IMF Claims Corruption as $3.6 Billion Angolan Refinery Launched

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). In the same month, October 2002, that Dresdner Kleinwort Wasserstein (DrKW) (Dresdner Bank) (NASDAQ EUROPE:DRSDn) (Frankfurt, Germany) has been appointed as financial advisor to Angola's national oil company, Sonangol, for the new $3.6 billion Sonaref refinery north of Lobito, comes the leak of the content an International Monetary Fund (IMF) document which alleges that between 1997 and 2001 more than $4.3 billion in state finances remained unaccounted for. This follows a warning from U.S. Secretary of State Colin Powell a month before, that if endemic corruption based on oil revenues was not curtailed, the USA would withhold their $100 million annual aid package to Angola.

The proposed refinery is about 500 kilometers south of Angola's capital city, Luanda, and will be designed to process 200,000 bpd (9.75 million metric tons per year) of heavy acidic crude oil such as Quito and Dalia. The selected configuration will be for a high conversion refinery with crude, vacuum, fluid cracking, and delayed coking units. Diesel and gasoline produced in the refinery will meet the specifications required in targeted markets, including the U.S.A. Sonangol has already been in touch with major parties in the oil industry with regard to equity and offtake arrangements for the refinery.

The only existing refinery in Angola, operated by TotalFinaElf (PARIS:TOTF) (Paris, France) at Luanda, is not able to process the amount of oil needed to market in Africa and niche markets in Europe and the U.S. With the Lobito refinery, Sonanagol plans to capture half of the increasing refined petroleum market in the region and produce refined products with specification for Europe, in terms of diesel, and for the U.S., Brazil, and South Africa.

Sonangol aims to add value to Angola's Dalia and Quito brand names, which compared to Brent, sell at a discount on the international market. The company feels that if they don't add value to the oil products, the refiners will fix the prices and the oil producer would have to fall in with those prices. All the oil majors have key interests in the Angolan oil industry.

The company has stated that it is looking to work with DrKW on the new refinery as part of an undertaking which has been given to the Angolan government to increase revenues from its natural resources in oil, to expand employment within the country, and to develop infrastructure.

DrKW is confident of moving quickly into financing options as comprehensive work has already been undertaken on the technical side by Sonangol with the assistance of Kellog Brown & Root (Halliday) (NYSE:HAL) (Houston, Texas) and in connection with marketing opportunities in international markets for refined products undertaken by Purvin & Getz.

With all the good intentions for the people of Angola burgeoning, coupled with blunt 'stop corruption' warnings coming from the USA and the IMF, the new refinery could become the focus of new good-governance-by-good-government initiatives which will see the majors going with the oily flow.

The endemic corruption in Angola has been an open secret for many years with the politically blessed elite hitting the top designer label shops in the USA and Europe hard and often and flaunting their booty and overseas investments. The size of the corruption may have surprised some observers. Money unaccounted for in 1997 was $1.78 billion, 1998 - $134 million, 1999 - $1.13 billion, 2000 - $415 million, and 2001 - $907 million. This gives a five year total of revenue unaccounted for in state finances of $4.36 billion. Owing to the lack of available data, the amount of missing funds may be far greater than the amount in the IMF report. Sonangol assumed complete control of foreign currency receipts from the oil sector some time ago and stopped channeling them through the central bank as mandated by law.

Meanwhile the Angolan government has not paid customs clearance charges and processing fees on food relief stocks urgently needed by the World Food Programme to feed 1.8 million desperate Angolans in the current month. The government had committed itself to pay the fees in terms of a long term agreement.

The donor community, a giving and pliable styled group up to now, have acknowledged the need for emergency aid following the savage three decade long civil war in Angola. But they are now beginning to feel that a commitment to capacity building is more of the solution rather than money. A growing number of local African opinion makers are also commenting that African countries should be seen to be making the best effort they can on behalf of their own populations rather than let the pseudo elite cream off the takings, forcing the begging bowl to be brought out to survive. Some local African obfuscations are offered in terms of gross corruption hurting humble employees in the energy industry in the west just as in Africa.

It is now certain that greater sustained pressures will be brought to bear on the Angolan government and Sonangol by donor countries and by the new pan-African political and economic structures. Commissioning date for the Lobito refinery has now slipped from 2006 to 2007. Real, rooted change may take the next five years to grow in the battered and fragile Angolan society, but there are some powerful persuaders marching under the banner of 'good governance' who should ensure that there is a 'pour down' rather than a 'trickle down' effect for the citizens of Africa's second largest oil producer.