Will oil wealth keep Cambodia afloat, or drown it?

Thursday, May 3, 2007
By Seth Mydans
The International Herald Tribune (Paris, France)

Under standard practice, Gary said, hefty "signature bonuses" are paid by oil companies at the time exploration contracts are signed ... "So already money is flowing into the Cambodian government, one would presume, from these exploration contracts, and there is no explanation of that"

SIHANOUKVILLE, Cambodia: Still clawing its way out of the ruins of its brutal past, Cambodia has come face to face with an extraordinary new future: It has struck oil.

Two years ago, the U.S. oil giant Chevron said it had found potentially huge deposits off the southern shore. Further exploratory drilling is being analyzed now.

The size and quality of the deposits are still not publicly known. But together with other likely deposits in nearby areas and with mineral finds being explored onshore, experts say Cambodia could soon become a resource-rich nation.

Top officials, including Prime Minister Hun Sen, have fed the excitement, saying the oil money could start to flow within two to three years.

This is not necessarily good news.

For many other poor countries, like Nigeria and Chad, oil has been a poisoned bonanza, paradoxically dragging them into deeper poverty and corruption in what some call the oil curse.

"This will be a watershed event for this country one way or another," said the U.S. ambassador, Joseph Mussomeli. "Everyone knows that it will be either a tremendous blessing or a terrific curse. They are unlikely to come out unscathed."

With its tiny economy, weak government institutions, widespread poverty and crippling corruption, Cambodia seems as ill-suited as any country in the world to absorb the oil wealth that is expected to come its way.

Indeed, this is a land that already suffers many of the symptoms of the oil curse, even before a drop of oil has been pumped.

Its people remain traumatized by the mass killings by the Khmer Rouge from 1975 to 1979, when 1.7 million people died, and by the decades of civil war, brutality and poverty that have followed.

Now, 28 years after the ouster of the Khmer Rouge, Cambodia is fitfully approaching the start of a trial of a handful of surviving leaders that could bring some belated healing.

Coming together, the impending trial and the approaching flow of oil mark a transition in Cambodia from its still-raw past to a suddenly more challenging future.

"I do believe this is Cambodia's last best chance to take its place in the world and the region," Mussomeli said. "If not, they're going to be a basket case into the next century."

Cambodia has six potential fields in the Gulf of Thailand off the shore of this southern port city as well as several other fields in areas that are disputed by Thailand.

Onshore, mining companies have found deposits of a variety of minerals, primarily bauxite and gold, that could add to the country's new riches.

The rush of foreign countries whose oil companies have staked claims includes China, which has become the country's biggest commercial investor, its biggest aid donor and its hungriest consumer of raw materials, pushing ahead with major hydropower and road building projects.

The Chinese have made optimistic statements about the oil field they control, although the basis for these statements is not clear.

In the first of the six fields to be explored, Chevron said in early 1995 that it had found oil in four out of five wells. Two more rounds of exploratory drilling have followed.

A company spokeswoman, Nicole Hodgson, said last week that the results of the latest drilling were being analyzed and would be announced later this year. She declined to estimate the size of the field.

If used wisely - as Hun Sen promises it will be - the new wealth could be the salvation of this country of 14 million, where 35 percent of the population lives on less than 50 cents a day. It could help build clinics and schools and roads and irrigation canals and bring electricity to the 82 percent of Cambodians who now live without it.

Over all, it would dwarf a small-scale economic recovery that reached 10 percent growth last year, based mostly on garment manufacturing and tourism, as well as construction and agriculture.

Or it could be sucked up by a small, powerful elite that already devours most of the nation's wealth and bring on the symptoms of the oil curse: a breakdown in government services, economic stability and social order.

"We will try our best to make sure that the oil income is a blessing, not a curse," Hun Sen said in April. "These revenues will be directed to productive investment and poverty reduction."

That promise sounds very much like the ones Hun Sen made in the past, when he vowed to crack down on illegal logging and corruption. Those promises did not seem to be backed with muscle.

Vast stands of timber and deposits of gold and precious gems have disappeared with little benefit to the people.

Government buildings have been sold for profit. The tourist concession at the country's most famous killing field has been leased to a Japanese company. Ticket fees from the national symbol, the Angkor temples, mostly go into private hands.

Transparency International, a private monitoring agency based in Berlin, recently ranked Cambodia 151st out of 163 countries in its annual report on perceptions of corruption.

To avoid the worst consequences of sudden wealth, it seems, Cambodia must change its ways.

But the men in power may not be prepared to resist the temptations and challenges that have overwhelmed some other oil-rich nations.

"If we look at the past, it's not too good," said Sok Hach, president of the Economic Institute of Cambodia, a private research group. "I still hope those people in charge can change. But if things don't change, I'm really afraid Cambodia will collapse."

Looking into the future, Ian Gary, an oil and mining expert with the aid group Oxfam America, said "the nut of the problem" was something that was already the case in Cambodia: "an influx of money going straight into the hands of the central government, where there are few checks or balances."

An oil-rich government, happy at its trough and free of the need to collect taxes, may ignore its constituents. Economic disparities could lead to social unrest, political instability and violence.

"The record is extremely poor," Gary said. "We've seen over time that there are greater incidences of civil war and conflicts in oil-rich states, that development indicators are low, and there is often negative growth."

Even with the best of will, small economies may not be prepared to absorb the windfall, said Purnima Rajapakse, deputy head of mission in Cambodia for the Asian Development Bank.

An economy centered on oil may cause other industries - like garments in Cambodia - to wither, adding to joblessness and poverty.

There are signs that Cambodia may already be turning down the wrong path, some experts said. Transparency is crucial to the proper management of oil money, and the government has so far released little information.

Under standard practice, Gary said, hefty "signature bonuses" are paid by oil companies at the time exploration contracts are signed.

"So already money is flowing into the Cambodian government, one would presume, from these exploration contracts, and there is no explanation of that," he said.

Sok Hach said he was frustrated by his inability to get more facts and figures about the oil finds for his economic analyses.

"The oil will start in two or three years; it's tomorrow," he said, "and the government does not want to release anything."