Oil's Curse

Avoiding the oil curse: Can Sao Tome legislation protect oil revenues?

October 24, 2005

By TODD PITMAN

SAO TOME, Sao Tome and Principe (AP) _ Take profits from billions of barrels of offshore oil, divide them among a population of just 150,000, and this dirt-poor archipelago of flimsy wooden shacks could be transformed into one of the world's affluent petro-states.

Factor in the potential for war, conflict or corruption _ painful realities in many oil-rich African nations _ and the dream of development can quickly become a nightmare.

Lawmakers in Sao Tome and Principe, a peaceful twin-island paradise in West Africa whose economy now depends on cocoa exports, are trying to avoid the pitfalls with legislation aimed at ensuring oil money is wisely and transparently spent. In Africa, only the desert nation of Chad, which opened a pipeline two years ago that runs to the Atlantic Coast via Cameroon, has passed similar laws.

"We know that in the oil business, there is always corruption and conflict," said lawmaker Carlos Neves, who heads a parliamentary committee on oil. "When oil comes here, so will its problems. Our goal is to minimize them as best we can."

Sao Tome and Principe has yet to pump a single barrel. Perched off the western coast of a turbulent African mainland, Sao Tome and Principe's farm-based economy has a per capita income of US$378, according to the World Bank, putting it in the neighborhood of a Ghana or a Mongolia, and well below Britain's US$30,253 or the United States' US$37,648.

The twin-island nation shares a Joint Development Zone with Nigeria that's believed to contain up to 11 billion barrels of oil.

Multinational companies have begun snapping up exploration rights to offshore blocs. Government officials _ keen to ease an eager population's high expectations _ caution the crude reserves haven't been proved.

If oil is found, production could start as early as 2008. In the meantime, the prospect of fabulous wealth has become a subject of intense debate and speculation.

Politics have always been fractious in Sao Tome, even before oil was added to the agenda in the late 1990s. The country suffered a coup attempt in 1995. But many people feel things are getting worse.

Since taking office in 2001, President Fradique de Menezes has survived a brief coup by renegade soldiers, dismissed four governments and dissolved Parliament once.

Opposition parties accuse him of negotiating murky deals with Nigerian companies. In June, Prime Minister Damiao Vaz de Almeida quit over objections to international oil agreements negotiated by Menezes. A month before that, the oil minister resigned because of differences with the president on awarding offshore blocks.

"Every country that has oil has problems. Oil is going to be a problem for Sao Tome," said Elves Reis, who teaches English at the country's only high school, summing up a general feeling here.

In December 2004, Menezes signed the Oil Revenue Law, passed by parliament after being drafted with help from legal experts at New York's Columbia University.

The legislation established a National Oil Account, into which all oil revenues are to be deposited directly and managed by committee. A second account was set up to save some of the money for future generations.

The law decreed public access to all documents related to oil activity, and called for the creation of a regulatory commission to monitor spending.

"There's no guarantee the money won't be mismanaged, these laws just make it more difficult," said Rafael Branco, director of Sao Tome's National Petroleum Agency. "Oil can be a blessing or a curse. The idea here is to avoid the curse."

Disputes over oil wealth in nearby Nigeria, which produces 2.5 million barrels a day, have fueled problems and violence in the world's eighth largest exporter of crude for years.

Angola, which produces 900,000 barrels a day, hasn't faired much better. Top officials have been accused of siphoning oil funds and the country has only recently begun to emerge from decades of civil war, also fueled by diamonds.

In newly oil-rich Equatorial Guinea, living standards have gone up under President Teodoro Obiang, but his dictatorship is one of the most repressive on earth, according to the U.S. State Department.

Chad, like Sao Tome, has tried to legislate away oil's curse. The U.S. aid group Catholic Relief Services and World Bank watchdog Bank Information Center pointed out in a report that, among other crucial deficiencies, Chad's laws don't cover all oil fields in the country. They say other revenues like corporate taxes and customs duties _ which could account for almost half of oil income _ are not covered by the laws.

"On paper, Sao Tome's oil law is the best in Africa. It gives checks and balances in terms of revenue allocation. That's quite progressive," said Mohamed Yahya of International Alert, a peace advocacy group working in Sao Tome. "The issue is implementing it."

Neves, the lawmaker, said key bylaws still under debate could make all the difference. The initial law calls for an oversight commission, but it doesn't say who or how its members will be appointed. It's also vague on the president's powers.

In February, ChevronTexaco and Exxon Mobil Corp. bought the rights to drill for oil in the first of half a dozen blocks on offer. The deal was worth US$123 million (euro94 million).

Neves said Sao Tome's share of US$49 million was deposited into the national oil account in July.

The legislation calls for the money to be used to eliminate poverty and improve quality of life.

Most people in Sao Tome are skeptical.

"A lot of people are going to get rich," said Reis, the teacher. "But not us."

Copyright 2005 By The Associated Press. All Rights Reserved.