End of an era in Angola?
Angola's controversial leader has relinquished his post, but it's hard to tell whether this will herald a clean break with a murky past for the country and its state oil company
Angola's president, José Eduardo dos Santos, stepped down in August, following nearly four decades in power, during which the country's oil wealth expanded dramatically following the bloody civil war that ended in 2002. This produced little economic benefit for much of the country's still largely impoverished population, but many accusations of rampant corruption.
At the time of writing, it was expected that Dos Santos' successor, following the 23 August presidential elections, would be 62-year-old defence minister João Lourenço, the candidate of the ruling Popular Movement for the Liberation of Angola (MPLA).
Lourenço vowed to fight corruption, increase transparency and welcome foreign investment. But he is part of the political establishment and Dos Santos may well continue to wield considerable influence after stepping down, despite reportedly being in ill health. So, it remains uncertain how significant the change at the top will be for Angolan politics and the functioning of the oil industry, which has been dogged by accusations of financial mismanagement.
Still, there are hopes that moving on from the Dos Santos era will be broadly positive. "For Angola, I think it will be a new chapter and perhaps will help put the civil war further behind it," David Thomson, a sub-Saharan Africa analyst at consultancy Wood Mackenzie said ahead of the elections.
The president's daughter Isabel dos Santos—Africa's richest woman, according to Forbes magazine—was appointed by her father as chief executive of state oil company Sonangol in June 2016. She vowed to overhaul the company, which is both regulator and administrator of the oil and gas sector, but has made little headway, hampered by a revenue crisis triggered by the oil price slide since late-2014.
Sonangol has struggled to obtain credit on financial markets and local media have reported that finance minister Archer Mangueira turned down a request from Dos Santos in May to inject $3bn into Sonangol to keep it afloat. While Sonangol's upstream operations are largely funded by the international oil companies working offshore, the rest of the company has struggled to function.
Trimming the fat
Efforts have been made to straighten out Sonangol's operations since Isabel dos Santos took over, even if its restructuring remains a work in progress. Major capital-intensive projects, such as a new refinery in Lobita and an oil terminal in Barra da Dante, have been shelved.
"A lot of staff have been sacked, management perks and non-essential travel have been stopped and attempts have been made to streamline," said Thomson. "It is fair to say that Sonangol had a lot of fat to cut off and it is slowly emerging leaner."
Isabel Dos Santos also cancelled the country's last onshore licensing round, which, back in December 2015, had awarded acreage to little known and locally based companies with few prospects of having the resources to develop it.
Reforms aimed at bringing in more international investment to the oil sector by improving licensing terms and the revenue-sharing framework were introduced by the Ministry of Petroleum in 2015 and 2016. However, a recent paper from the Oxford Institute of Energy Studies notes the difficulties in the reform process, and cites the lack of harmony between government ministries regarding their treatment of oil majors during this economic crisis.
"While the Ministry of Petroleum is trying to create incentives, and provide corporate relief, the cash-strapped Ministry of Finance is intent on pursuing, via government decree, the immediate settlement of disputed outstanding tax obligations owed by the IOCs to the Treasury," wrote the author, Lucy Corkin of Rand Merchant Bank.
She noted that this situation had increased the level of policy uncertainty faced by the oil majors, most of which were adopting a wait-and-see approach, despite the favourable regulatory reform. The Ministry of Finance claimed in late May that disputes with the IOCs had been resolved. But such uncertainties have hardly helped to revitalise the sector.
Angola had attempted to raise oil production to 2 million b/d by 2016, but output has remained around 1.7m b/d, largely due to a decline in production at mature fields and technical issues. Wood Mackenzie estimates that production will remain at around 1.7m-1.8m b/d until 2020, after which there could be a sharp decline-a worrying sign in a country where oil revenues represent 45% of GDP and 95% of exports.
Meanwhile, BP said in June it had relinquished its 50% interest in offshore block 24/11 in the Kwanza Basin, after determining the 2014 Katambi gas discovery to be uncommercial. As a result of this and other poor exploration results in the country, BP took a $0.75bn write off relating to Angola in its second quarter results.
Thomson said the decision was not surprising: "The Kwanza has really disappointed and BP is not the first to exit the basin."