After the income tax exemption period has expired, the investor will be entitled to paying income tax at a rate proportional to the total tax due as follows: 25 % for the first two years, 50 % for the next two years and 75% for the last two years.<\/span><\/p>\n Second option: the investors are eligible for the special depreciation. This includes:<\/span><\/p>\n – Deduction of capital expenditure through special depreciation as stated in the tax regulations in force;<\/span><\/p>\n – Eligibility of deducting up to 200 (two hundred) per cent of specific expenses incurred for up to 9 (nine) years. Sectors and investment activities, specific expenses, as well as the deductible period, shall be determined in the Law on Financial Management and\/or the Sub-Decree;<\/span><\/p>\n – Prepayment Tax exemption for a specific period of time based on sectors and investment activities to be determined in the Law on Financial Management and\/or the Sub-Decree;<\/span><\/p>\n – Minimum Tax exemption provided that an independent audit report has been carried out;<\/span><\/p>\n – Export tax exemption, unless otherwise provided in other laws and regulations.<\/span><\/p>\n<\/td>\n<\/tr>\n In addition to the basic incentives, the investors receive additional incentives as follows:<\/span><\/p>\n 1. value-added tax exemption for the purchase of locally made Production Inputs for the implementation of the QIP.<\/span><\/p>\n 2. deduction of 150 (one hundred and fifty) per cent from the tax base for any eligible activities, and<\/span><\/p>\n 3. entitlement to income tax exemption for the Expansion of QIP, which will be determined in the Sub-Decree.<\/span><\/p>\n<\/td>\n<\/tr>\n Any specific sector and investment activities having high potential to contribute to national economic development may receive specific special incentives to be set out in the Law on Financial Management.<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n
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