Opinion: Nigeria Likely To End Diplomatic Relations With Sao Tome

The government of Nigeria is likely to end diplomatic relations with Sao Tome and Principe over the collapse of the Second Licensing Round today after Sao Tome's government formally asked the United States to investigate the awards in which ERHC
Energy won the lion's share of oil blocks in the bilateral joint Development Zone.

The request puts the Nigerian government in an awkward and untenable position that is sure to frustrate and anger Nigerian President Olusegun Obasanjo. By acceding to the request to cooperate with the probe, Nigeria can look forward to perhaps another year of delays in completing the Second Licensing Round.

Sao Tome will likely face some very severe financial problems as the result of more delays, even though it has won promises of substantial assistance from governments and NGOs. It is likely to find that the completion of those promises was in part predicated upon an understanding that the island nation of 180,000 people would bring in some money of its own from completion of the Second Licensing Round.

But Nigeria was furious last year when months of delays ended the First Licensing Round with just one of nine blocks awarded. Then a series of poltiical challenges to the authority of President Fradique de Menezes aggravated the situation until Nigeria's Obasanjo made a quick visit to the isalnds to move the awards process forward.

Following that, the signing of Production Sharing Contracts and Joint Operating Agreements suffered delays as the Langenkamp probe went forward. Once promised in November, they may not be signed at all now, and Nigeria is unlikely to suffer such a development lightly.

Its options are several: 1) Nigeria can agree to cooperate with a probe that has already been discredited by the influence of key multinationals; 2) it can move the awards process to completion through its majority standing in operations of the Joint Development Zone's Joint Ministerial Council and Joint Development Authority, and dispose of the blocks as plnned, splitting costs andproceeds on the 60-40 basis that established the relationship; 3) it can unilaterally void the Treaty of Abuja that set up the JDZ and proceed to award or offer blocks on its own; 4) Nigeria can lean on the companies involved to pay the "$58 to $59 million" the report says Sao Tome lost, or guarantee those funds; or, 5) it can take a military step, which might mean seizure of Sao Tome and Principe by Nigeria's powerful and well-armed armies.

As a preliminary step, Nigeria is likely to call home its Ambassador and at least temporarily end diplomatic relations with Sao Tome and Principe. Further steps would follow only after Sao Tome makes the next move.

However, as an analyst, it is my strong feeling that the bilateral agreements that have governed the Joint Development Zone are essentially voided by the extralegal step Sao Tome has taken to resolve awards issues, which by treaty must be resolved only in talks between the two countries.

That, in my view, given the long history of costly delays, is likely to lead to Nigeria's seizure of the entire JDZ. Since U.S. interests in the JDZ are now more closely allied with Nigeria than Sao Tome, the American naval presence in the Gulf of Guinea is unlikely to deter Niogeria's seizure of the blocks.

While over time the crisis might be alleviated somewhat by an agreement to divide the blocks once again for individual offers by the respective countries, that is not a certain outcome.

On the diplomatic front, Nigeria is likely to ask the United States for a pledge of non-intervention in the bilaterla relationship with Sao Tome and Principe, and in the affairs of the Joint Development Zone.

In whatever may come, the value of the blocks will be substantially diminished due to the reputation of both countries for promising much but delivering almsot nothing through three successive licensing rounds. The egg is broken, and now omelets must be made or the product wasted.