Scent of oil may have brought corruption to a tiny African country 

A decade ago, geologists found signs that one of the least-known countries in Africa, the tiny island nation of São Tomé and Príncipe, might hold a king's ransom in oil.  The first drop of oil has yet to be produced.  But these days, little São Tomé may have attracted ample supplies of something else, U.S. government investigations suggest: oil-related corruption.

All of this might not seem unusual in Africa, where oil and corruption often go hand in hand.  However, São Tomé, a former Portuguese colony that lies off the coast of Nigeria, was supposed to be different.  In recent years, a steady stream of activists like the Columbia University economist Jeffrey Sachs have gone there to try to make sure that any energy boom benefits its 150,000 people, rather than politicians and companies.  "Oil can be a blessing or a bane for a country," Sachs said.  "The theory was to help São Tomé avoid the resource curse."

Things have not quite worked out that way. 

The recent U.S. indictment of William Jefferson, a Democratic congressman from Louisiana, contends, for example, that Jefferson demanded a bribe from a company seeking his help in connection with an oil-related dispute involving São Tomé.

The U.S. authorities are investigating a small company based in Houston whose only assets are large holdings in São Tomé to determine whether it bribed officials there.  On another front, a powerful Nigerian businessman who is the chairman of that company, ERHC Energy, is under investigation in his own country for insider oil dealings.  All those involved - Jefferson, ERHC and that company's chairman, Emeka Offor - deny that they did anything wrong.

Still, the experience of São Tomé, a poor country that supports itself by selling cocoa and commemorative stamps featuring celebrities like Elvis Presley and Brigitte Bardot, shows how just the hint of oil can set off a scramble for riches.

Along with Sachs, those who sought to help included George Soros, the billionaire philanthropist, and a high-powered Washington lawyer, Gregory Craig, who defended President Bill Clinton during the Monica Lewinsky scandal.  "In West Africa, the scent of oil alone may be enough" to produce corruption, said Joseph Bell, another Washington lawyer who has traveled to São Tomé to work on new oil laws.

At the center of the São Tomé story stands ERHC, a speck of a company whose ranks have included a collection of characters and politically connected entrepreneurs like Offor.  According to a 2005 report by the attorney general of São Tomé, Offor is one of the largest donors to the governing political party in Nigeria and a close ally of Olusegun Obasanjo, who until recently was the Nigerian president.

São Tomé's unusual journey through the backwaters of the oil industry dates to the mid-1990s, when ERHC arrived there.  Large underwater oil deposits had been found nearby, off the coast of Nigeria, and ERHC believed that the tiny island might be the next big prize in West Africa.

Meanwhile, wheels were already spinning in São Tomé when activists like Sachs arrived.  Their mission: To prevent it from following in footsteps of other African countries where corruption and waste have typically followed the discovery of oil.  In Nigeria, the largest oil producer in Africa, most people live on less than $2 a day while politicians have stolen or squandered billions.

Initially, hopes for São Tomé were high.  Soon after his election as president, Fradique de Menezes, a cocoa plantation owner, vowed that his country would be different.  He turned for help to outsiders like Craig, the Washington lawyer.

But Craig, like others who followed him, found himself facing some powerful adversaries: Nigeria and Offor.  In 2001, Nigeria jumped into the picture when it signed an agreement with São Tomé to share oil revenues from waters between them.  Offor bought ERHC, which was then near bankruptcy, just a few days before that agreement was signed.

Craig said that while he successfully renegotiated contracts with other oil companies in São Tomé, Offor stonewalled him.  "The metaphor of David versus Goliath doesn't quite capture the relation between São Tomé and Nigeria," he said.  "It's more like an ant."

In time, ERHC did agree to some changes in its contract, but the company retained extremely favorable terms, including the right to choose among the best oil blocks without paying the type of special one-time fee that governments typically demand.

De Menezes continued to seek assistance; in 2003, for instance, he reached out to Sachs.  By late 2005, however, a report by the attorney general of São Tomé delivered a dose of reality.  Among other things, it found that some companies that won blocs in the zone controlled jointly by São Tomé and its neighbor were headed by Nigerian businessmen who had political ties but no oil experience.

The bidding process "was subject to serious procedural deficiencies and political manipulation," the report concluded.  In addition, the report found that some large multinational oil companies were so suspicious of ERHC that they had decided not to bid, and added that ERHC "may have made improper payments to government officials."

ERHC has disputed those findings.  It said in a statement that it had received its rights legitimately and that it had made numerous concessions to São Tomé.  "We care about perceptions of ERHC Energy and we have been working to fully understand any concerns expressed about our activities," the company said.

The attorney general's report may have precipitated a raid last summer by the FBI on ERHC's Houston offices.  Among other things, FBI agents took a file marked "William Jefferson," a reference to the Louisiana congressman, a publicly filed subpoena shows.

Dan Keeney, a spokesman for ERHC, said the company was not aware of "any facts to suggest that the U.S. government investigation of ERHC is in any way related to the ongoing investigation of Congressman Jefferson."  Whatever the case, ERHC has emerged so far as the biggest winner in São Tomé.  Over the past year, it has sold off, like speculative real estate, various rights to its holdings in São Tomé, making tens of millions of dollars.

As for the reform effort by de Menezes, the president of São Tomé, he has been far less publicly vocal during the last year, outside consultants said. De Menezes, who met on several occasions with Jefferson, did not respond to repeated requests to be interviewed for this article.

Despite earlier predictions of vast oil finds, it is unclear whether waters off São Tomé will ever produce oil in commercial quantities.  Last year, Chevron drilled the first exploration well there but failed to find much oil, and it has no immediate plans to drill again.  ERHC and a partner plan to drill next year, ERHC said.

The new oil and anticorruption statutes drafted by consultants like Bell, the Washington lawyer, have become law.  But with all the obscurity and intrigue that has now descended onto São Tomé, he, like others, question whether it will make any difference.  "The game is not lost yet," Bell said.  "But it is a very uphill game."