CAMBODIA: Will oil wealth keep Cambodia afloat, or drown it?

Publisher Name: 
International Herald Tribune

Still clawing its way out of the ruins of its brutal past, Cambodia has
come face to face with an extraordinary new future: It has struck oil.

Two years ago, the U.S. oil giant Chevron said it had found
potentially huge deposits off the southern shore. Further exploratory
drilling is being analyzed now.

The size and quality of the deposits are still not publicly known.
But together with other likely deposits in nearby areas and with
mineral finds being explored onshore, experts say Cambodia could soon
become a resource-rich nation.

Top officials, including Prime Minister Hun Sen, have fed the
excitement, saying the oil money could start to flow within two to
three years.

This is not necessarily good news.

For many other poor countries, like Nigeria and Chad, oil has been a
poisoned bonanza, paradoxically dragging them into deeper poverty and
corruption in what some call the oil curse.

"This will be a watershed event for this country one way or
another," said the U.S. ambassador, Joseph Mussomeli. "Everyone knows
that it will be either a tremendous blessing or a terrific curse. They
are unlikely to come out unscathed."

With its tiny economy, weak government institutions, widespread
poverty and crippling corruption, Cambodia seems as ill-suited as any
country in the world to absorb the oil wealth that is expected to come
its way.

Indeed, this is a land that already suffers many of the symptoms of the oil curse, even before a drop of oil has been pumped.

Its people remain traumatized by the mass killings by the Khmer
Rouge from 1975 to 1979, when 1.7 million people died, and by the
decades of civil war, brutality and poverty that have followed.

Now, 28 years after the ouster of the Khmer Rouge, Cambodia is
fitfully approaching the start of a trial of a handful of surviving
leaders that could bring some belated healing.

Coming together, the impending trial and the approaching flow of oil
mark a transition in Cambodia from its still-raw past to a suddenly
more challenging future.

"I do believe this is Cambodia's last best chance to take its place
in the world and the region," Mussomeli said. "If not, they're going to
be a basket case into the next century."

Cambodia has six potential fields in the Gulf of Thailand off the
shore of this southern port city as well as several other fields in
areas that are disputed by Thailand.

Onshore, mining companies have found deposits of a variety of
minerals, primarily bauxite and gold, that could add to the country's
new riches.

The rush of foreign countries whose oil companies have staked claims
includes China, which has become the country's biggest commercial
investor, its biggest aid donor and its hungriest consumer of raw
materials, pushing ahead with major hydropower and road building
projects.

The Chinese have made optimistic statements about the oil field they
control, although the basis for these statements is not clear.

In the first of the six fields to be explored, Chevron said in early
1995 that it had found oil in four out of five wells. Two more rounds
of exploratory drilling have followed.

A company spokeswoman, Nicole Hodgson, said last week that the
results of the latest drilling were being analyzed and would be
announced later this year. She declined to estimate the size of the
field.

If used wisely - as Hun Sen promises it will be - the new wealth
could be the salvation of this country of 14 million, where 35 percent
of the population lives on less than 50 cents a day. It could help
build clinics and schools and roads and irrigation canals and bring
electricity to the 82 percent of Cambodians who now live without it.

Over all, it would dwarf a small-scale economic recovery that
reached 10 percent growth last year, based mostly on garment
manufacturing and tourism, as well as construction and agriculture.

Or it could be sucked up by a small, powerful elite that already
devours most of the nation's wealth and bring on the symptoms of the
oil curse: a breakdown in government services, economic stability and
social order.

"We will try our best to make sure that the oil income is a
blessing, not a curse," Hun Sen said in April. "These revenues will be
directed to productive investment and poverty reduction."

That promise sounds very much like the ones Hun Sen made in the
past, when he vowed to crack down on illegal logging and corruption.
Those promises did not seem to be backed with muscle.

Vast stands of timber and deposits of gold and precious gems have disappeared with little benefit to the people.

Government buildings have been sold for profit. The tourist
concession at the country's most famous killing field has been leased
to a Japanese company. Ticket fees from the national symbol, the Angkor
temples, mostly go into private hands.

Transparency International, a private monitoring agency based in
Berlin, recently ranked Cambodia 151st out of 163 countries in its
annual report on perceptions of corruption.

To avoid the worst consequences of sudden wealth, it seems, Cambodia must change its ways.

But the men in power may not be prepared to resist the temptations
and challenges that have overwhelmed some other oil-rich nations.

"If we look at the past, it's not too good," said Sok Hach,
president of the Economic Institute of Cambodia, a private research
group. "I still hope those people in charge can change. But if things
don't change, I'm really afraid Cambodia will collapse."

Looking into the future, Ian Gary, an oil and mining expert with the
aid group Oxfam America, said "the nut of the problem" was something
that was already the case in Cambodia: "an influx of money going
straight into the hands of the central government, where there are few
checks or balances."

An oil-rich government, happy at its trough and free of the need to
collect taxes, may ignore its constituents. Economic disparities could
lead to social unrest, political instability and violence.

"The record is extremely poor," Gary said. "We've seen over time
that there are greater incidences of civil war and conflicts in
oil-rich states, that development indicators are low, and there is
often negative growth."

Even with the best of will, small economies may not be prepared to
absorb the windfall, said Purnima Rajapakse, deputy head of mission in
Cambodia for the Asian Development Bank.

An economy centered on oil may cause other industries - like
garments in Cambodia - to wither, adding to joblessness and poverty.

There are signs that Cambodia may already be turning down the wrong
path, some experts said. Transparency is crucial to the proper
management of oil money, and the government has so far released little
information.

Under standard practice, Gary said, hefty "signature bonuses" are
paid by oil companies at the time exploration contracts are signed.

"So already money is flowing into the Cambodian government, one
would presume, from these exploration contracts, and there is no
explanation of that," he said.

Sok Hach said he was frustrated by his inability to get more facts and figures about the oil finds for his economic analyses.

"The oil will start in two or three years; it's tomorrow," he said, "and the government does not want to release anything."

AMP Section Name:Energy
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