August 29, 2008

Angola Pumps a Lot of Oil but Doesn’t Keep Much

By Henrique Almeida

On a recent Friday night, men in sport utility vehicles and others on mopeds lined up outside one of the few gas stations in the Angolan port city of Lobito to fill up for the weekend.

As car horns began to sound, it became clear that the gas pumps had once again run dry.

"We provide millions of barrels of oil each month to China and the United States but don't have enough to fill up our own tanks," David Boio, a businessmen, said, as he stepped down from his truck.

Since a 27-year-long civil war ended here in 2002, foreign companies have rushed in to tap its oil reserves, making it one of the world's big suppliers. But Angola has failed to provide fuel for its own drivers, one of many paradoxes that overshadow elections set for Sept. 5.

Another is that the country earned a record $41 billion in oil exports last year, up from $30 billion in 2006, according to estimates by JP Morgan, but almost 70 percent of its population still lives on less than $2 a day.

Analysts blame corruption for the government's inability to improve the lives of its people. Billions of dollars in oil revenue have disappeared from state coffers, according to human rights groups, although a World Bank official said in July that transparency has improved.

The MPLA, a mix of former Marxists and Western-leaning technocrats, has been in power since the country declared independence from Portugal in 1975. It is widely expected to win the election.

The main opposition party, Unita, which lost the civil war, has promised to end poverty by using oil revenue to invest in the country's once-prosperous farm sector. The other 12 parties in the race are small and have barely enough funds to make themselves heard.

While Angolans may wonder whether the elections - the first national vote since the end of the civil war - will bring more accountability in government, oil companies are widely seen as having little interest in a change of government.

"The oil industry wants stability and access to oil reserves and therefore an expected victory from the MPLA party will be good news for them," Alex Vines, the head of the Africa program at Chatham House, a London-based research firm, said.

Local analysts agree.

"The oil industry is not bound by ethical or moral constraints but by principles of profitability," said Justino Pinto de Andrade, the head of the economics department at the Catholic University of Luanda. "All they want is for things to remain as they are."

Vikea Cambulo, a professor of sociology at Agostinho Neto University, noted that the oil companies are finally reaping the rewards of billions of dollars of investment in Angola's deep-water resources. "Why should these oil companies want a change in government?" Cambulo asked.

Producing almost two million barrels of oil per day, Angola now rivals Nigeria as the biggest African oil producer. It is the biggest supplier of oil to China and the sixth-biggest to the United States. Oil accounts for about 90 percent of Angolan exports.

Angola's status as a rising star in the oil world allowed it to join the Organization of Petroleum Exporting Countries, raising its profile on the international stage.

Its reserves, which are mostly off shore, stand at about 11.4 billion proven barrels of oil, about the same as Algeria, according to estimates by Edinburgh-based energy consulting firm Wood Mackenzie.

Despite such wealth, about five million people live in shantytowns around Luanda, the capital city, without clean water or electricity.

The government says it is working on a 200,000-barrel-per-day refinery in Lobito to replace the country's struggling 39,000- barrel-per-day refinery and provide gasoline for the local market. But the $3.5 billion project has been stalled for years as the state- owned oil firm Sonangol struggles to find foreign investors.

Analysts say such concerns do not matter much for investors, who are happy to continue to deal with a business-friendly government keen to grant access to one of the world's biggest untapped oil reserves.

"Assuming no unrest is associated with the elections, the expectation is that the MPLA will again dominate parliament and the process will pass peacefully. I don't think much will change," said Graham Stock, executive director at JP Morgan Research on Emerging Markets.

"The main driver for investor interest in Angola is geological rather than political," he said.

While oil companies like Chevron, the biggest producer in Angola, decline to comment on the election, Western oil executives openly favor of the ruling party.

"The MPLA has to win," said an oil executive at a bar of a $300 a night hotel in Luanda. He identified himself only as Joe, because of his company's policy of not commenting on the elections.

"I just hope elections end quickly so that we can all go back to business as usual," he said.

Originally published by Reuters.

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