Sao Tome may have attracted ample supplies of oil-related corruption

Jul 02, 2007 02:00 AM

A decade ago, geologists found signs that one of Africa’s least-known countries, the tiny island nation of Sao Tome and Principe, might hold a king’s ransom in oil.
The first drop of oil has yet to be produced. But these days, little Sao Tome may have attracted ample supplies of something else, federal investigators suspect -- oil-related corruption.

Sao Tome, a former Portuguese colony off the coast of Nigeria, was supposed to be different. In recent years, a steady stream of activists like the Columbia University economist Jeffrey D. Sachs have gone there to try to make sure that any energy boom would benefit its 150,000 people, rather than politicians and companies.
“Oil can be a blessing or a bane for a country,” Mr Sachs said. “The theory was to help Sao Tome avoid the resource curse.”

Things, however, have not quite worked out that way. The recent Justice Department indictment of William J. Jefferson, a Democratic congressman from Louisiana, contends, for example, that he solicited a bribe from a company seeking his help with an oil-related dispute involving Sao Tome.
Separately, federal authorities are investigating a small Houston-based company whose only assets are large holdings in Sao Tome to determine if it bribed the country’s officials. On another front, a powerful Nigerian businessman who is the chairman of the Houston company, ERHC Energy, is under investigation in his country for possible insider oil dealings. All those involved -- Mr Jefferson, ERHC, and that company’s chairman, Emeka Offor -- deny that they did anything wrong.

Still, the experience of Sao Tome, a poor country that supports itself by selling cocoa and commemorative stamps featuring celebrities like Elvis Presley and Brigitte Bardot, shows how just the hint of oil can set off a scramble for riches. Along with Mr Sachs, those who sought to help included George Soros, the billionaire turned philanthropist, and a high-powered Washington lawyer, Gregory B. Craig, who defended President Bill Clinton during the Monica Lewinsky scandal.
At the centre of the Sao Tome story stands ERHC, a tiny company whose ranks have included a collection of characters and politically connected entrepreneurs like Mr Offor. According to a 2005 report by the attorney general of Sao Tome, Mr Offor is one of the largest donors to Nigeria’s ruling political party and a close ally of Olusegun Obasanjo, who until recently was Nigeria’s president.

Sao Tome’s unusual journey through the backwaters of the oil industry traces back to the mid-1990s, when ERHC arrived there. Large underwater oil deposits had been found nearby, off the coast of Nigeria, and ERHC believed that the tiny island might be the next big prize in West Africa. At that time, the Texas company was owned by some wildcatters and an enterprising Florida businesswoman named Noreen Wilson. Over the years, she has been involved with several penny stock companies including a short-lived enterprise called Pizza Group.
In 1997, Ms Wilson signed a $ 5 mm contract that gave ERHC, which was then known as the Environmental Remediation Holding Corporation, exploration rights in Sao Tome for 25 years. The contract was soon described by some outside experts as extremely lopsided.

Soon afterward, Ms Wilson resigned from ERHC during an investigation of the company by the Securities and Exchange Commission. But she appeared to retain an interest in the island’s future; in 2001, for instance, she apparently reached out to Mr Jefferson for help there, his indictment suggests. At that time, Sao Tome’s new president was threatening to break a number of oil-related deals, including ERHC’s.
Ms Wilson is not named in that indictment. But the filing describes how two unnamed people, a business executive and a lobbyist, went to see Mr Jefferson about an oil-related dispute on Sao Tome. In return for a promise of help, Mr Jefferson demanded that a family member receive benefit, a demand that was met, the indictment states.

Mr Artabane, who said that Ms Wilson testified before the Jefferson grand jury, declined to confirm that she was the executive involved, but he did not dispute it either. The lobbyist involved was James P. Creaghan, according to his lawyer, E. Barton Conradi, who said his client has cooperated throughout with authorities. Mr Creaghan worked with Ms Wilson during that time. (Neither of them has been accused of wrongdoing.)
Meanwhile, wheels were already spinning in Sao Tome when activists like Mr Sachs, the economist, arrived. Their mission: To prevent it from following in footsteps of other African countries where corruption and waste typically follow oil. In Nigeria, the continent’s largest producer, most people live on less than $ 2 a day while politicians have stolen or squandered billions.

Initially, hopes were high. Soon after his election as president, Fradique de Menezes, a cocoa plantation owner, vowed that his country would be different. And he turned for help to outsiders like Mr Craig, the Washington lawyer who represented President Clinton during his impeachment trial.
But Mr Craig, like others who followed him, found himself facing some powerful adversaries: Nigeria and Mr Offor. In 2001, Nigeria had jumped in the picture when it signed an agreement with Sao Tome to share oil revenues from waters between the two nations. Mr Offor, the ally of Nigeria’s president, bought ERHC, which was then near bankruptcy, just a few days before that agreement was signed.

Mr Craig said that while he successfully renegotiated contracts with other oil companies in Sao Tome, Mr Offor would not budge. In time, ERHC did agree to some changes in its contract, but the company retained extremely favourable terms, including the right to choose among the best oil blocks without paying the type of special one-time fee that governments typically demanded.
Mr de Menezes continued to seek assistance; in 2003, for instance, he reached out to Mr Sachs.
“He called and said, ‘Look we’ve found some oil and the sharks are swimming around us now, and I’d like some help to manage this properly,’ ” Mr Sachs recalled.

As part of that effort, a Columbia University team and others helped draft a new oil law that contained safeguards to make sure Sao Tome spent its oil-related revenue properly. The team then travelled around the country, holding meetings on cocoa plantations and in churches, where they explained to residents how the new statute would protect their interests.
By late 2005, however, a report by the attorney general of Sao Tome delivered a dose of reality. Among other things, it found that some companies that won blocks in the zone controlled jointly by Sao Tome and its neighbour were headed by Nigerian businessmen with political ties but no oil experience.

In addition, the report found some large multinational oil companies were so suspicious of ERHC that they decided not to bid and added that ERHC “may have made improper payments to government officials.” ERHC has disputed those findings and said in a statement that it received itsrights legitimately and that it has also made numerous concessions to Sao Tome.
The attorney general’s report may have precipitated last summer’s raid on ERHC’s Houston offices by the FBI. Among other things, FBI agents took a file marked “William Jefferson,” a reference to the Louisiana congressman, a publicly filed subpoena shows.

Whatever the case, ERHC has emerged thus far as the biggest winner in Sao Tome. Over the last year, it has sold off various rights to its holdings in Sao Tome, making tens of millions of dollars in the process. As for the reform effort by Mr de Menezes, the country’s president, he has been far less publicly vocal over the last year, outside consultants said.
Despite earlier predictions of vast oil finds, it is unclear whether waters off Sao Tome will ever produce oil in commercial quantities. Last year, Chevron drilled the first exploration well there but failed to find much oil and, for the moment, has no immediate plans to drill again. ERHC said that it and a partner planned to drill next year.

Source / AFX News Limited
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