Cabinda's Oil Wealth: Angola's Energy Future?

Angola's small province of Cabinda is responsible for a significant proportion of the country's oil production, estimated at around 60% or two-thirds of the total. This oil-rich region has a disputed status, with several political organisations challenging its classification as an exclave and province of Angola. The people of Cabinda have sought independence, citing a lack of economic benefits and infrastructure development from the Angolan government. Despite its contribution to the national economy, Cabinda remains one of the poorest provinces in Angola, with high unemployment and a lack of basic amenities like electricity and drinking water. The region's history, cultural differences, and ethnic background provide grounds for self-determination, further fuelling the desire for autonomy from Angola.

Cabinda's oil revenue

Angola's small province of Cabinda is responsible for around half to two-thirds of the country's oil revenue, but locals say they do not benefit from it. The region produces 600,000 to 700,000 barrels of crude oil per day and is home to some of the largest offshore oil fields in the world. It is separated from the rest of Angola by a strip of territory belonging to the Democratic Republic of Congo and is bounded on the north by the Republic of the Congo, and on the west by the Atlantic Ocean.

The oil industry in Cabinda is dominated by Chevron, which has a 39.2% stake, followed by Sonangol with 41%, TotalEnergies with 10%, and Eni with 9.8%. The province receives a bonus payment from the Angolan government in recognition of its contribution to the economy, calculated based on year-to-year increases in oil revenue. In 2004-05, this bonus amounted to $25 million and was expected to increase to $35 million the following year. Additionally, Cabinda has benefited from social investment programs that multinational oil companies are contractually obligated to deliver.

Despite these benefits, Cabindans argue that they do not see tangible advantages from the oil industry or the social investment programs. The oil industry offers limited employment opportunities, and there have been no significant attempts to develop secondary industries in Cabinda based on oil extraction. Angola's only oil refinery is in Luanda, which means that fuel for vehicles in Cabinda has to be transported from there, leading to frequent fuel shortages and discontent among residents. The cost of living in Cabinda is also high due to the need to import goods by air or road from Luanda or neighbouring countries.

The central government in Luanda manages all state revenues, and it is unclear how government funds are disbursed within the province. However, oil companies make direct payments to the provincial government of Cabinda from their Petroleum Income Tax, which are not controlled by the central government or the Ministry of Finance. In 2000, these payments amounted to approximately $72 million for Cabinda. As a result, the provincial government has access to tens of millions of dollars that are not overseen by the federal government, leading to calls for greater scrutiny, accountability, and transparency.

Angola's dependence on oil

The country's economy has been adversely affected by volatile oil prices and severe macroeconomic imbalances, and Angola has struggled to diversify its economy away from oil. The petroleum sector in Angola is challenging to navigate, with many restrictions and barriers for investors and operators. This has resulted in the withdrawal of many companies and a downsizing of the sector. The high production costs, averaging US$40 per barrel, have further hindered new investments and limited profits for private companies.

To reduce its dependence on oil, Angola has implemented various measures, including addressing fiscal imbalances, liberalizing the exchange rate regime, and managing debt. The government has also prioritized refinery development to reduce the need for imported refined petroleum, which costs the country over $2 billion annually.

Angola's oil wealth is not evenly distributed, with much of it coming from the province of Cabinda, which has a disputed status. Cabinda is an exclave of Angola, separated from the rest of the country by a strip of territory belonging to the Democratic Republic of the Congo. It accounts for around two-thirds of Angola's oil revenue and has a population of around 824,000 people as of 2019. The region has significant oil reserves, with an estimated production of 700,000 barrels of crude oil per day.

The inclusion of Cabinda in Angola is contested by several political organizations, and there has been a persistent political protest against this status. Despite the region's oil wealth, Cabinda remains one of the poorest provinces in Angola, with revenues from oil often not benefiting the local population due to corruption.

Cabinda's contribution to Angola's economy

Cabinda is a small province of Angola, separated from the rest of the country by the Democratic Republic of Congo. It is the country's smallest province, with a population of around 400,000 to 800,000 people. Despite its size, Cabinda is responsible for a significant proportion of Angola's oil production and revenue. It is estimated that Cabinda accounts for around 50% to 60% of Angola's oil production, which is approximately 700,000 to 900,000 barrels per day. The oil industry in Cabinda is dominated by companies such as Sonangol, Agip Angola Lda, Chevron, TotalEnergies, and Eni.

The contribution of Cabinda to Angola's economy is substantial, as the oil industry accounts for 95% of the country's exports. However, the people of Cabinda feel that they do not benefit sufficiently from the oil revenues. There is a high unemployment rate in the province, and the existing infrastructure is dated. Additionally, Cabinda experiences frequent fuel shortages, and the cost of living is high due to the province's reliance on imports from Luanda or cross-border trade.

To address these issues, the Cabinda provincial government receives a bonus payment from the central government based on year-to-year increases in petroleum revenue. In 2004-2005, this bonus amounted to $25 million and was expected to increase to $35 million in the following financial year. Additionally, Cabinda has benefited from social investment programs that multinational petroleum companies are contractually obligated to deliver. However, the petroleum industry provides limited employment opportunities, and there has been a lack of significant attempts to develop secondary industries in Cabinda based on oil extraction.

In recent years, there have been efforts to improve the situation in Cabinda. A new oil refinery, a joint venture between Gemcorp and Sonangol, is being constructed in Cabinda and is expected to supply around 10% of Angola's domestic demand for refined oil products. The refinery project aims to reduce Angola's dependence on importing refined oil products and is part of the country's plan to diversify its economy beyond the oil and gas sector.

Cabinda's oil refinery

Angola is rich in crude oil but has to import the fuel it needs. The Cabinda oil refinery is a joint venture between the UK-based asset management company Gemcorp and Angola's national oil company, Sonangol. The refinery is being constructed on the Malembo plain, in the Cabinda province of Angola, and is expected to produce energy independently, while reducing the country's reliance on imported refined products and increasing exports with higher margins.

The refinery will produce gasoline, diesel, aviation fuel, and naphtha for domestic consumption. The first phase of the project, which began in March 2020, will see the installation of a crude distillation unit capable of processing 30,000 barrels of oil per day. The first phase is expected to be operational in the first quarter of 2022, with a total capacity of 60,000 barrels of oil per day. The second and third phases will add another 30,000 barrels of oil per day to the refinery's capacity, with the installation of a catalytic reformer, hydrotreater, and catalytic cracking unit. The second phase will be commissioned in the second quarter of 2023, and the final phase will be operational by the second quarter of 2024.

The refinery is expected to generate approximately 2,000 direct and indirect job opportunities for local people and will operate with a 100% Angolan workforce. It is hoped that the refinery will deliver around 10% of Angola's domestic demand for refined oil products, with plans to increase capacity in further phases. The project is well behind schedule, with initial construction commencing in 2020 and the refinery expected to be operational by early 2022. The refinery's first phase is costing $473 million, and the second phase plans to double the capacity. In two further phases, Gemcorp also plans to refine crude into gasoline and liquified petroleum gas (LPG). Another $800 million is budgeted for this.

The Cabinda oil refinery is part of Angola's National Development Plan and will support the country's aim to produce energy independently. The project will also contribute to the diversification of Angola's economy by adding value to the oil sector. Angola's economy minister, Mario Caetano Joao, has stated that the country needs to diversify its economy beyond oil and gas, as the known reserves are not expected to yield much after 2035.

Cabinda's political status

Historically, Cabinda was an important agricultural and forestry centre, with oil, timber, and cocoa as its main exports. However, the discovery of huge offshore oil fields in 1967 changed the region's economic prospects significantly. Today, petroleum production accounts for most of Cabinda's domestic product, with conservative estimates placing Cabinda's contribution to Angola's oil production at close to 60%. This amounts to approximately 900,000 barrels per day, making oil exports from the province worth an estimated US$100,000 per annum for every Cabindan.

Despite its oil wealth, Cabinda remains one of the poorest provinces in Angola. The revenue generated from oil exports has not translated into improved living standards for the majority of the population. This disparity has fuelled political protest and separatist movements in the region. The Front for the Liberation of the Enclave of Cabinda (FLEC) is one of the most prominent separatist groups, advocating for the independence of Cabinda from Angola. FLEC was formed in the early 1960s and has led a low-intensity guerrilla war against Angolan government troops, targeting economic infrastructure and kidnapping foreign workers.

In 1975, the Treaty of Alvor between Portugal and Angola's liberation movements reconfirmed Cabinda's status as part of Angola. However, this treaty was rejected by FLEC and other local political organizations, who argued that Cabinda was a Portuguese protectorate and that its occupation by Angola was illegal. The "Kabinda Free State" claims that Cabinda was invaded by Angola in 1974 and asserts control over 85% of the territory.

In 2006, after ceasefire negotiations in the Republic of Congo, a Cabindan separatist group agreed to a ceasefire with the Angolan government, implying some form of autonomy for the region. However, other factions within FLEC rejected this agreement, insisting that total independence was the only acceptable solution. The political status of Cabinda remains unresolved, with ongoing political protest and occasional guerrilla actions against Angolan rule.

Frequently asked questions