Sao Tome and Principe: Job of Oil Minister changes hands at “critical” time

20 October 2008

Washington, USA, 20 Oct – The job of oil minister in Sao Tome and Principe is to change hands at a time analysts consider “critical” given the current situation of the archipelago’s oil sector.

São Tomé’s President, Fradique de Menezes, last week named party member Carlos Fernandes Marques to replace Agostinho Rita.

As well as being a member of the Force of Change Democratic Movement (MDFM), linked to São Tomé’s president, the new oil minister has been linked mainly to the private sector.

Amongst his immediate tasks will be carrying out the proposed alteration to the framework law in the oil sector, which aims to permit the direct negotiation of petroleum blocks, preparing the next round of bidding for blocks in Sao Tome’s Exclusive Economic Zone, (EEZ), and monitoring exploration work already in progress, particularly that of Chinese company, Sinopec.

Carlos Fernandes Marques will also have to resolve some more delicate issues.

The main one is perhaps that of Blocks 5 and 6 in the Joint Development Zone (JDZ) between Sao Tome and Principe and Nigeria, where the government is due US$26.1 billion in signing bonuses, though alleged differences between shareholders (ICC/OEOC for the first and Filthim-Huzod for the second) are delaying payment.

The exploration can work can only begin upon payment of the bonuses and the delay has generated still more apprehension in the archipelago after more advanced exploration work (in Block 1 of the JDZ, operated by Chevron Texaco) did not find commercially viable oil reserves.

In its latest report on Sao Tome, the IMF emphasized that the archipelago’s medium and long term perspectives depend “critically upon oil exports and revenue.”

“In blocks 1 to 4 of the JDZ, where investors paid their signing bonuses, oil exploration is underway, though finding commercially viable reserves continues to be an uncertain process,” says the report.

IMF analysts also point out that the payment of the bonus for blocks 5 and 6 in the EEZ “remains uncertain” and the process of attributing the blocks should by now be well underway.

To prepare the licensing of the EEZ, the National Petroleum Agency prepared a Strategy for the Petroleum Sector and corresponding legislation, but its adoption has been delayed due to the political instability and change in governments.

Exploration work on Block 2 (692 m2) operated by Sinopec, ERHC and Addax is expected to start in the next few weeks.

The same is expected for Block 4, operated by ERHC and Addax.

In a recent visit to the archipelago, IMF experts presented what they call opposing “medium term scenarios” to the Sao Tome authorities in order to demonstrate the risks and implications that the oil development process has upon macro-economic policies.

The first, based on initial projections, assumes that the missing JDZ bonuses are paid this year and that oil production begins in 2014, and concludes that Sao Tome can use the National Oil Account (NOA) until the expected income from oil exports starts to come in.

However, in the case of “indefinite deferment” of the payment of the bonuses, the NOA “could rapidly run out,” even before 2013.

“Also, external budget support is expected to be limited over the next few years. In the worst case scenario, an enormous cutback on expenditure, depletion of official reserves, high inflation and currency depreciation would be unavoidable.”

The Law on the Management of Oil Income gives the Sao Tome parliament the authority and capacity to supervise the use of the signing bonus and other income.

The authorities formally declared their adhesion to the Initiative for Transparency in Extractive Industries and created a national committee and appointed a coordinator for the application of the standards.

China cut diplomatic relations with Sao Tome 10 years agos due to the archipelago’s closeness with Taiwan.

However, this last year there have been signs of a possible restoration of ties, namely the declarations of the new permanent General Secretary for the Forum on Economic and Trade Cooperation between China and the Portuguese speaking world, Zhao Chuang, that the archipelago has “an open door” for joining the organization.

The presence of a minister from Sao Tome and Principe at the 2006 ministerial meeting in Macau, he said, was a “symbol” and, in the context of the forum’s objectives, China has “an open door to all Portuguese speaking countries who wish to participate.”

At the same time, Chinese business delegations to Sao Tome in order to test out the market with a view to investments in the archipelago have been fairly frequent.

Some political forces have been advocating greater proximity to China, particularly the Confederacao Democratica Nacional, though a current of opinion in the same vein is known to exist in the Movimento de Libertacao de Sao Tome e Principe – Partida Social Democratica, MLSTP-PSD, which is part of the coalition government.

Some analysts consider the decisive factor in this turnaround to lie in Angola, a country with intense historical and cultural relations with Sao Tome and Principe, which has recently grown in economic and political importance. (macauhub)