Peter Costello’s first major private sector venture is a $US600m investment fund aiming to bring agricultural technology to Cambodia, one of the world’s most corrupt countries.

Last year, Costello retired from federal politics and became managing director and partner at corporate advisory outfit BKK Partners, founded and run by ex-Goldman Sachs and NAB execs and chaired by Alistair Walton, a long-time Costello mate from his days in student politics.

But Costello’s massive private equity foray will struggle to avoid the corrupt taxes and charges attached to nearly all commercial deals in the mostly-peasant nation, according to sources familiar with the region.

Last Thursday, in a development ignored by the Australian media still in holiday mode, the Phnom Penh Post reported that Costello was advising Indochina Gateway Capital in developing an investment fund focusing on “rice bananas and sugar” by taking advantage of government “land concessions”.

In a video interview with the paper, Costello said he would “bringing in major multinational agro-technology firms and investors in a bid to add value to the Kingdom’s farming sector”, as well as teak and palm oil:

The massive investment will be greater than the total foreign investment Cambodia attracted in 2009, and will far exceed any previous investment in agriculture in one of the world’s poorest nations. Cambodian Government approval will be required both for the investment fund and its projects, which, according to BKK chairman Alistair Walton (who is also chair of Indochina Gateway Capital) will be over 100,000 hectares in size.

But the issue of graft or “special taxes” in Cambodia remain a factor, with the nation coming in at a lowly 158 in Transparency International’s anti corruption rankings last year, alongside other luminaries like the Central African Republic and Yemen.

BKK’s as yet negotiated land deals will no-doubt draw the most scrutiny. The firm is currently seeking investors to take advantage of  land “concessions” on 70 and 99 year leases.

One Cambodian insider told Crikey: “Land grabbing and dodgy forced evictions have been a massive issue in agricultural and city areas for a few years. Usually the company does a deal with the government so the government ends up kicking the residents off the land.”

The recent cases of Group 78, located next to the Australian Embassy in Phnom Penh and the nearby Dey Kraham, show just how punitive the authorities can be when locals get in the way of progress.

According to the Global Witness report “Country for Sale“, Cambodia is run by a “…kleptocratic elite that generates much of its wealth via the seizure of public assets, particularly natural resources.” The report prompted this Photoshopped response from Cambodia’s Ambassador to the UK, who is also the foreign minister’s son.

The clique that controls Cambodia was also detailed by this article that appeared in the Fairfax press towards the end of last year. The article looked at a state-within-a-state dominated by guns, cash and Cadillac Escalades. BKK’s Phnom Penh headquarters is located in a ritzy part of the capital full of international businesses and foreign NGOs, whose offices are tucked behind barbed wire. The area is frequented by wealthy expats and Cambodian business people.

Asked whether BKK has formulated an approach for dealing with corruption, Managing Director John Anderson told Crikey that his official policy was “no corruption”.

“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 cited record commodity prices and Cambodia’s swathes of unoccupied land wiped out by the Khmer Rouge as a major incentive behind the project.

“Commodity prices spiked in 2008 and in many developing countries there’s limited land available, limited water. In Cambodia there’s an abundance of land and water because the Khmer Rouge wiped out 40% of the people. Thailand and Vietnam are the largest agricultural hubs in South East Asia, while Cambodia exports next to nothing…,” said Anderson.

Anderson said that the main reason to pursue the project was the “profit motive through the private equity fund” and also cited a “social development angle”, that would “transport western technology and skills” into the country’s fields. Five per cent of the investment would go towards a charitable foundation, Anderson said.

BKK would set up a corporate governance committee that would assess displacement issues before the funds were raised.

“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. The agricultural sector should be the main contributor to GDP. If you raise the standards and raise the yields the benefit for the Cambodian people will be huge.”

It is Costello’s post-political role, rather than his status as former Australian Treasurer, that makes him a key figure for BKK and Indochina Gateway Capital.  Costello has been a member of the World Bank’s 4-person anti-corruption Independent Advisory Board since 2008.  Corruption in Cambodia has been a particular problem for the World Bank, which has been repeatedly criticised, including by the Wall Street Journal for turning a blind eye to corruption in the country.  In 2006, the World Bank suspended Cambodia’s right to draw Bank project funds and cancelled several projects until the Cambodian Government repaid funds and put in place a series of anti-corruption measures.  But there continue to be claims that foreign access to Cambodia’s natural resources depends on bribing key officials.

On Friday, Costello spoke off the cuff at a breakfast at the Intercontinental Hotel in downtown Phnom Penh with a Crikey source reporting that he cheerfully signed a large photograph from the former Australian Embassy featuring a very young looking Paul Keating sitting at a table with Cambodia’s King Sihanouk.

Costello reportedly drew an arrow next to Keating’s head and wrote “Not the world’s greatest treasurer!”