Brazil’s partly state-owned oil company, Petroleo Brasileiro SA, which is usually known as Petrobras, operates in an incredible 28 African countries. It is one of the biggest listed companies in the world and given its experience in developing deepwater fields in Brazil’s Campos Basin, it is no surprise that the firm has particular expertise in deepwater oil production. Gulf of Guinea geology is very similar to that of the Campos Basin and so Petrobras has put a great deal of effort into securing acreage in the region.
Petrobras has been active in Angola since 1979, although mostly as a minor player with limited stakes. However, it increased the number of blocks in which it has stakes from two to six in 2006, becoming the operator of three blocks: 6/06, 18/06 and 26. The company has had operations in Libya for even longer, although it was only in 2005 that it secured offshore acreage in the Libyan National Oil Corporation’s (NOC) first licensing rounds, taking four mainly shallow water blocks in Area 18, with 70% equity as operator. The firm has operated in Nigeria for 14 years but its assets have changed over that period. It is now a member of the Chevron consortium operating OML 127 with the Agbani deepwater field; and the OML 130 block, where operator Total produces oil on the Akpo field.
Apart from its operations in established oil-producing areas in Angola, Libya and Nigeria, it is now also investing in frontier exploration projects. For instance, it recently acquired a 50% stake in Benin’s Block 4 from Compagnie des Hydrocarbures Beninoise (CBH), as interest grows in prospective acreage in West Africa west of Nigeria. A spokesperson for the company revealed: “Our expectation is to find light oil, reproducing other discoveries made in other exploration activities in Africa. The arrival in Benin gives continuity to our strategy of seeking opportunities in deep and ultra deep waters in the region.” The government of Ethiopia also claims that Petrobras is preparing to invest in exploration projects in that country.
Adriana de Queiroz, the executive coordinator at the Brazilian Centre for International Relations, said: “Petrobras … is not going to Africa to bring back oil to Brazil. It is to grow the company in other markets. China is not there for this reason. They are there to extract resources.” Petrobras chief executive Graça Foster has called for improved national oil sector regulation in many African countries but describes the continent as a whole as an “exceptional new market”. The main threat to the company’s wider ambitions in Africa is the sheer number of other companies seeking to secure acreage. With global oil prices stubbornly in excess of $100 a barrel, the majors, Western independents and emerging Asian oil companies are all competing to secure access to attractive acreage in almost all parts of the continent.
Petrobras’ biofuel subsidiary Petrobras Biocombustível plans to set up an ethanol factory in Mozambique with initial production capacity of 20m litres a year to supply Mozambican customers. At a meeting organised by Brazilian state development bank Banco Nacional de Desenvolvimento Económico e Social (BNDES) to support Brazilian investments in Africa, Petrobras Biocombustível chairman Miguel Rosseto said: “We already produce sugar in Mozambique and will now start producing ethanol from molasses.” In 2011, the government of Mozambique passed legislation to require 10% biofuel or other alternative content in motor fuel. Brazil is the global leader in developing sugar cane ethanol technology.
As part of its wide-ranging reform of the oil and gas sector, the government of Nigeria has proposed turning the Nigerian National Petroleum Corporation (NNPC) into an African version of Petrobras. This will require the NNPC to lose its regulatory role and become a more commercially driven upstream oil company. It is also likely to mean that the company will be partially privatised, opening it up to greater investor and international scrutiny. The plans underline the perception that Petrobras, like Petronas of Malaysia, is a model for other oil-producing states to follow.
Aircraft manufacturer Embraer is proving very popular in both the civilian and military aircraft markets in Africa. It specialises in small and particularly mid-sized aircraft, which are popular on routes within the African continent, where there is often not sufficient demand to justify the use of larger planes. The Brazilian firm is well established as the third-biggest commercial plane manufacturer in the world after Boeing and Airbus but remains a long way behind its US and European rivals in terms of total sales.
In October, the company announced that it had signed a deal with the African Development Bank (AfDB) to lease its E170/190 jets to six or seven African airlines. As with the firm’s military models, the aircraft are manufactured in Brazil and their sale generates no direct manufacturing jobs in Africa. However, the AfDB estimates that the deal will generate more than 1,600 jobs with the airlines concerned, increasing the number of passengers travelling across Africa by 1.15m a year and generating $68m in new tax revenue for their respective governments.
It has been reported that Egypt Air, LAM, SA Express, Kenya Airways and Air Senegal are among the possible customers but no concrete details have been published. Tas Anvaripour, the manager for infrastructure finance within the private sector department of the AfDB, said: “By lowering operational costs, improving intra-Africa connectivity and competition, the new project could contribute to lowering airfares, thereby increasing the number of people who benefit from air transport in Africa.”
Indeed, Africa was the destination of Embraer’s 900th E190 E-Jet, which was delivered to Kenya Airways on 10th October. Paulo Cesar Silva, the company’s president of commercial aviation, commented: “The delivery of the 900th E-Jet is a great achievement for Embraer and we are very pleased to deliver this aircraft to Kenya Airways, one of Africa’s leading airlines, only eight years after the first E-Jets entered revenue service in 2004. E-Jets were the first aircraft to change traditional thinking about 70- to 120-seat aircraft and revolutionising regional transportation by bringing more connectivity or frequencies to passengers, providing more flexibility to their travelling plans, while improving the airlines’ operational efficiency.”
The aircraft was the 13th E-Jet to be purchased by Kenya Airways and another seven are due to be delivered before February 2013. Kenya Airways chief executive Titus Naikuni added: “The E190 is a versatile aircraft suited to our growth ambitions on the African continent. Given its mid-range capabilities, it ably supports our plans to fly new routes and increase frequencies on existing ones. It affords our passengers excellent cabin comfort while enhancing operating efficiency. This new acquisition brings the airline closer to our vision of flying to every capital in Africa in the next few years.”
Beyond commercial sales
Embraer is also seeking to expand into the business jet market. There are currently 420 business jets operating in Africa and Embraer believes that this number will rise to 670 by 2022, as the number of wealthy business people on the continent continues to increase sharply. Embraer Executive Jets media relations executive Ricardo Santos said: “The African business aviation market is growing fast and is offering a lot of opportunities.”
Most recently, in October, the company announced that it had delivered an unspecified number of A-29 Super Tucano light attack aircraft to the Mauritanian Air Force, making it the eighth air force to use the model. Embraer’s head of defence and security, Luiz Carlos Aguiar, said: “With this delivery, we are broadening our ties with the African continent, where this aircraft has generated great interest.” Other military orders to African customers this year include the delivery of six Super Tucano fighters to the Angolan Air Force and three more to the Burkina Faso Air Force, suitable for small air forces that cannot afford to purchase and maintain a wide range of specialist planes. Embraer has plenty of spare production capacity because a $355m contract with the US Air Force appears to have collapsed.
The biggest Brazilian investor in Africa – and one of the biggest investors in the continent from anywhere – is Companhia Vale do Rio Doce, which is usually known as Vale. It is one of the three biggest mining companies in the world and is the world’s biggest iron ore miner, controlling about 27% of the global market. It also produces coal, nickel, copper, bauxite, alumina, aluminium and a wide range of other commodities. As a result of the needs of its mining operations, it also invests heavily in power plants, railways and port infrastructure. Vale currently has investments totalling $7.7bn in nine African countries and plans to invest more than $18bn in Africa over the next five years but much will depend on the direction of global markets over that time.
The firm’s biggest investment, however, is its Moatize coal mining project in the Moatize Basin of Tete Province in northwestern Mozambique. Production began in May this year and is expected to be ramped up to 11m tonnes of coal year in the first $1.7bn phase. Almost all output will be transported eastwards to Indian Ocean ports for export, much of it to China and other Asian markets. This has required the rehabilitation of the Sena Railway between Tete and the port of Beira, plus the construction of a new coal terminal at Beira itself. Both thermal coal, used in the power generation, and metallurgical coal, used in steel production, will be mined and then exported.
However, the railway and port will be insufficient to cope with the sheer volume of coal production expected in Tete Province, so a new railway and at least two new coastal coal terminals are planned, requiring investment of billions of dollars more. The Moatize concession is just one of more than a hundred that have been taken out in Tete Province and other projects are also planned, some of which should involve the Brazilian firm. Vale Moçambique is also investigating the development of other mineral reserves elsewhere in Mozambique and has already invested $20m in phosphate exploration in the Monapo District of Nampula Province in the north of the country. The company has a 30-year concession over the acreage in question.
Vale has large iron ore reserves in Guinea but may chose to concentrate on exploiting alternative reserves in Brazil while the political and contract situation in the troubled West African state is resolved. The fate of the Simandou concessions is proving to be particularly difficult to resolve, probably because of the sheer wealth resting on what is believed to be the biggest untapped iron ore reserves left in the world.
A previous administration in Conakry awarded the concession to Rio Tinto but in 2008 much of it was hived off and transferred to privately owned BSG Resources, which hoped to develop the $10bn project alongside Vale. However, the new government claims that BSG Resources secured the asset improperly. A spokesperson for BSG said: “This is the fifth and most clumsy attempt by the government of Guinea in an ongoing campaign to illegally seize BSGR’s assets.” Repeated reassessment of mining concessions has delayed a string of mining projects in the country and Vale could be persuaded to look elsewhere.
Vale’s involvement in Africa could also be affected by developments in the global economy. In particular, China is expected to join the United States and the European Union in reducing its demand for iron ore, which is used in the steel-making process. In last October, Vale chief financial officer Luciano Siani said that the global raw materials boom could be over and so “efforts to control costs are under way in a major way at all levels of the company.” He revealed that the company’s annual investment in new projects was likely to peak this year at $21bn and that some assets could be put up for sale, although it remains to be seen whether any of these will be in Africa.
Power company Centrais Elétricas Brasileiras SA (Eletrobras) is also turning its attentions towards Africa. As the tenth-largest power utility in the world and the biggest in South America, it has targeted the continent as the best place to expand its overseas operations. The firm’s chairman, José Carvalho Neto, has revealed that Eletrobras has set a goal of dedicating 10% of its investment budget to overseas projects. He told journalists in May: “We won’t achieve that target in 2013 but we are on the way to doing it in the next few years.”
The company generates about 85% of its electricity from hydro schemes and so it is in exploiting Africa’s vast untapped hydro potential that Eletrobras is expected to make most impact. The company’s chairman, José Carvalho Neto, commented: “We are studying a plant in Angola, which is a project that needs studies that take around two years and which may be concluded within five years.” Few details on the scheme have been released but press reports in Brazil suggest that the scheme would require investment of $700m. No details on the location of the project in question were released.
Eletrobras is also expected to take a 49% stake in the development of the 1.5 GW Mphanda Nkuwa hydro scheme in Mozambique, alongside majority shareholder Electricidade de Moçambique (EDM). The hydro project itself would cost $2.3bn, while two associated 1,500km transmission lines would require combined investment of $3.7bn. Some electricity from the project would be distributed inside Mozambique but probably the lion’s share would be sold in other markets within the Southern African Power Pool (SAPP). Partial finance could be provided by BNDES, which holds a 23% stake in Eletrobras. Environmental and economic feasibility studies on the venture are expected to be completed by the end of next year.
The Brazilian power company may also work alongside EDM, Electricité de France (EdF) and Eskom of South Africa in developing the $1.8bn Centre-South (Cesul) transmission project in the same country. Cesul has been designed to provide a 1,340km transmission backbone for the entire Mozambican power grid, in order to support national electrification. However, funding for the venture and the exact equity breakdown have yet to be determined.
First of many in Tanzania
Eletrobras could be one company to benefit from the development of the Mnyera Falls hydro scheme on the borders of Iringa, Njombe and Morogoro regions in Tanzania. Speaking at the end of September, the director general of the Rufiji Development Authority (RUBADA), Aloyce Masanja, revealed that the project would be fully funded by the Brazilian government, partly in the form of a grant. Total construction costs are estimated at more than $1bn. Raphael Mwalyosi, the chairman of RUBADA, commented: “The availability of electricity in the area will give a chance for private sector and the government to undertake mechanised agriculture and modern irrigation while ensuring food security in the country.”
A preliminary feasibility study has already been undertaken by Queiroz Galvao Construction of Brazil. It expected that the site would support a 485 MW hydro scheme, but the study concluded that more than 700 MW was possible. The Brazilian Ambassador to Tanzania, Fransisco Luz, added: “Energy is the base of a stronger economy. It is encouraging to see the Tanzanian government doing everything possible to make sure that the country is endowed with abundant power, which in the long run will transform a country into an industrial and investment hub.”
Masanja added: “We intend to sell the power to Ruvuma, Iringa, Njombe and to the national grid. When in full operation, we will consider selling the surplus electricity to East African countries and other neighbouring countries of Malawi, Zambia and Congo.”
Several Brazilian engineering and construction firms are now making inroads into numerous African markets. Last year, for example, the government of Cape Verde awarded a $220m contract to develop a new government administrative area in Praia to ARG. However, it is Odebrecht that has enjoyed the most success, particularly in Angola and Mozambique but also in South Africa, Zimbabwe and Botswana.
As mentioned previously, Odebrecht is the biggest private sector employer in Angola, with 20,000 employees, where it has been active for more than 25 years. Since the end of the country’s civil war in 2002, a construction boom has gradually gathered pace in Luanda and some of the country’s other main urban centres. Odebrecht has used its established position in the country and connections with officials to secure many of the contracts on offer.
The company has also moved beyond the construction and engineering sectors and is now working with the Angolan government to invest in sugar cane projects in order to produce ethanol, electricity and sugar itself, although the use of arable land for fuel production has been criticised by some development non-governmental organisations. The $400m Biocom sugar cane project is being developed by Odebrecht and Angolan state-owned companies Damer and Sonangol.
In July, Odebrecht completed a new road network in Huambo and Malange, including a 125km stretch to connect the provinces of Huambo and Benguela that provides inland areas with better connections with coastal ports. Other Angolan projects include residential housing, supermarkets, airports, business parks, offices and a range of other buildings, many of which have benefited from funding from the government of Brazil.
Since 2006, BNDES has provided $3.2bn in loans to 65 projects in Angola that have been developed by Brazilian companies. Of these, 32 projects are being undertaken by Odebrecht.
Odebrecht has benefited from mining sector schemes in Africa. It is developing mine infrastructure for Vale in Mozambique’s Tete Province and has also secured the contract to develop Nacala International Airport. In Angola, it has provided varied infrastructure for Angola Exploration Mining Resources’ iron ore project in Huila Province. Félix Martins, the contract director, said: “Improvements are planned in the region’s infrastructure, crude and potable water distribution, energy generation and distribution and construction of roads.”
The Brazilian firm is also working in another post-conflict setting in Liberia, where it has been awarded a contract to redevelop the 240km railway that runs inland from the port of Buchanan. Here too, it has opted to provide work to local people instead of drafting in its own labourers, partly in order to give local people a stake in the project. Project manager Pedro Paulo Tosca said: “It worked perfectly. The majority of the heavy work was activities that we could perform with local manpower instead of bringing sophisticated equipment to the site.”
He added: “Of course, you have a learning process. The risk of accidents is higher: therefore you have to invest more time in training. [But with machines], if you have a breakdown, to have a part here, to replace it, takes several weeks, if not months.”
Each section of track will continue to be maintained by the people who live alongside it. The firm is also keen to advertise the fact that it has trained local people to work in technical and engineering positions.