(Washington, DC) - The tiny country of São Tomé e Príncipe is at a crossroads with a chance to benefit from its potential oil wealth, Human Rights Watch said in a report released today. A new government is expected to form after the elections this month, and by the end of the year São Tomé is expected to announce the companies selected as the winners of an important round of bidding for the right to drill for oil in its offshore Exclusive Economic Zone. 

The 23-page report, "An Uncertain Future: Oil Contracts and Stalled Reform in São Tomé e Príncipe," documents how São Tomé's government remains ill-equipped to manage the revenues from any hydrocarbon endowment, despite domestic and international efforts to improve financial transparency and accountability in anticipation of major oil discoveries. The international community and domestic policy-makers invested in efforts to improve the management of the country's potential oil wealth to avoid the problems that have plagued its neighbors, such as Angola or Equatorial Guinea. But the current government has not demonstrated the political will or institutional capacity to follow through on reform.

"The new government needs to learn from past mistakes," said Arvind Ganesan, business and human rights director at Human Rights Watch. "It has a window of opportunity and should use it to make sure São Tomé's citizens benefit from oil revenues when and if they start to flow."

São Tomé is believed to possess offshore oil reserves valuable enough to transform life for the tiny island nation's impoverished people. To date no oil has started to flow, and exploration continues. This has disappointed many São Toméans, but there should have been a silver lining to the delay in drilling successful wells - it gave the country more time to prepare itself to manage responsibly the vast new revenues that would come with oil. But until now, São Tomé's government has failed to make the most of that opportunity.

The failure of efforts to improve the country's management of its oil resources culminated in São Tomé's effective expulsion from the Extractive Industries Transparency Initiative (EITI) in April 2010, along with Equatorial Guinea. The initiative aims to strengthen governance by improving transparency and accountability through the verification and full publication of company payments and government revenues from oil, gas, and mining.

São Tomé is one of the world's smallest and most neglected countries. Revenues from oil could dramatically improve life for São Tomé's impoverished population, Human Rights Watch said. But if managed poorly they could send its government into a crippling spiral of corruption, as has happened in Equatorial Guinea and Angola.

The new São Tomé government should make all financial transactions related to oil licensing public, including signature bonus payments made by the companies for the right to obtain oil exploration concessions in its territory, Human Rights Watch said. It should also review all oil contracts and renegotiate those that are deemed to fall short of international best practice and reopen its contacts with the EITI Secretariat.

Human Rights Watch also urged the new São Tomé government and the next Nigerian government - after the 2011 Nigeria elections - to review the arrangements for their Joint Development Zone for oil exploration.

"São Tomé is at a crossroads, with an opportunity to serve its people and to become a model for the management of its resources," Ganesan said. "The new government should reach out for the advice and assistance that can make this happen."