Sunday,2007-2-25: Oil

Posted on 25 February 2007. Filed under: *Editorial*, Week 496 |

The Mirror, Vol. 11, No. 496

Since some weeks, results from drilling for oil in an off-shore area partly claimed by both Cambodia and Thailand have led to the expectation that considerable natural resources will be available in a few years time. This news has also led to discussions in the media in countries near and far. One Cambodian paper used dramatic language in discussing possible future problems: “Cambodia Will Have War Because Of Oil Wells.” Others state the challenges as if they were a contradiction: “Hun Sen Said Oil Is A Blessing, Not A Curse. But The Head Of The US Embassy Said This Is True Only if the Sources Of Corruption Are Rooted Out.”

Both positions are right. The perspective of an economically poor country looking forward to the riches which oil can provide is very understandable and does not need much discussion. But why the concerns that this may not be a blessing, but a curse?

The term “curse” – in the context of abundant natural resources – is not just used in the present discussion. The international cooperative structure of the Extractive Industries Transparency Initiative – EITI, in which 23 countries cooperate, has been created to fight what they call a “resources curse.” When good governance structures and procedures are not firmly established in a county, it has been observed that often the large revenues from resources are not fully transferred for the public good, but end up as personal wealth in the hands of a small group of people. EITI “supports improved governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas, and mining.”

At a conference on the Economic Outlook for Cambodia in 2007, Prime Minister Hun Sen assured the national and international participants, “The revenues from the recently confirmed discovery of oil reserves will provide additional money for financing development projects in Cambodia. These revenues will be directed to productive investment and poverty reduction. We will make sure that oil is a blessing, but not a curse.” It is interesting that Xinhua, the official Chinese news agency, reported not only these statements but also the remarks by the US ambassador to Cambodia, expressing his concern that the Cambodian government should avoid the situation where “a small corrupt elite siphons off revenue that should go to improving the welfare of all the people.” – “Leaders of the countries should have the political will to demand that the revenues from these extractive industries be used solely for the improvement of the country.” He is quoted to have added, “In his open and eloquent speech yesterday (Thursday), Prime Minister Hun Sen showed his intent to demonstrate just such political will,” and many officials within the government also “recognize and have been working to responsibly manage Cambodia’s extractive industries.” In principle, both persons agree.

But there are significant examples from elsewhere where things did not work out for the benefit of the whole country. For example, in Nigeria, a country with huge oil exports and huge economic problems, the general economic level of the population remained very low. It is interesting to observe how Nigeria is trying to rectify what went wrong.

A Nigerian senator described the situation quite vividly some days ago: “You see, we have a problem with the law and even with the Constitution, the issue of immunity has guaranteed a cover for all sorts of mis-governance, abuse, waste and what have you. The office of a governor is so powerful because of the centrality of authority, the control of the local government tier and because of the indirect control of resources. When somebody does not have any experience in an institution, he will come into an office and abuse it because he doesn’t respect processes, he doesn’t respect order, he doesn’t respect accountability, he doesn’t respect transparency, he doesn’t respect due processes.”

In view of the allegations of widespread corruption in Nigeria, which had led to a serious decrease in foreign investment, an Economic and Financial Crimes Commission was established in 2003 as a law enforcement agency to investigates financial crimes according to detailed published criteria. The Commission was established with high-level support from the presidency, the legislature, and key security and law enforcement agencies in Nigeria. In September September 2006, the Economic and Financial Crimes Commission had 31 of Nigeria’s 36 state governors under investigation for corruption. Recently it created public controversy by publishing the names of 135 persons which the Commission considers unfit to stand for elections because of their involvement in corruption: 53 members of the ruling party, 39 and 27 members respectively from two other parties, and 19 others.

Cambodia still has time to prepare before oil and gas extraction can begin. The anti-corruption law, in different stages of being drafted since several years, could help to achieve the goals for oil revenue which the Prime Minister described: “These revenues will be directed to productive investment and poverty reduction.”

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