Chinese firm plans $11 bln rail, port, steel projects in Cambodia

PHNOM PENH Wed Jan 2, 2013 6:03am EST

PHNOM PENH Jan 2 (Reuters) - Two Chinese companies have reached a deal to build a 400-km (250-mile) rail line, a steel plant and a sea port in Cambodia worth a combined $11.2 billion in what would be by far the impoverished country's biggest-ever investments.

Cambodia Iron and Steel Mining Industry Group has contracted the China Railway Group to build a railway to link a steel facility in northern Preah Vihear province to a port at the southern commercial island of Koh Kong, the company's chairman said on Wednesday.

The rail link and port would cost $9.6 billion and the steel plant $1.6 billion.

The deal is the latest sign of China expanding its footprint in the frontier economies of a booming Southeast Asia as the United States vies for influence in the region.

Loans and investment have won China some useful political allies in the 10-member Association of Southeast Asian Nations (ASEAN), which is set to become an integrated trade community by 2016.

All three projects in Cambodia would start this year and take up to four years to complete, chairman Zhang Chuan Li said.

"There is an important demand for transport of mined materials for export to China and to the world," Zhang told Reuters.

Cambodia Iron and Steel is a Chinese firm based in Phnom Penh and established in 2006.

The agreement was made on Monday and came three days after Sinomach China Perfect Machinery Industry Corp and Cambodian Petrochemical Company announced they would jointly build a $2.3 billion oil refinery, Cambodia's first, capable of processing 5 million tonnes of crude a year.

Chinese companies are also set to build a $7 billion, 400 km high-speed rail link through neighbouring Laos and are trying to win contracts to build new lines in Thailand.

Zhang was unable to provide details about where the billions of dollars for the Cambodian rail, steel and port projects would come from when Reuters visited the company's modest Phnom Penh office on Wednesday, when the only employees seen were four Chinese labourers in flip-flops eating lunch.

Zhang said a groundbreaking ceremony for the railway would be held by the end of this month and construction of the steel plant in Preah Vihear would start in July.

A three-km bridge would connect an island in the southern coastal province of Koh Kong with the mainland and the project would boost the economies of the four provinces covered by the link, the company said in a statement.

Peter Brimble, senior country economist at the Asian Development Bank (ADB), was surprised by the size of the rail project.

"It must be the largest ever project in Cambodia," said Brimble, who has been involved in the ADB's rehabilitation work on 650 km of disused railway lines in Cambodia. "Perhaps it's easier to build a new one. Let's wait and see." (Editing by Martin Petty)

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