Sao Tomé & Principe
Nigeria cancels oil agreement with São Tomé

afrol News, 12 February - The Foreign Minister of São Tomé and Príncipe, Rafael Branco, is on his way to Nigeria to find a solution to the diplomatic crisis evolving between to two countries. Nigeria cancelled an agreement to share oil resources in a joint zone after São Tomé had urged to renegotiate the deal.

While São Tomé is eager to prepare the ground for its first offshore oil production, the steps ahead are complicated by the fact that findings have so far been made in the zone between Nigerian and São Toméan territorial waters in the Gulf of Guinea. In fact, almost none of the maritime borders of the Gulf are so far fixed, which can be attributed to the great expectations of oil wealth in these waters.

To go ahead with explorations and investments, the two countries last year signed a memorandum of understanding that defined a so-called Joint Development Area in the waters between the giant experienced oil producer Nigeria and the dwarf state of São Tomé. The two countries were to jointly explore and exploit the oil resources in the zone, with most of production controlled by Nigeria. Nigeria, which already is Africa's biggest oil producer, also was to have a 96 percent share in operations.

The World Bank and the International Monetary Fund (IMF) however advised the São Toméan government it had made a disadvantageous deal with Abuja. The government therefore asked to renegotiate the agreement in January, shortly before it was to be signed and ratified. Nigeria this week reacted by cancelling the entire deal.

The São Toméan government has not wanted to comment the diplomatic row with its big northern neighbour yet, but confirmed the emergency takeoff of Foreign Minister Branco to Abuja. Failing to reach a deal with Nigeria could seriously jeopardise São Toméan intentions of becoming a wealthy oil nation within ten years.

The tiny archipelago of São Tomé and Príncipe has barely 150,000 inhabitants that are looking forward to real wealth if oil production gets started and the islands manage to maintain their traditional democratic, transparent and social structures in the process. The São Toméan government is trying to position itself to get the most out of contracts and agreements with neighbour states and oil companies, pretending there is no hurry.

US-based Exxon Mobil is however expected to start drilling in the "joint development area" within short. Operations to drill oil in 2,500 meter deep Sao Toméan water are scheduled for 2004. It remains uncertain whether a failure to reach an agreement with Nigeria would jeopardise these plans, thus exposing the time pressure the São Toméan government has in reaching favourable agreements.

The São Toméan government has already calculated oil expenses and revenues into its long-time planning. According to a recent analysis by then Minister of Planning and Finance, Maria dos Santos Tebús Torres, the impact of oil should already be noted in the 2005 budget.

At this time, the external current account deficit was expected to widen to about 380 percent of GDP (up from currently 31 percent), "as a result of imports of goods and services associated with investments in petroleum exploration and development." Revenues were first expected at the end of this decade.

Nigeria, on the other hand, has long experience in oil production. Starting with on-land production in the Niger delta area, the OPEC country has made substantial revenues during the last decades. Now, exploration and production is moving offshore. Little wealth has however tickled down to the over 120 million Nigerians, as much has been lost through mismanagement, corruption and the military regimes of the past. Democratic São Tomé says it has better plans for its small population.

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