Kingdom’s latest oil venture raises questions over funding, impact on the environment

Building blocks for exploitation

Already, most of the Kingdom has been divided by the Cambodian National Petroleum Authority (CNPA) into distinct areas and blocks. The only areas that remain undelineated are three regions on the western border with Thailand, in the far northwest, and east, stretching around block 24 near the Tonle Sap, which also has not been classified.

Cambodia’s new deal

The Japanese Oil, Gas and Metals National Corporation (JOGMEC) has signed a memorandum of understanding that officials said would lay the groundwork for a product-sharing contract (PSC) in Cambodian territory.

The deal was overseen by the Cambodian National Petroleum Authority (CNPA). Details of the agreement, however, remain shrouded in secrecy.

Source: Cambodian National Petroleum Authority.

JON TURNER AND ELLIE DYER

THE financing of Cambodia’s newest oil deal remained undisclosed on Tuesday despite international and domestic calls for transparency in the Kingdom’s nascent extraction sector.

Regardless of the pomp and circumstance seen at a rare public signing of a study and survey agreement – made between the Japan Oil, Gas and Metals National Corporation (JOGMEC) and the Cambodia National Petroleum Authority (CNPU) – questions about the scale of funding, investment and bonuses involved in domestic oil deals remained unanswered.

Such reticence came amid BHP Billiton’s internal investigation into accusations of graft, widely thought to relate to dealings surrounding a Cambodian concession, and pressure from international watchdog Global Witness for the issue to top a government donor meeting in June.

The need for transparency in the Kingdom has also been the subject of much domestic discussion in recent months as groups such as Cambodia’s NGO Forum call for accountability in the sector to ensure benefits from the extractive industries are spread throughout the country.

The issue has become especially crucial as activity in the sector is increasing, watchdog groups say. A CNPU press release issued Tuesday

stated that Cambodia has recently experienced a spike in exploration activities.

At the signing ceremony, held in the Council of Ministers office in Phnom Penh, there were no indicators of the potential windfall to be gained from the extraction of natural resources in northern Cambodia’s Block 17.

“The details have yet to be figured out,” said JOGMEC’s Executive Vice President Fumiaki Fujita, when asked what initial funding would go towards a two-year geological survey of the 6,500-square-kilometre area. He sidestepped numerous questions about financing, saying it was too early to judge investment, adding only that “transparency is to be guaranteed” in later stages of extraction development.

OBVIOUSLY, CAMBODIA SHOULD HAVE AUDITED ACCOUNTS SHOWING [PAYMENT] RECEIVED.”

Deputy Prime Minister Sok An also did not mention financing in his speech to around 100 suited dignitaries, instead stating: “On behalf of the government, I hope that JOGMEC efforts will encourage other Japanese companies to become leading businesses for oil and gas in Cambodia”.

A representative from CNPU refused to release any financial details of the deal when contacted by the Post on Tuesday, and JOGMEC officials confirmed only that “some kind of payment” would be made to the government if it seeks an extraction licence. They did not elaborate.

The reticence to disclose investment follows criticism by interest groups of the allegedly murky nature of Cambodia’s energy deals.

Global Witness called last week for extractive-sector transparency to be a subject of discussion at an upcoming meeting between the government and its donors.

Its statement followed Hun Sen’s confirmation last week that Total had agreed to pay the government US$28 million for offshore Block 3, of which $8 million would be dedicated to a “social development fund”.

The exact details of the Total investment have yet to become clear, but were likened by the prime minister to Cambodia’s deal with mining giant BHP Billiton – now internally investigating graft allegations over $2.5 million in unofficial fees paid to the Kingdom for a mining concession.

The reluctance of global corporations to release detailed information about their energy deals has taken on added significance, according to Global Witness.

The group said it believes that the JOGMEC deal, coupled with reports of increased testing by other potential investors at onshore sites, shows that Cambodia is more likely to possess onshore oil reserves than was previously thought.

But George Boden, spokesman for the watchdog, said that any oil deal centring on the Tonle Sap basin, parts of which have been designated as a protected area by UNESCO, had the potential to harm the environment and a “massive” number of livelihoods.

“There is no reason to believe there is a position to ensure oil extraction in the Tonle Sap region doesn’t have negative environmental consequences or is of benefit to the people,” Boden said.

“As a general rule, there is no reason that once a deal has been signed that companies shouldn’t be voicing payments made. Obviously, Cambodia should have audited accounts showing [payments] received,” Boden added Tuesday, speaking via phone from London.

JOGMEC’s Fujita responded Tuesday, saying that to his understanding the area under investigation does not fall within the protected zone.

He added that any seismic survey carried out by the company would include an environmental impact assessment.

Corporate openness regarding oil deals has, however, been hard to achieve.

Penelope Semavoine, a Total spokeswoman in Paris, told the Post on Monday that she was unable to disclose details of the energy firm’s revenue and taxation arrangement with the Cambodian government.

Nevertheless, after a year of relative quiet, the government is paying renewed attention to the sector. A CNPU press release, distributed at Tuesday’s meeting, stated: “Although today Cambodia has not yet commercially produced oil and gas, recently Cambodia has experienced an increase in exploration activities.”

Earlier this year, it was confirmed that PetroVietnam had paid money to the government after the signing of an exploration deal for onshore Block 15. Total is negotiating with the government for rights to onshore Block 26.

Hun Sen is also keeping up pressure on companies already operating concessions. Last month, he ordered Chevron – which owns a 30 percent stake in Block A, a 4,709-square-kilometre area in the Gulf of Thailand – to start producing oil by 2012 or face losing its permit.

And although JOGMEC has yet to discover whether its venture will be worthwhile, company officials remain hopeful for the future.

“At this stage it is difficult to say what the outcome [of a survey] is going to be for the area. But, with the knowledge we have regarding Vietnam and Thailand now, we have identified resources in this region which are supposed to be located close to the area,” Block 17, said JOGMEC’s Fujita.

According to the press release, JOGMEC was previously known as Japan National Oil Corporation, and performed an airborne gravity and magnetic survey in Cambodian onshore areas from 1997 to 1999.

ADDITIONAL REPORTING BY JAMES O’TOOLE