Right price, right way in AngolaApril 26, 2018
Luís Lago de Carvalho, the managing director of Octomar, talks to TOGY about the foreign exchange issue in Angola, the outlook for the market and upcoming projects. Octomar is an Angolan diving and marine services company offering a variety of terminal and subsea services.
On Kaombo: “We got involved in Kaombo, which was a saviour for many companies. It is still the only major ongoing project. We got some work out of it. For this year, it is one of the biggest stabilising factors for us. All the rest is just tenders coming up that we hope to see results from next year onwards.”
On local companies: “It is unfair to compare companies that have spent millions and millions over the years to have what you need for local content to a company that has one office, a local partner, and everything else is run out of Houston or Aberdeen.”
On fiscal policy: “The biggest difficulty today is in tax legislation. We need to reduce the burden on local companies so they can provide more work; look into tax exemptions, support and delays; and make using credits easier to allow for more free cash for operations.”
On local content: “They can promote local content by changing a few things, not just by saying it needs to be used. When you force something, it does not work well.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Luís Lago de Carvalho below.
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Has the problem of forex eased in Angola?
Within the oil and gas service providers’ association, AECIPA, we have been advocating to allow operators to pay us directly in dollars locally, which would mean we could pay international suppliers and other local suppliers we work with in dollars. That would reduce pressure on the need for dollars. We still hear stories of people saying there are no dollars but once in a while someone linked to a bank calls you and tells you they have a certain amount free. This happened to me last week and I was really angry. They called and told me they had an amount that someone did not use. I told them to give it to the guys that are struggling to pay their kids’ tuition abroad. With that amount, they could help at least 50 people, but they are using it for business.
The system is made to allow people to do their business.
We have to receive most of it outside. Everyone knows this. We have consortium agreements and tripartite agreements that ensure most fees are paid outside. It is even worse for the country that this money does not come into the financial system. At least if they allow us to get it here, it will come into the system, we can pay other people and make the money move around. That will reduce the pressure a lot.
I do not think there will be a solution for other industries any time soon. You need big investment projects for funds to come from outside. Today people still do not feel that it is stable enough for them to bring billions of dollars of new investment here. Only when foreign currency and new investments are coming in freely will it be stable.
I do not think a clear solution for oil and gas will come anytime soon either. It clashes with the government’s policies, which are controlling the foreign currency as much as possible. We hope this view will change, then the situation will become much better.
If I am only using it to pay suppliers or other local companies, or even some of the expat salaries here, in dollars, then they know where it is going. It is not difficult to control if you want to, and avoid some service companies to use for exchange rate businesses.
What is the outlook for the market?
Angolans are stubborn. Some companies are still struggling a lot, but we have reached a point where we are able to enter the market so we are going to stick with it. I hope this changes and some of these companies can bounce back. We know of other companies where owners are putting money in every month to keep the business running on the expectation they will be able to bounce back. I hope those will bounce back because the owners have put in a lot of effort just to keep them alive. I do not know if it is good or bad, it depends on each company. For some companies it will probably work out, they will hold it together and will be able to do some work. The ones that do not get any work after that are going to ask why they didn’t close shop earlier.
Do companies expect a reward of contracts from the public sector for making through the crisis?
The problem today is that Sonangol would help by pushing more and more local content. Unfortunately, even as a local company, we have to say local content is expensive still. When you talk to the big majors, they tell you that local content will not play an issue here, it is purely price. The majors say they are still suffering, even with the stabilisation of the oil price because they had been in growth mode, hiring people, getting new bases and other things.
When you have a local company with a reasonable structure, employees and tax – and our tax structure is heavy – it is difficult to beat a company that will mobilise a vessel for three months, move out, and pay tax outside with no permanent structure. It is difficult to be less expensive than that. We are just in cost-recovery mode in some projects, just to be able to keep people and money flowing. You cannot sustain that for too long. Today local content is very difficult to make cheaper than bringing in a company from abroad.
Because of the situation, Sonangol has lost some of their bargaining power when discussing contracts. The majors have a big card, which is price. We have to fight on price. We can in some cases, when we have some equipment that has been here a long time and it is paid for, when we have local people that can do the job. Some companies are still able to fight, but others, especially those that have made investments in recent years, are really struggling. We bought equipment recently. Luckily we did not go for bank loans, we had cash we decided to put in equipment.
Is Kaombo your biggest project?
We will be involved with the first Kaombo FPSO when it arrives in the summer. It is part of the prep work we did last year. We will definitely be involved in some scope of installation with Technip and possibly also with Saipem.
We used to have a few big long-term contracts. Today Octomar has mostly spot work. Our core activities are still around inspections and maintenance. It is mostly rig, vessels and FPSO inspections.
Kaombo is deepwater, so a lot of it is done on ROVs, which is not our activity. We have some involvement in work close to the vessel and in shallow water, such as the installation of buoys, inspection and others.
We still have some work to do on existing blocks in inspections and maintenance.
There are some ongoing tenders and new tenders coming out for long-term contracts that we are eyeing. They are diving contracts, but there are eight contenders. We have been involved with some of those contracts in the past so we are keen to get back into it. The competition is now a big list, and I am not sure how the winner will be decided. Price will be key. We are just now starting to prepare documents. Delivery, equipment, technical and data, are important, but price will be the main issue.
How can the oil and gas industry help itself?
There is a lack of willingness to help each other in general in Angola. That has been a big issue in the oil and gas service industry. Someone would have of a friend or someone you know in the industry and instead of looking at the opportunity and joining forces to do the service, they would probably just jump into your market and find a company from overseas to do it because they want to show they can do it on their own.
We have seen a lot of companies that have nothing to do with our business suddenly show up on a project we were tendering despite having never been involved in this type of work. When you ask why they didn’t talk to you, they say they forgot you were in that business. We have been here for 20 years. Most of the people in the industry know what we do. That is one of the biggest hurdles that the service industry in oil and gas needs to work around. They need to share work and help each other more. We have tried many times. We have done this many times. If we need a vessel, we contact Sonatide or Sonasurf because if they have a vessel here ready to operate in Angola, this is better for us. In general other companies look for overseas companies and hire equipment or people.
What would you like to see from this new government, from Sonangol, to help local companies?
They are not in an easy position today. Local content can still have its defence. They can promote local content by changing a few things, not just by saying it needs to be used. When you force something, it does not work well. We still have a big issue with tax benefits. For example, we import equipment and keep it here on a permanent basis to service the oil and gas industry, but you can only get tax exemptions if you are supported by a big operator. So we are in a situation where we are a local company, we want support from the government but we are dependent on a foreign company in order to get it. This has been discussed many times in meetings. Their defence is that by being supported by one of the operators, it shows you are bringing it in for the oil and gas industry. There is some equipment that is specific to the oil and gas industry. It can be used once or twice for something different, but it is for the oil and gas industry and it is easy to control that.
Withholding tax credits accumulated over the years: These are credits you are supposed to use on other things, but then you are not able to do it. When you ask to use it, they want you to do an audit, you have to reclaim this and you have to get a paper that states a confirmation of the credit. We asked the first time two years ago and we are still waiting. There are millions of dollars of credit with the government that today would be a huge oxygen bottle for companies. For example by facilitating this, during these extremely difficult period, we could deduct the monthly withholding tax of the existing credit and that is cash that would have been available for us to survive.
It is a Portuguese model: First pay and then it gets discussed.
Sonangol does not have a word in it. This is fiscal policy. These are government issues. If the government really wants to diversify, they have to do it with oil money. It should have been done many years ago, but we have to accept that it was not done and we need oil and gas money to do it. The only way is to find policies that help. Sonangol is not the issue.
Regarding local content, it is unfair to compare companies that have spent millions and millions over the years to have what you need for local content to a company that has one office, a local partner, and everything else is run out of Houston or Aberdeen. There is much to do there. Jointly Sonangol and the Ministry of Petroleum could help in that.
The biggest difficulty today is in tax legislation. We need to reduce the burden on local companies so they can provide more work; look into tax exemptions, support and delays; and make using credits easier to allow for more free cash for operations.
No one today is thinking about training and education. They do not have the cash for it.
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