From high hopes to high costs: rethinking the oil sector in São Tomé and Príncipe

The 2014 EITI Report recommends reviewing the legal and fiscal framework in light of the lack of production.

Unlike its neighbouring countries in the Gulf of Guinea, São Tomé and Príncipe, a small island state, has so far not struck oil. The recently published 2014 EITI Report recommends reviewing the institutions that were set up to manage oil exploration and future oil production in order for them to better address the current circumstances.

From high hopes to high costs

São Tomé and Príncipe shares an offshore Joint Development Zone with Nigeria. The zone was expected to be rich in oil, and in the mid-2000’s international companies paid over USD 300m in signature bonuses to explore in the zone. Results were disappointing and most companies have left.

The Joint Development Zone is managed by the Joint Development Authority (JDA), which is accountable to a ministerial council with representation from both São Tomé and Príncipe and Nigeria. The JDA has been criticized for running a hefty annual budget of USD 12m. São Tomé and Príncipe’s 2014 EITI Report shows that since the Joint Development Zone was established, 43% of all revenue from the zone had been spent on JDA’s operating costs. In September, Santomean Prime Minister Patrick Trovoada and Nigerian President Muhammadu Buhari agreed to review the management of the joint zone.

Seeking new investments

Offshore oil exploration is also on-going in São Tomé and Príncipe’s Exclusive Economic Zone (EEZ). So far there haven’t been commercial discoveries in the EEZ either. With the downturn in the price of oil, the government is now looking at how to make the zone more competitive and attract new investors who would prop up exploration efforts. To this end, the EITI Report recommends reviewing the legal, contractual and fiscal frameworks applicable to the oil sector. The EITI Report is helping to inform the dialogue on rethinking how both the EEZ and the JDZ could attract investment while being managed in line with international best practice.

Aligning practices with policies

Getting the policies right isn’t the only challenge. The EITI Report notes that the Joint Development Authority does not comply with the Abuja Joint Declaration on Transparency and Good Governance, which requires the JDA to disclose on its website quarterly the revenues it receives from companies and to publish contracts and the bases of concessions in the JDZ. Most EEZ contracts, on the other hand, are now available online. This is a welcome change, as at the time of the publication of the 2003-2013 EITI Report last December, contracts were only accessible at the Records and Public Information Office.

The 10 main messages from the report 

 

For more information about STP EITI, visit the country page on the EITI website, the STP EITI website or contact Country Officer Lyydia Kilpi.