Local+Content+Policies+in+the+Oil+and+Gas+Sector.pdf

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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


2.1.4 Education ..................................................................................................................................... 46

2.1.5 Business Environment ................................................................................................................ 46





2.2.4 Sector Institutional Framework ................................................................................................. 51

2.2.5 Market Structure and Local Capabilities ................................................................................. 52



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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



3. Indonesia .................................................................................................................................................... 69

3.1 Structural Context ............................................................................................................................... 70

3.1.1 Economy ....................................................................................................................................... 70

3.1.2 Taxation ........................................................................................................................................ 72


3.1.4 Education ..................................................................................................................................... 753.1.5 Business Environment ................................................................................................................ 76





3.2.4 Sector Institutional Framework ................................................................................................. 81

3.2.5 Market Structure and Local Capabilities ................................................................................. 82




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



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


5.1.1 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



5.2.2 Petroleum Geography .............................................................................................................. 140



5.2.5 Market Structure and Local Capabilities ............................................................................... 142

5.2.6 Management of Petroleum Wealth ......................................................................................... 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



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6. Trinidad and Tobago ................................................................................................................................ 156


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



6.2.2 Petroleum Geography .............................................................................................................. 163



6.2.5 Market Structure and Local Capabilities ............................................................................... 165

6.2.6 Management of Petroleum Wealth ......................................................................................... 166



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


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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18

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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23

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

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