Cambodia licensed village diesel operators instead of banning them; tariffs halved

Rural Cambodia ran on small private operators: entrepreneurs ran isolated diesel mini-grids, charging about US$0.60 per kilowatt-hour for four hours a day — the 2003 appraisal figure. The state utility EDC could not help; national capacity of 109 megawatts fell short of 118 megawatts of demand, forcing EDC to cut supply to about three hours a day, and grid-equivalent electricity reached only about 5 percent of rural households against 55 percent of urban ones. The textbook fixes — shutting them down, or out-building them village by village — were cruel or unaffordable.

The 2001 Electricity Law took the third path: it created the independent regulator, the Electricity Authority of Cambodia, and rather than suppress the village operators, EAC licensed them as Rural Electricity Enterprises. The World Bank and ADB financed the supply: a Rural Electrification and Transmission Project (US$150 million plus ADB cofinancing, 2003) covering a 230 kV Vietnam interconnection, grid reinforcement around Phnom Penh, a national control center, and explicit support for the 'symbiotic relationship' of EDC and the REEs, including distribution licensing.

When the grid arrived, about 53 percent of REEs retired their small, inefficient diesel generators and switched to EDC bulk supply. Daily service hours rose from four in 2003 to twelve by 2012, well above the eight-hour target; about 54 percent went round-the-clock. Retail tariffs in licensed-REE areas fell from US$0.60 to US$0.35 per kilowatt-hour, beating the US$0.425 target, as REEs swapped self-generation for grid power but kept their customers. EAC licensed 297 independent power producers and REEs against a target of 180; by 2009 some 175 ran mini-grids and 23 grid-connected networks.

The wider sector moved with them. The project delivered 117,861 new household connections — 565,733 people, nearly all of the 112,000-household target — cut system losses from 14 to 9.8 percent, and lured industrial customers with nearly 40 megawatts of aggregate demand back from self-generation to grid supply. EDC's own capacity tripled from 52 to 153 megawatts as national capacity reached 620, and the ex-post economic rate of return came in at 28.9 percent against 19.8 percent at appraisal.

License the incumbents, then sell them cheaper power

A license gave each operator something to lose — a legal franchise — so village operators cooperated with grid expansion instead of resisting it.

The operators already owned the poles, meters and customer relationships the state utility lacked; licensing kept that capital working instead of writing it off.

Bulk grid supply flipped each REE's economics: its diesels became its highest-cost asset, so retiring them was self-interest, not compliance.

One independent regulator issuing standardized licenses made the model scale — no bespoke negotiation for every village system.

Tariff targets were defined at the licensed-REE retail meter, so the reform was judged where villagers actually pay, not at the plant gate.

Don't fight informal incumbents — charter them. Legal status turns scattered rivals into an installed distribution network; add a cheaper supply source and profit motive retires the old technology.

The 2009 national strategy kept the chassis: REEs extend networks as a complement to EDC, with long-term policy encouraging consolidation into EDC or larger entities. The limits showed up honestly: rural electricity coverage reached 14.5 percent at closure against a 22.5 percent target — the licensing and tariff machinery worked faster than the wire-laying — and EDC's supply-cost target was missed (US$0.145 versus US$0.11) as oil prices rose and Vietnam's cheap imports underdelivered. The licensed operators' successors remain the backbone of rural distribution.