PM Asks Donors To Pressure Oil Firms on Terms

Prime Minister Hun Sen on Wednesday called on the country’s international donors to en­courage foreign petroleum companies to give Cambodia generous terms in oil revenue sharing agreements.

So far, Hun Sen said, donors have expressed concern about Cambodia spending its potential oil revenues, but, he added: “They don’t help to generate more income.”

“Those countries that have oil companies, they should tell those companies that the companies should give big shares to Cambo­dia,” Hun Sen said at a groundbreaking ceremony for a Chinese-funded bridge in Kandal province.

Hun Sen singled out the US, Ja­pan and Australia, asking them to intercede on Cambodia’s behalf.

“The US Embassy should help discuss with Chevron to give a big share to Cambodia,” he said.

Ever since US oil giant Chevron found oil off the coast of Sihanouk­ville, the natural resource debate has focused largely on the likelihood of corruption and mismanagement in handling the country’s potential oil windfall.

Hun Sen sought to shift the terms of that debate Wednesday, saying that he told a delegation from the International Monetary Fund, which concluded a two-week visit Tuesday: “[W]e should not discuss about oil money, we should talk about how to generate high income.”

Chevron and Japanese firm Mit­sui Oil Exploration Co hold the largest stakes in Block A, a promising stretch of the Gulf of Thailand off the coast of Sihanoukville. Aus­tralian mining giant BHP Billi­ton has two exploration licenses in the overlapping claims area be­tween Cambodia and Thailand.

The US Embassy showed no sign Wednesday that it would comply with the Prime Minister’s request.

“This is a negotiation between the Cambodian government and a private company, and we see no role for the US Embassy in these negotiations,” spokesman Jeff Daig­le wrote by e-mail.

Officials from the Australian and Japanese embassies could not be reached for comment.

Chevron spokeswoman Nicole Hodgson declined to comment Wednesday on the prime mini­ster’s remarks because company representatives had not heard the speech directly.

Chevron has yet to commit to oil production in Cambodia and Hodgson said by e-mail Wednes­day that though the company has confirmed the presence of oil in block A, “a number of technical challenges need to be addressed prior to possible project development and sanction.”

She added that the surveyed res­ervoirs are unique for the Gulf of Thailand because the oil is dispers­ed rather than concentrated in a single core area.

Chevron has completed two rounds of exploratory drilling. In late 2004 and early 2005, the company drilled five wells and found oil in four, she said. In late 2006, the company drilled another five wells, and in early 2007, it added four more wells.

Hodgson did not detail the re­sults of the second round of drilling, but said that a project team has been assembled to evaluate “technical solutions” and help determine the way forward.

“A third drilling campaign is being considered for late 2008-2009,” she added.

Men Den, the director of exploration and production at the Cam­bodian National Petroleum Au­thor­ity, said a revenue sharing agreement had been reached with Chev­ron back in 2003, but he declined to reveal the details of that agreement, citing confidentiality.

Men Den said the government’s contract with Chevron could be re­negotiated under certain conditions if and when Chevron decides to move forward with oil production. CNPA has not yet received a development plan for block A, he added.

The UN Development Program urged the government to press for more favorable revenue splits in a January paper.

The terms of Cambodia’s so-called model production sharing contract for oil revenues, which Men Den said was not identical with the Chevron contract, are generally unfavorable to Cambodia, the report said.

According to the report, Cambo­dia’s model contract is the most generous in the region in allowing contractors to recover costs: The contractor can receive up to 90 percent of post-royalty production revenues to recover costs, with the re­maining 10 percent split between the contractor and CNPA on a sliding scale.

That, the report said, limits the nation’s potential cash flow from early-stage production. The structure of the contract also places Cambodia at considerable risk should the price of oil fall, the report said.

The model contract was developed in the late 1990s when oil prices were low, there was little in­ternational interest in Cambodia’s oil, and the CNPA had “very little experience” in negotiating revenue contracts, the report said.

Now that Cambodia’s oil pros­pects seem more robust, the nation has more negotiating power, which it should leverage with the help of a top-notch team of lawyers, UNDP said in the report.

“Negotiation of these contracts is also a high-risk endeavor—where learning by doing will be too expensive to risk, especially for a country like Cambodia,” the report said.

Men Den said CNPA is fully equipped to handle contract negotiations. “I’ve known petroleum for 20 years,” he said.

“We can do it. I guarantee it.”

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