Efficiency adjustment in AngolaNovember 15, 2017
Ricardo Santos, PwC’s country senior partner in Angola, talks to TOGY about efficiency, production cost reduction and the ongoing reforms at Sonangol. In November 2017, Sonangol named PwC as its external auditor through 2019. Since September 2016, PwC has been commissioned to make a plan to improve local services providers' participation in the Angolan oil and gas industry. The consultancy is also assisting with the restructure of the NOC. The NOC is set to be split into several companies and the restructuring is planned to be completed by the end of 2017.
• On efficiency: “The entire industry is going through the cost reduction process, and I don’t think it has come to an end. There is still room for improvement in that area.”
• On cost reductions: “We have seen a lot of transformation and cost reduction programmes over the last two years in the industry. Most of the companies have gone through that process already as they realised that the oil price is not going to go up to USD 100 per barrel anytime soon.”
• On focus: “One of the key objectives of the transformation is to refocus Sonangol on its core business because that may have been one of the issues in the past. A lot of effort and attention was put into sectors that are not core to Sonangol and not Sonangol’s mission.”
• On reform: “The oil sector had a lot of expectations for things to change very rapidly to address some of the concerns, and perhaps it has taken more time than the players in the market expected or wanted.”
Most TOGY interviews are published exclusively on our business intelligence platform TOGYiN, but you can find an abridged version of our interview with Ricardo Santos below.
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From a professional and legal standpoint, is Sonangol now a more competently and efficiently run company than it has been historically?
Transforming the entire sector with a new structure for oil and gas in Angola has been a very complex process. Everyone is aware that there are a lot of challenges within the organisation, so it is a process that will take some time. It is not something that will happen overnight. The oil sector had a lot of expectations for things to change very rapidly to address some of the concerns, and perhaps it has taken more time than the players in the market expected or wanted.
On the other hand, change always creates some apprehension, especially when it can affect investors’ businesses. Overall the business community recognises that there is a need for change in the sector and Sonangol in particular, but I believe there is an expectation gap. People want things to change rapidly, but these are complex processes that take time to implement.
Do you think that the Angolan oil industry is ready to reduce production costs to USD 50-55 per barrel?
The industry has really learned that lesson very quickly. It was probably the sector that realised that the quickest and acted to try to adapt to the situation. We have seen a lot of transformation and cost reduction programmes over the last two years in the industry. Most of the companies have gone through that process already as they realised that the oil price is not going to go up to USD 100 per barrel anytime soon.
There is less money to invest to maintain or do new projects. Companies that are operating in Angola in particular are realising that if they want to get those funds then they need to get competitive and be more efficient, especially because the costs of operating here are not sustainable for new investments.
The entire industry is going through the cost reduction process, and I don’t think it has come to an end. There is still room for improvement in that area. We saw Sonangol talk about that at the Africa Summit in London. Some steps have been made in the right direction, but there is still some way to go. On the other hand, this is a cyclical business. We have seen this before as well. Unfortunately, people and companies will probably not remember this for long if the price goes up and stays up for a significant period.
Does Sonangol aim to focus more on oil and gas production as opposed to all the other things that the NOC is invested in?
That is a part of the transformation programme for Sonangol in particular but also in the context of the transformation of the oil sector as well. The government realised that Sonangol was ruling over a vast number of activities and running companies in different sectors, and it was probably losing a lot of focus on its core business by having a presence in all sectors.
One of the key objectives of the transformation is to refocus Sonangol on its core business because that may have been one of the issues in the past. A lot of effort and attention was put into sectors that are not core to Sonangol and not Sonangol’s mission.
Some of the activities and areas where Sonangol is currently involved are more related to the state and its social role. I would expect some of these activities, like academies and schools to train people in different areas, to move under the relevant ministries. These are probably not part of the business but rather a social activity that the state should be handling.
I would expect many of these not to necessarily go to private investors but actually to go to other state entities or organisations, like the Ministry of Education for example. Other businesses may be of interest to other private investors, like aviation and telecoms for example. I don’t know what the solution is, but there will probably not be a single solution.
Do you as a firm have confidence that President João Lourenço can follow through on his campaign promises?
We have no reason to question that and we hope that is the case. As a firm, we will be very happy to assist. Our mission, as PwC, is to build trust in society and help solve complex problems. We believe that we can also play a role in that by providing auditing services and independent opinions on financial reporting or helping companies with their governance structures, compliance and in all sorts of different areas. We have been working with some government agencies in the past on issues like diversification. We can share what the best practices are and what other countries have done in these areas, like what lessons they can learn from countries that have done this themselves.
His message was something that we are very pleased to hear from the government and the president, and I think that is what the market and the investors have been looking and waiting for.
For more information on the Angolan market, including the ongoing reforms at Sonangol and changes implemented by the newly inaugurated president, see our business intelligence platform, TOGYiN.
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