Cambodia's Coming Oil Wealth Will Likely Entrench Ruling Cabal In Corruption

04/18/2009 05:12 am ET | Updated May 25, 2011

BANGKOK - Haunted by war, and wracked by poverty, Cambodia has had little opportunity to enjoy one its few blessings.

The nation of 14 million people, sandwiched between Thailand and Vietnam, is flush with natural resources. Veins of iron and gold run beneath its soil. Natural forests offer a wealth of timber. Most promising of all are Cambodia's deposits of oil and gas, believed to snake offshore all the way through the kingdom's lush interior.

As Cambodia's leaders begin to parlay these natural blessings into wealth, selling off drilling rights to firms across the globe, American oil companies are taking notice.
So, too, are the watchdogs.

Foreign aid, in large part from U.S. tax dollars, accounts for half of Cambodia's national budget. Much of this is aimed at the more than one-third of Cambodians living on roughly 50 cents per day.

While Cambodia's ruling party could use the coming resource wealth to wean the country off foreign aid -- and potentially lift millions out of poverty -- leaders already appear to be hording this money for themselves, watchdogs say.

According to Global Witness -- the U.K.-based non-profit that helped expose the West African "blood diamonds" trade -- the coming oil wealth will likely just entrench Cambodia's ruling cabal in corruption.

"In a couple of years, the elites will be so wealthy it will be hard to rewind the tape," said Global Witness Director Gavin Hayman during a business trip in Bangkok. The non-profit recently published an investigative report on Cambodia's growing oil wealth.

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According to International Monetary Fund forecasts, Cambodia's annual oil revenue should begin at about $174 million in 2011 and climb to $1.7 billion by 2021 -- and plunge thereafter as resources are sucked dry.

This oil future has grabbed the attention of the global oil industry.

Just this past weekend, U.S. oil industry representatives invited Cambodian energy leaders to observe drilling operations near the Gulf of Mexico, home to dozens of major offshore oil rigs.

"Cambodia is on the verge of an oil and minerals windfall," said Eleanor Nichol, a Global Witness campaigner. "The stakes are very, very high."

A global fuel chase has led many foreign firms to cut deals with Cambodia's ruling party.
They've since carved the nation into 20-odd oil-and-gas districts that will be developed.

Most firms with Cambodian oil concessions are Chinese, some with little experience in the energy sector. Various South Korean, Southeast Asian and Middle Eastern companies round out the concession holders.

But the best-known energy firm with Cambodian drilling rights is the California-based Chevron Corporation.

Chevron is preparing as many as nine wells for what it calls a "complex reservoir" off Cambodia's coast. The firm is now "working closely with the Royal Government of Cambodia to complete the fiscal and legal framework that will be required for the development of petroleum resources in Cambodia," said Gareth Johnstone, Chevron's Asia-Pacific media director.

Chevron is a high-profile member of the Extracative Industries Transparency Initiative -- an anti-corruption movement devoted to "full publication and verification of company payments and government revenues from oil, gas and mining."

No allegations of corrupton have been made against the company, though the oil giant has come under pressure from watchdog groups to be more transparent in its dealings here.
Chevron will not reveal its payments to Cambodia nor its start-up drilling dates, said Johnstone, who is based in Singapore.

Cambodia is rated the world's 18th most-corrupt country by Transparency International, which publishes the world's leading corruption measure. Chevron also operates in Burma, run by an oppressive military junta.

When resource-rich areas are ready for excavation, Cambodia's government is suspected of dispatching soldiers and police to forcibly remove residents. According to Human Rights Watch, armed government militants have torched homes and pushed out hundreds of families. Once excavation begins, soldiers are believed to stand watch over the sites as international firms do their work.

Global Witness' work in Cambodia has brought death threats and a promise from one senior official to hit investigators "until their heads are broken," Nichol said.

Repeated inquiries to the Cambodia's National Petroleum Authority were ignored. With no explanation, some emails to the entity's listed addresses were automatically routed to Petroleum Geo-Services, a Norwegian firm specializing in finding oil and gas reserves.

Cambodia's U.K. ambassador, Hor Nambora, issued one of Cambodia's more public rebuttals to corruption claims. "It is naive for Global Witness to imagine that Cambodia's international donors are not fully aware of the way the Royal Cambodian Government's (sic) conducts its affairs," Nambora wrote in a release.

His response included an odd, mocking parody of a Global Witness document called "Rubbish Report by Global Witness." It features an image of a comically upright baby sea lion saying, "I shall not tolerate such rubbish. Good day, sir."

Last year, Cambodia absorbed roughly $1 billion in foreign aid. Even as major donors acknowledge Cambodia's corruption, money continues to pour in.

In 2008, U.S. Agency for International Development offered $54,994,000 to Cambodia in various programs targeted at health, education, human rights and more. The agency, in a corruption assessment, expressed frustration that "donor resources are being wasted and diverted."

Many Cambodian bureaucrats, the USAID report stated, are "masters of spin" and "... most reform efforts have had limited impact on a persistent, less-than-scrupulous opponent."

Many donors decide that, even if aid is filtered through corrupt bureaucrats, pulling back funding will only deprive the poor, Hayman said. And further, Western powers and their donation arms now worry that strained relations will push Cambodia dangerously close to China.

Still, analysts say the Cambodian government craves something China can't offer -- legitimacy in the Western world. American aid, and ties to giant firms like Chevron, supply much of this esteem.

The Western world, however, can only use this leverage for so long. Once Cambodia's rulers hit the oil-and-gas jackpot, Hayman said, they'll be too rich to reign in.

"They'll have so much money from oil and mining," he said, "that they'll be untouchable."

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