[A-List] São Tomé & Principe: the curse of oil

["Michael Keaney" <michael.keaney@xxxxxx>]

Does anyone know whose team at Columbia University helpfully drafted the
revenue management rules? Is this a Sachs/Soros play?

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Oil curse stalks Africa's new petro-state
By Michael Peel
Financial Times: January 27 2005

In the dilapidated Portuguese cocoa plantation houses at Agua Ize, São Tomé
and Principe, residents gather under a rotting roof to avoid the rain. Above
their heads, offering a tantalising glimpse of a world beyond the
surrounding dank disrepair, an old election campaign poster hints at the
country's anticipated oil boom. "It is now!" says the propaganda of the
opposition Party of Democratic Convergence, pledging "better sharing of
resources".

Domingas da Costa Frota Pereira, an unemployed mother of three children,
looks up and laughs: "They would put the money in their own pockets," she
says.
Such pessimism contrasts with the international excitement surrounding a
country widely styled as Africa's newest petro-state. São Tomé, a sleepy
west coast archipelago with a population of 150,000 people, is seen by many
outside as the nation as having perhaps the best chance to avoid the
"paradox of plenty" that has made oil-rich African countries among the
world's poorest and worst-governed.

The auction for the first exploration licence in a deep water zone being
developed jointly with Nigeria is expected soon to yield São Tomé about
$50m, or almost four times last year's total estimated government tax
revenues. Estimates of the amount of oil in the zone run to more than 10bn
barrels, although no reserves have yet been proved.

Examples abound of how other developing countries have mismanaged oil
revenues, sometimes with disastrous results. To the east, Gabon's President
Omar Bongo marked his 37th anniversary in power last month. To the north,
Nigeria has a history of coups and corruption, while Equatorial Guinea is
brutally repressive.
São Tomé's strategic position in this problematic region is one reason why
it is attracting attention. Surrounding countries account for 15 per cent of
US crude imports and their share is predicted to rise towards a quarter by
2020. US civilian and military officials have visited São Tomé increasingly
frequently. Washington is also funding a feasibility study for a deepwater
harbour for oil industry activity and trade.

Some anti-corruption activists are enthusiastic about São Tomé because of
hopes that the social circumstances are right to escape the so-called curse
of oil. The country is small and seems largely free of the sense of ethnic
and religious differentiation that dictators elsewhere have exploited to
divide and rule: the Portuguese filled São Tomé with plantation slaves,
creating a traumatic but perhaps unifying shared history. "We are all
cousins here," says one local man.

The government has begun developing rules and institutions for the oil
sector that are either not present or are ignored in other resource-rich
states. A revenue management law co-drafted by a team from New York's
Columbia University was signed into law last month. It sets up an oversight
committee and requires the government to give priority to poverty reduction
and spending on social areas such as health, education and infrastructure,
although a proposal to earmark 80 per cent of revenues for these purposes
was dropped.

Anti-corruption campaigners say the international pressure on governance
must be applied equally to oil companies, which are heavily criticised for
contributing to pollution, corruption and communal tensions in countries
such as Nigeria

Economic activity is starting modestly to increase in São Tomé, the capital,
where goats wander the streets and nibble at hedges. The number of banks is
quadrupling from one to four.

But concerns remain about a possible slide towards the kind of oil-related
corruption that has undermined politics and economic wellbeing in Nigeria
since the 1970s.

In 2002, a company controlled by Sir Emeka Offor, the Nigerian businessman
who chairs Environmental Remediation Holding Corporation, a company holding
valuable preferential bidding rights for oil exploration blocs, paid
$100,000 to a business owned by São Tomé's President Fradique de Menezes.

Mr de Menezes has said the money was for political campaigning rather than a
bribe.

In one of the capital's night clubs, an aspiring parliamentarian explains
how being in government is "the only way to survive": it allows access to
lucrative contracts that are scarce in the country's tiny private sector.
Opposite him, a sitting MP cheerfully describes how he runs a successful
customs clearing business. "We are the ones with the money," he says.

Mr de Menezes's government was deposed for a few weeks in 2003 in a
bloodless coup whose leaders protested about management of the country's
wealth.

At the Agua Ize houses, residents say they hear nothing from the government
and add that the few recent building improvements have come from a
French-funded renovation project. Portugal has given money to a community
kitchen a poster on the wall refers to the "500 years of mercy" shown by the
one-time slavers, who clung on to their colony until 1975 without developing
its economy in any meaningful way.

For now, Agua Ize residents still need much convincing that the latest wave
of foreign involvement will bring fairer results than the last. "It's good
for oil to come," Ms Pereira says. "But we are not going to benefit."