China-Argentina oil investment deal gives Angola key role

An agreement signed during Chinese Premier Hu Jintao's state visit has added an odd third party -- Angola -- to a tentative offer to invest $ 5 bn in Argentine oil exploration over the next five years.
The investor named in the four-page letter of intent with Argentina's new state-owned Energia Argentina, or Enarsa, is a Chinese incarnation of Sonangol, Angola's state-owned oil company. The investment letter, signed by Sonangol chief Manuel Vincente on behalf of China Sonangol International Holding, came as part of a larger $ 19.7 bn Chinese package for possible investments ranging from construction to railroad expansion.

No one is crying "bait and switch" so far. But beyond noting that the entire $ 19.7 bn deal is far from solid, analysts warn that the inclusion of Sonangol imbues even less confidence.
"Having Sonangol as a partner in any deal should raise plenty of red flags for anyone concerned about transparency," said Roger Tissot of Washington-based group PFC Energy.

Human rights groups have for years criticized the Angolan government for mismanaging oil reserves in sub-Saharan Africa's second-biggest producer after Nigeria. In an internal memo leaked in 2002, the International Monetary Fund alleged that about $ 1 bn disappeared from Angolan coffers in 2001. Earlier this year, the accounting firm KPMG recommended in a report commissioned by the Angolan government that the nation adopt international accounting standards to help clean up its poor image.
The inclusion of Angola into the Argentina offer appears to be the latest development in a strengthening relationship between the African nation and China.

Earlier this year, China extended a $ 2 bn loan to help Angola rebuild infrastructure destroyed during three decades of civil war. The aid deal came as Angola rejected plans by Shell to sell its half of the Greater Plutonio project to India's ONGC Videsh -- and instead ordered the private company to sell to Chinese interests.
Meanwhile, Argentina's decision to bring in the China-Angola alliance comes as President Nestor Kirchner's administration finds itself taking a more active role in the South American nation's troubled energy sector. Looking for solutions, Argentina created Enarsa in October and then heavily promoted China as a potential energy saviour. Angola's role only came to light when Sonangol's Vicente popped up in Buenos Aires to sign the letter of intent.

Private companies have been upset with the Argentine government since it converted utility rates into devalued pesos and froze them in early 2002 amid its economic meltdown. The government later slapped high tariffs on oil exports in a bid to keep domestic prices down.
The companies have complained that government intervention has hobbled profits and is keeping them from investing in the sector. That lack of investment helped lead to an energy crunch at the onset of the South American winter in March and April. Analysts expect another seasonally linked energy crisis in 2005.

The creation of Enarsamay provide the government with more leverage in dealing with the private sector, although the eventual role of the new state-owned company remains to be seen.
"Argentina is not known for transparency either," PFC's Tissot said. "But if Kirchner is looking to distance the country from bad reputations, he should be more careful of the companies he chooses for partners."