Sonangol delays payments as it battles to reform

LONDON (Reuters) - Angola's state oil company Sonangol has amassed hundreds of millions of dollars in debts and deferred payments to oil majors and contractors while its new chief, Isabel dos Santos, attempts to reform its operations.

Contractors say they have waited months even for small payments from Sonangol, which handles the oil and gas reserves of Africa's second-largest oil exporter.

The delays began following the appointment of dos Santos, the daughter President Jose Eduardo dos Santos, in June to root out waste and corruption at a company that was struggling even before oil prices plunged.

As she worked to unravel the company's myriad debts and repayments, outgoing cheques ground to a halt.

Contractors and sources close to Sonangol said it is months behind in payments to nearly every entity it works with, from cash calls worth hundreds of millions and smaller payments of hundreds of thousands. 

"They haven't paid us, but we are talking to them," a source at one contractor told Reuters. "They're trying to make reforms but there is a cash flow problem." 

Sources told Reuters that those owed included Chevron, Total, BP, ENI and ExxonMobil. Sonangol has asked for a moratorium on other debts until the end of the year, they said. 

This is the most significant effort yet to reform the central pillar of sub-Saharan Africa's third-largest economy and one of the continent's biggest companies.

Sonangol employs some of the Angola's most powerful people and its tentacles spread beyond energy to real estate and railways, and trucking to telecoms.

The appointment of dos Santos was itself controvesial. Her father has ruled Angola since 1979 and government critics accuse his family and associates of enriching themselves while doing too little to spread the benefits of Angola's oil wealth to its people. Isabel runs a multinational business empire that has made her Africa's richest woman.

A group of lawyers has filed a lawsuit accusing the president of nepotism and violating Angolan probity by appointing her as head of the state oil firm. The supreme court last month ordered him to respond to the inquiry.

Isabel dos Santos has defended the decision, saying she had been picked for her expertise and competence.

GOVERNMENT COFFERS

At the start of the shake-up, she clipped the wings of the entire Sonangol legal department, barring them from conducting any external negotiations. This may have hindered sorting out payment complications.

She even booted out the hair-dressing and nail-bar salons that had set up shop inside Sonangol's Luanda headquarters to pamper the oil executives in their lunch and coffee breaks, according to one Luanda-based diplomat.

Former chief executive Francisco de Lemos Jose Maria, along with the rest of the board, was replaced in June when dos Santos took over.

Sources close to Sonangol said she had taken away Sonangol's ability to pay its own bills directly. Revenues from oil sales now flow directly to government coffers, where payments must be approved before they go out. 

The delays bubbled to the surface last month, when reports circulated that Chevron was demanding immediate payment of $300 million in unpaid cash calls – the money that Sonangol is required to pay for operations on oil and gas fields. 

Chevron declined to comment, but the talks prompted Sonangol to issue a rare statement about the troubles.

"This perfectly normal situation in the Angolan oil industry is not unique or isolated," the company said.

It had reached a plan for some $200 million in payments to Chevron, it added. 

"The difficult situation of the oil industry, marked by oil price fall, implies longer times of analysis and validation of expenses and invoices for costs and investments," it said.

Total's Patrick Pouyanne said the company has a strong relationship with Angola and when he met with dos Santos, "we discussed more about new projects than cash difficulties".

ExxonMobil declined to comment and ENI did not respond to a request for comment. 

Sonangol said in a statement that measures adopted over the past five months had allowed "recurring savings of over $240 million per year". 

HERCULEAN TASK

The troubles are a window into the Herculean task dos Santos faces in turning around Sonangol's fortunes during a prolonged oil price rout, and also of the concerns swirling around Sonangol and the government over a lack of transparency.

Watchdog group Transparency International ranked Angola 163 out of 168 countries in its index of perceived corruption in the public sector, and said it had "minimal" budget openness. 

Opposition groups have complained about the absence of any public discussion of the state's dealings, particularly what it said was a failure to shield citizens against the pain of low oil prices that led it to slash fuel subsidies and cut public spending.

Angola also cut off talks over a possible financial rescue package with the International Monetary Fund that would have forced it to diversify the economy and make a variety of reforms.

CHINA DEBT

Sonangol has already borrowed heavily from China, a major investor in Angola, which has limited its own access to oil cargoes to sell each month for more cash.

In January, it has none at all to sell, possibly for the first time. In August, it suspended a planned refinery upgrade and in September, it delayed delivery of two ships it had ordered from South Korea's Daewoo Shipbuilding & Marine Engineering, adding significantly to that firm's financial stress.

"It's right across the value chain," IHS analyst Roderick Bruce said. "They've got money for certain things, clearly not for others."

A source close to Sonangol defended the company's moves and said it was prudent to delay delivery of the vessels, postpone the refinery upgrade and comb carefully through every single payment to ensure money is spent properly. 

But the government's own financial fate, which is closely entwined with Sonangol, underscores the rough road ahead.

The IMF expects Angola's public debt to exceed 70 percent of gross domestic product (GDP) by the end of the year, despite government spending cuts. 

"Sonangol has had problems accessing cash, but this is also partly due to a liquidity issue more generally in Angola, tied to access to dollars in particular," said Alex Vines, head of the Africa programme at Chatham House. "Add to that bureaucracy and significant debts and the delays that have been reported."

Still, Vines and others said Sonangol's current struggles will not deter oil majors. Analysts and oil industry figures also believe that dos Santos may be the best hope to fix things.

"The scale of the Sonangol crisis convinced the presidency that deep structural reform was necessary," Vines said.

"Only somebody with full political backing such as Isabel dos Santos could ever have a chance at delivering the type of the reforms that are needed."

(Reporting By Libby George; Additional reporting by Ed Cropley and Joe Brock in Johannesburg, Editing by Angus MacSwan)