Investment into local content development needs to be channelled and supported by strong regulations
LUANDA/Angola: There’s so much excitement about where Angola’s energy sector is headed. Sergio Pugliese, a successful entrepreneur and oil executive, is really hyped and enthused about recent developments and future direction of his country’s energy sector. Angola is ranked second largest oil producing country in Sub-Saharan Africa and an OPEC member with an output of approximately 1.55 million barrels of oil per day and an estimated 17,904.5 million cubic feet of natural gas production.
Production levels in Angola are expected to soar by 2020 following the country’s restructuring, including the reorganization of the state oil company Sonangol. In addition to a drastic revision of Angola’s legislation related to oil and gas, the government’s intent is to spur growth in the sector, encouraging exploration in development areas, improving operation efficiencies, reducing taxes, empowering the private sector, and attracting investors. Since the 2017 elections, Angola’s oil and gas sector has been featured in numerous conferences aimed at linking top government officials with the global energy industry.
The African Energy Chamber (AEC), the continent’s voice for the ongoing change and progression in the African energy industry recently named Sergio Pugliese as the AEC’s President for Angola. The appointment will be the first of many to follow across the continent as the AEC guides local content development that will enable African companies to grow and take the lead in the development of their continent. In an official statement, Pugliese notes:
“It is with great sense of responsibility towards Angola and the African Energy Chamber that I am assuming this new function. Angola is reforming is very fast and the need to provide accurate information and guidance for investors doing business in Angola is growing”. Prior to being named the AEC’s President for Angola, Sergio Pugliese most recently worked with BP and Statoil as top executive before founding Angola-focused oil and gas services companies Motiva LDA and Amipha LDA.
The rapid change and reform in Angola’s oil sector since the 2017 election has caught the attention of many. Will this enhance Angola’s work towards attracting more investment into local content development?
Investment into local content development needs to be channelled and supported by strong regulations. As more foreign investors get into the market, the country is currently working on a new regulatory framework to promote the development of the Angolan content and build domestic capacities. At the moment, several pieces of legislation touch on local content and there is a definitive need to make our local content framework more efficient and competitive. A draft presidential decree on local content has been in the works this year and is expected for release and public consultation this month. The oil Industry is looking forward to the Angola Oil and Gas conference organised by Africa Oil and Power in Luanda from June 2nd to 4th. The President is going to unveil the government’s oil and gas agenda. As the largest oil lobby in Africa, we will be working closely with the government and the oil industry on this. The Oil industry and Angola needs a champion and we will be that champion.
There was an announcement this year by the Angolan Government that it will create a regulatory body for the hydrocarbons sector – What do you expect this move to encourage within the Angolan Oil and Gas sector?
The creation of the new Angola National Petroleum and Gas Agency (ANPG), officially launched through Presidential Decree 49/19 in February 2019, is one of the most significant reforms since 2017. Its pioneer Chairman is non-other that experienced oil and gas executive and former Secretary of State Paulino Jeronimo, who has earned a very good reputation within the industry following an impressive track record stretching over many decades.
More importantly, it will be acting as Angola’s national concessionaire for hydrocarbon licenses and be in charge of regulating the industry and implementing government policy. The creation of the agency is part of Angola’s efforts to streamline and overhaul the governance of its hydrocarbons sector. Up until now, state-owned Sonangol was responsible for such licensing activities. Setting up the ANPG puts Angola at par with best oil and gas industry practices, and is a positive move to promote good governance and transparency within the Angolan industry. We expect foreign investors and operators to respond very positively to this measure.
What strategies does Angola have to further encourage the financing of expansion of SME’s in its petroleum sector?
The government of Angola currently runs a number of programs, some of them, jointly funded with multilateral organizations which offer soft loans to SMEs in all sectors of the economy. These loans are accessible via state-owned banks but have especially since the 2014 financial crisis stringent criteria for access attached to them. The Africa Energy Chamber continues to advocate for such loans to be made available to local entrepreneurs who are likely to employ more people in good-paying jobs whenever they have access to the right kind of financing. In the near future, I will lead a delegation to Europe, America and other African countries to see what they have done right and will build more coalitions to help the Angolan sector.
Are there any specific local content projects that Angola will be highlighting?
I think the current approach by the Angolan government to encourage and strengthen local companies via tools such as offering them soft loans, rather than legislate them into projects is the best way of building local companies in a competitive manner. That is, they are more likely to be capable of competing with internationally active companies and hence ensuring their survival in the long-term.
What in your view are the common challenges in implementing strong local content policies in the Oil and Gas sector?
Some of the common challenges include the absence of capital, technology and deep industry know-how for local companies to carry out the high paying services in the industry. This eventually leads to local content being relegated to low paying and low jobs that do not in the long run help develop the kind of capacity needed to run the industry in the future with reduced dependence on foreign staff or capital.
What is the importance of working with local companies across the value chain?
Local companies are the ones that support the local economy and create the most jobs. Engaging, partnering and working with them promotes technology, skills and know-how transfers. It is also beneficial for robust national employment growth. More importantly for business perhaps, local companies are the ones with the deepest and most relevant knowledge of the local market environment, its dynamics and the way to do business. Setting up a joint venture with a local company or partnering with them has proven a very sustainable and profitable business strategy for many foreign investors. The Chamber will be pushing for more joint ventures and encourage a lot of technology and skill transfer. Local companies have to also do their best to meet the industry demands and standards.
How can this strengthen capacities and transfer know-how and increase local capability?
Exposing local companies to best international practices, be it on an operational or managerial level, is very beneficial. National oil companies have grown a lot this way, by having stakes in licenses operated by international oil companies, and acquiring de facto the technology, know-how and practices that they now use to operate their own blocks. This move wouldn’t have been made possible without their prior association with major IOCs and international oilfield services providers. The same thinking applies to engineering, procurement and construction, manufacturing and the overall value chain. Equatorial Guinea’s Minister Gabriel Obiang Lima has been very vocal about this and we will work with the Angolan oil sector to ensure this happens.
Given the highly technical and technological demands of the oil and gas industry, is the Angolan workforce ready to accommodate the growth of a local E&P industry?
Yes, certainly so. Similar to Nigeria’s experience, where the government created the right kind of enabling environment to spur the growth of local E&P companies, Angolan companies can do the same if provided the same opportunities. Nigeria can now boast of names like Oando, Sahara, Aiteo, Shoreline, Atlas Oranto and Seplat amongst others which are now respected brands in the region. Angolan banks have to develop capacity in terms of understanding E&P, be willing to lend to local players at reasonable rates and the government has to encourage joint ventures between Local and international companies. The Africa Energy Chamber strongly advocates for such measures to be taken.
What, in your view, is the most pressing problem for Angola’s energy sector?
Angola desperately needs more exploration, including in marginal fields to stem the declining oil production. This is currently being addressed by the government which set up a technical committee that includes IOCs and government stakeholders to discuss existing hindrances to investment in the sector. This committee is already bearing fruit with Total announcing that it will invest hundreds of millions into Angola, including towards the increasing of production in block 17. The government also set up an independent Petroleum and Gas agency which is tasked with action as a regulator in the industry and implementing government policy in the sector. The agency has already announced that it will carry out an auction for block licenses this year in an attempt to spur exploration in Angola.
Where do you see the greatest potential for Angola’s Oil and Gas sector in the future?
There is potential across the value chain. In upstream, our production has been decreasing for over a decade due to a lack of investment, especially in exploration. We are seeing the trend reversing now with several investment commitments from operators in the market. More importantly, perhaps, the rest of our value chain remains under-developed. Our midstream and downstream infrastructure needs billions of investment to connect existing and future fields to consumption centres, and to build the refineries, power plants, petrochemical plants and fertilizer plans who will be processing our future output of oil and gas.
What is your thought on what is considered an urgent need to develop a gas economy in order to fuel future electricity, enable renewables and support industrial development for the benefit of Angolans?
The major pillar that was needed to build our gas economy was the regulatory one, which has been passed last year. Presidential Decree No. 7/18 is the first law aimed at specifically regulating the prospection, research, evaluation, development, production and sale of natural gas in Angola. To date, only the Angola LNG Project had benefited from a special legal and tax framework. Before the passing of PD 7/18, the exploration and production of natural gas in Angola was subject to very broad principles only. These notably included making associated natural gas surplus available for free to Sonangol, and the possibility for oil companies to jointly-develop non-associated natural gas with Sonangol, with terms defined on a case-by-case basis. Sonangol was free to develop the non-associated gas discoveries on its own shall no agreement be reached with the oil company. Under PD 7/18, both Sonangol and oil companies have the rights to prospect, research, evaluate, develop, produce and sell natural gas in the international and domestic markets. More importantly, the decree provides for the possibility of specific and longer periods for natural gas exploration and production as compared with crude oil. Such periods can now all be extended so as to accommodate the particularities of developing a natural gas project.
However, and as experience has shown, the success of Angola’s gas economy will now rely on the creation of gas demand centres and the development of gas-consuming industries. These include power generation, petrochemicals and fertilizers, compressed and piped natural gas in the retail space, but also steel and cement. This is probably where the most urgent need currently lies as we want to make sure the future gas output will not be just exported internationally but used domestically to build industries and create jobs for Angolans.
With Africa been considered the last frontier, why does it seem to not have reached its full potential? What is causing this blockage in greater development? What role could Intra-Africa trade play in this regard?
Weak governance structures and lack of investment in exploration have so far prevented Africa from exploiting its full potential. This particularly applies to Angola. The crash in commodity prices in 2014 was just the ultimate blow to our industries who were, in fact, relying on weak foundations. Tough lessons have been learned over the past few years on the need to reform our legislative frameworks, provide better clarity to investors, and diversify our economies. Intra-African energy cooperation has a major role to play in this regards as it is able to unlock massive deals and projects. The case of Senegal and Mauritania who are developing the giant Tortue gas field, or of Equatorial Guinea and Cameroon who recently signed a unitization agreement for gas, are prime examples. There is so much to be achieved from a greater African energy dialogue in terms of transnational projects and exchange of commodities. In this regard, we believe that not only the private sector, but also and above all African national oil companies (NOCs) have a major role to play in driving that cooperation forward.
Could you introduce yourself to our international audience and the scope of your role as AEC’s President for Angola?
I moved back to Angola two decades ago after I completed my studies at Cambridge and the University of Adelaide from where I earned my MBA. This was the golden age of Angola’s oil and gas sector, so I naturally started working with major international oil companies such as Statoil and British Petroleum. This is where I got firsthand experience into the commercial, financial and technical aspects of operating producing oil blocks. I am a strong advocate of our local industry and have always been an entrepreneur at heart, so I eventually went on to set up Amipa LDA and Motiva LDA, two Angolan oil & gas services companies.
In my role at the Chamber, I intend to both facilitate the entry of new players and investors and ensure domestic capacities and capabilities are developed and good paying local jobs are created for Angolans. The reforms led by H.E. President Joao Lourenço are profoundly transforming our oil and gas industry by improving its business environment. This is generating tremendous interest from the international energy community and the network of partners the Chamber has. With over a decade of experience in the sector globally, I am able to bring them the kind of local and sector expertise they seek when coming to Angola. Under the leadership of its Chairman NJ Ayuk, the Chamber has been at the forefront of the most important and recent deals in Africa’s hydrocarbons sector and we truly look forward to bringing these deal-making abilities to Angola. We are going to be champions for Angola. Our country needs champions.
What will be the strategic importance of African Energy Chamber to the Angolan Oil and Gas sector?
The African Energy Chamber will be channelling global interest for Angola’s oil & gas sector, providing local knowledge on the market and advisory support for investors and local companies. More importantly and in line with our mandate to build African capacities, the Chamber will act as a catalyst for training Angola’s oil & gas workforce, build domestic capacity and advocate for an enabling environment. Low taxes, limited government, fair local content, fair fiscal frameworks, market-driven policies, incentives to drill, judicial security and respect for the rule of law will get us to a fairer and balance oil sector.
What advice do you have for potential foreign investors looking at Angola as well as your own AEC members?
A major advice is to carefully choose a local partner. Investors tend to think that with enough capital and experience they can make it. While this is not entirely false, tying-up with an Angolan partner or establishing cooperation with a local entity on the ground always gives a major boost to a new business, especially in its early years. Operating in Angola does come with a few challenges that can easily be overcome if an investor works with the right people and the credible and efficient local companies that know the market and how to get things done. We also tell investors to not just look at the upstream segment but consider opportunities across the value chain, be it in midstream, downstream, fabrication, services and supplies. A market like Angola which produces almost 1.5 million bpd offers considerable opportunities across the industry and anyone looking at Angola shouldn’t consider exploration and production as the only lucrative investment to be made here.
Where do you want to take the AEC in your tenure of President for Angola?
The AEC will become the entry door to Angola’s oil & gas sector. We want to ensure that there is an enabling environment for oil and gas investments. Oil companies must be given the incentives to invest but we are the oil industry also know we have an obligation to the Angolan people. We have to work with policymakers and implement strategies and solutions that will work in Africa. Look at Gabon’s leadership on the environment, Equatorial Guinea on Gas monetization, Ghana on building regulatory frameworks. Also, also look at Nigeria when it comes to empowering Africans. We are already receiving lots of queries from new investors wishing to enter the market, and having local representatives on the ground is positioning us as a strong advisor and facilitator for foreign investors, while being able to properly communicate what is happening on the ground to the international energy community. On the second hand, we also want to be building domestic capacity, both by training and skilling Angolans so they can take on additional responsibilities across the value chain, but also by bringing in more technology and best practices to our local companies so we contribute to boosting local content.