The CPP's devious design on Cambodia's upcoming energy bonanza

Jan 26, 2007
Cambodia's coming energy bonanza

By Shawn W Crispin
Asia Times Online (Hong Kong)

"Any future oil-and-gas-production agreements with the CPP-led government will likely need to pass through Sokimex, Cambodia's leading conglomerate, which through a joint venture with Tela Petroleum Group controls 80% of the country's domestic oil and gas distribution ... Sokimex is majority-owned by ethnic Vietnamese Sok Kong, former president of the Phnom Penh Chamber of Commerce and a longtime friend of Hun Sen, according to a researcher conducting due diligence on the company."

BANGKOK - If the United Nations, World Bank and Harvard University are to be believed, Cambodia is poised to become a major new global energy exporter, with a fossil-fuel windfall that promises to double the country's current gross domestic product (GDP) and potentially lift millions of Cambodians out of poverty.

US oil giant Chevron has indicated a huge oil-and-gas find off Cambodia's south coast, where it has reportedly hit black in four out of five well tests. Cambodian energy official Te Duong Tara last week estimated that the 6,278-square-kilometer Block A that Chevron is drilling could contain as much as 700 million barrels of oil, or nearly twice the earlier 400-million-barrel estimate.

The World Bank has said that Cambodia's total energy reserves may be as high as 2 billion barrels of oil and 10 trillion cubic feet of natural gas. Depending on future world prices, fuel exports could generate annual revenues upwards of US$2 billion, or several times the current combined amount that Cambodia generates in domestic revenues and receives in foreign aid, the bank has said. Meanwhile, Cambodian energy officials indicated this week that they hope to ramp up production as early as 2009, three to seven years earlier than the World Bank projected as feasible.

Those gushy projections have multinational oil companies lining up to win exploration licenses and production agreements for the other five blocks designated by the government. Competition is hot for the rights to drill the 6,557-square-kilometer Block B, where France's Total SA and China National Offshore Oil Corp (CNOOC) are reportedly dueling over the lead contract. Japanese, South Korean, Kuwaiti, Thai, Malaysian and Singaporean energy companies are also reportedly bidding on exploration stakes - though it's unclear whether the Cambodian government plans to field bids for all six maritime blocks.

The potential capital investment and future joint production agreements promise to transform Cambodia from a net fuel importer into a major regional, if not global, energy player. Depending on the size and accessibility of the proven reserves, energy-export revenues could soon double Cambodia's current GDP, according to a joint study last year by the United Nations Development Program and Harvard University.

To be sure, Cambodian officials could be hyping Block A to spark investor interest in potentially less promising concession areas. Other multinational oil companies have drilled and come up dry at the same Block A where Chevron has reportedly tapped a gusher. Yet Chevron has so far remained mum about its actual findings, which the company will reveal publicly in either April or May. Moreover, Cambodia has a poor record of getting its proven reserves out of the ground and on to the market, including its inability to reach a joint development agreement with Thailand for a rich natural-gas field overlapping both countries' territorial waters.

Fuel wars

Yet the broad consensus is that Cambodia is probably on the verge of an oil-and-gas bonanza.

An energy-rich Cambodia would appreciably enhance the war-torn country's geostrategic significance, particularly as the United States and China aggressively joust for access to new fuel sources around the globe. It is relevant that a US oil company made Cambodia's initial find, and perhaps even more significant that a Chinese energy firm has lobbied heaviest to win majority rights to the geographically adjacent Block B, where a small Chinese software outfit has quietly helped local energy authorities conduct so-called "logging" seismic tests.

Beijing is in hot pursuit of any new Asia-based energy sources that would allow its fuel shipments to bypass the congested Malacca Strait, through which nearly 80% of its oil imports now flow. Chinese leaders have openly expressed their worries that in a potential conflict, US naval vessels could block China's fuel imports from the Middle East at the narrow channel that separates peninsular Malaysia and the Indonesia island of Sumatra.

Indeed, China's spurned $18.5 billion bid in 2005 to acquire US oil giant Unocal was strategic-minded considering that the majority of the targeted firm's reserves were in Asia - a point US Congress members made to block the deal. So from China's perspective, security concerns put a high premium on Cambodia's nearby newfound resources.

Beijing has recently intensified its already strong charm offensive aimed at Cambodia, which in recent years has seen Chinese aid distributed to build key infrastructure and even a shiny new Council of Ministers building in Phnom Penh. Last year Prime Minister Hun Sen requested and will likely receive $200 million from China for infrastructure projects. On January 18, a "goodwill" delegation from the Chinese Communist Party met and held undisclosed discussions with senior members of Hun Sen's ruling Cambodian People's Party (CPP).

Yet there's also a potential Cold War twist to China's bid. Any future oil-and-gas-production agreements with the CPP-led government will likely need to pass through Sokimex, Cambodia's leading conglomerate, which through a joint venture with Tela Petroleum Group controls 80% of the country's domestic oil and gas distribution. The politically connected company also maintains significant holdings in hotels and maintains monopoly rights to ticket sales for the Angkor Wat ruins, the country's chief money-spinning tourist destination.

Sokimex is majority-owned by ethnic Vietnamese Sok Kong, former president of the Phnom Penh Chamber of Commerce and a longtime friend of Hun Sen, according to a researcher conducting due diligence on the company. Although today Hun Sen is clearly Cambodia's most dominant politician, there are still lingering questions about his ties to Vietnam, which first put him in power after invading the country and ousting the Khmer Rouge regime in 1979.

A controversial border treaty Hun Sen signed with Vietnam in 2005 raised allegations that his government ceded too much Cambodian territory to Hanoi - charges the feisty prime minister countered by jailing journalists and activists. Energy analysts note that Cambodia's newfound reserves coincide with the expectation that Vietnam's own diminishing fuel supplies will run out over the next decade. So far Hanoi has no plans on how it might fill this future energy gap.

And while it is unlikely that Vietnam has enough political clout left in Phnom Penh to override Beijing's bid for majority access to Cambodia's reserves, the enduring Cold War relationship could materially affect how the oil and gas are divvied up among its energy-starved regional neighbors.

Crude comparisons

What is more likely is that senior CPP officials have designs on building up Sokimex and perhaps also Tela Petroleum through lucrative state energy concessions, which, once converted into foreign-currency earnings, may be tapped to support its patronage-based political machine and further consolidate the party's dominance over Cambodian politics - akin to how Malaysia's ruling United Malays National Organization has relied on state oil giant Petronas for its own political purposes.

The political opposition has already lodged price-gouging allegations against the two politically connected energy companies, which to date are still net oil and gas importers. The Sam Rainsy Party complained last year that domestic retail oil prices failed to fall in line with declining global oil prices, which fell by about 25% between mid-July and November last year. They have also publicly accused the two companies of tax and customs-duty evasion on imported petroleum products.

Western donors have already sounded warnings about the potential pitfalls of Cambodia's supposed newfound energy wealth. For instance, the World Bank has pointedly compared Cambodia's situation to that of oil-rich Nigeria, where corrupt politicians have pilfered billions of dollars' worth of oil revenues and where local versus national claims to resources have recently degenerated into civil war. Thirty years and thousands of drained oil wells after Nigeria's oil boom began, it is still one of the world's most impoverished countries.

Hun Sen's government has come under intense donor pressure to tackle endemic corruption among his ranks, which in recent years has reached such outrageous proportions that donors have threatened to withhold future aid disbursements without demonstrable progress in curbing graft. Global corruption watchdog Transparency International said in a recent study that "corruption pervaded almost every sector of the country" and that "those in power have little reason to change a system that has secured them much power and personal wealth".

If recent projections are realized and energy revenues start flowing in 2009, the pie is set to grow substantially. And Hun Sen's government, which currently relies on foreign aid for about 60% of its working budget, will very soon neither be dependent on Western aid for its economic sustenance, nor particularly motivated to change its corrupt ways as suggested by finger-wagging Westerners.

Cambodian officials have already promised to funnel future energy receipts into rebuilding the country's shattered infrastructure, including hospitals and schools. Judging by the status quo, however, any hopes that Cambodia's incipient energy bonanza will substantially trickle down to the 35% of the population mired in poverty will likely prove more pipe dreams than political reality.

Shawn W Crispin is Asia Times Online's Southeast Asia editor.