The impending development of offshore oil fields recently discovered in Cambodia's
territorial waters, and continuing onshore exploration, may herald significant changes
to the country's economy in the near future.
But it remains to be seen whether the billions of dollars in revenue expected from
these developments will raise the living standards of Cambodians, 40% of whom live
below the poverty line.
In our view, it is critical for the Government to ensure that the receipt and expenditure
of oil and other natural resource revenues are made transparent and are subject to
public scrutiny. After all, resource revenue is meant to be a blessing for Cambodia
and should not, through corruption or mismanagement, become a curse.
Let us consider why transparency is crucial in the context of Cambodia's extractive
The annual sales of oil and other natural resources in the future will be substantial,
possibly in the billions of dollars. However, that does not necessarily mean that
Cambodia, or its citizens, will be better off in the long run.
On the contrary, resource rich countries may, if they do not follow a prudent fiscal
policy, be struck by what economists term the 'resource curse' - i.e. the paradox
that countries with an abundance of natural resources tend to have less economic
growth than countries without these natural resources. In fact, despite billions
of dollars of incoming revenues from oil, gas and mining extraction, citizens of
more than 50 resource rich countries around the world remain steeped in poverty.
There are several reasons for this phenomenon, including a decline in the competitiveness
of other economic sectors (caused by appreciation of the real exchange rate as resource
revenues enter an economy); volatility of revenues from the natural resource sector;
and government mismanagement and/or corruption, provoked by the inflows of easy windfalls
from the resource sector.
The impact of the 'resource curse' is not limited to the economic sphere. Local populations
in resource rich countries often suffer its adverse effects as well. These effects
include the destruction of their immediate environment and the social and economic
devastation that follows: i.e. arbitrary eviction and dispossession, unlawful arrest
or harassment, and neglect of health care, housing, and education.
Corruption & Mismanagement - A Dangerous Cycle
Will Cambodia fall prey to the "resource curse" in the future? Unfortunately,
there are few indicators for confidence for good development outcomes.
Endemic government corruption and mismanagement, which the "resource curse"
thrives on, have become part and parcel of Cambodian life. Cambodia ranks 151 out
of 163 countries on Transparency International's Corruption Index 2006. An independent
research study published in July 2006 shows that unofficial fees and commissions
paid to public officials by private companies amount to about US$330 million, which
represents about 50% of the total Government budget revenue (or about 6% of GDP)
at that time.
The draft Anti-Corruption Law, which was designed to combat corruption and misfeasance,
has not been enacted, even though more than 10 years have passed since it was first
The Government has done very little to improve the situation. As far as the oil sector
is concerned, there is no legislation in place to govern exploration or production
by the companies. The criterion upon which exploration concessions are awarded to
oil companies by the relevant authority, the Cambodian National Petroleum Authority,
is kept secret. In most cases, there is limited information, if any, about the Government's
expenditure of signature bonuses, commissions or incidental revenues received from
The legal and regulatory framework governing the hard minerals sector is no better.
Although the "Law on Management and Exploitation of Mineral Resources"
was enacted in 2001, it has several loopholes. For instance, notwithstanding its
name, it does not provide any mechanism to monitor the exploitation of mineral resources
by companies once they have been granted a licence to do so. Further, it does not
require that the companies disclose any information about their contracts or payments.
In fact, under article 20 of the law, such public information is protected! It cannot
be publicly disclosed unless their licence is terminated or if they give prior approval
to allow such disclosure.
In the circumstances, there is a genuine fear that public officials will misappropriate
a substantial portion of the revenues generated by the extractive industry in the
future. Not only would this severely undermine Cambodia's social and economic stability,
but it would also perpetuate a cycle of corruption, mismanagement and bad governance.
Put simply, this cycle involves four stages.
The Government could first find that it is easier to maintain authority through allocating
resources to favoured constituents and private enterprises than through growth-oriented
economic policies and a level, well-regulated playing field.
Next, huge flows of money from natural resources could, in turn, fuel this corruption
Very soon, the Government could find that it has less of a need to improve the institutional
infrastructure or to regulate and tax a productive economy outside the natural resource
sector, thereby resulting in the economy remaining undeveloped or, worse, suffering
Finally, all this could exacerbate social divisions and impede social development.
Cambodia should be spared such a fate.
Transparency - An Antidote
We believe that insisting on transparency in the manner in which resource revenues
are received and managed by the Government is the only way to ensure that there is
an effective check on the Government's receipt and use of these revenues. Only then
can the Cambodian people, the true owners of these natural resources, understand
what these resources yield to the national budget and scrutinize the actions of public
officials and their Government.
Transparency is in the best interests of everyone concerned - citizens, mining, gas
and oil companies, the Government and the wider international community.
If companies disclose what they pay, and the Government discloses its receipt of
revenues and the way in which it utilizes these revenues, non-state actors such as
civil society organizations, international organizations/financial institutions,
donors and other watch-dogs in Cambodia will be able to compare the two and thus
hold the Government accountable for the management of this valuable source of income.
Revenue transparency will also help these groups to work towards a democratic debate
over the effective use and allocation of resource revenues and public finance in
order to meet development objectives, improve public services, and redistribute income.
Mining, gas and oil companies cannot control how the Government spends the taxes,
royalties and fees they pay. But they have a social responsibility to disclose the
payments they make so that Cambodian citizens can hold the Government accountable.
More than any legal licence conferred by the Government, transparency will strengthen
these companies' social licence by demonstrating their economic contribution to society.
It would also increase the likelihood that the revenues they pay to governments will
be used for sustainable development, which creates a stable business environment,
rather than being diverted or dissipated by corruption.
We commend the Government for setting up the Public Financial Management Reform Program,
which aims to strengthen Parliament's capacity to oversee the national budget and
assess the contribution from the extractive industry towards the budget. But greater
transparency is necessary.
Mandating disclosure of payments and revenues is an antidote to the resource curse
(and its consequent ill effects) and can be achieved by way of simple adjustments
to the existing law, accounting standards, disclosure rules, and the lending conditions
of international financial institutions, regional development banks, export credit
agencies and private sector banks.
In order to realize the dream of a prosperous and developed Cambodia that thrives
on its natural resources, companies must disclose what they pay for these resources
and the Government must disclose the revenues it receives and account for how it
Promoting transparency of revenues in relation to the extractive industry is a vital
step towards alleviating the crushing poverty of ordinary Cambodian citizens and
ensuring good governance, corporate accountability and sustainable development in
the long run.
Court Watch Project Manager
Pro Bono Attorney