Weaknesses in Mekong River Governance: The Case of the Funan Techo Canal

INTRODUCTION

The Mekong River is a vital source of support for the livelihoods, economies, and cultures of millions of people across six countries: China, Myanmar, Thailand, Laos, Cambodia, and Vietnam. It plays a crucial role in agriculture, fisheries and trade, making the sustainable management of the river a matter of utmost regional importance. However, the Mekong is facing increasing pressure from ambitious infrastructure projects, competing national interests, and the effects of climate change. One such project, Cambodia’s Funan Techo Canal, highlights these challenges.

Although the canal promises significant benefits for Cambodia, it has also sparked concerns about its potential environmental impact. These include the reduction of water flow, increased saltwater intrusion, and disruption of sediment transport, all of which could have severe consequences for Vietnam’s agricultural productivity and the ecological well-being of downstream regions. There are also concerns about the canal’s potential to shift the regional economic and geopolitical balance, as China is heavily involved in financing and constructing the project.

This article examines the concerns surrounding Mekong governance that have arisen with the Funan Techo Canal, focusing on the limitations of the Mekong River Commission (MRC) in managing transboundary disputes. It also explores the potential and challenges that may come with reforms aimed at strengthening the MRC’s governance mechanism.

BACKGROUND

In early April 2024, Cambodia revealed its most ambitious infrastructure project yet—the Funan Techo Canal. Spanning 180 kilometres, this waterway aims to connect the Mekong River to Cambodia’s seaports, providing a direct transportation route from the capital city of Phnom Penh to the Gulf of Thailand. Being built at an estimated cost of US$1.7 billion, the canal seeks to lower transportation expenses and enhance economic connectivity by linking Phnom Penh to the deep-sea port in Sihanoukville. The Cambodian government predicts that the project will create jobs for five million people, which is almost one-third of the country’s population, across various industries.

The project is also expected to significantly increase Cambodia’s agricultural capacity. Currently, most farmers in the country can only grow rice crops one season per year due to the limited irrigation system. In contrast, Vietnam’s expansive dike and canal system has allowed its farmers in the Mekong Delta to cultivate two major cropping seasons most years. By providing sufficient water during the dry season, the canal is expected to enable at least two crop seasons per year for 300,000 hectares of crops in Kandal and Kampot provinces.

Currently, Cambodia relies on Vietnamese ports, particularly Cai Mep and Cat Lai, for transshipment of exported goods, providing a steady source of revenue for Vietnam. However, with the construction of the canal, Vietnam will lose this strategic advantage of having a critical chokepoint over its upstream neighbour.

However, the project has sparked controversy, particularly from Vietnam. Some argue that the canal will divert a significant amount of water from the Bassac (Hậu) Channel in the dry season, resulting in reduced water flow to the Mekong Delta. This could lead to increased erosion in some areas and sediment build-up in others. If this is indeed the case, it could limit water availability for agriculture, industry, and services, and also impact the river’s fish populations, which many Vietnamese communities rely on. Yet, the actual impact remains uncertain as no international-standard environmental impact assessments (EIAs) have been conducted. Some experts suggest that with proper management and maintenance of the canal’s lock and water-gate system, water will not be diverted away from the Mekong mainstream.

So far, Vietnam has only publicly raised concerns about environmental damage and agricultural productivity. However, the canal will also have significant geopolitical and economic implications. Currently, Cambodia relies on Vietnamese ports, particularly Cai Mep and Cat Lai, for transshipment of exported goods, providing a steady source of revenue for Vietnam. However, with the construction of the canal, Vietnam will lose this strategic advantage of having a critical chokepoint over its upstream neighbour.

It should be noted that Cambodia has entered into a Public-Private-Partnership (PPP) with China Bridge and Road Corporation (CBRC) and two local port operators to build and operate the project. Cambodian officials, including Senate President Hun Sen, have emphasised that the canal is a national priority designed to benefit Cambodia’s interests. However, the involvement of a major Chinese state-owned company may still affect regional perceptions and become a point of contention in Phnom Penh’s relationship with Hanoi.

Despite calling for increased transparency and dialogue regarding the canal’s impacts, Vietnam is unlikely to take further action to pressure Cambodia. Doing so would jeopardise the traditional “brotherhood” relationship between the two countries. Furthermore, Cambodia has continuously reassured Vietnam that the construction of the canal will not harm Vietnam’s socioeconomic well-being. Prime Minister Hun Manet reiterated this during a visit to Hanoi in December 2023. However, if Vietnam does decide to intervene, the current limitations set by the river’s transboundary governance framework, which prioritises non-interference above all else, including the Mekong River Commission (MRC), will make any efforts infeasible regardless.

TECHNICAL CLASSIFICATION AND PROCEDURAL REQUIREMENTS

The classification of the Funan Techo Canal under the 1995 Mekong Agreement has sparked controversy. This Agreement had established the MRC, an intergovernmental organisation consisting of Cambodia, Laos, Thailand, and Vietnam, with the responsibility of managing the Mekong River’s water resources and promoting sustainable development. The MRC’s governance framework includes various mechanisms for water utilisation, such as the Procedures for Notification, Prior Consultation, and Agreement (PNPCA). This requires member countries to notify and consult with each other on projects that may have a significant impact on the river’s flow or ecosystem.

Article 5 of the Agreement distinguishes between intra-basin use and inter-basin diversion projects. Intra-basin projects involve the utilisation of water resources within the same river basin, while inter-basin diversion projects entail transferring water from one river basin to another. This could involve diverting water from the Mekong River to a dry region outside the basin to support agricultural development or provide urban water needs.

The usage of water is regulated through different procedures, depending on whether a project is planned on a tributary or the Mekong mainstream, and whether it affects water flow during the wet or dry seasons. Generally, tributary projects have fewer requirements as they have minimal impact on water flow, while inter-basin projects that use water during the dry season must go through more stringent procedures. Table 1 provides a summary of these key differences.

Table 1 – Procedures for Water Utilisation in Article 5 of the 1995 Mekong Agreement

Type of River	Season	Scope of water use	Required regulatory procedure
Tributary (Article 5A)	Both wet and dry season	Both inter and intra-basin	Notification Details of proposed project must be provided to other member states before commencing proposed use.
Mainstream (Article 5B)	Wet season	Intra-basin
		Intra-basin	Prior consultation Six-month process for technical evaluation & formal consultations. Member states can assess any potential transboundary impact and recommend measures before water usage.
	Dry season	Intra-basin
		Inter-basin	Specific agreement Negotiation to achieve consensus among all member states on the terms and conditions of proposed project before water usage.
	Dry season (surplus)	Inter-basin	Prior consultation (only if surplus water on Mekong during dry season is verified & unanimously confirmed by member states)

Under this classification, the Funan Techo Canal is likely to be considered an inter-basin diversion project. This classification requires prior consultation, whether or not it has a significant impact on the dry season flow of the Mekong River. Furthermore, the canal will connect the Mekong mainstream, the Bassac Channel, and the Gulf of Thailand, which means that a specific agreement must be reached among member states under the 1995 Mekong Agreement.

However, Cambodia has labelled the canal as a “tributary” project instead of a “mainstream” project. Their argument is that the Bassac Channel, which forms part of the canal, is a tributary. Therefore, Article 5A rather than 5B of the Mekong Agreement should apply. However, the hydrological connection of the canal to the Mekong mainstream, particularly its first section (refer to map below – Figure 1), suggests that it should be classified under Article 5B. Moreover, Cambodia’s classification of the Bassac as a tributary is inaccurate since it also carries mainstream water into the Mekong Delta. By definition, a tributary cannot carry mainstream water. Cambodia’s approach takes advantage of the lack of clear and distinct definitions for what qualifies as a tributary versus the mainstream within the Agreement, allowing it to avoid thorough scrutiny and potential objections.

Figure 1 – Full Extent of the Funan Techo Canal Once Completed

The vagueness of the term “significant impact” within the Agreement further aids Cambodia’s position. Without a precise definition or specific threshold, member states can downplay their projects’ impact on the mainstream, thus categorising them as tributary projects. This can lead to inadequate assessment and mitigation measures. Furthermore, as the canal already began construction in August 2024, preliminary studies aimed at assessing the project’s environmental impact can no longer be done. Previous efforts to delay the canal’s construction based on its significant environmental impact have been unsuccessful, as these only rely on rough and potentially inaccurate estimations, not clear figures.

The principles of non-interference and consensus-based decision-making—the centrality of the MRC’s framework and ASEAN governance mechanisms—further complicate enforcement and compliance. These frameworks discourage member states from intervening in each other’s projects beyond the mechanisms established by the Mekong Agreement. As Laos, Cambodia, and Vietnam also maintain traditional “brotherhood” relationships with one another, preserving friendly diplomatic relations will take primacy over any environmental or hydrological concerns. As a result, despite having legitimate concerns over the canal’s impact, Vietnam is unlikely to openly challenge Cambodia.

POTENTIAL AVENUES FOR REFORM

Addressing these governance challenges requires several reforms. First, the MRC must enforce notification and consultation processes more strictly, with clearer definitions of crucial terms such as “significant impact” and unambiguous criteria for distinguishing tributary from mainstream projects. This will allow for more stringent requirements to be set for projects that affect the Mekong mainstream.

The current vague definition of a “tributary” hampers the MRC’s ability to regulate tributary projects, including those funded by the Asian Development Bank (ADB) or the Chinese private sector.

The division between tributaries and mainstream projects has incentivised member states to develop “tributary projects” within their territory, as these remain excluded from the 1995 Agreement. Closing these loopholes will require revising the Agreement, a difficult task as member states are keen to maintain full autonomy over development projects that support their economic growth.

Second, the MRC needs stronger enforcement mechanisms, including binding dispute resolution mechanisms and independent monitoring of project impacts. Past consultations, such as those concerning the Xayaburi and Don Sahong hydropower projects in Laos, could serve as models for establishing such mechanisms. However, the current mechanisms primarily rely on consultation, which limits their effectiveness in cases where member states have conflicting interests. Binding arbitration or adjudication processes, similar to those seen in other international river management agreements such as the Convention on the Protection of the Rhine, could offer a more structured and enforceable approach to dispute resolution.

Capacity reforms can also entail the MRC having a greater emphasis on joint impact assessments and playing a more active role in facilitating and raising funds for them. Member states could grant the MRC the capacity to actively seek opportunities for cooperation in assessments with other organisations and actors. One potential partner is the ADB, which supports development along the Mekong through its Greater Mekong Subregion (GMS) Economic Cooperation Programme. While the programme mainly focuses on infrastructure, its scope has also expanded to include policy fields that closely align with the MRC’s work, such as the Core Environment Programme. The GMS is attractive to riparian states due to the availability of funding, loans, grants, and co-financing from the ADB.²⁴ As such, enhanced cooperation with the GMS will enable the MRC to secure additional resources, including the ability to recruit independent and reputable experts.

Reforms to the MRC’s governance mechanism can be guided by the UN Sustainable Development Goals (SDGs), particularly SDG 6.5, which focuses on the implementation of integrated water resources (IWRM) at all levels, including transboundary cooperation. In adopting more stringent IWRM practices and incorporating specific SDG indicators, the MRC will need to enhance its monitoring systems and establish clear, measurable goals. This will help ensure that riparian states are committed to balancing their economic needs with environmental sustainability.

ASEAN could also support MRC by ensuring that all member states share responsibility for the sustainable development of the Mekong basin. ASEAN could facilitate the integration of the MRC’s water governance initiatives into broader regional strategies for sustainable development. With support from the UN, ASEAN could also help bolster the MRC’s capacity through targeted technical assistance programmes, such as conducting comprehensive EIAs, improving data-sharing mechanisms, and implementing the latest water management technologies. The ASEAN Center for Sustainable Development Studies and Dialogue (ACSDSD) could promote cross-border learning and the transfer of best practices. An ambitious goal could be to integrate the MRC’s objectives into ASEAN’s broader agendas, such as the ASEAN Economic Community (AEC) and the ASEAN Socio-Cultural Community (ASSC), to ensure that water governance remains a key priority in regional development planning.

CHALLENGES TO REFORM

Implementing these reforms will be no easy task. First, MRC member states are likely to resist changes that increase oversight and limit their ability to exploit the river’s resources. Both Laos and Cambodia place the Mekong at the centre of their current development strategies, and Vietnam has also utilised the Mekong’s waterways to become an agricultural powerhouse. As a result, riparian states may prefer the MRC to remain a relatively “toothless” organisation, allowing them to retain control over their development agendas. The 1995 Mekong Agreement has been criticised for being weak in enforcement, allowing states to interpret its provisions loosely or even disregard them at their convenience. Consequently, the MRC has focused on less contentious activities like data gathering and capacity building, which are essential but insufficient to address larger transboundary challenges. This institutional weakness is further compounded by the “Mekong Spirit”—a cooperative ethos among member states that has facilitated dialogue and reduced tensions, but also discouraged efforts to address difficult issues.

Cambodia may have come realise that it may be more beneficial to pursue its development projects independently, rather than relying on a regional framework that has repeatedly failed to safeguard its interests. This is evident in its unilateral decision to proceed with the construction of the Funan Techo Canal.

Second, efforts to reform the MRC risk destabilising the delicate consensus achieved by the 1995 Mekong Agreement. Member states may choose to withdraw rather than accept perceived unfavourable changes to the Agreement. As such, convincing member states to adopt stricter and binding agreements may prove difficult. Any move to strengthen the MRC must highlight the long-term benefits of a more robust organisation, particularly in terms of ensuring sustainable development and equity. Transparent and inclusive dialogue about the future of the MRC may help build the trust and political commitment needed for reforms, but this will be a slow and challenging process.

ADDRESSING CAMBODIA’S RELIANCE ON THE MEKONG

MRC reforms must account for the outsized role the Mekong River plays in Cambodia’s economic development and how Cambodia is particularly vulnerable to upstream developments compared to other riparian states. As 86 per cent of Cambodia’s territory is located within the Mekong River basin, and almost all of it consists of delta regions, the majority of Cambodians rely on the river’s resources and ecosystems, especially fish and fertile land. As a result, Cambodia has been the MRC’s most vocal advocate for many years, perceiving the Mekong’s development as having a more direct and serious impact on its wellbeing than that of other member states. However, Cambodia has grown increasingly frustrated with the MRC’s ineffectiveness in mitigating the transboundary impacts of upstream hydropower developments. Since the construction of Vietnam’s Yali Falls Dam in 2000, followed by numerous dams in Laos, this hydropower boom, combined with the effects of climate change, has caused record-low water levels and a decline in fish populations in the Tonle Sap Lake, which is not only Southeast Asia’s largest freshwater lake but also a crucial economic resource for Cambodia. In recent years, water levels have reached critically low levels, resulting in a significant decrease in freshwater fish catch volumes compared to previous years, with some years seeing a reduction of up to 50,000 tons.

Cambodia may have come realise that it may be more beneficial to pursue its development projects independently, rather than relying on a regional framework that has repeatedly failed to safeguard its interests. This is evident in its unilateral decision to proceed with the construction of the Funan Techo Canal. Much like other infrastructure initiatives backed by foreign investment, particularly from China, the canal signals Cambodia’s shift towards prioritising its economic development, even at the risk of further straining relations with its neighbours or the MRC.

Moving forward, any reforms to the MRC must address governance weaknesses, rebuild trust, and take into account member states’ attitudes towards Mekong development. While Cambodia has the right to embark on its development initiatives, this must be balanced with the sustainable and equitable management of the Mekong’s shared water resources to protect the interests of all riparian states, including Cambodia.

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This is an adapted version of ISEAS Perspective 2024/92 published on 7 November 2024. The paper and its references can be accessed at this link.