Introduction
The Royal Government of Cambodia (“RGC”) is implementing a transformative energy policy guided by its Power Development Master Plan 2022-2040. This master plan is designed to achieve energy independence and meet ambitious climate goals, including increasing the share of clean energy. To attract the necessary capital to execute this master plan, the RGC can offer its most powerful risk mitigation instrument, the government payment guarantee (“Government Guarantee”).
On 22 May 2025, the National Assembly of Cambodia approved draft laws in respect of Government Guarantees for 24 energy projects. This milestone marks Cambodia’s commitment to move away from energy importation and a shift toward independent local energy production.
The question is then centered around what exactly a Government Guarantee is and its importance in solidifying investors’ trust in investing in energy projects in Cambodia.
Legal Basis for the Issuance of the Government Guarantees
A Government Guarantee is generally understood to be a payment guarantee issued by the Ministry of Economy and Finance (“MEF”), representing the RGC, whereby the RGC undertakes to guarantee and pay the amounts that are due and payable by the relevant RGC implementing agencies or state-owned enterprises to the project company under the core project agreements (e.g., Implementation Agreement, Power Purchase Agreement, etc.) to which they are parties.
There is no unified or comprehensive legal framework that specifically addresses and elaborates on Government Guarantees. The relevant legal provisions that form the basis for the issuance of Government Guarantees are found in various laws, including the Constitution, the Law on Organization and Functioning of the Office of the Council of Ministers, and the Law on Financial Management 2024. These laws are separate but appear to be intertwined in a way that complement one another with regard to the issuance of the Government Guarantees.
Approval Process and Validity of the Government Guarantees
A Government Guarantee is not automatically effective upon its issuance by the RGC. The approval process for it to be legally binding and effective follows the formal legislative and ratification procedures as outlined in the Cambodian Constitution, meaning it requires the adoption by the National Assembly, review and examination by the Senate, and promulgation by the King. This process elevates the Government Guarantee to the status of a law, placing it at the highest level in terms of legal hierarchy of Cambodian normative legal instruments. In practice and based on publicly available Government
Guarantees, such a law is often declared as urgent, meaning it takes effect immediately throughout the country after its promulgation.
Therefore, the issuance of the Government Guarantees for energy projects reflects a serious commitment by the RGC to uphold the obligations stated therein and to give confidence to investors to privatize the energy production in Cambodia. Such local production of energy will, in turn, reduce Cambodia’s dependency on energy imports to meet local demands.
Legal Considerations
Government Guarantees are essential for major investment projects in Cambodia as they signal that such projects are backed by the RGC’s guarantee in terms of payment and provide assurance and confidence to the potential investors. Despite its adoption in the form of law in accordance with the Constitution and other relevant laws, a Government Guarantee may give rise to concerns on two fronts. The first concern pertains to the fact that its issuance is not automatic. The absence of a comprehensive or explicit statutory framework mandating its issuance results in a reliance upon contractual terms and legal interpretation, which may lack legal predictability. The second concern is that it is also not automatically valid, as it must undergo a ratification process. Since the approval process is not specifically codified, the investors have to navigate the practical legal procedures.
The legal considerations outlined above are not exhaustive, but rather, they represent the most common challenges that we have experienced in practice across energy investment projects in Cambodia. Additional legal considerations or risks may arise depending on the specific nature, type, and complexity of each project, which renders the need for a tailored legal due diligence and proactive and efficient risk management by project owners.
Please contact us at HBS LAW if you have any questions. Our team at HBS LAW is ready to provide relevant legal advice and assistance pertaining to the above, as well as any other matters in the energy sector in Cambodia. We are committed to delivering services that are tailored to meet your specific legal needs.
Disclaimer: The information provided herein is for information purposes only and may not be relied upon as constituting legal advice.
