China, Vietnam seek sea border resolution "this year"

Sat Oct 25, 2008

BEIJING (Reuters) - China and Vietnam have agreed to find a solution to a festering maritime territorial dispute this year, the two sides said in a joint statement in Beijing.

The two countries dispute sovereignty over the Spratly Islands, a string of rocky outcrops in the South China Sea suspected of containing large oil and gas deposits and also claimed by Taiwan, Brunei, Malaysia and the Philippines.

They also agreed to consult on finding "a proper area and way of making joint exploration," the statement said, according to Xinhua news agency.

"The two countries will coordinate more closely to solve the remaining problems, so as to ensure they complete demarcation and erecting land markers along the whole borderline by year end," Xinhua quoted the joint statement as saying.

China supported the Vietnamese Communists in their decades-long war against South Vietnam and its U.S. sponsors.

But Vietnam has traditionally been wary of its larger Asian neighbor and in 1979 the two countries fought a brief border war after Vietnam occupied Cambodia and overthrew the murderous Khmer Rouge regime that favored Beijing.

Beijing and Hanoi normalized relations in 1991.

In 1988, China and Vietnam fought a brief naval battle near one of the Spratly reefs in which more than 70 Vietnamese sailors died.

Another set of islets further north of the Spratly group, the Paracel Islands, were seized by China in 1974 and have been occupied by them ever since despite Vietnamese protests.

In July, China told Exxon Mobil Corp to pull out of an oil exploration deal with Vietnam that it saw as a breach of Chinese sovereignty.

(Reporting by Nick Macfie; Editing by David Fox)

Oil cache creates a lot of saber rattling in Cambodia and Vietnam

Asia Oil-Rights Pact Nears

Malaysia, Brunei Work Toward a Deal That May Yield Cache

August 16, 2007
By YEE KAI PIN
The Wall Street Journal

SINGAPORE -- Malaysia and Brunei are inching toward a maritime boundary agreement for an area west of Borneo island, a development that could potentially unlock Southeast Asia's largest oil and natural-gas finds in just over a decade.

After three years of high-level talks, both sides may be close to a deal that, given the size of reserves in nearby oil fields, could also renew exploration interest in what has been written off as a mature region for liquids production.

"Both sides had put forward new proposals, and agreed on the need to resolve the matter urgently. They instructed their negotiating teams to work out the details," according to a joint statement carried Tuesday by Bernama, Malaysia's official news agency.

This followed bilateral talks in Bandar Seri Begawan between Malaysian Prime Minister Abdullah Ahmad Badawi and Bruneian monarch Sultan Hassanal Bolkiah.

The two countries, which have close political ties, have taken their time in determining who has sovereignty in the area, despite a pickup in offshore upstream activities such as seismic surveys and the drilling of exploration wells.

Brunei in February 2002 awarded exploration rights in the area, only for Malaysia to sign off nearly identical acreages under its own licensing round in January 2003.

Malaysia's state-owned Petroliam Nasional Berhad, or Petronas, gave Blocks L and M to U.S. company Murphy Oil Corp.

The first block had earlier been awarded by Brunei as Block J to a consortium headed by French oil company Total SA, while a group led by Royal Dutch Shell PLC had secured the second as Block K.

Petronas's move followed a major discovery by Murphy Oil in Malaysian waters adjacent to the disputed blocks in November 2002.

Murphy's Kikeh field -- scheduled to start pumping from its 440 million barrels of reserves next month -- was the region's most significant oil discovery since Petronas and Exxon Mobil Corp. added platforms to pump more oil from the Tapis field in the 1990s.

The ambiguity over the disputed waters resulted in a skirmish in March 2003, when a Malaysian navy patrol vessel chased a Total survey team out of the disputed area -- ending exploration activities at both blocks.

Since then, the companies involved have withheld public comment on the issue, saying negotiations were being held at the government level.

Petronas and Shell declined to comment on the reported breakthrough in talks this week, while officials from Murphy Oil and Total didn't respond to questions.

With oil at more than $70 a barrel, Malaysia and Brunei have each been pushing hard to replace their reserves.

Last month, Total started drilling a new offshore oil well known as MLJ2-06 that Brunei's Energy Minister Pehin Yahya touted as one of the most technically challenging wells ever drilled in Southeast Asia.

Brunei and Malaysia are increasingly willing to pour money and expertise into the area because they have had only limited success finding oil, even as output from their mainstay fields declines, analysts say.

Brunei is heavily reliant on oil- and gas-export revenue, which accounts for more than 75% of its budget. Based on current output rates, the sultanate's proven oil reserves of about 1.1 billion barrels will run dry in less than 14 years.

Malaysia is also staring at a possible 16-year end point, despite its 4.2 billion-barrel reserves, although its gas potential is growing.

Petronas expects the country to become a net oil importer within three years.

Any decision by Malaysia and Brunei to redraw their maritime boundaries will set a precedent in Southeast Asia, which has typically resolved such disputes through joint exploration.

Malaysia, after much political wrangling, struck two deals with Vietnam in the 1990s for a Gulf of Thailand zone known as the Commercial Agreement Area. Further south of the gas-rich Gulf, Malaysia also counts the Joint Development Area with Thailand among its successful agreements.

Still, oil discoveries can easily raise political temperatures in the region. Just last week, Cambodia said it recently transferred a brigade of army soldiers to the navy to help guard newly discovered oil fields. Offshore oil has become a buzzword for the impoverished nation after U.S. oil major Chevron Corp. hit paydirt in the southwestern seabed in 2005.

Vietnam has also had its share of saber rattling, when it fired warning shots at Philippine air force planes circling the Spratly islands in 2002. The rocky archipelago in the South China Sea has no known hydrocarbon reserves, yet no fewer than six nations have staked claims.

Write to Yee Kai Pin at kai-pin.yee@dowjones.com

Cambodia, Thailand struggle over petroleum [- Cambodia shortchanged by Thailand?]

Jun 13, 2007
By Andrew Symon
Asia Times (Hong Kong)

PHNOM PENH - Much international attention on Cambodia is focused on petroleum discoveries made by US supermajor Chevron offshore in the Gulf of Thailand. But the real prize is the overlapping claims area (OCA) further offshore to the west, an area long contested with Thailand.

But no exploration has ever taken place over what all geologists say is definitely prospective for oil and gas because of the failure of the Thais and Cambodians to reach a sensible agreement as to how to resolve border issues.

In principle, they have embraced a joint development approach, but this is not moving forward because of failure to agree on a division of the government revenues.

To some advisers close to the Cambodian government, a major stumbling block is Thai intransigence. While the Cambodians are now prepared to make some concessions, the Thais are still not giving anything, wanting the lion's share of the benefits.

Certainly, there can be a lot of national sensitivities involved in settling border claims, and both Thais and Cambodians have long memories of old hostilities. But Bangkok's attitude would not seem to sit well with all the talk in forums of the Association of Southeast Asian Nations of regional cooperation and good feeling, and also not in the context of the Asian Development Bank-promoted program to integrate the Greater Mekong Sub-Region economically.

Shine the light on the OCA

Just what Chevron has found in what are without dispute Cambodian waters is debatable. People may in fact be disappointed. All sorts of numbers are being bandied about, but Chevron itself is very tightlipped. Its Bangkok office says the sorts of numbers put forward by multilateral agencies, non-governmental organizations (NGOs) and media are speculative and do not come from Chevron. Where development goes in its offshore Block A is not clear.

After completion of a recent drilling round, Chevron said: "All data will be thoroughly analyzed over the next several months to recalibrate the pre-drill geological and geophysical models and to determine the ultimate resource potential in Block A." There are in fact counter-rumors now that the petroleum resources in the block, while maybe still at commercial levels, are far less than what has been anticipated. Time will tell. The government has tentatively put petroleum reserves in Block A at 700 million barrels.

Better to shine the spotlight on the 27,000-square-kilometer OCA in the north of the Gulf of Thailand.

Geologists say it is very prospective for oil and gas because it covers a continuation of structures that in adjacent and truly Thai waters have been producing large volumes of oil and gas for many years. This is a different geology from that under the Cambodian waters to the east of the OCA.

Indicative of the OCA's prospectivity is that both sides have awarded blocks over the same areas to major companies. These include ConocoPhillips of the United States, Chevron (taking up blocks also held earlier by Unocal after Chevron acquired that company in 2005, as well as its existing prior interests in the OCA), BG (British Gas), Australia's BHP Billiton, and Japan's Idemitsu, Inpex and Moeco. None have relinquished their claims, pointing to the strength of the OCA's prospects.

The origins of the OCA dispute date back to borders made more than a century ago between Siam and the colonial French government then ruling Cambodia and Laos as well as Vietnam. A result of this is that today in the northern part of the OCA, Cambodian- and Thai-claimed maritime borders are almost perpendicular to each other.

Efforts to resolve the problem made some headway at the start of the decade when the two sides signed a memorandum of understanding in 2001 agreeing that a joint development regime could be established over the lower two-thirds of the area while the northern third could be developed once the maritime border could be delineated. But the road was still not easy, as Thailand insisted that this border delineation be achieved before a joint development area could be established.

Discussions fell into limbo after the diplomatic breakdown in Thai-Cambodia relations in early 2003. This was caused by attacks on the Thai Embassy and property triggered by reported remarks by a Thai actress that Cambodia's revered Ankhor Wat temple complex in the northwest of the country should be part of Thailand.

Relations were eventually repaired and negotiations resumed over the OCA.

The current Thai proposal is that the disputed area be divided into three strips running north-south, with the revenue from the central area to be shared equally. The share from the outer areas would be weighted in favor of the country adjacent to that area. But a difficulty here for Cambodia is that the most prospective areas are likely to be to the west.

For its part, Cambodia proposes dividing the area vertically down the middle and six times horizontally, creating 14 different blocks. Revenues from the blocks would be shared equally. Each country would be responsible for managing seven of the blocks, allocated in a checkerboard pattern.

Thailand, however, does not seem prepared to accept equal division and argues for a greater share of the fiscal benefits. Yet even under a 50:50 split of government revenue from oil and gas production from a joint development area, Thailand would gain the largest share of the overall economic benefits.

According to a study undertaken by UK-based petroleum-industry consultants Wood McKenzie, 85% of the development's overall economic benefits would accrue to Thailand. This was determined on the basis of gas from the OCA likely being fed into an existing comprehensive Thai pipeline system in the gulf. Thailand would gain transit fees and other benefits such as further gas for its power generation instead of importing via expensive liquefied natural gas. Thailand would also gain more through displacement of imported oil. Thailand imports almost all of its oil supplies.

The ultimate position of companies allocated blocks by the respective governments is unclear. The Cambodian awards were made in 1997 conditional to a resolution of the dispute. The Thai awards were made in the late 1970s, and legal opinion is that these may be in force majeure.

Achieving a breakthrough

Government officials from both sides meet three or four times a year under the terms of the 2001 memorandum of understanding, but it appears little progress is being made now.

Clearly the uncertainties in Thailand after the coup last September against the government of Thaksin Shinawatra are not helping. Until there is a new constitution and new government to succeed the present military-directed caretaker administration, the Thais will not make any commitments.

Under Thaksin, there were some signs that he may have been able to bite the bullet and force an agreement through his bureaucracy. This would have been consistent with Thaksin's wider plans for a Thai-centered economic-development thrust for the Thailand-Indochina region, called the Ayeyawady-Chao Phya-Mekong Economic Cooperation Strategy. And blueprints prepared under him did include schemes for OCA development.

Recourse to the International Court of Justice in The Hague is not an option, it seems. Both sides must be prepared to submit their cases for judgment, and this is very, very unlikely to happen because the Thais remember the last time they went along with this way of doing things - they lost their claim to the ancient Khmer temple of Preah Vihear, which is just inside Cambodia's northern border with Thailand.

That issue, like the OCA matter, had its origins in borders determined by the French colonial government with Siam. In 1954, the year after France granted independence to Cambodia, the Thai military (Siam was finally renamed Thailand in 1949) seized the temple from Cambodia. The then prime minister, Prince Sihanouk, took the matter to the International Court in 1959. The Thais were also prepared to have their case heard.

But to Bangkok's chagrin, the court ruled in Cambodia's favor in 1962. Cambodia did have some substantial legal counsel. One of those representing Phnom Penh was Dean Acheson, who was secretary of state (1949-53) in the administration of US president Harry Truman. The current failure to unlock the OCA is lamentable. On Bangkok's side, there should be keenness to resolve the issue, given Thailand's own need to find new gas supplies for domestic power generation and oil to offset its growing oil-import bill.

And for Cambodia, one of the world's poorest countries, revenue from the petroleum development would, of course, be a blessing if it enabled the government to finance more infrastructure and health and education.

At this prospect, there are, however, plenty of cautionary voices from multilateral organizations and international NGOs warning about the risk of Cambodia squandering such riches through bad management, poor economic policy and corruption.

Phnom Penh has no shortage of advice. But perhaps it would be better first to work out how the OCA problem might be resolved, especially if the Chevron finds on Block A are less than were once hoped.

In any case, an OCA joint development scheme should be attractive to those who are worried about the use of resources revenues. As one petroleum lawyer says, a joint development area would have to offer transparency as there would be an overarching treaty signed by both countries to govern operations. There would be a regulatory framework set down, a joint authority to manage it, and reports of operations and revenues made to both governments.

There are examples of how this can work. The joint development area between Thailand and Malaysia in the southern part of the Gulf of Thailand has been supplying gas to Malaysia since last year and is set to supply gas to Thailand from about 2008.

Then there are the joint development treaties between Australia and East Timor. While the determining of splits for the contested areas has been a controversial process since Timor succeeded Indonesia as the treaty partner upon independence in 1999, this now seems to be bedded down.

Under one joint development arrangement, covering the producing Bayu Undan gas and condensate field, East Timor gains 90% of government revenue. A more contentious deal was for the Greater Sunrise gas fields, yet to be developed, where a 50:50 split was finally agreed on.

The outcomes reflect both East Timor's legitimate border claims and the view in Canberra that such splits would be an effective way of ensuring that the tiny new state has access to revenues and will not be forever reliant on multilateral and bilateral handouts - including those that would come from Australia.

Australia did not reach this position without difficult negotiation with the Timorese and its United Nations advisers, and there was domestic and international NGO pressure on Canberra to provide East Timor with a better deal over Greater Sunrise than Australia had first proposed.

The Thai-Cambodian OCA situation is perhaps not so different. Yet there does not seem any wider debate and concern as to what responsible position Thailand could take if it wished to assist the development of its much poorer neighbor and promote economic cooperation in the Mekong region.

Andrew Symon is a Singapore-based journalist and consultant specializing in energy and resources.

Cambodia warned not leap into taxation and licensing agreements to attract investors, and then try to strongarm a better deal when oil start to flow

Sunday June 10, 2007
Cambodia's oil bonanza muted by uncertainties

PHNOM PENH (AFP) - Two years after discovering oil off its coast, uncertainty clouds Cambodia's nascent petroleum sector, with analysts saying it is impossible to gauge the extent of the country's fuel deposits or their impact on one of the world's poorest economies.

Predictions of vast new wealth are now being reconsidered, with some international institutions already drastically scaling back previous estimates of a billion barrels of oil.

Even Prime Minister Hun Sen has tempered earlier claims that the country would begin tapping oil by 2010, saying last week that Cambodia's petroleum prospects were now "uncertain".

"Oil under the sea is still a dream," he said Wednesday.

Diplomats have reacted with caution to Cambodia's possible petroleum windfall amid rising hopes that annual revenues would dwarf the current budget and pull the country out of poverty.

"Whether Cambodia will ultimately benefit from its future oil revenue is uncertain," said US Ambassador to Cambodia Joseph Mussomeli.

Analysts agree that it is too early to tell how oil could impact Cambodia, where 35 percent of the population lives on less than 50 US cents a day.

"The exact size of the reserves, how much is entirely recoverable, is still unknown," said International Monetary Fund advisor Jeremy Carter.

"One has to hold off from making very large-scale assumptions about what will happen," he said.

Momentum, however, is building after the US energy giant Chevron announced two years ago that it had struck oil in four of five wells dug in the waters off Cambodia's southern coast.

While Chevron confirms the presence of oil and continues drilling, the company has not released any data from Block A, one of six open to exploration in Cambodia's water in the Gulf of Thailand.

But the sheer size of estimated deposits -- the government has tentatively put petroleum reserves in Block A alone at 700 million barrels -- has other internationals rushing into talks for exploration and production rights.

The government has divulged very little about these negotiations.

But companies from Thailand, Singapore, Malaysia, Indonesia and Kuwait, as well as China's state energy giant CNOOC, have all bid for rights in other blocks, said Te Duong Tara, executive director of the Cambodian National Petroleum Authority (CNPA), at a conference in February.

Since Chevron's announcement, the debate has largely focused on Cambodia's ability to manage its oil wealth.

The money could be used to repair infrastructure, or build schools and hospitals, said Sok Hach, president of the Economic Institute of Cambodia, a private think tank.

"I think it could be very, very helpful if it was managed well," he told AFP.

But the potential for a sudden influx of billions of dollars has some observers warning of disaster for corruption-plagued Cambodia.

Sok Hach agreed that there was "the dark side of the story"; Cambodia's weak governance and institutionalised graft that could see oil wealth simply devoured by the powerful.

Hun Sen has repeatedly vowed that oil would not become a "curse", referring to other poor countries like Nigeria whose resource riches have benefited only the elite.

The world's sixth largest oil exporter in 2005, Nigeria remains one of the poorest nations in sub-Sahara Africa and has "come to epitomise what can go wrong with oil wealth," according to the World Bank.

"The challenge for Cambodia will be to channel this new-found wealth through strong institutions, reinforcing the capacity of the state to collect and spend for the benefit of all Cambodians," said World Bank economist Robert Taliercio.

But this is not easy in a country that has limped along under a system of political patronage, kickbacks and buy-offs.

Hun Sen's promises of oil sector transparency are also likely to be blunted by recent accusations from the forestry watchdog Global Witness that his relatives and other politically-connected families were plundering Cambodia's other key natural resource, timber, "with complete immunity."

Amid the uncertainties surrounding Cambodia's fuel sector, the Chevron project is an important indicator of whether foreign companies will be able to work with the government here, analysts say.

"The success of that project will be a hot test for other companies sitting on the sidelines," said Dave Ernsberger, Asia oil director at Singapore-based energy information giant Platts.

"How those partners fare with the national government, taxation, and ability to export and sell the crude oil and natural gas will be a key test for Cambodia," he added.

Ernsberger warned, however, that Cambodia should not leap into taxation and licensing agreements simply to attract investors, only to then try to strongarm a better deal for itself once oil has started flowing.

"There is a trend around the world for developing nations to aggressively renegotiate contracts," he told AFP.

Already, Hun Sen is urging donors to pressure oil companies to ink revenue sharing agreements that more heavily favour Cambodia.

But this tactic could backfire, according to Ernsberger.

"The issue for a country like Cambodia is that ... there is simply not yet the proven potential for gas and oil exports and track record of performance for many companies to tolerate that sort of behavior," Ernsberger said.

Ambassador calls on Cambodia to join EITI

New Europe - The European Weekly
GERMANY
9 June 2007 - Issue : 733

Outgoing German ambassador to Cambodia Pius Fischer said on June 7 that Cambodia has been repeatedly urged to join the Extractive Industries Transparency Initiative (EITI) to help it properly manage expected lucrative oil revenues, Deutsche Presse-Agentur (dpa) reported. Speaking at a Club of Cambodian Journalists roundtable discussion attended by dozens of local reporters, the ambassador again voiced Germany's concern that the country's economic boom was not trickling down to the rural poor and said it was vital that oil revenues were used to their best advantage to help society.

The EITI, founded in 2002, supports improved governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas and mining, according to its website. It works to build multi-stakeholder partnerships in developing countries in order to increase the accountability of governments.

"There is definitely a need to invest in Cambodia's human capital so Cambodia has the capacity to remain competitive in the globalised world," Fischer was quoted by dpa as saying. "More attention should be given on social equities because as the disparities between the urban rich and rural poor are growing this could lead to social conflict. With the beginning of the exploitation of Cambodia's oil and natural gas resources expected to begin probably by 2008 or 2009, it would be important also to develop concepts of how the revenue from these natural resources would be harnessed and used for the benefit of the Cambodian population. In this context, Cambodia's development partners have repeatedly suggested that Cambodia adopt the principals of the EITI. These principals, if they were observed by Cambodia, would be very beneficial for Cambodia's economy," he said.

Prime Minister Hun Sen on June 6 branded people who claimed endemic corruption could hijack potential oil revenues "stupid" and said countries critical of how resources might be plundered would be better served making positive input and ensuring their oil companies negotiated fairly with Cambodia. It was unclear if EITI is going to be included in the draft law on oil currently being written by the government and government sources close to the oil industry have declined to comment until the law is unveiled later this year, dpa said.

Critics have voiced fears that corruption and a lack of transparency, if unchecked, could send Cambodia the way of Nigeria and fail to benefit more than an elite few, instead of making it the success story of other oil-rich nations in the region like Brunei. EITI is a global initiative strongly supported by oil producing countries including Britain and Norway with around 20 members worldwide including Chad, Ghana, Kazakhstan, Timor Leste, Mongolia, Bolivia and Peru. Neither Nigeria nor Venezuela are members. Fischer ends his mission in Cambodia in mid-July and will then become German ambassador to Mongolia.

Hun Sen Addresses International Oil Concerns

Cambodia's Prime Minister Hun Sen speaks during the inauguration of the China-funded construction of a bridge in Mouk Kampoul district, Kandal province, some 20 kilometers (12 miles) north of Phnom Penh, Cambodia, Wednesday, June 6, 2007. Hun Sen said Wednesday that there is still uncertainty about commercial viability of Cambodian offshore oil potential, apparently backtracking from his previous optimistic notes on the subject. (AP Photo/Heng Sinith)

Mean Veasna, VOA Khmer
Original report from Phnom Penh
06/06/2007

"If we do not have foresight, the money will flow into the pockets of the corrupt" - opposition leader Sam Rainsy

Prime Minister Hun Sen Wednesday moved to reassure the international community that money from oil in offshore reserves would find its way into the national budget through taxes.

In a statement at a bridge inauguration ceremony in Kandal province, where he lauded good diplomatic relations with China, Hun Sen said foreign institutions and governments should be more concerned with whether Cambodia gets a fair share from oil.

"I only hear you and other people talk about spending money from oil, but I haven't heard anybody talk about ways to make oil revenue increase," Hun Sen said.

International finance institutions and others have warned Cambodia to ensure its oil money is a boon for the country and does not widen the gap between rich and poor or separate the government from the governed.

"The US, Japan, Australia—those countries whose companies come—tell the companies to share as much production share as possible with Cambodia," Hun Sen said. "Secondly the taxes should be high."

He emplored the US Embassy to "try to talk with Chevron," which continues to sink test wells off Cambodia's coast.

US Embassy spokesman Jeff Daigle said oil negotiations were between Cambodia and a private business, so were outside the purview of the embassy.

Critics have warned that Cambodia's weak rule of law could undermine earnings from oil, which have been explored in offshore reserves in the Gulf of Thailand.

"If we do not have foresight, the money will flow into the pockets of the corrupt," opposition leader Sam Rainsy said Wednesday.

Center for Social Development Director Seng Theary said weak governance was a legitimate concern.

"We cite this issue because we have seen real situations in other countries, and we know about the real situation in our country: that we do not have good governance yet, and we do not have an anti-corruption law yet," she said. "It is this point that makes us have concerns."

Cambodian leader voices uncertainty about offshore oil potential

Cambodia's Prime Minister Hun Sen, center, smokes as he sits with Interior Minister Sar Kheng, left, and Finance Minister Keat Chhun, right, during the inauguration of the China-funded construction of a bridge in Mouk Kampoul district, Kandal province, some 20 kilometers (12 miles) north of Phnom Pen, Cambodia, Wednesday, June 6, 2007. Hun Sen said Wednesday that there is still uncertainty about commercial viability of Cambodian offshore oil potential, apparently backtracking from his previous optimistic notes on the subject. (AP Photo/Heng Sinith)

2007-06-06

MOUK KAMPOUL, Cambodia (AP) - Prime Minister Hun Sen said Wednesday that there is still uncertainty about the commercial viability of Cambodian offshore oil deposits, qualifying his earlier optimism over their potential.

In February, Hun Sen raised hopes of a brighter future for his impoverished nation when he said Cambodia expects to begin tapping oil revenues in 2010.

«Whether it will be a curse or blessing, in fact it is still under the seabed, and it is still unknown how much there is,» he said Wednesday.

«What if one day companies say, 'Oh, no, after exploration, it has no commercial viability?' Oil under the sea is still a dream,» he said.

Hun Sen spoke during a ceremony to begin construction of a Chinese-funded bridge at a village about 20 kilometers (12 miles) north of the capital Phnom Penh.

China is among several countries that have lined up for opportunities to explore oil off the coast of Sihanoukville, in Cambodia's southwest.

U.S. energy giant Chevron Corp. discovered oil in 2005 off the Cambodian coast, 145 kilometers (90 miles) southwest of Sihanoukville. The company found oil in four wells in an area called Block A, and plans to drill 10 more wells by the end of 2007.

Critics and observers have expressed concerns that increased income from oil could exacerbate Cambodia's already widespread corruption if the government fails to develop proper legal environment to manage the expected revenues.

Hun Sen said Wednesday he is fed up with that point of view, and that «it is better to think about how to maintain growth of the current economy.»

In a statement issued Tuesday at the end of a mission to Cambodia Tuesday, an International Monetary Fund delegation warned that there is still much uncertainty about whether Cambodia will become a significant oil producer.

The IMF said it would be «imprudent» for the government to undertake any large commercial borrowing or begin any major oil infrastructure projects «given the substantial uncertainty still surrounding the level of reserves and the timing of production.»

High oil price draws explorers to deep Southeast Asian waters

Wednesday, May 23, 2007
By Ioannis Gatsiounis
The International Herald Tribune (Paris, France)

"Michael Smith, chief executive of Energyfiles, an independent oil and gas consultancy, said he estimated Cambodia's recoverable oil reserves at 750 million barrels and recoverable gas reserves at 300 billion cubic meters."

KUALA LUMPUR: Across Southeast Asia, benchmark crude oil prices near $70 a barrel have triggered fresh exploration and development activity in countries ranging from Indonesia, an original Opec exporter that is now a net importer after years of declining output, to Cambodia, which has never produced oil but may have huge offshore reserves.

With countries like China, Japan, Korea and India on its doorstep, competing for supplies, the region is witnessing significant developments in exploration and production, including the opening of deeper-water exploration blocks in Malaysia and new fields in Indochina, the building of new pipeline infrastructure and the adoption of more investment-friendly tax and revenue-sharing rules, industry analysts say.

In Malaysia, the deep water Kikeh field off Sabah, northern Borneo, discovered by Murphy Oil in 2002 and estimated to hold 350 million barrels of crude oil, is expected to come into production this year following an agreement with the neighboring sultanate of Brunei to end delays caused by a territorial dispute.

Also in deep water off Sabah, the 400 million-barrel Gumusut-Kakap field, discovered in 2003 and operated by Murphy and Royal Dutch Shell, is set to start production within five years.

Other deep water finds off Sabah include the Ubah and Malikai fields. Because deep-water finds are not typical of the region, these projects will require the importation of technology and expertise, adding to the cost and complexity of development, but they also should position Malaysia closer to its long-term aim of becoming the region's center for deep-water discovery, say officials at the national oil company, Petronas.

The Malaysian government is not only pushing oil field development. Earlier this month it approved construction of a $14.2 billion pipeline stretching 200 miles, or 320 kilometers, across the northern peninsula states of Kedah and Kelantan. The pipeline, to be financed in part by the National Iranian Oil Co. and partly by Malaysia state-sector and private companies, will provide a short-cut alternative to sending tankers through the narrow Malacca Straits, a congested transit route for about half the world's oil shipments.

Vietnam, the third largest oil producer in the region behind Indonesia and Malaysia, with production of around 350,000 barrels a day, is also aggressively trying to increase output as foreign investment soars. Plans to open bidding for seven offshore exploration blocks are currently under review, said Hoang Ngoc Dang, a senior Vietnamese oil exploration official. The blocks are in fairly shallow waters, with an average depth of 60 to 100 meters, or 200 to 330 feet, in the Song Hong Basin, off northern Vietnam.

Vietnam has between 4 billion and 4.5 billion metric tons - or 30 billion to 33 billion barrels - of crude reserves, and drilling activity has nearly doubled there since 2005, said Hazel Cameron, an analyst at Wood Mackenzie. Most of Vietnam's oil production comes from the Cuu Long basin, off southern Vietnam.

Three oil fields, Ca Ngu Vang, Su Tu Vang, and Te Giac Trang, in the Cuu Long basin, contain an estimated 700 million barrels and may be on stream by 2010. Last month, Japan-Vietnam Petroleum said a new discovery off the country's south coast might contain reserves of nearly 37 million barrels, according to the state-run Viet Nam News Agency.

Meanwhile, the state-owned company Vietnam Oil & Gas, known as PetroVietnam, may invest $6 billion for oil and gas exploration projects through 2010, as part of an effort to increase oil output to 440,000 barrels a day by 2009, according to officials. Earlier this month the government said it would scrap fuel price caps in a bid to encourage investment in the oil sector.

Indonesia will also try to improve the business and investment climate in its oil sector, President Susilo Bambang Yudhoyono said this month. Indonesia is now producing just under one million barrels a day, down from an average of just over one million a day last year, according to International Petroleum Monthly.

Complications in taxation due to differing regional and national policies, security issues and overlapping land ownership have deterred investment, as have contract terms under which 15 percent of oil revenue goes to the producers and 85 percent to the government. In April, however, the state oil company Pertamina said it would invite foreign companies to join in exploration and production work and negotiate the revenue split on a case-by-case basis.

Aging oil fields have led to a slip in production, and Indonesia became a net importer in 2004. The government is now targeting a 30 percent increase in output, to 1.3 million barrels a day, by 2009. Among other steps, it has put heavy pressure on Pertamina to resolve a four-year dispute with its partner Exxon Mobil and start production from the Cepu oil block, the country's biggest untapped reserve, by the end of next year. The $2.6 billion project, bordering East Java and Central Java, is estimated to hold 600 million barrels of oil and 1.7 trillion cubic feet of gas.

Pertamina, meanwhile, reached an agreement this month with the largest South Korean oil refiner, SK Corp., and the state-run Korea National Oil Corp. to explore and develop Indonesian fields. South Korea is one of the largest crude oil importers in the world.

Elsewhere in the region, Cambodia has been a focus of attention following an offshore oil find in 2005 by the U.S. oil major Chevron. At least five European, American and Asian companies are now seeking exploration rights from the government. Officials say an estimated 200 million barrels are to be found off Cambodia's coast; the World Bank puts the figure at closer to two billion barrels.

Michael Smith, chief executive of Energyfiles, an independent oil and gas consultancy, said he estimated Cambodia's recoverable oil reserves at 750 million barrels and recoverable gas reserves at 300 billion cubic meters. The government hopes to see a revenue stream by 2010.

In Myanmar, new pipelines will shuttle Middle East oil, and production from the country's own offshore fields, to China's southern Yunnan province.The military government says the country has 3.2 billion barrels of recoverable crude oil reserves and that for the fiscal year 2005-06 the country produced nearly eight million barrels of crude.

While Western countries have sought to isolate the military government, Russia and China have sold it arms and, in January, vetoed a United Nations Security Council resolution condemning the regime. Days later, Myanmar handed major contracts to China's National Petroleum Corp. In September, it awarded Russia's state-owned oil company Zarubezhneft a first contract to explore for offshore oil.

In Thailand, the energy ministry has recently put 56 onshore and nine offshore exploration blocks in the Gulf of Thailand up for bidding. In the Lanta production area of the Gulf of Thailand, Chevron has discovered fields capable of producing 14,000 barrels per day. Thailand now produces 143,900 barrels of crude per day, and substantial quantities of gas.

Brunei, a net oil exporter, currently produces 198, 000 barrels of crude oil a day from its heavily depleted reserves. Smith, of Energyfiles, and other industry analysts say that its shallow coastal waters are unlikely to yield significant new finds. The most potential for additional reserves is probably in deep waters in the South China Sea, but territorial ownership disputes with Malaysia could be a problem, Smith said.

In the Philippines, deregulation of the energy sector under President Gloria Macapagal Arroyo has triggered some foreign interest. Known reserves are limited but the Sandakan deep water basin, bordering Sabah and covering some two million acres, may have large potential, some analysts say. Exxon Mobil has a 50 percent operating interest in the basin.

"Southeast Asia is the most easy place for western-style oil companies to do business," Smith said, and rich finds in shallow offshore waters have provided strong incentives for explorers.

Across the region "the risk/reward profile" is favorable, said Bradley Way, a senior analyst with BNP Paribas.

Pattani Trough: A maritime oil and gas areas in dispute between Thailand and Cambodia

2007/5/1
Maritime oil and gas areas in dispute

Reuters

Maritime disputes may hold up prospective energy developments in Asia for years or decades despite high oil and gas prices, but analysts say joint development is still on the cards.

Here is a factbox on some of the disputed areas.

PATTANI TROUGH -- Thailand/Cambodia

The Gulf of Thailand is already a gas-producing zone but 27,000 sq km (10,430 sq mile) is disputed between Thailand and Cambodia. It involves no territory.

Thailand produces natural gas but still relies on imports, which make up about 27 percent of consumption running at 565,854 barrels of oil equivalent per day (boepd).

Cambodia, which relies on foreign aid, hopes to begin pumping oil from offshore fields in the Gulf of Thailand by 2009.

SPRATLY ISLANDS -- China/Vietnam/Taiwan/Malaysia/Philippines

The national oil companies of China, the Philippines, and Vietnam signed a three-year joint-seismic accord in 2005, to cooperatively assess oil and gas deposits.

Their proximity to nearby oil and gas-producing fields, discovered in the 1960s, bolstered the belief that they harbour rich untapped reserves of oil and gas.

Modern disputes date back to the 1930s, with claims bolstered by references to historical maps and literature. In 1988, China and Vietnam fought a brief naval battle near the Spratly reefs, in which more than 70 Vietnamese sailors died.

GREATER SUNRISE -- East Timor/Australia

The US$5 billion development of the Greater Sunrise gas fields in the Timor Sea may begin soon, after East Timor's parliament ratified a pact with Australia in February to evenly split royalties. The fields are estimated to hold 8 trillion cubic feet (Tcf) of gas and up to 300 million barrels of condensate.

Greater Sunrise was frozen in 2004 while waiting for Canberra and Dili to resolve their differences over the revenue split.

There is still debate on whether to transport the gas to Darwin in northern Australia, process it at sea at an offshore plant, or bring it via pipeline to East Timor for export from an onshore liquefied natural gas (LNG) facility.

The project involves Woodside, Royal Dutch/Shell and Japan's Osaka Gas Co. Ltd.

JAPAN/CHINA

China's CNOOC Ltd. said in April it had begun producing gas at the Tianwaitian field in the East China Sea despite Japan's objections to development. It is also ready to begin producing from the nearby and larger Chunxiao field as soon as Beijing gives it the go-ahead, a source told Reuters.

A Japanese government official quoted Chinese Premier Wen Jiabao, on a visit to Tokyo in April, as proposing that high-level talks about the dispute could be held next month.

Beijing and Tokyo disagree over the boundary between their exclusive marine economic zones and Japan objects to Chinese development of gas fields near the border, although they are in an undisputed area. Tokyo fears drilling there could inadvertently drain Japanese gas through a honeycomb of seabed rocks.

The amount of fuel found so far, in a cluster of fields in the Xihu trough and nearby Pinghu field, is relatively small. CNOOC's gas output from the Tianwaitian field last year was equivalent to a relatively modest 4 million cubic feet per day. But an industry source said actual output was now running at 500,000 cubic metres a day (17.65 million cubic feet), and when Chunxiao comes on line, annual production at the two fields could reach 600 million cubic metres a year.

Chunxiao has by far the biggest net gas reserves, and operator CNOOC Ltd. puts these at just 4.8 billion cubic metres -- enough to meet a month of last year's demand.

VIETNAM/CHINA

China has disputed Vietnam's right to a US$2 billion pipeline project, in which BP aims to carry gas nearly 400 km (249 miles) from two new offshore fields to Vietnam's south coast.

The two fields, Moc Tinh, located in Block 05.3, and Hai Thach, in Block 05.2, are near the Nam Con Son gas project, Vietnam's biggest, where BP works with Petrovietnam, India's Oil & Natural Gas and ConocoPhillips to supply about 13.2 million cubic metres per day of gas.

The two countries agreed last year to increase joint oil and gas exploration efforts in the Gulf of Tonkin and continue talks about disputed maritime areas further south.

China seized the Paracel Islands, a set of islets just north of the Spratly group, in 1974 and has occupied them since despite Vietnamese protests.

MALAYSIA/BRUNEI

Malaysia and Brunei said last year they would speed up efforts to resolve a dispute over the ownership of two large oil exploration blocks off the northwest of Borneo in the South China Sea. The row has stopped deepwater exploration in the area.

In 2003, Malaysian state-owned Petronas awarded deepwater blocks L and M to Murphy Oil But Brunei awarded a production-sharing contract (PSC) to France's Total for Block J and was negotiating PSC terms with Shell for adjacent Block K.

Murphy made a sizeable discovery in a Malaysian block near the disputed area in 2003, with oil from the Kikeh field expected to start flowing by this September from reserves at between 400 million and 700 million barrels.

AMBALAT -- Malaysia/Indonesia

Indonesia urged Italy's Eni in March to explore for oil and gas in the Ambalat block, though an official at its foreign ministry has said Indonesia and Malaysia are still in talks over the border of the two countries, including Ambalat.

Eni operates the Ambalat block under a PSC with the Indonesian government signed in 1999. Some parts of the block overlap with Malaysia claims and both sides have handed out contracts to major foreigns firms in the area.

In March 2005, Indonesia sent warships and fighter jets to the area, after Malaysia struck an exploration deal early in 2005 with Royal Dutch Shell Plc and Petronas.

Cambodia Oil Windfall Sparks Corruption Concern

July 14, 2005: A Cambodian worker (L) counts bank notes while filling a motorbike with fuel at a fueling station in Phnom Penh. Photo: AFP/Tang Chhin Sothy

2007.03.12
Radio Free Asia

Cambodia may reap billions of dollars in new revenues from offshore oil and gas fields in coming years, but experts fear such a windfall might be misspent. Prime Minister Hun Sen has so far brushed aside international concerns about lack of fiscal accountability.

Cambodia’s good fortune began in 2005 when U.S.-based Chevron found promising oil deposits at offshore test wells some 87 miles (140 kms) southwest of the port of Sihanoukville.

Preliminary estimates of the recoverable reserves are 400-500 million barrels of oil and 2-3 trillion cubic feet of gas. Cambodia’s total reserves could run as high as 2 billion barrels and 10 trillion cubic feet of gas, according to the World Bank.

In a country with an annual per capita income of about $500 last year, the discovery of oil that could sell on world markets for $60 per barrel might be good fortune indeed.

But instead of celebrations, the news has met with warnings that Cambodia lacks the strong government and civil institutions to turn oil revenue into public benefits.

-------
"Some people are worried about the Nigerian disease, saying that it should not be allowed to reach Cambodia. I have told them that Cambodia is not that stupid," - Cambodian Prime Minister Hun Sen
-------

A study of Cambodia for the United Nations Development Program (UNDP) in 2005 warned that Cambodia might follow the path of Nigeria, where new oil wealth turned into a “resource curse.”

Despite huge capital inflows from oil, Nigeria’s GDP has grown less than its population since 1980, while corruption and social unrest have risen because revenues have been misspent, the report said.

But at a student graduation ceremony Feb. 28, Cambodian Prime Minister Hun Sen showed little patience with warnings that his country could follow the same path.

“Some people are worried about the Nigerian disease, saying that it should not be allowed to reach Cambodia. I have told them that Cambodia is not that stupid,” the prime minister said in remarks reported by the Associated Press.

Legitimate concern?

In an interview with Radio Free Asia, David Dapice, a senior economist at Harvard University and author of the UNDP study, said that Cambodia should move quickly to implement reforms before the money starts flowing in.

“There is legitimate concern that Cambodia has work to do,” said Dapice.

“There is a tendency toward big, prestige, wasteful investments. There is a tendency sometimes for things to cost more than they should, even if they’re appropriately chosen. And the legal system certainly needs to be strengthened, so that if there are cases of corruption they can be identified and then prosecuted in a proper way,” Dapice said.

“These are not areas right now where, at the moment, Cambodia has strength. They need to get better in these areas.”

Dapice said that recent improvements in Cambodia’s agricultural output and poverty reduction give hope that new funds from energy can be used productively, especially if nongovernmental organizations (NGOs) are allowed to serve in some watchdog role.

The greatest danger is that oil money could be diverted into pockets that have already started to concentrate wealth, especially through land ownership, said Dapice. That risk could be particularly high, he added, if large cash bonuses are paid in the awarding of oil development contracts.

“You could end up basically displacing large numbers of farmers who would then probably drift into the cities, and you would have an over-urbanized society with very few decent jobs and a lot of crowding and everything, and that typically leads to social instability.”

Dapice said that Cambodia will have to foster good governance and institutions in several sectors at once so that it can handle the new oil money transparently.

“A lot of different parts of a society have to work,” he said. “The legal system, the newspapers, the NGOs, and of course the government itself has to be committed to it.”

“So there are real challenges here, and things could go badly wrong. But if people work on it and try to direct the resources in a reasonably productive way, I think there’s nothing that says that it’s written that it has to be as bad as Nigeria.”

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.

Offshore Oil, Gas Bonanza Dream Said Making Hun Sen 'Gruff, Snappy' with Donors

01 Mar 07
Hun Sen bares his fangs at donor countries as he dreams of petrodollars

By Sar Botum
Moneakseka Khmer
Translated from Khmer and posted online

"Today you give us aid but if we keep clashing in our talk, then it is useless to say anything. Why should we listen to you?" This is one of Hun Sen's rare stern remarks that have doused the enthusiasm of the donor countries, which have helped and are helping Cambodia at this moment when Cambodia is expected to reap a huge bonanza from its offshore oil and gas deposits in the next two or three years.

Hun Sen made this remark when talking to students and teachers at the National Institute of Education on Wednesday morning, "We will get oil and gas benefits in 2009 or by 2010 at the latest." The expectation of riches has led the strongman of this pathetically poor country to float away from reality with his ingrained smugness of hitting back at some of the international circles that have warned Cambodia it might get in the same boat as Nigeria if it misuses the oil revenues. Hun Sen scoffed, "We are not stupid, but will manage them well."

Conversely, this incompetent Cambodian leader called the forewarning of well-wishers a sign of the donors' fear that Cambodia would not listen to their advices, "Some fear for us that when Cambodia receives its petroleum benefits, Cambodia will not listen to the Western countries' preaching."

Observers see this oversized bragging by Hun Sen as a show of ingratitude not unlike a butterfly spurning its spent cocoon.

It is a fact that Cambodia under Hun Sen's control needs foreign aid to keep its government machinery running. Foreign aid is like serum injections or oxygen that this government has depended on to survive for the past nearly 30 years.

Cambodia needs about US$500 million in foreign aid to keep its nose barely above water from one year to the next. Besides, Cambodia has gone around borrowing money from various foreign countries without any shame. Cambodia owes a lot of money even to communist China and Vietnam. Recently, Heng Samrin showed his old face in Moscow where he begged Russia outright to forget Cambodia's debts to Russia of about US$1.5 billion. If this is what has been going on, then what makes Hun Sen so smug?

Yet Cambodia's dream of a big offshore oil and gas bonanza that would be pumping three times more money into the national coffer than the annual foreign aid to Cambodia is nothing more than that: a dream, an expectation. Many analysts have commented that it is not yet the right time for Hun Sen to be gruff and snappy like this toward the aid donors, his long-time benefactors. And let us not forget that it is from part of this foreign aid that his associates, his cronies in the ranks of the Cambodian People's Party [CPP] have enriched themselves and become multimillionaires. Therefore, in Hun Sen's case, he should accept all the advices and forewarnings with grace and keep them as reminder to protect him from possible catastrophe. Lord Buddha used to preach to his followers that any man who thinks he is smart in realty is "stupid." So, what does Hun Sen's bragging "We are not stupid..." mean?

Concerning this case, the leader of Cambodia's opposition party Sam Rainsy once made this recommendation: together with the natural potentials that Cambodia might one day get the oil and gas bonanza, Cambodian leaders should have a clear political will to protect these benefits against falling prey to corruption. This opposition party leader said that there were many countries rich in natural resources, such as Nigeria, Congo, Gabon, and Chad in Africa, but the benefits from their natural resources did not improve the lives of the people in those countries. On the contrary, they have merely enriched a handful of rulers.

With that in mind, if we look at the beginning of extremely poor Cambodia, we will see the same thing happening here. Before the news about the existence of huge offshore petroleum and natural gas deposits, Cambodia had precious stones, forests, and gold ores in Mondolkiri that now are being exploited by a Chinese company. At present, these natural resources have been almost completely drained from wholesale extraction and harvest. And the Cambodian Government still has not been able to elevate itself out of the beggar government status while Cambodians continue to live in needs and wants. This situation is so bad that in some localities people died from hunger. Those who have benefited from these natural resources are just a handful of influential people, the associates and cronies of Hun Sen in the ranks of the CPP. If so, why the ordinary Cambodian citizens should be excited about the news that Cambodia is going to reap big offshore mineral riches?

In this context, Hun Sen also used a blurred, unreal language about distributing the wealth from this oil and gas bonanza to the Cambodian people. "Then whatever measure we take will be better than now," he promised.

Hun Sen's remark is not different from what is being done about raising the salaries of the teachers when the government recently boasted that Cambodia had achieved an economic growth of 9.5 percent. It is only after they all have become millionaires many times over that they remembered about increasing the salaries of the teachers by 15 percent. In the meantime, the prices of goods in the market have already skyrocketed. Hence, what meaning does the promised pay rise have?

Cambodia welcomes its oil wealth, but will it do more harm than good? [- Cambodia to slide into a kleptocracy?]

Aid workers fear resource bonanza offers new potential for corruption

Ian MacKinnon in Sihanoukville
Monday March 5, 2007
The Guardian (UK)

Behind the tall fences and taller cranes of Cambodia's sole deep-water port lurks a compound filled with rusty pipes and drilling equipment. Unlikely as it seems, this collection of shipping containers represents the best hope in years for the impoverished country still recovering from decades of war.

The base in sleepy Sihanoukville is US oil giant Chevron's springboard for operations 100 miles off shore. It struck "significant" oil and gas deposits, and is confirming the discovery's scale. The initial find, estimated by the World Bank and United Nations' Development Programme to be 400m to 500m barrels of oil, has already sparked something of a "black gold" rush with Chinese, Japanese, French and Korean companies battling for lucrative rights.

Yet international donors whose aid propped up Cambodia for years fear that a bonanza pumping up to $4.6bn (£2.5bn) into the nation's coffers every year for the next two decades could make things worse. They warn that Cambodia could be blighted by the "resource curse" that has dogged so many developing nations.

Newly oil-rich countries with fragile state institutions have repeatedly fallen victim to sluggish growth despite vast earnings, leaving the poor worse off. The UN Development Programme points to Nigeria, highlighting how it grew more slowly than nations which had no resource windfall. Today 70% of Nigerians live on less than $1 a day despite $450bn in oil revenues in the past 35 years.

Corruption

Diplomats fret that Cambodia, with endemic corruption and weak institutions that are the legacy of the murderous Khmer Rouge regime, could slide into the mire of a full-blown kleptocracy. "At this stage we're all rather nervous," said one senior Western diplomat. "Suddenly there's going to be this avalanche of cash. There's endemic corruption and a weak system of governance with few checks and balances on which these huge revenues will be imposed. We've only got two or three years' leverage."

Oil revenues offer huge new potential for corruption in a country that cleaves to its communist traditions of secrecy. Most oil contracts have been signed by the powerful deputy prime minister, Sok An, a close ally of the prime minister, Hun Sen, with the senior bureaucrats and even the finance ministry out of the loop. Aid workers wryly look forward to the days of "Lagos on the Mekong" in a nation of 14m that is already "run like an episode of The Sopranos" because everyone gets their cut. "Cambodia's like a pyramid scheme of corruption," said one development staffer in Phnom Penh.

Energy-hungry China is keen to get its hands on the oil. It matched international donors' cash with a "no-strings" $600m gift last year as two global Chinese oil firms compete for contracts.

"My concern is, the government sees these revenues and think they've won the lottery," said one international aid worker. "Right now they're saying, 'bring it on, it's going to save Cambodia'. They don't understand our caution."

The argument reached such a pitch that Hun Sen was forced to address the concerns recently. "We will make sure oil is a blessing, not a curse," he said.

He pledged that the money would bolster long-term growth and cut poverty in a country where half the children fail to finish primary school and 35% of people live on less than 25p a day. It is the poor who will continue to suffer if the prime minister does not make good on his pledges. "The signs aren't great," said Warwick Browne, East Asia programme officer of Oxfam America. "But the future doesn't have to be determined by past bad practices. If we look at the past we're worried, but if we look forward there are encouraging signs."

Pitfalls

Even without kickbacks being pocketed by Phnom Penh's elite, the pitfalls remain enormous. Huge revenues rolling into government coffers will make it less reliant on the meagre tax earnings, isolating it from the people it serves and exacerbating authoritarian tendencies, all too evident in Cambodia even now.

The final threat of the "resource curse" is that the revenues trigger inflation and drive up the price of Cambodia's currency, the riel, robbing fledgling export industries of their competitive edge. The garment industry churning out cheap clothes for the west and is vulnerable to the so-called "Dutch disease", after the fate of the Netherlands following its 1960s oil bonanza. Cambodia's rag trade was partly responsible for last year's 13.7% growth.

International donors worry that their conditional aid could be swamped by the oil money. Last year development aid was $601m , but initial oil revenues could reach $1bn. Time is running out.

Backstory

Cambodia was only fully under the iron grip of Pol Pot's genocidal Khmer Rouge regime for less than four years, from 1975 to 1979. But the effects are still being felt. The country remains one of the world's poorest, with GDP per head barely $300 (£154). The economy is largely agrarian and more than 30% of people live below the poverty line. The average government spending on health services annually is just £1-£2 per person. Hun Sen, below, a long-time prime minister whose Cambodian People's Party has governed since the restoration of multi-party democracy in 1993, is the dominant political figure, consolidating his hold on power following electoral victory in 2003.

Brunei to help Cambodia with oil and gas expertise and investment?

Brunei's Expertise Can Help Cambodia

By Amin Hosni & Za'im Zain
Borneo Bulletin

Bandar Seri Begawan - "Cambodia is a young country in the oil sector and Brunei Darussalam has been around much longer, so we need to work together and to learn from each other:

Cambodian Ambassador to Brunei Darussalam Haji Nan Sy said this to two Brunei National Petroleum Company Sdn Bhd personnel who yesterday made courtesy visit to the Bengkurong residence of the ambassador.

The two officers from Brunei National Petroleum Company were Chief Executive Officer Haji Mohd Jaafar Haji Awang Bakar and Business Asset Division Asset General Manager Haji Iskandar Haji Yahya.

Several matters were discussed including possible future investments in Cambodia.

"This is only the first stage to the possibility to having better relations between the two nations.

Brunei’s expertise in the oil and gas can help Cambodia," the ambassadors rid.

"Among the attractions of investment in Cambodia is in the tourist sector", he added.

“The purpose of the visit is to explore the possibility to expand business opportunities in the oil and gas area in Cambodia. We haven't got any definite areas of business yet and still needs further studies,” said Haji Mohd Ja’afar Haji Awang Bakar.

Political Cartoons: Nigerian Generals

Cartoon by Sacrava (on the web at http://sacrava.blogspot.com)

Cambodia to Tap Oil Revenues in 2010 [- US: Having good intentions without the political will to fight corruption "will get Cambodia exactly nowhere"]

A Cambodian girl sits at her roadside gasoline store in the capital Phnom Penh, Cambodia, Wednesday, Feb. 28, 2007. (AP Photo)

Wednesday February 28, 2007

Cambodian Premier Says the Country to Start Tapping Oil Revenues in 2010

PHNOM PENH, Cambodia (AP) -- Cambodia expects to begin tapping offshore oil revenues in 2010, Prime Minister Hun Sen said Wednesday, dismissing skepticism about his government's ability to manage the prospective fortune.

"Let's not rush, but by 2010 we can begin getting revenues from oil," Hun Sen said at a student graduation ceremony. He did not say how much oil the country could expect to extract, how much revenue it will generate and when production will begin.

U.S. energy giant Chevron Corp. discovered oil in 2005 off the Cambodian coast, 145 kilometers (90 miles) southwest of the seaport of Sihanoukville, which is 185 kilometers (115 miles) southwest of the capital, Phnom Penh. The company found the crude oil in four wells in an area called Block A and plans to drill 10 more wells by the end of 2007.

Addressing concerns that the increased income from oil could exacerbate Cambodia's already widespread corruption, Hun Sen pledged that the country's health and education sectors would receive a large share of the revenues.

Te Duong Tara, the director-general of the Cambodian National Petroleum Authority, said last month that recent estimates that Block A holds 400 to 500 million barrels were mere speculation.

Scores of Asian and European companies have also been seeking licenses to explore and tap Cambodia's potential oil wealth.

Hun Sen brushed off critics' concerns that oil revenues could worsen Cambodia's already rampant corruption, saying the country would not follow the path of oil-rich Nigeria, which is regularly ranked among the most corrupt countries in the world by Berlin-based corruption watchdog, Transparency International.

"Some people are worried about the Nigerian disease, saying it should not be allowed to reach Cambodia. I have told them that Cambodia is not that stupid," he said.

U.S. Ambassador Joseph Mussomeli is among those who had voiced concern about how Cambodia would handle a sudden surge in national income.

He said late last year that oil production could generate considerably more than US$1 billion (euro757 million) a year in revenue for Cambodia.

The prospective new income would be "an extraordinary jump" for a country that currently relies on some $500 million (euro380 million) from aid donors every year, he said.

Having good intentions without the political will to fight corruption "will get Cambodia exactly nowhere" with the expected oil revenues, Mussomeli said in a speech to an economic conference last Friday.

"You must develop a transparent policy framework and establish comprehensive institutional structures that will prevent anyone, no matter how powerful, from misusing these revenues," he warned.

Mussomeli to Khmer Gov't: Avoid "a small corrupt elite siphons off revenue that should go to improving the welfare of all the people"

February 24, 2007

U.S. Ambassador admits Cambodian government s intent to properly develop extractive industries

The Cambodian government has showed its political will to properly manage the development of the kingdom's extractive industries, said United States Ambassador Joseph Mussomeli on Friday.

Leaders of the countries should have the political will to demand that the revenues from these extractive industries be used solely for the improvement of the country, said the ambassador at an international conference, in regard of recent reports that 700 million barrels of crude oil are estimated to lie off the coast of Cambodia.

"In his open and eloquent speech yesterday (Thursday), Prime Minister Hun Sen showed his intent to demonstrate just such political will," said Mussomeli at the 2007 Cambodia Economic Outlook Conference: Opportunities for Growth, Development and Shared Prosperity.

At the same conference on Thursday, Hun Sen said that the revenue from the recently confirmed discovery of oil reserves "will be directed to productive investment and poverty reduction."

Mussomeli also said that many officials within the government also "recognize and have been working to responsibly manage Cambodia's extractive industries."

Meanwhile, he reminded the Cambodia government to avoid the situation that "a small corrupt elite siphons off revenue that should go to improving the welfare of all the people."

In addition, the ambassador stated eight recommendations for the kingdom to properly manage the development of its extractive industries.

"First, we applaud the Cambodian government for considering the Extractive Industries Transparency Initiative (EITI) and we hope that Cambodia will soon become an EITI Implementing Country," he said.

The ambassador noted that the extractive industries, namely oil, gas and various types of mining, in the next three years could more than triple the annual revenue received by the Cambodian government, according to a press release from the U.S. Embassy.

Future oil revenues alone could provide over three times the kingdom's official development assistance received in 2005, said a U.N. Development Program study.

Source: Xinhua

Cambodia's poverty reduction did not happen with massive foreign aid, why would it happen when oil money arrives?

February 24, 2007
Potential oil reserves put Cambodia into limelight

Some 700 million to 2 billion barrels of estimated oil reserves off the Cambodia coast have attracted worldwide attention, putting the impoverished kingdom into limelight.

While attending the 2007 Cambodia Economic Outlook Conference here Thursday, Prime Minister Hun Sen confirmed in high tone the discovery of oil reserves in his country to over 100 domestic and international decision-making participants.

"The revenues from the recently confirmed discovery of oil reserves will provide additional money for financing development projects in Cambodia. These revenues will be directed to productive investment and poverty reduction," he said.

This presents opportunity to bolster Cambodia's medium- and long-term growth, promote greater economic diversification and poverty reduction, he said.

"We will make sure that oil is a blessing but not a curse," he added, obviously relating recent reports that the upcoming wealth acquired through extraction of the natural resource might only benefit the powerful groups and thus create more disparity between the rich and the poor.

On Friday at the same meeting, U.S. Ambassador Joseph Mussomeli expressed his concern in this regard, saying that the Cambodia government should avoid the situation that "a small corrupt elite siphons off revenue that should go to improving the welfare of all the people."

Leaders of the countries should have the political will to demand that the revenues from these extractive industries be used solely for the improvement of the country, he said.

"In his open and eloquent speech yesterday (Thursday), Prime Minister Hun Sen showed his intent to demonstrate just such political will" and many officials within the government also " recognize and have been working to responsibly manage Cambodia's extractive industries," he said.

In addition, the ambassador recommended the kingdom to properly manage the development of its extractive industries.

"First, we applaud the Cambodian government for considering the Extractive Industries Transparency Initiative (EITI) and we hope that Cambodia will soon become an EITI Implementing Country," he said.

The ambassador noted in his speech that the extractive industries, namely oil, gas and various types of mining, in the next three years could more than triple the annual revenue received by the Cambodian government.

He also quoted a UN Development Program (UNDP) study as saying that future oil revenues alone could provide over three times the kingdom's official development assistance received in 2005.

Also on Friday, Douglas Gardner, UNDP Resident Representative in Cambodia, told reporters that Cambodia is likely to see revenues from its potential oil wealth as early as in 2010, which could lift the kingdom out of poverty.

He estimated that oil production could annually bring 1.7 billion U.S. dollars for Cambodia at 60 U.S. dollars per barrel.

Oil buzz started in Cambodia in 2005, when U.S. energy giant Chevron Corp discovered petroleum off its coast, striking black in four of five test wells.

Since then, firms from France, South Korea and Japan have been reportedly seeking for exploration licenses from the Cambodian government.

The government declines to give exact figures about the oil reserves. The World Bank has put them at 2 billion barrels while the UNDP confirmed 700 million barrels.

Currently, some 35 percent of Cambodia's 14 million people live in poverty and 50 percent of its national budget comes from foreign aid.

Source: Xinhua

Cambodia responds sharply to oil policy recommendations by US

US Ambassador Mussomeli (AFP/File/Tang Chhin Sothy)

Feb 23, 2007

DPA

Phnom Penh - Cambodia's petroleum authority chief responded sharply to policy recommendations by US ambassador Joseph Mussomeli Friday, saying it was too early to dictate policy when the amount of the resource was still unknown.

In a speech to a high-level economic forum in the capital, Mussomeli recommended seven policy considerations for the government to help it manage its resources when expected oil reserves are tapped in the near future.

'Some countries have made the irritatingly human decision to use the resources to relax fiscal discipline,' Mussomeli warned. 'Like children who never think about the long-term consequences of the choices they make, they act as if the revenue will never stop flowing and they never act responsibly.'

Among the initiatives the US ambassador suggested were improved transparency, improved laws and regulations relating to disclosure and oversight of government revenues, government revenue management policy reviews and a new freedom of information law.

Director-general of the Cambodian National Petroleum Authority Te Duong Tara arrived after the ambassador's speech, saying he had been in a meeting and too busy to attend.

He dismissed concerns about the way Cambodia would handle oil revenues, predicted to be in excess of its entire current national gross domestic product, calling them 'pessimistic.'

'To say 'keep money for this purpose or that purpose' for me is too early. Wait until the money from the oil is here. The fish is not in the boat yet,' he told reporters.

He said Cambodia realized it had little experience in this area but had reached out to other, more seasoned players to learn from their human resources and marketing experience.

Tara added that Cambodia had studied the experiences of countries such as Angola and Nigeria and learned from them. Angola, he said, made the mistake of marketing by themselves and Nigeria had made errors because it did not know how to market.

Cambodia was ready for the challenge of oil revenue and would not squander the opportunity, he said.

'We have been a poor country, so now we really do not want to destroy our own money,' he said.

Cambodia has so far not begun full-scale drilling and is judging its oil reserves on exploratory wells from a number of companies including US giant Chevron. However, it has been predicted the reserves are significant and could reverse the country's current heavy dependence on aid.

PPPost Business in brief

Phnom Penh Post, Issue 16 / 04, February 23 - March 8, 2007

Chinese hydro to power Phnom Penh

Chinese companies plan to build a hydropower plant and transmission network to generate enough electricity to meet Cambodia's growing demand, which the Ministry of Mines and Energy says has been rising 15 to 20 percent per year. On February 16, two Chinese companies and the Cambodian government signed agreements to build a $190 million plant in Battambang province, which Deputy Prime Minister Sok An said would generate 465 million kilowatt-hours of electricity per year. He said the $113 million transmission network would connect Phnom Penh, Kampong Chhnang, Pursat and Battambang.

Oil eyes on reserves

Cambodia's oil reserves are attracting companies from Japan, South Korea, China, Malaysia, Singapore, Kuwait, Australia and France. Government officials are reporting an increase in applications from oil companies to tap the country's energy reserves, which international research suggests could contain up to two billion barrels (320 billion liters) of oil and 280 billion cubic meters of gas. Cambodia could earn up to $6 billion a year over the next two decades from these reserves. The country's gross domestic product is now $5 billion a year.

US hot on trademark

The US Patent and Trademark Office (USPTO) says Cambodia, as a World Trade Organization member, needs to toughen its trademark infringement laws. Keo Remy, deputy chief of a parliamentary committee overseeing financial and economic matters, said the USPTO had met with the committee urging Cambodia to create more laws to safeguard the commercial environment and especially trademark problems, according to DPA. Remy told the USPTO that, although trademark violations such as pirated CDs were a problem, Cambodia was a transit point rather than a major producer of goods violating trademark laws.

Viets go for rubber

The Vietnam Rubber Corporation (VRC) will plant 4,000 hectares of rubber trees in Cambodia this year. According to Vietnamese press, VRC will invest $4 million in funding, seedlings and equipment. The planting comes under a bilateral cooperation plan between the Vietnamese and Cambodian governments, and is part of a larger project to plant 100,000 ha of rubber trees in Cambodia.

Aussies seek gold

The Australian gold and base metals company Southern Gold (SG) has signed a joint venture agreement over two exploration areas owned by Cambodian company Greystoke. Australian press reported that, with the latest agreement, SG was now exploring five tenements in Cambodia, totaling an area of 1,155km2.

Rush for Cambodia’s oil begins

"Prime Minister Hun Sen’s regime has already created a Cambodian National Petroleum Authority under his full direct control over the oil wealth ... Sokimex, Cambodia's leading conglomerate, is expected to play a key role in the energy sector. It is majority-owned by Sok Kong, a long-time friend of Hun Sen."

Cambodia has huge offshore oil fields whose expected worth far exceeds its current GDP. Experts fear that only the government, one of the most corrupt in the world, might benefit. An agreement with Thailand must still be worked out to develop fields in the Gulf of Thailand.

Phnom Penh (AsiaNews/Agencies) – Oil companies have begun lining up for licenses to tap Cambodia’s vast oil and gas fields, but experts are wondering whether this new wealth will be a blessing for the country. Firms from China, Japan, South Korea, Malaysia, Singapore, Kuwait, Australia, and France have come knocking on officials’ doors to get permits to explore and develop the country’s energy riches. US giant Chevron Corp. has already drilled in the Gulf of Thailand in the last two years and found oil in five oil wells.

According to several studies conducted by the United Nations, World Bank, Harvard University, and other reliable institutions, Cambodian reserves could contain as many as 2 billion barrels of oil and 10 trillion cubic feet of gas. Based on the current world price of oil and gas, this may provide Cambodia with annual revenues of US$ 6 billion a year over the next two decades, an amount more than the country’s gross domestic product which is only about US$5 billion a year.

Cambodia is one of the world’s poorest countries. Some 40 per cent of its population of 14 million live below the national poverty line of 50 cents a day, 50 per cent of children never complete their primary education, 30,000 children die every year from preventable diseases, and only half of the countryside has access to electricity.

Many experts fear a repeat of what has happened in many other developing countries where massive influx of oil money enriched elites without improving the standards of living of the population.

The best example is Nigeria. Since the discovery of oil in the 1970s, the African country has exported more than US$ 400 billion in oil, but that has not benefited its people, 70 per cent of whom continue to live on less than $1 a day. Moreover, the country is carrying a US$30 billion debt.

Cambodia is still viewed as one of the most corrupt countries in the world with the ruling Cambodian People’s Party using violence in maintaining its power. But in recent years, Prime Minister Hun Sen's government has had to accept some reforms and show some more respect for human rights in order to get foreign aid which represents about 60 per cent of its working budget. However, soon it will no longer need Western aid and could disregard human rights groups altogether.

In fact, Prime Minister Hun Sen’s regime has already created a Cambodian National Petroleum Authority under his full direct control over the oil wealth.

Sokimex, Cambodia's leading conglomerate, is expected to play a key role in the energy sector. It is majority-owned by Sok Kong, a long-time friend of Hun Sen.

Cambodia’s main opposition party led by Sam Rainsy publicly accused the two companies of tax and customs-duty evasion on imported petroleum products and complained last year that domestic retail oil prices failed to fall in line with declining global oil prices, which fell by about 25 per cent between mid-July and November last year.

Cambodian oil fields are very important for China because they would allow its fuel shipments to bypass the congested Malacca Strait, through which nearly 80 per cent of its oil imports now flow.

Chinese leaders have also openly expressed concerns 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.

Beijing has recently showered Cambodia with aid worth hundreds for millions of dollars. 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).

Full-scale production of oil is not expected earlier than 2009 and Cambodia must still reach an agreement with Thailand on an overlapping area claimed by the two neighbouring countries in the Gulf of Thailand. Negotiations between the two have been going on for years but have not produced any result.