Sunday, February 26, 2006

A Nigeria-Sao Tome Solution: Towards A JDZ Trust

Dissolution of the present Joint Development Zone is an unnecessary, if seemingly unavoidable, step that all parties are very reluctant to take, so it behooves us to search for better solutions.

In fact, I think there is one that will work for everyone but Sao Tome, and to a degree it may work even better for them to ensure their participation in the riches of the JDZ without risk of further debilitating political and diplomatic mishaps.

That solution would be for Nigeria to take over the entire process in trust for Sao Tome, and operate the JDA henceforth as it operates its own Nigerian Exclusive Economic Zone auctions. Nigeria would unilaterally declare that is is forming the Nigeria Sao Tome Trust for the Joint Development Zone, and then continue with the awards process as it has been set in motion, with the next step to be the signing of PSCs with those companies that won equity in the first two Licensing Rounds.

While Sao Tome would continue to shoulder part of the expense and continue to receive 40 percent of the signature bonus fees, it would not have other obligations to approve or deny decisions by the JDA on licensing issues, but it would have an advisory role on the Joint Ministerial Council and be able to register its opinions for the public record. Its status could be reviewed annually to determine if it is ready to become a major oil-producing nation consistent with the responsibility of democratic management of oil's central role in the global economy.

What Nigeria did not appreciate when it entered into the Abuja Declaration is that there has to be a certain historical readiness for the role of being a major oil-producing nation. Some of the requirements that would precede that readiness would be a substantial history of oil production on a small scale, a professional cadre of petroleum executives, experience in oil-related negotiations, and the presence of independent infrastructural bodies to facilitate the development of oil resources.

All of these requirements have been little but afterthoughts in Sao Tome's rush to oil-producing nation status, and as a result it is not capable of managing
oil-resource development in a stable, predictable way. Absent that capacity, it should not be expected to play a substantial role in the exploitation of one of the world's greatest petroleum resources, the Gulf of Guinea.

Nigeria, clearly, is eminently prepared to undertake this role as a major producing nation. I believe it would have in this stance a securely defensible position as a state party acting in a transparent way not only to ensure its own commitments but those of the people of Sao Tome, and well-suited to the structure set forth in the Abuja Declaration. It would allow Nigeria to carry out decisions already taken by the JDZ's governing bodies.

This solution might be analagous to what happens when an American president is deemed unable to hold office by reason of mental or physical incapacity; while the Abuja Declaration does not have any provision for incapacity, this succession procedure in the United States Constitution demonstates the well-established principle that any party to a contract must in fact have the capacity and intention to exercise its contractual obligations.

In the apparent absence of that capacity, Sao Tome's role should be modestly reduced until it does, and in the interim Nigeria's role should be expanded to caretaker status consistent with its long experience in the industry. At the same time, it should invite NGOs to observe its custodianship of JDZ resources to preserve the image of a process that s conducted with integrity.

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