Friday, Sep 21, 2018
Energy | Africa | Angola

Energy in Angola

Despite the oil crisis, a promising energy sector shines through

3 years ago
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Mr. Pedro Godinho

President of Prodiaman

The Worldfolio team sat down with Eng. Pedro Godinho, Executive Director of the Angola-US Chamber of Commerce and President of Prodiaman to discuss the strengthening ties between both countries and what the future holds for Angola’s oil and gas sector, as well as the diversification of the economy.

Considering the fact that the United States is the second biggest commercial partner for Angola and considering that business relations between both countries surpassed 10 billion dollars and that last year both countries celebrated the strategic partnership’s fifth anniversary, how important is it for Angola to have a strategic partner like the United States?

It is extremely important and even vital, I would say; we must not forget that the United States is the greatest power in the world from an economic, military-political and technological point of view. Being a very influential country, it becomes natural that having favorable bilateral relations with the United States is in all the ways advantageous for Angola, which has much to gain. We have been struggling to diversify our economy and US-Angola relations have traditionally been sustained mostly by oil trade.

Recent economic and technological developments in the USA show that the United States has managed to increase its oil production which naturally makes them reduce oil imports from OPEC. That means that if the US-Angola relationship is mostly supported by oil trade, over the years, the US might not have a big need to import oil from Angola, which would cause a natural tendency of weakening the relations, since as I said earlier, the relations between the two countries are largely supported by interests, and in order to keep those interests alive, it would be important to diversify trading relations.

In which sectors would you say trade relations between both countries could be increased?

In several sectors, that is: energy, transport, agriculture, agro-industry, etc; as these are the most strategic ones when it comes to accelerating Angola’s economic diversification. Speaking specifically of the energy sector, there is an interesting coincidence in terms of the objectives between Angola and the US. Angola has scheduled an investment of $17 billion dollars to sustain its electrification, and in July 2013, President Barack Obama during his trip to Africa launched the project Power Africa which aims to bring electricity to several regions of the continent and to make more electricity available for at least 36 million people.

Strategically speaking, the US through its President made itself available to invest $7 billion dollars in the public sector and $13 billion dollars in the private sector. Simultaneously, Angola, according to its five-year plan will invest $17 billion dollars in its electrification. Here, we have a clear open window that could facilitate the development of a healthy relationship between both countries and also because the United States in this regard counts on very advanced technological conditions from which Angola can benefit.

Angola is blessed with great weather as here the sun shines almost the entire year, and we have renewable energy sources that could supply the remotest areas without having to depend on hydroelectric power stations.

How did the decline of the oil prices affect the government’s plans regarding economic diversification?

The negative impact is already felt, because as you may know, oil represents around 95% of Angola’s exports, approximately 65% to 70% of GDP and 48% of tax revenues. Looking at these numbers one can easily see how dependent on oil the Angolan economy is. Certainly, a decline in the price of such an important commodity to 60% would affect the whole country’s development strategy.

Actually, I'd say that we just started noticing a slowdown when it comes to public investment programs, specifically with regard to road construction, schools, houses etc, and as a result companies begin to lose the ability to employ - primarily the construction companies.

Concerning the ability to make payments to overseas suppliers of goods and services things began to become more difficult, and that will cause a lot of problems in the commercial relations between many Angolan companies and the outside world, because when we have to pay for goods or services, the Kwanza currency is not convertible. We will always have to convert  to the dollar,  Therefore, having oil revenues reduced by 50%, Angola’s total revenues are likewise reduced and therefore the amount of dollars available for payments abroad are reduced.

What policies should the government use to facilitate the entry of more Angolan companies in the oil sector?

These policies exist and are already being developed. Fortunately, the Angolan government through the Petroleum Ministry and Sonangol managed to forge a strategy that allows the access of national companies to the oil sector. There is a very strong government campaign to encourage national companies’ access to the sector. According to this strategy, companies will start by providing services and in due course advance to more ambitious areas like operating in oil blocks. With regards to providing services, the government encourages national companies’, because what happened in the past was that multinational companies would come, sell their products or services, and ultimately export all revenues. Today, the Angolan government requires from any company that wants to work in Angola to first have a national partner to which they transfer the know-how and share its revenues.

Now the issue is to have organized, well-structured and capable companies that meet the requirements of this specific side of the oil business comprised of a very demanding sector that works 24/7.

Our business culture only began after the fall of the Berlin Wall; that is why Angolan companies still need to grow and acquire the same experience that multinational companies acquired over the years.

Could you elaborate a bit on how the partnership between Prodiaman and Aker Solutions started, and what has it brought to the Angolan economy?

The partnership between Prodiaman and Aker Solutions can be seen as one of the results of the policies of the Angolan government. Aker Solutions has been based in Angola for decades. Along with the government’s determination to establish partnerships with the private sector, there started to exist a healthy and sustainable environment that served as a cradle for our partnership. Together, we had the privilege of winning in March 2014 the tender valued at $2.3 billion dollars to build sub-sea equipment for Block 32, operated by Total.

Considering the decline of the oil prices and the discovery of new onshore and offshore supplements, how do you evaluate the evolution and the future of Angola LNG, as well as the evolution of the energy sector in general?

I can see a bright future, but for that Angola has to firstly consolidate its economic diversification strategy and find the ideal partners for the energy sector and here I think that the emerging economies from Asia can contribute a lot.

In the past, our exports would go to Europe or to the US, but for more or less ten years now, things have changed. There are new emerging markets to which Angola can look at to export its oil and natural gas.

It is true that when we designed Angola LNG, the main goal was to sell natural gas to the United States; as a matter of fact Sonangol prepared all necessary conditions in the U.S and built a terminal to receive the gas that would come from the project. We are talking about a project that's worth more than $10 or $11 billion dollars. However over the years the United States found other providers of crude and natural gas and that was when Angola LNG produced its first shipment to the United States.

This was the first sign Angola was given to pay attention to the importance of economic diversification as the trends of the crude market were changing.

What is the potential of Angola in becoming the number one oil producer in Africa?

I would say that Angola has sufficient reserves to dream about that one day. Besides, we now also have pre-salt, which are also reservoirs with enormous potential. On the other hand, due to the geological similarity of the Brazilian and the Angolan coast, everything leads us to believe that with the recent discovery of the new pre-salt oil fields in Brazil, Angola may also make a discovery more or less like the one found in Brazil.

Let me emphasize that until 1975 oil exports comprised approximately 5% to 10% of Angola’s exports. The downtown area of Luanda was built thanks to the exports of coffee, as Angola was at that time the world’s third largest producer and the fourth largest of sisal. Therefore the government needs to focus on this potential, because Angolans are traditionally good farmers and this guarantees that a huge amount of jobs will be created. Let me remind you that the oil sector ensures only 0.3% of jobs.

Regarding agriculture, Angola has one of the largest hydrographic potentials in the world; we have good weather conditions and a huge and young workforce.

What are the areas of the mining sector with the biggest potential?

Besides diamonds, Angola has a lot of decorative stones like granite and marble. There is also gold in Cabinda, Namibe and Kwanza Sul.

One of the aspects we want to talk about in our report is business tourism. How would you describe Angola’s tourism potential?

Honestly, I could put tourism in the third or fourth place; the order would go as follows: oil, mining, agriculture and tourism. Angola is extremely rich and beautiful, mainly in the coastal zone. We have the sunshine almost during the entire year and beautiful beaches. Let’s not forget also the huge potential of eco-tourism because we have several outstanding points when it comes to natural beauty that if well exploited could be a crucial source of revenue.

As soon as sectors like agriculture, tourism etc are re-energized, oil could pass to the second position. When Angola was an overseas province of Portugal, oil was not very important. There are countries that live off tourism alone. Our current political leadership has to draw up a strategy to revitalize these sectors so we stop depending on oil.

Could you tell us a little about how your association with the US-Angola Chamber of Commerce started?

The US-Angola Chamber of Commerce was established in 1990 at a time when the main objective was to solve a logistical problem of the oil industry that was to take American expatriates from Angola to the United States because, back then, American expatriates had to go to the United States via Paris and because of that, 4 days would be spent with travel. A direct link between Luanda and Houston was created and the Chamber came more or less to ensure this specific objective. Over time, other problems needed solutions and fortunately the Chamber of Commerce was there to try to resolve these problems and it therefore needed to expand its range of operations and services.




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