Projects Financed by State Oil Company Require Close Scrutiny
July 11, 2012

Angola’s government said it would account for and rein in Sonangol’s opaque and off-budget spending of the country’s oil revenue, but that hasn’t happened. Angola still hasn’t accounted for the tens of billions of dollars that Sonangol spent over the last five years and hasn’t shown that the practice has stopped.

Arvind Ganesan, business and human rights director

(Washington, DC) – The International Monetary Fund (IMF) should insist that Angola’s government explain how it spent more than US$41.8 billion in unaccounted oil revenues from 2007 to 2011, Human Rights Watch, Open Society Initiative of Southern Africa (OSISA)-Angola and the Revenue Watch Institute said in a letter to the IMF released today. The IMF’s Executive Board is scheduled to meet on July 11, 2012, in Washington, DC, to discuss Angola as part of an annual review of each of its member countries.

The three organizations called for an independent audit of the spending, which Angolan authorities mostly attribute to infrastructure projects financed by the state oil company, Sonangol, that bypassed the budget process.

“Angola’s government said it would account for and rein in Sonangol’s opaque and off-budget spending of the country’s oil revenue, but that hasn’t happened,” said Arvind Ganesan, business and human rights director at Human Rights Watch. “Angola still hasn’t accounted for the tens of billions of dollars that Sonangol spent over the last five years and hasn’t shown that the practice has stopped.”

A December 2011 IMF report first revealed accounting discrepancies in Angola of approximately $32 billion from 2007 to 2010. The Angolan government pledged to clarify the use of the funds and to end Sonangol’s spending of oil proceeds owed to the public treasury. An IMF report in May 2012 confirmed the earlier report and provided new information on large-scale, off-budget spending from oil revenues. It disclosed that unaccounted spending by Sonangol was $18.2 billion for 2007 to 2011, and that in 2011 Sonangol spent another $7.7 billion that was not recorded at the time.

According to the IMF, from January to October 2011, Sonangol earned $22.7 billion but transferred $5.2 billion to the treasury, or “only about one-quarter of the oil revenue it collected.” In addition to the company’s commission of $2.3 billion, Sonangol kept $7.7 billion to “reimburse” itself for spending on behalf of the government, yet no details of the spending are provided.

The IMF gave Angolan authorities high marks for improving transparency and accountability, but the information made public is too vague to be a credible explanation, the three organizations said.

According to the May IMF report, the Angolan government has traced more than 85 percent of the 2007-2010 accounting gap. Sonangol-financed infrastructure projects accounted for $18.2 billion, or 58 percent of the $31.4 billion discrepancy. The Angolan government said that Sonangol used the funds for “housing projects, railway rehabilitation, infrastructure for special economic zones, and … other infrastructure.” However, the IMF report gave no details about the projects or why they were financed using off-budget spending.

The report attributed much of remaining unaccounted funds to financial transactions linked to loan repayments, including funds in overseas bank accounts that Sonangol controlled at the time. A further $4.2 billion (14 percent) remains unaccounted for.

“It is unacceptable that tens of billions of dollars belonging to the people of Angola have been spent ‘off-the-books’ in a completely opaque manner instead of going directly to the public treasury,” said Elias Isaac, country director at OSISA-Angola. “The people deserve to know exactly how these vast sums were used and all the projects paid for by Sonangol should be independently scrutinized to see if this spending was appropriate.”

In addition to a regular annual review, Angola is subject to IMF monitoring to track progress following the completion of a $1.4 billion 2009 loan known as a “stand-by arrangement.” IMF staff prepare reports ahead of the board deliberations. The latest staff report is not yet available publicly, however. There is often an extended delay before IMF reports are released, partly because they are made public only with the approval of the government involved.

Human Rights Watch and Revenue Watch wrote to the IMF board in March urging it to withhold the final payment to Angola under the 2009 loan until Angolan authorities fully and publicly justify the massive discrepancy in Angola’s public accounts. The board nevertheless approved the final disbursement at its March 28 meeting.

Human Rights Watch, OSISA-Angola, and Revenue Watch said that the publication of the latest IMF report on Angola should be expedited and that in the future, reports should be issued ahead of board meetings to allow for public participation and scrutiny. They also called for the agenda of board meetings to be announced as soon as they are scheduled. Currently the IMF provides only seven days advance notice of its calendar for each meeting.

“The IMF board rewarded the Angolan authorities prematurely, before they provided an adequate, public accounting of how taxpayer funds were used,” said Karin Lissakers, president of Revenue Watch. “Now it needs to insist on a detailed and credible explanation and an independent audit of the spending.”