African Mining Brief Online asks Sergio Pugliese, President of the African Energy Chamber (AEC) in Angola, about the impact of ongoing reforms in the governance of the hydrocarbons industry on the growth prospects of Angola’s oil and gas sectors in 2019 and beyond
AMB Online: In your opinion, what needs to change regarding Angola’s oil exploration efforts and why?
SP: It is true that 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 (ANPG) 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. Concretely, we believe that what needed to change to boost exploration has been changed or is being changed. The next step now relies on attracting sufficient investments into Angolan licenses, which we are already seeing happening thanks to the wave of reforms implemented since 2017.
AMB Online: As president of the AEC in Angola, you will aim to support the AEC’s partners in unlocking value in Angola’s multi-billion-dollar oil and gas market. What will you tackle first and why?
SP: Our primary target, besides attracting investments, will be to support local content development and domestic capacity building. Investment into local content development needs to be primarily channeled 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 legislations 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 AEC has a vast experience advising government on local content regulations, and the private sector on being compliant which such regulations and committing to building domestic capacity. We bring in-depth knowledge and expertise of local content dynamics and training requirements for all aspects of the industry and believe this is where we can have a sustainable impact on the Angolan industry.
AMB Online: The pace of change and reform in Angola’s oil sector since the 2017 election was noticeable. It is now two years since. In your opinion, is the Country’s energy sector continuing on this path or has it reached a ceiling. Please elaborate.
SP: The country has definitely not reached a ceiling. Reforming the Angolan market and the governance of its hydrocarbons industry is a two-step process. First you need to assess the current situation and address it by implementing the right reforms that will promote good governance, restore investors’ trust and confidence, and restructure the functioning of the industry. This is exactly what the government has done successfully since 2017 and will continue to do in the months and years ahead. We are now entering phase two: sustainable foundations and attractive and competitive regulations have been developed, now is the time for the industry and its companies to invest, make deals and push things forward. Instead of having reached a ceiling, we believe Angola’s energy sector has been put at the starting blocks and is on the verge of being propelled towards a new and prosperous future.
AMB Online: This year the government of Anglo announced it will create a regulatory body for the hydrocarbons sector in 2019. What impact will this have on Angola’s hydrocarbons sector?
SP: 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. It will be acting as Angola’s national concessionaire for hydrocarbon licenses and be in charge of regulating the industry and implementing government policy, a responsibility it has taken over from state-owned Sonangol.
The creation of the agency is part of Angola’s efforts to streamline and overhaul the governance of its hydrocarbons sector. 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.
AMB Online: In your opinion, what are the top five challenges and triumphs within the energy industry in Angola at the moment?
SP: We tend to see the Angolan market in terms of challenges and opportunities. It is too early to say whether the overhaul of the industry’s governance or the new reforms are a triumph as the true success of such developments can be measured only in the long-term. In the short-term however, it is clear that Angola is back on the map of the most competitive African energy frontiers, and this is a triumph in itself given the situation the country was in a few years ago. The kind of political leadership emanating from Angola and the openness of the regulators and decision-makers to understand the industry’s concerns and demands is remarkable.
We do think that a big opportunity and challenge is the development of the country’s gas industry and value-chain. 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. 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 very important as thousands and thousands of jobs can be created on the back of a developing natural gas sector.
AMB Online: What are the top five challenges and triumphs within the energy industry in Southern Africa at large?
SP: Southern Africa’s energy sector has moved forward in recent years, in very positive ways. Exploration is picking up in Namibia and South Africa, Botswana is getting closer to first gas from its coal-bed methane assets, and more importantly Mozambique took final investment decisions on its world-class LNG mega projects. At the same time, the environment has become more competitive: investors are more careful and selective before putting in capital and technology into projects, while the investment requirements and need keep increasing. The money needed to expand Southern Africa’s energy infrastructure in itself amount to several billion dollars a year.
AMB Online: The World Bank’s economic outlook for Angola released in December 2018, predicted GDP will grow 2.2% in 2019 — the first time the country will have seen positive growth since 2014. In your opinion, what will be key drivers of this growth?
SP: Contrary to Nigeria, it is expected that non-oil growth will be leading Angola’s economic recovery in coming years. This is mostly due to the fact that despite the ramping up of exploration efforts, production is expected to keep declining in Angola for another three years at least. This is not necessarily a bad thing. In fact, it speaks to the potential Angola has to further diversify its economy and build a new and sustainable economic growth model.
However, growth rates of around 2% are too low to get Angola where it needs to be and to see the national economy exploiting its full potential. The role of oil & gas in this will be crucial. We believe Angola’s hydrocarbons sector needs to play the role of an economic stepping stone and driver of the country’s development. It is through the revenues of the Angolan oil and gas and their efficient distribution throughout the economy that the economy can diversify and the country’s development be inclusive.