Global February 14, 2008, 7:55AM EST text size: TT
Next Stop for Big Oil: Cambodia?
As Chevron and partner Mitsui Oil explore offshore, skeptics worry
that Cambodia will fall prey to the "oil curse"
by Susan Postlewaite
In the world of $90-a-barrel oil, oil companies have plenty of
incentive to search in unusual places for the fossil fuel. One of the
newest energy frontiers is in the clear blue waters off the coast of
Cambodia. Here, where fi****ng sampans sail among scattered,
picturesque islands in the Gulf of Thailand, U.S. oil giant Chevron
(CVX) has drilled 15 exploratory wells 150 kilometers offshore from
the tourist town of Sihanoukville. If all goes according to plan,
Chevron will begin extracting oil and gas from these wells by 2011.
Onshore, many Cambodians are watching--some hopefully, others nervously--
about what oil might mean for one of the world's poorest nations.
Prime Minister Hun Sen has recently called discussion about the oil
finds "premature" and "speculative," and will say little about the
prospects, which Chevron initially estimated at 400 million barrels.
That's not much compared to neighboring Indonesia, with 4.3 billion
barrels in reserve, or Malaysia, with 3 billion. But for a poor
country like Cambodia, which has precious few energy resources, it's a
big deal. Quietly, the premier has been lining up undisclosed partners
for a small domestic oil refinery while the Cambodia National
Petroleum Authority has begun talking about setting up a national oil
company.
How im****tant is oil for Cambodia? The International Monetary Fund
produced a "moderate economic scenario" last year that showed revenues
to the government from oil could be $174 million when Chevron's
production starts in 2011, peaking at $1.7 billion annually after 10
years. For a country with a total national budget of just $1.2
billion, such a windfall could bring such benefits as raises for
public teachers now paid $80 a month, rebuilding the education and
health systems destroyed during the Khmer Rouge era, or bringing
electricity and clean water to the bypassed rural areas that make up
almost all of the country. "There are a lot of uncertainties about the
amount of oil available," says IMF Resident Director John Nelmes, who
explains the $1.7 billion estimate is a conservative one based on
total reserves of 500 million barrels.
Overlapping Claims With Thailand
Of course, the size of the estimated oil reserves hardly ranks
Cambodia with the big leagues. But the current picture in Cambodia
could change. In addition to Chevron's Block A, five other blocks
licensed for exploration are so far unexplored. And in an overlapping
claims area with Thailand there are huge unexplored oil fields that
cover an area as much as all six existing blocks combined. Cambodia
and Thailand signed a memorandum of understanding in 2001 to resolve
the overlapping claims, but no progress has been made since then and
diplomatic ties worsened after Cambodians burned down the Thai Embassy
in Phnom Penh in 2003. Cambodia's Deputy Prime Minister Sok An says
negotiations are expected to resume soon and he's willing to split the
claims "on a 50-50 basis."
The question is, how should an undeveloped country like Cambodia
proceed in tapping those resources? The possibility that Hun Sen's
government might set up a state-owned oil company and a state-owned
refinery horrifies some foreign advisors who worry that Cambodia could
fall victim to what economists call the oil curse. That's the
phenomenon of corruption in developing countries with state-owned
companies that control abundant oil reserves. It's too easy for
corrupt government officials to skim profits from state-controlled oil
companies, says Warwick Browne, a former extractive industries project
manager for Oxfam America in Cambodia.
Having a Phnom Penh-controlled oil and gas company would be "a very
bad move," says Browne, adding that such state-owned entities "are
black holes for corruption." He says a small national oil refinery
would probably not be profitable and the government would have to
subsidize sales to the population while forgoing the op****tunity to
earn needed foreign exchange by ex****ting to neighboring countries.
Other Obstacles
Government officials won't discuss these questions publicly. Chevron,
after three years of exploration at a cost of more than $120 million,
says in a public statement that the undersea reservoir has a complex
design and contains "small dispersed fields, rather than one core
field." Translation: It will take more technical expertise and cost
more to extract. With partner Mitsui Oil Exploration (Moeco), Chevron
is considering a third round of exploratory drilling in 2008 and
2009.
Another complication: a recent dispute between the joint venture and
the government over the way Chevron would eventually be taxed on
royalties. The two sides are expected to compromise eventually but
won't discuss the matter. Even so, production will probably begin by
2011 under terms of Chevron's and Moeco's license with the government.
(Chevron officials in Bangkok declined to comment.)
The licensing of the other blocks taking place is raising eyebrows.
Browne says the information about the contracts is kept secret in the
hands of Deputy Prime Minister Sok An, who signs the concessions, and
Te Duong Tara, head of the Cambodia National Petroleum Authority.
(Both declined BusinessWeek requests for interviews.) Quietly, the
CNPA over the past year has handed out licenses for the five other
blocks to three Chinese companies and two international partner
groups.
Beefed-Up Security
One block went to a consortium including Singa****e Petroleum,
Malaysia's Resourceful Petroleum, and Thailand's PTTEP International.
Another went to a consortium led by Indonesian company Medco Energi
Internasional Tbk with partners Kuwait Energy and Sweden's Lundin
Petroleum. The others went to Chinese companies, including Chinese
National Offshore Oil (CNOOC) and China Petrotech Holdings.
Meanwhile offshore, the Cambodian Navy recently ordered patrols to
ensure security in the Gulf surrounding the oil fields, an area where
Cambodia and Thailand have had a border dispute.
Now all eyes are on Chevron. A petroleum consultant who asked to
remain anonymous says the other companies are waiting to see; their
contracts allow for six years of exploration before production is
required. "They're gambling. Very often they sit back and wait and see
if there are any hits. The strategy is to wait, watch, and then decide
whether to drop out or resell their license," the consultant says.
Calls for Anti-Corruption Laws
The government is growing impatient with all the pessimists. Hun Sen,
in a rare and testy public mention of oil, assured 600 people at a
Nov. 7 investment conference in Phnom Penh that the country knows how
to avoid the oil curse. "Cambodia is on the right path," the Prime
Minister said. "I am hopeful Cambodia will be able to benefit from the
sector in the near future."
Opposition party leader Sam Rainsy in December urged lawmakers to
adopt an anti-corruption law before the oil begins flowing to prevent
government "looting of the nation's oil wealth."
Andrew Symon, petroleum researcher with Menas Asia, a research company
from Britain, says he's optimistic about the potential: "It's an
exciting area and very contentious politically. If there were to be
gas this would be very significant for Cambodia," But, he wryly notes,
"There's no shortage of voices wanting this to be a curse. It almost
makes it seem it should be left in the ground."
Whether Cambodia, with no oil expertise, will be able to, as U.S.
Ambassador Joe Mussomeli put it last February, use its oil resources
for "tossing off the shackles of the Pol Pot regime" remains to be
seen. According to Mussomeli, oil has been a "horrific curse" in many
nations, "rendering the population destitute while a small, corrupt
elite siphons off revenue that should go to improving the welfare of
all the people." He has called for Cambodia to sign onto a
"transparent policy framework" that ensures no one misuses the
revenues.
Postlewaite writes for BusinessWeek from Phnom Penh
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