The head of state energy giant Sonangol is replaced just as the company plans extensive asset divestments. There is ample precedent indicating that Angola’s new ruling elite is seeking to capitalise on positions of patronage, while the country’s embattled president is facing off ruling party rifts and the prospect of mounting unrest over IMF-mandated austerity measures. EXX Africa looks at what the changes at Sonangol mean for Angola’s political and economic prospects.

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On 8 May, Angola’s President João Lourenço dismissed Carlos Saturnino as chair of state energy firm Sonangol. Saturnino was appointed in November 2017, when Lourenço fired Isabel dos Santos, who is the daughter of his predecessor former president José Eduardo dos Santos and had previously led the state oil company. Lourenço has replaced Saturnino with Sebastião Gaspar Martins, a veteran engineer with 40 years-experience at Sonangol who most recently served on the company’s board as an executive administrator. Martins has previously also headed Sonangol’s Exploration and Production (E&P) department and overseen the operations of the Sonaref refinery. He has long been touted as a potential chief at the all-important state oil company.

President Lourenço has not publicly specified the reason for Saturnino’s dismissal. Ostensibly, the latter has been made the scapegoat of the fuel crisis in the capital Luanda and other cities around the country. Over the past few weeks, massive lines of queueing motorists are becoming a frequent sight around Luanda. The day before reshuffling Sonangol’s chair, Lourenço made a public statement on the crisis, blaming a lack of communication between Sonangol and other state institutions, providing no further detail on the reported origin of the problems. Sonangol has instead claimed that mounting arrears owed to it by industrial clients have affected its balance of payments to cover imports of refined products such as gasoline and diesel. Angola imports 80 percent of its refined petroleum products.

The removal of Saturnino, who was widely regarded as a capable manager of the state oil firm, seems aimed at distracting from the actual broader economic problems facing Angola and that caused the fuel shortages in the first place. Local sources close to Sonangol have reported more opaque reasons for Saturnino’s removal, who seems to have fallen out of favour with Lourenço’s influential economic policy ‘czar’ Manuel Vicente, who is another ex-chairman of Sonangol and former deputy president. Much of the controversy surrounding the appointment of Gaspar Martins centres on his role as CEO at Angolan junior oil firm Somoil, which was founded by Vicente almost 20 years ago and retains stakes in offshore oil blocks and interests in onshore production permits. The reshuffle again poses questions about President Lourenço’s high-profile crackdown on corruption, which has recently suffered several more setbacks.

Setbacks to transparency campaign

PRESIDENT JOAO LOURENCO OF ANGOLA

The government’s highly popular anti-corruption and economic liberalisation platform is primarily aimed at diluting the political and economic dominance of former president dos Santos and his family. The dismissal of Isabel dos Santos from Sonangol and the firing of dos Santos’s son José Filomeno from the country’s sovereign wealth fund, following allegations that he attempted to embezzle USD 1.5 billion, fit into this pattern. Recent reports say that another daughter Welwitschia has fled Angola following claimed intimidation. She may be suspended as a ruling party lawmaker as result of her absence. Most dos Santos family members are now in the UK and Spain, while some face detention if they return to Angola. This strategy of targeting dos Santos family members has been enormously popular in Angola, where many people blame the family for years of corruption, mismanagement, and nepotism.

However, the crackdown on corruption has suffered a series of setbacks this year. In March, José Filomeno dos Santos was released without charge, alongside his associate Jean-Claude Bastos de Morais, who heads asset management firm Quantum Global. The releases were reportedly secured after Quantum Global ensured the return of assets worth USD 2.35 billion from UK and Mauritian bank accounts. It is unknown whether these assets were returned to the central bank or sovereign wealth fund, and how these have been accounted for since then. Local sources claim some of the returned funds have been diverted to accounts over which the treasury has no control. Angola’s judiciary has barely functioned since independence in 1975, so the failure to convict high-profile defendants like dos Santos is no surprise.

MANUEL VICENTE

Meanwhile, the government’s reputation for transparency has suffered further challenges. In January, the International Monetary Fund (IMF), intervened to halt the government’s planned acquisition of 15 aircraft from Bombardier and Boeing for national carrier Angola in a deal that included a company related to the president’s family. The IMF officially stated the procurement violated the country’s compliance with the goals laid out in the Fund’s Extended Credit Facility. There have also been few high-profile arrests on graft charges since the beginning of the year – indeed new arrests would have weakened Lourenço’s position because they could cause discord within the ruling MPLA party elite.

Most worryingly, in April, the government awarded the country’s fourth telecommunications license to little-known Telstar Telecomunicacoes, which beat 26 local and international firms. The deal triggered broad condemnation, since Telstar has no track record in mobile operations and being incorporated just over a year before the licence tender. Since then investigative reports have claimed that the entity is owned by army General Manuel João Carneiro (90%) and local businessman António Cardoso Mateus (10%). Our sources say the tender award was offered to Carneiro in exchange for his support to President Lourenço’s election campaign. Angola’s two other private mobile operators, Unitel SA and Telecomunicacoes Lda, are also partly owned by military officers. Telstar’s registered office in Luanda is usually closed and dilapidated, and the company has a share capital of just USD 600. The public fall-out over the deal was mimicked on social media to such an extent that President Lourenço has since annulled the tender and ordered a new process.

Such incidents have raised concern that the government is using President Lourenço’s liberalisation and transparency campaign not only to disarm political opponents, but also to ensure the support of its own favourite network of allies and supporters. Last year, EXX Africa released several analysis briefings and special reports, accurately forecasting such a scenario, raising particular flags over the influence of the new president’s family and the exceptional clout of Manuel Vicente (See SPECIAL REPORT: POLITICAL INFLUENCE AND PATRONAGE IN THE ‘NEW’ ANGOLA).

Manuel Vicente has a known background of opaque deals during his time as chairman of Sonangol and as deputy to then president dos Santos. His family and his closest associates control an extensive network of business interests in Angola, Nigeria, Mozambique, and Europe. Many of these commercial interests have been tainted by allegations of corruption or mismanagement through various international probes. There is less publicly known precedent of impropriety on the part of Lourenço, who served as defence minister under dos Santos. However, in EXX Africa’s publicly released report last year, we raised several questions over his purported role in the acquisition of military equipment during his time as defence minister through the same network of companies and individuals that has been implicated in Mozambique’s ‘hidden debt’ and corruption scandals (See SPECIAL FEATURE: FALL-OUT OVER MOZAMBIQUE DEBT SCANDAL RISKS SPILL-OVER INTO ANGOLA).

Oil sector restructuring

OIL PRODUCTION OFFSHORE ANGOLA

The reshuffle at the top of Sonangol comes at a critical time for the parastatal at the heart of the Angolan economy. Oil accounts for 95 percent of exports and around 70 percent of government revenues in Africa’s second-largest producer. Earlier this year, Saturnino laid out plans for extensive restructuring of the company, including divesting from 52 joint ventures, as well as reducing staff and refocussing on its core African oil operations. Saturnino also sought to improve efficiency and transparency to boost output, which has been steadily declining in recent years. Angola’s oil production fell to 1.478 million barrels per day (bpd) in 2018 from 1.632 million bpd in 2017. He also made strong inroads to reduce a backlog of around USD 5 billion in projects between 2015 and 2017, overturning some of the faults of the administration under Isabel dos Santos. He also sought to persuade oil majors to return to Angola or step up their investments, including Exxon Mobil, Total, Shell, and ENI.

It is still unclear whether Martins will pursue the same reformist trajectory as Saturnino and the reshuffle has raised questions over the turn-around of the critical oil sector. In 2018, Angola’s economy performed below expectations, mostly due to falling oil sector revenues. Amid volatile oil prices, excessive negative government intervention, together with administrative bottlenecks and an altogether adverse business environment, the sector saw a significant decline in output and investment. Despite its significant resource endowment – including the potential to produce upwards of 2 million barrels per day (bpd) of oil at full capacity – the extent of Angola’s economic malaise was such that it had very few options but to resort to the International Monetary Fund (IMF) at the end of last year. The IMF approved a three-year USD 3.7 billion loan under the institution’s Extended Fund Facility (EFF).

Since the start of the year, the sector has faced better prospects with recovering oil prices and greater efficiency imposed across Sonangol’s operations. There are immediate opportunities for the Angolan oil and gas sector such as the 2019 bid rounds for onshore and offshore blocks announced in October 2018, as concrete steps to reverse the production downward trend. Angola can also take steps to extend the life and production of mature fields and attract new players from the trending decommissioning segment. Such efforts are undermined by the pledged commitment of most of Angola’s oil shipments to China in repayment for past infrastructure projects, many of which are already crumbling. Almost 56 percent of Angola’s oil exports are destined for China on which Sonangol gains almost no revenue. Other export partners for oil sales include India, Spain, and South Africa.

Several projects will play a key part in turning around Angola’s oil sector. The planned construction of an oil pipeline between Angola and Zambia will require over USD5 billion in fresh investments. There are also ongoing projects to rehabilitate and modernise existing refineries (and to construct new ones) in a bid to increase Angola’s oil production capacity. There have also been reports of efforts to attract investment in Angola’s oil and gas industry by the Abu Dhabi National Oil Company in the context of the ongoing reforms in the sector. Last year, Total’s ultra-deep-water Kaombo project came online. The expectation is that Total’s two floating production storage and offloading units at Kaombo reach 230,000 barrels per day in 2019.

INSIGHT

The IMF’s loan approval has added further legitimacy to the economic reformist trajectory that has been ongoing since President Lourenço took office in September 2017. However, painful reforms demanded by the IMF programme will begin to have their effect this year. We expect more strikes and protests, including from skilled workers in the cities and public sector employees who are exposed to any economic downturn due to public payroll cuts and high inflation which is expected to hover around 20 percent for the next three years. The IMF is mandating fiscal discipline that includes unpopular measures such as scrapping fuel subsidies and further devaluing the kwanza. The economy is not expected to grow by more than 0.5 percent this year, although another recession may just be averted as growth is set to pick up in future years.

 

Loyalists of former president dos Santos are capitalising on mounting grievances over the economy and IMF austerity. The government is meanwhile seeking to scapegoat dos Santos loyalists for the economic malaise, claiming acts of economic sabotage lie at the heart of the acute fuel shortages. This is starting to rip apart the usually unified MPLA ruling party that has ensured Angola’s political stability since the end of the civil war. Local well-placed sources tell us that the party could permanently split unless there is an improvement in the economy and the so-perceived ‘show trials’ of dos Santos family members and associates stop.

Therefore, all eyes will be on Sonangol over the next few months as the company begins implementing its promised restructuring. Any sign that Martins seeks to overturn such reforms or lines up the elite to benefit from politically influenced tenders in privatisations would undo much of the economic benefits of the IMF programme. There are particular concerns that Somoil, which is affiliated to both Martins and Vicente, could improperly benefit from Sonangol asset sales. There is ample precedent that the loyalist network supporting President Lourenço is seeking to capitalise on their new positions of patronage. Meanwhile, Lourenço is running out of scapegoats to blame for the country’s ongoing graft and economic problems.

SEE COUNTRY OUTLOOK: ANGOLA