Government Goes to China in Search of Loans

Prime Minister Hun Sen will travel to China on Saturday to meet with the rising superpower’s new leadership, in a trip the government expects to yield nearly $2 billion in loans and aid.

Most significantly, the government is hoping to secure Chinese funding for a $1.67 billion oil refinery project in Kampot province, which would ensure China’s prime position in Cambodia’s yet-to-take-off oil industry.

The Ministry of Foreign Affairs and International Cooperation said in a statement Wednesday that Mr. Hun Sen and a delegation including Defense Minister Tea Banh and Commerce Minister Cham Prasidh had been invited on a five-day visit by Li Keqiang, who became China’s premier in March.

The visit includes Mr. Hun Sen paying a “courtesy call” on new Chinese President Xi Jinping, holding official talks with Mr. Li, and a bilateral meeting with Australian Prime Minister Julia Gillard, according to the statement.

“At the end of the visit, both sides will agree to mark the year 2013 as the 55th anniversary of the establishment of the diplomatic relationship between China and Cambodia and the ‘China-Cambodia Friendship Year,’ and sign the following documents,” the statement says.

The statement lists eight deals, including a memorandum of understanding between the National Bank of Cambodia and China Banking Regulatory Commission, an “agreement on economic and technical cooperation” worth $48.36 million, more than $73 million in concessional loans for an irrigation project in Kompong Thom province and a bridge in Kandal province.

According to the statement, the government also expects to sign a memorandum of understanding on a 5-million-ton-a-year oil refinery project, involving China Development Bank and China Export and Credit Insurance Corporation, both Chinese state-owned companies, to the tune of $1.67 billion.

China Development Bank is known as one of China’s “policy banks”—meaning that it gives loans in support of the Chinese government’s foreign policy. Such banks have funded Chinese-built hy­dropower dams in Cambodia.

In December, China Perfect Machinery Industry Corp.—which is majority owned by the state-owned industrial giant SINOMACH—and the Cambodian Pe­trochemical Company—which is chaired by local cigarette magnate Kong Triv—agreed that work would begin on the oil refinery this year.

The ceremony was overseen by Deputy Prime Minister Sok An, who chairs the Cambodian National Petroleum Authority.

At the time, an official at China Perfect Machinery Industry Corp. said the project—to be situated on an 8-hectare site near the border of Kampot and Preah Sihanouk provinces—would refine oil extracted from Cam­bodian waters.

The refinery is expected to take four years to build and cost $2.3 billion—although Wednesday’s Foreign Ministry statement put the price tag at $1.67 billion.

Two Chinese companies, China National Offshore Oil Corporation and China Petrotech Holdings Ltd., have been granted exploration blocks off Cambodia’s coast to search for oil and gas.

Neither company has announced that they have discovered reserves that would be economical to extract.

Mam Sambath, chairman of Cambodians for Resource Revenue Transparency organization, said the government, with China’s help, appeared to be preparing for a Cambodian oil industry before a tax regime was in place to ensure that the Cambodian people benefit from such a business.

“Legislation is still in draft form.”

“In order to manage this sector effectively, there is a need to have a consultation with the public and civil society,” he said.

U.S. company Chevron had been the forerunner in exploring for oil and gas off the Cambodian coast, announcing at one point that oil would begin to flow before the end of 2012. But talks have appeared to stall with it still unclear how much of the money made from oil production the government would take in taxes.

Mr. Sambath said it increasingly appeared as if China would play a prominent role in the oil sector. “It’s because of the relationship between the Chinese government and the Cambodian government,” he said.

China has become a major source of loans, investment and military aid to Cambodia in recent years, though the interest rates on Beijing’s loans are typically higher than those of other donor countries and development banks.

Cambodia—specifically in relation to the Asean—has been accused of doing China’s bidding, and steering regional diplomatic talks toward China’s diplomatic interests.

During the China visit, the gov­ernment also expects talks with the Chinese government on a vocational agriculture school in Kratie province and the “Im­plementation of the China-Cambodia Comprehensive Strategic Partnership of Cooperation.”

The biggest deal expected, after the oil refinery, is a concessional loan worth $53.15 million for a water resources project in Kompong Thom province’s Stong river basin.

Stong district governor Prem Rotha said Wednesday that the irrigation project would benefit people in eight communes, which are home to nearly 25,000 families.

“They want to build a sluice gate to keep the water so people can do farming during the dry season,” he said.

© 2013, All rights reserved.