Rehabilitation of the Railway in Cambodia

The initiative

The Cambodian government initiated the Rehabilitation of the Railway project in 2007 in collaboration with the ADB. Its objective was to restore railway infrastructure by rehabilitating the existing track and re-establishing Cambodia's rail connection with Thailand. The project aimed to support Cambodia's economic development and strengthen subregional integration by enabling cost-effective and efficient railway transport within Cambodia and between Cambodia and the neighbouring countries of Thailand, Malaysia and Singapore. The rehabilitated railway would then be operated by a commercial railway operator through a concession for a period of 33 years under a public-private partnership (PPP) arrangement.

The expected outcome of the project was a rehabilitated and restructured railway that would:

• "Increase the efficiency of the overall transport sector by increasing the competitiveness of the railway
• "Secure the long-term sustainability of the railway subsector through improved productivity and efficiency and adoption of a market-based tariff...
• "Reduce road damage and road traffic risks associated with the movement of heavy and dangerous goods
• "Facilitate economic growth in Cambodia by providing cost-effective and efficient railway transport
• "Facilitate subregional trade and economic growth in Thailand
• "Pave the way for proposed future construction of a new railway line between Cambodia and Vietnam
• "Reduce wear and tear from heavy cargo haulage on Cambodia's road network
• "Reduce public sector losses."[2]

The challenge

In the first decade of the 21st century, Cambodia's road transport system was inefficient, due to the lack of modal and route competition. Improving the sector's efficiency required increasing the diversity of transport, so that shippers and passengers had practical alternatives to existing routes and modes of transport. This had an impact on the Cambodian economy, as the lack of alternatives locked transport buyers into expensive services, a cost which was passed on to products in general. This made regular goods more expensive in Cambodia than in neighbouring countries, which affected the poor above all. Overall, the transport problem became a constraint on growth, and diminished the potential of the economy to diversify into new sectors such as agribusiness and the assembly industry.

The Cambodian railways were also in a poor physical condition because of war damage and decades of neglect. The last 48km of track towards the border with Thailand had been destroyed during the civil war. Railway traffic was declining because of the poor condition of tracks and equipment, which rendered the railways increasingly unreliable and slow. The staff of the Royal Railways of Cambodia (RRC) were underpaid, and professional skills and staffing levels were deteriorating. As a result, the railway was operating at a loss. Neither the RRC nor the Government of Cambodia had the resources required to turn the railway around. Estimates at the time were that without further investment, the railway network could cease to operate within a decade.[1]

The public impact

The project received significant criticism for its management, timelines, and negative impact on families in the affected areas. It was meant to help the economy by improving the country's transport links. However, by 2014, only the southern line between Phnom Penh and Sihanoukville was operational, while the longer northern line, linking Phnom Penh to Poipet and the Thai border, had run out of funds with a large part of the work still unfinished.[3]

There had also been a collateral burden on the population, who had suffered loss of property, livelihood and income: “Some 3,000 families living along the tracks have lost parts of their land to make way for the project, and another 1,000 have had to move to ill-equipped resettlement camps".[4] While some families benefited from the relocation, most appear to have been left worse off.

A review panel found significant flaws in the original resettlement plan: resettlement sites were far from the families' jobs, efforts to help them earn more money were late, and there were also inaccuracies in the assessments of the property that families had to give up to compulsory purchase. None of this was taken into account in the compensation scheme, nor was it adjusted for inflation when being paid out (over five years late).[5]

Stakeholder engagement

The main stakeholders of the Rehabilitation of the Railway project were the Cambodian government, specifically the Ministry of Public Works and Transport (MPWT), and the ADB and AusAID, which provided funding and other contributions. These stakeholders organised several meetings and studies during the design phase, but failed to hold appropriate consultations with local communities, and this resulted in a negative perception of the overall planning.

The ADB conducted a regional technical feasibility study in 2006 as part of its initial efforts to encourage cooperation amongst the countries in the region, including: the Kingdom of Cambodia, the People's Republic of China (PRC), the Lao People's Democratic Republic (Lao PDR), Myanmar, the Kingdom of Thailand, and the Socialist Republic of Vietnam.[6]

Similarly, there were a number of meetings held during the preparation of the project, involving various stakeholders, government officials, and members of communities affected by the project, especially regarding resettlement issues. The ADB reported that "in-depth stakeholder analysis was conducted with members of affected households, business owners, and government officials during implementation of the resettlement plan. The stakeholders' workshop covers issues related to resettlement site selection, compensation, relocation, land acquisition, etc."[7]

However, the ADB was later widely criticised for not having an appropriate consultation process for the resettlement of local communities. The ADB's Compliance Review Panel (CRP) "found major design flaws in the original 2006 resettlement plan... These included inadequate requirements for consultation with and participation by affected households, a lack of provisions for inflation-indexed compensation, no provisions for replacement housing of minimum standard to improve the situation of poor and vulnerable resettled families,” among other issues.[8]

Political commitment

There was a good level of political commitment for this project. The railway had important economic objectives, given Cambodia's limited transport infrastructure, and the government saw this as a priority, given the need to improve the logistics, operating capacity and reliability of the country's infrastructure. "The ADB and the Transportation Ministry have sold the project as a key component of the country's continued economic development and critical to its success as the region integrates, connecting Cambodia's main port in Sihanoukville to Thailand via Phnom Penh.”[9]

Although most of the financing was initially provided by foreign donors, the government saw its responsibility to attract private investment in railway operations services. "These include the enactment of a Railway Reform Law or other legislation which will establish the legal basis for and protect the concession agreement, and contain provisions which will simplify and facilitate the investment framework and remove barriers to competition. In addition, the government will encourage the development of fair modal competition in the transport sector by the enforcement of existing restrictions on road vehicle load limits.”[10]

In 2015, when the project was halted before its completion, the government was unable to convince either the ADB or AusAID to finance the remaining portion. At that point the Cambodian government decided to pay the USD33.5 million bill itself.[11]

Public confidence

Although at completion the project achieved the expected advances in connectivity, the means by which it took place - with failures in compliance and procedure - caused widespread discontent in the population.  A review led by the CRP in 2012 found that claims of "alleged harm" to the population included the following:

• “Anxiety and stress due to inadequate access to information and consultation, and threats and harassment
• “Threat of illegal forced eviction of households
• “Indebtedness and impoverishment resulting from inadequate compensation and loss of income
• “Loss of access to basic services and unsafe conditions at resettlement sites leading to death
• “Impact on children: food insecurity, drop in school attendance, and reduced access to health services
• “Mental and physical harm due to abuse and threats at the Phnom Penh resettlement site
• "Threat of unlawful land acquisition and expropriation of property without provision of compensation based on the full market price at the time of expropriation; and
• “Violations of human rights guaranteed to the requesters by the Cambodian constitution and laws, and under international treaties ratified by Cambodia.”[12]

Clarity of objectives

The Rehabilitation of the Railway project had very specific objectives; some remained as defined at the outset, while others were adjusted during implementation. The main initial objectives were:

• "Rehabilitate 594 kilometres (km) of existing railway track and associated structures, passing loops, and spur lines;
• "Reconstruct 48km of destroyed railway line to Thailand;
• "Construct direct railway access to the container terminal in the port of Sihanoukville;
• "Restructure the railway subsector;
• "Assist employees made redundant because of the restructuring; and
• "Provide consulting services and training for project monitoring, engineering design, and supervision of civil works."[13]

The objectives that were modified after the project was under way included:

• The track rehabilitation of the northern line was reduced by 318 km against the original plan
• A freight and rolling stock maintenance facility meant to be built at Samrong was cancelled
• A rail link to a second dry port in Phnom Penh was also cancelled.[14]

Strength of evidence

The ADB undertook a thorough feasibility study before the launch of the project, which reviewed previous projects in the area, mainly in terms of geological conditions and engineering, environmental and other physical aspects. Similarly, the ADB had conducted a census of land and properties and socioeconomic surveys, based on its guidelines for the resettlement plan for households that were expected to be negatively affected.[15] However, later reviews pointed out that the appropriate procedure regarding affected households was not followed.

Cambodia already had a record of poor land management and resettlement conflicts before this project. The IRC [Interministerial Resettlement Committee] had previously worked with the ADB and the Cambodian government a decade before for the rehabilitation of the first stage of National Road 1, working under the 1995 ADB guidelines on involuntary resettlement. However, at the time the project was beset by a lack of communication and information, a poor resettlement plan, inappropriate compensation, and intimidation tactics.[16]

Feasibility

Before the project began, the government chose rail as the most competitive transport option to explore because of its cost structure, which differs from that of transport by road and sea. It also saw the railway as an efficient competitor from the geographic perspective, because the lines ran parallel to the country's busiest highways. An ADB feasibility study indicated that the rehabilitation of both the Southern Line and the Northern Line were technically, economically and environmentally viable, and offered an adequate economic internal rate of return. As such, the government recommended that the project should go ahead.[17]

Later on, however, an evaluation panel suggested improvements to the ADB's management of the affected population, and recommended that the bank should assign more staff and find reliable, effective and independent monitors for all future projects where resettlement and environmental impacts were significant.[18]

To ensure that funds were available to meet its debt servicing obligations for the railway rehabilitation project, and to facilitate the financing of future capital works to extend the railway network, the government established a property development entity with the ability to rent and develop parcels of the RRC's land assets. The estimated project cost was USD73.0 million equivalent, including taxes and duties of USD7.4 million equivalent. This was financed largely by the ADB (57%), as well as the OPEC Fund for international development (18%), the Government of Malaysia (4%) and the Government of Cambodia (21%).[19]

Management

Both the MPWT and the ADB were ineffective in their management of essential aspects of the project's planning and implementation.

The MPWT was the executing agency for the project. A project implementation team was set up within the MPWT to execute the preparatory technical assistance, with qualified technical, financial, and support staff for project management and implementation. This team was responsible for implementation, including handling procurement, withdrawing loan proceeds, and reporting to the ADB.[20]

The ADB was also deficient in aspects of management. Later evaluations by the CRP concluded that ADB staff failed to address resettlement issues in time to avoid or mitigate harm to affected households or bring the project into compliance with ADB policies. It was reported that "senior ADB management did not know of, or knew of but did not act on, the above issues until NGOs complained to the ADB president in October 2010."[21]

One of the biggest criticisms is that "management did not consult with the Requesters and their representatives on the

development of its action plan, denying affected households (AHs) the opportunity to influence the measures intended to remediate the harms that they themselves have experienced... In response to complaints by affected communities regarding the lack of consultation on the plan, Management committed only to seek feedback from AHs on the remedial actions on which agreement with the Cambodian government has been secured.”[22] Additionally, poor planning and management of resources led to funds for the project running out ahead of time, when only 48km from Phnom Penh on the northern line had been completed.[23]

Measurement

There was a good measurement system in place and an allocated institution for monitoring. However, some of the implementation metrics were not applied appropriately - especially regarding local communities - leading to negative performance of this critical element in the project.

The MPWT was the entity responsible for implementing as well as monitoring the resettlement activities. It was expected to submit quarterly progress reports to the ADB. An independent,  IRC-contracted external monitoring organisation was required to submit periodic reports on the progress of implementation and make any necessary recommendations regarding the issues it identified.

The MPWT was supposed to establish baseline and target values for selected indicators, which would be measured at project inception, completion, and three years after completion to compare with the baseline.[24] The performance of the MPWT as implementer of the project was considered to be satisfactory overall, but it essentially failed to address metrics on resettlement appropriately. "The project administration memorandum, which provided guidance on project implementation, did not include a section on resettlement, and the project had no tool to provide uniform and consistent guidance to those tasked with planning and implementing the [resettlement plans]."[25]

Alignment

Cooperation and alignment with foreign institutions seemed to work well in this project. The major issues came around the communication and integration of the interests of local communities.

The original provisions of the 2006 resettlement plan were retained even after changes in key site parameters, and these changes were not addressed in the resettlement plans. "Compensation paid from 2010 to 2011 was inadequate because it was based on the 2006 rates and did not take price increases over the intervening 5 years into account.”[26] Project reviews concluded that these problems had existed from the start. “These included inadequate requirements for consultation with and participation of affected households, a lack of provisions for inflation-indexed compensation, no provisions for replacement housing of minimum standard to improve the situation of poor and vulnerable resettled families, inadequate planning for the facilities required at resettlement sites, inadequate grievance redress mechanisms, and a weak programme for capacity-building for government entities involved in the project.”[26]

Regarding the relationship with foreign partners, the Cambodian government assumed responsibility for ensuring that safe and reliable rail operations and services were provided and regulated in a transparent manner through a concession agreement. In order to assure investors that the concession process would be open and fair to all bidders, the government - in consultation with the ADB - used a transparent procurement process which complied with international best practice.[27]

In 2009, Toll Royal Railways, a consortium of Toll Holdings of Australia and the Royal Group of Cambodia, were awarded a 30-year monopoly concession of Cambodia's railways. After this, AusAID agreed to contribute funding to the project, and the ADB extended additional credit.[28] In parallel efforts, AusAID engaged the Credit Union Foundation Australia to help strengthen financial literacy among affected households. A comprehensive 18-month training was offered to all five relocation sites to provide financial counselling for approximately 1,000 resettled families to help them manage their income and improve their economic situation after resettlement.[29]

Bibliography

ADB Railway Project Made ‘Major' Mistakes, Zsombor Peter, 8 February 2014, Cambodia Daily

Cambodia: Greater Mekong Subregion: Rehabilitation of the Railway in Cambodia Project - Major Change in Project, September 2014, Asian Development Bank

Cambodia: Preparing the Greater Mekong Subregion: Rehabilitation of the Railway in Cambodia (Financed by the Japan Special Fund), November 2006, Asian Development Bank

Final Report Greater Mekong Subregion: Rehabilitation of the Railway in Cambodia Project, 14 January 2014, Asian Development Bank - Compliance Review Panel

Greater Mekong Subregion (GMS): Rehabilitation of the Railway - Proposed Program and Rationale for Government of Australia Participation, Australian Government Department of Foreign Affairs and Trade

Off the Rails: AusAID and the Troubled Cambodia Railway Project, 2013, AID Watch

Proposed Loan and Administration of Loan to the Kingdom of Cambodia: Greater Mekong Subregion: Rehabilitation of the Railway in Cambodia Project, November 2006, Asian Development Bank