Chevron should consider reputational risk

Monday, 25 May 2009
Written by Gavin Hayman, Global Witness
Letter to The Phnom Penh Post

Dear Editor,

Your article "Chevron deal still unresolved as crisis impacts exploration" (May 20, 2009) cites the economic crisis as the reason for delays in renewing Chevron's oil exploration agreement with Cambodia. Chevron should consider other factors in negotiations with the government - not least of which is reputational risk.

Earlier this year, Global Witness exposed major governance failings in Cambodia's emerging oil sector. Our report, "Country for Sale", revealed that the institution in charge of Cambodia's oil industry - the Cambodian National Petroleum Authority (CNPA) - is a constitutionally dubious body under the direct control of Prime Minister Hun Sen and his deputy Sok An.

Centralisation and politicisation of power within the CNPA has created a dysfunctional organisation over which the Cambodian parliament has no oversight. A setup like this leaves the industry wide open to corruption and exploitation.

Companies such as Chevron have a role to play in improving the governance of the country's extractive industries to help reduce poverty. As a key member of the Extractive Industries Transparency Initiative, Chevron should lead by example. To start, it should disclose any payments it makes to the Cambodian government.

Given recent events in Ecuador, reputational risk should be at the core of Chevron's approach to Cambodia.

Gavin Hayman, Global Witness
London

Cambodia's coming oil economy

This map, prepared by U.K. nonprofit Global Witness, reveals the offshore Cambodian territory U.S. energy firm Chevron plans to drill for petroleum. Source: Global Witness

Analysis: What might oil drilling do to a poor country, its people, and its government?

March 18, 2009
By Patrick Winn
GlobalPost

“They’ll have so much money from oil and mining, that they’ll be untouchable" - Global Witness Director Gavin Hayman talking about Cambodian rulers

BANGKOK – Haunted by war, and wracked by poverty, Cambodia has had little opportunity to enjoy one its few blessings.

The nation of 14 million people, sandwiched between Thailand and Vietnam, is flush with natural resources. Veins of iron and gold run beneath its soil. Natural forests offer a wealth of timber. Most promising of all are Cambodia’s deposits of oil and gas, believed to snake offshore all the way through the kingdom’s lush interior.

But as Cambodia’s leaders begin to parlay these natural blessings into wealth, selling off drilling rights to firms across the globe, there is reason to worry.

Foreign aid, in large part from U.S. tax dollars, accounts for half of Cambodia’s national budget. Much of this is aimed at the more than one-third of Cambodians living on roughly 50 cents per day.

While Cambodia’s ruling party could use the coming resource wealth to wean the country off foreign aid — and potentially lift millions out of poverty — leaders already appear to be hording this money for themselves, watchdogs say.

According to Global Witness — the U.K.-based non-profit that helped expose the West African “blood diamonds” trade — the coming oil wealth will likely just entrench Cambodia’s ruling cabal in corruption.

“In a couple of years, the elites will be so wealthy it will be hard to rewind the tape,” said Global Witness Director Gavin Hayman during a business trip in Bangkok. The non-profit recently published an investigative report on Cambodia’s growing oil wealth.

According to International Monetary Fund forecasts, Cambodia’s annual oil revenue should begin at about $174 million in 2011 and climb to $1.7 billion by 2021 — and plunge thereafter as resources are sucked dry.

This oil future has grabbed the attention of the global oil industry.

Just this past weekend, U.S. oil industry representatives invited Cambodian energy leaders to observe drilling operations near the Gulf of Mexico, home to dozens of major offshore oil rigs.

“Cambodia is on the verge of an oil and minerals windfall,” said Eleanor Nichol, a Global Witness campaigner. “The stakes are very, very high.”

A global fuel chase has led many foreign firms to cut deals with Cambodia’s ruling party. They’ve since carved the nation into 20-odd oil-and-gas districts that will be developed.

Most firms with Cambodian oil concessions are Chinese, some with little experience in the energy sector. Various South Korean, Southeast Asian and Middle Eastern companies round out the concession holders.

But the best-known energy firm with Cambodian drilling rights is the California-based Chevron Corporation.

Chevron is preparing as many as nine wells for what it calls a “complex reservoir” off Cambodia’s coast. The firm is now “working closely with the Royal Government of Cambodia to complete the fiscal and legal framework that will be required for the development of petroleum resources in Cambodia,” said Gareth Johnstone, Chevron’s Asia-Pacific media director.

Chevron is a high-profile member of the Extracative Industries Transparency Initiative — an anti-corruption movement devoted to “full publication and verification of company payments and government revenues from oil, gas and mining.”

No allegations of corrupton have been made against the company, though the oil giant has come under pressure from watchdog groups to be more transparent in its dealings here.

Chevron will not reveal its payments to Cambodia nor its start-up drilling dates, said Johnstone, who is based in Singapore.

Cambodia is rated the world’s 18th most-corrupt country by Transparency International, which publishes the world’s leading corruption measure. Chevron also operates in Burma, run by an oppressive military junta.

When resource-rich areas are ready for excavation, Cambodia’s government is suspected of dispatching soldiers and police to forcibly remove residents. According to Human Rights Watch, armed government militants have torched homes and pushed out hundreds of families. Once excavation begins, soldiers are believed to stand watch over the sites as international firms do their work.

Global Witness’ work in Cambodia has brought death threats and a promise from one senior official to hit investigators “until their heads are broken,” Nichol said.

Repeated inquiries to the Cambodia’s National Petroleum Authority were ignored. With no explanation, some emails to the entity’s listed addresses were automatically routed to Petroleum Geo-Services, a Norwegian firm specializing in finding oil and gas reserves.

Cambodia’s U.K. ambassador, Hor Nambora, issued one of Cambodia’s more public rebuttals to corruption claims. “It is naive for Global Witness to imagine that Cambodia’s international donors are not fully aware of the way the Royal Cambodian Government’s (sic) conducts its affairs,” Nambora wrote in a release.

His response included an odd, mocking parody of a Global Witness document called “Rubbish Report by Global Witness.” It features an image of a comically upright baby sea lion saying, “I shall not tolerate such rubbish. Good day, sir.”

Last year, Cambodia absorbed roughly $1 billion in foreign aid. Even as major donors acknowledge Cambodia’s corruption, money continues to pour in.

In 2008, U.S. Agency for International Development offered $54,994,000 to Cambodia in various programs targeted at health, education, human rights and more. The agency, in a corruption assessment, expressed frustration that “donor resources are being wasted and diverted.”

Many Cambodian bureaucrats, the USAID report stated, are “masters of spin” and “… most reform efforts have had limited impact on a persistent, less-than-scrupulous opponent.”

Many donors decide that, even if aid is filtered through corrupt bureaucrats, pulling back funding will only deprive the poor, Hayman said. And further, Western powers and their donation arms now worry that strained relations will push Cambodia dangerously close to China.

Still, analysts say the Cambodian government craves something China can’t offer — legitimacy in the Western world. American aid, and ties to giant firms like Chevron, supply much of this esteem.

The Western world, however, can only use this leverage for so long. Once Cambodia’s rulers hit the oil-and-gas jackpot, Hayman said, they’ll be too rich to reign in.

“They’ll have so much money from oil and mining,” he said, “that they’ll be untouchable."

CAMBODIA: Chevron Silent on Bribery Allegations

By Marwaan Macan-Markar

BANGKOK, Feb 6 (IPS) - U.S. energy giant Chevron is under fire for failing to disclose the amount of money it allegedly paid to secure rights to drill for offshore oil in corruption-ridden Cambodia.

‘’It is yet to respond to our detailed questions in a letter written to the company in October 2008,’’ says Gavin Hayman, campaigns director for Global Witness (GW), a London-based anti-corruption watchdog. ‘’It is not in favour of supplying information about what it pays foreign governments to secure rights for oil exploration.’’

Chevron’s attitude towards disclosure ‘’will be telling,’’ he explained in an interview, since such revelations will help measure the scale of ‘’under the table payments’’ involved in a country where a small and powerful elite has ‘’captured the country’s emerging oil and mineral sectors’’ for personal gain.

But disclosure about money paid to access the resource is only one part of the transparency and accountability equation. GW activist insists that the oil companies should also disclose what they would pay Cambodia once the revenue starts flowing.

Hayman made the comments following a launch here this week of a report by GW which warns of a corruption disaster as the South-east Asian country ‘’appears to be on the verge of an oil, gas and minerals windfall.’’

‘’Cambodia today is a country for sale,’’ reveals the 68-page report. ‘’Having made their fortune from logging much of the country’s forests resources, Cambodia’s elite have diversified their commercial interests to encompass other forms of state assets.’’

‘’Financial bonuses paid to secure concessions [for oil and mining] - totalling millions of dollars - do not show up, as far as GW can see, in the 2006 and 2007 revenue reports from the ministry of economy and finance,’’ notes the report, ‘Country for Sale’. ‘’Oil company contracts and information on concession allocations are a closely guarded secret within the CNPA [Cambodian National Petroleum Authority].’’

Yet what is better known is the presence of Chevron among the companies from Australia, China, Indonesia, South Korea and the United States that have been competing to secure rights to explore oil in the six blocks off Cambodia’s western coast.

‘’With the exception of Chevron, the government of Cambodia has not publicly announced the names of those companies to whom it has awarded oil and gas exploration rights,’’ states the report. ‘’Block A was awarded to U.S. oil company Chevron in 2002. Chevron’s activities in Block A are the most advanced of all oil companies currently operating in Cambodia.’’

GW estimates that oil will start flowing in 2011 and peak in 2021. Proceeds range from 174 million US dollars in the first year to 1.7 billion dollars when extraction peaks.

But GW doubts that such income from Cambodia’s natural resources will flow to those who need it most - the country’s millions still mired in poverty following nearly two decades of a bloody conflict and a brutal rule by the genocidal Khmer Rouge regime.

Currently, over 35 percent of Cambodia’s 13.3 million people live in dire conditions, on less than one dollar a day. And U.N. reports have revealed that life expectancy is 58 years, while nearly a third of children under five years are malnourished.

Yet for a small cabal of political, military and economic elite, the period since the 1991 peace accords has been a journey on the road to immense - and ill-gotten - wealth. In 2007, for instance, GW revealed in a report that illegal logging in Cambodia by the elite raked in over 13 million dollars.

Such greed by the elite has not only raised the alarm that Cambodia is on the verge of becoming a kleptocracy, but it has been rated as among the most corrupt countries. In 2007, the global anti-graft watchdog Transparency International ranked Cambodia 162nd among 179 countries surveyed for corruption, making it the most corrupt country in Asia after Burma.

The ease with which the powerful few have filled their personal coffers stems from a lack of independent bodies backed by strong laws and resources to curb corruption. ‘’Any state that has weak anti-corruption institutions is not going to have proper level of oversight,’’ says Donald Bowser, head of the Cambodia office of the Mainstreaming Anti-corruption for Equity Project, funded by the development arm of the U.S. government.

‘’There are local concerns about the misuse of the country’s extractive industry for personal gain,’’ Bowser said during a telephone interview from Phnom Penh. ‘’A civil society coalition has been formed to campaign against this form of corruption.’’

But such campaigns face a daunting challenge. The Cambodian government under the grip of an increasingly authoritarian Prime Minster Hun Sen has yet to implement strong anti-corruption measures that have been called for by the country’s foreign donors, who fund nearly half the national budget.

Activists like Hayman of GW also point fingers at international financial institutions like the World Bank for being complicit in the corrupt culture of Cambodia’s rising kleptocrats. ‘’The World Bank is particularly bad,’’ he charges. ‘’They have a bad track record of forgetting civil society to monitor all steps of programmes in Cambodia to ensure accountability.’’

However, the Bank thinks otherwise. ‘’The World Bank shares many of the concerns NGOs (non-governmental organisations) have raised about the government’s management of extractive industry in Cambodia,’’ it said in a statement released to IPS from its Phnom Penh office.

‘’Although the Bank has not been directly involved in extractive industries in Cambodia, our dialogue with the government includes discussion of policy reforms that will help to ensure that any revenue generated through extractive industries benefit the people of Cambodia,’’ it added.

Corrupt elite threaten Cambodia's development

Gavin Hayman, director of Global Witness

February 6, 2009
ABC Radio Australia

The anti-corruption ngo Global Witness says "a corrupt elite" in Cambodia is taking over the nation's emerging oil and mineral sectors, while international donors turn a blind eye.

In a report titled 'Country for Sale', Global Witness says Cambodia's future is being jeopardised by high-level corruption, nepotism and patronage in the management of public assets. This, it says, threatens Cambodia's potential to wean itself of foreign development aid.

Presenter: Sen Lam
Speaker: Gavin Hayman, director of Global Witness

Click here to listen to the audio program in English (Windows Media)

HAYMAN: We've been working in Cambodia for the last 15 years looking at how illegal logging was being operating in the country and were able to show that it directly benefitted the ruling military and political elite. And our new report has showed that the self same people whose names are in our previous report as being involved in illegal logging have now effectively taken over the mining and also have oversight over the emerging oil industry in the country. And that's disastrous news for Cambodia because the money from oil and mining, which could actually really help Cambodia's development and lift Cambodia's citizens out of poverty, appears to instead be in severe danger of being wasted.

LAM: But you also say that international donors are turning a blind eye. What would you like donor countries to do?

HAYMAN: Well donor countries need to really get the Cambodian government to behave itself. They need to effectively declare a moratorium until there's basic governance and transparency framework in place to actually have oversight over what's going on. At the moment we've discovered that effectively the government doesn't have any way of giving out concessions, apart from patronage. So a particular kind of senators for example in the ruling party appear to have a beneficial possession of the mines, and they also needs to do a proper audit as to exactly how all those concessions be given out and whether they're equal and whether in fact the money is in the national budget. And there's about 60 or 70 different companies operating now, and we've written to all of them, also to ask about their behaviour, and we haven't had many responses back. What we did get was from BHP Billiton, the huge Australian mining company, and they actually told us they paid about a million dollar signature bonus to the government to explore for bauxite near the Vietnamese border. Now we congratulate BHP on being transparent about that. We're worried about the 79 companies that haven't been transparent, but also disturbingly we can't find information about that million dollars in the Cambodian budget. And that's very worrying, so where is this money in Cambodia's financial system? That's very concerning.

LAM: Indeed, it must be quite hard though, to extricate the ruling elite from these lucrative contracts. So what do you think can be done to change this culture, this culture of corruption?

HAYMAN: Well I think at the moment Cambodia's depends on foreign aid for about half its budget, and the donors have a very limited window of opportunity to use that influence on the Cambodian government to get a moratorium in place and a proper audit and future management provisions in place. To actually assure transparency, and that the money actually flows into the national budget and is properly spent. So they've got to use their leverage now and effectively really they shouldn't be lending into corruption and actually compensating a corrupt government that's stealing money that should be spent on development by actually putting taxpayer's money into development projects. So effectively they've got to play hard ball with the Cambodian government and get it to actually be fully transparent.

LAM: And just very briefly, can the Cambodian government itself do more or is the government itself the problem?

HAYMAN: The government itself as currently constituted by the ruling elite is the problem. So, as I said the military and political figures in Cambodia are direct beneficiaries and owners of some of these mines. And they may not actually own it on paper but if you turn up at the gate, which is one of the things we've done, the people guarding the mine they all know who's in power and they'll tell you who's actually in charge and who's the owner. Effectively, the donors have been very soft, some might even say spineless about addressing corruption in Cambodia for the last sort of 14 or 15 years. And to give you an example, Cambodia still hasn't passed an anti-corruption law despite the donors pushing for that for the last 14, 15 years.