Cambodia Showing Signs of 'Oil Curse'

By Geoffrey Cain


Up to $1.7 billion a year in oil money is set to flow into impoverished Cambodia, where 35 percent of the population lives under $1 a day and where this year's national budget is only $1.8 billion. Yet in a country ranking a dismal 166 out of 180 on Transparency International's annual corruption rankings, allegations of nepotism and cronyism are already surfacing around the country's nascent oil sector, set to start production in 2012. Critics, like London-based watchdog Global Witness, claim the makings of a "resource curse" are in place, wherein a political elite will siphon profits that should be used to address poverty.

The International Monetary Fund initially estimated the newly found oil reserves, discovered in 2005, at 2 billion barrels, while energy giant Chevron forecast a more modest 400 million barrels. Amendments to a 1991 oil law subsequently placed the fields under the jurisdiction of the Cambodian National Petroleum Authority (CNPA), controlled directly by Prime Minister Hun Sen and his deputy, Sok An, with little parliamentary oversight. Global Witness claims the CNPA is rife with secrecy, its administrators regularly withholding documents and denying telephone usage to employees. That's in addition to millions of dollars, paid by companies to secure oil blocks, that aren't showing up in the government's revenue reports.

The developments follow a pattern that has emerged in other countries that have fallen prey to oil curses, such as Nigeria, Venezuela, and Iraq. Ou Virak, head of the Cambodian Center for Human Rights, argues that Cambodia has much in common with those three countries, in particular the fact that all government bodies and revenues are under the control of a few people. One Asian Development Bank consultant even labeled the CNPA a part of Sok An's "empire" (which also includes the corruption-rankled genocide tribunal).

The diversification into pillaging the oil and mining sectors comes after the country's ruling elites exhausted Cambodia's logging resources to fund their civil war in the 1990s. International donors largely remained silent at the time, said Eleanor Nichols of Global Witness. Now she says they must demand reform to keep Cambodian leaders from plundering oil and mining resources with impunity as well. The government allegedly said in October it would not endorse the Extractive Industries Transparency Initiative (EITI), a global coalition of businesses and governments that require disclosure of revenues, according to a Global Witness report. But Nichols said EITI is back on the table, with donors urging more transparency in Cambodia's oil find.

With foreign aid contributions totaling half of the government's $1.8 billion budget, donors can easily exert far-reaching influence upon Cambodia's ruling elite. But new donors with new agendas are courting Phnom Penh as well, and they don't attach the same conditions of democratic reform that Western governments do. In January, Sen finished his first-ever tour through Kuwait, which offered $546 million in soft loans for agriculture -- destined for Cambodia's vast rice fields -- as a means of securing its own food supplies.

China, facing staggering demand for minerals and timber to support its rapid growth, is also counteracting longstanding Western influence in the mineral-rich country. In exchange for access to resource supplies, China is powering the Cambodian countryside -- which faces some of the highest energy costs in the world -- by building $1 billion worth of hydroelectric dams. All of Beijing's soft loans come with no strings attached.

Whether Middle Eastern countries and China will hold Sen to international transparency standards remains to be seen, but transparency has so far not been high on their list of priorities. With Cambodia now hurtling headlong into an oil disaster, donor pressure will prove crucial to resisting the resource curse pattern plaguing developing countries.

Geoffrey Cain has covered Asia for the Economist, Far Eastern Economic Review, and .net Magazine. His personal Web site can be found here.