From: Tsegai Emmanuel (emmanuelt40@gmail.com)
Date: Sun Jul 04 2010 - 12:07:44 EDT
Angola, Brazil: A Line of Credit and a Leg Up
June 25, 2010 | 1150 GMT
Summary
With the announcement of an additional $1 billion line of credit, Brazil has
advanced the lead it holds as the largest foreign investor in rebuilding
Angola’s civil war-ravaged infrastructure. But from Brazil’s perspective,
there is more to it than simply gaining construction contracts in Angola.
The biggest motivation is likely linked to Brazil’s desire for Petroleo
Brasileiro to increase its foothold in the oil deposits waiting to be tapped
off Angolan shores.
Analysis
Angolan President Eduardo dos Santos made a state visit to Brazil June
22-24, meeting with Brazilian President Luiz Inacio Lula da Silva and coming
away with an additional $1 billion line of credit from Brasilia, which is
the leading foreign funder of reconstruction projects in Angola. The money
will likely be used to hire Brazilian firms to carry out reconstruction
projects in Angola. It could also allow Brazil’s state-controlled oil
company Petroleo Brasileiro (Petrobras) to strengthen its foothold in
Angola’s offshore oil industry and gain valuable experience for developing
Brazil’s massive pre-salt offshore reserves.
Reconstruction is a major industry in Angola, a country only seven years
removed from a 27-year civil war that left much of its infrastructure in
tatters. Luanda, Angola’s capital, finances these projects predominantly
with oil revenues, but it also taps some external sources of financing. With
the announcement of the additional $1 billion credit line, Brazil has
advanced the lead it holds as the largest foreign investor in Angolan
reconstruction. Even before dos Santos’ visit, Brazil had already committed
a total of $1.6 billion to projects currently under way, recently completed
or already planned. (Most of these projects are being built in and around
Luanda.) Only China, a country that has shown no hesitancy to throw money at
any African country with significant amounts of natural resources, comes
even close to Brazil in this category.
Brazilian credit for Angola benefits both countries because of the unspoken
understanding that the Angolan government will hire Brazilian companies to
do the actual work on any given project. But from Brazil’s perspective,
there is more to it than simply gaining construction contracts in Angola.
The biggest motivation for being willing to invest a total of $2.6 billion
in Angolan construction projects is likely linked to increasing Petrobras’
foothold in the oil deposits offshore. To this end, offering an extra $1
billion credit line is seen as a down payment toward obtaining new offshore
concessions. And $1 billion itself is not an extraordinary amount; the
Chinese are rumored to have paid $1.4 billion in signature bonuses in
Angola’s 2006 licensing round.
[image: Angola, Brazil: A Line of Credit and a Leg Up]
Petrobras is no stranger to the Angolan oil industry, having obtained its
first stake in 1979. The company currently maintains stakes in six Angolan
offshore blocks and is the operator of half of them. None of the blocks
operated by Petrobras, however, are actually producing any oil at the
moment. In fact, of all the blocks in which Petrobras is a partner, five are
in the exploration phase and only one is producing anything at all (a paltry
6,200 barrels per day at that).
Nevertheless, Petrobras sees the geological formations off Angola’s shores
as being extremely similar to Brazil’s pre-salt deposits, which are on the
verge of making the country a rising oil power. Indeed, Petrobras officials
regularly express their interest in playing a larger role in developing
offshore fields the Angolans are incapable of operating, and have recently
stated that the company plans to invest more than $3 billion in the Angolan
oil sector through 2012.
STRATFOR sources in Angola say that the Angolan government could offer an
oil-licensing round at the end of 2010. It all depends on when Angola
calculates it is most advantageous to hold a licensing round. Whenever that
day comes, the Chinese are expected to make a major push to win fresh
blocks. Not wanting to lose out, Brazil likely sees its new credit line as a
way to line the pockets of decision makers in the ruling Popular Movement
for the Liberation of Angola, led by dos Santos, in hopes that it will spur
Luanda to call for another oil-block licensing auction that will give the
Brazilians (and not the Chinese) a leg up.
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