[ISL] "Surging São Tomé"

[rfmcdonald]

Gerhard Siebert's brief Foreign Affairs article describing how the very small ex-Portuguese island state of São Tomé and Príncipe, located off the Central African coast in the South Atlantic, makes for depressing reading. The island state last appeared here in a 2003 post reacting to a coup attempt on the island and pointing to the role of Brazil in drawing together the former Portuguese empire in a bloc. It's depressing that the promised oil hasn't materialized yet--the island would do much better with it, I'd hope, than neighbouring terrible Equatorial Guinea has.

São Tomé and Príncipe generates some income, primarily from cocoa production and tourism, but it remains heavily dependent on foreign aid. (Neighboring oil-rich countries and Western donors finance about 90 percent of the national budget, which is $150 million for 2013.) Since 1997, when the Environmental Remediation Holding Corporation, a small U.S.-based (and currently Nigerian-owned) company, was awarded the country's first offshore oil exploration contract, hopes have been high that the country would become a major oil producer. In the intervening years, however, that hope has not been fulfilled. Nevertheless, in anticipation of increases in oil production, Business Insider forecasts São Tomé and Príncipe as the world's fastest-growing economy over the next five years. Such optimism is unwarranted: there is no guarantee that the country will produce even one drop of oil during this period.

[. . .]

In 1999, seismic surveys revealed that there was a high probability of deep-sea oil reserves in São Tomé and Príncipe's territorial waters. This news was welcomed by an elated country, which had seen its revenues from cocoa production dry up. São Tomé and Príncipe quickly claimed its 200-mile Exclusive Economic Zone (EEZ) and signed agreements to recognize maritime borders with Gabon and Equatorial Guinea. When similar negotiations with Nigeria failed, the two countries solved the problem by establishing a Joint Development Zone (JDZ) in the disputed territorial waters. According to the treaty, which the two countries signed in 2001, they will share the income and expenditures of the JDZ, with 40 percent going to São Tomé and Príncipe and 60 percent going to Nigeria.

Figures circulating at the time estimated that the oil reserves of the 23 deep-water exploration blocks in the JDZ had about 14 billion barrels. Excitement about the country's potential oil wealth reached its climax in October 2003 during the first licensing round for exploration blocks in the JDZ, when the highest bids submitted by oil companies for seven blocks reached $500 million. Some analysts even speculated that the future oil revenues could soon turn the entire population of São Tomé and Príncipe into millionaires. Such speculations prompted the economist Jeffrey Sachs, director of the Earth Institute at Colombia University, to travel there with a self-styled advisory team to assist local authorities. The group hoped to help São Tomé and Príncipe avoid the oil curse by reinvesting its energy profits in socioeconomic development projects that would benefit the entire population.

This euphoria, however, did not last long. The development of the country's oil sector has been plagued by delays and setbacks from the start. The greatest blow to São Tomé and Príncipe's oil expectations came in 2006, when Chevron announced that exploration drillings in JDZ Block 1 had not resulted in the discovery of commercially viable oil. In 2008, Sachs's advisory team left the country unceremoniously; there has been little cause for optimism ever since. On the contrary, due to disappointing drilling results, in 2012, China's Sinopec and other oil companies abandoned JDZ Blocks 2, 3, and 4. Meanwhile, new hopes have been vested in JDZ Block 1, where France's Total carried out exploration drillings last year. (The results of those efforts will not be revealed until September 2013.) Time and again, analysts have revised and postponed predictions for the beginning of commercial oil production in São Tomé and Príncipe, and it has become clear that nobody really knows if and when oil production will start.