ERHC On The Move readers may remember that this source also warned us the Sao Tome side of the PSC equation would be difficult, as it has certainly proved to be.
I am pleased that some of my own observations (see "Deconstructing the Sao Tome Report"), especially about the age of the all of the allegations, track well with his.
Since he is so sought-after as a source, I will provide most of his comments verbatim:
Joe, I have had a good look at the full 71-page report.
The bad news has been well reported: the Sao Tome attorney-general has asked Justice and the SEC to investigate ERHC; he believes there are grounds for cancelling ERHC's options; he believes ERHC has cost Sao Tome nearly $60m.
I am surprised Reuters didn't repeat Menezes' comments from the piece last friday. He made it perfectly clear that Sao Tome was operating in the framework of a treaty and had no grounds to change any of the awards agreed:
"If we cancel the licensing round, we must also obtain the agreement of the Nigerian side. We cannot cancel alone," he said.
"We have a treaty with Nigeria and everything which can be decided regarding the JDZ must be together. We cannot be alone in Sao Tome taking decisions, otherwise we will have a conflict with Nigeria," de Menezes said.
He said this several days after receiving the report; such comments can therefore be regarded as his considered response. So Sao Tome is not going to cancel the awards. In fact, the attornery-general's report calls for contracts to be signed as quickly as possible.
I don't know what Justice or SEC will do with Sao Tome's request. The attorney-general appears to have found no new information relating to ERHC. All of his allegations are well-rehearsed; in fact, he appears to have missed one or two. People in the US will know far better about what sanctions could be applied to ERHC if FCPA violations are proven. But the allegations are far more modest than those presently faced by Exxon, Marathon and Amerada Hess with respect to operations in Equatorial Guinea.
The report, however, is confused and confusing, and appears to contain many errors and contradictions. As a result, it gives Nigeria ample opportunity to dismiss out of hand the findings and recommendations, and ERHC should be able to do the same.
Nigerian officials will point out that before the JDZ was formed, Sao Tome gave Mobil options on 5 blocks for $5m; after the treaty, Chevron paid $123m for one block. So Nigeria is not all bad. And as for ERHC putting off genuine players - it was ERHC that brought in Devon, Pioneer and Noble; yes, Devon and Noble walked away - but that was at least partly because of the delays that followed the controversy artificially generated by elements in Sao Tome and Nigeria in response to their failure to secure good positions for companies on whose behalf they were lobbying. In any case, the original agreement between Sao Tome and ERHC, the real source of Sao Tomean grievances, had nothing to do with Nigeria or Emeka Offor.
The situation is familiar: a lot of rhetoric, little substance. An attorney-general's report sounds impressive. But this report is weak. It was prepared by investigators who appear to understand little of Nigeria or Sao Tome, or any of the background of people with whom they have spoken. It seems to have been prepared in a hurry, and lacks objectivity and balance - the investigators were denied access to Nigeria, but only asked for such permission when they were already well into the job. It might have made more sense to have asked before they started. Certainly, more diplomatic. But even without such permission, they might have made greater efforts to better brief themselves. I am not aware of the investigators speaking to any of the oil companies, nor any third-party observers or analysts.
The 2004 round emphasised a fundamental problem with the JDZ structure. The JDA lacks capacity and authority, and the JMC is too vulnerable to political pressure. This needs to be addressed, but the report fails to explore the issue. Moreover, the JDZ is a unique arrangement in Africa. The process was not perfect; but in many respects it has proved more transparent than the 2005 licensing round in Nigeria, and is certainly more transparent than Equatorial Guinea, Congo, Gabon or Mauritania.
I hope the report will be released soon, so that your readers will be able to make their own judgements. In the meantime, they might note the Sao Tomean president's comments - and he is no fan of ERHC.
mutwadadi
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