Chevron, Kem Ley’s Murder, and Cambodian Politics

Kem Ley was gunned down in the parking lot of a Caltex station. That location was not randomly selected.

Chevron, Kem Ley’s Murder, and Cambodian Politics
Credit: Flickr/ andy carter

On June 14, 1996, the Phnom Penh Post heralded Caltex as “sign of political change.”

“With fitting American grandeur, the U.S.-owned petroleum giant Caltex opened its first petrol station in Cambodia on 4 June since leaving the country before the collapse of the Lon Nol regime over two decades ago,” the article began. “As Buddhist monks blessed the pumps at the new filling station… U.S.Ambassador Kenneth Quinn ceremoniously had his car serviced at the station. Quinn promised this was merely the beginning of what will become a major U.S. presence in the petroleum industry of Cambodia.”

“This is more than an impressive station where you can buy petroleum products,” Quinn said, as quoted in the article. “This is a sign of the political change in Cambodia.”

Two decades later, Caltex would again be directly linked to politics. Prominent political analyst, Kem Ley, was assassinated in the parking lot of a Caltex gas station in Phenom Penh in July 2016, bringing renewed attention to long-standing friction between Chevron and the Cambodian government.

The history of what was to become the Chevron Corporation in Cambodia dates back to 1924, when the Texas Company (later Texaco) began marketing lubricants in the country. When, in 1936, Texaco embarked on a joint venture with Standard Oil of California (later the Chevron Corp.), the California Texas Oil Company, or Caltex, was born. It remains one of Chevron’s major brand names worldwide, and Caltex Cambodia Limited was incorporated in 1995, even before Texaco was fully merged under the name Chevron in 2001.

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In August 2002, Chevron, as Chevron Overseas Petroleum, was awarded a 55 percent controlling stake in the Cambodian government’s first contract-sharing agreements covering “Block A” — a 4,709 square-kilometer area in the Gulf of Thailand, about 120 kilometers offshore, considered to be the most promising source of reserves outside of the disputed Thai-Cambodian Overlapping Claims Area (OCA). Other shareholders in the concession were Moeco Cambodia Co, a subsidiary of the Mitsui Oil Exploration Company, holding 30 percent, with the remaining 15 percent held by GS Caltex, the second-largest Korean refiner, owned equally by GS Holdings Corp. and Chevron Corp.

In 2004, Chevron announced the discovery of oil and gas reserves in Cambodia’s Block A waters – the Apsara Field – estimated at around 400 million barrels. At that time, Chevron and the Cambodian government (RGC) envisioned production beginning as early as 2009. But by 2008, production was pushed back to 2011, with immediate revenues then anticipated at $174 million and as much as $1.7 billion after 10 years.

Meanwhile, questions were raised as to conflicts of interest between Chevron’s conduct as the primary investor in the Block A concession and its role as a leading member of the Extractive Industries Transparency Initiative (EITI). EITI, a coalition of governments, companies, and civil society, supports improved governance in resource-rich countries through the verification and full publication of company payments and government revenues from oil, gas, and mining.

Chevron had signed a Production Sharing Agreement (PSC) with the Cambodian National Petroleum Authority (CNPA), which stipulated that it could not publicly disclose any information regarding its concession. A 2009 Global Witness report also claimed that Chevron, along with all other companies investing in Cambodia’s petroleum sector, had made a payment to CNPA to secure its concession – a “signature bonus” – in addition to paying ‘significant’ sums to the Cambodian government in the form of tax.

In April 2010, Hun Sen warned that Chevron could lose rights to explore offshore interests if it did not produce oil by the end of 2012. At the same time, a Chevron spokesperson said that the company was evaluating the “commerciality” of its Cambodian prospects.

Yet two months before Hun Sen’s ultimatum, in February of 2010, Chevron had already sold 25 percent of its stake in the block, nearly half of its initial 55 percent, to Singaporean-based company KrisEnergy – not the action of a confident shareholder – or at least not a voluntary one. Four months later, in August, 2010, Chevron ascertained that the level of oil reserves were indeed sufficient to make the project “economically viable.”

Chevron had by this time drilled 18 exploratory wells, at a cost of over $100 million.

As the RGC eyed oil production slated for December 2012, it announced that Chevron would establish a permanent office in Cambodia on May 1, 2011, with a 30-year production permit pending approval by the government, but with a decision expected before mid-year – in other words, conditional on Chevron’s move. Chevron’s establishment was also accompanied by a change in its country manager.

Yet by October 2012, a government statement indicated it was still “expecting” to issue Chevron a production permit licence for Block A – now by the end of that year. The same statement was less ambiguous in its assertion that the RGC would receive a majority of the revenue share – between 70 and 80 percent. The deal had not yet been concluded, and government and Chevron were “working on” it.

Thus the 2012 target for production would likewise pass, without results, with Chevron’s investment by this time having reached $160 million.

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The year 2013 saw both Hun Sen’s re-election and further delays between Chevron and the RGC, with production now expected to begin in 2016.

When the CNPA was asked about the slow progress of extraction from Block A, this was attributed to delays in Chevron’s financial investment decision, “resulting from the internal rate of return.” It was becoming increasingly clear that Chevron was being squeezed. The company’s characteristic position, throughout its 12-year history in Cambodia, was to decline to elaborate on negotiations with the government.

Caltex: A Convenient Target

In May 2014, Caltex employees at all 18 locations in Phnom Penh and workers at some provincial branches, about 300 employees in total, began striking. The strike came just a few weeks after Caltex had increased monthly wages by $10-15, which employees argued was not enough.

A still more curious circumstance was that the Caltex employees appended their strike to ongoing protests by garment factory unions, who were seeking a doubling of the national minimum wage, to $160 per month – the same amount sought by Caltex employees, though their own salaries were at that time only $20 off that figure. Moreover, during a rally by those garment workers in Phnom Penh four months earlier, security forces killed least four people and wounded dozens more; 23 labor activists were on trial when Caltex employees linked their protests to the garment workers’, without objection from the RGC.

On learning its Caltex employees’ intention, Chevron Cambodia had sent a letter to the National Police calling on the authorities to intervene, to which a spokesperson responded, “We do not just act however we wish or on request. Protesting for a higher salary is the right of the staff.”

The Caltex strike would include protesters taking their grievance to the U.S. Embassy. Based on average daily revenues from the stations and stores, the 10-day strike would have cost the company around $2 million.

The strike not only served its primary purpose, as a threat to Chevron, but was orchestrated in Hun Sen’s characteristic “added value” approach. Caltex strikers, by associating themselves with the garment workers, helped draw attention away from Hun Sen’s own responsibilities and shift the blame – in this case, to a big, foreign multinational.

Less than three months later, headlines read “Chevron Exits Cambodia.” The company had sold its remaining 30 percent of shares and controlling stake in Block A to KrisEnergy, for a reported $65 million – at least $100 million less than they had invested in exploration alone. Chevron Overseas Petroleum would be renamed KrisEnergy (Apsara).

KrisEnergy would further increase its stake in the Block A offshore oil field to 95 percent, acquiring in November 2016 the shares of the two minority stakeholders – Moeco and GS Caltex – who had opposed the Cambodian government’s attempts to renegotiate a revenue-sharing model.

Caltex, however, was left behind. Of its 25 service stations, 23 were company-owned, and only two franchises retail-owned. Caltex also operates 17 Star Mart convenience stores, eight Coffee Plus gourmet cafés, and six Lube Bay outlets. Given what we know from the Global Witness report “Hostile Takeover,” illustrating the prime minister’s stranglehold on the country’s economy, that network of foreign-owned assets is not likely to sit well with the Hun clan.

Against this backdrop, on July 10, 2016 beloved activist Kem Ley was gunned down as he drank his morning coffee at a Caltex Star Mart.

Ley’s murder in broad daylight in public was very much a deliberate choice, as would be its setting. Ley went there regularly, but he also frequented many other places, any one of which would have been differently “symbolic,” and not likely to incur its own aftermath.

Sam Rainsy on the Case

In December of last year, Chevron was initially ordered to hand over the Caltex station’s video recordings from the day Ley was killed.

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Ironically, it is Sam Rainsy, at the time leader of Cambodia’s main opposition Cambodian National Rescue Party (CNRP), and Hun Sen’s long-time archenemy, who filed the request. Sam Rainsy is in exile and facing charges of defamation – in neither case for the first time.

Yet in the case of Chevron, Rainsy’s actions may actually be playing into Hun Sen’s plans.

Chevron’s initial response, that it no longer had the tape, can be reconciled with the RGC’s claim to have a copy, and its recent presentation of a much-edited version at the show-trial of the man who pulled the trigger. But the finalized version of the subpoena demands that Chevron release two weeks’ worth of video recordings, “among other documents.”

While Chevron has an incentive to withhold information, which would likely reveal unsavory details of its dealings with the Cambodian government, it is less than obvious whether the company would be at greater risk from failing to comply with the demands of the court, or those of the RGC. Even if such demands, concerning Caltex Cambodia or otherwise, have yet to be made. Hun Sen is nothing if not a man who plans ahead for every eventuality.

Chevron’s initial deadline for compliance of March 13 was extended to the end of March “due to ongoing negotiations” between Chevron and lawyers for Sam Rainsy, whose own fate is inextricably linked the release of any evidence which might vindicate him in his own trial in absentia.

This saga will undoubtedly unfold in ways familiar to analysts of Cambodia’s political economy, yet promising some unexpected twists.  Just as in 1996, a Caltex station remains a symbol of the business opportunities available to every American investor in Cambodia – and the risks involved as well.

G.C. Daigle is a development professional currently working in Natural Resources Management in Cambodia.