CAMBODIA: UPDATE ON PETROLEUM SECTOR

UNCLAS SECTION 01 OF 02 PHNOM PENH 001940

SIPDIS

SENSITIVE
SIPDIS

DEPARTMENT FOR EAP/MLS AND EB/ESC/IEC
STATE PLEASE PASS OPIC FOR MICHELLE PEREIRA AND DAVID FRANTZ
STATE PASS USAID FOR ANE
COMMERCE FOR HONG-PHONG PHO

E.O. 12958: N/A
TAGS: EPET ENRG ECON EINV CB
SUBJECT: CAMBODIA: UPDATE ON PETROLEUM SECTOR

REF: PHNOM PENH 1460


1. (U) Donor representatives met October 25 to review recent
developments in efforts to help Cambodia learn to manage its
oil revenue in a transparent manner that benefits the
Cambodian people. A focus of the discussion was on public
outreach to increase awareness of the revenue windfall that
is likely to accrue to the Cambodian people and to raise
expectations that the revenue will be used for their benefit.
In this connection, Douglas Gardener (UNDP) noted that UNDP
was able to insert a paragraph on the link between oil
revenues and development outcomes (i.e.; schools, hospitals)
into remarks delivered at the conference celebrating the
fifteenth anniversary of the Paris Peace Accords, which was
replayed on local television several times over the weekend.
Participants also agreed on the need to meet with the private
sector and NGOs to explain what the donors were doing; the
private sector, and especially the garment industry, could be
sabotaged by elevated wages in other sectors as the result of
the "oil curse."


2. (SBU) IMF representative John Nelmes called attention to
the growing competition between Cambodian National Petroleum
Authority (CNPA) and the Ministry of Economy and Finance
(MEF) over control of the tax revenue. An IMF mission
recently completed a draft schedule of taxation for oil that
was internally consistent with the tax law. However, the
Council of Ministers (i.e., DPM Sok An and the CNPA) appeared
to want the oil tax schedule to be a part of the Petroleum
Law. Nelmes said that the average government tax revenue
would be about 70 percent, which was in line with regional
standards.


3. (SBU) Another sign of this growing competition for
control was the attendance of MEF Minister Keat Chhon as an
observer at the October 16-17 conference on the Extractive
Industries Transparency Initiative (EITI) in Oslo. For
health reasons, CNPA Director Te Doung Dara was unable to
attend. Robert Taliercio (World Bank) observed that
currently the MEF appeared to be peripheral to the management
of the petroleum sector, but that could change. The World
Bank would hold a workshop, essentially a primer on the oil
sector, in December and would gauge interest from other
ministries, including the MEF.


4. (SBU) ADB Deputy Head of Mission Purnima Rajapakse noted
that there was not only competition among ministries for
control of the oil revenue, but there were divisions within
the Council of Ministers. Rajapakse said that he had noted,
and others agreed, that there are tensions between Te Doung
Dara and DPM Sok An. (We have previously reported
factionalism within the CNPA; reftel.) Rajapakse also quoted
PM Hun Sen as telling donors and IFIs that Sok An and the
CNPA were "doing fine" on the upstream part of the equation
and thus there was no need for donor/IFI involvement in
upstream issues.


5. (SBU) On Cambodia's position regarding the Extractive
Industries Transparency Initiative (EITI),after much
discussion attendees tended to agree with Taliercio's
judgment that the Cambodian government (RGC) would eventually
sign on to the EITI. However, the crucial question would be
the degree of transparency to which the RGC committed.


6. (U) Donors briefed on current projects underway. Note
this supplements information provided in reftel.

AUSAID:

-- Drafting Upstream Road Map;

-- Preparing draft Petroleum Law;

-- Preparing a short course for CNPA

UNDP:

-- Preparing an analysis of socio-economic implications of
oil and gas, including outcomes under various scenarios, such
as different levels of income and public expenditure; UNDP
also was sending two researchers to Duke University to learn
cost-benefit analysis;

ADB:

-- Considering attaching an oil expert to ADB's local office

PHNOM PENH 00001940 002 OF 002



-- May be able to provide $2-3 million in technical
assistance;

Norwegian Petroleum Directorate (NPD):

-- Assistance on understanding/writing contracts and laws;

-- Has Assigned legal and contractual expert to work with
CNPA
MUSSOMELI