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Home , Andulo, Chris Hondros, Corruption in Angola, Creditanstalt, Desiderio Costa, De Beers

Dedicated to the inspiration of Jeffrey Reynolds

ISBN 0 9527593 9 X Published by Ltd P O Box 6042, N19 5WP,UK Telephone:+ 44 (0)20 7272 6731 Fax: + 44 (0)20 7272 9425 e-mail: [email protected] a crude awakening The Role of the Oil and Banking Industries in ’s Civil War and the Plunder of State Assets http://www.oneworld.org/globalwitness/ A CRUDE AWAKENING 1 The RoleoftheOilandBankingIndustriesin Angola’s Civil War andthePlunderofState Assets G ABON Atlantic Cabinda Namibe Ocean Luanda Namibe a crudeawakening PRTOS SENATE JUNE161998. OPERATIONS, COMMITTEEON APPROPRIATIONS, SECRETARY SUBCOMMITTEEONFOREIGN OFSTATE, MADELEINE ALBRIGHT, direction....” encourage the Angolan Government tomove inthis program ofeconomic reform.We have andwillcontinue to revenues isforthegovernment toembrace acomprehensive Our besthopetoensure theefficientandtransparent useofoil Angola outofwidespread poverty... development isfar lessthanisrequired topullthepeopleof and have ensured thatspendingonsocialservices and economicmismanagement, expenditures, high military butthecombinationof full extent ofcorruptionisunknown, critical impedimenttoeconomicdevelopment in Angola.The hasbeena andtheperceptionofcorruption, corruption, wouldagree that inandoutof Angola, “Most observers, 0

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d 20NOVEMBER 1999. LONDON, AND STUDIES, AFRICAN SCHOOLOFORIENTALSOUTHERN (ACTSA)AFRICA ANNUAL CONFERENCE, MINISTEROFSTATE, PETERHAIN,TO THE SPEECH BYFCO ACTION FOR too.”stable Africa stable Angola andamore peaceful, create amore peaceful, transparency isinourjointinterests becauseitwillhelpto full notseekacompetitive advantage: operate together, theUSAandFrance toco- and thegovernments ofBritain, Iwant theoilcompanies off butare invested inthecountry. institutions sothatitiscleartheserevenues are notsyphoned international community andtheinternationalfinancial shouldbeopenwiththe likediamond traders deBeers, Elf,Total andExxonthe like BP—Amoco, work in Angola, “There shouldbefulltransparency.The oilcompanieswho o Lumbala ZAMBIA EGYPT SUDAN ZAMBI ETHIOPIA Cazombo MADAGASCAR TANZANIA

SOMALIA

c 1999 Michael S. Miller Angola National Life expectancy Population Angola SocialIndicators One mine incident for every 430 people One mineincidentfor every Disabled landmine victims Landmines People requiring Population without Population withoutaccess Population withoutaccess rate Maternal mortality Population livinginabsolute Poverty Statistics Enrollment rateofschool-age ratefor childrenInfant Mortality rateatbirths Infant Mortality Percentage ofpopulationunder18 Children Adult LiteracyRate Unemployment rate Confirmed number of Internally Displaced Estimated rateofsevere Children under5years 25 years isatitshighestlevel in Child malnutrition Underweight children Budget 1999 Food Aid access tohealthcare to adequatesanitation to drinkingwater during 1996 and relative poverty children under 5 since January 1998 since January Internally DisplacedPersons Persons malnutrition suffering malnutrition INDICATORS SOCIAL 16.7% (3.5%severe state) estimated 1.7million 40% (42%in1992) 1,854 per100,000 292 per1,000 170 per1,000 US$5.1 billion 11.7 million 3.2 million 1,046,563 42 years 86,000 82.5% 53.8% 41.6% 76% 60% 59% 66% 80% 13% © Chris Hondros ([email protected]) SUMMARY Victim ofwar andcorruption must play thisleadingrole. and thefinancecompaniesthathave provided oilbacked loans, creating new levels oftransparency.The international oilindustry these companieschangetheway they conducttheiraffairs, suchitisimperative that complicity inthecurrent situation.As andfinancialworld must accepttheir international oilindustry main generatorsofrevenue the tothegovernment of Angola, have the pursuedprofit and vested interests first.As departments, government credit andcertain insurance export , that they are playing withthepoliticsandlives of Angola’s people. theinternationaloilcompaniesmust accept Given thisscenario, government. press hasbeeneffectively isnoaccountabilityof muzzled.There been madeby thegovernment tostiflealloppositionandthe has Considerableeffort directly decline. contributingtofurther than contributingto Angola’s development,Angola’s oilrevenue is Rather to mentionenormoussuffering for the Angolan people. not aswell asfor internationalarmsdealers, armed forces (FAA), is generatingvastprofits for toplevel generalswithinthe Angolan atthecentre ofpower around thePresidency.The war individuals, theaspirationsofelite forsubverted personalgainandtosupport of A significantportion Angola’s oilderived wealth isbeing ehial ea,doesnotmake themmorally defensible”. technically legal, whichmakes them structures setupby theleaders, Justbecausetheoilrevenues are beingpaidinto theft’. of rulers in Angola participate service.The ‘legalparticular commentator states, future development potentialof one Angola) intoablackhole.As In togetherwithlending Angola theinternationaloilindustry nefc,internationaloilcompaniesare paying vastsums(the In effect, 1 “This islike fora payinggangsters 2 UPSTREAM UNSC UNITA SIGNATURE BONUS PSA PROFIT OIL OPIC OPEC OIL COLLATORISED LOAN OECD MPLA LIBOR JV IMF IFI FUTUNGO DEBELAS FAA ESCROW ACCOUNT COST OIL BPD BNA BERMUDA TRIANGLE Glossary eeecs22 21 19 17 19 18 15-16 20 References Conclusion Norway:The CaseFor Positive UseOfOil Wealth 13 The RoleOf The OpicIn Angola’s OilDebtFiasco Credit Guarantees Export 14 The Oil Trusts Future An Oil-Mortgaged 10 Credit On Tap Angola’s Burden OfDebt The CorruptionOf The Angolan Economy 6 The CaseFor 4 “Full Transparency”And A More The UntouchableOiligarchy 2 The CorruptKey 3 Players And Their Role 1 8 The Ultra-Deep-Water Blocks31-33:TheRoute Elf Aquitaine Case Study: Corporate Responsibility& Accountability, StateOf Case Study:The Transparency Today The ContributionOf The OilIndustry To Disease’ The ‘Dutch Of Overview The Angolan Introduction Recommendations Summary Social Indicators Contents refining. operating licencesfor oilblocksfrom governments. oil companiestoencouragefavorable decisionsintheawarding oflucrative upto100million barrels 80%andover 100millionbarrels 90%. 70%, upto50millionbarrels thegovernment receives 55%; 25 millionbarrels, offinanciersathighratesinterests forconsortiums future oilproduction. accepted benchmark. andisaninternationally Itisfixed daily for reference purposes, London. prepared tolendeachotherfor specifiedmaturitiesinthemarket in . have beenfulfilled. tobedelivereddeposited withaneutralthird conditions party whencertain operating costsandexpenses. development and each year inorder torecover allallowable exploration, Futungo deBelas. Oil contractonly usedinCabinda’s offshore Block0. International FinancialInstitution. International Monetary Fund. International Monetary rdcinSaigAreet oilcontractusedfor deep-wateroilfields. Production Sharing Agreement; Barrels perday. . Angolan Armed National Bankof Angola. tia oprt oe13 13 9-10 Ethical Corporate Role 11-12 6-8 In Driving The War 5 Shipments NewTo Arms For Angola? Or Corporate Hypocrisy? Economy The Angolan 1955-1999 Oil Industry Overseas PrivateInvestment Corporation. Popular Movement for theLiberationof Angola. Organisation ofPetroleum Countries. Exporting United NationsSecurity Council. Organisation for EconomicCooperationandDevelopment. odnitrbn fee ae:istherateatwhichbanks are London inter- offered rate: National Unionfor the Total Independenceof Angola. The contractormay take upto50%ofthecrudeoilproduced Those activities of the oil industry thatinvolveThose activitiesofthe oilindustry extraction and rftOlslti ae ncmltv rdcin Onthefirst Profit Oilsplitisbasedoncumulative production. Multimillion dollar ‘sweetner’ payments awarded by Used inoffshore transactions—involves money h ainlBn fAgl,Sonangol and The NationalBankof Angola, Private residence and political court ofthe Private residence andpoliticalcourt Large sumofmoney delivered by

A CRUDE AWAKENING 2 A CRUDE AWAKENING 3 RECOMMENDATIONS Angola andinternationally. transfer andthevalue ofsuchfundsshouldbemadepublicin appropriate competentandaudited Angolan authorities.The responsibility forthemanagementofsuchfundsto the management of Angola’s revenue shouldreturn the and otherinternationalbankswhichare responsible forthe International Covenant onCivilandPoliticalRights. andthe Declarationas theUniversal ofHumanRights, such tointernationalconventions, obligations asasignatory andinsistthatthe Angolan Government respects its society, public scrutiny. by openingitsaccountsto complying with Angolan law, burden shouldbeonSonangoltoproveelsewhere.The itis the termsofconcessionagreements forCabindaand broad alliancefortransparency. international community andinternationalNGO’s toforma the and representatives ofcivilsocietyin Angola, ofthe members Angolan Government UNagencies, Bank, in Angola andinternationally. publicised, investment. further thisaprecondition making of entire Angolan oilsector, coalition should: sucha Specifically, Government revenue andexpenditure. attempts toforgetransparency andaccountabilityfor Angolan section – ‘The CaseforFull Transparency’). isadopted(see apolicyof ‘full transparency’ accountability, problems oflacktransparency andgovernment Oil companiesinvolved in Angola should: structures forrepatriation ofstolenassetsare established. untilauditedcontrol publicise suchassets andfreeze them, should orcloseto the Angolan Presidency, individuals within, specifically: make suchinformationpublic; should deposits whichare likely tohave comefrom Angola, the Presidency and Sonangol. such as current situationwithamultitude ofparallel channels, rather thanthe appropriately auditedgovernment channel, budgetsandexpenditures. independent auditofallmilitary accountability forgovernment incomeandexpenditure. includingthecreation oftransparency and management, should bemadesubjecttoradical changesto Angola’s financial in Angola andinternationally. payment andinterest payable, of terms amounts, beneficiaries, declaring with Angola, should: orplanningfuture loansto Angola loan arrangements, International financeinstitutionseitherinvolved inexisting asdefinedby theIMF.national transparency, Angolan oilcargoesshouldinsistonauditedprogress in etc. scholarships for dubiousprojects suchashousereconstruction, internationally. andtheresults shouldbepublishedin Angola and performance, independently auditedforbothfinancialandsocial involved inthearmstrade. The oilcompaniesshouldrefuse toworkwithcompanies Establish a formal coalition, which should support IMF whichshouldsupport Establish aformalcoalition, in Angola andinothercountrieswithsimilar Ensure that, nentoa ak,wihhnl noa ud,orlarge whichhandle Angolan funds, International Banks, Ensure thatany future loansare payable through one All future loansshould bemadesubjecttoafull The provision ofallnew loanarrangements for Angola, Fully publishallloanarrangements whichhave beenmade buying International oilcompaniesandrefineries, suchasthosedeployed Immediately declare allpayments, Ensure thatoilcompany socialprogrammes shouldbe companies. Declare theirrelationship withequitypartner .B 2. 1. thedevelopment of Publiclysupport Angolan civil 5. Demandproof from Sonangolthatitisnotbreaking 4. the Immediatelyarrange talkswiththeIMF, World 3. and results oftheauditmust bepublished, 2.The afullindependentauditofthe Immediatelyundertake 1. ly’ aki odn whichrunstheCabinda Lloyd’sTrust BankinLondon, anks whichholdlargeprivate depositsbelongingto 61 , eentudrae,that couldhave ledtoearlier peace. were notundertaken, where initiatives suchasCambodia, in otherconflict countries, Sucha review shouldexamine similarissues are notrepeated. toensure ofjudgement thatclearerrors initiatives in Angola, European anti-graft . butthere doesnotappear tobeeffective paying graft, US companiescanbeprosecuted for anti-graft legislation. Zaire’s President Mobutu. Indonesiaandfor theassetsofformer- example inNigeria, for Suchworkhas already beenundertaken, channels. audited with assetsreturnable to Angola through appropriate, accountsshould befrozen, fund sourcescannotbejustified, The provenance ofsuchfundsshouldbedetermined–where accounts heldby Angola’s elitepoliticiansandpower brokers. shouldinvestigate thewhereabouts ofallsecret Angola, in Angola. campaign fortransparency and accountabilityofGovernment tocreate abroad allianceandaproactive company coalition, development ofanethicalforeign policy. withregard important tothe Thisisparticularly Angola. adopt aforcefulcommonpositioninfavour oftransparency in anddemandthat thecompanies their respective oilmajors ‘Full NationalGovernments shouldmeetwith Transparency’. practices toensure thatthesecompaniespractice apolicyof to the Angolan Presidency asatestcase. focus onthebankingactivitiesofindividualswithinandclose Covenant onCivilandPoliticalRights. andthe International DeclarationUniversal ofHumanRights, suchasthe tointernational conventions, as asignatory and insistthatthe Angolan Government respects its obligations thiscommonposition. proactively support ensure thatrespective nationaloilcompaniesandBanks Theinternationalcommunity should of government in Angola. toinsistontransparencyand the andaccountability World Bank, Government. the issueoflacktransparency andaccountabilityof shouldbeextended totake intoaccount UNITA’s war effort, The InternationalCommunity should: Covenant onCivilandPoliticalRights. andthe International DeclarationUniversal ofHumanRights, suchasthe tointernationalconventions, as asignatory andthat Angola isnotinbreach ofitsobligations adhered to, economy.war in Angola’s concernistherole ofFAAgenerals Ofparticular confiscated. removed from positionsofinfluenceandtheirassetsshouldbe shouldbe profiting outofthecontinuing conflictin Angola, are removed.Those individualswhohave been look forpeace, andwhichseverely limittheincentive to are drivingthewar, andcontracts whichhave beenentered into. been made, clarification shouldincludedetailsofpaymentswhichhave Such and companieswhichare highlightedinthisreport. their recommendations shouldbeactedupon. and The results oftheirworkshouldbepublishedin Angola, are abletofullyoperate. ‘Alta autoridadecontra acorrupcao’ transparency andaccountability. withno deployment, ofbudgetary controls largeparts fully clarifyallrevenues thatare controlled by thePresidency. government government incomeanditsexpenditure.The should should: Government The Angolan Conduct areview oftheimplementationpastpeace Ensure thatthere isworkable andeffective international to aiddonors andparticularly National Governments, the Join together withtheIMF, World Bankandtheoil andfinancialworldchangetheir Insist thattheoilindustry The Proposed US should ‘ Act of1999’ thedevelopment of Publicly support Angolan civilsociety, Take together withtheIMF upaproactive commonposition, focusedontheissue Ensure thatthecurrent UNefforts, Immediately ensure that Angola’s isfully which Ensure thatthevested interests ofeliteindividuals, armstraders Publicly clarifytherole ofthekey individuals, Immediately ensure thatthe andthe Tribunel deContas’ Immediately endthepractice whereby thePresidency for Immediately implementapolicyof ‘full transparency’ Rough Trade’ Witness publishedthedocument‘A enter trade.InDecember1998,Global fromsuchconflictsdonot workable solutionstoensurethat campaign hassoughttodevelop diamonds infundingrebelforces.This particular focusontheroleof of naturalresourcesinconflict,witha of abroadercampaigntotackletherole work onAngolatodatehasbeenpart funding ofconflict.GlobalWitness’ the roleofnaturalresourcesin profit organisation,whichfocuseson Government. longer tobeamatterofpriorityfor being ofthepopulationappearsno- unaccounted for, andwherethewell- proportion ofnationalwealthis country stillatwar, whereamassive thriving economy, insteaditisa Angola shouldbeacountrywith according tosocialindicators.Whilst Angola at160outof174countries, Development Index(HDI)places when the1999UNHuman soon becomethelargest;thisatatime recent discoveriessuggestingitcould largest oilproducerafterNigeria,with Angola issub-SaharanAfrica’s second INTRODUCTION corporate accountability incountries urgent rethinkon theissueof severely underminedthiseffort. lack ofcommentfromtheoilsector has provision ofshort-termloansand the Angolan Government.Boththe for fiscaltransparencyfromthe number ofyears,theIMFhaspushed Angolan Governmentincome.Fora negative effectsoflowoilpriceson interest loans,severelyexacerbatingthe sector providesshort-term,high Government revenueandthebanking provide thevastmajorityof This isbecausetheoilcompanies equation ofcorruptionandopacity. industries arethekeyfactorinthis arrangements isurgentlyrequired. within theoilaccountsandloan within government,particularly on valueforthestate.Transparency more onthebasisofcronyism,than and bankingloanshavebeenarranged, situation whereover-priced armsdeals accountability ofgovernmentanda This hascreatedalackof revenues bytheAngolanGovernment. un-transparent useofgrowingoil the otherkeyfactoriscorruptand only partoftheproblem.InAngola, tradeandUNITA represent Angola. specifically UNITA’s civilwarin countries inthefacilitationofconflict; international diamondtradeandkey focus debateontheroleof Global Witness isaBritishnot-for- Global Witness isadvocating an The internationaloilandbanking However, theinternational 3 , whichwasintendedto

© Jeff Barbee/Panos Pictures lrn a,Cabinda Flaring gas, December 1998 occurredforavariety sanctions implementation record. radical improvementoftheUN’s Ambassador Fowler, willresultina Committee, headedbyCanada’s UN initiatives oftheUNSanctions war. Itishoped thatthe1999 address thesourcesoffunding for the mid-1998 thattheUNstartedto the 1992electionsanditwasnotuntil peace, especiallyaroundthetimeof inadequate internationalsupportfor failed thepeopleofAngola.Therewas responsible globalcitizens. companies mightfinallybehavelike the wayitconductsitsaffairs,sothat extractive industries,radicallychanges especially theoilsectorandother community toensurethatbusiness, is callingontheinternational countries ofoperation.GlobalWitness required todemonstrateintheirhome which companiesarenormally of transparencyoverandbeyondthat accountability requiresanextralevel worst non-existent.Such transparency areatbestfragile,and government accountabilityand conflict, andwherestructuresof that areeitheremergingfrom,orin The resumption ofwarin The internationalcommunityhas financial management ofstateassets. to theurgencyfor reforminthe of futurerevenue addsfurtherweight Angola’s economy. Thepotentialscale worth overthecomingfiveyears to forecast ofwhatthissectorshould be present day, andthento provide a budget from1994,throughtothe of theoilindustrytoAngola’s national provide ananalysisofthecontribution document, therefore,attemptsto for thestateofeconomy. This account formisallocationoffundsand Angolans tocalltheirgovernment society makesitextremelydifficultfor suppression ofAngola’s nascentcivil for arealpeaceinitiative. incentive fortheseindividualstolook such asituationprovideslittleorno lucrative. Itgoeswithoutsayingthat this isnotaproblembecausewar In otherwords,ifthewarcontinues, and aclearconflictofinterestprevails. individuals, thewarisendgame today, itisclearthatforsomeofthese now alsoplaysakeyrole.InAngola real powerandinfluenceinLuanda certain keyindividualswhocontrol However, thewealthgenerationof investment inthepeaceprocess. of reasons,includinginadequate Press censorshipandthe

A CRUDE AWAKENING 4 A CRUDE AWAKENING 5 OVERVIEW OF THE ANGOLAN OILINDUSTRY 1955-1999 Ministry ofFinanceandtheNational Bank Ministry jointly with the and, reference levels, setstax production levels andgasflaring, regulates field development activities, Itapproves explorationand industry. ofPetroleumMinistry tooversee theoil itistheresponsibility of the government, in the oilindustry Angola.Within established theorganisationalstructure for Sonangol. Shelland Chevron, Norsk Hydro, was awarded consistingof toaconsortium block34 InOctober1999, blocks 31-33. awarded thefirstthree ‘ultra-deepwater’ theGovernment InMay 1999, 14–30. blocks water depthsof150-600metres; Government created 17new blocksin exploitation ofthedeepwaterdeposits.The The nextstageindevelopment wasthe wasdividedinto13blocks. from Cabinda, apart entire shallow-water offshore area, the continental shelfin1978and1979, property.” intheformofstate the Angolan People, belongsto international conventions, asestablishedby exercises sovereignty, domainoverany which territory Angola orwithin People’s Republicof Angola, limit ofthejurisdictionalwaters ofthe uptothe within thenationalterritory, underground oron the continentalshelf and gaseous hydrocarbons whichexist “establishes thatalldepositsofliquid of stateownership; intheform property ofthe Angolan people, resources are definedasthe thecountry’s law andtheConstitution, underthis More importantly, production. development and for oilexploration, companies toobtaintheresources needed enter intoassociationswithforeign development whilebeingpermittedto concessionaire for oilexplorationand Sonangol wasestablishedastheexclusive Underthislaw, (law 13/78)in1978. andenactedapetroleum law (Sonangol), Sociedade NaçionaodeCombustiveis the set upanationaloilcompany, In1976theGovernment the Cabindaarea. subsequent discoveries have beenmadein Angola’s andnumerous principalexport oilbecame In1973, enclave ofCabinda. discovered oiloffthe Angolan coastal 1984, ofChevronwhich becameasubsidiary in Cabinda GulfOilCompany (CABCOG), cameinthelate1960swhen industry expansion ofthecountry’s upstream oil main Luanda toprocess theoil.The (Petroangol) in and constructedarefinery FinaPetróleos de owned company, Angola administration establishedthejointly which togetherwiththe Angolan colonial the onshore Kwanzavalley by Petrofina, began in1955whenoilwasdiscovered in ignored from virtually day one. providing 7%ofUSoilimports. crude oiltotheUnitedStatesin1998 was thesixthlargestsupplierofimported significant non-OPECoilproducer.Angola (bpd) Angola produced 770,000barrels perday Law no13/78andsubsequentlaws, Following aseismicsurvey ofthe in The Angola Law No13/78of26 4 in thelatterhalfof1999andisa 7 6 a factsystematically th August 1978, 5

© Jeff Barbee/Panos Pictures eo:Cbna drillingforoil Cabinda, Below: rnia prtro h rjc,bearthe principal operatoroftheproject, normally assumestheresponsibilities of oneofwhich companies, participating the Underthesearrangements, concession. only exceptiontothisistheCabinda for alllicencesawarded by Sonangol.The such arrangements withSonangol. in more than30companiesparticipating present there are behalf oftheState.At the power tocollecttaxes andrevenues on thecompaniesandhas Sonangol supervises investment through ‘cost oil’and ‘profit oil’. and development butrecoup their bearthefullcostofexploration Sonangol, ascontractorsto companies serve with foreign oilcompaniesby whichforeign or Production Sharing Agreements (PSAs) production according totheirshareholding; splitinvestmentits partners costsand Joint Ventures (JVs)inwhichSonangol and operations itisallowed toenterintoeither of oilproducts in Angola.To conduct these distributionandmarketing transportation, storage, production, development, concession for theexploration, Sonangol. owned oilcompany, operations andinvestments ofthestate the itsupervises of Angola (BNA), Luanda Sonangol headquarters, The 1979PSAshave provided thebasis Sonangol inturnholdstheexclusive by 2003. Thisisforecast torise93% production. whichtogetheroperate85%ofcurrent Elf, Chevron andtheFrench companycompany, The sectorisdominatedby theUS companies operateproduction in Angola. Quinfunquena onshore terminal. andatthe the onshore fieldsthere, ledtoheavy damageto government forces, andrepossession by The subsequentbattle, Zaire River wasoverrun by Unitaforces. the area around Soyo atthemouthof inearly 1993, However, offshore locations. largely becauseoftheinaccessibility war, been immune tothedestructionof investment andreducing theirtaxliability. allowing afasterdepreciation oftheir companies isthatitlimitstheirrisksby mainadvantagefor oil production runs.The potentially largepayoff from long andthere isa investment outlays, Sonangol they require few ornoup-front For Sonangol andtheoilcompanies. proven attractive tobevery for both PSAshave even ifnooilisproduced. full costofexplorationanddevelopment, deepwater blocks. holdsignificantreserves in the Sonangol, fields are beingoperated. under whichallthefuture deep-water butisalsoavailable for PSA’s, agreement, depend onhaving ajointventure Oil-backed financingdoesnot structure. government according toacomplextax Sonangol andthe foreign oilcompanies, ‘profit oil’andisdividedbetween the remainder isknownproduced.The as This canbeupto50%oftheoilthatis earmarked to pay for theirinvestments. andis members ofthecontractorgroup, oil’isreceived by the Second,‘cost royalty oilaccruestothe government. First, divided upintodifferent sections. theoilis production starts, stage.When atthis paid for by theotherparticipants costs ofSonangol are typically ‘carried’ or takingonalloftherisks.The investment, the contractorgroup hastopay for the UnderaPSA, production sharingcontract. A more moderntypeofagreement isthe Agreements—PSAs Production Sharing 9.8%. Elf 10%,Agip Chevron 39.2%(operator), Sonangol 41%, venture in Angola isBlock0(Cabinda): producingThe mostimportant joint some ofthecomplexfinancingstructures. andthishasproduced money upfront, Sonangol hastoprovide agreements, Underjointventure the licence. in then dividedupamongtheparticipants andtheprofit thatremains is government, series oftaxes androyalties tothe Itwillthenpay a costs associatedwithit. joint venture willhave topay 10%ofthe company witha10%stake inthe licence.A company takingapercentage share inthe witheach form ofjointventure agreements, Angolan oiliscurrently produced are inthe The olderoilcontractsunderwhichmost Joint Ventures—JVs As ofNovember 1999seven Most oftheoil-producing areas have 4 lvncmais including Eleven companies, 4 6

THE ‘DUTCH DISEASE’

One of the serious side effects According to Terry Lynn export sectors.Angola is a activity characterised by the of having an economy Karl, author of ‘The Paradox of particular victim, because oil exploitation of exhaustible dominated by one major Plenty’: accounts form such a large resources, including corruption resource is a phenomena “The Dutch Disease is not slice of exports (92% in 1997). and war. The Angolan version known as the ‘Dutch Disease’; automatic.The extent to Persistent Dutch Disease of the Dutch Disease has for in which the majority of which it takes effect is the provokes a rapid, even years put local businesses at an investment is allocated to that result largely of decision- distorted, growth of services even greater disadvantage to one sector, resulting in a failure making in the public and transportation, while importers with access to cheap to diversify the economy, 8 simultaneously discouraging dollars through the central

realm.” AWAKENING A CRUDE severely limiting the industrialisation and bank.This situation was broadening of the tax base. The expression appeared in agriculture; a dynamic that stopped in May, with the This condition often leads to the 1970s to refer to the policymakers around the world liberalisation of the exchange high inflation and high debt, stagnatory effects of oil have struggled to counteract. rates, though the danger of a due to high levels of resources on the development The Dutch Disease is reversion to dual exchange borrowing; the latter due to a of other sectors of the especially negative when rates, at the behest of powerful perception of greater wealth economy; in particular, the combined with other barriers importers and others, remains than actually exists. failure to invest in traditional to long-term productive a real one.

THE CONTRIBUTION OF THE Angolan Oil Production Rises as HDI Global Ranking Falls OIL INDUSTRY TO THE Source:Wood Mackenzie, BNA, UNDP ANGOLAN ECONOMY 900 0 Oil Production Direct Angolan state income from the oil sector was in the 800 20 range, US$1.8-3.0 billion per year for the period 1990-1999.4 700 40 HDI Global Ranking Analysts forecast a gradual increase in government income 600 60 from oil to US$2.9-3.2 billion per year during the years 500 80 2003-2010.4 Reports indicate that the international oil 400 100 industry is planning to invest over US$ 18 billion over the 300 120 next four years in Angola.9 200 HDI Global Ranking 140 100 160 The oil sector is the largest contributor to the Angolan Angolan Oil Production ’000 bpd 0 180 state budget, representing as much as 90% of government 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 revenues and, therefore, it plays a pivotal role in funding the war economy. Apart from this fiscal link, the oil industry of Significance of the Oil Industry to the Angola runs completely independently of the general Angolan Economy economy and appears to make little or no contribution to The lack of consistent up-to-date macroeconomic the welfare of the general population. A recent Economist information on Angola makes the task of analysing the Intelligence Unit report stated that “the government has ring- contribution of the oil industry more difficult and adds to fenced the oil sector against the inefficiencies of the rest of the lack of transparency. National account statistics are the economy and relations with the oil companies are unreliable and their publication is belated. Disruption from 10 generally good”. For the purposes of this section, a the war, poor training and technical assistance for the conservative oil barrel price of US$12-18 was used, in order responsible statisticians, an overvalued currency and not to overestimate average return. multiple exchange rates are just some of the factors that have As Angola’s oil industry is primarily based offshore, the contributed to the problem. In its reports on the Angolan international companies can effectively isolate themselves economy, the IMF has used national account statistics that, from the protracted civil war. The oil sector employs less for many of the key macro variables, differ significantly than 10,000 Angolans, more than half of whom work for from those published by the Sonangol. International contractors are used to provide (BNA), using the official agency data. services to the oil consortia, largely because of a dearth of competent Angolan firms. Oil and natural gas are expected to account for almost 48% of Angolan Offshore investment averaged US$400 million per year GDP in 1999 between 1989-94.10 This accelerated rapidly in the second Source: BNA Website half of the 1990s. Exploration continues to grow and new field developments mean that production will continue to rise. Some of the new oil fields are at a water depth of Percentage Breakdown of GDP, 1999 estimates 1,500m or more and up to 150 km from shore. If the Manufacturing exploration in the ultra-deep offshore blocks proves Other Extractive successful, some observers believe that Angola could Construction become the largest oil-producing country in Africa, overtaking Nigeria. Trade & Oil production has exacerbated social inequalities in Commerce Angola, basically benefiting only a very small elite and sustaining the war effort. The international oil companies need to realise that they have a role to play in assessing the social impact of their activities and in ensuring that oil Nontradable production has some positive benefits on the well-being of Services the operating country. To date, these companies have stood back from getting involved in the destination of oil Oil and Gas Import Duties revenues, once they are handed over to the Angolan government. Agric/Forest/Fishery A CRUDE AWAKENING 7 joint ventures. for itsshareoftheexploration and otherexpenditurein to beincreasinglyinsistingthat foreignoilcompaniespay information onwherethismoney goes.Sonangolisreported Sonangol hasanyliabilityforcompany taxation.Thereisno rate ofreturnforthedeeperblocks.Itisnotknownwhether shallower waters,andonaslidingscalebasedtheinternal revenue fromprofitoilbasedoncumulativeproductionin payments. OilcompaniespaySonangolapercentageof payments toSonangol,signaturebonusesandother industry throughfourdifferentroutes:incometax, companies operatinginAngola. urgent needfortransparencyintheoperationsofalloil understanding oftherevenueflows;afurtherexample For thisreason,itisvirtuallyimpossibletogetaclear implements athree-yearemergencyprogrammeof$75m. response, aproperauditofthecountry’s oilincomebeforeit account. TheIMFhasrepeatedlydemanded,withlittle There arenopubliclyavailableofficialrecordsoftheoil toUS$usingofficialexchange converted rate. BNA, Source: (US$million) 1995-1998, Estimated Government Revenues, government receipts. for between70%and90%oftotalrecordedAngolan oil pricesfluctuate,itcanbeseenthatthesectoraccounts coming fromthissectorvariesyeartoasinternational Though thepercentageoftotalgovernmentrevenue 0.8% BNA Source: 1.8%1.4%1.9%1.5% 4.5% 3.4%3.1%4.1%5.5% Import 13.6% 18.1%17.6%14.8%16.3%18.2% duties Non-tradeable 6.5%7.3%8.1% 6.3% 4.9% 11.4% 12.1% 2.0%2.7%3.3%3.8%6.4% 4.9%4.0%3.4%4.4%5.9% 11.3% services Trade 10.2% 47.7% &commerce Construction 12.6% 0.1% 56.6%55.8%58.0%48.5%38.5% 0.0%0.1% Electricity 9.6% & Manufacturing 7.3% water Diamonds 7.7% Oil & 6.6% &fishing forestry gas Agriculture, Breakdown of Angolan GDPby sector(%) monetary andfiscalpolicy. the economyhassufferedfromdepressiveeffectsoftight is theonlysectorthathascontinuedtogrowasrestof almost 50%ofallrecordedeconomicactivityinAngola,and the Angolanpopulation.Theoilindustryaccountsfor social andeconomicsectorsthatcouldbenefitthebulkof It alsoconfirmsthelackofgovernmentexpenditureon Angolan economy, andasasourceofgovernmentrevenue. statistics revealstheimportanceofoilsectorfor continue tomonitorpolicyimpacts. necessary firststeptoformulateeconomicpolicyand Historically, thesepaymentshavebeen of theorder exploration and extractionrightsfromtheoffshore blocks. required fromthe oilcompaniesinordertosecure o-i 478304463425 9892,6262,2941,371 Oil price(US$/barrel) Oil production (mbarrels) Govt revenue sourced from oil industry Total government revenue Non-tax revenue Non-oil From oil Tax revenue The Angolangovernmentsourcesmoneyfromtheoil Keeping thesecaveatsinmind,ananalysisoftheexisting Adequate andtimelystatisticalinformationisa Substantial one-offnon-recoverable downpaymentsare 11 0%10 0%10 0%100% 100% 100% 9419 9619 98 1999 1995199619971998 1994 1,482 2,9442,7951,836 1,467 2,9302,7561,796 1995 199619971998 67% 89%82%75% 16.6 20.418.612.0 222 248254270 15 3941 happen. suggest thatthesecompanieswereawarethiswould money wasusedforarmsprocurement,althoughwedonot which testthelimitsofpresenttechnology. Muchofthis involve operatingatwaterdepthsinexcessof2,000metres, drilling licencesforultra-deepblocks31-33.These approximately US$870million,inordertoobtainthe Amoco, ElfandExxonmadesignaturebonusesof US$100 million.Morerecently, itisreportedthatBP- by 2003. Angolan oilproductionwillrisetoalmost1.2millionbpd the followinganalysis. necessarily madeanumberofsimplifyingassumptionsin forecast thelikelyreceiptsfromoilindustry, wehave from theoilindustryadifficultone.Inattemptingto forecasting thelikelyevolutionofgovernmentrevenues industry totheAngolangovernment.Thismakestaskof Angolan economyandthevalueofcountry’s oil for reforminthefinancialmanagementofstateassets. scale offuturerevenueaddsfurtherweighttotheurgency Thepotential Angola’s oilproductiontothegovernment. This sectionprovidesanestimateofthefuturevalue Oil Industry Projected Government Revenues from the military spending. investment banks, whichhasbeenusedlargely tofinance government tosecurecreditlines withinternational There isahighlevelofoilmortgaging contractedbythe Government Expenditures bonuses orotherone-offpayments. years fromtheoilindustry, notincludinganysignature US$1.4 billionandUS$2.7peryearinthenextsix Angolan governmentwillreceivesomewherebetween Based onthissimplecalculation,itcanbeseenthatthe average revenues 35%ofgross oilindustry over thenext sixyears Calculationbasedonassumptionthatgovernment receipts will Note: (millionsUS$) 2000-2005, Forecast Government Receiptsfrom OilIndustry, Mortgaged Future’). the formoffutureoilproduction rates fromprivatecreditorswillingtoacceptrepaymentin overspending bysecuringnewloansatveryhighinterest debts. Inrecentyears,thegovernmenthasfundedits Angolan governmentasithasrepeatedlyfailedtoserviceits shallower waterblocks. share inthedeep-waterblocksissmallerthan rather thancumulativeproduction).Inaddition,Sonangol’s oil companiesinthesenewblocks(basedonratesofreturn higher costsandtheprofitoilsplitismorefavourableto reflects thefactthatnewerdeep-waterlicenceshave total oilindustryrevenues.Thismoreconservativeestimate historically thispercentagehasrangedbetween30-60%of of totaloilrevenueshavebeenestimatedat35%,though next sixyears. between US$3billionandUS$7.8billioneachyear, overthe 18 perbarrel,theAngolanoilindustrywillbeworth Estimated GovtReceiptsat$18/bbl Estimated GovtReceiptsat$12/bbl Gross oilrevenuesat$18/bbl Gross oilrevenuesat$12/bbl US$ million Oil Production(’000bpd) Oil industryconsultants,Wood Mackenzie,forecastthat It isnoteasytocarryoutanaccurateappraisalofthe Almost allcreditorshaveseveredcreditlinestothe In forecasting,thegovernment’s receiptsasapercentage 1,12 4 Taking arangeofoilpriceforecastsfromUS$12- 1 Therefore, asubstantial portionofthe 2,062 2,4432,6842,7352,4602,201 1,375 1,6291,7901,8241,6401,467 5,891 6,9817,6707,8167,0296,287 3,928 4,6545,1135,2104,6864,192 2000 20012002200320042005 9 ,6 ,6 ,9 ,7 957 897 1,0631,1671,1901,070 (see section‘AnOil 8 government revenues from the oil industry go directly to estimated to have been spent on education, health, social debt servicing rather than any type of social expenditure. security welfare and housing in 1997.24 The calculations of the IMF on Angolan government Government Expenditure by Function, 1994-1997, (%) expenditure differ considerably from the published statistics of 1994 1995 1996 1997 the BNA. In the 1998 budget, the BNA reported the following (Percentage of total) breakdown for expenditure: defence and policing 23%, General Public Services 21.4 19.2 13.9 17.7 education and culture 11%, health and sanitation 8% and Defence and public order 33.7 31.4 35.0 36.3 social security 0.17%. The Government’s medium term plan Of which recorded 19.5 18.2 27.6 18.1 proposes an allocation of a greater proportion of oil revenues Peace process 0.1 0.5 0.8 0.6 to social sectors: a target of 20% has been proposed, though it

Education 2.8 5.1 4.6 4.9 seems unlikely to be achieved in the foreseeable future. AWAKENING A CRUDE Health 3.8 5.7 3.0 3.1 Social security, welfare and housing 2.2 3.1 2.1 5.3 Exchange Rate Policy Economic affairs and services 2.5 6.6 8.5 8.7 After 25 years of defending the artificially high value of the Interest (commitment basis) 19.7 18.9 21.0 9.9 kwanza, the BNA was forced to allow it to float at the end Other (residual) 13.7 9.4 11.0 13.5 of May 1999. The BNA had been holding the official rate at Source: IMF Angola: Statistical Annex;April 1999. 700,000kzr/$1, while the rate on the street was about 2.15mkzr/$1. With such a discrepancy between the official Not surprisingly in this war-torn economy, the largest single and the market rate, individuals with access to dollars at the item of expenditure is on defence and public order. The IMF official rate from the National Bank were able to make a statistics show separately the recorded expenditure of 18% substantial amount of money as they could buy dollars at of the budget in 1997, compared with a more realistic one-third the real price. The BNA was forced to float calculation of over 36% of total expenditure on military because foreign reserves were severely depleted and goods and services. A paltry 13.3% of the budget is international creditors were no longer willing to lend.

CASE STUDY: THE STATE OF TRANSPARENCY TODAY

In response to the Asian for significant improvement However the IMF are not With the belated economic crisis, the financial in the transparency and the only financial body that is realisation that and world was forced to wake up accountability of each of attempting to combat bribery corruption are not in the best to the negative impacts of the these groups.” 13 and corruption and improve interests of responsible lack of transparency and upon financial transparency and business it would be interesting accountability within For each of the groups accountability. In December to discover whether international financial recommendations were made: 1997 the Organisation for statements in audited accounts institutions, multinationals and The WG recommends that Economic Co-Operation and of oil companies, such as the national governments. national standards for private Development (OECD), following, still exist or have As a result, national sector disclosures reflect five introduced the ‘Convention on been amalgamated into less governments and regulatory basic elements; timeliness, Combating Bribery of Foreign conspicuous areas: bodies have recommended the completeness, consistency, risk Public Officials’, which was Ernst & Young audited the strict enforcement of current management, and audit and signed by 34 states. However, accounts of Sonangol for the legislation and the introduction control processes. two years later, full ratification period ending 31st December of new acts and laws to The WG recommends that by all countries has not been 1993 and 1992. Under section combat bribery, fraud, private firms adhere to national met. This convention attempts 15, called ‘Other Creditors and corruption and increase accounting standards and that to introduce a level playing field Liabilities’, there is a line accountability and national authorities remedy for non-US companies who entitled ‘ transparency. deficiencies in their previously were not affected by Bonus’, which declares a This global move towards enforcement. the US Foreign Corrupt balance as of 31st December a new paradigm of financial Practices Act. (FCPA)—which 1993 of US$415,000. It goes The WG recommends that accountability appears to be prohibits public and private US on to declare a balance on 31st the IASC give the highest out of step with the current companies from making December 1992 of US$4.9 priority to the completion of a actions and practices of the corrupt payments to foreign million.16 core set of accounting various corporate actors officials for the purpose of Are we to believe that standards and that IOSCO outlined in this report, as can obtaining or retaining business. President dos Santos received undertake a timely review of be seen from the various More recently on the 10th a ‘bonus’ of nearly US$5 million those standards. recommendations outlined November 1999, the US in 1992, at a time when the below: Transparency and government announced ‘The country was in a deep Accountability of Money Laundering Act of economic crisis? It is hoped The IMF Working Group (WG) International Financial 1999’, which is intended to that new international Institutions (IFI) on Transparency and “crack down on the private- accounting procedures, Accountability stated in their The WG recommends that, banking departments of guidelines and laws will outlaw report of October 8th 1998 as a general principle, IFIs some major US banks”,14 such payments. However, that the private sector, national adopt a presumption in favour which are involved in business questions should be asked of authorities, and international of the release of information, transactions involving money the leading accounting financial institutions are except where release might generated from criminal companies regarding their seriously out of line with compromise confidentiality. activities. obvious willingness to pass current financial thinking and is high on the list of targets and company accounts as a ‘true best practice: The WG recommends that IFIs establish, publicly announce the act is designed “to extend and fair view of the state of a “The decisions made by any and periodically revisit an the reach of federal law to company’, whilst one of these groups are explicit, well-articulated discourage US banks from simultaneously approving such affected by the decisions, or definition of the areas in which handling the proceeds of payments. anticipated decisions, of the 15 confidentiality should apply and corruption worldwide”. other two. And there is room the criteria for applying it. A CRUDE AWAKENING 9 country.” predominantly military/security spendingandcorruption.”predominantly military/security economic development.Various reasons are citedforthis, isthatlittleoilrevenueexperts isusedforsocial and and “The widespread perceptionamongstnon-experts Management (ERM)inNovember1997;and was commissionedbyBPfromEnvironmentalResource social impactassessmentreportofBP’s businessinAngola, Angola presentsarealchallengefortheirimplementation.A These arehonourableobjectives.Thecurrentsituationin successful andbeaforceforgood.” We believe ourbusinessshouldbebothcompetitively governments andemployees. partners, contractors, customers, fostering two-way relationships withlocal communities, “We remain committedtoactresponsibly andethically, Report andAccounts,BP-Amocostate: thinks aboutitsinvestmentinAngola.In1998Annual advertising itsidealstothepublicandwhatBP-Amoco results onhumandevelopmentindicators. attempts bycompanieswillnotyieldurgentlyneeded information inthisreport,clearlyshowsthatindividual leading producerofsuchdocuments.However, the how employeesno-longeracceptbribes.BP-Amocoisa the financialcontributionsmadetoneedysocialprojectsand Numerous corporatebrochuresareproduceddocumenting in anethical,responsibleandtransparentmanner. (NGOs), theyareactivelyseekingtoconducttheirbusiness governments andNon-governmentalorganisations through listeningtothecriticismsofindividuals, as amajorplayerinAngola,operatorofblocks18and31. transnational BP-Amoco,whichhasrecentlyestablisheditself proponents ofthisnew‘corporatecode’istheoil with regardtothedevelopingworld.Oneofleading responsible corporates’andtheirbusinesspractices,especially A greatdealhasbeenwrittenaboutthenew‘socially CORPORATE HYPOCRISY? & ACCOUNTABILITY, OR CORPORATE RESPONSIBILITY operation,” thesocialimpactofits attachedtounderstanding importance of thecompany’s long-termaspirations in Angola andthe “We Angolans oftenthinkthatperhapsoilisnotgoodforour The followingisasummaryofhowBP-Amocohasbeen The centralclaimoftheseresponsiblecompaniesisthat 17 it concludedthat: 18 “in recognition 19 and demonstrate bestpractice.” positive intheoffshore impactsandthatoperators fieldsuse developmentways has ofensuringthattheoilindustry setting upconsultative fora in Angola andtheUKtoexplore performance oftheBP/Statoilallianceandby takingaleadin environmental andcommunity development financial, accountability in Angola by onthe regularly reporting BP/Statoil setabenchmarkforcorporate transparency and revenue togovernment fails tobenefitthewidersociety”. In addition, and GovernmentaccountabilityinAngola. company formalcoalition,helpingtocreatetransparency Amoco canbecomealeadinglightinthecreationofanoil their tenureinAngola.AnotherchallengeistoseeifBP- relating topaymentseitherSonangolortheBNAduring government andmakeavailableanyotherdocuments signedwithSonangolandtheAngolan is alsorecommendedthattheymakeavailablecopiesofall audited, year-end accountsavailableintheannualreports.It Angola andinternationally–notjusttheconsolidated, by publishingtheirfullsetofAngolanaccounts,bothin “benchmark forcorporate transparency andaccountability” wider societyareserious. stated commitmentstoaddresstheimpactofitsactivitieson these specificissueswilldeterminewhetherthecompany’s loans toAngolafor1999similarreasons. stipulated bytheIMF, andtheWorld Banksuspendednew reforms regardingtransparencyandaccountability the Angolangovernmentfailedtoimplementnecessary September 1999,theIMFhadtocallofftalksyetagain,as increase democracy, accountabilityortransparency. In Witness recommendsthatBP-Amocoalliancesetsa that oilrevenuesbenefittheAngolanpeople.Global the companyassumesanactiveleadershiproleinensuring environmental andpoliticaldimensionsoftheiractivities, increase theirinvolvementinthewidersocio-economic, Amoco’s acknowledgementthatleadingoilcompaniesmust for economicandsocialdevelopment.” investment inthehumancapitalandinfrastructure necessary anticipated increases inoilrevenue couldpotentiallyfinance although to bethemainsourceofincomegovernment, accountability andtransparency andifoilrevenues continue to live uptocommitmentsmadeincrease democracy, the reputation ofBP/StatoiliftheGovernment of Angola fails The BPanalysisgoesontostate: The concretestepthatBP-Amoconowtakestoaddress To date,thegovernmenthassystematicallyfailedto BP’s analysisofthestudynotesthatthereare, Global Witness recommendsthatinthelightofBP- “Widespread concernswere expressed thatoil 20 “It isrecommended that 20 government in Angola level ofaccountability of of the understanding shows aclearlackof BP-Amoco’s letter left). from Lord (far Avebury (left) toletterofconcern BP-Amoco’s response “risks to 19 10

National Sovereignty It is a fact that the international oil industry provides the BP-Amoco, Chevron, Elf and Exxon/Mobil may try to step vast majority of revenue to the Angolan government, which round the obvious points of criticism which rise from such is being used without the minimal levels of transparency and analysis. It has been said by some companies that they are accountability required by international financial “not in the business of interfering in politics”. They claim that institutions. The result is that the people of Angola are there are issues of national sovereignty at stake. Comments paying the price. The issues of national sovereignty and such as “should we tell a democratically elected government whether one should tell an elected government what to do, how to spend their money?” are often made by senior are fair comments—for a normal democratically elected company officials. However, national sovereignty cannot be government. However, are we talking about the sovereignty used as an excuse to turn a blind eye to the gross and of the Angolan people, or the sovereignty of key elite systematic violations of human rights of the Angolan individuals who are involved in the wholesale robbery of AWAKENING A CRUDE people. their country?

CASE STUDY: ELF AQUITAINE

likely that some of the cosy old political networks developed by Elf over the years, which are now regarded as liabilities and have trapped A disgrace within the European Union? the company in embarrassing disputes with African governments, will be dismantled.At the instigation of the Green Party in France, the More than any other oil company in Africa, France’s Elf has for years National Assembly is investigating oil companies and the recently played the game of African politics not only to win control over deposed head of Elf, Philippe Jaffre has appeared before its committee. coveted oil licences, but as an arm of French diplomacy and But though Elf has been privatised, the French government still retains intelligence. It has come to typify dubious multinational company a ‘golden share’ in the company, giving it an effective right of veto over activities in Africa – mixing politics with corporate gain. Oil has been possible takeovers the motive for many French policies in Africa, and it is no and other coincidence that France’s diplomatic focus along this stretch of management issues. coastline is shifting quickly southwards from Gabon, where oil It is certain that old production is now declining, towards Angola, where Elf has made a habits will die hard. set of huge oil discoveries.A visit by French president Jacques Chirac to Angola in June 1998 was prompted, above all, by Elf’s efforts at the time to secure as good a position as possible in the recent attribution of ultra-deep licences 31-33. Elf was eventually awarded operatorship of block 32. Investigations in France and Switzerland by examining magistrate Eva Joly into the financial affairs of Gabon President Omar Bongo, Above: Elf who is alleged to have Exploration Angola’s head channelled payments office, Luanda from the presidency through the accounts of Left & below: senior Elf officials21,have Further evidence of uncovered some of the Elf mixing business with politics deep political channels that have connected Elf with its counterparts in African governments and with its mentors in Paris. In a recent interview in Le Monde22, Elf’s ex-Africa supremo Andre Tarallo, who is under investigation by French authorities explained the system of bonuses handed out to African heads of state: “In the petroleum field we talk of bonuses.There are official bonuses, which are anticipated in the contracts…; the petroleum company which wants an exploration permit agrees, for example, to finance the construction of a hospital, a school or a road, or to pay a sum of money, which may be a considerable amount if the interest in an area is justified…. This practice has always been used by Elf as well as numerous other companies.” Elf is now a private company, but the old political channels still run deep, and the company continues to use its expertise in African politics to gain access to markets such as Angola’s.The company is now merging with France’s TotalFina,to form what will be the world’s fourth largest oil giant.TotalFina,which has a strong presence in the Middle East and is widely regarded as a more efficient company than Elf, will effectively be the senior partner in the new company. It is also A CRUDE AWAKENING 11 3Exn(5)Sonangol (20%) Exxon(45%) 33 companies involved inBlock31. notable thatthere arenosuch as totheirequitypartners.Itis offering theoperatorsafaitaccompli Government cametothetable, alternatively, theAngolan able toprovideweapons.Or, delivering companiesthatwould be the operatorscometotable Government mayhavedemandedthat concerned thattheAngolan is unclear. GlobalWitness is tap into. chain whichLuandahasbeenkeento connections totheweaponssupply Naptha, becausetheyappeartohave companies, Prodev, FalconOiland Concern hasbeenexpressedaboutthe Sonangol (20%) Elf Aquitaine (30%) 32 Exxon(25%) BP-Amoco(26.7%) 31 Blocks 31–33 Table of andequitypartners ofOperators via thenationalbudget. earmarked forweaponsprocurement, of theremainderwasprobablyalso shipments, andasignificantproportion likely tohavebeenspentonweapons happen. Themajorityofthismoney, is companies wereawarethiswould although wedonotsuggestthatthe Presidency, bypassingthebudget, has founditswaydirectlytothe possibly ashighUS$400-500million, US$900 millionsignaturebonus’, fact thatahighproportionofthe Also ofmajorconcernisthereported Elf AquitaineandExxonrespectively. companies oftheblocks32and33— exploration, fortheoperator associated witharmsdealingthanoil equity partners,morenormally heightened bytheinclusionof casualties. Thisconcernis the enormouslevelofcivilian given thelongevityofwarand Angola. Thisisofmajorconcern, companies inperpetuatingthewar about theroleofinternationaloil oil blocksraisesseriousquestions The awardingoftheultra-deepwater ANGOLA? SHIPMENTS TO FOR NEW ARMS THEROUTE 31–33: WATER BLOCKS THE ULTRA-DEEP- lc prtrEquityPartners Operator Block The originoftheseequitypartners 1 26 : Petrogal (5%) Marathon Oil(10%) Exxon (15%) Petrogal (5%) Naptha (5%) Falcon Oil(10%) Elf (15%) Prodev (15or20%) Elf (5%) Marathon Oil(10%) Statoil (13.33%) Sonangol (20%) 1 2 12,26 Angolan war damage and Doumen. further individualsnamedasBezari Mohammed al-Dhabarandtwo is ownedbythreeSyrians:Investor has beensuggestedthatthecompany ‘Swiss’ companyarenotclear, butit Details aboutwhoisbehindthis not possessthefundstopaywithcash. because theAngolanGovernmentdid that this‘paymentinkind’tookplace ‘payment’ forweaponsdelivered,and that thecompanyreceiveditsshareas to off-loadsoquickly!Itissuggested strange thatthecompanywouldwish potentially rewardingblock,itseems just obtainedthisshareinsucha to off-loaditsequitystake. 1999 suggestedthatProdevwaskeen upstream oilindustry. Virginia, islargelyunknowntothe Falcon Oil&Gas,basedinWest Block 33 inExxon’sequity partner Falcon Oil&Gas—10% stake is15%) 32 Having acquireda20%stakeinBlock Block32 inElf’s partner Prodev—20% equity Panamian company. company listsFalcon OilHolding,asa ‘Esso ExplorationandProduction’ the mainoperatorofBlock33 via its Exxon, well aswiththegovernment. conducts businesswithUNITA as diamond trade.Itispossiblethat he business andisinvolvedinthe better knownforhisAudicarimport also associatedwiththecompany, is Antonio ‘Mosquito’Mbakassi,whois deals fortheAngolanGovernment. number offinancingandarmssupply Paris, hasbeeninstrumentalina who isBrasillianbutoperatesfrom influential inLuanda.PierreFalcone, two keyindividualswhoare Falcon Oilalsoappearstobelinked personal interestinthecompany. one report,PresidentdosSantoshasa 26 (though somereportssuggestthe 12 28 , reportsinSeptember 30 30 According to 27 Having 29 another supplier. combat vehiclesandtanks,was which specialisesinT-72 model Slovak jointstockcompany(ZTS), from theOsosPrahacompany. The Czech-sourced weaponsoriginated study onElf. Rich, South Africasanctionsbuster, Marc trading companyofthenotorious through Glencore,theSwissoil- arranged byGaïdamakandran weapons contractwasreportedly financing ofthisEastEuropean 1997 toSimportexinAngola. ammunition wereshippedinJune government, viaFrance. which wasdestinedfortheAngolan originated intheCzechRepublic,and dollars, foranarmsshipmentthathad customs havefinedFalconemillionsof Falcone andGaïdamak,French police searchedthepremisesofboth supremo’, Andre Tarallo linked toElf’s ousted‘Africa France, hewasreportedtohave been strongmen inRussiaandFrance. In linked tohigh-levelpoliticians and production inAngola. of arms,werebackedbyfutureoil specifically arrangedforthepurchase US$500 million,whichwere Paribas. Theloans,worthanestimated entourage. also partoftheeliteFutungo Angola’s IntelligenceChief,Miala; completed bytheirassociationwith the FutungodeBelasPresidencyare essential. Simportex’s connectionsto known as‘Kopelipa’,havebeen Manuel HeldaVieira Dias,better to Angola’s chiefarmsbuyer, General Angolan side,Simportex’s connections intelligence services.Fromthe arms companiesandintheforeign international worldoffinanceand extraordinary connections,bothinthe Simportex, Europe fortheAngolancompany, supply lineofarmsfromEastern Arkadi Gaïdamak,Falconesetupa Franco-Russian businessman, company OGMA. October 1997withthePortuguese joint venturethatwasestablishedin maintenance andsupport,througha the Angolanairforcewithtechnical deliver becauseofFalcone’s Forces (FAA). broker fortheAngolanArmed Pierre Falconeisactiveasanarms Pierre Falcone FAA. food anduniformmonopolytothe company, betterknownforitsnear known asEmatec,isanAngolan director. Simportex,formerly According toaFrenchreport, Arkadi Gaïdamakisreportedly 37 Simportex hasbeenableto together withtheFrenchbank, 32 The companyalsoprovides 28 31 of whichFalconeisa 31 35 Together witha The weaponsand 33 34 22 — These see Case 36 The in theUK;acase thatcausedserious the so-called‘arms-to-Africa’ scandal shipment toSierra Leone,thatledto the financierofaclandestineweapons Angolan situation,isthatSaxena was Angola”. minerals and otherrelated products in common and trading ofdiamonds, experience inthebusinessofmining (BBC). the BangkokBankofCommerce embezzlement ofUS$60million from wanted inThailandforthe Iran. broker for4,000TOWmissilesto introduced Khasshoggiasaweapons for streetchildren. reportedly alsoinvolvedinprojects the diamondbusiness,and Export’. SociTrade isinvolvedin company ‘SociTrade Import& Within thisgroupingisthe Fundação Luso-Americana. Mbakassi’, whichisamemberof the banner‘GrupoEmpresarial operates aseriesofcompaniesunder of armstoAngola.Mbakassi between FalconOilandthesupply insight intopotentialconnections dealings, providesaninteresting following discussionofhisbusiness Angolan partnerofFalconOil.The Antonio ‘Mosquito’Mbakassiisan Mbakassi Antonio ‘Mosquito’ reason forthedelisting. company, RakeshSaxena,wasthe identity ofthemainshareholder Canadian financialnewspapers,the Stock Exchange.Accordingto in June1999fromtheVancouver Explorations Corporationwasdelisted Khasshoggi. Middle Eastweaponsfinancier, Adnan a financialpartnerandassociateofthe investigated thescandal,Furmarkwas Senate Walsh Commission,which Contra scandal.AccordingtotheUS were investigatedduringtheIran- arrangements andweaponsdealsthat key figureinthefinancial reportedly, Canadianorigin.Hewasa York-based businessmanof, Corporation isRoyFurmark,aNew Resources. TheowneroftheFurmark project withSociTrade andGlobal managing entityofthejointventure ‘Furmark Corporation’,whichisthe is theVermont (USA)basedcompany, press release,SociTrade According totheGlobalExploration venture withSociTrade inAngola. finalised arrangementsforajoint company, announcedthatithad Explorations’, aVancouver listed Mbakassi. InMay1999‘Global both ownedandmanagedby Luanda basedcompanywhichis The Canadian-registeredGlobal A thirdpartnerinthejointventure Soci Trade Import&Exportisa 40 42 38 More relevantforthe 39 It wasFurmarkwho 1,38 41 “has extensive Saxena is 71

© Trygue Bølstad/Panos Pictures The humancost government embarrassment totheBritish to power. ousted presidentofSierraLeoneback used inacounter-coup, tobringthe return forweaponsthatweretobe diamond concessioninSierraLeone reportedly abarterdeal,involving embargo onSierraLeone,was weapons shipment,despiteaUNarms company, SandlineInternational.The owned byNaptha. Isramco. Isramcoitselfis49.9% Houston (USA)basedcompany, Haim Tsuff, whoisthechairof This lastcompanyis100%ownedby company calledUnitedKingswayLtd. YHK, whichis74%ownedbya which isfurther42.3%ownedby owned byacompanycalledEquital, Exploration Ltd,whichis43.4% 96.2% ownedbyJerusalemOil holdings. ForexampleNapthais involving considerablecross-share oil andinvestmentcompanies, described asa‘complexweb’ofIsraeli Naptha ispartofwhathasbeen in Exxon’s Block33 Naptha—5% equitypartner dos Santos. arrangements forPresidentEduardo also suppliessomeofthesecurity Congo-Brazaville. GeneralZahrine services inAngola,astheydid Naptha havebenefitedfromLevdan’s General Ze’evZahrine.Itseemsthat senior managerisex-Israeliarmy a companycalledLevdan,whose close relationshipbetweenNapthaand Futungo. the unaccountable expenditureof financiers whoareintimatelytied to web ofarmsdealersandassociated and shedsfurtherlightonthecomplex Levdan alsomakesinteresting reading and 33,afurtherinvestigation of discussed inconnectiontoBlocks 32 Sources indicatethatthereisavery As fortheothercompanies 44 1,45 43 and theprivatemilitary 45 the company. amount dueforthemilitaryservicesof President couldnotpaythefull Brazzaville, becausetheCongolese offered anoilpermitinCongo- to aconfidentialreport,Levdanwere Brazaville oilcontract,butaccording in Naptha’s acquisitionofitsCongo- reports thatLevdanplayedavitalrole ‘brokered theoilcontract.’ US$300,000 becauseLevdanhad company payedLevdanabout reportedly acknowledgedthe Naptha’s CEOYossie Levy, place. time whenthe‘BeirutMassacre’took the ChiefofStaff’s BureauChiefata General Ze’evZahrine,wasreportedly Levy, wholivesintheUnitedStates. ultimate ownerisGeneralMoshe military force,althoughLevdan’s the coreofLevdanasacorporate personnel withapastinthewar, form Defense Force(IDF)andintelligence Lebanese operationsoftheIsraeli would seemthatveteransfrom Israel throughitsofficesinTel Aviv. It Guard. unit, constitutingthePresidential were tobeconsolidatedintoanelite 650 Congoleseinremotecamps,who interest intheMarineIIIpermit. that Levdanhada50%participation newsletter fortheoilindusty, reported Naphta Congo.In1997,anonline and USbasedIsramco,viaasubsidiary operated byNapthaIsraelPetroleum the Congolesecoast.MarineIIIis III oilfield,whichisamarineblockon Levdan obtainedashareintheMarine million. Industries, werevaluedatsomeUS$50 manufactured byIsraeliDefence training andequipmentwhichwas Brazaville. Theentireoperation, the 1997brutalcivilwarinCongo- militia’ whichwerelaterinvolvedin the private‘Aubeville’or‘Zulu Brazaville includedthetrainingof Brazaville. military equipmenttoCongo- the salesofUS$10million defence contractorsbenefitedfrom president PascalLissouba,Israeli Congo-Brazaville governmentof trained thepresidentialguardof establishments. WhenLevdan defense andintelligence close cooperationwiththeIsraeli military companyLevdan,worksin Evidence suggeststhattheprivate Levdan Levdan’s manager, retiredIDF The Levdancorporationrecruitsin One report,inanIsraelidaily 49 Levdan’s operationsinCongo- 48 47 This operationtrainedup 46 50 As aconsequence 52 51 48 ,

A CRUDE AWAKENING 12 13

THE UNTOUCHABLE OILIGARCHY

The table which follows, contains details of individuals who are key power brokers within the Angolan Presidency, or who are individuals involved in activities which do not lend themselves to the fostering of peace, or fiscal transparency and government accountability in Angola. The following list is by no means exhaustive, but attempts to indicate who some of the key players are. Global Witness welcomes any comments and information regarding these and other key players.

President Eduardo dos Elisio Figueiredo Fernando Miala A CRUDE AWAKENING A CRUDE Santos Diplomat without portfolio: runs State Security, involved with © Mercedes Sayagues As President, ultimate dos Santos’ family businesses/ Simportex President dos Santos clearly enjoying his FESA reponsibility resides here makes international birthday celebration; Luanda 1999 investments; resides in Paris THE CORRUPT KEY PLAYERS AND THEIR ROLE IN DRIVING THE WAR Luanda’s December 1998 resumption of war General Manuel Helder General José Maria Jose Leitao da Costa e against UNITA has its roots in a variety of Vieira Dias (Aka “Protects” General ‘Kopelipa’ Silva causes.The lack of political will to reach a peace ‘Kopelipa’) Involved in overseas settlement on both sides, mutual hatred and lack Angola’s chief arms buyer, investments, together with of trust, not to forget the incompetence of involved with Simportex; runs President & President’s wife; successive UN missions, which were almost Angolan Intelligence services possibly now sidelined destined to fail through lack of resources and the cover-up of UNITA’s rearming process23,were clearly key amongst them.There is also the issue of the Angolan Government’s almost non- existent investment in the ‘peace process’,as Desiderio Costa,Vice- Pierre Falcone Antonio ‘Mosquito’ evidenced by their average 0.5% of national Minister of Petroleum Mbkassi budget allocation for the years 1994 through to Runs Simportex and Falcon Oil; “Feared by oil companies”; runs facilitator of oil backed loans, Runs Soci trade, Falcon Oil; also 24 1997. This compares unfavourably to the FUNDANGA foundation for and arms deals involved in Diamond trading minimum average 34.1% estimated to have been ‘social contributions’ and car imports earmarked for ‘defence and public order’ for the same time period.24 But individuals, including FAA generals, have become involved in the defacto privatisation of the war as they benefit from the provision of military supplies. Whilst it is not being said that this is the key driving force for the war, it is evident that there is a significant conflict of interest, if those who are supposed to be THE CASE FOR “FULL TRANSPARENCY” pursuing efforts for peace, or who are involved in AND A MORE ETHICAL CORPORATE the conduct of the war are also making a profit ROLE from the continuation of the war. For example: If a company decides to conduct business in a country such as Angola, where The Simportex company, involving Pierre there is little or no transparency or accountability of government, then it is vital Falcone and Antonio ‘Mosquito’ M’Bakassi, which that the company concerned adopts a level of transparency far in excess of that in turn is connected to Angola’s coordinating which it would be required to adopt in western democracies. arms buyer, General ‘Kopelipa’ and Angola’s By a higher level of transparency, we are referring to what we call ‘full Intelligence Chief, Fernando Miala.1 This transparency’. Full transparency does not infringe in genuine cases of commercial company and others connected to the award of confidentiality, but companies that avoid taking action will further confirm their Oil Blocks 31-33, are discussed in more detail in complicity in the current situation in Angola. Full transparency means that the section ‘The Ultra-deep Water Blocks 31–33: companies must clarify their exact relationship with government.This means that The Route for New Arms Shipments to Angola?’. all payments must be published and made available in a easily understandable There are other examples of profiting from format to the Angolan population, and internationally. Such payments include those for dubious projects such as the up-grading of houses, bonus’ and overseas the war, which involve several companies which scholarships. In addition, the full contractual payment schedule must be made are servicing the Angolan Military with more public, such that it is possible to determine actual state oil revenue, at any point mundane supplies. One example is the British of the lifetime of an oil field, or well. Companies should also submit their social Virgin Island registered CADA (Companhia programmes, which are often tax deductible minimal contributions, and frequently Angolana de Distribuição Alimentar), which was little more than ‘goodwill PR’ exercises, to a full social and financial audit. reported to have been awarded a US$ 720 For several years, the IMF has been attempting to introduce the concept of million to feed the armed forces, for the transparency into Angolan Government financial management.The international 25 next five years. Reports suggest that this oil industry and finance institutions that have provided oil-backed loans, have company is owned by Angolan Armed Forces undermined this effort. It is therefore vital that these companies meet to establish (FAA) Generals.25 However, reliable sources a formal coalition operating transparently, with a common position on this issue, suggest that the involvement of ‘Generals’ is but in support of the IMF,the World Bank and the international community, and which a cover for dos Santos himself.70 It does not insists that the government fully and urgently moves to create full transparency in seem to be a coincidence that dos Santos revenue and its deployment. obtained control over CADA just prior to the Given that Angola is the test case for oil companies’ commitments to their resumption of war in December 1998. Clearly, much vaunted statements on ethical behaviour in areas that suffer from a lack of the more the army consumes, the more those government accountability and transparency, it remains to be seen how well these who are associated with these companies will companies will perform. profit. 14

CASETHE CORRUPTION STUDY TWO: ZAMBIAOF THE ANGOLAN ECONOMY

The root causes of are varied and complicated and a detailed discussion of the causal factors are beyond the scope of this report. Corruption starts with the , surrounded by a clique of politicians and business cronies, collectively known as Futungo, named after the Presidential Palace. This group control much of the opaque financial dealings of the State, AWAKENING A CRUDE including the deployment of significant parts of state revenue, outside the state Right: Government budget – in effect a parellel system of state owned CAP bank— revenue deployment. which has been used as This group also control the allocation a for Angola’s elite players of power within ministries, leading to the situation where rank on paper does not an entrenchment of elite individuals who Small quantities of school books are necessarily indicate authority in decision occupy positions of authority or who disbursed at the official prices, however, making, such as, for example, the case of directly influence those in authority, these are extremely hard to come by, and the Vice-Minister of Petroleum, Desidero primarily because of their connections almost non-existent outside a few locations Costa—see The ‘Untouchable Oili-garchy’ rather than their ability to do the job.1 in Luanda. Of an estimated one million 1 section. Various ‘esquema’ (schemes)exist, school books which EDIMEL imports into Corruption also manifests itself in all whereby those with connections use the Angola each year, it is likely that at least 70- aspects of the business community. In system to massively increase their wealth. 80% are sold at the inflated price. Because effect, the merge between the political One recently abolished system was to use part of the mission of EDIMEL is to ensure centre of power and business is so well the dual exchange rates, which for years that students receive subsidised school developed that it is virtually impossible to served as a useful accounting mechanism books, in effect whilst the Angolan state establish a functioning business without for powerful vested interests to divert large subsidises each book,Angola’s school 1,53 resorting to bribery. flows of money.These interests have children are subsidising the profits of The massive devaluation of salaries in included Sonangol, the armed forces, and individuals within EDIMEL.1 the civil sector during the 1990s has even powerful importers. Effectively, those Political Opposition further eroded the individual state people powerful enough to have access to employee’s capacity to survive, adding to the official exchange rate were able to buy The key power brokers within the the pressure to seek alternative sources of dollars cheaply. Presidency have also undertaken a process revenue. For example, according to the UN, Until exchange rates were liberalised of corrupting what opposition exists a minimum income of US$1 per day per on the 24th May 1999, the official market including, it seems, to an extent against the individual is sufficient income to remain just was used mainly for channelling oil export party itself.This has taken many forms, but above the poverty level. In Angola, the revenues towards imports.The BNA was includes the use of Ministry of Planning average number of family members is eight, not able to deliver the amount of foreign funds to finance opposition political parties, which means that an average family exchange demanded at its official rate, outright blackmail of opposition figures2, requires an income equivalent to US$240 leading to a rationing of official reserves. corruption of the political party per month to stay above the poverty level. From 1991-1998 on average, the parallel registration process and so on.Today, the In October 1999, a secondary school rate was 2.9 times higher than the official opposition is largely co-opted and it is teacher was paid 28 million Kwanzas per rate; allowing individuals with access to interesting to note the lack of new month—or US$5. But for many, even this dollars at the official rate to effectively legislative ideas being put forward by 1,2 paltry sum has not been paid for months. multiply their ‘investment’ by three on opposition MPs.2 As one journalist recently Angolan efforts to counter corruption reconversion at the parallel rate, offered by commented, “What can you expect from are virtually non-existent. The Angolan street money changers.2 an opposition who face arrest and government passed a law in 1996, Such corruption pervades all sectors of whose purse strings are tied by the establishing the Tribunal de Contas.This the Angolan system, from access to ruling party?” 56 body retains powers to examine the state medicines, to the provision of school Civil Society and Press Freedom budget. It was also intended to provide books. A current ‘esquema’ involves the There is a clear and growing civil society in information to the National Assembly, selling of EDIMEL sourced school books at Angola, which is strongly questioning the providing parliamentarians with information vastly inflated prices. In effect, EDIMEL, right of individuals within government to to enable Assembly debate about the which is run by the Ministry of Education is operate with impunity. However, the annual national budget.The only problem responsible for the supply of all school government is attempting to silence all with this organisation is that some of its books for the state education system.The dissent through strong press censorship, key members have never been appointed vast majority of Angola’s school books are 2,54 and Angola’s civil society is fighting a battle and it has never met. A similar situation currently produced in and against all the odds.This has manifested prevails with the Alta Autoridade contra a imported, through the port of Luanda.The itself in the arrest of journalists such as Corrupcao, which was created specifically to state subsidises these books through 2,55 William Tonet,Rafael Marques and look into the corruption issue. EDIMEL, where the state covers the cost of journalists from Radio Ecclesia; Marques’ There is a significant merge between production and also transport to Angola. incommunicado detention in October was the party and government, which has The cost of a school book to a student a clear breach of Articles 32 and 35 of confused the lines between what is a duty should reflect only the cost of port charges Angola’s Constitution and placed Angola in to party and what to government. This has and EDIMEL’s legitimate overheads, as the breach of its international obligations under reinforced the process of dubious business production and transport to Angola Article 19 of the Universal Declaration of dealings and corrupt practices, and, due to a component have already been paid for by Human Rights, and Article 19(2) and lack of transparency, there is a climate of the state.This means that the average Articles 9(3) and 9(4) of the International impunity for those involved, further official cost for a school book should run Covenant on Civil & Political Rights fostering the process of corruption.The to approximately US 50 cents per book. (ICCPR), which Angola ratified in 1992.57 It lack of a truly independent , in part The reality is that families are being asked is clear that the Angolan Government is due to lack of capacity, is another factor to pay nearer to US$4.50–US$5.0 per opposed to the development of an open, that contributes to the impunity of those book.1 benefiting from corrupt practices.There is independent and questioning civil society. 15

ANGOLA’S BURDEN OF DEBT This section considers the central importance of the international banking sector in the provision of high interest, short-term loans, which have played a major role in the exacerbation of oil price fluctuations for Angola’s economy, and the country’s expanding debt burden. The war, which provides a convenient excuse for Angola’s leaders in explaining away the poverty among all the oil

A CRUDE AWAKENING A CRUDE riches, should only be blamed in part for this situation. The banks, and the loans they provided, must also carry a large share of the blame Angola’s foreign debt, estimated today at $11-12bn, plays an important part in the daily lives of all Angolans, partly because of the peculiar ways in which it has been built up. Precise estimates of foreign debt are hard to The National Bank of Angola (BNA) formulate because much of the debt to the former Soviet Union, and the new oil-backed loans that the country has budgetary management is effectively run offshore, through a been able to secure in the past 15 years or so, were often set of foreign bank accounts. The notion that these monies contracted amid great secrecy. As war continued during the should at least be registered in the national budget has fallen 1980s, debt started to grow at an alarming rate, and the away, along with the notion of accountability. This has led country continued to buy arms from the former Soviet some economists to describe the trio of Sonangol, the BNA Union and other Soviet-satellite states. Meanwhile, the and Futungo—where money can disappear without trace— country’s creditworthiness in international markets began to as ‘the Bermuda triangle’. wane quickly as Angola started to fall behind substantially As mentioned earlier, a good example is provided by the with its repayments to foreign creditors. group of oil companies which signed three production Huge government deficits, year after year, could no sharing agreements with Angola this year, for which they had longer be financed with foreign borrowing and the to pay ‘signature bonuses’12 totalling around $900m. But only government started printing money, creating enormous $400 million is recognised in the provisional budget inflation, with disastrous consequences for poor Angolans in document. This is one of the reasons why economists particular. In the mid-1980s, in response to this crisis, Angola regularly describe Angolan budgets as ‘documents of started taking out new types of loans, secured with future oil fiction’—and why the IMF has made a credible study or audit production. They have taken various forms, but have many of the oil account, to include these opaque networks, a central points in common. Most importantly, lenders are well aware pre-condition of signing any structural adjustment deal. of Angola’s poor repayment record on traditional types of borrowing, and demand more secure ways of repayment. IMF statement, March, 1999: Under the various oil contracts signed with the foreign oil companies, a proportion of the money due to the “at a minimum, the study would aim at evaluating the current Angolan state and Sonangol can be paid in crude oil. So a situation of the oil sector and developing a framework for number of oil cargoes coming out of Angola are Sonangol’s systematically reporting data on crude reserves, output and (or the Government’s), while the rest accrue to foreign oil exports of the petroleum sector and on tax and other oil companies. Sonangol, on its own account or in its role as sector payments to the treasury. It would be important that representative of the government, has been able to use a the authorities ensure that the BNA does not make payments proportion of the country’s oil output to arrange a set of on the government’s behalf without payment orders (from the deals through offshore ‘escrow’ accounts. The company that treasury). It would be desirable to initiate promptly an receives one of Sonangol’s cargoes of oil, either to put it into independent audit of the BNA and undertake a diagnostic a refinery or to sell it to somebody else, pays the money for study of the diamond sector as soon as the security situation the cargo directly into this offshore account, which is subject in the diamond-producing region permits.”58 to strict international banking guarantees. Under the lending agreement, repayments for the loan come directly out of this The set of offshore parallel finances have rapidly become account. This type of repayment system is relatively safe for prey to various vested interests inside Angola, and the the lender, because the money never finds its way into the picture of who controls what money in these networks of perilous Angolan financial system, and it makes it extremely different bank accounts has become fragmented, though a hard for Sonangol to renege on its commitments. Sonangol large measure of control over these finances is still exerted has a history of good adherence to its repayment terms and by the Presidential clique. this credibilty has translated into an increased willingness on These loans have had extremely pernicious effects. The the part of foreign bankers to lend to Angola under these Angolan Government has repeatedly mortgaged as much of types of secured financing arrangements. its future oil production as possible, to provide immediate However the security involved in these contracts is a maximum revenue. double-edged sword; the fact that the money does not go This means that when oil prices are high Angola appears through the Angolan financial system is extremely damaging to win twice; not just because of the increased value of its oil for Angola. As far as Angolans are concerned, all the exports, which are boosted further by the tax system, but calculations involved in the offshore loans should, in theory, also because a whole new set of loans becomes available. be processed through the central system of the state budget, When oil prices are low, the economic situation deteriorates which is responsible for earmarking spending on education, rapidly. First, most of the oil-backed loans are taken out for health and other matters. But because much of the money fixed periods of time, and although some are tied to oil flowing from these oil-backed loans does not go through the contracts that are ‘hedged’—or insured against lower oil BNA, and Sonangol discounts its repayments into these prices—others are not, and when oil prices fall, Angola has loans from the regular taxes it owes to the treasury, a set of to increase the quantity of crude oil delivered to ensure it parallel finances has emerged, where a large slice of Angola’s keeps to its repayment terms. So it has to increase the 16 volumes of oil that are earmarked to repay creditors, leaving rebound in world oil prices, and Angola’s finances are now very little for government coffers. The result is even less under far less strain. In addition, more money appears to be money available for normal government operations than entering the country’s financial system as a result of a set of would have been the case just from a simple fall in the oil liberalising reforms that were implemented in May 1999, in price. What is more, Angola no longer has access to new an effort to secure an IMF agreement. As oil prices rose loans, because bankers do not want to lend to such a throughout 1999, efforts to implement all of the IMF’s economically unstable country. suggested reforms became less of a necessity, hinting at a Because, at any given time, Angola has mortgaged most continuation of the Angolan Government’s lengthy game of its current revenues, there is very little coming into state with the IMF. coffers apart from a few taxes not eligible for oil financing Angolan government officials visited Washington in

and revenues from diamonds and a few other enterprises. So, September 1999 and presented an analysis of the oil account, AWAKENING A CRUDE to pay for its operations, the government needs new loans. which is believed to have been an improvement on earlier Effectively, government finances blunder from loan to loan. efforts. It remains to be seen whether this will have proved This makes any effort to institute normal budgetary to be transparent enough to convince the IMF to start a management, quite apart from the fact that much money is ‘staff-monitored programme’ (SMP). Such a programme diverted from the budget anyway, impossible. In an era of would involve perhaps six months of close monitoring by low oil prices, when no new loans are available, the the IMF which would then be followed, if all went well, by government has no alternative but to print more of the near- a full IMF structural adjustment agreement with IMF worthless Kwanzas to pay its workers; in effect a way of financing. This could set the stage for a re-scheduling of stealing from the poor by devaluing the value of all the local Angola’s old loans. currency held by everyone else in the country. It must also be pointed out that by failing to provide The severity of this situation from the perspective of the correct information to the BNA, Sonangol appears to be Angolan Government, can be seen from the following quote acting illegally according to Angolan law, by breaking the from the provisional budget document, 2nd April 1999: terms of its concession agreement. Under the terms of the foreign exchange regime in the “Angola’s access to external financing is almost at its limit… contract for the Cabinda concession, for example, lines of credit from Portugal and Spain are blocked because Sonangol’s obligations are as follows: there is no oil to service them for now, commercial lines of credit are over-saturated, which will prevent them from being Submit plans and budgets to the BNA 59 used this year.” Supply the BNA periodically with copies of the bank statements from all its accounts outside the country Amid low oil prices, it was becoming clear that Angola was in danger of having to renege on some of its earlier oil Supply the BNA with copies of all payments made contracts, because at such low prices it simply did not have Supply the BNA, at the end of each year, with copies enough oil to service the loans that it had taken out earlier. of all fiscal declarations and reports on foreign This was a matter of great strategic importance to Angola, exchange movements. because the problem was calling into question the future of its financing arrangements. The only oil-backed loans that It has become clear that this is not happening. To quote an could temporarily be suspended were relatively small ones IMF document from December 1995: that had been signed with close allies Portugal, Spain and , which agreed to a temporary suspension of payments “The fiscal implications of the absence of a mechanism for political reasons. ensuring the recording of accounts for government operations Commercial creditors were not so forgiving. Union related to oil transactions, are perfectly clear in the data Bank of Switzerland (UBS), in particular, which was uncovered, which show that about 40 percent of estimated responsible for a large amount of these pre-financing deals, expenditure up till September was carried out bypassing the decided to organise a new loan. This loan would do two Treasury, largely financed by petroleum revenues that were things – firstly it would ‘re-finance’ an earlier oil contract also outside the Treasury’s purview and as such were likewise (see below) in order to save Sonangol from defaulting, and not reflected in the budget execution accounts. Besides the so- secondly it would free up extra funds for the government at called petroleum transactions, there was also a high level of a time when it was facing an enormous military threat from expenditures which did not follow the established procedures UNITA. Nervous bankers and oil officials, well aware of the for executing State expenditures.The mission estimates that risk posed by UNITA to their large earlier investments, the total expenditure outside the normal procedures for were relatively easily cajoled into joining the syndicate for Treasury operations amounts to about 64 percent of total this huge new loan. In the end it was oversubscribed by expenditure up to September.”60 some $75m. It seems likely that UNITA was aware of the This stance of the government has hardly changed since this preparations for this loan, and tried to sabotage it. It is statement was made, and another IMF document in 1997 possibly no coincidence that a widely publicised but also said that budgetary expenditures carried out outside the ultimately false report in April that the rebels had acquired formal budgetary system accounted for over two thirds of MiG aircraft—capable of attacking the MPLA’s oilfields— the total. Another IMF document said in March 1999: “It emerged shortly before the loan was due to be released, would be important that the authorities ensure that the BNA thereby delaying its completion. does not make payments on the government’s behalf without A loan of $575m was eventually released in July 1999, payment orders”58 with a four-year repayment term. This was probably the It remains to be seen how thorough the latest audit longest period of repayment to date for Angolan oil-backed presented to the IMF turns out to be, and though it is debt that was not specifically linked to the finance of certain that new BNA governor Aguinaldo Jaime has projects in the oil sector. What the ‘re-financing’ portion of successfully pushed through a number of economic reforms the loan effectively did was to stretch out, over a longer time since May 1999, the long history of failed reforms in Angola period, the repayment terms for Angola’s earlier debts. this decade provokes a large measure of scepticism about the An agreement in March 1999 by OPEC to cut world oil sustainablility of such changes. supplies by over 2 million bpd, set the stage for a huge 17

CREDIT ON TAP…. available on loans if Angola was able to institute correct budgetary management and secure an IMF agreement. This section details the most significant loans which have Assuming an oil price of $20 per barrel, it is likely that such been provided to Angola in recent years. This information loans are costing Angola $50m a year. suggests that at least US$2.819 billion have been provided to The loan details overleaf (see ‘An Oil-Mortgaged Angola, much of which is repayable at higher interest rates Future’) are not exhaustive, and provide only a partial than those which would be payable with an IMF agreement. picture of Angola’s oil-backed debt. The picture is also very It is clear that the companies involved in the loans represent murky, because while some loans involve large quantities of a diverse set of international interests. Governments must oil, to be repaid over long periods of time under often very move to ensure that future loans are not forthcoming complex contracts, some of Angola’s oil is also contracted without significant improvements in transparency in the

A CRUDE AWAKENING A CRUDE out under smaller, short-term ‘forward sales’ (whereby Angolan economy. Given that these loans have played a key Angola receives money for smaller quantities of oil, role in undermining IMF efforts for transparency in Angola, sometimes on a per-cargo basis), that are going to be ‘lifted’ it is particularly disturbing to note the involvement of the or delivered into cargo vessels at some time in the future. US Ex-Im Bank. Because of the secrecy that appears to surround many such Some, like those provided by the US’ Ex-Im Bank, are loans, much of this information has not been confirmed by specifically tied to financing capital expenditure in Cabinda, the banks or companies involved. Global Witness criticises which produces almost two thirds of Angola’s 770,000 bpd Japan’s Nissho Iwai in particular for excessive secrecy. If any output. This is because Sonangol, which has a 41% stake in details in the following table are incorrect, we invite the the joint venture contractor group in Cabinda’s producing companies or parties concerned to contact us with the licence on Block 0, cannot (because of poor planning and correct information, or to publish it directly. management) come up with its share of the costs required of it for new developments under the new joint venture It is a closely guarded secret how much of Angola’s oil is agreement. If there is new work to be done, and paid for, mortgaged into the future. But most oil-backed loans have Sonangol insists that the contractor companies which bid for repayment terms stretching out over three years or less. the work must also include a financing package for its 41% Though a few smaller loans, linked to financing projects in share. These loans are invariably paid back in oil. Because Cabinda and elsewhere, have repayment terms of up to eight the loans that are contracted in this way are considered more or nine years, they constitute a relatively small part of the secure than loans not tied to any specific project finance, the loans portfolio. So it appears unlikely that much more than lenders are usually prepared to consider relatively long three years’ worth of oil is currently mortgaged against these repayment terms; six, seven years or more. loans. As new fields enter into production, more oil will Other loans, which are not tied to any particular capital become available, as will new loans. Bankers are already expenditure, are paid through Sonangol directly to the talking about a number of new oil-backed loans for Angola. government for its own use. Because they are not considered Although no clear plans have been set, it is believed that quite so secure as those tied directly to capital expenditure Banque Paribas is at the early stages of trying to secure a projects, companies are unlikely to agree to repayment new oil-backed loan through the Soyo-Palanca trust, and terms of more than three years. The large majority of oil- Nissho Iwai is also considering a new loan. The total value backed lending to Angola has been in the form of these sorts of these two planned loans is believed to be in the order of of loans. $300-450m.2 We invite both Paribas and Nissho Iwai to In addition to all the damaging effects of the loans, the detail their plans for transparency in relation to the loan. interest rates that are charged are relatively high, typically The most important trader involved in Angola is two percentage points above the benchmark London probably Glencore, which linked its contracts to lift interbank offered (Libor) rate. Though two percentage Angolan oil with a series of oil-backed loans worth $900m points does not appear to be particularly bad, it would cost between mid-1997 and mid-1998. Much of the money from Angola almost $5m in extra interest on a three-year loan of these loans was used to purchase weapons. Other traders $100m, over and above the normal commercial interest that active in Angola include: Addax, Attock Oil, Nissho Iwai, would be charged. These commercial rates in themselves are Vitol. far above the concessional interest rates that would become

Against all the odds and lack of funds—a functioning Angolan school AN OIL-MORTGAGED FUTURE Daewoo Heavy Industries onproduction arranged by INGBarings activities. for variousoilfieldworks andother Sonangol tousethefunds is theoilofftaker. Glencore Paribas toarrange thefinancing. Glencore andSonangol mandatedBanque backed financingarranged by Glencore. arrangers. SocieteGeneraleandUBS asco- BNP, Involves: originatedby Glencore. financing, ‘ at2.00percentage pointsabove repayment, Sixmonths Loanisfor BNA. again by UBS. Natwest Markets. Bank, Sumitomo,Arab Sanwa, Chartered, Standard SG, of Scotland, Royal Bank Bank ofCanada, Royal Natexis Banque-BFCE, KBCBank, Greenwich Natwest, GeneraleBank, Erste Bank, Dresdner bankLuxembourg, , CSFirst Credit Lyonnais, Hypo-Bank, Bayerische Landesbank, Hypotheken, Bayerische Hispanoamericano (BCH), BancoCentral Bank,Afreximbank, — Loan includeshedgingmechanisms. international andguaranteedby theBNA. linked toanoilcontractheldby BPOil percentage pointsover Interest rate1.75-1.90 grace period. includessix-month repayment term, yeararranged by UBS.Three be repaid inoilcargoes. wholly underwrittenby UBS.To provided; Banco Nacionalde Angola (BNA). Guarantoris Sanwabank. Bank ofCanada, Royal , Bank, Generale,Arab Societe UBS,Afreximbank, Bank, Chartered Standard HypoVereinsbank, Bank/Belgolaise, Generale Dresdner BankLuxembourg, Credit Suisse, Credit Lyonnais, bank, Bayerische Bayerische Landesbank, Vereins — UBSarranged loansince1989. fourth points above thebenchmark Interest rateat2.00-2.15percentage oil. linked toBPcontractlift grace period, withsix-month 29 monthly instalments, Repayments in organisedby UBS. syndicate, cargoes. Loanpaidbackinoil Corporation (KEIC). guarantee from Korea Insurance Export Loanbacked credit by export Industries. Equipment provided by Daewoo Heavy Cabinda. Nemba fielddevelopment, Libor Syndicate includes:ABN Syndicate includes:ABN Amro,Absa Syndicate includes:ABN-Amro, Early 1998 Mid-February December October August Mid-year Sonangol borrowed US$310millionbank ING Barings ’ rate. — — — S40mlin again US$400 million, — — US$75 millionloanarranged, US$100 millionbridgefacility — US$79 millioncredit facility, US$320 millionoil-backed — 1998 1997 1996 1995 S8 ilo on for US$80 millionloan, US$ 300millionoil- ‘ Libor — for work by ‘ ’ Libor rt.Deal rate. ’ rate;

© Chris Hondros ([email protected]) Paribas. MeesPierson, Indosuez, Credit Agricole Lyonnais, — from KEIC. credit cover Export platform for Cabinda. loan guaranteedby BNA. through Sonangol and thePresidency.The whichwere routed funds were available, butsomenew involving BP,August 1997), an earlierloan(theUS$400millionfacility ofthisloanwasusedtore-finance portion points over the with interest rates2.25to2.50percentage Four-year repayment period, since 1989. banking armofUBS by theinvestment Warburg DillonRead, through theCabinda Loanarranged Trust. July.To bepaidbackincrudeoilcargoes EC overing Sonangol KEIC, 70%insured by arranged by INGBarings, million. is US$900 total value Paribas; Banque from loans, US$250 million aswell asafurther US$300 millionloans, above-mentioned US$320millionand includingthe originated atleastthree loans, year repayment periodfor eachloan. witheight- one-year periods, through four, ‘ withrepayment through offshore oil sales, financingsecured through concession.The for theCabinda remediation services and US$200 millionoilwell completion, of For support million loanby SocGen-NY. in crudeoilover sixyears. Repayment MeesPierson. Agricole Indosuez, Credit OtherlendersinGroup: Lyonnais. Co-arranger Credit underwritten by ING, Fully Daewoo heavy industries. Platform constructioncontractto Cabinda. for new waterinjectionplatform in escrow te edr ntegop Credit Other lendersinthegroup: June November July May offshore Glencore for theseloansisthree years. for fixed volumes ofoil. — ola eamn.Securityis to loanrepayment. — otat ihSnno,providing contracts withSonangol, — derived from fixed salesterm ’ acut Fundsdrawn down account. vrps er Glencore has Over pastyear, US$575 millionloan US Ex-ImBankguaranteesUS$87 ‘ — escrow ‘ lifts ‘ US$45 millionfacility Libor 1999 ’ theoilandpays into — ’ ’ acut,directed accounts, rate.A major rate.A this isUBS ’ s portion ofcosts s portion repayment period — disbursed in Average ’ sixthloan monthly crudeoilrepayment. tobepaidbackin24 loan for Sonangol, NisshoIwaiprovided a$129m In 1998, contracted: others thatappear tohave been there are various In addition totheseloans, Investimentos (aprivate Angolan bank). de BancoAfricano AG, Wirthschaft Bankfur Arbeit und Arab Bankplc, Cantonale UnitedBankofKuwait, Vaudoise, Banque BankofScotland, Creditanstalt, Bank Royal BankofScotland, Bank, Standard BHFBank, Standard Chartered, Credit Lyonnais, Bayerische Landesbank, NatexisBank, ErsteBank, Generale, — Brazil oil cargoes. tobepaidbackin validuntil2000, facility, Paribas alsohasa$100mrevolving credit tobepaidbackinoilcargoes. government, credit (renewable annually) for the Angolan a$65mrevolving HSBC EquatorBank: half-yearly instalments. tobepaidbackin13 government $50m, fTkoMtuih,IGbn,NB SE NIB, of INGbank, Tokyo Mitsubishi, Bank Borrowers. IHC CallandandSonangol. JV Lenders: US$134million: a loanworth oil torepay previous loans. Petrogal lifts about20,000bpdof Angolan secured by Cabinda throughTrust. oilsales, Sonangol andtheloanistopay for is US$146million, sale totalpriceoftheexport Sonangol.The Gulf OilCompany.The borrower is The buyer oftheequipmentisCabinda andmore than22otherUSsuppliers. TX, Inc., Brown andRoot, Services,TX; Energy Halliburton CA; SanDiego, Inc., Turbines, by Solar sale ofequipmentandservices the supporting US$64 milliondirect loan, akn ako ctad Banque Artesia, BankofScotland, Banken, ydct nlds aia,Societe Paribas, Syndicate includes: 16 24 th th ’ erba,Spain s Petrobras, NedShip Bank.This loanisnottobe NedShip Bank.This September July ’ hr.Repayment offinancingis s share. partly throughpartly equityfrom the atytruhti et and throughpartly thisdebt, joint venture company isfinanced — Offloading (FPSO)platforms.The laigPouto,Storageand Floating Production, rjc pnos NisshoIwaiis project sponsors. specialist intheleasingof ’ s Investec haslentthe Angolan oagladICClad a Sonangol andIHCCalland, US Ex-ImBankprovides providing equityfundingfor for constructionandinvolves ut t. setupespecially Kuito Ltd., oagl andinexchange Sonangol, eadi i age,butis repaid inoilcargoes, opn,calledSonasing company, borrower isajointventure over five years.The they receive from — Repayment istobemade Sonangol shares inthe of project finance. a more traditionaltype joint venture company. MeesPierson arranges ’ ieo,Portugal s Sirecox, ’ s

A CRUDE AWAKENING 18 A CRUDE AWAKENING 19

© Mercedes Sayagues An everyday searchforfoodinLuanda An everyday THE OIL TRUSTS nomto,youare askingfortrouble.” information, andwithlimited to doadealoutsidethetrust, you cannever really tell—ifyouare crazy enough is really available? We have anideaaboutthisbut how much oil have theanswer tothebigquestions: youneedto you are financingoutsidethetrust, If leveraged andhow far they canbeleveraged. Cabinda Trust isthatyouknow how far they are Cabinda Trust: outside ofthetrusts. itisriskytolendmoney backed by money repayment, andthefactthattrustshave priorityin information, Becauseofpoor that isnotearmarked tothesetrusts. Angola issometimesabletoborrow money againstoil most loansusethesetruststobuildinextrasecurity, improved information tothepotentiallender.Though also beusedby theSPT. concession notearmarked totheCabinda Trust can Oilfrom theCabinda 270,000 bpdbetween them. Cabinda Trust andrepayments through the at around 480,000bpd, from Cabinda hasaccesstooil run by Lloyds BankinLondon.This Government revenue tobypass theBNA. representing yet anotherroute for Angolan theCabinda Trustoil trusts; andtheSoyo-Palanca Trust. derived ispaidthrough from two theoilindustry main of A significantportion Angolan Government revenue ssolfo te rdcn ra,mostnotably Elf uses oilfrom otherproducing areas, imbalances inthe Trust.The Soyo-Palanca Trust (SPT) the Cabinda inorder tobalanceoutany Trust, from theCabindaconcession. Block 3/85and Texaco “The mainreason why youdofinancinginthe A European banker gave thisassessmentofthe These trustsprovide thebenefitofvastly The most important istheCabinda The mostimportant whichis Trust, ineffect, asoffshoreThese trustsserve accounts; Sonangol to earmarksthefirstcargo every quarter ’ lc ocsin currently running s Block0concession, 61 have priorityover allotherobligations ’ lc ,whichproduce around s block2, 62 ’ s EXPORT CREDITGUARANTEES government economic policies. considerations andassessmentsof butalsoby humanrights Angola, standard risksassociatedwith influenced notonly by the UK the for Angola, countries thatdoprovide cover Unlike theother being considered. iscurrentlya Britishconsortium thoughanapplication from Angola, provide credit cover export for ‘ these companiesadoptapolicyof unless their nationalcompanies, providing businessassistanceto in Luandashoulddesistfrom itisclearthatEmbassies key role, Given this correct businessdeal. companies are toobtainthe if This assistancecanbecrucial, companies wishingtodobusiness. overseas Embassyfacilitationfor credit cover andalsodirect governments provide bothexport ofinternational departments way toreduce thisrisk. in transparency would beabetter also follows thatamajorincrease cover It for investment in Angola. credit to obtainnationalexport oilcompaniesare keen this reason, For any large-scaleinvestments. shareholders toreduce theriskof have adutytotheir business, asfor any private Oil companies, full transparency The UKdoesnotcurrently Export promotionExport ’ . ’ s decisionis French companies. being financedcarried outby a largeproportion ofthework would dependon say Coface, from, Cover commercial bankloans. the form ofloanguaranteesfor orin for example, the Ex-Imbank, have periodically beenprovided by which take theform ofdirect loans, loans inthiscase which means, ‘ Almost allofthiscover dependson andItaly Insurance Corp., SouthKorea agency, France (since1980), US Ex-ImBank cover iscurrently available from the credit Export work beingprovided. government riskinsurancefor the which effectively provide respective credit agencies, export oftheircountry support recourse toexternalfinancing. oftenwithout balance sheets, financing from theirown company prepared toprovide significant difficult environments.They are associated withoperatinginsuch bear thepoliticalandotherrisks andthey are prepared to takers, companies by nature are risk- Oil sought for theirinvestments. extra costswhenfinancingisbeing which translateintosignificant business in Angola facelargerisks, secure financingarrangements Some companieshave the Companies wishingtodo ’ . Export credit cover Export might . ’ s Coface export credit s Cofaceexport ’ s Korea Export ’ s ‘ ’ s SACE. oil-backed ’ , percent from 1974to1977. andreal wagesrose by about25 and industry, there are aspectstoNorway same economicbenefitsthatexistinNorway, transparency Whilst itisnotsuggestedthatapolicyof McMoranmine the Freeport destructive projects suchas environmentallyof supporting OPIChasahistory violence. andpolitical inconvertibility, currency expropriation, risk insurancecovers Political overseas investments. American corporationsfor of theUnitedStatesto backed by fullfaithandcredit and politicalriskinsurance providing loans government, agency ofthefederal OPICisan programmes. traditional direct aid world ratherthanthrough development inthethird promote business President Richard Nixonto (OPIC) wascreated by Investment Corporation The USOverseas Private accountability. transparency and of good governance, considerable advancementfor thepromotion would represent a developing countries, andotheroil-rich institutions in Angola, multinationals andinternationalfinancial atthebehest oftheoil such afund, and environmental creation of projects.The government hasmandatedtouseitonethical also grantedhugesubsidiestoagriculture currently standsatUS$23.4billion fund torunout.This when itsoilstarts fund bonanza wasthecreation ofa accomplishment ofNorway regarding itsoil the key pointsinNorway seems appropriate tobriefly examinesomeof Ittherefore positive development of Angola. assistance for thereconstruction andfuture its oilrevenue whichcouldbeofgreat evcs esos andpublicemployment. pensions, services, Itincreased spendingonsocial welfare state. andexpansionofthe redistribution ofwealth, greater equalitythrough full employment, able toimplementitsthree mainobjectives of petrodollar bonanzaandthegovernment was Norway wasimmediately facedwitha Sea. THE OVERSEAS ANGOLA’S OIL CORPORTION FOR POSITIVEUSEOF DEBT FIASCO INVESTMENT THE ROLE OF NORWAY:THE CASE ’ Probably themostenlightened In 1962oilwasdiscovered intheNorth whichwassetuptostore wealth for , (OPIC) IN PRIVATE OIL WEALTH ’ willimmediately deliver the ’ s oilhistory: 68 ’ s deployment of ‘ petroleum 69 and the significant benefitstothe promise financially sound, thatare participation projects withsubstantialUS and financesinvestment OPIC involvement. binding anddeclared termsof placed before thelegally national interests are being appears thatcorporateand andonceagainit Angola, currently notpresent in needed for OPICbackingare that thetermsandconditions there isconsiderableevidence hasindicated as thisreport However,Agreement in1998. OPIC Investment Guarantee the UnitedStatessignedan oil discoveries and Angola and years duetothegiantoffshore dramatically inthelastthree investment hasincreased thepaceof Unsurprisingly, and theRepublicof Angola. between theUnitedStates bilateral investment treaties projects inRussia. and uncontrolled logging in IrianJaya intheearly 1990s OI uprs insures “OPIC supports, Currently there are no ‘ full 67 66 It

© Jeff Barbee/Panos Pictures 63 worker rights.” internationally recognized to violationsof environment orcontribute developmentcountry’s or economy orthehost affecttheUS adversely the lossofUSjobs, projects thatcouldresult in OPIC willnotsupport initiative andcompetition. andfosterprivate country development ofthehost social andeconomic OPIC insurance and finance involve illicitpayments. projects that support on tostatethatthey the hostcountry..”. economic development of benefits tothesocialand projects offer questionable whetherthese itiscertainly Furthermore, ‘ projectsthe oilsupported are serious doubtastowhether Angola in significant USparticipation disagree thatthere is financially sound The OPICguidelinesgo Whilst onecannot ’ i nuty there is s oilindustry, “..significant 64 ’ . “do not outside officialchannels.” procurement orders ministry and outflows offundsand off-budgetinflows income, accounting ofpetroleum includingpoor process, transparency inthebudget arises from alackof activity…Corruption also done tocurbsuch Littlehasbeen blatant. bribes iscommonand Solicitationof Angola. corruption atalllevels in continuing problems with where itstates: Government, Information Centre oftheUS climate in Angola by the Trade website) oftheinvestment hyperlink ontheOPIC statement (reached through a seem toclashwithanofficial This investment idealwould corrupt practices laws.” compliance withapplicable investor regarding covenants from their representations and documentation requires “…there are seriousand 65

A CRUDE AWAKENING 20 21

CONCLUSION situation. Collectively, they are the source of the vast disappearing revenues, which are the driving force behind the Angola has suffered conflict for three decades. From the continuation of war. liberation struggle against the Portuguese colonial power, It is time for a radical rethink in international business the war became another of the ’s side-shows. Two practice. The oil industry claims that it does not get involved efforts for peace have since failed and now the war has taken in politics; its conduct is generally shrouded in secrecy, due on an additional dimension—the pursuit of profit by those to competition and ‘corporate confidentiality’. Whilst these who really count in the political hierarchy; in essence a claims may have a modicum of merit, they are also an excuse conflict of interest. to do nothing. The fact is that by conducting ‘business as Since 1992, the international community has failed to usual’ in a country such as Angola, these companies are, adequately foster peace, which has resulted in the almost

A CRUDE AWAKENING A CRUDE whether they like it or not, already involved in politics. total destruction of Angola’s infrastructure. A ‘peace-on- As such, Global Witness is challenging the oil industry, the-cheap’ approach has been used. On the one hand, efforts lending banks and the national governments involved to to pressure UNITA to the negotiating table were hindered change their policies. It is simply not good enough to through both ill-thought out sanctions regimes and their continue in the same vein, so we are challenging the oil lack of deployment (both now finally improving), whilst industry to adopt a policy of ‘full transparency’. In addition, international governments pursued the ever greater potential the oil industry needs to adopt a common strategy, together of Angola’s vast oil reserves, ignoring an emerging clique of with the IMF, the World Bank and the international corrupt power brokers in Luanda. community (especially those governments with a history of All this has cost Angola and her people dearly. Angola promoting their oil interests), to insist that the Angolan could be one of the richest countries in Africa. Over the past Government becomes fully accountable to its people. 25 years, and especially during the 1990s, it has become a Finally, international commercial banks which have totally destroyed country with massive food problems. In provided vast loans that have been used to purchase Kuito, Malange and other cities, people have starved to weapons, often through mafia-style individuals and death, with vast numbers suffering severe malnutrition. ‘companies’ and for kickbacks, should desist in providing Whilst it may be true that either the MPLA government, further loans. Such a loan embargo should remain until such or UNITA might desire an overall victory, given that the war time as the Angolan Government adopts radical has lasted for so long, this seems unlikely. In the meantime, improvements in transparency. Angola’s economy is being cynically managed for personal If those involved fail to change their practices, then they gain by those individuals and their shady businessmen may be seen to be complicit in the continuing war in Angola entourage at the expense of the Angolan population. and the suffering of vast numbers of Angolans. What should be done about the situation? First, the Furthermore, it will clarify that in the case of Angola, both international oil companies which are profiting from the the Angolan people and the international tax payer through Angolan people’s main national resource, the international their contribution of emergency assistance to the Angolan banks which have arranged short-term loans at exorbitant people, are subsidising the profits of the international oil interest rates and the national governments which assist such companies. In the western democracies, such a concept is business arrangements must accept their responsibility in politically untenable. actively seeking to address Angola’s human development needs. If not, they must accept that they are complicit in this

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October 1999. th April 1978, April st July 1998. th October 1999. th August 1978. st December 1999: th September 1999. th st etme 97 At: September 1997. uut19.As,David Banes; Also, August 1997. nd th August 1997. September 1997. th th August 1999. th May 1999. August 41993. th th Global Witness hasnopoliticalaffiliation. NGOsandthemedia. inter-governmental organisations, informationisusedtobriefgovernments, Global Witness’ evidence tobeusedinlobbying andtoraise awareness. techniques Global Witness compilesinformationand Usingpioneeringinvestigative and theirpeople. impacts ofnatural resource exploitation uponcountries especiallythe environmental andhumanrightsabuses, organisation whichfocusesonthelinksbetween published March1995 Famine & War“Forests, —theKey toCambodia’s Future” published July1995 “Thai-Khmer RougeLinks&theIllegal Trade inCambodia’s Timber” 1996 published February Cambodia’s Forests” “Corruption,War &Forest Policy—theUnsustainableExploitationof published May1996 “RGC Forest Policy&Practice —theCaseforPositive Conditionality” published October1996 Cambodia’s Forest Policy” Money Grows“Cambodia,Where on Trees —Continuing Abuses of published March1997 “A Tug of War —theStruggletoProtect Cambodia’s Forests” published June1997 Legacy totheCountry” forCambodia—Deforestation &theCo-PrimeMinisters’ “Just Deserts published March1998 “Going Places—Cambodia’s Future ontheMove” published December1998 Angolan Conflict” Rough theRoleofCompaniesandGovernments inthe Trade“A — 1999 published February ReforminCambodia?” ChanceforForestry “Crackdown orPause — A 1999 published April destroying rainforests” How thegarden furniture trade“Made in is Vietnam —CutinCambodia: http://www.oneworld.org/globalwitness/) (also available onourwebsite: publications previous Global Witness’ WITNESS GLOBAL Printed on100%unbleachedrecycled paper. where sourcesrequire anonymity. 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