Will oil and gas revenue provide the Cambodian people what they need?
Photo © John Brown All Rights Reserved
Over 40 years ago a top of the chart American television comedy called "The Beverly Hillbillies" chronicled the lives of 4 people who left their impoverished rural lifestyle behind to live in a mansion in one of America's wealthiest city's, Beverly Hills, California.
Millions of viewers tuned in each week to watch Jed Clampett and his family face inevitable changes while they were seemingly oblivious to how much money they had and what could be done with it.
To media observers in America today it's evident that America's taste has changed and reality based content is now the preferred flavor.
Although only 20% of Cambodians have reliable access to electricity, Khmers are also tuned in to a reality based series of events based on the discovery of oil and natural gas that rests under waters and land within their jurisdiction.
Cambodia is one of the world's poorest countries and receives significant international aid. In a nation where more than 30 percent of the citizenry exists on $.50 USD per day, one would think that an oil discovery would be akin to a miracle sent from the heavens. Nevertheless, there remains unanswered questions as to who will benefit most from this most fortuitous event.
Establishment Of The Cambodian National Petroleum Authority
On January 22nd 1998 by royal decree, something happened that makes answering the question of who will benefit a bit difficult.
“The Cambodian National Petroleum Authority (CNPA) shall be the permanent institution governed directly by the prime minister.” [229]
Since the CNPA was established by royal decree and in the opinion of legal experts consulted by UK based NGO Global Witness, the transfer of such significant powers to a new organization by royal decree only, without primary legislation passed by the National Assembly, is out of keeping with normal practice.
The decree means that Prime Minister Hun Sen and his deputy, Sok An, are in direct control of the CNPA. [13]
There is no parliamentary oversight of the CNPA. Global Witness claims the CNPA is constitutionally dubious and the establishment of these amendments has effectively circumvented both parliamentary and public oversight of the industry.
The end result is zero transparency in the process behind concession allocation in the oil industry. What little information there is available has leaked into the public domain, seemingly by accident rather than intent.
While the Cambodian people own this resource, they have no say or control as to the eventual development of the Cambodian oil industry.
Working At The Cambodian National Petroleum Authority
Common to the vast majority of civil service jobs in Cambodia, the effectiveness of the CNPA is undermined by the low salary level for employees. While each oil signatory is required to pay $150,000 USD each year for staff training and development, the typical CNPA employee earns only $45 USD per month, about 20-25 per cent of what is needed to cover the cost of living. [266]
Because of this according to a report prepared by the Norwegian consultancy firm Bridge Group entitled "Training Needs Assessment", (which was leaked internally) “On a typical day, some 30 employees come in the morning and only some 10-12 return after lunch. Many employed have received further training, however, they have not had the opportunity to apply the knowledge gained in their daily work, and it has not been developed but instead been continuously eroded."
The Bridge Group concluded "The training has therefore to a large extent been wasted, and this is the source of much frustration among the employees.” [268]
Furthermore, less diplomatic industry insiders have described the organization's management and internal organization to Global Witness as "dysfunctional". [265]
The division within the organization means that only a handful of individuals at the top of the Cambodian government have any knowledge, or involvement in, the negotiation of contracts signed with petroleum companies. [272]
Awarding Oil Concessions
Oil concessions have been awarded to companies that have little experience in the oil and gas sector, and unproven financial means to exploit the resource. In some cases, it's not publicly known who controls these companies or benefits from its activities.
Neither Parliamentarians nor other ministries which will be responsible for collecting revenue from the oil and gas supplies when they come online have been included by the CNPA in discussions regarding resource management or future revenue.
However, according to the Global Witness report, representatives of the Ministry of Economy and Finance (MoEF) have been attending conferences on petroleum related issues. [280]
Oil company contracts and information on concession allocations are a closely guarded secret within the CNPA. It is known however that the CNPA has allocated all of Cambodia’s undisputed offshore blocks to private companies.
All of Cambodia’s offshore blocks (labeled A-F) and at least one onshore block have already been allocated to domestic or foreign companies (PDF). In March 2002, the CNPA awarded offshore Block A to a subsidiary of Chevron U.S.A. and its partners. [275] Block A is the most advanced in terms of exploration of Cambodia’s offshore blocks [41] and industry observers expect oil production in this block to start in 2011. [42]
Since that point, the CNPA appears to have allocated all remaining oil blocks to other petroleum companies of varying degrees of experience. None of this information has come into the public domain directly from the CNPA. Instead it has leaked out in dribs and drabs via oil companies, the media and government Power-Point presentations that have been posted online by other organizations. [276]
Revenue Spending Plans
The government is planning to develop a small domestic oil refinery, while the CNPA has begun talking about setting up a national oil company. [40]
The Cambodian Constitution states that legislative power sits with the National Assembly, and that legislative power is not transferable to any other organ or individual. [232]
Millions of dollars have been paid to the CNPA by extractive companies, but this money does not appear to have reached the national treasury. Indonesian firm PT Medco Energi International has paid a total of $7.5 million USD to the CNPA so far, and has been transparent in its dealings with the CNPA.
On October 1 2006, Medco announced on its website it had secured rights to explore Block E off the Cambodian coast. In the same statement Medco announced that it had paid $4.5 million USD of "Social Development Project Funds" to the Kingdom of Cambodia. [366]
On September 28 2007, Medco once again announced that it had received a concession from the CNPA, Block XII, an onshore area adjacent to the Tonle Sap lake. [367]
According to Medco’s annual report, the signature bonus paid on this concession was $3 million USD. [368] Global Witness has cross-checked this payment with the Ministry of Economy and Finance’s "Tableau des Opérations Financières de l’Etat" (TOFE), which provides information on annual income to the Cambodian state. [369]
In addition, each company holding a production sharing contract for a concession block is also required to pay significant fees on an annual basis. In the first year, this would be just under $800,000 USD per concession.
Global Witness claims none of this money has appeared on the non-tax revenue reports from the Ministry of Economy and Finance for 2006 or 2007.
Accounting Errors And Cross-cultural Misunderstanding?
In 2006, the Ministry claims to have received $19,300 USD in non-tax revenues from oil and gas. In 2007, it claims to have received $22,000 USD. Perhaps an accounting error of $7,458,700 USD was made somewhere. The U. S. government recently discovered it had made an error amounting to BILLIONS. These things happen.
In October 2005, Indocan Resources Inc. of Vancouver, Canada announced that it had filed applications with the Cambodian government for the exploration rights to coastal and offshore areas. [371]
When interviewed in the Bangkok Post a year later, company president Jeffrey Bruhjell said Indocan had tried to obtain two permits, but was told that high ranking officials in the Cambodian government were demanding “large sums of money as bribes.” Nevertheless, this might have been a cross-cultural misunderstanding.
A Realistic Approach
According to a recent article written by outgoing Asia Foundation director Rod Brazier that appeared in a recent edition of The Phnom Penh Post entitled "A Future in the Balance", "The CPP (Cambodian Peoples Party) is more confident as it ascends politically and so feels less vulnerable to criticism."
He continues, "A key to improving economic governance will be to nurture and empower the small group of Western-educated technocrats within the Ministry of Economy and Finance, and scattered throughout other ministries and departments. This group is more outward looking and reform-minded and is believed to have close ties to the pragmatic Prime Minister Hun Sen."
Brazier also asserts that "This government is truly very popular, despite some authoritarian tendencies. Compared to the international communities in neighboring countries, the international community here in Phnom Penh is terribly ignorant about the political economy of Cambodia."
Brazier observes that, "The focus of government has shifted from winning the political contest and seizing power to governing well and staying popular by delivering infrastructure and services." Further, he sees Cambodia as, "A normal, developing country encountering the typical range of challenges that every other country in the region has faced."
One has to admit that Prime Minister Hun Sen and his government are subject to more foreign scrutiny than almost anyone else in the world.
If the Cambodian people are happy with Prime Minister Hun Sen running things then that is the fact. If the people become disgruntled with his leadership, it's up to them to make a change, not foreigners. Further, when Hun Sen's government needs money, the Prime Minister should reach into Cambodian pockets.
It's clear that the country has enough valuable natural resources to succeed on it's own, and should put an end to the inflow of foreign donor money. In doing so, Cambodia will be able to chart its own path regarding future development and will become self-reliant.
Whatever happens in the future, Prime Minister Hun Sen will certainly never be mistaken for Jed Clampett.
ENDNOTES
13 Global Witness wrote a letter to Prime Minister Hun Sen in October 2008 to ask for his comments on the main issues raised in this report as involve or relate to him. At the time of the report’s publication, Global Witness had not received a response.
40 Global Witness interview with an industry expert, 2008; the Bridge group, "Training Needs Assessment for the Cambodian National Petroleum Authority", December 2004; interview with an MP, 2008; Personal communications with an NGO worker, 2008.
42 Interview with a member of the donor community, 2008; Eric Watkins, "Cambodia’s first oil to be delayed, officials says", Oil & Gas Journal, 4 November 2008; Reuters, "Cambodia’s first oil unlikely before 2010", 4 November 2008.
232 Kingdom of Cambodia, Article 51, "Constitution of the Kingdom of Cambodia", 1999
229 Article 3, royal decree on the Formation of the Cambodian National Petroleum Authority, chorsor/rortorkor 0198/020, 22 January 1998.
265 Interview with officials, 2008.
266 The Bridge Group, ‘Training Needs Assessment of the CNPA’, December 2004.
272 ibid.
275 Presentation by men den, "National Petroleum Policy and Petroleum Promotions and contract’, 21-25 February 2006, http://www.ccop.or.th/ppm/document/cAWs6/cAWs6dOc02_menden.pdf Last accessed 1 December 2008); Chevron, "Chevron Texaco Finds Oil in Four Wells drilled in Cambodia’s Block A’, 12 January 2005, http://investor.
chevron.com/phoenix.zhtml?c=130102&p=irolnewsArticle&id=662300&highlight= (last accessed 1 December 2008).
276 CCOP website, Presentation by Lim Vatha,
"Update on Petroleum Activities in Cambodia," 21-25 February 2006, http://www.ccop.or.th/PPm/document/cAWs6/cAWs6dOc04_vatha.
pdf (last accessed 1 december 2008); Presentation by Men Den, "National Petroleum Policy and Petroleum Promotions and contract’, 21-25 February 2006,
http://www.ccop.or.th/ppm/document/cAWs6/cAWs6dOc02_menden.pdf
(last accessed 1 December 2008); Petroleum regulations, 28 September 1991.
280 Internal communications, Global Witness, 2007; Attendance list for the Eiti Conference Oslo, October 2006.
366 PT Medco announcement, "Cambodia – Block E", 1 October 2006, www.medcoenergi.com/page.asp?id=210026 (last accessed 10 December 2008).
367 PT Medco website, http://www. medcoenergi.com/page.asp?id=210027 (last accessed 19 September 2008).
371 Rigzone, "Indocan Resources applies for Cambodian exploration rights", 10 October 2005
John Brown Photojournalist On LIGHTSTALKERS
My Mondo Library Photography
My Photoshelter Photography Archive Homepage
Photo © John Brown All Rights Reserved
Over 40 years ago a top of the chart American television comedy called "The Beverly Hillbillies" chronicled the lives of 4 people who left their impoverished rural lifestyle behind to live in a mansion in one of America's wealthiest city's, Beverly Hills, California.
Millions of viewers tuned in each week to watch Jed Clampett and his family face inevitable changes while they were seemingly oblivious to how much money they had and what could be done with it.
To media observers in America today it's evident that America's taste has changed and reality based content is now the preferred flavor.
Although only 20% of Cambodians have reliable access to electricity, Khmers are also tuned in to a reality based series of events based on the discovery of oil and natural gas that rests under waters and land within their jurisdiction.
Cambodia is one of the world's poorest countries and receives significant international aid. In a nation where more than 30 percent of the citizenry exists on $.50 USD per day, one would think that an oil discovery would be akin to a miracle sent from the heavens. Nevertheless, there remains unanswered questions as to who will benefit most from this most fortuitous event.
Establishment Of The Cambodian National Petroleum Authority
On January 22nd 1998 by royal decree, something happened that makes answering the question of who will benefit a bit difficult.
“The Cambodian National Petroleum Authority (CNPA) shall be the permanent institution governed directly by the prime minister.” [229]
Since the CNPA was established by royal decree and in the opinion of legal experts consulted by UK based NGO Global Witness, the transfer of such significant powers to a new organization by royal decree only, without primary legislation passed by the National Assembly, is out of keeping with normal practice.
The decree means that Prime Minister Hun Sen and his deputy, Sok An, are in direct control of the CNPA. [13]
There is no parliamentary oversight of the CNPA. Global Witness claims the CNPA is constitutionally dubious and the establishment of these amendments has effectively circumvented both parliamentary and public oversight of the industry.
The end result is zero transparency in the process behind concession allocation in the oil industry. What little information there is available has leaked into the public domain, seemingly by accident rather than intent.
While the Cambodian people own this resource, they have no say or control as to the eventual development of the Cambodian oil industry.
Working At The Cambodian National Petroleum Authority
Common to the vast majority of civil service jobs in Cambodia, the effectiveness of the CNPA is undermined by the low salary level for employees. While each oil signatory is required to pay $150,000 USD each year for staff training and development, the typical CNPA employee earns only $45 USD per month, about 20-25 per cent of what is needed to cover the cost of living. [266]
Because of this according to a report prepared by the Norwegian consultancy firm Bridge Group entitled "Training Needs Assessment", (which was leaked internally) “On a typical day, some 30 employees come in the morning and only some 10-12 return after lunch. Many employed have received further training, however, they have not had the opportunity to apply the knowledge gained in their daily work, and it has not been developed but instead been continuously eroded."
The Bridge Group concluded "The training has therefore to a large extent been wasted, and this is the source of much frustration among the employees.” [268]
Furthermore, less diplomatic industry insiders have described the organization's management and internal organization to Global Witness as "dysfunctional". [265]
The division within the organization means that only a handful of individuals at the top of the Cambodian government have any knowledge, or involvement in, the negotiation of contracts signed with petroleum companies. [272]
Awarding Oil Concessions
Oil concessions have been awarded to companies that have little experience in the oil and gas sector, and unproven financial means to exploit the resource. In some cases, it's not publicly known who controls these companies or benefits from its activities.
Neither Parliamentarians nor other ministries which will be responsible for collecting revenue from the oil and gas supplies when they come online have been included by the CNPA in discussions regarding resource management or future revenue.
However, according to the Global Witness report, representatives of the Ministry of Economy and Finance (MoEF) have been attending conferences on petroleum related issues. [280]
Oil company contracts and information on concession allocations are a closely guarded secret within the CNPA. It is known however that the CNPA has allocated all of Cambodia’s undisputed offshore blocks to private companies.
All of Cambodia’s offshore blocks (labeled A-F) and at least one onshore block have already been allocated to domestic or foreign companies (PDF). In March 2002, the CNPA awarded offshore Block A to a subsidiary of Chevron U.S.A. and its partners. [275] Block A is the most advanced in terms of exploration of Cambodia’s offshore blocks [41] and industry observers expect oil production in this block to start in 2011. [42]
Since that point, the CNPA appears to have allocated all remaining oil blocks to other petroleum companies of varying degrees of experience. None of this information has come into the public domain directly from the CNPA. Instead it has leaked out in dribs and drabs via oil companies, the media and government Power-Point presentations that have been posted online by other organizations. [276]
Revenue Spending Plans
The government is planning to develop a small domestic oil refinery, while the CNPA has begun talking about setting up a national oil company. [40]
The Cambodian Constitution states that legislative power sits with the National Assembly, and that legislative power is not transferable to any other organ or individual. [232]
Millions of dollars have been paid to the CNPA by extractive companies, but this money does not appear to have reached the national treasury. Indonesian firm PT Medco Energi International has paid a total of $7.5 million USD to the CNPA so far, and has been transparent in its dealings with the CNPA.
On October 1 2006, Medco announced on its website it had secured rights to explore Block E off the Cambodian coast. In the same statement Medco announced that it had paid $4.5 million USD of "Social Development Project Funds" to the Kingdom of Cambodia. [366]
On September 28 2007, Medco once again announced that it had received a concession from the CNPA, Block XII, an onshore area adjacent to the Tonle Sap lake. [367]
According to Medco’s annual report, the signature bonus paid on this concession was $3 million USD. [368] Global Witness has cross-checked this payment with the Ministry of Economy and Finance’s "Tableau des Opérations Financières de l’Etat" (TOFE), which provides information on annual income to the Cambodian state. [369]
In addition, each company holding a production sharing contract for a concession block is also required to pay significant fees on an annual basis. In the first year, this would be just under $800,000 USD per concession.
Global Witness claims none of this money has appeared on the non-tax revenue reports from the Ministry of Economy and Finance for 2006 or 2007.
Accounting Errors And Cross-cultural Misunderstanding?
In 2006, the Ministry claims to have received $19,300 USD in non-tax revenues from oil and gas. In 2007, it claims to have received $22,000 USD. Perhaps an accounting error of $7,458,700 USD was made somewhere. The U. S. government recently discovered it had made an error amounting to BILLIONS. These things happen.
In October 2005, Indocan Resources Inc. of Vancouver, Canada announced that it had filed applications with the Cambodian government for the exploration rights to coastal and offshore areas. [371]
When interviewed in the Bangkok Post a year later, company president Jeffrey Bruhjell said Indocan had tried to obtain two permits, but was told that high ranking officials in the Cambodian government were demanding “large sums of money as bribes.” Nevertheless, this might have been a cross-cultural misunderstanding.
A Realistic Approach
According to a recent article written by outgoing Asia Foundation director Rod Brazier that appeared in a recent edition of The Phnom Penh Post entitled "A Future in the Balance", "The CPP (Cambodian Peoples Party) is more confident as it ascends politically and so feels less vulnerable to criticism."
He continues, "A key to improving economic governance will be to nurture and empower the small group of Western-educated technocrats within the Ministry of Economy and Finance, and scattered throughout other ministries and departments. This group is more outward looking and reform-minded and is believed to have close ties to the pragmatic Prime Minister Hun Sen."
Brazier also asserts that "This government is truly very popular, despite some authoritarian tendencies. Compared to the international communities in neighboring countries, the international community here in Phnom Penh is terribly ignorant about the political economy of Cambodia."
Brazier observes that, "The focus of government has shifted from winning the political contest and seizing power to governing well and staying popular by delivering infrastructure and services." Further, he sees Cambodia as, "A normal, developing country encountering the typical range of challenges that every other country in the region has faced."
One has to admit that Prime Minister Hun Sen and his government are subject to more foreign scrutiny than almost anyone else in the world.
If the Cambodian people are happy with Prime Minister Hun Sen running things then that is the fact. If the people become disgruntled with his leadership, it's up to them to make a change, not foreigners. Further, when Hun Sen's government needs money, the Prime Minister should reach into Cambodian pockets.
It's clear that the country has enough valuable natural resources to succeed on it's own, and should put an end to the inflow of foreign donor money. In doing so, Cambodia will be able to chart its own path regarding future development and will become self-reliant.
Whatever happens in the future, Prime Minister Hun Sen will certainly never be mistaken for Jed Clampett.
ENDNOTES
13 Global Witness wrote a letter to Prime Minister Hun Sen in October 2008 to ask for his comments on the main issues raised in this report as involve or relate to him. At the time of the report’s publication, Global Witness had not received a response.
40 Global Witness interview with an industry expert, 2008; the Bridge group, "Training Needs Assessment for the Cambodian National Petroleum Authority", December 2004; interview with an MP, 2008; Personal communications with an NGO worker, 2008.
42 Interview with a member of the donor community, 2008; Eric Watkins, "Cambodia’s first oil to be delayed, officials says", Oil & Gas Journal, 4 November 2008; Reuters, "Cambodia’s first oil unlikely before 2010", 4 November 2008.
232 Kingdom of Cambodia, Article 51, "Constitution of the Kingdom of Cambodia", 1999
229 Article 3, royal decree on the Formation of the Cambodian National Petroleum Authority, chorsor/rortorkor 0198/020, 22 January 1998.
265 Interview with officials, 2008.
266 The Bridge Group, ‘Training Needs Assessment of the CNPA’, December 2004.
272 ibid.
275 Presentation by men den, "National Petroleum Policy and Petroleum Promotions and contract’, 21-25 February 2006, http://www.ccop.or.th/ppm/document/cAWs6/cAWs6dOc02_menden.pdf Last accessed 1 December 2008); Chevron, "Chevron Texaco Finds Oil in Four Wells drilled in Cambodia’s Block A’, 12 January 2005, http://investor.
chevron.com/phoenix.zhtml?c=130102&p=irolnewsArticle&id=662300&highlight= (last accessed 1 December 2008).
276 CCOP website, Presentation by Lim Vatha,
"Update on Petroleum Activities in Cambodia," 21-25 February 2006, http://www.ccop.or.th/PPm/document/cAWs6/cAWs6dOc04_vatha.
pdf (last accessed 1 december 2008); Presentation by Men Den, "National Petroleum Policy and Petroleum Promotions and contract’, 21-25 February 2006,
http://www.ccop.or.th/ppm/document/cAWs6/cAWs6dOc02_menden.pdf
(last accessed 1 December 2008); Petroleum regulations, 28 September 1991.
280 Internal communications, Global Witness, 2007; Attendance list for the Eiti Conference Oslo, October 2006.
366 PT Medco announcement, "Cambodia – Block E", 1 October 2006, www.medcoenergi.com/page.asp?id=210026 (last accessed 10 December 2008).
367 PT Medco website, http://www. medcoenergi.com/page.asp?id=210027 (last accessed 19 September 2008).
371 Rigzone, "Indocan Resources applies for Cambodian exploration rights", 10 October 2005
John Brown Photojournalist On LIGHTSTALKERS
My Mondo Library Photography
My Photoshelter Photography Archive Homepage
1 comment:
This is very good article. I wish to see you write more about extractive industries in Cambodia. I really helpful for my work.
Sarath
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