* Debts to China climb to an estimated $25 billion
* Angola has less oil to sell to plug budget holes
* Other nations which borrowed using crude also face
By Libby George
LONDON, March 14 Angola has found itself with a
dwindling amount of crude to sell as more of its oil flows to
China for debt repayment, leaving little revenue for anything
from oil sector development to health care in one of Africa's
largest oil exporting nations.
Following a trend also seen in Iraq, Kazakhstan, Russia and
Venezuela, Angola has tied up more of its output in pre-financed
deals to bridge a drop in income due to the 70 percent fall in
oil prices in the past 18 months.
The price slump means the Western oil majors which manage
the fields and platforms that help Angola export 1.8 million
barrels per day are also taking more oil in return for their
investment and services.
Countries with oil often use it as collateral for loans, and
during a previous oil price collapse, in 2008, the process
helped to tide many over until better times. But this time most
experts say the rout will continue until at least next year.
As recently as five years ago, just over half of Angola's
50-60 monthly cargoes went toward paying oil majors, with as few
as four to five cargoes going to pay back prefinanced deals,
leaving the country's state oil company, Sonangol, with as many
as two dozen to sell on the market or to term buyers with
Through a series of conversations with at least six oil
traders, Reuters found the number had been cut by more than
half, to fewer than 10.
Part of that was because more has been going to Western oil
majors such as Total, Chevron and BP
due to the price fall.
No one foresaw the price collapse when the contracts were
written, said Readul Islam, analyst with Rystad Energy. "There
were no clauses in the contract about what happens to the profit
sharing when prices dropped so low."
But another drain on Angola's oil was a fresh round of
prefinancing from China that more than doubled the number of
cargoes sailing east as repayment from February. The deal,
struck with China's state-run Sinochem Group in December,
involved as many as six cargoes per month, on top of three to
five already earmarked for fellow Chinese firm Unipec.
The deals with China by the MPLA party that has ruled Angola
for almost four decades financed infrastructure and also helped
secure an important new outlet to make up for declining U.S.
demand due to the shale revolution. tmsnrt.rs/24UIAGw
But its oil-backed debts are now estimated to have ballooned
to $25 billion.
The December agreement was shrouded in secrecy; traders said
it involved at least $5 billion in advance financing to be
repaid with oil, while some said it could have aimed at
restructuring older debt.
Roderick Bruce, principal energy analyst for West Africa
with IHS, said in principle the lower the oil price, the more
crude it costs to service debt.
"That's an increasing amount of crude that can't be sold to
directly fill government coffers," Bruce said.
LITTLE FREE OIL
Existing contracts meant Angola had only one cargo to sell
on the spot market in February, traders said, crimping its
ability to generate cash when needed and ability to set prices
for its term buyers.
A source close to Sonangol said it still had some
flexibility to sell oil directly on the market.
It could get other loans, or refinance deals to limit the
amount of crude paid to lenders, the source said, and had
already dropped some contracts with term buyers who had not
prefinanced them to keep back three to six cargoes each month.
In March, it got two or three and in April six, but some of
that may reflect delays in meeting commitments under continuing
contracts which it will have to make up for later in the year.
Traders and analysts said between Sonangol's preexisting
problems and the precipitous drop in oil prices, the situation
"They should be hearing alarm bells," Islam said.
The company did not respond to a request for official
comment. Last month it said its net debt to foreign oil
companies had risen 41 percent year-on-year in 2015 to $7.8
billion and it expected this year to be "very difficult".
President Jose Eduardo dos Santos, who has ruled Angola for
36 years since shortly after independence from Portugal, asked
China for a debt repayment freeze late last year, as the
debt-to-gross domestic product ratio hit around 46 percent.
The finance ministry is negotiating a new loan with the
World Bank, but spending is already 40 percent lower than two
years ago and cuts to rubbish collection and water sanitation
have spread disease in a country six places from the bottom of
the World Bank's index of inequality.
The government forecasts a budget deficit of around 5.5
percent of gross domestic product in 2016, based on oil prices
of $45 per barrel; Brent crude this year has thus far peaked at
$41.48 and analysts say it could be subdued all year.
Last week, ratings agency Moody's placed the country's
credit rating under review, threatening a downgrade further into
Angola's oil woes are not unique: Iraq has built up debts of
over $2 billion to oil majors after it said budget needs meant
it could not hand over increasing volumes of crude; Venezuela
has billions of dollars in oil-backed Chinese loans while Russia
and Kazakhstan borrowed heavily from oil traders Vitol and
With a limited amount of other assets to leverage, there is
little room for manoeuvre.
"Probably, there is no way out of this dilemma for many
countries," one source familiar with the situation said, adding
they would have to learn to live with less oil to sell.
(additional reporting by Dmitry Zhdannikov; editing by Philippa