- Cambodia plans to build a 180-km (110-mi) canal from its capital to its coast on the Gulf of Thailand, a $1.7 billion project aimed at reducing its dependence on moving cargo through ports in neighboring Vietnam.
- But this analysis concludes that the plan is financially unfeasible, would have severe environmental impacts, and would exacerbate water scarcity in a region already suffering from critically low levels in the Mekong.
- The Cambodian government’s argument that the canal would make freight transport cheaper falls apart under cursory calculations, which show shipping costs will be even higher than via the Vietnamese ports.
- This article is an analysis. The views expressed are those of the author, not necessarily of Mongabay.
Cambodia is pushing ahead with plans to link the nation’s capital, Phnom Penh, to its coast with a canal running 180 kilometers, or 110 miles. According to Cambodian leaders, 51% or more of the canal’s cost will be covered by Cambodian companies and the remainder by a Chinese build-operate-transfer (BOT) firm. Groundbreaking has been scheduled for Aug. 5.
Cambodia has thus far flatly refused to consult about the canal project’s likely transboundary impacts with Vietnam and other Mekong River Commission stakeholders.
Although Cambodia’s leaders insist the canal is a prudent investment in the nation’s interest, this review raises grave doubts about its economic feasibility and, secondarily, alarm over the environmental impacts inherent in the canal’s reported scope and objectives.
The rhetoric is loud and clear
The planned Funan Techo Canal (FTC) could be regarded as Cambodia’s analog to China’s Grand Canal: a remarkable accomplishment and an object of Khmer national pride.
As notified to the Mekong River Commission in August 2023, the FTC is to be 180 km long, 80-100 meters (260-330 feet) wide, and 5.4 m (18 ft) deep, able to accommodate vessels up to 1,000 tons deadweight (DWT). A higher tonnage of 3,000 DWT has also been mentioned by Cambodia. Further, based on the canal dimensions, the canal should be able to accommodate 5,000 DWT vessels in the wet season. The canal will link the Mekong River to the Bassac River, and then, through Kandal, Takéo and Kampot provinces, to Kep province and the Gulf of Thailand.
Former prime minister Hun Sen, now president of the Cambodian Senate, is a fervent champion of the canal project. His son Hun Manet, who succeeded him as prime minister in 2023, has also embraced the project. In a striking metaphor, Hun Manet has called it an opportunity for Cambodia’s people to “breathe through our own noses.”
The rhetoric is loud and clear, but the claimed benefits have unseen costs and risks. This report explores five uncertainties that could and probably should derail the Funan Techo Canal project.
1. Financial arrangements remain vague
The Cambodian government has projected that the FTC will generate revenues of $88 million in its first year of operation and reach $570 million annually by 2050.
Early briefs on the project described it as a build-operate-transfer venture within the scope of China’s Belt and Road Initiative (BRI). It was said that Chinese firms would execute a BOT contract budgeted at $1.7 billion and, after recouping their investment, hand over the canal to Cambodian partners 40 to 50 years later. Projects by China in its Belt and Road Initiative typically require a loan interest rate of 7-10%. By comparison, the World Bank offers interest-free project loans for the first 10 years and an interest rate of only 2.5% from year 11 to 50.
On May 30, however, Prime Minister Hun Manet asserted that Cambodian entities, so far unidentified, will have a majority (51% or more) stake in the canal venture; a BOT contractor presumably will provide the balance.
Notwithstanding this conceptual churning, Cambodia’s political leaders are vigorously promoting the canal project to their citizens. At a meeting in June, Deputy Prime Minister Sun Chanthol asserted that its economic internal rate of return (EIRR) will be a jaw-dropping 30%.
During a recent webinar organized by the Singapore-based ISEAS–Yusof Ishak Institute, Vannarith Chheang, chairman of Angkor Social Innovation Park, said the $1.7 billion budget could be on the low side, causing private companies to seem hesitant. He speculated that China was “not interested in fully investing” in the canal project.
2. Environmental impacts and international obligations
The Bassac River is a mainstream distributary of the Mekong. By redefining it, contrary to river science, as a tributary, the Cambodian National Mekong Committee seems intent on circumventing the Procedures for Notification, Prior Consultation and Agreement (PNPCA) of the 1995 Mekong Agreement.
Per the PNPCA, prior consultation is neither a right to veto the use nor a unilateral right to use water by any riparian state without considering the rights of other riparian states.
At the same ISEAS webinar, Vannarith said the Cambodian government had hired international lawyers for expert advice. According to their analysis, since the project utilizes water from a tributary rather than the Mekong mainstream, Cambodia is required to go through only the Notification process at the Mekong River Commission, as outlined in the 1995 Mekong Agreement, particularly Article 5.
Cambodia’s unilateral action threatens the complete collapse of the Mekong Agreement. Brian Eyler, director of the Southeast Asia Program at the Washington D.C.-based Stimson Center, pointed out to ISEAS participants the possibility that other countries could follow Cambodian precedent. In theory, Thailand could unilaterally transfer water from the mainstream and Laos could build any dam it wished without consultation and agreement with anyone.
More importantly, by playing down the transboundary impacts of the canal project on Vietnam, Cambodia’s leaders have also dodged discussing its environmental impact on Cambodia and the Khmer people.
Further, though Cambodian experts and some Vietnamese experts as well dismiss this, a well-engineered flood control system is essential to construction of the Funan Techo Canal. If built without regard to water flow, the canal will act as a natural levee, cutting a 1-million-hectare (2.5-million-acre) floodplain in half, impoverishing 1.6 million Cambodians and millions more in adjacent Vietnamese provinces.
Eyler and his colleagues at the Stimson Center explained that water would flood land on the northwest side of the canal during the annual wet season while the supply of water to the canal’s southeast would be restricted. Noting that “the costs of levee maintenance and flood damage mitigation introduced by the canal are not discussed in the project notification document,” Eyler argued that the Cambodian government owes the Khmer people a solid plan to safeguard this rich agricultural region from floods and drought.
Further, the planned excavation of the canal route to a depth of 12 m (39 ft) will disturb the Holocene soil of the region, says Le Phat Quoi, head of Vietnam’s Institute for Environment and Natural Resources. Quoi tells me he is particularly concerned by the pyrite (Fe2S) in the soil. The disturbance of a “potential acid sulfate soil” will result in its oxidation; it will become “actual acid sulfate soil” that releases sulfuric acid (H2SO4, pH 3.0), harmful to the canal infrastructure, and high levels of toxic metals such as arsenic, cadmium, chromium and lead. Quoi foresees that these will pollute the floodplain environment with consequent damage to agriculture and aquatic life.
3. By gravity flow alone, the canal cannot provide water to irrigate the region
The Cambodia National Mekong Committee contends that the canal project will supply enough Mekong River water to sustain irrigation along the course of the canal. This is highly doubtful. I estimate the canal’s gravity flow to be 55 cubic meters per second (1,942 cubic feet per second) in the dry season and 144 m3/s (5,085 ft3/s) in the wet season. Le Anh Tuan of Can Tho University in Vietnam estimates that to irrigate 50% of the farmed area of Cambodia’s Kandal, Takéo and Kampot provinces during the dry season will require that the canal supply nearly 1,700 m3/s (60,000 ft3/s) of water, more than 10 times my estimate of its wet-season flow capacity.
There appears to be little scope for expanding cultivation in the vicinity of the proposed canal. The supply of freshwater to the Mekong Delta during the dry season in recent years — specifically to Kandal, Takéo and Kampot, and just across the border, to Vietnam’s An Giang and Kiên Giang provinces — has already reached a critically low level.
Eyler believes that China’s dam operations can be adjusted in a way that respects the river system’s natural flood pulse and the value of the Tonle Sap fishery: “If the Tonle Sap, Cambodia’s Great Lake, is doing well, then the rest of the Mekong is doing well.”
As the organizer for the 1999 Mekong River Declaration, I am convinced that Cambodia and Vietnam should not compete for the water released by upstream dams; the two nations should instead join forces to persuade the upper Mekong countries to pledge a flow of water that’s sufficient to restore and sustain the Tonle Sap’s pre-dam-era flood pulse.
4. The canal’s projected cost is too low and its projected revenue too high
There is already an efficient cargo connection between Phnom Penh and Cambodia’s coast. The four-lane Phnom Penh–Sihanoukville Expressway, completed in 2023 at a reported cost of $2 billion, is designed to withstand 40-ton traffic loads. The Funan Techo Canal will be as long as the highway but three to four times wider. The canal structure must be engineered to withstand both water pressure and turbulence from moving merchant ships up to 5,000 DWT. That heavy load requires that the canal have a stronger bed than the expressway. According to Vannarith, some experts, particularly from China, have noted that a similar 100-km (62-mi) canal in China cost over $10 billion.
Regarding income, Cambodian Deputy Prime Minister Sun Chanthol has projected income from tolls on the canal to be $88 million in the first year and $570 million annually in current dollars after 25 years.
Such projections imply an 8.1% CAGR (compound annual growth rate) sustained for 25 years. This is quite improbable; the 30% project EIRR that Sun Chanthol cited is also highly improbable.
By contrast, market research company Mordor Intelligence projects a CAGR for Cambodia of 3.95% over 25 years. We suspect that prospective investors and/or BOT contractors must be aware and will ensure that in any event they will not take a loss. What will the Cambodian government do if canal revenues are less than half its projection?
5. It will be cheapest to ship Cambodian goods via ports in southern Vietnam
More than 30% by volume of seaborne cargo to or from Phnom Penh are currently transshipped at Cai Mep or Cat Lai, Vietnamese ports near Ho Chi Minh City. Despite assurance of most favorable status in a bilateral treaty on waterway transportation, Vietnamese inspection of goods bound for Cambodia is not optimally efficient. Customs reportedly still inspects cargo in transit manually, even bonded goods in sealed containers. Vessels may only clear waterway checkpoints during “regular working hours.” These inefficient procedures ought to be corrected by Vietnam whether or not Cambodia builds the FTC.
Notwithstanding, particularly for cargo traded with the top five trading partners in East Asia and North America, I think it is clear that shipping goods to and from Cambodia via the Vietnamese container ports will remain considerably more economical than the alternative of transporting goods via the proposed FTC and then transshipping them via a future seaport at Kep or an upgraded port at Kampot.
Sun Chanthol, the deputy prime minister, has claimed that using the Funan Techo Canal to Kampot Port, rather than transshipping at a port in southern Vietnam, will save Cambodia $181 per TEU (twenty foot equivalent, the standard measure of container cargo volume). Sun’s statement is hard to fathom because the current tariff using the Vietnam route is only $145/TEU.
To calculate relative benefits, I did a back-of-the-envelope engineering economic assessment of the FTC project. Vessels using the FTC route would have to go from A to C and then B on the map below, paying toll and tariff for using the canal (A to C) and then a shipping tariff for the Ca Mau Route (C to B) to the East Asian and North American destinations that account for 60% of Cambodia’s foreign trade.
I concluded that using the FTC route (A-C-B) in year 1, commercial vessels would have to pay $550/TEU. Alternatively, if using the Vietnam route (A-B), they would pay $145/TEU in current dollars.
In year 25, using the FTC route (A-C-B), commercial vessels would have to pay $1,518/TEU, whereas, if using the Vietnam route (A-B) they would pay $468/TEU in current dollars.
Unless Cambodia gives them no choice, shippers will not cease transshipping through Vietnam’s Cai Mep Port. A likely consequence of the canal’s operation would be for it to capture instead some part of the goods now transported by truck between Phnom Penh and Sihanoukville, reducing the new expressway’s toll revenues.
Presumably BRI planners will calculate the tradeoff, aiming to balance the goods flow between the two big investments, and also conclude that the FTC plan, however attractive it is to Cambodian leaders hoping to reduce their nation’s dependence on Vietnamese waterways, is simply not going to be profitable. The economics of the expressway and the canal would certainly cancel out or undermine each other.
And so, if the FTC is in fact built, I expect high user fees and tariffs will likely deter Cambodian enterprises from relying on it for the bulk of the nation’s maritime exports. Most shipping between the Phnom Penh area and East Asian or North American ports will continue to rely on the two main branches of the lower Mekong to transport goods for transshipment at Vietnamese ports in the Ho Chi Minh City area.
Banner image: The Tonle Sap River in Phnom Penh. Image by Kent Kruhoeffer via Flickr (CC BY-ND 2.0).
Acknowledgment
I am indebted to David Brown for his proofreading, reviewing this article in draft for coherence, and offering valuable advice for audience awareness.
About the Author
Pham Phan Long, founder of the Viet Ecology Foundation, a U.S. NGO, is the author of the 1999 Mekong River Declaration. Trained as an engineer, Mr. Long has been a consultant in high technology facilities and infrastructure engineering. In 2019, with the aim of reducing electricity rates borne by Cambodians from the highest to the lowest in the region, Mr. Long proposed a floating solar power project on Tonle Sap Lake. His study of Tonle Sap hydrology has convinced him that if China and Laos moderate their upstream water storage and otherwise cooperate with Cambodia and Vietnam in an equitable manner, the pre-dam annual flood rhythm of the Tonle Sap can be fully restored with little negative impact on the upstream nations.
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