Sao Tome coup spells oil delay

Sao Tome's 900-strong army took over on Wednesday

The hoped-for oil bonanza in the tiny African island state of Sao Tome and Principe will have to wait, in the wake of Wednesday's coup, experts believe.

The government of the twin islands, inhabited by about 170,000 people, finally clinched a deal with massive neighbour Nigeria over oil rights in the Gulf of Guinea earlier this year.

Bids for nine "blocks" - areas of sea in which bidders can explore for oil - were meant to start in October with a price tag of more than $100m (£63m).

But after the army detained the government - except for the president and foreign minister, both abroad at the time - early on Wednesday morning, that looks unlikely.

"It's going to delay the awarding of licences," said Julian Lee, senior analyst at the Centre for Global Energy Studies (CGES) in London.

The coup's not even on the radar Clay Smith Commerzbank

"The whole process of forming the joint development zone - revenue, the shape of blocks, borders - was fraught with difficulty. This could well set the process back yet again."

Windfall?

Sao Tome and Principe is desperately poor, and if the expectations of oil under the Gulf of Guinea prove justified, its development could be kicked into high gear.

Equatorial Guinea, another tiny African state, has found itself with growth rates of 65% a year thanks to oil.

And the US in particular is keen to expand supplies from West Africa to reduce its dependence on the Middle East - one trigger for President George W Bush's recent visit to the continent.

But before that, the oil has to be found.

And critics, such as pressure group Global Witness, point out that oil wealth can be siphoned off into elite pockets and Swiss bank accounts, as has happened in other African countries - including Nigeria.

President Fradique de Menezes cancelled existing oil agreements when he came into power in 2001, and has already admitted to taking $100,000 from an American company involved in exploring for oil off Sao Tome, although he denied any wrongdoing.

'Off the radar'

Sao Tome and Principe is a long way from making serious money from oil however, and the coup will set that back still further.

Oil market analysts say that even assuming oil is found, it will be years before it starts flowing.

For that reason, "(the coup) is not even on the radar," said Clay Smith, oil analyst at Commerzbank in London.

Recent gains in the cost of oil - the price is back above $30 a barrel in the US - therefore have more to do with continuing delays in re-establishing Iraqi supply and a slowdown in production by the oil cartel Opec.

That does not necessarily mean that people in Sao Tome are looking to position themselves to make the most of the revenues when they start coming.

"It's entirely possible" that the coup represents jockeying for position, said the CGES's Julian Lee, noting that there were parties disgruntled by the 60/40 revenue split in Nigeria's favour.

"But it's still too early to tell for certain."