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Sao Tome and Principe at Oil Bonanza Crossroads

Megan Iacobini de Fazio

NEW YORK, Aug 24 2010 (IPS) - With an estimated 10 billion barrels of oil in the Gulf of Guinea, the small archipelago of Sao Tome and Principe faces the possibility of benefiting from considerable oil revenues. However, a report released by Human Rights Watch (HRW) on Tuesday documents the difficulties in managing the revenues from the hydrocarbon business in an effective and transparent way.

Sao Tome and Principe, a former Portuguese colony, is one of the most neglected countries and, with a population of only 175,000, is among the smallest in the world. It relies mainly on cocoa production, fishing and agriculture.

Because of its small population, the oil deposits, estimated at 10 billion barrels, have the potential of transforming the country’s economy and lifting thousands out of severe poverty.

The 23-page report, “An uncertain Future: Oil Contracts and Stalled Reform in Sao Tome and Principe”, details how Sao Tome’s former government was unable to cope with the pressures and temptations that accompany oil wealth, even though no oil had been extracted at the time.

Iain Levine of Human Rights Watch told IPS that “the new government is at a crossroads: it can continue as the old one did, or it can improve its accountability and transparency in the management of drilling concessions.”

Sao Tome entered into oil exploration agreements in 1997 and 2001 and formed the Nigeria-Sao Tome Joint Development Zone (JDZ), an agreement under which both countries would jointly develop oil resources in the disputed offshore area.

The government and the international community subsequently took some important steps towards ensuring the transparent management of potential oil revenues.

Sao Tome joined the Extractive Industry Transparency Initiative (EITI) as a candidate country in 2008. Yet there was no real attempt to comply with the requirements of EITI membership, which include full publication of company payments and government revenues from oil and gas companies, so Sao Tome was de-listed from the initiative in April 2010.

The fear expressed in the report is that the mismanagement of resources will lead to a downward spiral of corruption which would further cripple the country’s already frail economy, as has happened in neighbouring countries like Nigeria, Gabon and Equatorial Guinea.

“Human Rights Watch believes that it is only with transparency that we will see future profits from these resources go to improve the life of the population” Levine told IPS.

Half of Sao Tome’s population lives beneath the poverty line, with 15 percent living in extreme poverty.

The claims that Sao Tome may still be unable to deal with potential oil revenues are worrisome, especially now the new government is expected to announce the winners of an important round of bidding for the right to drill in its offshore Exclusive Economic Zone (EEZ).

The licensing round for oil blocks in the 160,000 sq-km zone, which lies south of the JDZ, will start with the auction of an initial seven blocks, of sizes ranging from 2,800 sq-km to 18,200 sq-km.

Interested companies include Chevron, ConocoPhillips, Petrobas and Tullow Oil. They each have until Sep. 15 to study seismic data and submit their bids.

From an early date, Sao Tome officials approved exploration deals that proved controversial because of highly unfavourable terms for the archipelago country.

Licensing rounds in the past have been riddled with allegations of corruption and insider trading, which resulted in the inclusion in the auctions of small companies with little expertise or capacity to develop the blocks.

These problems were due not only to procedural failings and political manipulation by Nigeria, which co-owned some of the blocks, but also to the personal interests some Sao Tome officials involved in the process, according to reports.

A 2005 investigation by the San Tomean National Assembly found that some of these officials held stock in bidding companies which may have not been qualified to undertake the projects but which still won licenses.

The HRW report “seeks to provide concrete recommendations to the new government on how to manage the new licensing rounds with transparency and accountability,” Levine said.

Human Rights Watch also urged Sao Tome’s government and the next Nigerian government, after the 2011 Nigerian elections, to review their arrangements for the JDZ.

If the West African country does not improve its track record on transparency and corruption it risks falling into the “resource curse” which has afflicted so many African countries.

Neighbouring Equatorial Guinea, for example, is one of the fastest growing oil suppliers of the last decade and produces almost 500,000 barrels of oil a day.

Despite the abundance of natural resources on its territory, the lack of transparency and openness has let corruption flourish, so that only a tiny percentage of the population has benefited from the oil business. The rest of the population lives well beneath the poverty line and the country has some of the worst records on human rights, education and health.

However, Levine told IPS that “If Sao Tome and Principe follows the recommendations in the report it has a true chance of using future profits to reduce poverty and child mortality rates, as well improving healthcare and education.”

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