Oil and Cement Dont Mix With Corruption in Angola
Angolan business practices are under the microscope again after a US$800 million government-backed cement factory suspended production, and its recently dismissed CEO announced a sell-off of shares whose ownership is in question.
An investigation by Maka Angola suggests the confusion surrounding the state of affairs at the Kwanza Sul Cement Factory (Fábrica de Cimento Kwanza Sul) can be traced directly to Angola’s ‘unique’ business practices under the current MPLA government, led for the past 36 years by President José Eduardo dos Santos.
The Angolan colonel who founded the company has been sacked, the operating costs have become uneconomic and the Danish company LNS in charge of running the plant says it’s owed US$20 million in unpaid fees. Legal experts have told Maka Angola that the uncertain future of the Kwanza Sul Cement Factory (FCKS) is directly related to its tangled history.
Ownership and finances as clear as mud
The origins of FCKS lie in the post-war building boom that saw Angolan cement imports rise year on year to 20% of the country’s entire import bill. Somebody somewhere came up with the idea of enabling Angolan entrepreneurs to build a cement factory in Kwanza Sul. At the time the government was actively trying to stimulate Angolan businesses, not least by offering government-backed security for the necessary start-up loans, which were often financed by foreign banks.
Up popped Colonel João Antonio Marcos Sassa – a hitherto unknown member of the Angolan Armed Forces. Somehow, without any prior knowledge of the cement industry or apparently the world of business, he became the titular head of this planned Kwanza Sul cement-production enterprise in April 2003 with 95% of its initial stock. The remaining 5% belonged to a local veterinarian and businessman named Tambwe Mukaz.
By happy coincidence however, Colonel Sassa was related to a man with all the expertise to help – Joaquim David, who until 1999 was the Chairman of the state oil giant Sonangol’s board of directors, later serving as the MPLA government’s Finance Minister, Industry Minister and Minister of Geology, Mines and Industry. It transpires that he is also a self-confessed investor in FCKS – but he sees no conflict of interest in this.
In an exclusive interview with Maka Angola, Joaquim David explained how public money, channelled through Sonangol came to finance the FCKS operation.
“FCKS was founded in 2003 with a small start-up capital of only $1,000 (…) then restructured as a limited company in 2008 with a further four major shareholders”.
These new shareholders were lawyer Silvia Maria Rodrigues Coelho – the majority shareholder with a whopping 69.5% of shares, Neusa Tukayana Mangueira Mouzinho Melão Dias (20%) and Candido Manuel Cabaça (7%), leaving the initial partners Colonel Sassa and Mukaz Tambwe with 2% and 1.5% respectively. Ms Coelho interestingly appears as a front shareholder in numerous Angolan companies linked to Angolan leaders.
A re-capitalised FCKS was now ready for business and the construction of the proposed Kwanza Sul cement factory was put out to international public tender. Two companies met the bid specification: Japan’s Sojitz and South Korea’s Samsung.
Sojitz submitted a financing proposal to the Tokyo Mitsubishi Bank (TMB). And for foreign financing, as Joaquim David explained to Maka Angola, “a sovereign state guarantee is required. This means that the State approves the project even though it is a private sector project, and facilitates the operations related to it including the foreign exchange to service the loan.”
“When we got the funding proposal for the TMB, we approached the then Finance Minister, Jose Pedro de Morais, a great friend”, says Joaquim David. “He never told us he was not giving a sovereign guarantee – but he never gave it. That’s why we approached Sonangol.”
Commercial law experts consulted by Maka Angola say this was entirely irregular, as Sonangol is not the kind of financial institution authorised to make or guarantee loans of this kind. For those with experience of doing business in Angola over the past 25 years, however, it will come as no surprise that a state-owned business could be used as a conduit for re-routing money from the public purse to a favoured private-sector business, particularly one linked to powerful interests.
Oiling the wheels of finance
MP Joaquim David, a leading shareholder and “advisor” to FCKS, opens up about the business.
Sonangol’s then Chief Finance Officer was Francisco de Lemos José Maria (the current Chair and CEO and apparently another “great friend” of Joaquim David) and a way was found to help. But there was another hurdle to overcome:
“Sonangol was unhappy with the Tokyo Mitsubishi Bank”, says Joaquim David. “At the time Angola’s foreign debt servicing was done in oil shipments and Angola wanted to change the way it paid for oil shipments to normal modes. The TMB was trying to use its influence on the world markets to prevent this change.”
So Francisco de Lemos came up with a plan: a “counter-offer to avoid any obligation to the TMB.” Sonangol was in the process of raising external finance through an international banking syndicate and was in the happy position of having an “over- supply”. “There were offers from financing banks of sums much higher than Sonangol had requested and it was proposed to include financing for FCKS in these,” explains Joaquim David.
He tells Maka Angola: “This sponsorship would avoid the due diligence of TMB and there would be no further sovereign guarantee problems for FCKS, as these would be covered by Sonangol.” Sonangol awarded funding to FCKS under what Joaquim David describes as a “standard contract, with a grace period” (unseen by Maka Angola as it is protected by a confidentiality clause) with the Angolan Investment Bank (BAI) becoming the operating agent or conduit for the financing of FCKS.
FCKS also managed to wangle a further loan of US$70 million from the BAI, of which Sonangol is incidentally (and rather conveniently) a majority shareholder. Joaquim David himself a BAI shareholder, owning five percent of its capital through his special vehicle purpose company Lobina Anstalt.
Over the next four years, thanks to Sonangol, sums of more than US $700 million were diverted into the FCKS project.
In a quid-pro-quo, FCKS would buy fuel supplies from Sonangol to operate the factory once it came online. A deal was struck with Sonangol to acquire light fuel oil (LFO) for the furnace that would supply clinker. LFO is more expensive than diesel, which the Chinese use to run their Cement Factory at Bom Jesus. But FCKS had a deal for LFO at 28 kwanzas per kilogram and at that rate it was confident the economics would work.
Overspends and a double cross?
FCKS balance sheets reports reveal that the initial budget for the project was US$500 million. However there were “deviations”, says Joaquim David, “that led to an overspend of more than US$320 million, taking the total investment cost to over US$820 million.”
“In Angola a plant of this size had never before been built. There was no prior experience…” And the unpredictability of various economic factors – what Joaquim David calls “the Angola Factor” came into play.
For example, he says the project had to call upon Portuguese experts to reinforce five bridges between the Port of Lobito and Sumbe, the factory location, so that the heavy equipment needed for the construction of the factory would not damage the bridges.
“When we reached the end of the project, which came to a standstill for more than a year for financial reasons,” continues Joaquim David, “ we were negotiating with Sonangol over servicing the debt.” “At that time we were told verbally (but not in writing) to talk to the Minister of Finance.”
“We were caught between Herod and Pilate [caught in a bind] because no-one wanted to underwrite the debt. In order not to default we wrote to the Minister of Finance to propose a new debt repayment plan through the Angola Development Bank.”
Meanwhile Sonangol accounts showed that it had transferred off its books a loan of US$ 460 million granted to FCKS “as part of the Entrepreneurship Promotion Act”. The liability had been shifted in that financial year to the Angolan Industrial Development Institute (IDIA– a body attached to Angola’s Industry Ministry) in what can only be described as a debt transfer of questionable legitimacy. Nevertheless, the National Oil Company never refers in its audited accounts to the whereabouts of the US$271 million that make up the difference between what it claims to have loaned to FCKS, while the debtor claims to have received a total investment of US$731 million.
There has been no explanation from Sonangol for the discrepancy between these figures, nor for the debt transfer, though CEO Francisco de Lemos has since admitted that Sonangol’s management model is “broken”. That would seem to be a gross understatement.
Maka Angola asked Sonangol’s Communications Director Mateus Cristovão to clarify. At his request, written questions were submitted by email in April. But as of September 2015, he has been unable to respond. Just how much Sonangol lent FCKS, where the liability has been spread and how that debt is being serviced, all remain unconfirmed.
Meanwhile in October 2014 the government authorised increased fuel prices and Sonangol used this as an excuse to almost double the price it had been charging FCKS for the light fuel, first from 28kz to 50kz per kilo and then to 91kz per kilo, making the clinker furnace operation unviable. Joaquim David says he hopes the plant will resume operations in a month. Others are less optimistic.
In his defence, Joaquim David says “I’m not the manager of this private sector project. The chairman of the FCKS Board of Directors is Manuela Vieira Lopes. I’m not even on the board. But clearly, as an investor, I give my views. I am more an adviser than a partner.”
Advisers, partners, shareholders and ghosts
So who are these partners? Who really owns FCKS? Evidently they wield enormous influence if they can not only persuade Sonangol to invest as much as US $800 million but also the Finance and Industry Ministries and the Angolan Development Bank to play musical chairs with the debt servicing and liability.
Angolan companies have in the past been set up with nominal figureheads, with the real players remaining in the background. Joaquim David acknowledges this was the case with FCKS: “It’s a transitional legal process. Our country is a bit complicated. Sometimes you have to do things quickly and create mechanisms for this purpose.”
What the published company records show is that FCKS was restructured again in 2012 with a new partner (Abdir Ltd) acquiring the entire shareholding of Neusa Tukayana Mangueira Mouzinho Melão Dias and with the remaining shares redistributed. Colonel Sassa was left holding just 1.95%.
Although Messrs Sassa, Coelho, ‘Abdir’, Cabaca and Tambwe are the nominal partners, Mr David says “the shares will belong to the final partners after the end of the debt repayment”.
One of them is apparently Joaquim David himself. He admits: “my shareholding in FCKS is 20%. It is a project of more than two or three people.” But he won’t identify the others. “As a matter of principle I do not speak of others. I answered for Sassa because [the author] published documents. I can only speak for myself. The others do not speak.”
Apparently these “final partners” remain in the shadows, waiting for their investment to pay off. This looked highly probable just a year ago. By December 2014, cement and clinker production had hit 4500 tons a day. This welcome development no doubt influenced the MPLA government when it decided to ban nearly all cement imports (with a few exceptions). But within months, FCKS was in disarray and the founding ‘partner’ Colonel Sassa had been dismissed as Chairman of the Board.
Furthermore, Maka Angola discovered that on August 18, Angola’s Oil Minister Botelho de Vasconcelos took part for the first time in a shareholder’s meeting, staying the night and planting a tree next to the administrative building of FCKS. It was at this meeting that the minister supported the permanent removal of Colonel Sassa as a shareholder.
After 12 years at the helm, Colonel Sassa was unceremoniously sacked. Evidently disgruntled, within weeks he had placed an advertisement in the state-owned and only national daily, the Jornal de Angola, announcing the sale of “his” 95% of FCKS shares to the highest bidder.
According to Joaquim David, that would be fraudulent and corrupt since “to sell 95% is to sell what we do not have. It is fraud. It is a swindle.”
Those words may come to sum up the entire FCKS venture. Maka Angola has discovered that the Danish plant managers, NLS, charge US$2 million per month for their service and allegedly they are owed some US$20 million in unpaid fees. In June they were forced to suspend production altogether. Joaquim David attributes this to the high fuel costs, which he expects to be adjusted by Sonangol in the very near future.
“We have been constantly negotiating with Sonangol and in July 2015 we obtained authorisation to procure the LFO directly from the Luanda refinery at a price of 57kz a kilo, with which we think we can survive”, he says. But he adds, “if there were no exchange restrictions and we could import the LFO, it would cost us about 40Kz per kilo at the port of Lobito.” He estimates the losses incurred by Sonangol’s price hike to be in the region of US$30 million and he blames this for “preventing the company from honouring financial commitments to its partners, including the NLS.” “We are in negotiations for production to resume”