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Angola: Swimming in oil to end up without gasoline

Africa’s second-largest crude oil producer suffers from its biggest fuel shortage in the midst of the restructuring of the energy sector

Angola suffered last May what many consider a paradox in a large crude oil producer: a fuel crisis, the disappearance of gasoline from service stations. Something so incredible that even Angolans expressed their frustration. For days, most of the gas stations closed and in the few open ones the queues of cars, motorcycles and people with drums stretched for miles. And many of those who queued, after hours of patient waiting, often found that the gas station had run out of stock. Of course, it was always possible to buy a few liters on the black market, four or five times more expensive.

The situation caused chaos in the cities. Many businesses were left without gender, public transport and taxis stopped working and many could not go to work. Luanda stretches for dozens of kilometers and without a car it is difficult to move. The worst thing is that the supply cut began to cause electrical blackouts, since most of the power plants use fuel oil to generate electricity. The government of Angola’s new president, João Lourenço (65), in office since 2017 after winning the elections with 61% of the votes, lived through the crisis with anguish. For an Executive that is a flag for the updating of infrastructures and the economy, the situation was unbearable and politically uncomfortable. Lourenço, then, took only two days to dismiss the president of Sonangol, the state oil company, Carlos Saturnino, appointed by him in place of Isabel dos Santos, daughter of the former president of the country, Eduardo dos Santos.

A single refinery

It is not, however, so rare for an oil-producing country to run out of gasoline. Although Angola pumps 1.5 million barrels a day, it has only one refinery, which produces just 20% of the country’s consumption. The state has no choice but to import the other 80% of its refineries, at a cost of 4,000 million dollars (3,570 million euros) a year. In order to resolve this shortage, an attempt was made years ago to build a second refinery, a project so badly planned that, as Borja Monreal, a consultant to African governments, comments, “it ended up abandoned after investing some 4.5 billion dollars”. The reason that Dos Santos, in power between 1979 and 2017, did not take seriously the need for the refinery was obvious: the country swam in the abundance with oil revenues, it could pay for all the refineries it needed. “This is normal in these countries, their logic consists of exporting all the crude oil, which prevents diversification and investment in refining”, explains Ángel Saz, director of ESADEgeo.

All this changed after 2014 and the fall in oil prices: revenues collapsed, which began to dent foreign exchange reserves. Sonangol began to suffer difficulties to pay for the import of these products, which were aggravated by the devaluation of the currency, the kwanza, which made imported fuels more expensive. The value of the kwanza against the euro halved in two years, from 180 kwanzas per euro at the beginning of 2018 to 374 kwanzas per euro today. And that’s not all. Sonangol is forced to charge for these products less than they are worth, since they are sold below cost: diesel at 0.36 euros per liter and gasoline at 0.43. In addition, many agencies and public companies, which consume 40% of the country’s fuel, accumulate with the oil company debts of several billion dollars. These debtors include Prodel (the electricity company), Epal (water), TAAG (air transport), the police, the army or parliament.

Accused of mismanagement in the recent crisis, the company recognized that the fuel shortage was due to the lack of foreign currency to import the refined ones. Another factor that complicates Sonangol’s action is that, according to Borja Monreal, “most of the country’s crude oil production is mortgaged to China, which has financed much of the infrastructure that has been built [by the Chinese] in the country. What has happened has sparked speculation among local commentators, who believe, however, that there is more than a mere lack of foreign exchange. Some local media thought that the crisis could be due to an attempt to “boycott” the Lourenço government. Artificial crisis? It’s possible. The MPLA, the party that has ruled Angola since independence, is divided. Lourenço, who was Minister of Defence with Dos Santos, does not maintain good relations with his predecessor; he did not want him as a successor.

Pulse for power

The relations are so cold that the president, with the argument of the fight against corruption and nepotism, did not hesitate to attack the family of Dos Santos. Isabel dos Santos, daughter of the former president and the richest woman in Africa, was removed from Sonangol’s presidency and this year annulled a 1,160 million euro contract for the construction of a real estate project in which she participated. Also her son, José Filomeno, Zenu, was dismissed from his public office and arrested.

The crisis erupted right in the middle of the president’s plans to make the sector more flexible and attract foreign investment; a set of reforms that Gonzalo Escribano, an analyst at the Real Instituto Elcano, considers “right and necessary”. The first consisted of limiting Sonangol to the production and supply of fuels, withdrawing its powers in prospecting and production, which passed to a new body, the National Agency for Petroleum, Gas and Biofuels (ANPG). The decision was not well received in Sonangol, a kind of state within the state. As if this were not enough, it has been ordered to sell its non-oil shares, for example the 19.4% of the Portuguese bank BCP or the 15.9% indirect that it has in Galp through Amorim Energia.

Source: Oil and gas

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