This week, we interviewed Massimiliano Tropeano, Integrated Expert on Sustainability in the Garment Sector at EuroCham, to discuss some of the latest news and regulations surrounding renewable energy. Mr. Tropeano has a wealth of experience in the sector, having spent more than 20 years working in different capacities in the garment sector throughout Asia.

EuroCham: You have a unique perspective on the garment industry, could you tell us about your experience in the industry and how you came to Cambodia?

Massi: I’ve been in the garment industry since the beginning of my career, first in marketing, then it was buying, and after a while I moved into sourcing, particularly when I went to India. From India, I essentially was looking after markets like Bangladesh, Nepal, Pakistan, and Sri Lanka. I not only bought garments, but also hard goods, home textiles, and toiletries. I came to Cambodia exactly for this reason, because I used to work for a big German retailer with garments in their portfolio, and I was buying garments for them.

In a span of 20 years, I basically witnessed the beginning of what we used to call CSR, corporate social responsibility. Nowadays it has different names, but essentially it started with a small contract signed by a supplier, it got bigger and bigger and took over more and more topics, stemming from the social sphere and then eventually moving into environmental topics.

Two years ago, I moved to GIZ working for FABRIC, particularly in the sustainability area.

Wow, it’s everywhere now, but you were there when it started. Interesting that it was the social considerations came before the environmental concerns. It seems now that environmental concerns have taken the lead.

Yeah, but it started in the very late 90s and early 2000s, with child labor being employed and pictures being published in Western media. So, it started particularly with child labor and it evolved to include the many aspects that we have today.

I remember being a kid in school and they would show us like VHS’s of horrible sweatshops in China. And until I got here and worked with factories, I hadn’t been able to shake the image. I still have it in my head.

Yeah. I would say that for certain industries, it used to be like this, but nowadays it’s not. Certainly, in China, child labor has been removed and even in Cambodia, it’s almost nonexistent, as per BFC data. [Better factories Cambodia]

So it created an image, as you just said, that sticked, almost like a stigma. But the reality is very different.

EuroCham: If you could change one thing about the garment industry, what would it be?

Massi: I wish that the Cambodian garment sector could be more competitive and that requires a couple of different things to happen. One, is having a proper tier 2 and tier 3 supply chain that can support Cambodia’s competitiveness as well as a better, more visible, and more effective environmental sustainability policy.

EuroCham: Minister of Mines and Energy H.E. Keo Rotanak recently pledged 70% renewables by 2030. What would need to happen to help make this a reality?

Massi: We are extremely happy about this announcement. We know all the commitments that Cambodia is pledging in terms of stopping construction of new coal plants and no hydro projects on the Mekong River, conversion to LNG plants in Koh Kong, etc. To be honest, 70% is a highly respectable number and we will eagerly await the new power development plan that will be elaborated for 2024 hopefully because then we’ll have details on how we will reach these numbers.

As of now we just have a presentation of His Excellency Keo Rotanak with some percentages, but we really don’t know how many projects, where, what, and above all, who will finance these projects. In the PDP there is no financier named. But we will get to at least know the plan because the 2030 target is 7 years from now and there is an incredible amount of work to be done.

But this is the main point: brands must evaluate [where to source], and they have as a target, 100% of green energy in their supply chain. Cambodia has a fairly green grid, so factories that use electricity here are already quite sustainable, but not enough for the clean energy (decarbonization) targets set by the brands. Let’s say Cambodia is 50 (out of 100, lower the better) and Vietnam, which has a fairly dirty grid, has a higher number, say 75. China also has 70. Bangladesh gets a score of maybe 57. They have a lot of bad numbers and rely on LNG for their energy generation.

What happens is that in Bangladesh, in China, in Vietnam, in Malaysia, in Myanmar and in India, for instance, — which all have dirtier grids than Cambodia — all the factories are able to put solar panels on their rooftops due to a more progressive rooftop solar panel policy.

So, rooftop solar installed in these countries have advantageous rates (tax incentives) together with an appealing return on investment (ROI). Therefore, the factory is incentivized to install solar panels. The moment you put the solar panels on your roof, your energy immediately becomes 60% green, to which you must add the green portion of the grid that you’re still withdrawing.

This means that while Cambodia is 50 and Vietnam is 75, when a Vietnamese factory puts solar panels on top and Cambodia doesn’t, the Vietnamese factories improve to 30 on the “green scale”. Cambodia, not having favorable conditions for rooftop solar power, stays at 50. Therefore, from a brand’s point of view, when I am analyzing my supply chain, and how green it is, they are seeing that factories in Vietnam, China, Bangladesh, Myanmar, India and Malaysia are greener than Cambodian factories, even though Cambodia has one of the greenest grids in Asia.

Therefore, saying that Cambodia has one of the greenest grids in the world, no need to be greener, is not enough anymore, especially if you want to cater to big westerns corporations (all of them with clear decarbonization targets) that source in Asia.

Having seen this from a sustainability reporting point of view of the brand, however, it’s not coming through.  Cambodia is on the radar, but it’s not the best. Not the best for sure.

EuroCham: You’ve worked a lot on solar energy over the past few years, how do you see the state of rooftop solar today?

Massi: What we have, as of today, is principles and rules on the RTS [rooftop solar] system of Cambodia. We have done quite a lot of advocacy and awareness on the same issue. We had some comments that the method for calculating charges is complicated and I think that has been addressed (latest draft circulated). But the number one comment that everyone is addressing is the following:

If I put an RTS system on my roof, I will not save a single penny on my electricity bill because of the way the new compensation charge is structured.

Is the compensation charge the same as the capacity charge?

No, the capacity charge let’s say is the old method that has been discarded and will stay in place until the end of 2023. The new method (Compensation Charges) is built in such a way that I will not be able to save, from an entrepreneur’s perspective, a single penny on electricity charges.

Rather, I will have to shell out the money for the solar panel investment, and I won’t be able to recover money (ROI) for a long time. So that means that there are essentially no incentives for installing a private solar rooftop system.

Justification to that is a fairness and equitable principle, as the MME mentioned. The equitable principle, in simple words, says that if somebody has the money to install a solar-powered system and enjoys a lower rate of electricity, it’s unfair towards the people that do not have the money to buy solar panels and therefore must pay more for their electricity.

Our comment is that the compensation charges stemming from an equitable principle are logical and makes sense, if the same wouldn’t be so high to discourage and nullify the entire sense of a solar rooftop investment.

Moreover, the equitable principle doesn’t consider that an entrepreneur is offering employment often to a few thousand people. And if its factory is not able to be competitive at international level (see previous paragraph), those thousands of jobs will be lost. Not to mention that the factory is earning hard dollars that are brought in, helping the Trade Balance.

Paradoxically, we could say, the equitable principle does not help the competitiveness of the manufacturing industry in Cambodia.

It’s like saying, for example, if you have the money to buy a car to reach Kampot faster than me on a bus, that’s unfair and you should pay a fee…which is okay with us. In fact, if you have a car, you pay a road tax. If you don’t have a car, you don’t pay the road tax. But where is the difference? It’s that the road tax is not so high that it deters you from buying a car. Therefore, making the investment in a car still effective and attractive, helping in turn the car industry…

The car industry generates revenues and employment, and that’s exactly what we are saying with solar. The solar industry and RTS generates employment, huge investments, FDI and growth, and promotes the competitiveness of the garment manufacturing sector, which happens to be the biggest sector in Cambodia and the biggest contributor to exports.

Therefore, there is a reason why we are advocating. We are not against compensation taxes; we are just saying that the compensation tax does not allow a single penny to be saved. The compensation charges are high enough that the price of electricity is the same for solar users as regular grid customers. That means we are back to square one.

EuroCham: The Responsible Business Hub (RBH) just held it’s one-year anniversary. What can people expect from it next year?

Massi: It’s very rewarding to see that the RBH is starting to be seen and starting to be part of EuroCham’s regular operations. EuroCham really wants to be the spearhead of responsible business in this country.

And rightly so, having seen the curricula of EuroCham these past few years, they were at the forefront battle of green investments and environmental topics and more progressive views on many, many topics. Therefore, it’s just natural that EuroCham is facilitating the RBH and making it a part of their normal routine.

As far as next year is concerned, we have a few surprises as well as an expansion plan on a couple of topics, like the new Responsible Business Awards, which will substitute the CSR awards from this year.

The RBH will impact not only the government sector, it will be able to venture into multiple sectors and will be working with multiple committees on social and environmental topics. Even committees that up to today, have had less involvement, for instance, real estate, agriculture, and even finance.