Cambodia's donors risk disaster with blind eye to poor governance of country's oil and minerals

London, 25 November 2008
Global Witness

For immediate release

Cambodia's international donors must insist on improved governance and transparency of Cambodia's oil and mining sectors at the upcoming Cambodia Development Cooperation Forum, anti-graft watchdog Global Witness said today. Governance of the sector is so poor that the donors risk losing the best chance in a generation to lift Cambodia out of poverty as well as wasting taxpayers' money from donor countries.

Ambassadors from donor countries - which provide the equivalent of half of Cambodia's annual budget - are scheduled to meet in Phnom Penh next week for a yearly review of the government's progress in meeting reform targets set at their last meeting. Hardly any of the commitments made by the Cambodian government for improving governance and human rights in the past five years have been met, yet development aid has continued to flow (see attached chart).

"Cambodia is on the verge of a petroleum and minerals windfall, but both sectors are already exhibiting early warning signs of the corruption, nepotism and state capture which plagued Cambodia's forest sector," said Global Witness Campaigns Director Gavin Hayman. "With the imminent arrival of significant revenue from oil and mining, 2008 could be the donors' last chance to use their leverage to put conditions in place to improve the lot of the average Cambodian."

Global Witness has surveyed Cambodia's oil and mining sectors and found that the small number of elite powerbrokers who run the state have sold off potentially valuable concessions to foreign companies in a manner that is non-transparent and highly dubious. So far, at least 60 mineral exploration licenses have been allocated to private companies, many of which are owned or beneficially controlled by members of Cambodia's political and military elite. All of the offshore oil concessions in Cambodian territory have been allocated and at least one of Cambodia's onshore oil blocks in the Tonle Sap basin has been granted for exploration.

To date, basic transparency or anti-corruption provisions in the allocation of the state's public assets have not been met. The government has not held any public open-bidding rounds for oil or mining rights, has failed to publish information on which companies have been awarded access to the resources, and has backtracked on endorsement of the Extractive Industries Transparency Initiative (EITI).

"Decisions are being made now about the allocation of the country's oil and mineral resource wealth, which will determine whether the revenue generated moves the country out of poverty or headlong into the resource curse. It's crunch time for the donors," added Hayman.

Global Witness is calling for donors to insist on a moratorium on the granting of any new concessions in the oil and mining sectors until the government has the basic legal, social and environmental framework in place to manage them and the revenues produced. Also, given the complete lack of transparency in the industry to date, a review of all existing concessions is needed to ensure Cambodia is getting a fair deal.

Global Witness plans to publish a report on Cambodia's extractive industries in early 2009.

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Where is Cambodia’s anti-corruption law?

Delivery of Anti-corruption petition (Photo: AP)

Wednesday, May 28, 2008
By LAO MONG HAY
UPI Asia Online

Column: Rule by Fear

Hong Kong, China — On May 16, 2006, a petition with over 1 million signatures and thumbprints was presented to the National Assembly in Phnom Penh, Cambodia, calling on the assembly to urgently enact an anti-corruption law. The sheer number of people –one out of every 14 Cambodians – who supported the petition campaign with their signature or thumbprint in a period of just over five months, revealed the gravity of corruption in the country and the urgent need for government leaders and lawmakers to take action.

Corruption in Cambodia was already rife, affecting every walk of life, toward the end of the communist regime in the late 1980s. It was and still is prevalent in every public institution everywhere and at every level: in schools, hospitals, fire services, the police, the army, the civil service, the judiciary, the government and the Parliament. It has also ravaged foreign aid given to the country.

In the early 1990s when the communist regime ended, the public called on the government to tackle the problem. In the mid-1990s, civil society began to organize seminars to highlight the issue and urge the government to enact an anti-corruption law. Many national seminars were held, at times presided over by prime ministers or their colleagues, not to mention many smaller meetings.

There were study tours for concerned senior government officials and lawmakers to countries in the region, including Singapore and Hong Kong, both of which are renowned for their effective anti-corruption laws and agencies. In 1998, the newly elected government promised to fight corruption and enact a law against it.

For their part, international donors began to feel the gravity of corruption and its negative impact on the aid they had given to Cambodia, to the tune of some US$500 million a year since the early 1990s. In 2002, together with the Cambodian government, they made the fight against corruption and the enactment of an anti-corruption law one of the benchmarks for the flow of aid.

Under such pressure the government finally submitted to the National Assembly an anti-corruption bill – which had been drafted and redrafted many times, well before the adoption of the U.N. Convention against Corruption in 2003.

Shortly after, this bill was withdrawn, to be redrafted again to bring it up to the convention’s standards. Meanwhile, deadlines set for the enactment of that law have repeatedly passed and the final draft has not yet seen the light of day.

In parallel with the pressure on the government to enact an anti-corruption law, successive studies were undertaken to look into corruption in Cambodia. A 2004 study conducted by the U.S. Agency for International Development in Cambodia showed that corruption cost the government between US$300 million and $500 million in revenue every year, an enormous sum for a poor country.

Another survey conducted two years later by the Economic Institute of Cambodia in Phnom Penh showed that in 2005 the private sector paid “unofficial fees”—that is, bribes – to public officials amounting to US$330 million, an amount it said was “2.5 times higher than that of official payment” and “represented also about 50 percent of the total government budget revenue in 2005.”

A more recent survey conducted by Transparency International showed that 72 percent of Cambodians reported paying a bribe to receive a public service in 2007, a percentage which was then the highest in the Asia-Pacific region and second only to Cameroon (79 percent) internationally. The same survey also showed that the judiciary and the police were viewed as the most corrupt institutions in the country. It should be added that in 2007 Cambodia ranked 162 out 179 countries in the TI Corruption Perceptions Index.

Corruption has affected not only the Cambodian people but also foreign donors on whom Cambodia very much depends. In 1999 there was a corruption scandal at the Cambodian Mine Action Center, an internationally funded government landmine clearance organization. That scandal led to the suspension of foreign aid to CMAC for some time.

In 2003, the World Bank discovered the misuse of funds in a project to demobilize 30,000 soldiers, and forced the Cambodian government to repay the missing money. In 2004, the World Food Program found that US$1.2 million of its aid had gone missing, and forced the Cambodian government to make up for it. In 2006, the World Bank discovered fraud and corruption in three of the projects it was funding. It suspended its funding for these three projects and requested the Cambodian government to make prompt repayment of the missing funds.

In early 2007, within six months after its creation, the internationally funded Khmer Rouge Tribunal encountered allegations of corruption in its human resource management. These allegations led to the introduction of corrective measures for better management.

These are a few of the cases known to the public and acknowledged by the government. Yet in all corruption cases very few, if any, suspected government officials have been brought to justice and made accountable for their corruption. Generally, they have simply been disciplined and removed from office and then, when their cases are no longer in the public mind, they have been reappointed to other, sometimes higher, positions.

Enacting an anti-corruption law and setting up an anti-corruption body may not end what is a common practice in Cambodia. It is nevertheless a significant step toward that end. The Cambodian government must not let its officials indulge in corruption with impunity. It must not continue to break its promises to its people and its foreign donors. It must heed the petition presented to the National Assembly and submit the long promised anti-corruption bill for adoption without further delay.
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(Lao Mong Hay is a senior researcher at the Asian Human Rights Commission in Hong Kong. He was previously director of the Khmer Institute of Democracy in Phnom Penh, Cambodia, and a visiting professor at the University of Toronto in 2003. In 1997, he received an award from Human Rights Watch and the Nansen Medal in 2000 from the United Nations High Commissioner for Refugees.)