Monday March 24, 2008
Making the most of sudden energy wealth
JO SCHEUER
The discovery of oil and gas off the coast of Cambodia continues to
fuel an immense amount of media speculation about the size of the
reserves, the amount of revenues they will bring in and how these
revenues will be spent. However, there has been little discussion
about the immense challenges developing countries like Cambodia face
in developing their reserves: for example, the intricately complex pre-
production issues, such as negotiating contracts and ensuring
environmental safeguards.
Moreover, other vital questions such as how to optimise fund flows,
enhance human resources and ensure the competitiveness of non-
petroleum industries like agriculture and manufacturing are rarely
addressed in the media.
This is also understandable: these issues are highly technical. They
are discussed by technocrats and economists in language that often
leaves journalists and the public scratching their heads. Perhaps this
should change. Maybe it is time for the media to take a more technical
and less dramatic look at Cambodia's nascent petroleum industry.
Over the past few years, the United Nations Development Programme
(UNDP) has been working closely with the government of Cambodia, the
Cambodian National Petroleum Authority, the Norwegian government, and
other partners, to examine models used by various countries to develop
their petroleum reserves, with the goal of finding one that would be
most effective in Cambodia. This is an ongoing process involving
numerous partners directed towards a primary goal: fuelling poverty
reduction through oil and gas revenues.
This goal is both an ethical imperative and one that makes economic
sense. There is universal agreement on this. Unfortunately, however,
it is not an easy goal to reach. Many countries _ including developed
ones _ have encountered myriad and unexpected economic difficulties in
developing their resource wealth, such as a rising exchange rate that
hobbles the ex****t competitiveness of manufacturing and agricultural
industries.
Still, there are plenty of examples of countries that have
successfully harnessed their petroleum and mineral resources to
benefit the overall economy, as well as their citizens. Norway stands
out and, among developing countries, Timor-Leste is leading the way,
due in part to its successful negotiations with Australia for
developing an overlapping claims area.
Both of these countries will be sending large delegations to the
upcoming conference in Phnom Penh: ''Fuelling poverty reduction
through oil and gas revenues _ comparative country experiences''. The
21/2-day event will bring Cambodian and international policymakers,
technocrats and global experts together for a series of technical
discussion sessions from March 26-28. More than 300 participants,
including high-level delegations from more than 10 developing
countries and senior executives from global oil and mining firms, will
attend.
Issues on the agenda are crucial _ and not just for Cambodia. There is
a market driven scramble to find new petroleum sources around the
globe. This is expanding exploration and drilling to new, potentially
petroleum-rich countries in the developing world. These countries face
severe disadvantages in developing their resource wealth, as was
pointed out at a high-level meeting on oil and gas development in Doha
last September.
The Cambodian government sent a delegation to Doha, which brought
together policymakers well versed in the art of developing and
managing petroleum reserves, with those facing the daunting task of
building institutions and frameworks from scratch.
The major disadvantages faced by developing countries include a lack
of technical expertise and knowledge when negotiating and managing
commercial relations with major petroleum companies, as well as gaps
in institutional capacity.
The latter presents an unenviable conundrum: how can a developing
country afford to swiftly build up the capacity of its petroleum-
sector institutions before the anticipated revenues have begun to flow
in?
Another question, raised at the Doha meeting, was how to effectively
design and establish regulatory frameworks and compliance mechanisms
that will eventually oversee a petroleum sector whose full reserves
have yet to be reliably *****sed.
As Cambodia's delegation to the Doha conference pointed out, their
predicament is far from unique. Part of their solution is to bring the
messages of Doha home. Our shared goal is that this week's ground-
breaking conference encourages informed discussion about the
foundation the Cambodian government must build to develop its
petroleum and mineral reserves in ways that maximise benefits to the
country and its citizens, safeguards the environment, ensures
increased prosperity, and creates a legacy of rising op****tunities for
future generations.
Jo Scheuer is country director, UNDP Cambodia.
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