World Bank blocks funds for Chinese conglomerate in Cambodia

Published by MAC on 2011-08-23
Source: Phnom Penh Post, Reuters, China Dialogue

Campaigners also demand halt to mining venture

Erdos Group plans laid bare

Don Weinland

Phnom Penh Post

3 August 2011

Documents obtained by The Post have shed new light on the scale of Chinese investment connected with the controversial Boeung Kak lake real estate project.

The US$98 million project in northern Phnom Penh is the smallest of Mongolia Erdos Hongjun Holding Group's planned investments in the Kingdom, according to investment applications from the Development and Reform Commission in Ordos City, China.

Starting in the first quarter of 2012, the Chinese company and a Cambodian partner plan to invest roughly $1.9 billion in aluminum mining and energy projects.

In April 2012, construction is set to begin on the first of two 135-megawatt power generators about 14 kilometres northeast of Sihanoukville, according to the documents.

Erdos and their local partner, Cambodia International Investment Development Group, will invest some $383 million in the project. The power plants will be located on an 18-square-kilometre site facing Sihanouk Bay. In June, reporters confirmed ruling-party Senator Lao Meng Khin owned Cambodia International Investment Development Group.

Construction on an aluminum mine in Mondulkiri province is also set to begin in the first quarter of next year and will be completed within four years, according to the documents, published in Chinese. Erdos and Cambodia International Investment Development Group is set to invest more than $1.5 billion in the project, with an initial investment of $80 million.

The partner group will make an initial investment of $20 million.

Despite the scale of investment that Erdos and its partners will pump into the Cambodian economy, NGOs have been unable to reach the Chinese company since protests erupted over forced evictions at Boeung Kak lake in 2008.

"We wrote letters and tried to contact the Chinese company. We tried to connect the people at the lake with the Chinese company. But [Erdos] never responded," Sia Phearum, secretariat of the Human Rights Task Force, said yesterday.

Several human rights organisations, including Bridges Across Borders and the Business and Human Rights Resource Center, have reportedly tried unsuccessfully to reach Erdos and their partners.

Ou Virak, president of the Cambodian Centre for Human Rights, said he was aware of a link between the Boeung Kak lake development and other energy and mining projects. He called the connection concerning.

"The concern is this company's lack of reputation after the problems at Boeung Kak lake. We expect similar treatment of the people living in areas affected by [Erdos'] development projects. These projects could be a disaster for villagers," he said.

The Post this week contacted Erdos Group in Inner Mongolia, but was not granted interviews with officials at Ordos City's Reform and Development Commission and its representative for Cambodia International Investment Development Group based in China's Guangdong province.

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Cambodia: World Bank halt irks officials

PhnomPenh Post

10 August 2011

The government expressed disappointment yesterday with the World Bank's announcement that it had halted new country loans due to the ongoing land dispute at Boeung Kak lake in Phnom Penh and vowed to raise the issue with the bank's executive board.

"We are very dissatisfied with the World Bank's decision because we are partners on several projects," Phay Siphan, spokesman for the Council of Ministers, said yesterday, referring to the 21 projects the bank now funds in the country. "Each programme is an agreement the two parties have made with each other. No one has a right to breach these contracts."

Annette Dixon, World Bank country director, said in a statement sent yesterday to The Post that the bank's last loan to Cambodia was in December 2010. "Until an agreement is reached with the residents of Boeung Kak lake we do not expect to provide any new lending to Cambodia," she said.

Dixon said the World Bank would continue to work with the government to ensure that legal obligations concerning existing projects are met. Three proposed projects, worth US$128 million, are still awaiting approval from the World Bank, according its website.

Rights groups and a spokeswoman for lakeside residents facing eviction lauded the World Bank's announcement yesterday, saying the freeze may push more organizations to discontinue aid until land disputes are resolved.

Land disputes at Boeung Kak Lake drew national attention in 2008 when construction for an upscale housing development flooded surrounding villages. More than 20,000 people in total face relocation according to rights groups. Sia Phearum, secretariat of the Human Rights Task Force, called the World Bank decision a "good model" for other organizations that provide Cambodia with aid and cheap loans.

"The World Bank has found human rights violations here. So if others still support the county with aid, that means they are supporting human rights violations," Sia Phearum said. "I think other aid agencies will do the same thing." Representatives from the Embassy of Japan reportedly met with Phnom Penh municipal government officials yesterday to discuss the Boeung Kak lake debacle, according to a government source who spoke on condition of anonymity.

Erdos Hong Jun Investment Company, a Chinese construction firm, holds a 51 percent stake in the Boeung Kak lake development, according to Chinese governmental documents obtained by The Post.

In the first quarter of 2012, Erdos plans to break ground on some $2 billion in investments in the Kingdom. The company plans to build a power plant in Sihanoukville and an alumina mine in Mondulkiri province, according to the documents.

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World Bank stops funds for Cambodia over evictions

Reuters

9 August 2011

PHNOM PENH - The World Bank said on Tuesday it had stopped providing loans to Cambodia and would not resume lending until the government did something to help hundreds of families facing eviction from land around a lake in the country's capital, Phnom Penh.

"The World Bank's last loan to Cambodia was in December 2010," Country Director Annette Dixon said in a statement.

"Until an agreement is reached with the residents of Boeung Kak Lake, we do not expect to provide any new lending to Cambodia," she said.

In the past few years, the World Bank has lent Cambodia about $50-70 million annually. It has repeatedly asked for the evictions to stop.

Forced evictions are a major problem in Cambodia, with an estimated 30,000 people a year driven from farmland or urban areas to make way for real estate developments or mining and agricultural projects.

The World Bank has made a stand over the Boeung Kak Lake area, where 10,000 people face eviction to make way for a luxury real estate project led by China's Inner Mongolia Erdos Hongjun Investment Corp, an unlisted firm that has pledged to spend $3 billion in Cambodia on real estate, metal processing and power generation.

The bank has offered financing and advice to the government on land management but has not received a response. It wants the developer to provide on-site housing for the remaining residents of Boeung Kak Lake rather than push them out.

Land ownership is a complex subject in the impoverished Southeast Asian country, where legal documents were destroyed and state institutions collapsed under the Khmer Rouge regime of the 1970s and the civil war that followed.

The World Bank had an agreement with the authorities to assist with land management and administration but that fell through in September 2009.

It issued a statement in March acknowledging it had been slow to respond when about 2,000 Boeung Kak Lake residents were evicted in violation of an agreement the Bank had reached with the government regarding resettlement.

A sharp increase in the number of evictions has angered human rights groups and donor countries, several of which have threatened to withdraw aid from one of Asia's poorest countries.

Such threats may not be effective as Cambodian tycoons and their friends in local and central government are profiting by selling or leasing farmland and prime real estate to foreign firms, mostly from China, which is offering more development money than the donors, with fewer strings attached.

China is Cambodia's biggest source of foreign direct investment (FDI) and in the first seven months of this year it pledged $8 billion for 360 projects, the same amount it invested in the whole of Southeast Asia in 2008.

Beijing is also Cambodia's largest source of foreign aid, providing about $600 million in 2007 and $260 million in 2008.

(Reporting by Prak Chan Thul; Editing by Martin Petty)

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Cambodia agrees land deal after World Bank halts loans

Reuters

16 August 2011

PHNOM PENH - Cambodia, under pressure by the World Bank, said on Tuesday it had set aside prime land in the capital Phnom Penh for thousands of people forcibly evicted from their homes to make way for a Chinese development project.

The World Bank, which has lent Cambodia up to $70 million annually over the past few years, said last week it had halted loans to the country in protest over land seizures around Boeung Kak Lake, where a Chinese developer is building luxury homes.

About 15,000 people have been evicted from their homes and 3,500 remain in the area.

Land seizures that lead to evictions and homelessness have become one of the most serious human rights issues in Cambodia, where property deeds and other legal documents were destroyed under the Communist Khmer Rouge regime of the 1970s.

Land is often seized by the rich and powerful for logging, agriculture, mining, tourism, real-estate and other industries, sometimes in violent raids by the authorities.

"A moment ago, the Japanese ambassador asked me about Boeung Kak and I said that I already signed the order," Prime Minister Hun Sen said during the opening of a new Japanese-funded road.

Hun Sen said 12.4 hectares (31 acres) would be reserved for homeless families, out of the total 115 hectares (284 acres) of land used for the project led by China's Inner Mongolia Erdos Hongjun Investment Corp.

The unlisted Chinese developer has pledged to spend $3 billion in Cambodia on real estate, metal processing and power generation.

The Washington-based lender, which has repeatedly asked for the evictions to stop, said last Tuesday that loans to Cambodia had been halted since December last year and there would be no new lending until an agreement was made with Boeung Kak residents.

World Bank representatives were not immediately available for comment.

An estimated 30,000 people a year are driven from farmland or urban areas to make way for real estate developments or mining and agricultural projects in Cambodia.

(Reporting by Prak Chan Thul; Editing by Martin Petty and Yoko Nishikawa)

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The Chinese shadow over Boeung Kak lake

Liao Ruo

China Dialogue (2 part story - part 1)

16 November 2011

The shores of Boeung Kak Lake, a 90-hectare body of sparkling blue water on the north-eastern edge of Cambodia's capital Phnom Penh, are home to a bustling neighbourhood. While backpackers flock to its hostels and restaurants, locals fish in the lake's clear depths or, in dry season, plant vegetables in the lake bed.

At least, they used to. By the time I visited Boeung Kak in August, just two miserable pools remained, each several hundred square metres in size and surrounded by the detritus of a relocated community: the result of two and a half years of land reclamation.

For government and investors, the old Boeung Kak was useless, good only for sightseeing and fishing. But, situated close to the prime minister's residence, embassies, hospital, university and train station, it was a property developer's dream. And so the Cambodian government shelved an ecological restoration scheme selected through an international competition. And, in 2007, city authorities instead signed a 99-year lease with a firm named Shukaku, which plans to build a high-end residential and commercial district on the 133-hectare plot of land - including the lake.

This meant that more than 4,000 locals would have to get out of the way. Compulsory relocations started in July 2009. Although the community has fought back against both the developers and government, over the last two years more than 3,000 residents have found themselves with no choice but to leave their homes. Some have failed to secure reasonable compensation. Others have received nothing at all.

A range of methods has been used to persuade these locals to move. When work to fill in the lake began, water flooded residents' homes, making many of them uninhabitable. Another move was for the government to declare the homes illegal - the majority of residents had no formal documentation to prove ownership of the land. In this way, the authorities were able to mobilise the police to back up the developer's bulldozers.

Still, some residents held on. They petitioned prime minister Hun Sen, they protested, they wrote to the developers, they begged for assistance from the embassies of major donor nations and from the World Bank. And they paid a price - in large-scale protests in April and July, demonstrators, including elderly women, were beaten and some of the younger participants jailed.

It was only in August this year, when the World Bank said that "until an agreement is reached with the residents of Boeung Kak Lake, we do not expect to provide any new lending to Cambodia," that some change was seen. The Cambodian government told the developer it would have to provide the remaining 800 residents with a 12.44 hectare plot of land on which to build new homes. But any sense of victory was quickly squashed by the continued destruction of the community: on September 16, two bulldozers flanked by over 100 riot-police destroyed eight homes; 91 families were told they were not entitled to any compensation; and some residents ended up in court for "insulting the village head". Clearly, this tragic tale is not over.

And it's a tale in which Chinese actors have been playing a behind-the-scenes role. In the autumn of 2010, Inner Mongolian firm Erdos Hongjun Investment Corporation spent US$5 million (32 million yuan) on a 50% stake in Shukaku. Documents from the Development and Reform Commission in Ordos city show that the company will invest US$98 million (622 million yuan) in the construction of 351 villas. The project broke ground in July this year.

The Boeung Kak locals tried to raise their concerns with the Chinese investor, but found no avenue for doing so. And so they turned to official channels: on January 17 this year, dozens of resident representatives submitted a petition to the Chinese embassy in the hope it would encourage Erdos Hongjun to resolve the dispute. However, the embassy refused to accept the petition and asked the police to remove the representatives.

In February, local NGO Housing Rights Task Force sent a letter on behalf of the residents - written in both English and Chinese - to Erdos Hongjun's head office, asking that it "play a constructive role and bring interested parties together to discuss solutions, and include the hopes of the affected locals in their plans." There was no response.

Erdos Hongjun was not the first Chinese firm to get involved in the project.

Back in April 2007, just after Shukaku had signed its lease with the Phnom Penh government, a state-owned firm based in south-west China, Yunnan International, agreed to jointly develop the project with Shukaku. In November that year, the Kunming Daily quoted Yunnan's commerce department as saying that Yunnan International had obtained control of Shukaku - and the rights to the Boeung Kak project - in a US$50 million deal. Total investment was expected to be US$1.5 billion (9.5 billion yuan), making this Yunnan's largest overseas investment.

But in spite of the positive publicity, the project was soon abandoned. In March 2009, Yunnan Economic Daily ran a report saying that Yunnan International's parent company, the Yunnan Copper Group, had beaten an "orderly retreat" from three investment projects, including the Cambodia project, following a change of management in 2008. The company cited a need to "strengthen investment management".

In early 2010, the Phnom Penh Post found a report on the website of a company called Guangdong New Golden Foundation saying that it was to invest in the project, and surmised that Yunnan International had sold its interest on to this company. The website also featured photos of company executives with senior Cambodian officials, and the project is still listed there.

Then, in July, Chinese newspaper the Global Times reported that another Chinese firm besides Erdos Hongjun was working with Shukaku, providing funding while the Cambodians provided the land.

Yunnan International's US$1.5 billion or Erdos Hongjun's US$98 million - either of these would count among China's largest investments in Cambodia to date. Ministry of Commerce statistics show that Chinese firms' non-financial investments in Cambodia amounted to only US$395 million in 2010. Yet, despite the size of the project, the Chinese investors remain shadowy figures, to the point that many Cambodian NGOs and the press are unaware of the involvement of the Yunnan and Guangdong companies and unable to track down anyone from Erdos Hongjun to interview.

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A shadow over Boeung Kak lake

Liao Ruo

China Dialogue (2 part story - part 1)

16 November 2011

Where rule of law is weak, China's investors should be wary of hiding behind local regulations, writes Liao Ruo, concluding a two-part article.

Perhaps concerned about the negative impact of the "relocations" from Boeung Kak, the commercial attaché at China's embassy in Cambodia, counsellor Jin Yuan, gave an interview to the Global Times in January, rejecting responsibility on behalf of the Chinese firm. Shukaku bore sole responsibility for the relocations and Erdos Hongjun would only be involved after that process finished, he said, adding that compensation negotiations were being carried out by a special body appointed by the Phnom Penh government and had nothing to do with either company.

Admittedly, according to its contract, the Chinese company isn't legally responsible for the relocations. But as a 50% shareholder in the joint venture and the project's sole investor, doesn't it have a social responsibility to the thousands of residents whose lives have been gravely affected by the scheme?

The Global Times report also stated that "Even though the residents' buildings are mostly illegal, the development company has still paid out compensation and built alternative housing 20 kilometres outside of Phnom Penh." The implication is that the residents' demands are illegitimate, the developers have already done more than necessary and the Boeung Kak locals have no cause to bother the Chinese firm.

But in Cambodia, where the rule of law is weak, legality and justice may not always be one and the same. If you want to be a good investor, you have to make an effort to understand local realities, as well as obeying local rules.

Originally, the banks of Boeung Kak were uninhabited. But after the fall of the Khmer Rouge in the 1980s, Cambodians started to move back to Phnom Penh from the surrounding provinces and some settled here. In 2001, a new land law was passed: if a household could prove that it had lived in one place for the five years prior to 2001, then it owned the property.

Most of the residents around Boeung Kak meet that requirement. But the government has made slow progress certifying land rights, and so their ownership remains unrecognised. After the city government announced the leasing of land to Shukaku in February 2007, the locals started to fear they would sooner or later be driven away - and sure enough, the following year, government promises that locals would not be moved were broken, and pressure started to be applied. The nightmare began.

As the Global Times reported, the developers did provide compensation. Residents were given three choices: US$8,500 in cash; a new home 20 kilometres away from the city and US$500 for moving costs; or temporarily relocation to another site with the option of moving back in five years.

That may sound adequate, but it's not. Land in the area already costs US$3,000 per square metre. Assuming each household originally had 50 square metres of land, it would have had a market value of US$150,000. And so $8,500 is far from a fair price.

The majority of the displaced residents had no choice but to head to the city's outskirts and "spend about US$6,000 on a piece of land, and then another three or four thousand dollars building a house," Sia Phearum, secretariat director of Housing Rights Task Force, a Phnom Penh-based NGO, told reporters. They couldn't buy land in the city proper for two reasons, he said: one, it is too expensive, and, two, they would only be likely to be relocated again.

Unlike in Chinese cities, Phnom Penh does not have lots of residential property developments, and those that do exist are not built for ordinary people. If the average local wants a house, he or she "buys" a piece of land and builds on it. However, that "buying" normally means obtaining a proof of exchange from the village or county head, which has no legal force. If the government decides it wants the land, that piece of paper is not enough to prove ownership. Of course, residents can go through the proper formalities and have their land rights recognised, but that can cost US$1,500 in bribes to the authorities - more than an ordinary worker might make in a year.

The second option is no better. In early 2010, I visited the replacement housing provided to relocated locals by the developer: rows of single-storey buildings. Inside each house is just a large empty room. There are no kitchens, and the toilets are outside. Basic infrastructure is inadequate.

Most importantly, it's too far from the city. Cambodia is not a developed nation, and leaving the city means going back to an agricultural society, away from modern infrastructure like electricity and running water. It can also mean losing your livelihood: Phearum said 60% of those who moved here ended up returning to the city and renting somewhere to live.

Moving has also caused employment and education difficulties. The women can no longer earn their usual income setting up small stalls by their front doors, as the area has very few residents - and those who do live here have no money to spend. Many of the men tend to work as motorcycle taxi drivers and this has problems too: it's a 50 kilometre round-trip to the city, which means spending a lot more on fuel. There's no nearby school, so some children dropped out. One middle school student told me that he'd missed a year of education, until an NGO gave him a bicycle so he could get to a school 20 kilometres away.

The third option, to move back to Boeung Kak in five years, is even less popular. The developers are promising apartments in high-rise buildings, meaning residents will not be able to run stalls at their front door. The community also has no confidence that the developer will keep its promises.

And so the remaining 800 residents are refusing all three proposals and demanding land where they can build homes near the lake. The developer can continue to say its compensation schemes are more than fair, but in reality the residents have been placed in a hopeless situation.

How did this project attract two or three different Chinese firms, and how can those firms ignore the pleas of the locals? Perhaps it has something to do with who the Cambodian partner is.

Shukaku's chairman is senator Lao Meng Khin of the ruling Cambodian People's Party, and a special adviser to prime minister Hun Sen. He is also ethnically Chinese, and always accompanies the prime minister on visits to China. In 2009, Khin was invited to Beijing for the 60th anniversary celebrations of the People's Republic of China. He is often found lurking in the shadows of large Sino-Cambodian joint ventures.

In March 2004, Cambodian International Investment Development Group (CIIDG) - of which Lao Meng Khin is also chairman - signed a deal with China's Henan Jinqu Gold, forming Jinqu Mining, to extract gold ore in Cambodia. In November 2004, he imported a train from China South Locomotive and Rolling Stock, the first such purchase from China made by Cambodia. And, in February 2008, a consortium of four Chinese firms, led by the Jiangsu Hodo Group, invested in a special economic zone in Sihankouville, again in partnership with CIIDG.

An investigation by United Kingdom-based NGO Global Witness has found that Lao Meng Khin is also a director of a forestry company that cooperates with Chinese logging business Hainan Wuzhishan Group, and of two more firms which, judging by their names, are likely China-Cambodia joint ventures: Petrol Camchin and Sino Hydropower.

Clearly, he has excellent contacts with the authorities in charge of various resources. Global Witness estimates that Lao Meng Khin and his wife's company, Pheapimex, has felling rights to 1.33 million hectares of forest - 7.4% of Cambodia's total land area. According to a US embassy cable released by Wikileaks, Pheapimex has recently obtained usage rights for 315,000 hectares of land for plantations and mining.

Having such a well-placed Cambodian partner may ease the worries of many Chinese investors. But high political benefits also bring high political risks. On September 11 this year, Cambodia's main opposition party, the Sam Rainsy Party, issued a statement describing Shukaku as "an enemy of the Khmer people". It warned all law-abiding companies and organisations to avoid any connection with the company, including owning its shares, making joint investments, loans, guarantees, purchasing or supplying products or services or cooperating in any way. Although the governing Cambodian People's Party still has a strong grip on power and the Sam Rainsy Party is very likely to remain in opposition for the foreseeable future, its rhetoric and the public opinion it represents must be taken seriously.

Liao Ruo is a reporter based in Beijing.