Business in Ghana

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Sonangol: An Economic Octopus

Posted by Business in Ghana on July 18, 2012

By Tom Burgis, www.ft.com

A tale of two financing deals encapsulates the breathtaking expansion of Angola’s state-owned oil company. In 1989, when Angola was tearing itself apart in civil war, Sonangol, the state-owned oil company, struggled to secure a $60m six-month credit line. Nowadays, bankers say, it commands multibillion-dollar borrowing facilities that stretch over 10 years.

Respected abroad, it is all-powerful at home. From the sizeable stakes it routinely takes in oil ventures led by international groups and its growing portfolio of operatorships to its interests in infrastructure, banking and real estate, the literary prize it offers and Petro, the football team it owns, Sonangol is an octopus enveloping the economy. Many observers say it is a sovereign wealth fund in all but name, spreading petrodollars around the globe. “It’s like the tail wagging the dog,” says one international official in Luanda. “It’s not a state-owned oil company: it’s like an oil company that owns the state.”

Born from the oil group that Angola’s new rulers inherited from departing Portuguese colonisers at independence, Sonangol had the strongest impetus to resist the messy graft that consumed its counterpart in Nigeria, the continent’s other big oil producr.

Its revenues financed the government’s campaign during the war. In peacetime, it has put that hard-earned efficiency at the service of rapid international expansion, securing Sonangol exploration rights from Iraq to Cuba. Last year it recorded profits of $3.3bn on revenues of $34bn. Were it listed, it would have ranked about halfway down the Fortune 500 list of the world’s biggest companies by revenue, slightly behind Coca-Cola.

Aside from its non-oil interests, it is both an energy industry participant and, as concessionaire, the referee. Now Sonangol has set a target of increasing fivefold to 500,000 barrels a day the amount of oil it produces from fields it operates, in addition to the oil that accrues to it from its equity stakes.

Sonangol drives a hard bargain in negotiations but foreign executives value its consistency on a continent where contracts can be less than sacrosanct. “Sonangol and the authorities are reliable,” says Jacques Marraud des Grottes, head of African exploration and production for France’s Total. “You sign a contract and you know there is stability.”

Yet for Sonangol’s critics, the group’s dominance is dangerous. Aside from its non-oil interests, it is both an energy industry force and, as concessionaire, the referee. Its revenues and unpublished spending arrangements form the core of a regime that concentrates power in the hands of a small ruling class. It did not respond to requests for comment.

Revenue Watch says: “The financial relations between the government and … Sonangol are complex and secretive, as are the subcontracting procedures for assigning oil sector work to outside companies, which are frequently closely linked to powerful politicians.”

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