SPEECH

Delivered by H.E. Mr. Sok An, Deputy Prime Minister,

Minister in Charge of the Office of the Council of Ministers

At the Conference on

Cambodia's Investment, Trade and Infrastructure 2007

"Cambodia's Resource Breakthrough: Oil, Gas and Mineral Development"

November 8^th, 2007

Intercontinental Hotel, Phnom Penh, Cambodia

Excellencies, Ladies and Gentlemen,

Distinguished Guests !

On behalf of the 'Royal Government of Cambodia, the Cambodian National Petroleum Authority, and also on my own behalf, I would like to respectfully extend my warmest greetings and best wishes to all the distinguished guests of honor, foreign and local investors, traders and participants who are attending this very important conference on Investment, Trade and Infrastructure 2007.

"Oil, Gas and Mineral Development - Cambodia's Resource Breakthrough"

But, what is this "Breakthrough" of which I speak? 

First of all, the attendance of so many investors, and potential investors, here today is clear evidence that the Cambodia has definitively 'broken through' the investment barriers that have slowed our development in the past. After having brought peace and national reconciliation to the country, the priority of the Royal Government was, and still remains, to encourage the economic development necessary to reduce poverty and improve the lives of our people through access to education, health-care and the provision of better economic opportunities.

Indeed, in the oil, gas and mineral sectors, the Royal Government of Cambodia has been encouraging development since as early as 1991, when the first Petroleum Regulations were adopted, establishing a general framework for the governance of oil and gas activity in Cambodia. As a result, we were able to attract international companies to come to Cambodia to conduct serious petroleum exploration activity.

In 1998, the Royal Government created the Cambodian National Petroleum Authority, which has the Government mandate to manage upstream petroleum activities. CNPA's responsibilities include the promotion of a 'level-playing' field for all potential investors in the petroleum industry. CNPA seeks to promote fair competition and cost efficiency whilst at the same time ensuring the preservation of the National interest. This involves the auditing and monitoring of the compliance of contractors to international petroleum industry standards, and the regulation of good petroleum practices, quality control, environmental protection, and protection of the rights of the industry workers.

As a consequence of these policies of the Royal Government, we were able to achieve another 'break-through' when Chevron Overseas Petroleum (Cambodia) Limited drilled through the sea floor, around 200 kilometers off the coast of Cambodia in their 6,278 square kilometer Contract Area designated as Block A. There they found exciting evidence of oil in 2004. This has spurred them to drill a total of 15 wells to date in Block A to determine the extent of the oil resources that they have discovered.

Excellencies, Ladies and Gentlemen!

There has been considerable public discussion about the extent of the Chevron discoveries and much conjecture as to the size of the discovered resources. Of course, we all hope that the technical results of Chevron's evaluation of its discoveries will be good for Cambodia. But, we shall have to wait and see. Certainly, with global crude oil prices pushing up to near 100 US dollars per barrel, we are excited about the prospect of being able to have domestic oil production, rather than having to depend on the importation of refined petroleum products from other countries.

There are some better-informed and some lesser-informed sources of information about these oil discoveries. I shall not comment specifically on such, but merely say that in the meantime, whilst we do indeed have oil discoveries, we have to await the results of initial field development planning, before we can think of having our own Cambodian oil production. I am advised that until there are firm field development plans on the table, we should not consider any of the oil discoveries as constituting proved recoverable reserves. It takes time to prepare the development of oil fields, so I do hope that we can be patient. I expect that first oil production will only commence in early next decade as and when the development can be carried out.

Tanking this opportunity, I would like to express my sincere appreciation to the international community for providing us their experts, namely from the ADB, Australia, Norway, and also from Chevron to thoroughly discuss on ways how to determine the formula of a petroleum taxation that could be acceptable by both parties: the Royal Government and the company.

To date, we have only had 27 wells drilled in our petroleum prospective areas. Therefore, we will need much more drilling to determine the full extent of our endowment with petroleum resources. Of course, we hope that it will be significant, but we are cautioned by experienced oil men to be most cautious in our expectation. Nature is highly variable in its generosity to Nations!

We have already received considerable interest in further exploration investment from companies from China, France, Malaysia, Australia, Indonesia, Japan, Singapore, Kuwait and South Korea. This is in respect of the offshore petroleum prospective exploration areas which cover around 31,000 square kilometers. CNPA now has petroleum agreements signed up with various companies for six offshore Blocks. The companies that have joined Chevron in the search for oil in our offshore seas have now commenced their exploration programmes and should be drilling exploration wells in due course once they have studied the result of their initial geophysical surveys.

In addition, we remain committed to resolving the matter of the Overlapping Claims Area in the Gulf of Thailand with the Royal Government of Thailand; the OCA area covers around 27,000 square kilometers that is thought to be highly prospective for petroleum accumulations.

We are looking for the break-through not only in the discovery of oil offshore. There is the also potential for the generation and accumulation of oil in our onshore sedimentary basins, such as the Tonie Sap Basin area.

Now, the Royal Government of Cambodia is looking towards the future 'break­throughs'.

We are a rapidly growing economy, currently dependent upon imports of around one million tons of oil products annually. In order to reduce our dependence on imported petroleum and energy products, the Royal Government of Cambodia envisions that one day oil refineries and gas processing facilities established within the territory of the Kingdom might supply the energy demands of the growing domestic market.

This will save the cost of transporting petroleum and energy products to Cambodia, help to reduce our energy costs, and thereby provide greater industrial opportunities as well as helping develop the provision of electrical supply to all the people across the country.

It is clear that the revenues, which we hope we will eventually get from the development of our petroleum resources, will become a significant financial resource to Cambodia for our careful and efficient investment in our priority areas. We are sometimes asked what the Government will do with the oil revenues as and when they come. My answer is that we have very much to do rebuilding and developing our economy and enhancing the quality of the lives, of Our people.

Those priority areas are: the alleviation of poverty, the enhancement of economic opportunities for our people and the development of society. This will be done though the National Strategic Development Program, and will consist of the building of infrastructure, such as roads, bridges, irrigation systems, electricity distribution systems, clean water supply; as well as the delivery of improved health-care and education.

The Royal Government is well aware of resource income dependencies, so it will be our focus to re-invest the resource revenues in such capital investment activities that I have described above - building up human and physical capital for the future. There are inevitable macro-economic problems associated with using resource revenues to underpin economic development which will require steady stewardship of the economy to limit the effects of the resource curse.

We are aware of such matters to a voice eco distortion and to limit.

Related to this, we have been examining the Extractive Industry Transparency Initiative (EITI) as a platform for good governance in the treatment of resource revenues. We are developing our understanding of such Initiatives and other related strategies for good resource revenue management. However, with 2.3 billion US dollars expenditure being planned for the Public Investment Program (PIP) over 585 projects in just the period 2008 to 2010, you can readily realise  that we have abundant opportunities to absorb whatever future petroleum revenues CNPA can deliver.

Cambodia also has an emerging mineral sector. The Royal Government of Cambodia promulgated the Law on Mineral Management and Mining in Cambodia in 2001, in order to attract investment, both foreign and domestic, in the mining sector.

Overall mineral production has increased, whilst at the same time the number of grants of mineral exploration licences to both foreign and local companies has continued to increase. This has included the grant of a licence to BHP Billiton/Mitsubishi to explore for bauxite in the North-Eastern part of the country, with the potential for an alumina refinery to follow. Their licence requires them to explore for bauxite in Mondulkiri Province in an area of 1000 square kilometers. This could lead to eventual investment of billions of US dollars.

There are other significant mineral projects such as cement factory projects in Kampot Province and exploration for iron ore in Preah Vihear Province.  

Other areas of investment include gold, granite and gemstones. Fine Cambodian granite from Kratie province has a very distinctive texture and grain, and whilst Cambodia has always been renowned for its rich rubies from the western part of the country, it is also fast gaining a reputation for its brilliant blue zircons from Ratanakiri province.

Excellencies, Ladies and Gentlemen

Now is indeed the time of Cambodia's resource break-through and the Royal Government of Cambodia is committed to ensuring that the benefits of that resource break-through are distributed throughout all levels of society. I have already mentioned some of the immediate benefits of oil production and distribution - less reliance on outsiders, reduced business costs, greater access .

There are also other advantages, being the creation of export markets including the pride in labelling a product as being 'Made in Cambodia'; the increased revenue that flows from the increased profits of the companies operating in the oil, gas and mineral sector; and the social and economic development objectives of the Royal Government that will flow from such revenues - a diminishing reliance upon donor aid and upon burdensome loans; more money for education, health, infrastructure and social programs; and the increased employment opportunities for young Cambodians, both skilled and unskilled.

The Royal Government of Cambodia is committed to the complementary strategy for the oil, gas and mineral sector of a sound regulatory and policy environment and a market and investor friendly approach.

Finally, I would like to express our congratulations to our co-hosts, the lead sponsors and sponsors of this conference and to their hard-working officials and staff who have contributed to making this significant conference a success.

On behalf of the Royal Government of Cambodia and on my own behalf, I would like to express once again my sincere thanks and warm regards and best wishes for the distinguished guests, Excellencies, Ladies and Gentlemen, to enjoy good health, fruitfulness and productive successes in their current businesses and in particular in their current and future investments in the Kingdom of Cambodia.