Sonangol’s Billion Dollar Headache

The task facing Angola’s state oil company, Sonangol, as it adjusts to lower revenues during the slump in oil prices, is complicated by a stratospheric debt burden which gives little room for manoeuvre.  And yet the new administration is unexpectedly making repayment of one private debt a top priority.

In spite of multiple pressing issues (including the root-and-branch restructuring of Sonangol) repayment of this particular debt has been fast-tracked by Sonangol’s new CEO, the President’s daughter Isabel dos Santos.   A source close to the Sonangol board has told Maka Angola it’s the reason why Sonangol has been seeking a loan of US $800 million from a bank based in Egypt, offering as surety its shares in the Millenium BCP division of Portugal’s largest private bank, the Commercial Bank of Portugal (BCP).

The urgent repayment?  A one billion US dollar debt owed to Trafigura. This is the joint venture between the controversial Swiss multinational Trafigura, trading as the DT Group and Angola’s Cochan company. Trafigura exports Angolan crude, and then imports the refined fuels back into Angola, with a near monopoly on the import of petrol and diesel.

Does the rush to pay off  Trafigura have anything to do with the identity of the creditors involved? The joint venture involves three key Angolans dubbed ‘the Presidential Triumvirate’: Vice-President Manuel Vicente, formerly the  Chairman and CEO of Sonangol from 1999-2012; General Manuel Hélder Vieira Dias “Kopelipa”, Minister of State and Head of the Military Intelligence Bureau (Casa Militar) in the Office of the Presidency; and General Leopoldino Fragoso do Nascimento “Dino”, adviser to General Kopelipa and the man credited as the founder, Chairman and Director General of Cochan. General “Dino” is the director of Trafigura’s business interests in Angola.

Isabel dos Santos has not just taken charge of the delicate negotiations for the  loan and the pay-off to Trafigura, she also prioritized the conclusion of the transaction to acquire the Cobalt International operation in Angola, a deal agreed in August 2015. The company was linked to the Nazaki firm, but severed links after an investigation by America’s Securities and Exchange Commission (SEC) revealed hidden stakes by high-ranking Angolans.

It’s unlikely to be a coincidence that the ‘high-ranking Angolans’ in Nazaki included the ‘presidential triumvirate’ named above.  Sources close to the presidency say General Dino is the figurehead for some of the President’s most important business interests – at least those which aren’t already in his daughter’s name.

Angola spends between US $150 and 170 million a month on importing oil derivatives and without increasing its own refinery capacity it has no medium or long-term prospect of resolving this situation. Considering that Angola is currently the largest oil producing nation in Africa (since renewed violence in Nigeria’s Delta caused a fall in its 2016 production), why hasn’t it invested in building a greater refinery capacity on its own soil?

One possible answer is that some high-ranking Angolans find it more lucrative for their personal business interests to import fuel.  Insiders say that if there has been little or no effort directed towards the speedy reduction of fuel imports, it’s because the Presidency has no interest in it.

One project was given the green light: the Lobito refinery. Construction of some infrastructure was underway, but it has been halted as the project is already spiralling way over budget. Originally estimated at US $5 billion, costs have escalated to over US $14 billion – and counting.  Sources close to the project have told Maka Angola that this is due to a combination of corruption and political interference, not least in placing obstacles in the way of potential partners.

In the interim, the former Sonangol board was considering having Angolan crude refined at a South African refinery.  The deal would be underwritten by a partial trade:  the refinery would retain a portion of the crude to supply the Angolan market with fuels at a lower cost than that offered by Trafigura and its Presidential associates. This didn’t work out because Angola is contractually bound for another ten years (to 2026) by an agreement to service a US $15 billion loan from China with shipments of crude oil.  Sonangol has to service another debt of US $13 billion to a syndicate of Western banks led by the Standard Chartered Bank,  and it has to pay off the government’s debts with oil shipments as well. There is no surplus to trade elsewhere.

Oil accounts for 40 percent of Angola’s GDP, 70 percent of government revenues and 95 percent of foreign exchange income, leaving the nation of 25 million people dangerously exposed to fluctuations in world oil markets. Forecasters like Goldman Sachs say all oil producing nations are going to have to adjust to the new reality of a lower cost curve and predict that there will be a rebalancing of supply and demand in the middle of next year. That does not augur well for Angola.

The most crucial issue (both for Sonangol and the Angolan Treasury) is that the reduction in foreign exchange revenue has left a shortfall in the budget which can no longer sustain the continued imports of refined fuels.  This is likely to result in shortages of petrol and diesel in the medium term, given that the leadership’s prayers for a rise in crude oil prices looks increasingly unlikely.

This conundrum may have precipitated the ‘coup’ at Sonangol, which led the President and his associates to take direct control of the state oil company. Insiders say it certainly makes it much easier for the presidential cabal to tie up loose ends.
The takeover of Sonangol was preceded by another essential move: to name the young and inexperienced Valter Filipe to the position of Governor of the National Bank of Angola (BNA) on the recommendation of none other than General Leopoldino Fragoso do Nascimento – his close associate, “Dino”.

With these two key sectors of the Angolan economy in the discreet hands of the President’s closest business associates:  his daughter Isabel, whom many predict is being groomed to succeed her father as head of state, and the shadowy ‘Triumvirate” member General “Dino”, whose connection to the President has allowed him to rise high in the Angolan hierarchy, the ripples of concern are spreading beyond Sonangol and beyond Angola. International investigations are multiplying with charges pending against a number of Sonangol’s non-Angolan partners.  Angola’s attitude to their fate was summed up by Manuel Vicente when he told the Financial Times: “It’s their problem, they have to resolve it.”