On October 6, with the dust still settling on Angola’s first change of
power in 38 years, new President Jo?o Lourenço sat down with
international oil majors at the presidential palace in Luanda.
The top executives in Angola of Chevron, Total, BP, Eni and Exxon said
the oil sector was being devastated by delays in project approvals at
Sonangol and a backlog of payments owed by the state oil company,
according to four oil industry sources with knowledge of the meeting.
They warned Lourenço that Angola’s production would decline from 2019
unless swift action was taken to tackle problems at the firm, which was
headed by Isabel dos Santos, daughter of his presidential predecessor,
the sources said.
They declined to be named because the discussions were confidential.
Six weeks later the president fired dos Santos, Africa’s richest woman who is nicknamed the “princess” in Angola.
The oil majors all declined to comment on the meeting.
Lourenço’s office and Sonangol did not respond to requests for comment.
It was a highly unusual gathering; foreign oil firms operate nearly all
of Angola’s production and hold huge sway, but meeting the president as a
united group was almost unheard of.
The nature of the discussions has not been previously reported.
The talks, and subsequent events leading up to dos Santos’ dismissal,
shed light on the reasons behind her ouster — a decision never
officially explained.
They offer new insight into the current state of the most important
company in Angola, which relies on oil for a third of its economic
output and over 95% of exports, and the big challenges facing the new
management of the debt-laden firm.
The dismissal also points to the waning power of the dos Santos family,
which has dominated Angolan politics and business for decades.
Isabel dos Santos’ father José Eduardo had ruled the country since 1979,
amassing wealth for his relatives who own companies in almost every
part of the economy.
Billionaire dos Santos, who had been Sonangol chair since June 2016, has
said she was in the process of restructuring to root out waste and
corruption at a company that was struggling even before oil prices
plunged in mid-2014.
Her representatives declined to comment for this story, and instead
pointed Reuters to two statements, issued in the days after her exit,
when she outlined her achievements including reducing debt to $7bn from
$13bn, raising annual revenue to $15.6bn from $14.8bn and cutting costs.
In her departing speech to staff, she said the company had been “nearly
bankrupt” when she took over, devastated by the oil-price
collapse.”Memories are short,” she added.
However, according to interviews with 10 sources, including the four oil
industry sources as well as officials from Sonangol and the government,
Lourenço was frustrated with the slow pace of change at the company.
On October 13, a week after meeting the oil majors and 17 days after
taking office, the president ordered government ministers, Sonangol and
international oil companies to form a 30-day working group to review the
state of the industry.
The group’s meetings, many of them led by new Secretary of State for Oil Carlos Saturnino, were tense, the sources said.
Saturnino, an oil industry veteran, had been fired by dos Santos from
his role as head of production and exploration at Sonangol last year
when she accused him of gross mismanagement.
Even though dos Santos had launched a turnaround plan, huge hold-ups in
the approval of projects were strangling the oil sector, according to
the sources.
Her board had implemented a system for checking projects submitted by
foreign oil companies which in practice exacerbated the problem, they
said.
She had also created a gulf between her board and the rest of the
company by surrounding herself with foreign consultants, said the
people, who declined to be named due to the confidential nature of the
industry review and related discussions.
The working group concluded there was “a near paralysis” at Sonangol, according to a government source.
As the group assessed the state of the industry, Lourenço met Sonangol’s
biggest lenders — including the Bank of China, Standard Bank and
Standard Chartered — to understand Sonangol’s financial situation and
secure lower lending rates, according to a source familiar with the
talks.
“Lourenço realised Sonangol needs money fast,” said the source, adding
that the company had been seeking to restructure some payments.
Standard Bank declined to comment, citing client confidentiality, while
Standard Chartered and Bank of China did not respond to requests for
comment.
Sonangol’s direct debt to Chinese banks and lending consortia including
Chinese banks stood at $3.8bn at the end of 2016, according to the
company’s annual report.
Oil industry sources told Reuters this debt now stood at about $3bn, plus another $3bn to majors, contractors and traders.
Of that, nearly $1bn is owed to trading firms Trafigura and Vitol under
loans guaranteed by oil or product exports, according to a source close
to Sonangol.
The government itself also last year took out a further $6.9bn loan from
the China Development Bank that it lent to Sonangol, $3.8bn of which
the firm used to refinance debt, according to an International Monetary
Fund report.
Supporters of dos Santos, who are familiar with her work at Sonangol, said the debts dated back to before her tenure.
They said the company was now in better financial state.
The slow pace of restructuring, they say, was due to the scale of the job and restraints imposed by the state on selling assets.
Her dismissal, according to them, was purely political and part of a campaign by the president against her family.
With consensus in government building fast against dos Santos, she responded with a charm offensive.
In London, she met CEOs of major oil companies at an industry conference.
On October 18, she did a rare live interview at the Reuters office in the city’s Canary Wharf financial district.
In the Reuters interview, she described her relationship with the new
president as one of “full alignment”. But she gave a hint that her days
at Sonangol may be numbered, when asked if she would stay to see through
the transformation of the firm.
“Once the foundations have been laid and are right, it doesn’t matter
who steps in as long as the plan is good,” said dos Santos, who has
stakes in businesses from telecoms to diamonds.
The charm offensive was too little, too late.
On November 15, dos Santos and most of her board were sacked.
She was replaced by the man that had become her nemesis: Saturnino.
Foundations notwithstanding, the new management faces the tasks of
getting projects moving again, repaying billions of dollars owed to oil
majors, contractors and traders, and servicing billions more dollars of
debt owed to Chinese banks.
An executive at Sonangol said a massive round of lay-offs had been
delayed until after the election and the task would also now most likely
fall to the new team.
Lourenço, however, appeared confident of Sonangol’s potential when he
attended the board’s inauguration on October 16, describing the company
as a “golden goose”. “Take good care of her,” he said. - Reuters
Isabel dos Santos