Oil discovery brings caution for Cambodia

Mon, Nov. 13, 2006

By Troy Graham
Inquirer Staff Writer
Philadelphia Inquirer (USA)

PHNOM PENH, Cambodia - The good news in this country of 14 million, where one-third of the people live on less than 50 cents a day, is that they've struck oil.

But the bad news is that the discovery may make things even worse.

Early analyses indicate that the income from crude and gas could quickly exceed the current gross domestic product. A rapid acquisition of wealth fuels fears that autocratic, repressive leaders could become even less responsive to the needs of their impoverished people.

The American company Chevron holds a 70 percent stake in the first of six proposed offshore tracts in the Gulf of Thailand. In 2004 and 2005 it sank five exploratory wells, and found oil in four of them.

Chevron plans 10 more wells in the next two years, although it won't speculate on how much oil it will find. Estimates from others have varied from 121 million to 700 million barrels.

Although the oil - and revenue - may not flow for three or four years, many people here are already asking whether the discovery hasn't come too soon for a country still recovering from the ravages of the Khmer Rouge genocide of the 1970s. Its democracy is still fragile.

"Is it too early?" asked Douglas Gardner, the resident coordinator for the United Nations Development Programme in Phnom Pehn. "I don't think one can say. It's arrived."

While Cambodia's valuable light crude may not have a huge impact on the world market, the revenue would have an enormous effect on such a poor nation.

A U.N. analysis in January estimated that Cambodia's oil and gas could be worth $6 billion to $7.5 billion a year over the next two decades. The country's gross domestic product is only about $5 billion a year.

"This is perhaps the biggest opportunity, but also the biggest threat," Gardner said. "The experience around the globe has not been great with sudden natural resource flows."

Such discoveries can produce what is known as a "resource curse," when new wealth from natural resources makes a country poorer and less democratic. Nigeria, a corrupt and violent nation, is often cited as the best example of the phenomenon. It has exported more than $400 billion in oil in the last three decades, while 70 percent of its people continue to live on less than $1 a day.

Cambodia seems particularly susceptible to the curse. Prime Minister Hun Sen and his Cambodian People's Party have been accused of using violence to maintain their lock on the government.

The judiciary and police are widely criticized as corrupt, and they often silence the government's critics under laws making defamation a criminal offense.

Meanwhile, the nation's health care is so poor that 30,000 children die every year from preventable diseases, according to the United Nations Development Programme, and half the children never complete their primary education.

Cambodia plans to take 67 percent of the profits from the oil - money that could either alleviate the country's problems or make them worse.

"The money almost all goes to the government... . The only way Cambodians will benefit is if the government spends the money on the people," said Michael Ross, a political-science professor at the University of California, Los Angeles. "A lot depends on the quality of governance."

One problem with the oil industry, he said, is that it creates almost no local jobs. And with the oil lying offshore, imported skilled labor could work without ever setting foot in Cambodia.

Once the oil revenue hits the government coffers, it can create inflation. That may drive up the price of the nation's other industries and widen the gap between rich and poor - a recipe for civil unrest.

Perhaps the worst problem, Ross said, is that oil money often makes autocratic governments even less responsive to the people's needs.

"There's more money sloshing around, and this tends to encourage corrupt behavior," he said.

Experts say Cambodia would need to diversify its economy, reform its institutions, and tackle corruption to avoid the resource curse. Not everyone thinks Cambodia's rulers are up to the challenge.

"Our concern is that this is a government that doesn't disclose anything and isn't transparent about much," said Sophie Richardson, deputy Asia director for Human Rights Watch. "It doesn't bode well."

Cambodia's minister of information, Khieu Kanharith, said recently that Hun Sen has made good governance a centerpiece of his administration.

Cambodia is open, he said, in part because it relies heavily on outside aid agencies that demand transparency.

"We have to follow the rules of these institutions like the IMF and World Bank," Khieu Kanharith said. "If we don't have good governance with these institutions... we can't ask for a loan."

But many experts fear that oil wealth, in freeing the government from its reliance on foreign aid, could allow it to ignore international standards on human rights and other issues.

"With revenue like this, the government becomes even more impervious to the kind of leverage some governments would use to improve their human-rights situation," Richardson said.

The United Nations has invested heavily to rebuild Cambodia since the Khmer Rouge years. It is focusing now on the short time remaining before a country that was a virtual slave camp a generation ago becomes the world's newest petrol-state.

"The right decisions need to be made before the oil wealth starts flowing," Gardner said. "All of this matters even more now."

Contact staff writer Troy Graham at 856-779-3893 or tgraham@phillynews.com.