Trouble at the top for Angola
A change of political leadership has had a more far-reaching impact on the country's oil sector than anticipated
The speed and extent of moves by Angola's new president, João Lourenço, to draw a line under the controversial rule of his predecessor, José Eduardo Dos Santos, have taken many by surprise. The actions could prove positive for the oil industry—if he can carry reforms through.
When Lourenço was elected last September, following Dos Santos' decision not to stand for re-election after almost four decades in power, it was widely expected that the new president would do little to unsettle the country's ruling elite.
He was instead expected to focus on solving the country's escalating economic crisis and seeking to attract fresh investment to the oil sector that accounts for more than 95% of foreign revenues.
Instead, he has launched a full-blooded assault on the establishment. Sacked from key positions are long-serving cronies of the Dos Santos family, including Isabel Dos Santos—the former president's daughter—who was head of state oil company
Sonangol. Lourenço has also put in place measures aimed at recovering money moved overseas illegally by politicians and businesses in the Dos Santos years, which could amount to billions of dollars. This isn't just part of a clean-out of the old guard and a signal that corruption won't be tolerated by the new leadership: Angola desperately needs any foreign currency available, since the oil price crash depleted its reserves.
The president announced he would implement a moratorium in January to allow Angolans with money abroad to repatriate their funds. Citizens who brought overseas funds back and invested productively in the economy wouldn't be harassed.
Sonangol plans to "relaunch" the stability and attractiveness of the hydrocarbons industry
"No questions will be asked about why their money was abroad and they won't face legal prosecution," he said, keen to stress that he wanted to tackle corruption, not persecute the rich. However, Lourenço also said that after the moratorium Angola would work with authorities abroad to repatriate the money.
Speculation is rife that the Angolan Kwanza could be devalued against the dollar to encourage investment and limit black-market dealing. But regional observers don't expect it to be on the scale of Egypt's hefty International Monetary Fund-inspired devaluation of its currency in late 2016, which led to rampant inflation.
Angola's traditionally arms-length relationship with the IMF may mean the government will favour a more gradualist approach to currency realignment and economic reform. This may have more in common with Nigeria's policy of recent months, rather than Egypt's.
Support for economic plans
Measures to kick-start the economy are urgently needed after the oil price crisis forced the country into recession. However, they may have to wait until the government's annual budget is formally presented in mid-February.
The draft budget, put before parliament in December, was based on an economic growth rate forecast for 2018 of 4.9%, although the IMF forecast growth of only 1.1%, following its team's visit in November.
However, the world body was broadly supportive of the new government's six-month plan, which it said was "adequately focused" on stepping up fiscal consolidation efforts, introducing greater exchange rate flexibility and improving governance.
Diversification is badly needed in a country where the oil industry has done little to alleviate poverty among much of the population. The official unemployment rate is around 25%—the actual figure is probably much greater. However, a revival of investment in the oil sector will be crucial for economic recovery.
Angola's oil production is forecast to fall from 1.66m barrels a day in 2017 to 1.06m b/d in 2023—a 36% drop—without the approval of new developments, according to government data.
Lourenço's challenge will be to remove existing constraints on the industry's development, which won't be easy without higher oil prices and more money available for the majors to invest.
Nevertheless, the sacking of Isabel Dos Santos, and her replacement as head of Sonangol by Carlos Saturnino, is likely to be welcomed by oil companies. Their dissatisfaction over the sluggish pace of approvals for new projects culminated in a meeting with the new president last October to air grievances.
Saturnino is an oil sector veteran, experienced in contract negotiation, who was fired from Sonangol by Isabel Dos Santos in 2016. He was appointed by Lourenço as secretary of state for oil to oversee a month-long review of the sector, instigated shortly after the meeting with the oil firms, before assuming Sonangol's leadership.
The government said in its budget text that it plans to remove obstacles to new field developments, mentioning blocks 14, 15, 16, 17, 31 and 32 specifically. It also suggested that such measures could arrest production declines, increasing average output to 1.7m b/d—although it didn't specify how and by when this could be done. Operators on those blocks include the companies whose representatives met the president.
Total signed several agreements for a number of new upstream and downstream projects in Angola. Patrick Pouyanné, Total's chief executive, said at the signing that he was "pleased with the strong willingness" of the government to create a more dynamic investment framework.
Among these projects is the Zinia Phase 2 development on Block 17, for which Total, as operator and with a 40% stake, and Sonangol have now agreed contractual conditions, paving the way for a final investment decision. Zinia 2, which would add 40,000 b/d of production, is to be linked to the Pazflor floating production storage and offloading (FPSO) facility.
The two companies also agreed to jointly explore Block 48 over a two-year period with a commitment to drilling one well.
Pouyanné said Total was committed to bringing the ultra-deepwater Kaombo project on Block 32 online around mid-2018. Kaombo is the largest project under development in Angola, but has suffered repeated delays, first due to its high cost-estimated at $16bn on launch in 2014—and then problems with completing the two FPSOs for the field. Between them these will aid production of 230,000 b/d of oil, with gas being sent to the Angola LNG liquefied natural gas export plant.
Total and Sonangol also signed a preliminary deal to develop a retail fuel network in Angola, including logistics and oil products supply, and a separate agreement to investigate renewable energy development.
Oil production is forecast to fall to 1.06m b/d in 2023—a 36% drop
The agreements followed the settlement of a tax dispute, which resulted in Total paying Angola $200m in the third quarter of 2017.
Sonangol said in December that it had settled its disputes with
Cobalt International Energy, which sought legal action last May over claims it was owed more than $2bn due to Sonangol's failure to buy Blocks 20 and 21 from the Houston-based company in 2015. The delay in releasing cash from the sale forced Cobalt to file for bankruptcy in the US. Sonangol said it had agreed to pay $0.5bn to settle the claim, subject to US bankruptcy court approval, and take over Cobalt's assets.
Saturnino was quick to promote the Cobalt deal as evidence of a new, more secure, investment climate, saying that Sonangol would "continue the development of strategies and actions with all stakeholders to relaunch the stability and attractiveness of the hydrocarbons industry in Angola".
While figures such as Isabel Dos Santos and the head of Angola's intelligence service have been removed from their posts and a crop of new ministers have been appointed, political risk remains.
Isabel Dos Santos, often referred to as Africa's richest woman, remains a major player in Angola, holding substantial stakes in some of the country's major financial institutions. She put a brave face on her dismissal, saying it was to be expected at a time of political change—though few had put money on her being fired so soon. Her return to the political arena can't be ruled out.
comments powered by Disqus.