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São Tomé and Príncipe Enacts Model Oil Revenue Management Law
On December 29, 2004, São Tomé and Príncipe President Fradique de Menezes signed a law that establishes a new international standard for transparency and control of oil revenues. The law, adopted unanimously by the National Assembly, governs the receipt, investment and use by São Tomé and Príncipe of oil payments to best promote the economic and social progress of the country. It provides for the establishment of an oil fund to be held by an international custodial bank into which all oil payments are to be made. The law limits the amount of annual withdrawals from the fund and restricts expenditures to national development, poverty reduction and strengthening of good governance. A portion of the monies paid into the fund will be retained to create a permanent reserve to foster development even after oil resources have been exhausted.
At the signing, the President speaking of the law said, "Nothing will be hidden, nothing will be wasted." Arlindo Carvalho, the Minister of Natural Resources and Environment added, "This law will permit us to manage our petroleum resources in a sustainable way so that not only the current generation, but also future generations, will benefit." Carlos Neves, the Chairman of the Oil Commission in charge of drafting the law, stated "The law is very important for our development because it guarantees that we will use potential petroleum resources in a rational, balanced and controlled way."
A team of experts from the Earth Institute and Hogan & Hartson LLP, working pro bono, assisted São Tomé and Príncipe in its year-long effort to develop and enact the new law.
Responding to the news, Jeffrey D. Sachs, Director of the Earth Institute at Columbia University, said, “All too often oil resources have been misused. This law, by creating new standards of transparency and accountability, can help São Tomé and Príncipe avoid the pitfalls of being an oil exporter and ensure that its potential oil resources are used for sustainable economic development benefiting the people of São Tomé and Príncipe. I congratulate President de Menezes and the National Assembly on this effort. It will certainly become a model for others.”
Joseph Bell, leader of the Earth Institute team and partner at Hogan & Hartson LLP, said, “In adopting this law, São Tomé and Príncipe has established itself as the leader in the development of transparent and responsible systems for the management of oil revenues. The law is a major step forward in the country’s efforts to use its potential oil resources wisely.”
The activities of the fund are to be fully transparent with public access to all information regarding payments into and out of the fund, as well as the holdings of the fund. In addition, the law provides for all oil related contracts to be subject to public tender and to be made public. It also prescribes severe penalties for violations.
As an innovation, all of this information including information about the fund is intended to be available to the general public through web access as well as through a new public information office. Additionally, the law mandates certain public integrity and compliance-related contractual provisions, creates a rule against conflicts of interests and requires internal and external audits of the oil fund.
The law incorporates the transparency principles adopted by President de Menezes and President Obasanjo of Nigeria in the Abuja Joint Declaration, issued in July 2004, which among other things requires public disclosure of receipts from oil companies in unprecedented detail. It also creates a new Public Oversight Committee which includes representatives of civil society to monitor the government’s implementation of the law.
The work conducted by the Earth Institute was funded by the Open Society Institute.
São Tomé and Príncipe is Africa’s smallest democracy. Located off the West Coast of Africa, it shares with its neighbors significant potential oil resources. Initial exploration is now being initiated in the Joint Development Zone shared with Nigeria. Copies of the legislation are available at http://www.earthinstitute.columbia.edu/cgsd/STP/index_stp.htm.
The Earth Institute at Columbia University is the world’s leading academic center for the integrated study of the Earth, its environment and society. The Earth Institute builds upon excellence in the core disciplines—earth sciences, biological sciences, engineering sciences, social sciences and health sciences—and stresses cross-disciplinary approaches to complex problems. Through its research, training and global partnerships, it mobilizes science and technology to advance sustainable development, while placing special emphasis on the needs of the world’s poor. For more information, visit www.earth.columbia.edu.