Angolan elections are threatening the flow of state oil money into elite pockets

In addition to the nepotistic appointment of the Angolan president’s daughter as its chief executive, the scandal-ridden state-owned oil company is losing out on royalties to a firm with unknown owners.

Sonangol has never had a good reputation but recent information leaks and submissions to the United States Securities and Exchange Commission (SEC) have shed light on how money in the Angolan oil sector is siphoned into elite pockets. For four decades, the opaque political machinery that has kept Angola’s President José Eduardo dos Santos in power has seemed impenetrable.

Within the regime, factions exist between military leaders, senior political advisers and the Dos Santos family. In the past, any tensions were resolved by distributing public wealth to disgruntled parties through fronts of large contracts and deals in construction, banking, diamonds and other industries.

Now, however, the state appears to be in flux. In 2015, ahead of Dos Santos’s reported plan to leave active politics in 2018, his daughter Isabel dos Santos was named as the head of Sonangol. She oversees all petroleum and natural gas production in Angola. Petroleum laws grant Sonangol exclusive mining rights that span the entirety of the oil economy, including prospecting, exploration and production.

Oil makes up more than 90% of Angola’s export revenue, the bulk of the government’s budget and about half of the country’s gross domestic product. Whoever controls Sonangol controls Angola’s political economy.

To date, and despite the controversy of Isabel’s new position, more than 100 Portuguese citizens have been hired to fill senior positions in Sonangol. This effectively displaces potential Angolan employees, presumably to deter any anti-Dos Santos factions from developing.

Fortunately for the regime, the bulk of oil production takes place offshore. This geographic luck provides a distancing for the regime that – unlike in Nigeria, Africa’s other main oil producer – places Angola’s oil infrastructure out of reach of opposition movements that might otherwise sabotage oil pipelines and facilities.

Resistance, instead, comes in the form of activism from civil society leaders such as anti-corruption watchdog Maka Angola head Rafael Marques de Morais and, sometimes, foreign governments.

One such example is the US department of justice’s investigation into violations of the Federal Corrupt Practices Act (FCPA) by oil companies such as Cobalt, a Houston-based firm founded with investments from Goldman Sachs. Passed in 1977, the FCPA forbids payment in cash or kind to foreign government officials or political parties, directly or through third parties, for the purpose of obtaining or winning business. The Act is often enforced by the justice department, which handles criminal cases, and the Securities and Exchange Commission, which deals with civil cases.

In Cobalt’s case, Morais accused high-ranking Angolan officials of secretly owning a company that was a local partner of Cobalt.


Sonangol chief executive Isabel dos Santos. (Fernando Veludo, AFP)

Between 2009 and 2011, Cobalt was awarded two blocks (20 and 21) in deep water offshore Angola for drilling. Cobalt came under public scrutiny because of its links to Angolan vice-president and former Sonangol chief executive Manuel Vicente, former head of the president’s communications team General Leopoldino “Dino” Fragosa do Nascimento and then head of the presidency’s intelligence bureau, the Casa de Segurança, General Manuel “Kopelipa” Hélder Vieira Dias Jr. Collectively, they are known as “the Trio” and are an alternate faction to the Dos Santos family.

In March 2011, the Securities and Exchange Commission launched an informal inquiry into Cobalt’s business dealings in Angola. After the nonprofit organisation Global Witness exposed the company’s questionable corporate structure, the Securities and Exchange Commission and US justice department began two formal investigations. The investigations focused on Angolan government officials’ connections to companies such as Alper Oil Limitada and Nazaki Oil & Gaz SA.

Grupo Aquattro, for instance, owned by the Trio, controlled 99% of Nazaki, a company that received 30% of the oil concession. The same physical address used by Aquattro was used by more than 40 companies connected to the Trio. Alper’s skeletal staff was funded by an entity called Sonils. Data shows this entity belongs to the Angolan government.

The companies were allegedly proposed by the Angolan regime. In 2009, Cobalt stated publicly: “We have not worked with either of these companies in the past and, therefore, our familiarity with these companies is limited. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities.”

Much later, after the deal crashed, Cobalt’s former chief financial officer said in court documents that the Angolan government “called the shots”, describing the deal as “a fait accompli”.

While the Securities and Exchange Commission officially dropped the civil case in January 2015, the department of justice case is ongoing.

This isn’t the end of Cobalt’s lack of transparency. Securities and Exchange Commission documents reveal royalty allocations from Cobalt to Bahamas-based company Whitton Petroleum. Though Whitton frequently appears in the Panama Papers database, its true owners’ identities remain hidden and questions to Cobalt about Whitton had not received a response at the time of publication.

In 2015, Cobalt announced its exit from the deal saying Sonangol would purchase Cobalt’s 40% interest in deep water blocks 20 and 21 for $1.75-billion. The deal seemed to crawl along, with little evidence that the sale would proceed. Sonangol was deeply in debt and unable to repay $13-billion in loans to European banks such as Standard Chartered, which recently gave the state-owned company 45 days to provide evidence that it can satisfy the loan. In a recent update to shareholders, Cobalt confirmed the commitment of the Angolan government to the sale.

Production-sharing contracts are the most common form of extractives agreements in Angola and their purpose is to shift the burden of costs and related risks to oil companies.

Royalties vary from project to project, and in Cobalt’s Securities and Exchange Commission disclosures list Whitton is noted as the recipient of royalties. The beneficial owners of Whitton remain unknown, though the company is said to have “provided consulting services to Angola in exchange for an upfront fee and a future overriding royalty in CIE’s [Cobalt’s] production.”

It remains to be seen how the royalty issue will be resolved if the sale of the blocks to Sonangol proceeds. Cobalt said it might have to pay a material cash sum to Whitton at the conclusion of the sale.

Whitton has no business history, no employees, no bricks-and-mortar office. The company exists only on paper and the only public mention of it is in Cobalt’s corporate disclosures, which show that on February 13 2009 Cobalt entered into a Restatement Agreement with Whitton Petroleum Services.

In a quarterly filing to the SEC, Cobalt says: “Pursuant to the terms of the Royalty Agreement, in consideration for Whitton’s consulting services in connection with Blocks 9, 20 and 21 offshore Angola and the company’s business and operations in Angola, Whitton is to receive quarterly payments [measured in US dollars] equal to 2.5% of the market price of the company’s share of the crude oil produced in such quarter.”

Information from the Panama Papers data leak indicates that Whitton was incorporated on May 15 1995. The establishment date of the company predates Cobalt’s awarding of the relevant blocks in Angola. Searches in the public domain render no results except for the links between Whitton Petroleum and Cobalt.

Nominees used to conceal beneficial owners and real directors include Swiss-based entities such as Mayo and Channel Island companies such as Caversham Holdings, which also lists a Switzerland postal office. Shares are held by Bellerive Investors and Bellerive Secretaries, which are incorporated in the British Virgin Islands. But unlike Mayo and Caversham, they appear to be used by a specific set of companies and may not be independent from Whitton’s real owners.

In the Restatement Agreement, the beneficiary is listed as Caversham SA. According to the Swiss Corporate Registry, Caversham SA is a company engaged in fiduciary activities. Meanwhile, another company, Applegate FS SA, is the listed intermediary of Whitton Petroleum.

These entities form part of larger intricate corporate structures revealed in the Panama Papers.

Neither Bellerive nor Whitton could be reached and Applegate declined to comment when contacted.

Almost $200-billion has left Angola in foreign investment between 2002 and 2015 ‒ an average of $13.5-billion every year. Yet the country remains impoverished and in debt.

Ahead of elections, factions in Angola have exposed cracks in the regime. These may yet intensify siphoning of wealth as both sides fear being ousted from the levers of power and money.

This story was produced by the African Network of Centres for Investigative Reporting, together with the International Consortium of Investigative Journalists.

 

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Khadija Sharife
Khadija Sharife
Khadija Sharife is an Africa editor at the Organized Crime and Corruption Reporting Project.

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