Black gold has been detected in Seychelles’ EEZ, raising concerns about the potential effects on its environment and society.

President James Michel says the potential is “estimated to be as large as the Saudi Arabian oil fields,” with oil flowing as early as 2015.

Studies of new oil-producing nations conclude that there’s often a negative correlation between oil and democracy. As income rises, politics can turn ugly, to the detriment of social programmes and environmental protection.

Last year, in its second African Governance Report (AGR), the UN Economic Commission for Africa (ECA) declared that Seychelles leads the way in superior infrastructure, tax system, political competitiveness and fairness of elections, in addition to achievements in education, health and care for the elderly.

Michel has already consulted Norway, which has applied the benefits of North Sea petroleum to earn the highest place on the United Nations Development Programme’s list of best social development performance.

“They have a very good system, via their sovereign fund, which ensures no one can pocket the oil revenues,” said President Michel, who is drafting similar legislation.

“We will know exactly which money belongs to the people. A certain amount will be allocated to development projects and the bulk of the money will go into the sovereign fund, which should be used for future generations and ensure continued sustainability,” he said.

Central Bank Governor Pierre Laporte points out that oil revenue may also help cushion shocks from external inflationary effects on the country and “set up a fund to keep the economy going.” His staff are taking courses in Norway on how to manage the possible financial inflow and operational best practices.

A blueprint for oil

Norway’s oil income framework is admired worldwide. It has established economic and ethical principles for the use of oil revenues to benefit current and future generations. Crucially, there’s universal political understanding that, to avoid overheating the economy and waste, the national economy should be ‘shielded’ from the exceptional inflow of oil profits.

Few so large

Australian exploration company WHL Energy has independent confirmation of the potential to produce 3.5bn barrels of oil from its licenced area. The largest prospect has the potential for over 1bn barrels, surpassing the production capacity of most oil fields worldwide.

The government stands to receive a total royalty and corporate tax income of approximately £18bn from that one find over the next 30 years. As returns from any project increase, the government is able to levy additional taxes.

“But there are no guarantees – this is a high cost, high risk business, where there is an average one-in-five chance of the first wells being successful,” cautions WHL managing director Steve Noske.

He expects Seychelles “to share in the early benefits of developing and building the oil facilities through employment and procurement of materials and services, but the real material revenues begin to flow to the government once production commences.”

UK-based Afren and Isle of Man-registered partner Avana Petroleum report “numerous large leads” that may produce 240m barrels. Their first exploratory drilling will take place before the summer and at two WHL sites in mid-2013.

So far, oil exploration has been minimal, but this year the government will auction further sectors.

Over the horizon

If drilling produces promising results, the Perth-based company will move to an offshore development phase with undersea piping and equipment and surface facilities being “well over the horizon; we don’t see the need to bring production to the coastline at this stage,” Noske says.

“We are very environmentally conscious and we would like to preserve the pristine environment of our country,” highlights President Michel.

The government “insists that every underwater pipe must be capped and removed, as must every oil rig once the oil reserves are exhausted,” explains Captain Guy Adam, Chairman of Seychelles Petroleum Company (SEYPEC), the oil and gas industry regulator, stressing “we must develop the oil sector in a safe way.”

Two-thirds of the world’s oil already passes through the Indian Ocean region. SEYPEC owns, manages and operates a fleet of six tankers, five of which ply petroleum products around the world. It also has oil storage facilities for domestic supplies and re-exports, as well as bunkering.

“As the president said, when we do discover oil, we have to think of the next generation, we have to think of it as an insurance policy for us; we cannot allow it to be a curse,” observes Peter Sinon, Minister for Investment, Natural Resources and Industry.

Along the same lines, Jean-Paul Adam, Foreign Affairs Minister, stresses that the government is not factoring any potential revenue into future economic models.

SEYPEC’s Captain Adam insists, “We must use the oil money in a very responsible fashion, so that we don’t destroy our culture and our life. If you have too much money all of a sudden it can be destructive. The way we’re planning our economy is that oil is the bonus card.”

Indeed, government officials seem determined to use any extra funds for promoting education, health, delivering housing and empowering Seychellois to take advantage of opportunities at the higher end of the economy.

While all stakeholders appear to be saying the right things about the anticipated black gold, only time will tell if good intentions translate into positive results for the public interest.