March 5, 2011

Korean firm defies norms in Cambodia airport building

Building an international airport in a third-world country is a challenging task. 

It requires dealing with a mercurial government, acquiring enough land and raising financial support.

There is too much uncertainty for any firm to take on without hesitation.

In this sense, the NSRIA or New Siem Reap International Airport Co, led by two Korean firms ― Lees A&A and its financial partner Cambodia Airport Co. ― is engaged in what others might call a mission impossible.

But when one listens to its CEO Lee Tae-hwan talk about the project, one can appreciate how the difficult feat could be translated into reality. As with any business, however, there is no 100 percent guarantee.

The project is constructing a new international airport 40 kilometers east of Angkor Wat, the UNESCO-designated world cultural heritage site, at the cost of $500 million. It is composed of one runway and a terminal on the site as large as 5 square kilometers, with the capability to handle 3 million passengers a year.

According to Lee, the new airport is expected to go into operation in late 2015 with the old adjacent airport to be closed, so there will be no competition from it.

The airport currently serving the Cambodian capital of Phnom Penh is not big enough. The runway of the new airport will be the only one in Cambodia to accommodate Boeing 747 Jumbo jets, making the airport the country’s first and only gateway to the world.

“We have just been notified that the Cambodian government is launching a government-wide steering committee,” Lee told The Korea Times during an interview at his office in southern Seoul Thursday, explaining that it will serve as an additional commitment from the government to the new Angkor International Airport. Lee heads to Cambodia next week.

An interesting element is Lee’s approach to the project ― charting a reverse course.

Usually for projects of this scale one finds investors and uses their money to gain the government’s permission and buy the land.

Instead Lee, a former executive of big Korean construction firms, first tackled the network he established through his years of experience in Indochina to first get government approval and obtain the site. About one fifth of the projected costs, or $20 million, has been self-financed in the process.

“If we had raised investment first without permission and land, it could have caused delays and related cost overruns,” Lee said. “Now, we have cleared much of the uncertainty and are set to go.”

He said that at this stage his firm is attracting investors, both domestically and overseas, for construction to begin late this year.

“We are talking with multiple potential investors including investment banks,” Lee said, adding that ongoing negotiations prevent him from mentioning who they are.

When asked about the business viability of the airport, he was reassuring.

“Already, as soon as we open, we will absorb about 2 million passengers from the existing airport that will be closed,” Lee said. “About 18 international airlines including European ones, that can’t gain direct access to Cambodia due to the lack of a big airport, have already applied for use of the new airport.”

He was also positive about the build-operate-transfer (BOT) of the project that is usually a length process to retrieve initial investments and gain profits.

“The period we can be in control is set at 65 years but can be extended,” he said, believing that, when considering that the new airport will serve as Cambodia’s only major international airport for a significant period of time, profitable years will follow shortly thereafter.

He also pointed out three additional things that are working in their favor.

First, he mentioned the efficiency and professionalism of the Cambodian public servants. “We deal with Ph.D. holders who studied in the U.S., Russia and European countries,” Lee said.

Secondly, Cambodia proves to be neither a banana republic nor led by a tinpot dictator. “It is a country that has a strong tradition of adhering to a contract perhaps resulting from the influence of the French,” the CEO said.

Thirdly, the location of the airport is close enough to easily access Angkor Wat but is at a sufficient distance away from it so as to protect its historical integrity. “UNESCO has cleared the site,” he said with a smile that should be expected on a man who has an unbeatable hand.

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