Sokimex in line for black rewards

By Geoffrey Cain

PHNOM PENH - If Cambodia's much touted oil and gas finds in the past few years comes to fruition, Sokimex Group, the country's largest business conglomerate, is expected to be one of the bigger local winners. With top level political connections and a firm grip on local oil and gas distribution, the historically opaque and often controversial company will also face more pressure to publicly disclose its accounts and practices.

The World Bank earlier estimated the fuel find, made and managed by US oil giant Chevron, could entail 2 billion barrels of oil and 10 trillion cubic feet of natural gas. Chevron has remained tightlipped about its in-house estimates and plans, and some industry analysts have deflated earlier high-end estimates, contending the fuel actually lies in hard-to-reach and scattered pockets rather than in one concentrated area. Exploitation is nonetheless expected to commence in either 2010 or 2011, though a recent tax dispute between the government and Chevron could delay drilling indefinitely, one analyst says. It's also unclear how the collapse in global oil prices - from a high of US$147 per barrel in July last year to its current level of around $41 - might have impacted on the project's economics and projected profitability.

None of that has so far dampened Sokimex's outlook. One Sokimex representative, who spoke with Asia Times Online and requested anonymity, said the company expects to benefit from a proposed scheme to export and re-import oil from the find. He said Sokimex also had plans to build an oil refinery to process the fuel. The representative would not divulge any further details about those plans and its not clear if the government is pressuring Chevron to process the fuel in Cambodia rather than at established modern refineries in Thailand or Singapore.

Yet the lack of disclosure is par for Sokimex's course: the company, which spans businesses as diverse as energy, tourism, aviation and property development, does not publicly release annual profit and loss statements. The homegrown company was founded in 1990 by rubber baron and ethnic Chinese entrepreneur Sok Kong, coinciding with the country's transition towards a free-market economy in line with the United Nations-sponsored Paris Peace Accords.

Sok Kong laid the foundations for the company in 1980s, when he supplied rubber tires to the Vietnamese army after Hanoi seized power over the country. He also exported the product throughout that era. Yet the domestic deals have sparked allegations the company remains close to perceived Vietnamese allies in the government, including Prime Minister Hun Sen.

Sokimex entered the petroleum business in May 1996 through its purchase of state-owned oil company, Compagnie Kampuchea des Carburants, which was then tasked with the import, storage and distribution of petroleum in Cambodia. The deal was part of the government's market-oriented privatization program, but raised further speculation of Sok Kong's close ties to Hun Sen's now dominant Cambodian People's Party.

According to the company's website, Sokimex is Cambodia's largest petroleum company with a market share of 40%. It boasts a US$15 million oil jetty with the capacity to handle oil carriers of up to 46,000 tons, five storage terminals, 184 petrol stations and a complex petroleum transport system that serves as the country's power "lifeline".

The site also says that "the main success venture that propelled Sokimex ... is petroleum" and that "Sok Kong's visionary mind coupled with his optimistic courage led him to dive into the petroleum industry without much hesitation." The site, however, fails to disclose Sokimex's recent profits, losses or average return on investments nor those of its various subsidiaries.

Privileged position

With its money-spinning oil assets and top government contacts, Sokimex has reached into a wide range of businesses, including garments, hotels, property development and even an exclusive contract to supply the Cambodian military with clothing and fuel. Sokimex is among Cambodia's big five oil and gas distributors, alongside international oil giants Total, Shell, and Caltex, as well as the country's other main local distributor, Tela Petroleum Group.

Industry analysts note that Sokimex has a proven knack for securing lucrative government contracts and believe that based on that track record the company could receive special treatment if and when the spoils of the Chevron oil find are realized.

Critics point in particular to the murky circumstances surrounding the concession Sokimex won to manage ticket sales to Angkor Wat, one of the preeminent tourist destinations in Southeast Asia, and its comparative ease in starting new businesses while foreign investors often have their new ventures ensnared in bureaucratic tape. The company also won government permission in 2006 to launch a domestic airline, Sarika Air.

Sokimex's lack of transparency, some contend, could ground future fund raising, particularly if the conglomerate does not substantially change its practices before listing shares on the country's new stock exchange, which is scheduled to commence trading in December despite the global economic downturn. Cambodia's economy is losing steam after years of breakneck growth, with gross domestic product projected to expand just 4.75% this year, the lowest level since 1998.

Sokimex representatives declined to provide this correspondent with basic revenue and profit figures for its oil and gas operations. Company executives who previously agreed to meet requested later that questions be sent via e-mail but failed to respond to queries. Follow-up inquiries made by telephone were met with one-word "yes", "no", or "I don't know" replies.

Cambodia's general lack of disclosure has raised concerns the country could go the way of Venezuela, Nigeria and Iraq, where major fuel resources have been squandered and pilfered by corrupt governments. The World Bank recently ranked Cambodia in the bottom 15% of countries on commitment to the rule of law and the bottom 10% for overall control of corruption. Transparency International downgraded Cambodia further in its 2008 Corruption Perception Index, ranking it the 14th most corrupt.

It's unclear, analysts say, if the government is trying to convince Chevron to process all or part of the fuel find in-country to help build up Sokimex's capabilities. The same analysts question Sokimex's ability to handle an energy bonanza, given that it has never run a refinery, lacks a pool of home-grown energy experts, and has no prior experience working with a find of this magnitude. "

The crude will probably be shipped to Singapore to be refined," said Michael McWalter, the Asian Development Bank's oil and gas adviser to the Cambodian National Petroleum Authority. "Any attempt to build pipelines, a refinery, or sell the oil in Cambodia will probably mean local companies will gouge prices."

Ou Virak, an economist by training and activist by profession, said: "They say they're planning to build a refinery in Cambodia, but they lack all expertise to do so unless they can hire expensive foreign advisors. It's political connections that keep them afloat, as they've demonstrated in their previous contracts that have operated without regard for the market."

Others see signs that Hun Sen's government, particularly after it consolidated power at last year's general elections, has started to put more pressure on Cambodian companies, including Sokimex, to operate with more transparency. They point in particular to Hun Sen's recent call to Sokimex and other oil distributors to sharply lower their prices in line with global trends or be summoned to a personal meeting at his offices.

Those concerns are widely shared. The United Nations Development Program held a petroleum conference last year to address how the government should best manage expected future oil and gas revenues. Delegates from the Cambodian National Petroleum Authority, Supreme National Economic Council, and Norwegian Petroleum Directorate discussed the possibility of establishing a sovereign fund to manage future oil revenues ethically and transparently for the national interest.

They also discussed the possibility of creating a professional, market-oriented national oil company, potentially modeled after Malaysia's Petronas. One year later, with questions and criticisms still swirling about the company's accounts and technical capabilities, it's not clear to most that Sokimex will emerge any time soon as an outward-looking and modern regional energy player.

Geoffrey Cain is based in Phnom Penh and a contributor to the Far Eastern Economic Review and Integrated Regional Information Networks, a United Nations-run news wire service. He may be reached at geoffrey.cain@gmail.com.