ANGOLA: Government mortgages oil sales for military equipment

Despite a financial crisis provoked by the steep downturn in global oil prices, the Angolan government is expecting
to raise some US $1.5 billion this year to help fund its war effort against the rebel movement UNITA, financial analysts told IRIN on Tuesday.

The government last week approved the allocation of drilling licenses to BP Amoco, Elf Aquitaine and Exxon for three blocs in Angola's oil-rich deep waters which experts believe may hold the largest untapped reserves in the world. The importance for the government is that the oil companies are to make up-front down payments, known as signature bonuses, for the rights.

According to Patrick Smith, editor of the London-based newsletter 'Africa Confidential', the signature bonuses amount to around US $300 million for each drilling bloc. In addition to the oil companies, military equipment suppliers also have equity stakes in all three blocs enabling the government to finance its re-armament programme.

The government is also close to winning a syndicated loan from the Union Bank of Switzerland (UBS) valued at around US $500 million through mortgaging future oil production. The agreement was first muted last year, but the terms have been repeatedly renegotiated.

"The government can expect roughly from UBS and the new blocs US $1.5 billion," Smith told IRIN. "That would buy them some fairly serious weaponry."

With Luanda unable to come to an agreement with the International Monetary Fund, which would release "orthodox" sources of funding, the government has been forced to mortgage future oil sales on highly expensive terms to international banks. However, "all these deals are rolling deals - the
credit facilities are paid off and reallocated - so there is always something in the kitty," Smith said.

Although years of civil war has meant little in the way of social spending by the government on the most basic of services -from schools and hospitals to civil servant wages - "there is no comparison between UNITA and the government's financial clout when it comes to buying military hardware," Smith added.