Eyes wide shut: Costello in Cambodia

1 February 2010

Daniel King

Peter Costello (pictured top) is making a gilded transition from politics to the commercial world.

On top of his post as advisor for the Rudd government's $60 billion Future Fund, last November Costello became a director of BKK Partners, a new Australian firm that provides investment banking and corporate advisory services. A subsidiary company, BKK Asia, based in Phnom Penh, Cambodia, is currently advising Indochina Gateway Capital how to develop and manage a $600 million agri-business fund in Cambodia to grow rice, sugarcane, bananas, palm oil and teak. Alistair Walton, a University friend of Costello's is the Chairman both BKK Partners and ICG. This would be the biggest ever private investment in Cambodian agriculture and an important test of governance there and corporate social responsibility in Australia.

On a recent visit to Cambodia, Costello told the Phnom Penh Post that he had met with high-ranking government trade and investment officials who had shown strong interest in the agri-business project. Costello said that Cambodia's advantageous conditions for agriculture and Australia's agri-technology were a natural fit.

The Post asked Costello about the rampant corruption in Cambodia. He responded: "If you were to talk to international investors about investing in Cambodia, one of the issues they would always raise would be the risk of being tainted with corruption. And this is a setback for attracting investment. And so it is very, very important I think that the investors make it clear they don't want to be tainted in any way."

However, in Cambodia corruption is fundamental to the functioning of the party-state and operates on many levels. First, government officials ask corporate proponents for informal administrative or licensing fees that never make it into the public accounts. Global Witness has documented how this operates in forestry and extractive industry.

Second, the concession land granted by the government to the company is often occupied by farmers already. Despite the destruction of the land titling system by the Khmer Rouge, new Cambodian law is well developed, promising possession to those who have occupied land for more than five years before 2001, a system similar to adverse possession in British common law.

In practice, however, the national government ignores unwelcome applications for land title, sells land to the highest bidder whether occupied or not and uses local level authorities to divide and rule affected communities who get a pittance for their land, if anything at all. The farmers who lose their land often become plantation workers on the resulting concession, but usually aren't paid what they were promised. The young women in communities that have lost their land are more vulnerable to being sold by indebted families into prostitution.

The Cambodian courts are not independent of the government and routinely sanction corrupt transactions as legal. If community leaders protest too much about land clearing they are fined or put in prison. One judge told me his body "would be burned" if he upheld the law against a high-level official stealing land from an indigenous community. The UN Office of the High Commissioner for Human Rights and Amnesty International have extensively documented both urban and rural land grabbing, and, the World Bank has even admitted there are no independent conflict resolution mechanisms for land disputes, despite much international financial and technical assistance to the government for this purpose over many years.

So how does the international investor avoid the taint of corruption? Managing Director John Anderson of BKK told Crikey last week: "In any developing country in the world with corruption issues you go in with your eyes wide open. We've told the government that if bribes were part of the deal we can't abide by it."

Anderson and Costello may have both already partly shut their eyes by stating that one driver for the project is swathes of unoccupied land depopulated under the Khmer Rouge. (The size of the concession will apparently be 100,000 hectares). However, the Cambodian law on agricultural concessions is clear that only 10,000 hectares of land can be given to a company. Also, the Cambodian government has already illegally sold almost 50 per cent of the country's area to private interests in the last 10 years or so. Much of the unoccupied and remaining land is forest that is also meant to be protected by Cambodian law.

BKK will set up a corporate governance committee to assess displacement issues before the $600 m fund is raised. Anderson also told Crikey: "Village displacement issues are important to us but we've got to focus on the development benefits for the Cambodian people in raising up the agricultural sector to where it should be."

But aren't there important development benefits for ensuring Cambodian laws are followed and farmers are compensated for the loss of their lands? In Cambodia it is important that any such governance committee includes representatives from the affected community and a human rights NGO to monitor whether a fair assessment is taking place. Companies tend to rely exclusively on corrupt local authorities who have no interest in what is fair to generate statistics and negotiate with the local community.

Indochina Gateway will set up a foundation that takes 5 per cent of cash flows from the BKK venture to spend on rural social projects including education. This is potentially an admirable part of the project. However, if it is not coupled with rigorous attention to the issue of displacement, it will be like saying, "I'm going to bulldoze your house, farm and forest, but I will build you a school."

The contours of Cambodia are literally and figuratively a mine field. Peter Costello runs a considerable risk of being blown up.