SAO TOME AND PRINCIPE: Waiting for the oil boom
This report does not necessarily reflect the views of the Pan-
African News Wire
SAO TOME, 13 December (IRIN) - Beatriz Azevedo points to a
woman carrying a plastic bowl of fish on her head as she
wades chest deep through a river where it flows into the sea.
This river separates the coastal village of Sao Joao dos
Angolares from a nearby beach where fishermen beach their
"Two men were drowned in recent months while trying to carry
their outboard motors across this river, says Azevedo, the
head of the local women's association.
"When the oil money comes in we are going to build a bridge
Everyone in Sao Tome and Principe is convinced that this
small island state tucked away in the Gulf of Guinea is on
the verge of an oil boom.
The US oil major Chevron has announced that it will start
drilling its first offshore exploration well in block one of
a Joint Development Zone (JDZ) shared with Nigeria during
the first half of January.
The seismic data already gathered there is very encouraging
and Total, the French oil company, has discovered a major oil
and gas field just 15 km to the north inside Nigerian
Total's Akpo field will produce 225,000 barrels per day of
oil equivalent when it comes on stream in 2008.
There are high hopes that Chevron will find a gusher of
equally impressive proportions nearby.
Billions of dollars in the pipeline
Afonso Varela, the Legal Director of Sao Tome and Principe's
National Petroleum Agency (ANP), can scarcely contain his
"If we are lucky enough to find an oilfield with 1.5 billion
barrels of recoverable reserves (similar in size to Akpo),
even after sharing its revenue with Nigeria, we stand to
receive about US $9 billion over a period of 25 to 30 years,"
That is a mind-boggling sum for this twin-island state of
Sao Tome presently scrapes by on $5 million a year from cocoa
exports and around $25 million a year of foreign aid.
Most of the inhabitants of this former Portuguese colony are
fishermen, who brave the Atlantic waters in dugout canoes,
and subsistence farmers, who slash out plots in the jungle to
grow plantains, cassava and a few vegetables.
But young people are drifting away from the villages to Sao
Tome city where youth unemployment is estimated to be around
50 percent and expectations that oil will provide an instant
solution to poverty are running high.
Dozens of new four-wheel drive cars in the sleepy capital and
a crop of luxury houses mushrooming in the posh new suburb of
Campo de Milho, have convinced ordinary people that money
from oil-related activities is already flowing into the
pockets of the ruling elite.
Corruption could soak up the money
"I don't see how buying flash new cars can do much for the
good of the people," said Olavo Vingar, who exchanges wads of
grubby Sao Tome dobras for dollars and euros in Sao Tome's
Carrying a calculator in one hand and a bag of local currency
in the other, Vingar says he would prefer to get a proper
But with the minimum wage set at $40 a month, this 34-year-
old man can't find anything else to do that would allow him
to feed his seven children.
Lucretio Goncalves, who wanders the streets with his camera,
offering to take photos of people for a dollar a picture, is
equally sceptical that the politicians will spend Sao Tome's
oil revenues on improving the lives of ordinary people.
"Some oil money is already coming in, but it is just
benefiting half a dozen people who run the country. It
doesn't reach ordinary people, just those who govern us,"
"I am absolutely certain that in this country, the oil money
is not going to be well used," said Goncalves, who walks the
streets with his camera because he is unable to find work as
a stone mason.
With the World Bank's encouragement, parliament last year
voted through a new law drafted by US lawyers that is
supposed to ring-fence Sao Tome's oil revenues and prevent
greedy politicians from diverting the money into their own
This oil revenue law is designed to ensure that all the money
is spent on priority development projects such as improving
the country's roads, schools and hospitals and its erratic
electricity and water supply, while making sure some of it is
set aside for the future in a Permanent Fund.
But legal experts say the new law will only work if the
government and the courts are willing to enforce it. And some
respected voices are already predicting that many of its
provisions will be quietly ignored.
"Sao Tome is a state that simply doesn't function," said
Pascoal Daio, an independent lawyer who is one of the
pessimists. "This law is very pretty, but it is not being
Daio pointed out that Patrice Trovoada, the son of former
President Miguel Trovoada who has frequently served as a
cabinet minister and government adviser, has accumulated huge
personal wealth without having to explain the source of his
And he noted that several top government officials owned
shares in ERHC, a company controlled by Nigerian millionaire
Sir Emeka Offor, which has been granted generous pre-emption
rights in several offshore blocks in the JDZ.
"I don't understand how any government could give away such
privileged rights to a company," Daio said.
As the public debate smoulders on about oil-fuelled
corruption, some legitimate oil money is already entering
government coffers in the form of "signature bonuses."
These front-end payments are trickling in as Sao Tome signs a
series of production sharing agreements with companies keen
to drill for oil in deep-sea waters that Sao Tome agreed in
2001 to share with Nigeria.
Earlier this year, Sao Tome received US $49.2 million as its
share of the $123 million signature bonus paid by Chevron and
its partners for the right to explore block one of the JDZ.
Nigeria receives 60 percent of all oil-related revenues from
the formerly disputed JDZ, while Sao Tome receives 40
In the coming weeks, the two governments expect to sign
production-sharing agreements with other oil companies
covering a further four blocks in this broad swathe of ocean
200 km south of the Niger delta.
These contracts should trigger the payment of a further $55
million of signature bonus payments to Sao Tome in 2006.
However, government officials warn that even if oil is
discovered in commercial quantities, there will be a 10-year
gap before Sao Tome starts to receive large-scale oil
Rafael Branco, the Economic Director of the National
Petroleum Agency, reckons production will only start in 2012 -
although Chevron says that the fast track development of
block one could produce first oil as early as 2010.
Branco also warns that even when the oil does start flowing,
Sao Tome will have to wait a further three to five years
before it starts to receive large-scale revenues.
That is because the oil companies involved will first have to
recover the capital they have invested to bring the oilfield
on steam. And that sum is likely to be $2 billion or more.
Once the big inflow of oil revenues to government coffers
does start - probably sometime between 2015 and 2017 - Sao
Tome may well receive several hundred million dollars per
That would turn it overnight into one of the richest
countries in Africa, at least on the basis of gross domestic
product (GDP) per capita.
Foreign aid still needed
However, until then, this tiny state- the second smallest in
Africa after the Seychelles - will continue to need a large
injection of foreign aid.
President Fradique de Meneses, with the backing of the World
Bank, is therefore asking international donors to help Sao
Tome prepare for a new era of oil wealth by financing an
ambitious public investment plan.
This Poverty Reduction Strategy aims to reduce poverty by two
thirds by 2015.
It also aims to modernise and reform the way in which
government operates, improve the country's decaying
infrastructure, create a solid platform for private sector
investment and stimulate economic growth of at least five
percent a year.
A government study carried out in 2003 calculated that 54
percent of all Sao Tomeans live in poverty.
If implemented in full, the Poverty Reduction Strategy would
lift over 50,000 people out of the poverty trap and reduce
the social and political pressures that are currently
building up as a result of high youth unemployment.
The government of Sao Tome asked donors at a round-table
conference in Brussels on 6 December for US $169 million to
finance the first three years of this ambitious plan and
Prime Minister Maria do Carmo Silveira came away with
immediate pledges of $60 million.
The economy has gone steadily downhill since independence in
1975 as the old cocoa estates have been broken up and
abandoned and the country has run up a stifling external debt
of $320 million.
That is equivalent to over $20,000 per capita, making Sao
Tome one of the most heavily indebted countries in the world.
Living standards have fallen - a study by the United Nations
Development Programme (UNDP) estimated in 1994 that only 40
percent of the population lived below the poverty line - and
the country's infrastructure has started to fall apart.
Narrow roads, once tarred and cobbled, are now full of
potholes, and a third of the airport runway on the small
island of Principe is unusable since the government has no
money to resurface it, meaning only small planes can land
This year, the increasingly dilapidated state of the
country's water supply system and public latrines has led to
a resurgence of cholera.
More than 700 people have fallen ill with this highly
infectious disease since the latest outbreak began in October
and over 20 have died.
Democracy provides hope
But with a new International Monetary Fund (IMF) agreement in
place since August, Sao Tome is set to benefit from debt
relief through the Highly Indebted Poor Countries (HIPC)
initiative in 2006, and western donors appear well disposed
to maintain and increase the current inflow of bilateral aid.
Diplomats say that a key factor in Sao Tome's favour is that
despite rampant corruption at all levels of government, the
country is at least a functioning democracy.
Elections are held regularly and no one party dominates
parliament, so the government depends on a series of shifting
There have also been three changes of president through the
ballot box since multiparty democracy was introduced in 1991.
There is a strong awareness amongst senior government
officials that Sao Tome cannot afford to make the same
mistakes with its oil as two of its close neighbours - Angola
and Equatorial Guinea.
These two states have frittered away their oil revenues on
self-enrichment by the ruling elite, while little has been
done to use the money for the benefit of ordinary people.
"Oil is not a solution for us," says Adelino Castelo David,
the government economist charged with raising donor money for
the Poverty Reduction Strategy. "It is simply a tool which
can help us if we learn to use it well."
He speaks of using it to develop agriculture, where pepper
and vanilla are now being promoted as an alternative to
cocoa, tourism, which is still in its infancy, and the
development of Sao Tome as a regional trade centre with a
deep water port serving as an entrepot for other states in
Acacio Bonfim, a former finance minister who now heads Sao
Tome's largest commercial bank, Banco Internacional de Sao
Tome e Principe, agrees.
"Oil revenues must be invested in priority areas in the fight
against poverty," he said.
"Oil, in my view, is not an alternative to agriculture.
Neither is it an alternative to tourism or anything else," he