Funan Techo Canal Launched - Can It Deliver On The Hype?

The highly-anticipated and debated Funan Techo Canal project was launched on August 5th 2024 with the ambitious plan to connect Cambodian waterways over the length of 180 kilometres passing through Kandal, Takeo, Kampot, and Kep provinces at a cost expected to be approximately USD $1,7 billion. It's one of several large-scale infrastructure projects in the Kingdom trying to shape the economic standing of the country.

The project was announced in 2023 following 26 months of feasibility studies and had a targeted completion date in 2028 when it was announced.  However, Hun Manet said in a speech in May 2024 that the project might take 5-6 years to complete while other observers have questions if the project is in fact under-budgeted.

The groundbreaking ceremony was held in Prek Takeo village, Samrong Thom commune in Kandal province’s Kien Svay district, which was presided over by Samdech Moha Bovathibodi Hun Manet, Prime Minister of the Kingdom of Cambodia and First Lady Lok Chumteav Dr. PICH. Chanmony HUN Manet and in attendance were deputy prime ministers, senior ministers, and ministers.

The Funan Techo Canal is a significant project aimed at enhancing the country's logistics and economic capabilities, so can it deliver on its hype?

Cambodia Celebrates The Canal’s Launch

Just days before the ceremony, it was announced that the day would be celebrated as a national public holiday to mark the occasion, and as many as 10,000 people were expected to attend, with the event marked by the sound of bells, gongs and drums across the country at 9:09 AM.

Two large-scale concerts were held, one on Koh Pich in Phnom Penh and another in Kandal’s Takhmao town while the Kandal provincial administration prepared Kun Khmer, Bokator and other forms of martial arts competitions to mark the milestone. There were also fireworks planned to be held in the capital later in the evening.

What Do You Need To Know About This Major Cambodia Infrastructure Project - Cambodian Funan Tech Canal

FTC Length and Structure

The canal is planned to be 180 kilometres long, connecting Phnom Penh to the coastal province of Kep, ultimately reaching the Gulf of Thailand.

Split into three stages, starting in the Takeo Canal of the Mekong River, the project will pass through Prek Ta Ek of the Bassac River, Prek Ta Hing of the Bassac River, Koh Thom district, and onto the sea in Kep province - in total passing through four provinces (Kandal, Takeo, Kampot, and Kep).

1. First Segment (20km): Connects the main Mekong River to the Bassac River.
2. Second Segment (30km): Follows the natural course of the Bassac River.
3. Third Segment (130km): Connects the Bassac River to the Gulf of Thailand through the port of Kep.

The Funan Techo Canal will be approximately 100 meters wide at the top and 80 meters wide at the bottom with a depth of 5.4 meters (navigation depth of 4.7 meters and safety distance of 0.7 meters), with two lanes designed to accommodate vessels to safely travel in opposite directions and with a deadweight tonnage (DWT) of up to 3,000 tons.

• The project was initially said to include three dams/sluices, 11 bridges, and a 208-kilometre sidewalk, as well as provide navigation assistance and other river-crossing infrastructure.
• It is designed to accommodate cargo ships up to 3,000 tons in the Cambodian dry season and 5,000 tons in the rainy season.

Cost and Funding The Funan Techo Canal

The project is estimated to cost around USD $1.7 billion, with funding primarily from the China Road and Bridge Corporation under a 50-year Build-Operate-Transfer (BOT) model. In June 2024, Prime Minister Hun Manet confirmed that a 51 per cent stake would be held by Cambodian investors.

Around 1.6 million people live on either side of the planned canal and will be impacted. The government said “fair compensation” and resettlement with a similar approach taken with the Phnom Penh-Sihanoukville Expressway will be implemented.

Some reports have suggested that the expected cost is too low and potentially the economic rewards too high. 

Pham Phan Long, founder of the Viet Ecology Foundation wrote, “The Funan Techo Canal will be as long as the (Phnom Penh- Sihanoukville) 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.”

He added that according to some experts, particularly from China, that a similar 100km canal in China cost over USD $10 billion to develop.

Cambodian Economic Goals Spurred By Canal Development

The Cambodian FTC aims to reduce Cambodia's reliance on Vietnamese trade routes, potentially cutting shipping costs by 70 per cent and generating significant revenue from tolls.

By reducing the duration, distance, and cost of current transportation; the peripheral economic construction and economic developments and major job creation at the existing Sihanoukville Autonomous Port, Phnom Penh Autonomous Port, and other ports; the project will serve as a flagship for promoting sustainable urban development; promoting real estate growth and the Kingdom’s economic development.

Deputy Prime Minister Sun Chanthol, First Vice President of the Council for the Development of Cambodia, stated in April 2024 that the canal is expected to generate USD $88 million annually in the first year and $570 million annually by 2050, and create approximately 1.6 million jobs as well as boost agricultural productivity through improved water resource management.

These economic windfalls are based on the Economic Internal Rate of Return (EIRR) and Chanthol added that the Ministry of Economy and Finance (or the World Bank) only provides funding to projects if the EIRR calculation is at least 12 per cent, but in the case of the Techo Funal Canal the estimates are for 30%.

The construction would span such a vast length of the waterways, that the government anticipates residual benefits too. These would include:

• The establishment of trade zones and logistics centres
• Development of new satellite cities/areas
• Expansion of development zones for agriculture, irrigation, aquaculture, and animal farming.

This will continue to open up opportunities in Cambodia’s commercial real estate sector.

Strategic Importance 

The Funan Techo Canal is seen as a vital project for Cambodia's aspirations to become a major logistics hub in Southeast Asia. Positioned to facilitate smoother trade routes, enhance connectivity within the country, and attract foreign investment.

The canal will also link to Cambodia's Sihanoukville Special Economic Zone, which has been a focal point of investment under China's Belt and Road Initiative (and an area offering real estate incentives to address the unfinished buildings under the Special Investment Promotion Programme for Sihanoukville).

Environmental and Regional Concerns

The Cambodian government has highlighted the potential benefits, but the canal has raised concerns (notably from Vietnam). They have expressed concerns about the environmental impact on the Mekong Delta and that it could have contravened the Agreement on Sustainable Development Cooperation of the Mekong River Basin signed in 1995 by Cambodia, Laos, Thailand, and Vietnam.

Other entities have expressed concerns about the canal potentially enhancing Chinese naval power in the region, primarily due to the likelihood of a Chinese company being involved in its construction but these have been dismissed by the Cambodian government.

Cambodian Prime Minister Hun Manet previously said, “This project is more special than the other infrastructure projects. No project has so far brought such a strong sense of unity to Cambodian people all over the world. Some people may be objecting to this project. Some have been calling for people to stop believing in this project. But this project represents a strong sense of nationalism as it has gained the support of Cambodian people from all walks of life.”

So what are the issues the Funan Techo Canal has raised?

• Environmental Impact: The canal's construction may disrupt existing ecosystems and alter water flow patterns in the Mekong Delta, potentially exacerbating flooding and affecting agricultural production..
• Geopolitical Tensions: Vietnam has expressed worries about the canal's implications for its own port traffic and regional security dynamics.
• Feasibility Questions: Critics argue that the projected costs and revenues may be overly optimistic, with some analysts suggesting that the financial viability of the project is questionable. 

The Funan Techo Canal represents a bold step in Cambodia's infrastructure development and is one of many large projects currently under development or seeking public-private funding.

If the development goes ahead without issues or delay, which includes a complex array of economic, environmental, and geopolitical challenges that will require careful navigation, Cambodia will increase its strategic importance as a logistics hub which will challenge its neighbours and could reap benefits for a range of industries.