Looming Oil Funds Put Cambodia at Crossroads

On Sunday, CPP lawmaker Cheam Yeap will attend a forum on the evolving oil and gas sector with about 400 university students.

If all goes according to plan, Chevron Corporation will begin to extract oil from Cambodian wa­ters in little over a year. Though the amount of oil the company is set to tap is still unknown, expectations are high and the government is bracing itself for a rise in state revenues.

But whether or not Cambodia is able to avoid the scenario that has taken place in countries like Nigeria—where vast oil wealth has largely flowed into the pockets of politicians and the urban elite—is yet to be seen.

That was the main question at a conference on Friday in Phnom Penh held by Cambodians for Re­source Revenue Transparen­cy, a group of like-minded organizations pressing for transparency in the nascent oil sector.

Though Chevron is poised to start drilling, there is still no law in Cambodia to govern the oil and gas industries, and environmentalists say that numerous deals made with oil companies over the last 10 years have never shown up on the state accounting books.

“Cambodia needs to do everything within its power to minimize the negative impact from natural resource development,” said Mam Sambath, chairperson of Cambodians for Resource Revenue Transparency, in a speech to an audience of donors, government officials and university students.

“To maximize the success, Cambodia needs to be cautious in drafting the law.”

Despite fears that Cambodia will follow in the footsteps of less fortunate countries, legal experts at the conference said that Cambodia has made progress and is showing signs of creating a more responsible regulatory framework.

Since 2008 the Asian Development Bank has poured almost $1 million into strengthening governance at the Cambodian National Petroleum Authority, the country’s regulatory body.

According to a recently released ADB report, that funding has helped to stymie a culture of secrecy and poor management at the authority. While the government is also in the final stages of drafting law on managing the petroleum sector.

“They [the government] are increasingly ready, because they’re getting to learn more about the business,” said Michael McWalter, an oil and gas consultant who has advised the petroleum authority on behalf of the ADB.

“There’s some very capable people there…. They’re learning through their experience with the companies. Even the development of the petroleum law, we’ve had many experts discussing it with them,” Mr McWalter said in an interview on the sidelines of the conference.

Nevertheless, Cambodia’s track record on managing revenues from the extractive industries is in question, critics say.

There is still no public disclosure on how the government spends money generated from the extractive industries, though total income revenues from the sector are now published on the website of the Ministry of Finance. And after years of work by the government, civil society has still had no input into the proposed petroleum law – legislation that will regulate everything from exploration to production.

On Thursday, Thai Prime Minister Yingluck Shinawatra made her first official visit to Cambodia and met with Prime Minister Hun Sen. The pair agreed to resume talks over how to split revenues from the 27,000 square-kilometers of disputed maritime space in the Gulf of Thailand known as the Overlapping Claims Area. Critics say the potential of extracting resources in the area acts as much as an opportunity as it does a threat.

“[A] long history of state abuse of Cambodia’s natural resource sector raises serious concerns that the benefits of oil production could be lost to corruption,” the UK-based environmental watchdog Global Witness said in a statement issued on Thursday night.

“The potential opening up of the [Overlapping Claims Area] could change the fortunes of the Cambodian people, but it likewise raises the prospect of further corruption and mismanagement,” the group said.

“Cambodia lacks adequate legislation or regulatory structures for the management of the country’s petroleum reserves and associated revenues; this remains the case despite the government having signed oil deals in the region more than a decade ago.”

Brian Lund, regional director for Oxfam in the Asia Pacific region, said that while Cambodia still had to prove to the world that it can become a responsible oil producing country, the right foundations are being laid.

“At the moment we’re looking at a situation that it is going in the right direction,” he said on the sidelines of the conference. “We’re asking the right questions. Let’s see where it ends up.”

Makbul Rahim, a legal consultant specializing in oil and gas at MMR Consultants, a UK-based legal consultancy firm, said that Cambodia should start thinking about establishing a series of publicly consultable funds for when oil and gas revenues start to flow.

One such fund would be for a reserve of money in the case of an environmental disaster, otherwise known as a spillage fund. Another should be used for all revenues from petroleum.

“That is the sort of discipline we are talking about,” he said. “These funds are intended to make sure that the economy benefits.”

“If you get greater transparency…everyone then is aware and there’s no secrecy.

 

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