Cambodia Showing Signs of 'Oil Curse'

19 Mar 2009
Geoffrey Cain
World Politics Review

Up to $1.7 billion a year in oil money is set to flow into impoverished Cambodia, where 35 percent of the population lives under $1 a day and where this year's national budget is only $1.8 billion. Yet in a country ranking a dismal 166 out of 180 on Transparency International's annual corruption rankings, allegations of nepotism and cronyism are already surfacing around the country's nascent oil sector, set to start production in 2012. Critics, like London-based watchdog Global Witness, claim the makings of a "resource curse" are in place, wherein a political elite will siphon profits that should be used to address poverty.

The International Monetary Fund initially estimated the newly found oil reserves, discovered in 2005, at 2 billion barrels, while energy giant Chevron forecast a more modest 400 million barrels. Amendments to a 1991 oil law subsequently placed the fields under the jurisdiction of the Cambodian National Petroleum Authority (CNPA), controlled directly by Prime Minister Hun Sen and his deputy, Sok An, with little parliamentary oversight. Global Witness claims the CNPA is rife with secrecy, its administrators regularly withholding documents and denying telephone usage to employees. That's in addition to millions of dollars, paid by companies to secure oil blocks, that aren't showing up in the government's revenue reports.

The developments follow a pattern that has emerged in other countries that have fallen prey to oil curses, such as Nigeria, Venezuela, and Iraq. Ou Virak, head of the Cambodian Center for Human Rights, argues that Cambodia has much in common with those three countries, in particular the fact that all government bodies and revenues are under the control of a few people. One Asian Development Bank consultant even labeled the CNPA a part of Sok An's "empire" (which also includes the corruption-rankled genocide tribunal).

The diversification into pillaging the oil and mining sectors comes after the country's ruling elites exhausted Cambodia's logging resources to fund their civil war in the 1990s. International donors largely remained silent at the time, said Eleanor Nichols of Global Witness. Now she says they must demand reform to keep Cambodian leaders from plundering oil and mining resources with impunity as well. The government allegedly said in October it would not endorse the Extractive Industries Transparency Initiative (EITI), a global coalition of businesses and governments that require disclosure of revenues, according to a Global Witness report. But Nichols said EITI is back on the table, with donors urging more transparency in Cambodia's oil find.

With foreign aid contributions totaling half of the government's $1.8 billion budget, donors can easily exert far-reaching influence upon Cambodia's ruling elite. But new donors with new agendas are courting Phnom Penh as well, and they don't attach the same conditions of democratic reform that Western governments do. In January, Sen finished his first-ever tour through Kuwait, which offered $546 million in soft loans for agriculture -- destined for Cambodia's vast rice fields -- as a means of securing its own food supplies.

China, facing staggering demand for minerals and timber to support its rapid growth, is also counteracting longstanding Western influence in the mineral-rich country. In exchange for access to resource supplies, China is powering the Cambodian countryside -- which faces some of the highest energy costs in the world -- by building $1 billion worth of hydroelectric dams. All of Beijing's soft loans come with no strings attached.

Whether Middle Eastern countries and China will hold Sen to international transparency standards remains to be seen, but transparency has so far not been high on their list of priorities. With Cambodia now hurtling headlong into an oil disaster, donor pressure will prove crucial to resisting the resource curse pattern plaguing developing countries.

Geoffrey Cain has covered Asia for the Economist, Far Eastern Economic Review, and .net Magazine. His personal Web site can be found here.

Cambodian oil wealth threatens democracy

March 1. 2009
Jared Ferrie, Foreign Correspondent
The National (Arab Emirates)

PHNOM PENH -- When oil was discovered off the Cambodian coast in 2005, the government promised to use the profits to lift the country out of poverty. Now, politicians are reacting angrily to warnings that corruption could turn oil into a curse rather than a blessing.

“If mismanaged through corruption or ineptitude, the money generated runs the risk of widening the gap between rich and poor and weakening democracy still further by entrenching the positions of the ruling elite,” said Eleanor Nichol, of Global Witness, a London-based non-governmental organisation that monitors the exploitation of natural resources and international trade systems.

The group’s recent report, Country for Sale, accuses officials of negotiating deals that would benefit “members of the ruling elite and their family members”.

The government barred Global Witness from operating in the country after a 2005 report documented involvement of officials in illegal logging.

Ms Nichol said copies of Country for Sale have been detained at customs. “It is unclear whether this is the result of an official government ban on the report.”

Chan Sophall, president of the Cambodia Economic Association, said he had not read the report, but he shares similar concerns. “The experience in the developing world is that there could be what is called a ‘resource curse’ – too much money wasted, rather than used for economic development.”

Although Cambodia’s oil reserves are relatively modest, they could be a windfall for this impoverished country of 14 million people. But organisations such as the United Nations, the World Bank and the Asia Development Bank have urged Cambodia to put systems in place to make sure the money is used as it should be, Mr Sophall said.

A Feb 5 World Bank report pointed to expected growth in oil and gas extraction, as well as mining. But it warned: “There needs to be a significant upgrade of the sector’s management which, at the moment, is ineffective and opaque.”

Officials have not taken kindly to such criticism, Mr Sophall said. “Advice on how to use the funds didn’t seem to be appreciated by the government.”

He pointed to a comment made by Cambodia’s deputy prime minister, Sok An, in response to a question about how petroleum revenue would be managed. Sok An was quoted in local media in 2007 as saying: “No question is more stupid than this question.”

After Global Witness published its report on Feb 5, Cambodia’s ambassador to the UK, Nambora Hor, accused the organisation of engaging in “smear campaigns”. He urged funders to review the group’s policies and activities.

On Feb 16, Cambodia’s prime minister, Hun Sen, lashed out at non-governmental organisations that were critical of his government’s management of oil reserves, calling them “crazy”.

“How could we have committed corruption if the oil resources are still in the seabed?” he asked during an economic conference in Siem Reap, Cambodia.

Global Witness and others say the government has failed to build institutions strong enough to monitor the oil industry and make sure the profits are invested in development.

“That’s why we are calling for a moratorium on oil and mining concessions until the basic legal, social and economic frameworks are in place,” Ms Nichol said. “Without this, Cambodia’s extractive industries will be operating in a regulatory vacuum.”

Hun Sen said his government was drafting a new tax revenue law that would include oil, gas and mining. Cambodia’s ambassador to the United Kingdom said the government intends to use oil wealth to fund “improved health, education and social conditions”.

Such assurances have failed to quell the concerns of groups, including the World Bank and Global Witness, that point out that the government has refused to release details about deals signed with oil companies, among them Chevron and BHP Billiton.

Ms Nichol said Cambodia is in danger of following the same path as other developing countries that have discovered oil.

“Newly oil-rich countries with fragile state institutions have repeatedly fallen victim to slow growth despite vast earnings with no ‘trickle down’ effect to benefit the impoverished,” she said. “The risk is that this will exacerbate corruption and authoritarianism.”

In countries from Latin America to Africa and Asia, the discovery of oil has been hailed as the key to moving from poverty to prosperity. But rarely, if ever, has that been the case.

Instead, many developing countries tend to follow the same pattern when oil begins to flow: promises are forgotten as elites pocket the profits; residents of oil-producing areas remain impoverished and often find themselves living in the midst of an environmental catastrophe; social and political unrest follows.

Nigeria, for example, has been forced to cut production by about one-quarter since 2006 because of attacks by insurgent groups in the Niger Delta.

It is Africa’s top oil-producing country, but most Niger Delta residents lack electricity and running water.

And they have lost a valuable source of food as oil has spilt out of pipelines, poisoning soil and polluting waterways where they once fished.

Cambodia’s reserves are nowhere near the size of Nigeria’s, but they could provide enough revenue to help the government wean itself off of international aid, which currently accounts for more than 50 per cent of its annual budget.

In an Aug 2007 report, the International Monetary Fund estimated that Cambodia could gain $174 million (Dh640m) from oil returns when the wells start producing in 2011, rising to $1.7 billion by 2021 before dropping rapidly.

Ms Nichol urged the government to act on the Global Witness report’s concerns. “Cambodia is on the verge of an oil and mining corruption disaster unless governance within the sectors dramatically improves.”

Emerging from decades of conflict, Cambodia’s economy has grown by an average of seven per cent over the past 14 years, the World Bank says. The bank estimated that the number of people living in poverty fell to 30 per cent in 2007 from 50 per cent in 1994. But it predicted that economic growth will slow because of the global economic crisis.

Transparency International ranked Cambodia 166 out of 180 countries on its 2008 annual corruption index.

jferrie@thenational.ae