By Andres Vega, International Partner at Centurion Law Group.
Angolan lawmakers last week approved the revision of current legislation, allowing pre-exploration studies for oil and gas to be carried out in some areas previously designated as nature reserves. The government stressed, however, that this law in no way constitutes a relaxation of the strict environmental provisions required for oil exploration in Angola which already exist. According to HE Diamantino Pedro Azevedo, Minister of Mineral Resources and Petroleum, less than 3% of areas previously designated as protected are likely to be affected by this provision. Angola’s constitution and applicable presidential decrees all require that oil and gas exploration be carried out only in an environmentally sound manner. The proposed new law won a majority of over 70% in the Angolan parliament.
The passage of the new law by such a strong majority, despite previous concerns, is recognition of the role oil has played in bringing prosperity to Angola. It is also an approval from the sector regulator, Agência Nacional de Petróleo, Gás e Biocombustíveis (ANPG), which is responsible for ensuring that the highest environmental standards are met during exploration and production. of oil and gas.
Following the accession to independence of Portugal in 1975 and a protracted civil war that lasted for decades, Angola was able to rebuild its infrastructure, improve its institutional capacities, its governance, its public finance management systems, its human development indicators and living conditions. million inhabitants in record time. Coupled with a pragmatic and business-friendly approach to governance under the administration of President João Lourenço, private sector-led oil growth is expected to continue to play an important role in fueling long-term national development.
From the first oil production at the Benfica-2 well in 1956 to the deepwater discovery of the Girassol field in Block 17 in 1996, Angola has become sub-Saharan Africa‘s second largest producer of crude, after Nigeria. Producing 1.4 million barrels per day before COVID-19, with peak production of over two million barrels per day in 2010, oil accounts for nearly 90% of national exports. About a third of Angola‘s GDP is rooted in the petroleum industry, while crude oil, natural gas and refined petroleum account for almost all national exports, with the value of crude oil exports reaching US $ 35.5 billion in 2018.
As a result, the production of crude oil has had a huge impact on GDP and per capita wealth. In fact, Angola is home to one of the fastest growing economies in sub-Saharan Africa and has witnessed a meteoric rise in socio-economic development aligned with the expansion of its energy industry. During the 20-year period between 1999 and 2019, Angola‘s GDP grew 1,344%, reaching a high of $ 145 billion in 2014, in line with the global bull market for crude oil. Per capita wealth experienced a similar trajectory over the same period, increasing 619% and reaching $ 2,791 in 2019 before COVID-19, and peaking at $ 5,408 in 2014.
Importantly, the increase in public revenue has enabled the delivery of improved public services, including health care, education, critical infrastructure and public services. Angola‘s The Ministry of Education, in partnership with UNESCO, drew up a national literacy and school revival strategy aimed at rebuilding the national education system after the end of the civil war and improving literacy rates in nationwide, which is currently 77% for adults, significantly higher than the sub-Saharan average of 65%. In recent years, thanks to oil revenues, the government has opened five new universities, 45 health worker training schools and a myriad of clinics. The provision of private health services and facilities by international oil companies for their employees has also been a key factor in improving health care, with many Angolans benefiting from these arrangements.
Infrastructure spending has also been prioritized, in particular the supply of electricity. This led to the construction of additional production capacity such as the Laúca dam which is one of the largest in Africa. When completed and fully commissioned, it is expected to provide affordable and reliable energy to over 8 million Angolans and stimulate the creation of heavy industry and associated jobs.
Angola’s oil wealth has by no means spared it criticism of the unfair distribution of wealth, inequality in society and, in some cases, embezzlement of public funds. These concerns are legitimate and should be addressed by the state. When it is found that people have taken unfair advantage, it is important that they are held accountable and that justice is delivered impartially in accordance with the law and on behalf of the Angolan people. The sector’s ability to generate wealth for Angola per se is not the problem. The capacity of the oil sector to generate this wealth is not at all in question. The concerns are rather centered on the use of the generated income and its fair distribution. These concerns should be adequately addressed by the competent authorities. However, all sections of Angolan society and Angola’s international partners should continue to support the country’s oil and gas sector, to ensure that it continues to generate income for the country’s development. This is increasingly important, given growing global competition from new frontiers like Guyana, shale in the United States, and a global transition narrative that is hurting funding for oil exploration projects in Africa.
A reform-oriented approach
In addition to the main socio-economic indicators, the development of hydrocarbons in Angola has set in motion a reformist approach to the oil and non-oil sectors. Notably, by positioning its oil sector as an attractive investment destination for international operators, Angola has initiated greater transparency, environmental sustainability and decentralization in its economy, which has also fostered the diversification and growth of non-energy industries.
Following the general election of President Lourenço in 2017, the country‘The administration has adopted bullish reforms, in part led by the oil sector, in a way that is perhaps best summed up by its National Development Plan 2018-2022 (NDP), which includes 25 strategic policies and 85 programs. ‘action. The PDN is based on five main pillars:
- sustainable, diversified and inclusive economic development
- infrastructure necessary for development
- peace building.
- strengthening of the democratic state and governance.
- state reform and decentralization.
In addition to describing how oil production will reach an estimated production of 1.5 million barrels per day, it provides for the privatization and divestment of state-owned Sonangol through the sale of 195 non-core assets between 2019 and 2022. At the same time, raising capital for the State, the divestment program aims to refocus Sonangol on its main activities of exploration, production and marketing of hydrocarbons and to make it more efficient. This same campaign of privatization and efficiency quickly spread to other sectors of the economy. This has led to reforms of public services, tariffs and subsidies, and the privatization or liquidation of state-owned assets through the Angolan Institute for the Management of Public Assets and Assets – or IGAPE – an expenditure monitoring unit – in June 2018.
Angola has also taken several measures to encourage foreign investors to engage in economic diversification initiatives beyond its oil sector. Before COVID-19, the PDN predicted that Angola would achieve 3% economic growth by 2022, coupled with the growth of other critical non-oil sectors such as agriculture, fishing, manufacturing, construction. , services and tourism. Two new laws were approved and passed to harness this growth. Both the Private Investment Law and the Antitrust Law aim to enhance private sector-led growth and the competitiveness of the Angolan industrial sector, in turn making substantial progress towards creating development and stability. more inclusive.
The government has also created the National Agency for Private Investment and Export Promotion (AIPEX) which serves to identify key products to stimulate exports, promote private investment and internationalization of companies outside the petroleum sector. and gas. These vital new programs and institutions benefit from funding generated by the petroleum sector. AIPEX currently has two flagship programs: one focused on attracting private investment and the other focused on exports and the internationalization of companies, with a view to providing a ““One stop shop” for private investment in all sectors and for export activities. As the oil and gas sector continues to attract private sector players, an investor-friendly environment opens the door for multinationals to enter the market and create other non-energy companies in their portfolio in Angola as well.
In short, the impact of Angola‘The oil boom on national development cannot be measured in dollars, nor limited to socio-economic indicators. Instead, the continued growth of the oil industry has served to bring sustainability, transparency, and improved governance to the country, as it rightly assumes its position as one of the largest economies in sub-Saharan Africa. The petroleum industry is one of the most dynamic in the world, constantly evolving due to innovations and technological improvements. Angola and the ANPG under the leadership of HE Paulino Jerónimo must continue to respond in real time to these changes in the industry in order to remain competitive and attractive for investment. A competitive Angolan oil and gas sector will lead to reforms in other sectors of the Angolan economy and inevitably benefit the lives of all Angolans.
Andres Vega is an international partner at Centurion Law Group and has extensive experience in the implementation, development and financing of oil and gas and energy projects in some of the most important energy markets in the world.