Identifier
Created
Classification
Origin
09LUANDA51
2009-01-27 07:51:00
CONFIDENTIAL
Embassy Luanda
Cable title:  

NEW CHINA CREDIT LINE UNDER CONSIDERATION

Tags:  PREL ETRD EFIN EAID CH AO 
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P 270751Z JAN 09
FM AMEMBASSY LUANDA
TO SECSTATE WASHDC PRIORITY 5295
INFO SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
AMEMBASSY BEIJING
C O N F I D E N T I A L LUANDA 000051 


E.O. 12958: DECL: 01/27/2014
TAGS: PREL ETRD EFIN EAID CH AO
SUBJECT: NEW CHINA CREDIT LINE UNDER CONSIDERATION

Classified By: Ambassador Dan Mozena for Reasons 1.4 (b) and (d).

C O N F I D E N T I A L LUANDA 000051


E.O. 12958: DECL: 01/27/2014
TAGS: PREL ETRD EFIN EAID CH AO
SUBJECT: NEW CHINA CREDIT LINE UNDER CONSIDERATION

Classified By: Ambassador Dan Mozena for Reasons 1.4 (b) and (d).


1. (C) Summary: During a January 23 call by Ambassador
Mozena, Chinese Ambassador Bolum Zhang said negotiations will
soon begin between China and Angola for a new loan package
valued in the USD "multiple single digit billions." Zhang
said the new agreement will not be backed by oil, but should
receive a sovereign guarantee from the GRA. Zhang distanced
himself from the "private" China International Fund, which
has weak management and poor leadership in Angola, despite
its close links to the Angolan presidency. Zhang expressed
considerable interest in working with the USG on a bilateral
development assistance project in Angola. End Summary.


2. (C) Background: In a wide ranging and open conversation
with Ambassador Mozena, Ambassador Zhang said President Dos
Santos's December visit to China opened new channels for
political dialogue to build mutual trust and understanding.
Zhang said China supports Angola's reconstruction efforts and
is providing technology, equipment, and communications
infrastructure through government-to-government oil-backed
loans, some grants, and company-to-country business deals.
In discussions with Chinese leaders, including Ambassador
Zhang, senior GRA officials have made clear that Angola
requires over USD 12 billion in additional loans to meet its
short term development goals. Zhang said a 2003 decision by
the GOC to cap the value of Chinese loans to Africa at USD 10
billion likely means China will be unable to meet the GRA
requests, as Chinese Ex-Im debt in Angola alone is USD 4.5
billion (2.5 billion expended, 2 billion still available).
Zhang said China's rights to Angolan oil (as a result of the
oil-backed loans extended to the GRA) represented less than
200 million barrels of oil in 2008, with most of the crude
coming from a Block 18 contract among the CIF, Sinopec, and
BP. Zhang said Sinopec ships Block 18 oil directly to China,
rather than trading it on the open market, though China pays
the prevailing market price.

--------------
Negotiations Toward a New Loan Package
--------------


3. (C) Zhang said Dos Santos discussed a new loan package for
Angola during his December 16-19 trip to China. Zhang said

that while negotiations have not yet begun, it was clear that
these loans would not be backed by Angola's oil reserves as
that would be "too humiliating" for the Angolans. Zhang said
that while the Chinese Ex-Im Bank is taking the lead on
negotiations with Angola on the loan package, the funds would
be made available through credit extended by private Chinese
banks, similar to a government-coordinated investment fund.
Zhang said the structure of the loans and the interest rate
would be the key points in negotiations. He added that he
hoped Angola would offer a sovereign guarantee to help make
the loans more appealing to investors. When asked the total
value of the proposed package, Zhang said it would be in the
USD "multiple single digit billions." Zhang said few details
would be released about the plan during the bilateral
negotiations, but the program would be completely transparent
when finished and announced to the press. Zhang said it is
likely that most of the funds will be used by Angola to
secure Chinese goods and services in support of GRA
reconstruction priorities, such as the new airport in Luanda,
new roads, and the rehabilitation of Angola's railroads and
port facilities.

--------------
Ex-Im versus CIF
--------------


4. (C) When asked to clarify the relationship between the USD
4.5 billion Ex-Im loan and Angola's relationship with the
China International Fund (CIF),Zhang was unable or unwilling
to go too far into specifics, especially concerning the value
of the relationship, which some independent press sources
place at near USD 10 billion since 2002. Zhang did say the
CIF made many promises to Angola, and that while the company
has a large presence in Angola, its weak management and lack
of leadership have stalled many of the projects. Zhang said
that as the CIF is a "private company," the Chinese embassy
does not actively participate or monitor its relationship
with Angola. He added that CIF continues to benefit from the
Hong Kong-based owner's "close relationship" with President
Dos Santos. Zhang said that while many of the bilateral
projects were begun by the CIF, currently many of the CIF's
subcontractors are dealing directly with the various
ministries of the GRA.

--------------
The Path Forward
--------------


5. (C) Zhang said the bilateral discussions during President
Dos Santos' China visit focused on Angola's plan for
reconstruction and economic development. Zhang said Angola
has many plans, but lacks the available capital to place them
in motion. Zhang mentioned projects such as the new Luanda
airport (which will cost USD 2 billion and take 3-4 years to
build),highway construction, railroad construction, the
refurbishing of the Lobito port and the construction of new
maritime facilities near Luanda and Soyo. He said those
projects alone could cost up to USD 8 billion, adding that
China will not be able to offer sufficient loans to meet
Angola's needs. He expressed concern that GRA leaders are
misreading the severity of the current global economic crisis
and its effect on China's ability to raise private funds for
projects in Angola.

-------------- --
Agriculture and Joint Cooperation with the U.S.
-------------- --


6. (C) Zhang said China is promoting a "model farm" program
in Africa to help developing countries learn agribusiness
skills so they can become self-sufficient in production and
add value to the export chain of agricultural products.
Despite China's broad relationship with the GRA, Angola is
only on the second tier of proposed country projects.
Ambassador Mozena raised the possibility of a joint
U.S.-China assistance project focused on agriculture or
health - symbolic of our shared goals toward a more peaceful,
prosperous, secure, and healthy Angola. Zhang was very
supportive of the initiative and said Chinese companies,
already under contract with Ex-Im, would be pleased to
support such a project. Both Ambassadors undertook to
develop proposals for further consideration.

--------------
Comment
--------------


7. (C) The conversation with Zhang was surprising in its rich
content and constructive, collaborative tone. While Zhang
was careful not to go into much detail concerning the
activities of the CIF, it is clear he wants to distance the
Embassy and the Government of China from what he appears to
consider a less than fully transparent and successful
relationship between the CIF and the GRA. He was positive
and pragmatic about the forthcoming negotiations toward a new
commercial line of credit for Angola. We look forward to
working with Zhang in the near future toward a joint
bilateral development project. It is important that Angolans
and other Africa watchers view how our two countries can
cooperate toward a shared vision of a better Angola. End
Comment.


MOZENA