On 11 March 2023, the Law on Clean Water Supply Management was promulgated to regulate clean water supply business within Cambodia (“Law on Clean Water Supply Management”). This new law is aimed to ensure the quality, safety, sustainability and affordability of clean water supply. The scope of this law applies to commercial supply of clean water in Cambodia.
Licensing Framework
A license for the operation of clean water supply business (“Business License”) may be granted to a specific supply area through competitive bidding or direct negotiation, with specific requirements to be provided in a regulation to be issued by the ministry in charge of clean water supply, being the Ministry of Industry, Science, Technology and Innovation (“MISTI”).
To undertake a clean water supply business in Cambodia, a concessionaire must have: (1) a permit to conduct the feasibility study; (2) a Business License; and (3) a business operating certificate from the MISTI. Pending the adoption of the implementing regulations for this new law, the existing regulations that were issued prior the adoption of this law to regulate the feasibility study process and the procedure to apply for the Business License and the operating certificate will remain valid and effective until they are replaced by the new regulations.
In addition, the implementation of a public infrastructure project (including a clean water supply project) must also comply with the provisions of the Law on Public Private Partnership dated 18 November 2021, which requires the investor to enter into PPP contract/implementation agreement with the MISTI. As a matter of practice, the PPP contract/implementation agreement sets out the water tariff rates and obligations of the parties, the obligation to obtain the required permits for the construction of water treatment facilities and the use of natural water both on the surface and underground.
Water Tariff
Based on Article 26 of the Law on Clean Water Supply Management, the determination of the water tariff is made in compliance with the policy of the Cambodian government and based on each geographical area, source of water, treatment system, technology, population, physical infrastructure and production costs in order to ensure benefits for both consumers and the supplier. The water tariff will need to be reviewed every five years by the MISTI, and any premature amendment to the water tariff is subject to prior consultation with the supplier. The MISTI has the power to amend the water tariff rate before the term when there is an event of force majeure.
Expansion of Water Supply Area
Subject to prior approval from the MISTI, a supplier may expand its clean water supply area to the boundaries of adjacent supply areas provided that such areas have not yet been licensed to other operators pursuant to Article 19 of the Water Supply Management Law. A supplier can only apply for expansion of the supply area if it has supplied at least eighty percent (80%) of clean water in its approved supply area, and the construction program of the water treatment facilities has been one hundred percent (100%) completed pursuant to the approved plan.
Rights of Supplier and Investment Incentives
Suppliers may transfer, lease, sell or create securities over a Business License, subject to prior written approval from the MISTI. The procedures and requirements to transfer, lease, sell or create securities over the Business License will be determined in a regulation to be issued by the MISTI.
Pursuant to the Law on Clean Water Supply Management, the basic rights of the suppliers, including the: (1) right to supply clean water exclusively in its supply area; (2) right to receive investment incentives in accordance with investment regulations of the Cambodian government and policies related to financial support; and (3) right to manage and receive protection over the clean water supply infrastructure in its supply area.
Based on the above, the suppliers are entitled to receive certain investment incentives and protections under the Law on Investment dated 15 October 2021, including profit tax and customs duty exemptions and investment protections, such as: (1) compensation for losses as a result of civil war, armed conflict and a state of national emergency; (2) fair treatment for domestic and foreign investors, with the restriction on land ownership by foreign investors remaining unchanged; (3) protection against nationalization or expropriation; (4) restriction against pricing regulation; (5) no restriction on foreign exchange control and profit repatriation; and (6) intellectual property protection. Please refer to our alert regarding the Law on Investment https://www.dfdl.com/resources/legal-and-tax-updates/cambodia-promulgation-of-the-law-on-investment/. The investors are also eligible for various financial support measures under the PPP Law, including viability gap financing, fee payments based on the State budget and State contingent liabilities.
Penalties
Further, the Law on Clean Water Supply Management imposes serious penalties against illegal water supply in licensed areas and destruction to clean water supply infrastructure.
Under the Law on Clean Water Supply Management, administrative and/or criminal penalties may be imposed on individuals or legal entities who violate the provision of this law and the terms and conditions of the respective permits, certificates or licenses. Administrative sanctions include a written warning and/or the suspension, withdrawal or revocation of permits, certificates or licenses, while criminal penalties encompass a monetary fine, transitional fine and/or imprisonment.
Should you have any concerns or queries on the matters mentioned above, please feel free to contact us at cambodia@dfdl.com.
The information provided here is for information purposes only and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
