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 The problem with oil wealth

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Nombre de messages : 1737
Localisation : Montréal
Date d'inscription : 01/06/2005

The problem with oil wealth Empty
25042007
MessageThe problem with oil wealth

The problem with oil wealth Ln_white_small











Copyright 2007 Singapore Press Holdings Limited
All Rights Reserved

The Straits Times (Singapore)










April 25, 2007 Wednesday









SECTION: REVIEW - OTHERS









LENGTH: 1167 words












HEADLINE: The problem with oil wealth







BYLINE: Andrew Symon, For The Straits Times









BODY:
PHNOM PENH - THE big story in Cambodia right now is how the
country will manage possibly very large petroleum revenues flowing from
the development of offshore oil and gas by Chevron and possibly other
companies. While this could bring great benefit to Cambodia, one of the
poorest countries in South-east Asia, there are also plenty of fears
that any petroleum boom could be wasted through bad management, poor
economic policy and corruption.Warnings
flow from many directions - from development assistance agencies such
as the Asian Development Bank (ADB) and the United Nations Development
Programme (UNDP), to international non-governmental organisations
(NGOs) such as Oxfam through to local NGOs and academic analysts.The
UNDP's resident representative, Mr Douglas Gardner, told a recent
conference in Phnom Penh that 'more oil- and mineral-rich developing
countries than not have been negatively impacted by oil and mineral
revenue booms, and some even destabilised'. The dangers seem
legion. As the Manila-based ADB says in its recently released Asian
Development Report, while funding for poverty reduction and for
development of social and economic infrastructure could be boosted, oil
wealth could lead 'paradoxically to economic stagnation and political
instability'.Nigeria is a commonly cited example, receiving, as
the World Bank has noted, more than US$280 billion (S$420 billion) in
oil revenue in the last three decades - more than the total of all
government development assistance to all of Africa in this period. Yet
Nigeria's real per capita income has declined.'This can happen
because hydrocarbons production rarely generates much employment,
benefits urban areas, can spur inflation and currency overvaluation,
and can create more opportunities for corruption,' the ADB says.The
dangers, the UNDP's Mr Gardner says, result from a sudden surge of
foreign currency revenues, combined with a lack of financial
transparency, weak financial governance, fragmented and porous finance
systems, weak and narrow tax base, corruption and weak macro-economic management resulting in inflation and currency appreciation.The
latter problem can easily make other export-oriented industries in
manufacturing and agriculture - which may be a more important source of
employment for a country - uncompetitive. Cambodia may be especially
vulnerable because of its lack of industry diversification.But
aside from the fact that these warnings may be a little churlish, given
how poor Cambodia is, are they also a case of jumping the gun?It
is still unclear just what Chevron has found. Both the company - as
well as other oil companies with interests in the area - and the
government are reticent about what is really there. The
director-general of the National Petroleum Authority, Mr Te Duong Tara,
likened the situation to fishing.In a particularly Cambodian
analogy, he told the Phnom Penh conference that there are those fish
you have in your boat, which you can weigh, smell and eat - like proven
petroleum reserves coming on line.Then there are those reserves
that might be candidates for development - they are like fish on the
hook that are ready to be netted, but still might look bigger in the
water than out. Then there are probable and possible reserves - the
fish may be there, but you don't know for sure.Where Chevron's
fish falls is not clear, but what Mr Te Duong Tara certainly seemed to
be saying was: Don't count Chevron's fish as being in the boat.Still,
very preliminary estimates by Chevron released last year suggest as
much as 700 million barrels of oil in its exploration block, called
'Block A'. If these are proven to be commercial reserves, then
production could be of the order of 120,000 or more barrels a day over
20 years. At current oil prices of around US$60 a barrel, this could,
the UNDP says, provide the Cambodian government with oil revenues of
something like US$1.5 billion a year. This is three times its current
Budget revenues and would equal more than half of Cambodia's current
merchandise-export revenues.Chevron also indicates there may be
significant natural gas reserves in Block A. If so, this would provide
Cambodia with much-needed lower-priced fuel for power generation.
Currently, Cambodia is highly reliant on imported oil, resulting in
some of the highest power prices in the region.The possibility
of a petroleum bonanza has triggered a rush of companies into Cambodia
to take up other offshore blocks. They are attracted by rumours of some
big fish out there.One location which seems fairly certain to
contain commercial reserves of petroleum is in the Gulf of Thailand, in
a large offshore area that is claimed by both Cambodia and Thailand.
The origins of this dispute date back to borders drawn up more than a
century ago by the colonial French with the Thais. Geologists all agree
that this 27,000 sq km area very likely contains oil and gas, as it
covers a continuation of structures that in adjacent undisputed Thai
waters have been producing oil and gas for many years.One day,
Bangkok and Phnom Penh will reach an agreement on how to jointly
develop the area. The Thais, facing a shortfall of gas from their
fields in the coming decade, combined with a growing oil deficit,
probably are more disposed to giving some ground to the Cambodians than
in the past. When some sort of workable agreement will be reached,
though, remains anyone's guess.All this argues for Cambodia
putting in place a good institutional and legal/regulatory framework to
manage petroleum development and revenue flows. A petroleum law is
still in gestation. Currently, the industry is governed principally by
fairly ad hoc regulations adopted in 1991. In 1998, the National
Petroleum Authority was set up as the key government agency to manage
development and operation of the industry.Prime Minister Hun Sen
said earlier this year at the Cambodia Economic Forum that 'Cambodia
must learn from other countries, use oil revenues effectively and avoid
an oil curse'. One worthwhile recommendation is for Cambodia to
establish a special fund to invest and manage revenues. This is a
mechanism used in many countries that have large petroleum-producing or
mining industries relative to the rest of their economies. This
includes developed countries such as Norway, as well as an increasing
number of developing nations. Government revenues from
royalties or production-sharing arrangements are deposited in a
transparent and accountable fund. A proportion may be drawn on for a
government's current spending. The rest is saved and invested in
international financial portfolios for use by the country over the
longer term. Elsewhere in South-east Asia, Timor Leste has adopted this approach to manage expected revenues from natural gas exploitation in the Timor Sea.Such a fund is something Cambodia might want to consider.The
writer is a Singapore-based manager for UK business advisory group
Menas Associates. The extractive industries are a focus of Menas' work.










LOAD-DATE: April 24, 2007









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