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W O R L D B A N K P U B L I C A T I O N
Local Content in the Oil and Gas
Sector: Case StudiesSilvana Tordo and Yahya Anouti
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Copyright © 2013
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Contents
Acknowledgments ............................................................................................................................................. xii
Abbreviations and Acronyms ........................................................................................................................... 13
1. Angola ....................................................................................................................................................... 14 1.1 Structural Context ............................................................................................................................... 15
1.1.1 Economy ....................................................................................................................................... 15
1.1.2 Taxation ........................................................................................................................................ 16
1.1.3 Population and Labor Force ...................................................................................................... 16
1.1.4 Education ..................................................................................................................................... 17
1.1.5 Business Environment ................................................................................................................ 18
1.2 The Petroleum Sector .......................................................................................................................... 20
1.2.1 The Petroleum Sector in the Economy ..................................................................................... 20
1.2.2 Petroleum Geography ................................................................................................................ 22
1.2.3 Reserves, Production, and Consumption ................................................................................ 22
1.2.4 Sector Institutional Framework ................................................................................................. 231.2.5 Market Structure and Local Capabilities ................................................................................. 24
1.2.6 Management of Petroleum Wealth ........................................................................................... 25
1.3 Local Content Policies ........................................................................................................................ 26
1.3.1 Policy Objectives ......................................................................................................................... 26
1.3.2 Policy Tools .................................................................................................................................. 27
Angolanization of the Workforce ......................................................................................................... 27
Domestic Sourcing of Goods and Services .......................................................................................... 29
Preferential Treatment ............................................................................................................................ 31
1.3.3 Legislative Channels ................................................................................................................... 31
1.3.4 Institutional Responsibilities ..................................................................................................... 32
1.3.5 Interlinks ...................................................................................................................................... 32
1.3.6 Monitoring and Measuring Tools ............................................................................................. 32
1.3.7 Policy Impact on Local Content Levels .................................................................................... 33
Angolanization ........................................................................................................................................ 33
Domestic Sourcing and Preferential Treatment .................................................................................. 35
2. Brazil ......................................................................................................................................................... 40
2.1 Structural Context ............................................................................................................................... 41
2.1.1 Economy ....................................................................................................................................... 42
2.1.2 Taxation ........................................................................................................................................ 43
2.1.3 Population and Labor Force ...................................................................................................... 44
2.1.4 Education ..................................................................................................................................... 46
2.1.5 Business Environment ................................................................................................................ 46
2.2 The Petroleum Sector .......................................................................................................................... 48
2.2.1 The Petroleum Sector in the Economy ..................................................................................... 48
2.2.2 Petroleum Geography ................................................................................................................ 49
2.2.3 Reserves, Production, and Consumption ................................................................................ 50
2.2.4 Sector Institutional Framework ................................................................................................. 51
2.2.5 Market Structure and Local Capabilities ................................................................................. 52
2.2.6 Management of Petroleum Wealth ........................................................................................... 53
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2.3 Local Content Policies ........................................................................................................................ 54
2.3.1 Policy Objectives ......................................................................................................................... 54
2.3.2 Policy Tools .................................................................................................................................. 55
Regulatory Requirements ...................................................................................................................... 55
Fiscal Incentives ...................................................................................................................................... 57
Program for the Mobilization of the Oil and Gas Industry (PROMINP) ........................................ 572.3.3 Legislative Channels ................................................................................................................... 60
2.3.4 Institutional Responsibility for Policy Design and Monitoring of Implementation .......... 60
2.3.5 Interlinks ...................................................................................................................................... 62
2.3.6 Monitoring and Measuring Tools ............................................................................................. 63
2.3.7 Policy Impact on Local Content Levels .................................................................................... 63
3. Indonesia .................................................................................................................................................... 69
3.1 Structural Context ............................................................................................................................... 70
3.1.1 Economy ....................................................................................................................................... 70
3.1.2 Taxation ........................................................................................................................................ 72
3.1.3 Population and Labor Force ...................................................................................................... 73
3.1.4 Education ..................................................................................................................................... 753.1.5 Business Environment ................................................................................................................ 76
3.2 The Petroleum Sector .......................................................................................................................... 77
3.2.1 The Petroleum Sector in the Economy ..................................................................................... 77
3.2.2 Petroleum Geography ................................................................................................................ 79
3.2.3 Reserves, Production, and Consumption ................................................................................ 80
3.2.4 Sector Institutional Framework ................................................................................................. 81
3.2.5 Market Structure and Local Capabilities ................................................................................. 82
3.2.6 Management of Petroleum Wealth ........................................................................................... 83
3.3 Local Content Policies ........................................................................................................................ 84
3.3.1 Policy Objectives ......................................................................................................................... 84
3.3.2 Policy Tools .................................................................................................................................. 84Local Content in the Labor Force .......................................................................................................... 84
Domestic Procurement of Goods and Services ................................................................................... 85
3.3.3 Policy Channels ........................................................................................................................... 90
3.3.4 Institutional Responsibilities ..................................................................................................... 90
3.3.5 Interlinks ...................................................................................................................................... 91
3.3.6 Monitoring and Measuring Tools ............................................................................................. 91
3.3.7 Policy Impact on Local Content Levels .................................................................................... 93
4. Kazakhstan ............................................................................................................................................... 101
4.1 Structural Context ............................................................................................................................. 102
4.1.1 Economy ..................................................................................................................................... 102
4.1.2 Taxation ...................................................................................................................................... 1034.1.3 Population and Labor Force .................................................................................................... 104
4.1.4 Education ................................................................................................................................... 105
4.1.5 Business Environment .............................................................................................................. 106
4.2 The Petroleum Sector ........................................................................................................................ 108
4.2.1 The Petroleum Sector in the Economy ................................................................................... 108
4.2.2 Petroleum Geography and Geology ....................................................................................... 109
4.2.3 Reserves, Production, and Consumption .............................................................................. 109
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4.2.4 Sector Institutional Framework ............................................................................................... 111
4.2.5 Evolution of Local Capabilities and Market Structure ......................................................... 111
4.2.6 Management of Oil Wealth ...................................................................................................... 113
4.3 Local Content Policies ...................................................................................................................... 113
4.3.1 Policy Objectives ....................................................................................................................... 113
4.3.2 Policy Tools ................................................................................................................................ 115Localization of Petroleum Workforce ................................................................................................ 115
Target Quotas for Foreign Staff Employed by Subsoil Users ...................................................... 115
Limitations on Granting of Work Permits ..................................................................................... 116
Minimum Budget Dedicated to Training of Local Workforce .................................................... 116
Domestic Sourcing of Goods, Works, and Services .......................................................................... 116
Goods, Works, and Services Procurement Rules .......................................................................... 116
Ministry of Oil and Gas KC Development Programs .................................................................. 117
KMG (National Oil Company) Local Content Development Efforts ......................................... 117
4.3.3 Legislative Channels ................................................................................................................. 119
4.3.4 Institutional Responsibility for Policy Design and Monitoring of Implementation ........ 119
4.3.5 Interlinks .................................................................................................................................... 120
4.3.6 Monitoring and Measuring Tools ........................................................................................... 120Local Content in the Labor Force ........................................................................................................ 121
Local Content in the Procurement of Goods, Works, and Services ................................................ 121
4.3.7 Policy Impact on Local Content Levels .................................................................................. 122
5. Malaysia .................................................................................................................................................. 131
5.1 Structural Context ............................................................................................................................. 131
5.1.1 Economy ..................................................................................................................................... 132
5.1.2 Taxation ...................................................................................................................................... 133
5.1.3 Population and Labor Force .................................................................................................... 134
5.1.4 Education ................................................................................................................................... 136
5.1.5 Business Environment .............................................................................................................. 137
5.2 The Petroleum Sector ........................................................................................................................ 139
5.2.1 The Petroleum Sector in the Economy ................................................................................... 139
5.2.2 Petroleum Geography .............................................................................................................. 140
5.2.3 Reserves, Production, and Consumption .............................................................................. 140
5.2.4 Sector Institutional Framework ............................................................................................... 142
5.2.5 Market Structure and Local Capabilities ............................................................................... 142
5.2.6 Management of Petroleum Wealth ......................................................................................... 144
5.3 Local Content Policies ...................................................................................................................... 144
5.3.1 Policy Objectives ....................................................................................................................... 144
5.3.2 Policy Tools ................................................................................................................................ 145
Building Local Capabilities in the Petroleum Sector ........................................................................ 145
Domestic Sourcing of Goods and Services ........................................................................................ 147Incentives for the Manufacturing Sector ............................................................................................ 147
Developing a Domestic OFSE Industry ............................................................................................. 148
5.3.3 Policy Channels ......................................................................................................................... 150
5.3.4 Institutional Responsibilities ................................................................................................... 150
5.3.5 Interlinks .................................................................................................................................... 150
5.3.6 Monitoring and Measuring Tools ........................................................................................... 152
5.3.7 Policy Impact on Local Content Levels .................................................................................. 152
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6. Trinidad and Tobago ................................................................................................................................ 156
6.1 Structural Context ............................................................................................................................. 157
6.1.1 Economy ..................................................................................................................................... 157
6.1.2 Taxation ...................................................................................................................................... 158
6.1.3 Population and Labor Force .................................................................................................... 159
6.1.4 Education ................................................................................................................................... 1606.1.5 Business Environment .............................................................................................................. 161
6.2 The Petroleum Sector ........................................................................................................................ 162
6.2.1 The Petroleum Sector in the Economy ................................................................................... 162
6.2.2 Petroleum Geography .............................................................................................................. 163
6.2.3 Reserves, Production, and Consumption .............................................................................. 163
6.2.4 Sector Institutional Framework ............................................................................................... 164
6.2.5 Market Structure and Local Capabilities ............................................................................... 165
6.2.6 Management of Petroleum Wealth ......................................................................................... 166
6.3 Local Content Policies ...................................................................................................................... 167
6.3.1 Policy Objectives ....................................................................................................................... 167
6.3.2 Policy Tools ................................................................................................................................ 1686.3.3 Legislative Channels ................................................................................................................. 170
6.3.4 Institutional Responsibilities ................................................................................................... 170
6.3.5 Interlinks .................................................................................................................................... 171
6.3.6 Monitoring and Measuring Tools ........................................................................................... 171
6.3.7 Policy Impact on Local Content Levels .................................................................................. 171
Tables
Table 1.1 Key Economic Indicators of PostCivil War Angola, 1985–2010 ________________________ 15
Table 1.2 Angola’s Labor Force Indicators Compared to Select Countries, 2010 ___________________ 17
Table 1.3 Angola’s Educational Indicators Compared to Select Countries, 2010 ___________________ 18
Table 1.4 Indicators for Doing Business in Angola, 2011_______________________________________ 19
Table 1.5 Snapshot of Angola’s Oil Sector Reserves and Production (2010) _______________________ 23
Table 1.6 Angola: Company Share and Operator (in Gray), by Producing Blocks (%) ______________ 25
Table 1.7 Domestic Sourcing of Goods and Services in Angola: Objectives, Rationale, and Instruments
__________________________________________________________________________________ 26
Table 1.8 Angolanization Targets Outlined by the Decree of 1982 ______________________________ 27
Table 1.9 Angola: Annual Contributions to the Training and Development Fund _________________ 28
Table 1.10 Key Angolanization Regulatory Requirements and Fines in Case of Noncompliance ____ 29
Table 1.11 Angola: List of Goods and Services by Mode of Preferential Treatment ________________ 30
Table 1.12 Angola: Tendering Rules as per Decree No. 48/06___________________________________ 30
Table 1.13 Summary of Local Content Policy Tools in Angola __________________________________ 31
Table 1.14 Labor Distribution and Angolanization Rate by Occupation along the Oil Value Chain, 2002
__________________________________________________________________________________ 34
Table 1.15 Angolanization Rate in Administrative versus Technical Occupations, 2002 ____________ 35
Table 1.16 Number of Graduates from High-Skilled Programs at the INP, 19832008 _____________ 35
Table 1.17 Angola: A Selection of Sonangol Joint Ventures in Upstream Oil and Gas Services, 1984–
2002 ______________________________________________________________________________ 36
Table 2.1 Key Economic Indicators of Brazil, 1980 –2010 _______________________________________ 42
Table 2.2 Snapshot of Taxes in Brazil (2010) _________________________________________________ 44
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Table 2.3 Brazil’s Labor Force Indicators Compared to Select Countries, 2010 ____________________ 45
Table 2.4 Brazil’s Educational Indicators Compared to Select Countries, 2010 ____________________ 46
Table 2.5 Indicators for Doing Business in Brazil in Comparison to OECD Average, 2012 __________ 47
Table 2.6 Snapshot of the Brazilian Petroleum Sector in 2010 __________________________________ 50
Table 2.7 Brazil: Local Content in the Bidding Process, 1999–2007 ______________________________ 56
Table 2.8 Brazil: Schedule of Fines in Case of Noncompliance with Local Content Requirements ____ 56Table 2.9 Brazil: An Activity Map of PROMINP’s Local Content Stakeholders ___________________ 62
Table 2.10 Brazil: PROMINP’s Methodology for Calculating Local Content ______________________ 63
Table 2.11 Brazil: PROMINP Targets Versus Achieved Participation of Domestic Industry in
Investments, 2003–10 _______________________________________________________________ 64
Table 2.12 Brazil: Cumulative Total and Local Investment (in $ million) and Percentage Local Content,
2011 ______________________________________________________________________________ 64
Table 3.1 Key Economic Indicators for Indonesia, 1980–2010 ___________________________________ 71
Table 3.2 Indonesia’s Labor Force Indicators Compared to Select Countries, 2010 _________________ 74
Table 3.3 Indonesia’s Educational Indicators Compared to Select Countries (2010) ________________ 75
Table 3.4 Indicators for Doing Business in Indonesia Compared to OECD Average _______________ 76
Table 3.5 Snapshot of the Oil and Gas Industry in Indonesia 2011 ______________________________ 81
Table 3.6 Indonesia: Definition of Goods and Respective Procurement Strategy __________________ 86
Table 3.7 Indonesia: Procurement Requirements for Services __________________________________ 87
Table 3.8 Indonesia: Summary of Price Preferences Based on Local Content (LC) Level and Company
Status ____________________________________________________________________________ 88
Table 3.9 Indonesia: Example of Calculating a Bid Evaluation Price for the Supply of a Good ______ 88
Table 3.10 Indonesia: Activities, Criteria, and Weights for the Local Content Level Achieved _______ 89
Table 3.11 Indonesia: Calculating the Penalty Given for Unachieved Local Content, and Rank Changes
__________________________________________________________________________________ 89
Table 3.12 Indonesia: Local Content Levels for Work Tools ____________________________________ 92
Table 3.13 Indonesia: Local Content of Value of Service of Equipment Use in Implementation of
Physical Work and Other Services ____________________________________________________ 93
Table 3.14 Indonesia: APDN Distribution of Goods by Category _______________________________ 94
Table 3.15 Indonesia: Snapshot of Domestic Suppliers of Compressors and Vacuum Pumps _______ 95
Table 4.1 Key Economic Indicators of Kazakhstan, 1990–2010 _________________________________ 102
Table 4.2 Kazakhstan’s Labor Force Indicators Compared to Select Countries, 2010 ______________ 104
Table 4.3 Kazakhstan’s Educational Indicators Compared to Select Countries, 2010 ______________ 106
Table 4.4 Indicators for Doing Business in Kazakhstan in Comparison to OECD Average, 2012 ____ 107
Table 4.5 Tengiz and Kashagan: A Comparison _____________________________________________ 109
Table 4.6 Snapshot of the Oil and Gas Sector in Kazakhstan (2011) ____________________________ 110
Table 4.7 Kazakhstan: Quotas for Foreign Staff Employed by Subsoil Users _____________________ 115
Table 4.8 Kazakhstan: Local Content Targets and Attained Levels in 2011 ______________________ 117
Table 4.9 Kazakhstan: Breakdown of the Planned KMG Agreements by Value (million KZT) ______ 118
Table 4.10 KMG’s Kazakh Content in Purchased Goods, Works, and Services: 2010 and 2011______ 119Table 4.11 Kazakh Content in Subsoil Personnel ____________________________________________ 122
Table 4.12 Kazakh Content in Goods, Works, and Services: 2010–11 ___________________________ 123
Table 4.13 Kazakh Content by Product Group and Local Suppliers, 2011 _______________________ 126
Table 5.1 Key Economic Indicators for Malaysia, 1980–2010 __________________________________ 133
Table 5.2 Malaysia Labor Force Indicators Compared to Select Countries, 2010 __________________ 135
Table 5.3 Malaysia’s Educational Indicators ________________________________________________ 137
Table 5.4 Indicators for Doing Business in Malaysia _________________________________________ 138
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Table 5.5 Snapshot of the Oil and Gas Industry in Malaysia (2010) _____________________________ 141
Table 5.6 Companies and Universities Engaged in the Malaysian Government’s Internship Program
_________________________________________________________________________________ 147
Table 5.7 Malaysia: Industry Strategy, Expected Contribution to GNI, and Jobs to be Created _____ 148
Table 5.8 Malaysia: OFSE EPPs, KPIs, and Targets for 2011 ___________________________________ 152
Table 5.9 Malaysia: OFSE-related EPP Progress over 2011, and Target for 2012 __________________ 152
Table 6.1 Key Economic Indicators for T&T, 1980–2010 ______________________________________ 158
Table 6.2 T&T Labor Force Indicators Compared to Select Countries, 2010 ______________________ 160
Table 6.3 T&T Educational Indicators, 2010 ________________________________________________ 160
Table 6.4 Indicators for Doing Business in T&T in Comparison to OECD Average, 2012 __________ 162
Table 6.5 Snapshot of the Oil and Gas Industry in T&T 2011 __________________________________ 164
Table 6.6 T&T: Capacities and Shareholders of LNG Plants (1999, 2002, 2003, 2006) ______________ 165
Table 6.7 T&T: Energy-Intensive Industrial Base by Company ________________________________ 166
Table 6.8 T&T: Vision 2020, Goal 1 for the Energy Sector _____________________________________ 167
Table 6.9 Total and Local Content Expenditure on Platform Fabrication in T&T _________________ 172
Figures
Figure 1.1 Angola’s Exports by Commodity, 1980–2010 ($ billion) ............................................................ 15
Figure 1.2 Comparison of Angola’s Tax Revenues and Corporate Tax Rate to Other Countries, 2009
and 2010 ..................................................................................................................................................... 16
Figure 1.3 Evolution of the Angolan Population and Labor Force over Time (in millions of people) ... 17
Figure 1.4 Governanced Indicators in Angola Compared to the OECD Average ..................................... 20
Figure 1.5 Contribution of Angola’s Extractive Sector to Value-Added, 1970–2010 (in $ billion and as
share of GDP) ............................................................................................................................................ 20
Figure 1.6 Breakdown of Value-Added in Angola by Economic Activity, 2010 ($ billion) ...................... 21
Figure 1.7 Angola: Percentage of Oil’s Contribution to GDP, Oil Export Revenues ($), and TotalGovernment Revenues, 2002–10 ............................................................................................................. 21
Figure 1.8 Employment in the Angolan Oil and Oil Services Sector, 2004–09 ........................................... 22
Figure 1.9 Angola: Actual and Estimated Oil Production According to Field Depth, 19902020 ........... 23
Figure 1.10 Achieved Angolanization Rate versus Target, 1990 .................................................................. 33
Figure 1.11 Angola: Production ........................................................................................................................ 34
Figure 1.12 Angola: Framework and Initiatives for Approaching Domestic Sourcing Challenges ......... 36
Figure 2.1 Key Challenges for Brazilian Companies, Percentage of Respondents (total = 77) ................. 42
Figure 2.2 Brazil’s Exports by Commodity, 1980–2010 ($ billion) ................................................................ 43
Figure 2.3 Comparison of Brazil’s Tax Revenues and Corporate Tax Rate to Other Countries, 2009 and
2010 (%) ...................................................................................................................................................... 43
Figure 2.4 Evolution of the Brazilian Population and Labor Force over Time, 1950–2050 (in millions of
people) ........................................................................................................................................................ 44
Figure 2.5 Breakdown of Labor Force by Category, 2000 and 2007 (in millions of people)...................... 45
Figure 2.6 Governance Indicators in Brazil Compared to the OECD Average .......................................... 48
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Figure 2.7 Brazil: Breakdown of Value-added by Economic Activity, 2010 ($ billion) .............................. 48
Figure 2.8 Brazil: Contribution of Mining, Manufacturing, and Utilities to Value-added, 1970–2010 .... 49
Figure 2.9 Brazil: Geographical Distribution of Main Oil and Gas Reserves – 2010 (Number in
Parentheses Indicates Percentage Onshore) .......................................................................................... 49
Figure 2.10 Brazil: Evolution of Production by Water Depth (in billion boe) ............................................. 50Figure 2.11 Brazil: Forecasted Domestic Oil Demand and Supply, mmbpd .............................................. 51
Figure 2.12 Brazil: Evolution of Petrobas’ R&D Spending (to the left) in Comparison to IOCs and
NOCs (to the right), 1998–2008 ............................................................................................................... 53
Figure 2.13 Brazil: Forecasted Investment, 2010–20 ($ billion) ..................................................................... 54
Figure 2.14 Brazil: Number of Jobs to be Created in the Oil And Gas Value Chain, in Thousands ........ 55
Figure 2.15 Brazil: Progredir Program Workflow .......................................................................................... 59
Figure 2.16 Brazil: Gaps and Challenges in Domestic Supply (Red Cells Indicate Areas of
Challenges/Gaps) ...................................................................................................................................... 59
Figure 2.17 Brazil: PROMINP Strategic Subjects, Areas, and Projects ......................................................... 60
Figure 2.18 Brazil: PROMINP Governance Structure .................................................................................... 61
Figure 2.19 Brazil: Average Local Content Commitment Resulting from Bidding Rounds, 1999–2008 . 64
Figure 2.20 Brazil: Local Content in the Procurement of Goods (left) and Services (right) Sourced by
Petrobras, 2005–08 .................................................................................................................................... 65
Figure 3.1 Indonesia’s Exports by Commodity, 1980–2010 ($ billion) ......................................................... 72
Figure 3.2 Comparison of Indonesia’s Tax Revenues as Percentage of GDP and Corporate Tax Rate to
Other Countries, 2009 and 2010 .............................................................................................................. 72
Figure 3.3 Evolution of the Malaysian Population and Labor Force over Time, 1950–2050 (in millions of
people) ........................................................................................................................................................ 73
Figure 3.4 Breakdown of Indonesia’s Labor Force by Sector, 2000–08 ........................................................ 74
Figure 3.5 Governance Indicators in Indonesia Compared to OECD Average .......................................... 77
Figure 3.6 Indonesia Compared to Select Countries: Breakdown of Value-added by Economic Activity
in 2010 ($ billion) ....................................................................................................................................... 78
Figure 3.7 Indonesia: Contribution of Mining, Manufacturing and Utilities to Value-added, 1970–2010
..................................................................................................................................................................... 78
Figure 3.8 Oil and Gas Production and Consumption in Indonesia, 1990–2011 ........................................ 80
Figure 3.9 Indonesia: Evolution of Upstream Investments and Local Content Levels, 2006–11 .............. 93
Figure 3.10 Indonesia: Local Content Procurement of Goods and Services, 2006–11 ($ billion) .............. 94
Figure 3.11 Indonesia: Distribution of Companies by Local Content Value Achieved ............................. 95
Figure 3.12 Indonesia: Distribution of Local Content Value by Segment of Activities ............................. 96
Figure 3.13 Indonesia: Distribution of Companies by Category of Certificate of Business Ability ......... 96
Figure 3.14 Evolution of Indonesianization in Exploration (left) and Production (right) Activities (in
thousand workers) .................................................................................................................................... 97
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Figure 3.15 Number of Indonesians Engaged in Capability Development Programs, 2008–11............... 97
Figure 4.1 Kazakhstan’s Exports by Commodity, 1995–2010 ($ billion) .................................................... 103
Figure 4.2 Comparison of Kazakhstan’s Corporate Tax Rate to Other Countries, 2009 and 2010 (%) .. 103
Figure 4.3 Kazakhstan: Population by Age Group from 1950 to 2050 ....................................................... 104
Figure 4.4 Kazakhstan: Breakdown of Labor Force by Sector, 2001–07 ..................................................... 105
Figure 4.5 Governance Indicators in Kazakhstan Compared to the OECD Average .............................. 106
Figure 4.6 Kazakhstan: Contribution of Mining, Manufacturing, and Utilities to Value-added, 1990–
2010 ........................................................................................................................................................... 108
Figure 4.7 Kazakhstan: Breakdown of Value-added by Economic Activity in 2010 ($ billion) .............. 108
Figure 4.8 Evolution of Oil and Gas Production and Consumption in Kazakhstan, 1991–2011 ............ 110
Figure 4.9 Kazakhstan: Reports Filed by Subsoil Companies, 2008–11 ..................................................... 123
Figure 4.10 Evolution of Kazakh Content in Monetary Presentation for the Purchase of Goods, Works,
and Services, 2009–11 (in KZT billion) ................................................................................................. 123
Figure 4.11 Kazakh Content in Goods Purchased for Offshore Operations, 2011 ................................... 124
Figure 4.12 Kazakh Content in Goods Purchased for Onshore Operations by Depth, 2011 .................. 124
Figure 4.13 Kazakh Content in Works and Services Purchased for Offshore Operations, 2011 ............ 125
Figure 4.14 Kazakh Content in Works and Services Purchased for Onshore Operations by Depth, 2011
................................................................................................................................................................... 125
Figure 5.1 Malaysia’s Exports by Commodity, 1980–2010 ($ billion) ........................................................ 133
Figure 5.2 Malaysia’s Tax Revenues and Corporate Tax Rate Compared to Select Countries, 2009 and
2010 ........................................................................................................................................................... 134
Figure 5.3 Evolution of the Malaysian Population and Labor Force over Time, 1950–2050 (in millions of
people) ...................................................................................................................................................... 135
Figure 5.4 Malaysia: Breakdown of Labor Force by Sector, 2000–08 (millions) ....................................... 136
Figure 5.5 Governance Indicators in Malaysia Compared to OECD Average ......................................... 138
Figure 5.6 Malaysia and Select Countries: Breakdown of GDP by Economic Activity in 2010 ($ billion)
................................................................................................................................................................... 139
Figure 5.7 Malaysia: Contribution of Mining, Manufacturing, and Utilities to GDP, 19702010 .......... 140
Figure 5.8 Evolution of Oil and Gas Production and Consumption in Malaysia, 19912011................. 141
Figure 5.9 Malaysia: Forecasted Contribution of the Energy Sector to the 2020 Gross National Income
(RM billion) .............................................................................................................................................. 145
Figure 5.10 Malaysia: Number of Scholars Sponsored by Petronas, 1975–2005 ....................................... 146
Figure 5.11 Malaysia: Skills Gap in the OFSE Industry ............................................................................... 149
Figure 6.1 T&T’s Exports by Commodity, 1980–2010 ($ billion) ................................................................ 158
Figure 6.2 T&T’s Tax Revenues and Corporate Tax Rate Compared to Other Countries, 2009 and 2010
................................................................................................................................................................... 159
Figure 6.3 Evolution of the T&T Population and Labor Force over Time)................................................ 159
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Figure 6.4 Governance Indicators in T&T Compared to the OECD Average ........................................... 161
Figure 6.5 T&T: Contribution of Mining, Manufacturing, and Utilities to Value-added, 1970–2010 .... 163
Figure 6.6 T&T and Select Countries: Breakdown of Value-added by Economic Activity in 2010 ($
billion) ...................................................................................................................................................... 163
Figure 6.7 T&T: Evolution of Oil and Gas Production, 1970–2010 (in million tons of oil equivalent) .. 164Figure 6.8 T&T: Evolution of Petrotrin .......................................................................................................... 165
Figure 6.9 T&T: Evolution of Funds, September 2001–September 2010 ($ billion) .................................. 167
Figure 6.10 T&T: Approach to Maximizing Local Content and Participation .......................................... 169
Figure 6.11 T&T: Survey of Domestic Services Companies ........................................................................ 172
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AcknowledgmentsLocal Content Policies in the Oil and Gas Sector is part of a wider research effort
aimed at gathering existing knowledge and data on local content policies, with a
view to develop guidelines for the design and monitoring of implementation of
local content policies. This paper contains detailed case studies on the local contentpolicies in selected countries and is intended as background document for the
paper on Local Content Policies in the Oil and Gas Sector, World Bank Studies,
2013.
The case studies were coordinated by Silvana Tordo (lead energy economist,
Sustainable Energy Department, World Bank). The main author was Yahya Anouti
(consultant).
The comments of peer reviewers Maria Vagliasindi (lead economist, Sustainable
Energy Department, World Bank), Graham Davis (professor, Division of
Economics and Business, Colorado School of Mines), Fredric Manuel Cegarra
Escolano (senior adviser, Sustainable Energy Department, World Bank) and Gary
McMahon (senior mining specialist, Sustainable Energy Department, World Bank)are gratefully acknowledged. Helpful comments were also received from
Alexander Huurdeman, David Santley, and Kristina Svennson, all from the
Sustainable Energy Department, World Bank, and Havard Halland, from the
Poverty Reduction and Economic Management Department, World Bank. Special
thanks go to Dino Andrian (BP MIGAS) for his assistance with the preparation of
the Indonesia case study, and Fayre Makeig, who edited the paper.
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Abbreviations and AcronymsASEAN Association of Southeast Asian Nations
CAGR compound annual growth rate
CAs concession agreements
E&P exploration and production
EOR enhanced oil recovery
FDI foreign direct investment
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
GDP gross domestic product
GWS goods, works, and services
HSE health, safety, and the environment
HRW Human Rights Watch
IMF International Monetary FundIOC international oil company
KPI key performance indicator
LCP local content policy
LNG liquefied natural gas
MNC multinational company
NAFTA North American Free Trade Agreement
NCO national oil company
NGO nongovernmental organization
OECD Organisation for Economic Co-operation and Development
OFSE oil field services and equipmentOPEC Organization of the Petroleum Exporting Countries
PPPs public-private partnerships
PSA production sharing agreement or similar contractual arrangement
R&D research and development
SADC Southern African Development Community
SMEs small- and medium-sized enterprises
TRIMs Trade-Related Investment Measures
UN United Nations
WEF World Economic Forum
WTO World Trade Organization
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1. Angola
Oil has been the lifeblood of the Angolan economy since its independence from Portugal in 1975. In 2009 the oil
sector constituted over 44 percent of Angola’s gross domestic product (GDP), over 95 percent of exports value,
and around 65 percent of government revenues (World Bank 2012). Shortly after independence, the political
administration instigated local content policies (LCPs) in the country’s petroleum sector. At the end of the 27-
year civil war, a socioeconomic development agenda renewed these policies.
Upon the nation’s independence in 1975, the Popular Liberation Movement of Angola (MPLA) led the
political and economic scene. Supported by Cuba, the MPLA had a Marxist outlook with a strong presence in
Luanda and the oil-rich urban coastal areas. The MPLA president Agostinho Neto nationalized colonial
properties in Angola and introduced a centralized planning economy in the capital and the coastal areas that
were controlled by the MPLA (Oliveira 2007; Warner 1991). The nationalization agenda had a different path in
the oil sector. As a starting point, there was a smooth appropriation of the colonial oil company, Angol,
followed by the creation of the state oil company, Sonangol. The company was granted sole concessionaire
rights over petroleum resources and mandated with regulatory and operational activities (CRES 2008). Aware
that international oil companies, vital for the transfer of knowledge and for future production, would be
discouraged to invest in Angola should Sonangol follow the socialist agenda, Sonangol was allowed to partner
with international companies (Oliveira 2007). Albeit, the government introduced a local content agenda, calling
for transfer of knowledge and Angolanization of the petroleum sector workforce. Institutionally this was
mainly championed by Sonangol (Council of Ministers 1982).
Shortly after independence, the country underwent a 27-year civil war that engaged three main political
parties,1 neighboring countries, and international allies. The battles took place mostly in the underdeveloped
areas, causing the migration of the local population and the destruction of the country’s infrastructure (Cihlar2010; Oliveira 2007). During this period, Sonangol appeared to operate in isolation, unaffected by the overall
destitute situation of the economy and its institutions (Morais 2012). By the end of the civil war the Angolan
society was shattered, the country’s human capital was lost , and the non-oil economy was almost nonexistent
(Oliveira 2007). In response to these socioeconomic conditions, the government revived the Angolanization of
the workforce and launched new policies directed toward the domestic sourcing of goods and services, which
were extended beyond the petroleum sector (National Assembly 2003).
Today Angola remains an oil economy, with Sonangol establishing itself on the international oil scene by
branching outward into many countries and ventures. The country consists of 18 provinces that are governed
by a centralized pyramid structural hierarchy. The MPLA’s José Eduardo dos Santos , who took office in 1979,
still exerts a strong grip on the ministries under his constitutional rule (Morais 2012), and particularly on the
oil sector through the Ministry of Petroleum, and Sonangol by proxy (Cihlar 2010). In this context, LCPs are
expected to be pursued across most of the country’s sectors.
1 The MPLA and two other parties: (i) the National Union for the Total Independence of Angola, supported by South Africa, which
controlled the majority of inland areas that were dependent on diamond extraction and agriculture; and (ii) the National Front for
Liberation of Angola, a more ethnic-based party drawing the majority of its supporters from local tribes and ethnicities, backed by
neighbouring Zaire.
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1.1
Structural Context
As previously noted, the 27-year-long civil war destroyed the country’s infrastructure and human capital—
apart from the petroleum sector, the Angolan economy was left barely functioning. In its Global CompetitivenessReport 2011 , the World Economic Forum (WEF) placed Angola 139th out of a total of 142 countries, droppingone position from the previous year’s report . The country joins the bottom 10 of the list with 7 other Sub-
Saharan African countries (WEF 2011). In addition, the country is ranked near the bottom of the UnitedNations (UN) Human Development Index. Today, Angola suffers from several structural problems including
inequality in income distribution, a noneducated growing labor force, lack of infrastructure, high bureaucracy,
and corruption.
1.1.1
Economy
Backed by high oil prices, Angola’s GDP and per capita income have been growing since the end of the civil
war. Today, the country is the second-largest economy among the Southern African Development Community
(SADC) countries. This performance is mixed with high inequality in income distribution and poverty levels.
In 2010 the country’s GINI index was 58.6, and 54.3 percent of the population lived below $1.25 per day
(UNDP 2010).
Angola’s real interest rate has been always among the lowest in the world. By the end of the civil war thegovernment started controlling the inflation rate that reached 14.5 percent in 2010, still among the highest in
the world. The country’s currency, Kwanza, has been depreciating against the U.S. dollar. Table 1.1 provides a
brief overview of Angola’s key economic indicators. The country’s overall exports have been on an increase. As
shown in Figure 1.1, the basket of exports is increasingly dominated by petroleum and mining products.
Table 1.1 Key Economic Indicators of Post Civil War Angola, 1985–2010
1985 1990 1995 2000 2005 2006 2007 2008 2009 2010
GDP (constant 2000 $, billion) 3.3 3.9 3.0 4.2 6.7 8.0 9.9 11.2 11.5 11.9
GDP per capita (constant 2000 $) 362.5 372.8 251.9 298.4 404.3 473.1 563.0 622.6 619.8 623.2
Inflation, CPI (%) 2,671.8 325.0 23.0 13.3 12.2 12.5 13.7 14.5
Real interest rate (%) -84.7 -60.8 25.2 4.2 13.0 -6.0 22.8 -0.5
Exchange rate (LCU per $) 0.0 0.0 0.0 10.0 87.2 80.4 76.7 75.0 79.3 91.9
Trade (% of GDP) 61.1 59.8 152.5 128.7 109.9 117.5 127.5 98.5 100.2
Source: World Bank 2012.
Note: CPI = consumer price index; GDP = gross domestic product; LCU = local currency unit.
Figure 1.1 Angola’s Exports by Commodity, 1980–2010 ($ billion)
Source: Adapted from WTO 2012b.
8%
13%
1%1%9%
1995
3.6
97%
2%
1990
3.9
100%
1985
2.2
97%
100%
91%
1%
Fuels andmining products
Manufactures
Agriculturalproducts
2010
53.4
99%
2005
24.1
97%
3%
2000
7.8
3%
1980
1.9
78%
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1.1.2
Taxation
Compared to other Sub-Saharan African countries, such as Tanzania and Uganda, Angola leads the pack in
levying the highest corporate tax. For a select group of companies, the rate is in line with that of the United
States. The tax “is levied on all profits derived from Angola, [and] all the income obtained by an Angolan
company operating overseas” (PKF 2011). In addition, Angola levies high taxes on the mining and petroleum
sectors. For instance , Angola’s petroleum industry tax regime taxes—on “the income obtained from theexercise of petroleum transactions and any other income derived from other activities of a non-commercial or
industrial nature”—can reach 65.75 percent for joint ventures (PKF 2011). As shown in Figure 1.2, tax revenues
in Angola as a percentage of GDP are among the highest in the world.
Figure 1.2 Comparison of Angola’s Tax Revenues and Corporate Tax Rate to Other Countries, 2009 and 2010
Source: based on data f rom CIA 2012; Deloitte 2012; World Bank 2011.
Note: For Angola and Tanzania, tax revenues reflect 2011 levels and include social contributions (such as payments for social security andhospital insurance), grants, and net revenues from public enterprises. OECD = Organisation for Economic Co-operation and Development.
1.1.3 Population and Labor Force
Population has been growing at a double-digit pace since the 1980s, totaling 19 million in 2010. This trend is
expected to continue for the coming decade, but at a slower rate. As a result, the country is characterized by a
young population—more than half of the labor force aged 15 to 64. By 2030 the youth share of the working-age
group is projected to increase to around 60 percent (UN 2010). Figure 1.3 presents the evolution of Angola’s
population by age group and expected growth.
OECD 14%
Kazakhstan 8%
India 10%
Indonesia 11%
Uganda 12%
Canada 12%
Russia 13%
Brazil 16%
Chile 16%
Malaysia 16% Australia 22%
Netherlands 23%
South Africa 26%
United Kingdom 26%
Trinidad and Tobago 26%
Norway 27%
Angola 43%
Corporate Tax Rate, 2010
20%
Kazakhstan 20%
Chile 20%
UK 24%
Trinidad and Tobago 25%
Netherlands 25%
Malaysia 25%
South Africa 28%
Norway 28%
Canada 28%
Uganda 30%
India 30%
Australia 30%
Brazil 34%
Angola 35%
Russia
Indonesia 25%
Tax Revenues as % of GDP, 2009
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Figure 1.3 Evolution of the Angolan Population and Labor Force over Time (in millions of people)
Source: Adapted from UN 2010.
While the overall unemployment rate is at 25 percent, Angola’s skilled-labor market is very tight; the laborforce’s mean years of education is 4.4 years, in line with that of other countries with low human development
(4.2 years). Minimum wage is $127 a month, and the average wage is $211 per month in a country whose
capital is the second-most expensive city in the world (Mercer 2012). Table 1.2 presents a snapshot of Angola’s
labor market in comparison to select countries.
Table 1.2 Angola’s Labor Force Indicators Compared to Select Countries, 2010
Labor force(million)
Educational attainment (% of total)Mean yearsof education
Minimum wage($ per month)
Unemployment,total (% of total
labor force)Primary Secondary Tertiary
Angola 7.1 — — — 4.4 127 25
Australia 11.8 27.3 38.9 33.8 12 1,597 5.2
Brazil 101.6 — — — 7.2 300 8.3
Canada 19.0 13.5 40 46.5 12.1 1,903 8
Kazakhstan 8.8 — — — 10.4 — 6.6
Malaysia 12.0 18.3 56 21.1 9.5 — 3.7
Norway 2.6 19.9 43.5 35.8 12.6 3,609 3.6
South Africa 18.2 15.8 74.2 5.2 8.5 543 23.8
Tanzania 22.1 — — — 5.1 59 10.7
Trinidad andTobago
0.7 25.3 63 11.1 9.2 — 5.38
Uganda 13.4 — — — 4.7 3 4.2
United Kingdom 31.8 19.2 44.4 35.4 9.3 1,655 7.8
Source: Based on data from World Bank Group 2012; UNDP 2010.
Note: Educational attainment data for Australia, Canada, Malaysia, South Africa, and Trinidad and Tobago are f rom 2008; unemployment datafor Brazil, Kazakhstan, Malaysia, South Africa, and Uganda from 2009.
— Not available.
1.1.4 Education
Finding a skilled workforce is a challenge in Angola, partly due to a weak educational system that suffers from
low enrollment rates. While enrollment in primary education is relatively low, enrollment in tertiary education
0%
10%
20%
30%
40%
50%
60%
70%
0
5
10
15
20
25
30
35
40
45
M i l l i o n P e o
p l e
60+
50 to 59
40 to 49
30 to 39
20 to 29
10 to 19
0 to 9
% 15 to 64
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is among the lowest in the world. In addition, the literacy rate among adults and youth is near 70 percent, and
government expenditure on education is well below the Organisation for Economic Co-operation and
Development (OECD) average of 5 percent. As per the 2011 budget, primary and preprimary education
constitutes over two-thirds of spending on education. Table 1.3 summarizes key educational indicators in
Angola in comparison to select countries.
Table 1.3 Angola’s Educational Indicators Compared to Select Countries, 2010
Literacy rate (%) School enrollment (%) Public expenditureon education(% of GDP)Adult (15+)
Youth
(1524)Primary Secondary Tertiary
Angola 70.1 73.1 85.7 11.5(a) 3.7 3.6Australia — — 97.1 85.5 79.9 5.1(a) Brazil 90.3(1) 98.1(a) 94.1(b) 82.0(b) 36.1(a) 5.4(b)
Canada — — — — — 4.8(b)
Kazakhstan 99.7 99.8 89.5 88.2 38.5 3.1(a) Malaysia 93.1 98.4 — 67.9(a) 40.2(a) 5.8(a) Norway — — 99.1 93.9 74.4 6.5(b) South Africa 88.7(c) — 85.1(a) — 6.0Tanzania 73.2 77.3 98.0(b) — 2.1 6.2Trinidad and Tobago 98.8 99.6 93.9 — 3.8(d)
Uganda 73.2 87.4 90.9 — 4.2(a)
3.2(a)
UK — — 99.6(a) 96(a) 58.5(a) 5.4(b)
Source: Based on data from Gomes and Weimer 2011; UNDP 2010; World Bank 2012.
Note: (a) year 2009; (b) year 2008; (c) year 2007; and (d) year 2006 data.
The situation is exacerbated by the low quality of secondary and higher education, and the restricted entry
to vocational and specialized engineering education. Among multiple factors, absenteeism of faculty, lack of
libraries, and nonexistence of an accreditation system contribute to the weakness of university-level
educational. As stated by Gomes and Weimer (2011), universities in Angola do not adequately prepare their
students—a situation acknowledged by Sonangol, which established its own university. The national company
education plan has still not been approved by the Ministry of Education. To close the educational gap, most
international companies operating in Angola have established internal programs and rely on partnerships and
external support, in-country and abroad, to train their local staff (Gomes and Weimer 2011).
1.1.5 Business Environment
Bureaucracy and corruption remain key issues in Angola, and the centralized bureaucratic system suffers from
low capabilities and regulations from the colonial era (Kirk 2011). In fact, it takes 68 days and up to 8
procedures across different government bodies to start a business in Angola. The World Bank has ranked
Angola as one of the most difficult countries in the world to do business in. Further indicators on doing
business in Angola in comparison to the OECD average are presented in Table 1.4.
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Table 1.4 Indicators for Doing Business in Angola, 2011
Source: World Bank 2012.
Note: Ranking is out of 183 countries. OECD = Organisation for Economic Co-operation and Development.
Despite some efforts to improve the situation, corruption and weak governance remain major hurdles in
Angola (as shown in Figure 1.4). In fact, the country is perceived to have one of the highest levels of corruption
in the world (CRES 2008). In relation to domestic sourcing policies in the petroleum sector, many questions are
being raised around the conflict of interest arising from Sonangol’s role as operator and shareholder in oil-
service companies (IEA 2006).
Angola OECD Angola OECD
1. Starting a business 6. Protecting Investors
Procedures (#) 8 5 Extent of disclosure index (0-10) 5 6
Time (days) 68 12 Extent of director liability index (0- 6 5
Cost (% of income per capita) 118.9 4.7 Ease of shareholder suits index (0- 6 7
Paid-in min capital (% income per cap) 25.3 14.1 Investor protection strength (0-10) 5.7 6
Rank (Change in rank from 2011) 167 (-3) Rank (Change in rank from 2011) 65 (-5)
2. Dealing with Construction Permits 7. Paying Taxes
Procedures (number) 11 14 Payments (number per year) 31 13
Time (days) 321 152 Time (hours per year) 282 186
Cost (% of income per capita) 180.3 45.7 Profit tax (%) 24.6 15.4
Rank (Change in rank from 2011) 115 (+4) Labor tax and contributions (%) 9 24
Other taxes (%) 19.5 3.23. Getting electricity Total tax rate (% profit) 53.2 42.7
Procedures (number) 8 5 Rank (Change in rank from 2011) 149 (-4)
Time (days) 48 103
Cost (% of income per capita) 890.5 92.8 8. Trading across borders
Rank (Change in rank from 2011) 120 (+5) Documents to export (#) 11 4
Time to export (days) 48 104. Registering Property Cost to export (US$ per container) 1850 1032
Procedures (number) 7 5 Documents to import (#) 8 5
Time (days) 184 31 Time to import (days) 45 11
Cost (% of property value) 3.2 4.4 Cost to import (US$ per container) 2690 1085
Rank (Change in rank from 2011) 129 (+45) Rank (Change in rank from 2011) 163 (-1)
5. Getting Credit 9. Enforcing Contracts
Strength of legal rights index (0-10) 3 7 Time (days) 1011 518
Depth of credit information index (0-6) 4 5 Cost (% of claim) 44.4 19.7
Public registry coverage (% of adults) 2.4 9.5 Procedures (number) 46 31
Private bureau coverage (% of adults) 0 63.9 Rank (Change in rank from 2011) 181 (0)
Rank (Change in rank from 2011) 126 (+4)10. Resolving Insolvency
Time (years) 6.2 1.7
Cost (% of estate) 22 9
Recovery rate (cents on the dollar0 6.9 68.2
Rank (Change in rank from 2011) 133 (+6)
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Figure 1.4 Governanced Indicators in Angola Compared to the OECD Average
Source: Adapted from Kaufmann, Kraay, and Mastruzzi 2011.
1.2
The Petroleum Sector
1.2.1
The Petroleum Sector in the Economy
The later pre-independence days of Angola were characterized by a relatively diversified economy with strong
agricultural and manufacturing sectors. Since independence in 1975, the country gradually increased its
economic reliance on extractive industries, particularly oil and diamonds—with extractive industries
contributing around 35 percent of GDP. In 2010 that share increased to over 50 percent, most of which came
from oil. Figure 1.5 presents the evolution of the extractive industry value-added and its share of GDP.
Angola’s oil intensity in GDP is among the highest in the club of the resource-rich and Organization of the
Petroleum Exporting Countries (OPEC) countries Figure 1.6).
Figure 1.5 Contribution of Angola’s Extractive Sector to Value-Added, 1970–2010 (in $ billion and as share of
GDP)
Source: UN Statistics 2010.
Note: GDP = gross domestic product.
0
2040
60
80
100
Voice andAccountability
PoliticalStability/Absence
of Violence
Government Effectiveness
RegulatoryQuality
Rule of Law
Control of Corruption
Angola 2010
Angola 2000
OECD 2010
0%
10%
20%
30%
40%
50%
60%
70%
80%
0
10
20
30
40
50
60
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
S h a r e o f G D P
G D P ( B n $ )
Contribution to GDP Percentage Share
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Figure 1.6 Breakdown of Value-Added in Angola by Economic Activity, 2010 ($ billion)
Source: Based on data from UN Statistics 2010.
Note: UK = United Kingdom.
During the past decade, Angola shifted from its dual resource dependency to a predominantly oil economy. In
fact, the diamond sector’s contribution to GDP diminished from 5.7 percent in 2005 to 1.2 percent in 2008 (Teka
2011). In 2008 oil constituted over 56 percent of GDP, over 96 percent of exports value, and around 80 percent
of government revenues, as a result of upward trending prices and increased production. Oil export revenues
increased from $7.57 billion in 2002 to a peak of $67.12 billion in 2008 (Cihlar 2010). Figure 1.7 shows the
percentage of oil’s value-added contribution to the country’s main economic indicators.
Figure 1.7 Angola: Percentage of Oil’s Contribution to GDP, Oil Export Revenues ($), and Total Government
Revenues, 2002–10
Source: Based on data from BP 2011; Morris, Kaplinsky, and Kaplan 2011.
Note: bbl = barrel; GDP = gross domestic product; mmbpd = million barrels per day.
5%
8%
8%
6%
10%
5%
6%8%
5%
6%
6%
7%
15%
11%
18%
13%
13%
11%
8% 12%
12%
19%
12%
14%
7%
45%
33%
43%
25%20%
39% 38%
22% 23%
51%
23%
1%
2%
1%
1,637
20%
1%
100%
Tanzania
22
14%
27%
8%
8%
UK
2,236
14%
6%
10%
Uganda
17
12%
21%
12%
7%
Trinidad& Tobago
24
36%
0%8%
16%
South Africa
377
24%
3%
13%
Norway
402
33%
4%
8%
Malaysia
304
32%
8%
3%
20%
Kazakhstan
159
30%
4%
7%
11%
Canada
6%
10%
Brazil
2,066
19%
5%
5%
14%
Australia
1,296
19%
2%
7%
9%
Angola
85
50%
9%
8%
6%
Mining, Manufacturing, Utilities Agriculture, hunting, forestry, fishingConstruction
ManufacturingTransport, storage and communication
Wholesale, retail trade, restaurants and hotelsOther Activities
0
10
20
30
40
50
60
70
80
90
100
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2002 2003 2004 2005 2006 2007 2008 2009 2010
$ / b b l
m m b p d
Production (mmbpd) Oil Price (Brent $ /bbl)
Export. Rev.($ Bn)
7.57 8.76 13.24 22.37 30.72 43.07 67.12 41.85 -
Share in GDP(%)
54.2 54.7 62.9 55.7 55.8 56.9 44.4 - -
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In 2004 the oil industry employed 12,296 people directly through operators and 12,886 people indirectly
through supporting service companies. Fueled by exploration and development activities, the workforce in the
oil services sector almost tripled in 2009, increasing the total workforce over 1.5 times. As shown in Figure 1.8,
overall employment in the oil sector reached 64,677 workers in 2009, which included the 5,174 registered
expatriates working in oil services (Skills Shortages II).
Figure 1.8 Employment in the Angolan Oil and Oil Services Sector, 2004–09
Source: Based on data from CRES 2008.
Note: CAGR = compound annual growth rate.
1.2.2 Petroleum Geography
Angola has a 1,980-kilometer (km) coastline on the Atlantic Ocean stretching from Cabinda, a small separate
province north of the general borders of Angola, to the Namibian borders in the south. Along the coastline are
three major sedimentary basins: the northern Lower Congo Basin, the Kwanza Basin, and the southern Namibe
Basin.
The Lower Congo Basin has the largest proven reserves and the most-developed base for production,particularly in Cabinda (CRES 2008). It is divided into onshore and offshore blocks that are in their exploration
and production phases. The Kwanza Basin was the first discovered in Angola (CRES 2008) and constituted the
majority of production before the 1990s. It is also divided into onshore and offshore blocks. The onshore blocks
have mostly matured and their production was highly affected by the civil war; the offshore blocks are in both
production and exploration phases. The third basin, Namibe, is located in the south and has identified reserves
that remain largely untested by drilling. Exploration efforts there have been discouraged after several failures
in that area.
Overall, Angola’s petroleum resources extend from onshore to ultra-deep waters. To date, most
exploration efforts have primarily focused on offshore areas (CRES 2008). The offshore formation is divided
into 51 blocks, of which only 9 are currently in production. The blocks are distributed as follows: 14 in shallow
waters with depths below 500 meters; 17 in deep waters between 500 meters and 1,500 meters; and 20 ultra-deep blocks below 2,500 meters.
1.2.3 Reserves, Production, and Consumption
Angola experienced significant exploration activities after the 1990s, when Sonangol opened up the country’s
deep-water areas. Proven oil reserves increased from 1.6 billion barrels in 1990 to 13.5 billion barrels by 2010.
Proven reserves in 2010 constituted 1 percent of the world reserves, positioning the country in 16th position
27,173 74%
26%
48,818
2007 2008 20092004
64,808 64,677
74%
26%
77%
23%
76%
24%
2005 2006
ServiceProvider
Operator
51%
49%
25,182
52%
48%
55,061
CAGR2004 - 2009
31%
5%
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worldwide and in 3rd position among African countries, behind Nigeria (37.2 billion barrels) and Libya (46.4
billion barrels) (UN Statistics 2010). In 2007 Angola became a member of the OPEC (Cihlar 2010).
The majority of recent discoveries were made in deeper waters. The first of these discoveries was made by
French ELF in 1996 (CRES 2008). Since then, deep-water exploration efforts ramped up. Between 2004 and 2011,
subsea spending on infrastructure and equipment more than tripled, from $1.27 billion to $4 billion. In 2011
cumulative offshore EPC spending reached $21.4 billion (Rystad Energy 2010).Angola was a small player in the oil market, with moderate and stagnant production figures, between 1970
and 2002, as the civil war hindered production from onshore fields. Additionally, prior to 1990, offshore
reserves were not discovered and did not surface on the government’s agenda until 1996. Since the end of the
civil war in 2002 daily production picked up, doubling from 0.9 million barrels per day (bpd) in 2002 to over
1.8 million bpd in 2010 (BP 2011) to constitute 2.3 percent of the world production. Oil production in Angola
peaked in 2012, with future discoveries coming onstream to replace depleting reserves. Table 1.5 provides a
snapshot of the oil sector with annual productions and estimates, and Figure 1.9 shows oil production since
1990 and the estimated production until 2020 as reported by Sonagol.
Table 1.5 Snapshot of Angola’s Oil Sector Reserves and Production (2010)
2010
Level
Share ofworld
%
Global rankPercentage change
1 yr% 3 yrs% 5 yrs% 10 yrs%
Oil proven reserves, billion boe 13.5 1.00 16 0.0 0.0 49.4 107.7
Oil production, mmbpd 1,851 2.32 15 3.78 -1.3 30.3 149.5
Source: Based on data from BP 2011.
Note: boe = barrel of oil equivalent; mmbpd = million barrels per day.
Figure 1.9 Angola: Actual and Estimated Oil Production According to Field Depth, 1990 2020
Source:Based on data from Sonangol 2012.
Angola’s oil consumption remains low; the country exports most of its oil. In 2009 the country exported 98
percent of its production, the main export markets being China and the United States.
1.2.4 Sector Institutional Framework
Although the Council of Ministers and the Ministry of Petroleum are the constitutional overarching bodies
overseeing the oil sector (Teka 2011), Sonangol retains the upper hand in decision making within this structure
(Oliveira 2007). Upon its establishment in 1976, Sonangol was granted sole concessionary rights and mandated
to manage the exploration of Angolan hydrocarbon resources. Today, the company:
o Identifies exploration areas
o Negotiates and manages production contracts
o Collects, validates, monitors, and archives all petroleum activity data in Angola (CRES 2008).
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1990 1995 2000 2005 2010 2015 2020
Ultra-deep Water Deep Water
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As per the law of 2004, petroleum activities can be only carried out under a prospecting license or a
concession. Historically, Sonangol has engaged foreign companies through production sharing agreements
(PSAs). Operationally, Sonangol’s influence over its upstream joint ventures is translated through venture-
specific operating committees. A joint-venture operating committee advises, supervises, and oversees
exploration, development, and production activities. The committee, constituting four members (two
appointed by Sonangol and two by the contractor), approves work programs and budgets. Decisions within
the committee are taken by a simple majority, and the tie-breaking vote is reserved for the Sonangol-nominatedcommittee chairman. Provisions for the operating committees are established in the PSAs.
Sonangol was established prior to the ministry, and its top executives are closely affiliated with the ruling
elite, providing more power and control for Sonangol (Oliveira 2007). Furthermore, some argue that Sonangol
reports directly to the president (Lwanda 2011). Nevertheless, the Ministry of Petroleum is mandated with
policy development and some regulatory activities, including:
o Issuance of exploration permits
o Formulation of sectoral policies
o Approval of work plans
o Regulation of production levels
o Design and enforcement of the petroleum tax regime in coordination with the central bank
and the Ministry of Finance.
The mandate extended Sonangol’s activities to export crude oil and identify exploration areas.
Furthermore, Sonangol manages the bidding process, and negotiates for new concessions and ventures in
partnership with operators. In practice, Sonangol's participation has taken a variety of forms. In many contracts
signed to date, Sonangol holds a working interest through exploration and concession agreements (CAs); in
others, it only participates in the development of commercial discoveries in PSAs (CRES 2008).
1.2.5
Market Structure and Local Capabilities
Historically, before independence, the major oil company operating in Angola was Cabinda Gulf Oil, an
American subsidiary of Gulf Oil. When the Marxist MPLA took power in 1975, Gulf Oil closed its operations
out of fear of nationalization, and the MPLA was not able to secure the transfer of the company’s technology
and knowledge acumen (Oliveira 2007). But this was not the case for another oil company operating in Angolacalled Angol, a subsidiary of Sacor of Portugal. In 1975 the MPLA took over Angol, but did not nationalize it.
Instead the existing Portuguese employees were preserved (Oliveira 2007), and new cadres of Angolan2
executives were introduced. Since then, Sonangol has developed its capabilities through external training of its
personnel, reliance on consultants, and partnerships with international oil companies.
Upon its establishment, Sonangol was the sole concessionaire, regulator, and tax collector of the oil
industry. Since then, the company has relied on external consultants to complement its capacities in all its
operations (Oliveira 2007). The company received close guidance and advice from the Italian oil company, ENI.
A first wave of Sonangol-sponsored employees who received training at ENI’s facilities in Milan took on
leadership positions when they returned to Angola by the end of 1970s (Sonangol 2012). A second, larger
group went to Algeria and received training from the Algerian state company, Sonatrach (Sonangol 2012),
which had the trust and confidence of the MPLA leaders (Oliveira 2007). Moreover, the former colonialadvisors and auditors of the Angolan oil sector, the U.S. consulting firm Arthur D. Little, played a role in the
shaping and development of Sonangol (Oliveira 2007), by handling Angola’s negotiations with international oil
companies from 1977 (Neigus 1981).
On another front, Sonangol relied on the capabilities of international operators to carry out upstream
2 The key figures in Sonangol’s core team were well -networked MPLA party members who enjoyed the confidence of President
Neto (Oliveira 2007).
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activities, by partnering with leading international oil companies through PSAs. Table 1.6 presents the
shareholders and operators by producing block.
With time, Sonangol began expanding its activities beyond Angola. The first subsidiary was established in
London in 1983; Sonangol Limited was responsible for direct trading of nearly 40 percent of the production
(Oliveira 2007). In 1991 the company undertook a restructuring of its growing business. A holding was created,
and the principal line of business became subsidiaries.
Overall, Sonangol has emerged from a postcolonial era and a 27-year-long civil war to drive the country’s
oil sector economy into 29 joint ventures and multiple subsidiaries (Lwanda 2011), with more than 8,000
employees across the globe in 2008 (CRES 2008). The company has ventured into drilling, fabrication,
transportation, industrial supplies and infrastructure, distribution, storage services; banking, food retail, and
catering; and civil engineering and real estate development.
Table 1.6 Angola: Company Share and Operator (in Gray), by Producing Blocks (%)
Block0
Block2
Block 3 Block
14 Block
15 Block
17 Block
18 3/05
3/85 and3/91
Canuku
Sonangol Sonangol P&P 41.00 25.00 25.00 6.25 100.00 20.00
IOCs
Total 10.00 50.00 20.00 40.00
BP 26.67 16.67 50.00
Chevron 39.20 20.00 31.00
ENI 9.80 12.00 15.00 20.00 20.00
Esso 40.00 20.00
NOCs
Sonangol Sinopec 50.00
China Sonangol 25.00
STATOIL 13.33 23.33
PETROBRAS 27.50
I n d e p e n
d e n t s
AJOCO 20.00 12.50
SOMOIL 9.30 10.00
POLIEDRO, S.A. 9.10
KOTOIL, S.A. 9.10NATGAS 4.00 5.00
INA-NAFTA 4.00 5.00
GALP 9.00
SVENSKA 6.25
Source:Based on data from Sonangol 2012.
Note: IOCs = international oil companies; NOCs