Cambodia's oil resources: Blessing or curse?

Feb 26th 2009
The Economist
PHNOM PENH

Waiting for the oil (and money) to flow

MANY countries have been afflicted by a “resource curse”. Discoveries of oil or other mineral deposits are hailed as offering a way out of poverty. But hopes are dashed as corrupt officials pocket the money or squander it on grandiose projects. Cambodia, giddy at the prospect of an oil boom, hopes not to go the same way.

A recent report, called “Country for Sale”, by a London-based NGO, Global Witness, points out that amendments to a 1991 law had the effect of placing the Cambodian National Petroleum Authority (CNPA), the body administering oil contracts, under the direct control of Hun Sen, the prime minister, and Sok An, his deputy. It alleges that millions of dollars paid to the government to secure oil concessions do not show up in the official annual revenue reports. Meanwhile, unrestrained mining exploration has seen thousands forcibly evicted from their land in the north, and has damaged six of the country’s 23 protected wildlife areas.

The discovery of oil and other minerals was a godsend to Cambodia. Despite foreign-aid donors’ constant pleas for restraint, logging companies have largely exhausted the country’s once abundant forests. Chevron, a California-based oil giant, at first estimated its 2005 oil discovery in the Gulf of Thailand at 400m barrels, enough to earn about $1.7 billion a year, against the government’s budget last year of $1.2 billion. Chevron was awarded the largest exploration contract in the block thought to be most productive. But it has found that the oil is scattered in pockets and hard to extract. Despite the recent fall in the oil price, the government still hopes production will start in 2012.

It will be very welcome: aid still makes up half of the government’s budget, despite a decade of stalling on anti-corruption legislation that donors want to see. The World Bank consistently ranks Cambodia in the bottom 10% of all countries for controlling corruption. Michael McWalter of the Asian Development Bank, who advises the Cambodian government on oil, argues that the CNPA is underfinanced and ill-equipped to deal with the complexities of the oil business.

In March last year the United Nations Development Programme and the Norwegian government jointly organised a conference to discuss what the government should do. The advice included the creation of an independent, transparent oil fund. This however, was largely based on the experience of Norway, which has an effective system of checks and balances.

Cambodia does not, and Mr Hun Sen and Mr Sok An have still not come up with a coherent plan for managing the oil revenues. According to Global Witness, the government decided at a meeting with donors in October not to join the Extractive Industries Transparency Initiative (EITI), an international coalition that would require full disclosure of oil, gas and mining revenues. Rather, it agreed to endorse only the principles underpinning the EITI, making its rules non-binding.

Government officials have responded to the allegations by lashing out at NGOs. At a conference in February, Mr Hun Sen called NGOs’ criticism of his oil policies “crazy”. And he has already alluded to the prospect that oil revenues may diminish the influence of aid donors—though he denies they have much anyway, since Cambodia can always turn to China, a generous donor, which, he says, despite its might, treats its partners with respect.