PHNOM PENH, May 28 (IPS) - Cambodia is facing a natural resource boom, prompting donors and non-government organisations (NGOs) to warn that without measures to improve financial transparency, promote better governance and curb corruption, the potential windfall could be squandered.
In addition to significant oil reserves off Cambodia’s coast, there are major deposits of natural gas, as well as minerals such as gold, copper and bauxite, mainly in the northeast of the country.
"The risk of a resource curse is there," said Jo Scheuer, country director for the United Nations Development Programme (UNDP) in an IPS interview. "Included in this is the issue of corruption and funds disappearing."
At the same time Scheuer is keen to stress that Cambodia "has a great opportunity to avoid mistakes that have been made in other countries,’’ and translate the benefits to all Cambodians to ‘’create a resource blessing’’.
"The government says it is a little early to start to talk about revenue because the resources are still underground," said Chhith Sam Ath, executive director of NGO Forum in Phnom Penh. "We think it is important for us to be prepared for the new situation and challenges."
NGO Forum is one of a number of local organisations behind a new coalition, yet to be formally launched, that wants to ensure the potential financial benefits from the country’s resource windfall are managed in a socially responsible manner.
The Berlin-based Transparency International’s 2007 Corruption Perception Index ranked Cambodia 162 out of 179 countries, making it the most corrupt country in Asia after Burma and among the worst globally.
"I think the concern is the past experience," continued Sam Ath. "A lot of natural resources have been extracted often under concessions, but the revenue that has gone into the budget has been less than expected."
"It is generally accepted that poor governance, lack of transparency and corruption are serious problems for Cambodia," said Sek Barisoth, director of the Mainstreaming Anti-Corruption for Equity Programme with PACT Cambodia, another supporter of the emerging coalition.
While observers say the Cambodian Government is verbally committed to the fight against corruption, there has been little action. A proposed anti-corruption law, developed in early 2005 with technical assistance from PACT, remains in draft form. It would establish an independent anti-corruption commission and provide a better legal definition of corruption.
Oil is the current focus of the resource boom, with exploration well underway in the waters off Cambodia’s cost to determine the extent of the country’s reserves.
How much oil is there? "We do not know," said UNDP’s Scheuer. "The standard answer is that no one has done any work on exactly how much oil and gas there is."
Two years ago, U.S. oil giant Chevron, the lead partner in Block A, where exploration has gone the furthest, announced "significant" oil and gas reserves. Scheuer said the company is expected to announce the results of its exploration sometime after Cambodia’s July national election.
With the price of a barrel of crude currently hovering around 130 US dollars and some analysts expecting it to reach 200 dollars by the end of the year, the financial gains for Cambodia are significant.
"It is a potentially huge windfall for a country if invested wisely in the long-term development objectives such as health, education and expanding the labour market," said Scheuer. His organisation has been one of the key donors working to help the Cambodian government deal with the threats and opportunities presented by the oil boom.
It is collaborating with the Cambodian National Petroleum Authority to build its capacity, and earlier this year cooperated with the government to organise a major international conference on oil and gas.
"It is not necessarily a blessing for a country to be endowed with petroleum resources," Arne Walther, a Norwegian diplomat said at the conference. Norway, one of the poorest countries in Europe until the discovery of oil and gas off their coast in the mid-sixties, is cited by many as a success story in terms of how to handle the issues raised by an influx of petro dollars.
"It is how governments arrange for their resources to be extracted and how revenues earned are used that determine the success or failure of being a petroleum endowed state," Walther said. "I believe Cambodia faces a challenging task in planning and developing its petroleum sector and developing policy and instruments for channelling the future oil and gas revenues in a best possible way for the benefit of Cambodians. It is actually a momentous task."
"We realise the opportunities that petroleum revenues may afford us to improve the livelihoods of the Cambodian people," Deputy Prime Minister Sok An told the gathering. "The translation of the capital value of oil reserves into the stored capital value of our people through improved health and social conditions and education is very important for the long term prosperity of Cambodia."
"While some technical people in the government are concerned that the Nigerian experience is not copied in Cambodia it is unclear how high up this goes," said Barisoth.
"The concerns are valid," agreed Scheuer. "It is still too early to make a judgement and we are cautiously optimistic that they will get it right," he says of the government’s efforts.
The threat of corruption is not the only factor bearing on Cambodia’s efforts. "It is extremely difficult for a country like Cambodia, with its capacity, to develop a petro industry because everything is so complicated," said Scheuer.
The appropriate contractual arrangements and tax regimes are just two of the complex issues the country faces. Other countries, including developed countries, have encountered unexpected economic difficulties in developing their resource wealth, often dubbed ‘Dutch Disease’.
This refers to the problems associated with dumping large amounts of resource revenue into an economy and the distorting impact this has on other sectors such as agriculture. It originated in the Netherlands after the rapid flow of funds from the discovery of North Sea gas led to significant structural changes, including price increases and the de-industrialisation of many sectors of the economy.
The key message from the conference earlier this year was that Cambodia should take time to develop the industry and get the policy fundamentals right.
"In Norway it was ten years from the first drilling to first revenue coming on stream. Their advice is not to rush it," said Scheuer. "The main point now is to get the governance and policy frameworks right. If they get it right with Block A it will flow onto the other blocks."
The other idea being suggested by donors and experts with experience in the sector is for Cambodia to set up a fund to store revenue from oil and invested appropriately. Similar funds already exist in Norway and East Timor.
"We need to learn more about this fund but in general we would support a transparent process for the resource revenue," said Sam Ath from NGO Forum. He is one of two Cambodian NGO people who are closely studying East Timor to look at how the fledgling state is handling its revenue from natural gas.
Timor was selected from among several countries because of its similarities to Cambodia. "It is very important to build capacity and learn from them how civil society can engage with the government over the distribution of natural resources," said Sam Ath. "NGOs are open and happy to work with the government. We are not working to oppose them but to help them make the most effective use of the revenue from oil and gas."
NGOs and donors are also keen that Phnom Penh sign up to the Extractive Industry Transparency Initiative supported by a coalition of governments, companies and civil society organisations aimed at ensuring companies disclose what they pay and governments what they receive.
In addition to significant oil reserves off Cambodia’s coast, there are major deposits of natural gas, as well as minerals such as gold, copper and bauxite, mainly in the northeast of the country.
"The risk of a resource curse is there," said Jo Scheuer, country director for the United Nations Development Programme (UNDP) in an IPS interview. "Included in this is the issue of corruption and funds disappearing."
At the same time Scheuer is keen to stress that Cambodia "has a great opportunity to avoid mistakes that have been made in other countries,’’ and translate the benefits to all Cambodians to ‘’create a resource blessing’’.
"The government says it is a little early to start to talk about revenue because the resources are still underground," said Chhith Sam Ath, executive director of NGO Forum in Phnom Penh. "We think it is important for us to be prepared for the new situation and challenges."
NGO Forum is one of a number of local organisations behind a new coalition, yet to be formally launched, that wants to ensure the potential financial benefits from the country’s resource windfall are managed in a socially responsible manner.
The Berlin-based Transparency International’s 2007 Corruption Perception Index ranked Cambodia 162 out of 179 countries, making it the most corrupt country in Asia after Burma and among the worst globally.
"I think the concern is the past experience," continued Sam Ath. "A lot of natural resources have been extracted often under concessions, but the revenue that has gone into the budget has been less than expected."
"It is generally accepted that poor governance, lack of transparency and corruption are serious problems for Cambodia," said Sek Barisoth, director of the Mainstreaming Anti-Corruption for Equity Programme with PACT Cambodia, another supporter of the emerging coalition.
While observers say the Cambodian Government is verbally committed to the fight against corruption, there has been little action. A proposed anti-corruption law, developed in early 2005 with technical assistance from PACT, remains in draft form. It would establish an independent anti-corruption commission and provide a better legal definition of corruption.
Oil is the current focus of the resource boom, with exploration well underway in the waters off Cambodia’s cost to determine the extent of the country’s reserves.
How much oil is there? "We do not know," said UNDP’s Scheuer. "The standard answer is that no one has done any work on exactly how much oil and gas there is."
Two years ago, U.S. oil giant Chevron, the lead partner in Block A, where exploration has gone the furthest, announced "significant" oil and gas reserves. Scheuer said the company is expected to announce the results of its exploration sometime after Cambodia’s July national election.
With the price of a barrel of crude currently hovering around 130 US dollars and some analysts expecting it to reach 200 dollars by the end of the year, the financial gains for Cambodia are significant.
"It is a potentially huge windfall for a country if invested wisely in the long-term development objectives such as health, education and expanding the labour market," said Scheuer. His organisation has been one of the key donors working to help the Cambodian government deal with the threats and opportunities presented by the oil boom.
It is collaborating with the Cambodian National Petroleum Authority to build its capacity, and earlier this year cooperated with the government to organise a major international conference on oil and gas.
"It is not necessarily a blessing for a country to be endowed with petroleum resources," Arne Walther, a Norwegian diplomat said at the conference. Norway, one of the poorest countries in Europe until the discovery of oil and gas off their coast in the mid-sixties, is cited by many as a success story in terms of how to handle the issues raised by an influx of petro dollars.
"It is how governments arrange for their resources to be extracted and how revenues earned are used that determine the success or failure of being a petroleum endowed state," Walther said. "I believe Cambodia faces a challenging task in planning and developing its petroleum sector and developing policy and instruments for channelling the future oil and gas revenues in a best possible way for the benefit of Cambodians. It is actually a momentous task."
"We realise the opportunities that petroleum revenues may afford us to improve the livelihoods of the Cambodian people," Deputy Prime Minister Sok An told the gathering. "The translation of the capital value of oil reserves into the stored capital value of our people through improved health and social conditions and education is very important for the long term prosperity of Cambodia."
"While some technical people in the government are concerned that the Nigerian experience is not copied in Cambodia it is unclear how high up this goes," said Barisoth.
"The concerns are valid," agreed Scheuer. "It is still too early to make a judgement and we are cautiously optimistic that they will get it right," he says of the government’s efforts.
The threat of corruption is not the only factor bearing on Cambodia’s efforts. "It is extremely difficult for a country like Cambodia, with its capacity, to develop a petro industry because everything is so complicated," said Scheuer.
The appropriate contractual arrangements and tax regimes are just two of the complex issues the country faces. Other countries, including developed countries, have encountered unexpected economic difficulties in developing their resource wealth, often dubbed ‘Dutch Disease’.
This refers to the problems associated with dumping large amounts of resource revenue into an economy and the distorting impact this has on other sectors such as agriculture. It originated in the Netherlands after the rapid flow of funds from the discovery of North Sea gas led to significant structural changes, including price increases and the de-industrialisation of many sectors of the economy.
The key message from the conference earlier this year was that Cambodia should take time to develop the industry and get the policy fundamentals right.
"In Norway it was ten years from the first drilling to first revenue coming on stream. Their advice is not to rush it," said Scheuer. "The main point now is to get the governance and policy frameworks right. If they get it right with Block A it will flow onto the other blocks."
The other idea being suggested by donors and experts with experience in the sector is for Cambodia to set up a fund to store revenue from oil and invested appropriately. Similar funds already exist in Norway and East Timor.
"We need to learn more about this fund but in general we would support a transparent process for the resource revenue," said Sam Ath from NGO Forum. He is one of two Cambodian NGO people who are closely studying East Timor to look at how the fledgling state is handling its revenue from natural gas.
Timor was selected from among several countries because of its similarities to Cambodia. "It is very important to build capacity and learn from them how civil society can engage with the government over the distribution of natural resources," said Sam Ath. "NGOs are open and happy to work with the government. We are not working to oppose them but to help them make the most effective use of the revenue from oil and gas."
NGOs and donors are also keen that Phnom Penh sign up to the Extractive Industry Transparency Initiative supported by a coalition of governments, companies and civil society organisations aimed at ensuring companies disclose what they pay and governments what they receive.
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