Cambodia Oil Windfall Sparks Corruption Concern

Cambodia may reap billions of dollars in new revenues from offshore oil and gas fields in coming years, but experts fear such a windfall might be misspent. Prime Minister Hun Sen has so far brushed aside international concerns about lack of fiscal accountability.

Cambodia’s good fortune began in 2005 when U.S.-based Chevron found promising oil deposits at offshore test wells some 87 miles (140 kms) southwest of the port of Sihanoukville.

Preliminary estimates of the recoverable reserves are 400-500 million barrels of oil and 2-3 trillion cubic feet of gas. Cambodia’s total reserves could run as high as 2 billion barrels and 10 trillion cubic feet of gas, according to the World Bank.

In a country with an annual per capita income of about $500 last year, the discovery of oil that could sell on world markets for $60 per barrel might be good fortune indeed.

But instead of celebrations, the news has met with warnings that Cambodia lacks the strong government and civil institutions to turn oil revenue into public benefits.

A study of Cambodia for the United Nations Development Program (UNDP) in 2005 warned that Cambodia might follow the path of Nigeria, where new oil wealth turned into a “resource curse.”

Despite huge capital inflows from oil, Nigeria’s GDP has grown less than its population since 1980, while corruption and social unrest have risen because revenues have been misspent, the report said.

But at a student graduation ceremony Feb. 28, Cambodian Prime Minister Hun Sen showed little patience with warnings that his country could follow the same path.

“Some people are worried about the Nigerian disease, saying that it should not be allowed to reach Cambodia. I have told them that Cambodia is not that stupid,” the prime minister said in remarks reported by the Associated Press.

Legitimate concern?

In an interview with Radio Free Asia, David Dapice, a senior economist at Harvard University and author of the UNDP study, said that Cambodia should move quickly to implement reforms before the money starts flowing in.

“There is legitimate concern that Cambodia has work to do,” said Dapice.

“There is a tendency toward big, prestige, wasteful investments. There is a tendency sometimes for things to cost more than they should, even if they’re appropriately chosen. And the legal system certainly needs to be strengthened, so that if there are cases of corruption they can be identified and then prosecuted in a proper way,” Dapice said.

“These are not areas right now where, at the moment, Cambodia has strength. They need to get better in these areas.”

Dapice said that recent improvements in Cambodia’s agricultural output and poverty reduction give hope that new funds from energy can be used productively, especially if nongovernmental organizations (NGOs) are allowed to serve in some watchdog role.

The greatest danger is that oil money could be diverted into pockets that have already started to concentrate wealth, especially through land ownership, said Dapice. That risk could be particularly high, he added, if large cash bonuses are paid in the awarding of oil development contracts.

“You could end up basically displacing large numbers of farmers who would then probably drift into the cities, and you would have an over-urbanized society with very few decent jobs and a lot of crowding and everything, and that typically leads to social instability.”

Dapice said that Cambodia will have to foster good governance and institutions in several sectors at once so that it can handle the new oil money transparently.

“A lot of different parts of a society have to work,” he said. “The legal system, the newspapers, the NGOs, and of course the government itself has to be committed to it.”

“So there are real challenges here, and things could go badly wrong. But if people work on it and try to direct the resources in a reasonably productive way, I think there’s nothing that says that it’s written that it has to be as bad as Nigeria.”