The Law for the Oil That Never Came

Every litre of petrol on São Tomé and Príncipe arrives by ship. There is no refinery, no gas, no coal and no meaningful hydropower; the fuel comes in over a jetty, mostly from a single mainland supplier, and it is the largest single line in the country's import bill. Total consumption is on the order of a thousand barrels a day, which is a rounding error in any producing country and the entire energy economy of this one.

And in the statute book, twenty-two years old and never once tested against a real revenue stream, sits an oil revenue management law that specialists in resource governance have spent two decades holding up as a model. It was passed unanimously. It was drafted in public. It governs the spending of money that, with one exception, has not arrived.

The zone

The Gulf of Guinea filled with rigs through the 1990s, and the maritime boundary between Nigeria and São Tomé ran through water both sides thought promising. Rather than litigate it, they suspended the question. The Treaty on the Joint Development of Petroleum and Other Resources was concluded on 21 February 2001 and entered into force on 16 January 2003: a Joint Development Zone administered by a joint authority, with revenue split sixty per cent to Nigeria and forty to São Tomé — a ratio that reflected relative bargaining power rather than geology, and which Santomean politicians have been re-arguing ever since. What the treaty produced first was not oil but instability. On 16 July 2003, with President Fradique de Menezes out of the country in Nigeria, soldiers led by Major Fernando Pereira took the capital in a bloodless coup, citing corruption and poverty. It was negotiated away within a week. Foreign coverage put it down to oil; Santomean accounts are more careful, and point at grievances that predated the treaty by years. Both readings agree on one thing — that the prospect of money had already changed the politics before a single well was drilled.

A debate about money nobody had

What happened next is the part worth the attention. Instead of waiting to see what came out of the ground, the government put the question of what to do with hypothetical oil revenue to the country itself. A team from the Earth Institute at Columbia University, led by Jeffrey Sachs, worked with Santomean counterparts on a series of town-hall meetings across both islands — the National Forum — held in a country where a substantial share of the participants could not read the documents being discussed, and where the sums under debate were multiples of everything the state had ever handled. Out of that came the Oil Revenue Management Law, approved unanimously by the National Assembly in November 2004 and promulgated on 29 December. Its architecture is austere. All payments from oil operations go into a single National Oil Account, and nothing may be spent from anywhere else. A Permanent Reserve Fund takes a share and is untouchable, on the reasoning that oil is a stock being converted into money rather than income. What may be moved into the state budget in a given year is set by a permanent-income formula written into the law rather than by what the government of the day would like to spend. Every payment made by every company must appear on a public register. Contracts are to be published. An audit by an internationally recognised firm is compulsory on top of the state's own auditors, and an oversight commission with civil-society seats sits over the whole thing.

Almost every producing country has written its transparency rules with the revenue already flowing, and the rules have come out shaped by whoever was receiving it. São Tomé had the rare luxury of legislating while the money was still an argument rather than a claim.

Forty-nine million dollars

The first licensing round in the joint zone ran in 2003 and 2004. Block 1 went to a consortium led by ChevronTexaco with ExxonMobil and a small Nigerian partner, and the signature bonus was US$123 million. Split by the treaty formula, São Tomé's share was about US$49 million — measured against an economy of that size, the largest single sum the state had ever received, and to this day essentially the whole of the country's oil income. It went into the account the law had built for it. That is the strange, small success at the centre of this story: the machinery was constructed in advance, and when the one payment arrived, there was somewhere lawful to put it.

Obo-1

Drilling in Block 1 began in 2006. The Obo-1 well found hydrocarbons. No recoverable volume was ever published — the operator reported non-commercial quantities and left it there, and any barrel count you see attached to that well is somebody's guess. In deep water, several hundred kilometres from any infrastructure, in a zone requiring two governments to agree on everything, non-commercial means no. Further wells across the zone did not change the verdict. Chevron, Total and the other majors wound down and withdrew over the following years, and the acreage they had bid for was quietly handed back. Nothing in the joint zone has ever gone into production. Nigeria and São Tomé have since announced more than once that the abandoned blocks are open to new bidders, which is the fourth or fifth time that sentence has been true.

The law outlived the oil

The record since is not a clean one and it would be dishonest to present it as one. São Tomé joined the Extractive Industries Transparency Initiative as a candidate in 2008 and was delisted in April 2010, largely because the payments made inside the joint zone could not be reported without Nigerian cooperation that was not forthcoming. It has not been a member since. A law can be stricter than the administration required to operate it, and this one is: audits have been late, the oversight commission has had thin periods, and Human Rights Watch was writing about stalled implementation as early as 2010. None of that is unusual for a state with a population smaller than a mid-sized European town and a civil service to match.

What it was actually for

The conventional way to tell this is as an anticlimax — the law that never got its oil. That reading gets the country the wrong way round. Angola, Equatorial Guinea and Nigeria all wrote their rules with production already running and revenue already committed, and in each case the rules came out shaped by the people receiving the money. São Tomé did the opposite, in public, and the process itself was the product: several thousand people in village halls on two islands, arguing about a permanent fund and a spending cap for revenue that was still a geologist's opinion. The law is on the books. The account exists. If the reopened blocks ever do produce, the country is one of very few anywhere that decided what it wanted before anyone was in a position to offer it something else. And if they do not, it has cost the islands a good deal less than oil has cost most of their neighbours.