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