Luís V.T. Lago de Carvalho, Managing Director of Octomar, spoke to Africa Energy Series: Angola 2020, about how the Angolan-owned specialized maritime service provider identifies fiscal support from the government and timely payments from operators as a requisite for service companies to survive the COVID-19 crisis.
How has Octomar adapted to the current COVID-19 – induced restrictions on travel, security and safety?
Angola has taken a very strong stance and the industry as a whole, which is already very safety-oriented, has followed suit. We have just started changing offshore crews and the process is quite complicated and expensive. First, it starts with flights that are extremely expensive being chartered flights. The companies have been trying to split this between themselves as much as possible and it has been a very positive outcome of the pandemic. On arrival, all incoming personnel need to stay on Ministry of Health (MINSA)-approved facilities for 14 days, and if the test done on the fourteenth day (which takes another three to four days to get the results) is negative, personnel are allowed to move to offshore. All of this is under tight control from MINSA representatives.
How can service companies maximize their liquidity and keep afloat until the market rebounds and drilling can resume?
The members of the Association of Contracting Companies of the Oil Industry in Angola have written a letter to the Ministry of Mineral Resources, Petroleum and Gas, identifying the main constraints that we are currently facing and requesting support to tackle the them, which would allow the existing companies to survive and potentially prosper in the future. Fiscal support could deeply change the liquidity situation, as well as timely payments by the operators.
How can fiscal and legislative reform be extended to service providers to provide greater protections against market volatility?
One of the great issues is the lack of liquidity created by extensive taxing and the continuous late payment by operators. We have been fighting for years to have the withholding tax reviewed, as it creates huge fiscal credits and removes liquidity from the companies. To make matters worse, the government has reduced the industrial tax but kept the same withholding tax, meaning that more will be left in credits that we have not been able to use. We are talking about hundreds of millions of dollars that the service companies just “donated” to the state through this mechanism. The government has also just approved a 15% withholding tax for payments to entities outside Angola.
To what extent can the crisis and possible exit of international companies create a vacuum for national companies?
Local companies are very limited in what they can offer today. International Oil Companies (IOCs) have stronger financial capacity to survive these crises. Therefore, it could actually lead to the opposite movement, in which more international companies are able to capitalize on new contracts.
Local content can only prosper if the correct people are involved, if there is real commitment from the government and if they are not afraid, in some cases, to clash with the IOCs. The new local content law has been stuck for some time primarily because of the attempt to accommodate these interests. We need to have something in place, and then build from it. To begin, the definition of some services as exclusive to local companies will be a major step.
How quickly will the industry be able to rebound?
We believe that the global market will rebound soon, but the question remains: how deeply damaged will some of the companies become until that happens, and will they be able to rebound? In the countries that have provided proper support to the industry during this period, service companies will recover sooner and will have a chance to take advantage of new contracts, including in Angola.
The only sector that showed serious investment prospects before COVID-19 was the oil and gas industry, with the incentives and contract revisions. All other sectors did not garner interest because our private investment law, the status of our justice system and the serious problems in our financial system did not invite investors for the past years. If oil prices can recover and stabilize for some time, this sector will be the first to see investment. Our plans are towards remaining alive and keep our market share for 2021.