AFRICAN DEVELOPMENT BANKPOWER SECTOR REFORM SUPPORT PROGRAM (PSRSP)COUNTRY: ANGOLA
Appraisal Report

ONEC / OSGE
April 2014

TABLE OF CONTENTS
CURRENCY EQUIVALENTS............................................................................................... iii
WEIGHTS AND MEASURES ............................................................................................... iii
ACRONYMS AND ABREVIATIONS..................................................................................... iv
LOAN INFORMATION...........................................................................................................v
PROGRAM EXECUTIVE SUMMARY ................................................................................. vi
RESULTS BASED LOGICAL FRAMEWORK .................................................................... vii
I. THE PROPOSAL .............................................................................................................................................. 1
II. COUNTRY AND PROGRAM CONTEXT..................................................................................................... 2

2.1 Government overall development strategy and medium-term reform priorities ..................2
2.2 Recent developments, perspectives, constraints and challenges ..........................................2
2.3 Energy Sector Review .......................................................................................................6
2.4 Bank Group Portfolio Status ..............................................................................................8
III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY ....................................................... 8

3.1 Link with the Country Strategy Paper (CSP), country readiness assessment, and analyticalworks underpinnings ...............................................................................................................8
3.2 Collaboration and coordination with other donors ............................................................ 11
3.3 Outcome of Past and On-going Similar Operations and Lessons ...................................... 11
3.4 Relationship to on-going Bank’s operations ..................................................................... 12
3.5 Bank’s Comparative Advantages and Added Value ......................................................... 12
3.6 Application of Good Practice Principles on Conditionality .............................................. 12
IV. THE PROPOSED PROGRAM .................................................................................................................... 13

4.1 Program’s Goal and Purpose: .......................................................................................... 13
4.2 Program Components, Operational Objectives and Expected Results ............................... 13
4.3 Financing Needs and Arrangements:................................................................................ 18
4.4 Beneficiaries of the Program............................................................................................ 18
4.5 Social and Gender Impact ................................................................................................ 19
4.6 Environmental Impacts .................................................................................................... 19
V. IMPLEMENTATION, MONITORING AND EVALUATION .................................................................... 20

5.1 Implementation Arrangements ......................................................................................... 20
5.2 Monitoring and Evaluation Arrangements: ...................................................................... 21
VI. LEGAL DOCUMENTATION AND AUTHORITY ................................................................................... 21

6.1 Legal documentation ....................................................................................................... 21
6.2 Conditions associated with Bank Group intervention ....................................................... 21
6.3 Compliance with Bank Group policies ............................................................................. 22VII. RISK MANAGEMENT .............................................................................................................................. 22
VIII. RECOMMENDATION ............................................................................................................................. 22iAppendixes
Appendix 1
Appendix 2
Appendix 3
Appendix 4
Appendix 5
Appendix 6
Appendix 7
Appendix 8

:
:
:
:
:
:
:
:

Letter of Development Policy
Assessment of PBO Eligibility Criteria
IMF Country Relations Note
Risk and Mitigation Measures
Operations Policy Matrix
Comparative Socio-economic Indictors
Rationale for Power Sector Reforms
Country Map

Table 1
Table 2
Table 3
Table 4::::

Table 5
Table 6::

Selected macroeconomic indicators, 2012-2016
Electricity Sector Transformation Plan (PSTE)
Linkage of the PSRSP with the NDP and CSP
Main Measures Taken since the Bank Engaged in Dialogue with theGovernment on the Program
Lessons learned from past and ongoing operations
Financing requirements and sources, 2014 and 2015::

National Development Priorities
Angola’s Sovereign Wealth Fund:

Real GDP Growth (%)

Tables

Boxes
Box 1
Box 2
Graph
Graph 1ii

CURRENCY EQUIVALENTS
As of March 2013
Angola Currency Unit = Angolan Kwanza (AON)
1 Unit of Account (UA)1 Unit of Account (UA)1 Unit of Account (UA)1 Unit of Account (UA)1 American Dollar (USD)

=
=
=
=
=

AON 151.0301
USD 1.54740
EUR 1.12025
GBP 0.927257
AON 105

Fiscal Year
January 1-December 31

WEIGHTS AND MEASURES
1 metric tonne
1 kilogramme (kg)
1 metre (m)1 millimetre (mm)
1 kilometre (km)1 hectare (ha)

=
=
=
=
=
=

2204 pounds (lbs)
2.200 pounds (lbs)
3.28 feet (ft)0.03937 inch (“)
0.62 mile
2.471 acresiii

ACRONYMS AND ABREVIATIONS
ADB
CSP
CPIA
GDP
EDEL
EIU
ENE
ESIA
ESMP

African Development BankCountry Strategy Paper
Country Policy and Institutional Assessment
Gross Domestic Product
Empresa de Distribuição de Electricidade
Economic Intelligence Unit
Empresa Nacional de Electricidade
Environment and Social Impact Assessment
Environmental and Social Management PlanGAMECK
GCI
GoA
GRB
IFMIS
IPP
IRSE
MINEA
MTFF
MINFAMU
NAPA
NDP
NESSP
PBO
PCR
PEMSR
PFM
PIP
PRSP
PSRSP
PTSE
QFO
SIGFE

Gabinete de Aproveitamento do Médio Kwanza
Global Competitiveness Index
Government of Angola
Gender Responsive Budget
Integrated Public Financial Management
Independent Power Producers
Instituto Regulador do Sector Electrico (Institute of Energy Sector Regulation)
Ministerio da Energia e Aguas (Ministry of Energy and Water)
Medium-term Fiscal Framework
Ministry of Family and Promotion of Women
National Action Plan for Climate Change Adaptation
National Development Plan
National Energy Security Strategy and Policy
Program Based Operation
Project Completion Report
Public Expenditure Management and Fiduciary Systems Review
Public Financial Management
Project Investment Program
Poverty Reduction Strategy Paper
Power Sector Reform Support Program
Electricity Sector Transformation Program
Quasi-fiscal operations
Treasury Single Account, Automated Financial Management System (Sistema
Integrado de Gestão Financeira do Estado)Sociedade Nacional de Combustíveis de Angola (National petroleum company)
Units of AccountUnited Nations Framework Convention on Climate Change

SonangolUA
UNFCCCiv

LOAN INFORMATIONCLIENT’S INFORMATION
Borrower
Executing Agency
FINANCING PLAN 2014-2016
SourceAfrican Development Bank (ADB)

Republic of Angola
Ministry of Finance; and Ministry ofEnergy and Water
Amount in USD
1,000.0 million

InstrumentLoan

ADB FINANCING INFORMATION: United States Dollars (USD)
Loan currency: Enhanced Variable Spread Loan
Type of Loan
: Base Rate (a) + Funding Cost Margin (b)+Lending Spread (c)a. Base Rate: Floating base rate based on 6-month LIBOR with a free
option to fix the base rate
b. Funding Cost Margin: the six months adjusted average of thedifference between: (i) the refinancing rate of the Bank as to theLending rateborrowings linked to 6 month LIBOR and allocated to all its floatinginterest loans denominated in USD and (ii) 6-month LIBOR ending on
30 June and on 31 December. The Funding Cost Margin shall be
determined twice per year on 1 January for the semester ending on 31
December and on 1 July for the semester ending on 30 June.
c. Lending Spread: 60 basis points (0.60%): A graduated commitment fee ranging from 25 to 75 basis points,
Commitment Fee applicable to amounts non-disbursed within the timeframe negotiated in
the loan disbursement calendar.
: up to 20 years including a 5-year grace period.
Maturity: Two tranche disbursement of USD 600m in 2014 and USD 400m in
Number of2015
Tranches
TIME FRAME - MILESTONES
Concept Note Approval

March 2014

Appraisal

March 2014

Board approvalFirst Tranche Disbursement

May 2014
July 2014

Second Tranche Disbursement
Project Completion

July 2015
December 2015v

PROGRAM EXECUTIVE SUMMARY
Paragraph
Program Overview

Program Outcomes

Program beneficiaries

Needs Assessment

Bank’s Added Value

Institutional
development andKnowledge building

Topics to cover
Program Name: Angola – Power Sector Reform Support Program (PSRSP)
Geographic Scope: Entire Nation
Overall Timeframe: 2014-2015
Expected Outputs: The key outputs of the program are: (a) power sector restructuring
completed; (b) improved power sector regulatory environment; (c) improved private
sector participation in the power sector; (d) improved budget credibility and transparency;and (e) improved efficiency and value for money in procurement.
The expected outcomes of the program are (a) improved operational efficiency,
competitiveness and sustainability of the electricity sector, and (b) strengthenedtransparency and efficiency of public financial management.
The direct beneficiaries are Angola’s key public institutions responsible for PFM, andministries responsible for the delivery of energy infrastructure development. The indirect
beneficiaries are the population of Angola in general, and private sector who will benefit
from better access to reliable and affordable electricity supply as well as transparency andefficient management of public finance and procurement practices. The operation will
have a positive social and gender impact. Reform in the energy sector is expected to
expand access to electricity at affordable costs for the local population, particularly for thevery poor who are concentrated in rural areas and make up 45.2% of the entire populationout of which 72% are living in poverty
The Government has shown strong commitment to reform and increase public investment
in transformational infrastructure development projects to support diversification andinclusive economic growth. The implementation of economic reform has registeredprogress in addressing the enormous challenges that arose from 27-year civil war. The
Energy and Water Sector Action Plan for 2013-17 estimates financing needs of
US$23billion to implement ambitious reform and investment in the power sector.
Government’s own resources will not be sufficient to meet the financing requirements. In
addition, the Government’s decision to approach the Bank for budget support also reflects
its clear desire to adopt more transparent and modern budget financing instruments and adeliberate objective to move away from bilateral Export Credit Lines which are expensive
and do not offer longer term financing.
The Bank has a continent-wide experience and engagement in Africa, covering
infrastructure development, institutional reforms at both the general and sector levels. The
proposed budget support program builds on the Bank’s experience in the power sector and
PFM reforms and its position as a trusted partner. This allows it to promote dialogue on
sensitive issues, and leveraging reforms in power sector governance and public finance,
which are essential for economic diversification and competitiveness, and thus promoting
inclusive and sustainable growth in Angola. The Bank has built a consistent track record
in infrastructure development including power in RMCs and is scaling up its support
through the new financing mechanisms such as Africa50. The Bank’s support will bringexpertise, knowledge and best practices to inform the government reform program, thus
creating credibility, consistency and coherence in the reform process. Angola’s
determination to engage with the Bank in a sustained policy dialogue as a “trusted andpreferred” partner, will send a powerful signal to the market and the international
community that Angola is committed to doing business differently. The PSRSP will create
the necessary platform for policy dialogue and advisory services.
The program will contribute to consolidating available knowledge on the power sector.
Building on the experience gained from other operations, the operation will becomplemented by the ongoing PFM project and funds earmarked for capacity building toenhance the added value of the sector budget support instrument. The Bank will capture
the knowledge from this program through careful monitoring and evaluation of program
expected outputs and outcomes, joint government and Bank review missions, and the
Project Completion Report (PCR).

vi

RESULTS BASED LOGICAL FRAMEWORKCountry and project name: Angola Power Sector Reform Support Program (PSRSP)
Purpose of the project: Promote inclusive and sustainable growth by accelerating electricity sector reform and strengthened
governance in public finance management1

IMPACTRESULTS CHAIN
Contribute toinclusive andsustained growth byaccelerating electricity
sector reform andstrengthened publicfinance management

PERFORMANCE INDICATORS
Indicator(including CSI)

Baseline

Target

4.1% (2013)

5.9% (2016)

Access to “on-grid” electricity
servicesless 30% (2013)

42% (2016) and 60% by
2025

Mo Ibrahim Index and CPIA
Cluster D

41 (2013) and 3.18
(2012)

50 (2016) and 3.5 (2016)

Global Gender Gap Index

87/135 (2011)62 (2016)90

108 by 2015 and 140 by
2016

less than20%

40% by 2016

0 (2013)

At least 6 contracts basedon renewable energy(2016)

Less 60%

75% by 2016

% of women in board (utilities a) 23% (2013)
and IRSE) & % of women inb) 23% (2013)
Senior Management positions>30% by 2016>30% by 2016

GDP growth

OUTCOMES

Outcome 1: Improved Electricity sector revenue
operational efficiency, collection (US$ millions)competitiveness, and% of Grid Customers
sustainability of themeteredelectricity sector
No. of IPP projects awarded in
the electricity sector based on
new regulations
Distribution System
Availability Index( (ASAI 2) in %OUTPUTS

Number of women who
received professional training

1500 in 2012

Additional 1,200 in 2015
1,200 in 2016

MEANS OFVERIFICATIONRISKS/MITIGATIONMEASURES

IMF & budget
reportMacroeconomic risks due
to volatility of thecommodity prices / oil price
Annual Progress shocks. Mitigation:
ReportCoordinated monitoring anddialogue around
Mo Ibrahimmacroeconomic
Index and CPIA management to manage
shocks, including IMF article
WEF Gender Gap IV consultations. Accelerate
Reportimplementation of on-going
structural reforms toPower sector
increase thereformcompetitiveness of domestic
monitoringproduction / diversification.
reportCombination of continued
investment in infrastructureand social services withprudent macroeconomic
policies (e.g., conservative
ENDE Reports assumptions regarding oil
price projections, sizeable
reserve levels, effective
Companies
annual report management of theSovereign Wealth Fund)MINFAMU
annual report

Fiduciary risk including
corruption. Mitigation: A
Outcome 2:
Increased execution rate of
50% (2013)
75% (2016)
PIP annual report fiduciary risk assessment
Strengthened
the PIPwas carried out and set outtransparency andVariance between
Budget execution mitigation measures to theefficiency of public
identified risks. The
expenditure outturns and< 10% (2016)
reports>25% (2013)
financemitigation measures include
original budget
ongoing reforms to thebudget process,Component 1: Restructuring the Power Sector & Improving Regulatory Environment
procurement, and the Public
Output 1.1 Power
Unbundling of existing power
Verticallya) Presidential Decree
Presidential
Investment Program, allsector restructured
utilities (into Generation,
integrated utilities establishing 3 utility
Decreesupported by the ongoingTransmission and Distribution
companies signed by 2014
Bank’s institutional support
companies)
project; and the proposed
Revised General Electricity
Draft law
Draft revised General
Letter from the operation throughLaw – Lei 14A/)96
Electricity Law submitted to
Minister ofComponent 3.
Cabinet “Casa Civil” by
Energy and
2014
Water
Implementation capacity
risk. Capacity constraints inEstablishment of a legal
None
Contractual Agreements
Agreements
Government could cause
framework defining the(PPA etc.) signed between
delays in thecontractual, commercial andthe three utility companies
implementation of reforms.
operational relationships
by 2015
between the power utilities

1

The operation aims at complementing and accelerating ongoing Government efforts to address public sector institutional
weaknesses and infrastructure inadequacies that are a major bottleneck to competitiveness and diversification of the economy.
2
Average Service Availability Indexvii

Output 1.2: Improved
sector regulatoryenvironment, andenhancedenvironmental andsocial safeguards

Introduction of new tariff
framework progressively
oriented towards cost
recovery and re-focusing
subsidies to the mostvulnerable Households

Outdated tariff
frameworka) Submission of a tariff
proposal to the Economic
Commission by 2014

Letter from
Minister ofFinanceb) Adoption of a new tariffadjustment by 2015

IRSE Reports

Reinforcing IRSE’s mandate
and independence as thesector power regulator

Draft Regulation

Amendment of the
Presidential Decree
establishing IRSE by 2015

Presidential
DecreeNo of staff (women and men)trained at various levels in thethree utilities and IRSE

None

30 Directors/Management
staff, 50 mid-level
Managers and 433
operations staff by 2015(>30% women)

Supervision and
Reform progress
reports

None

Renewable Energy White
Paper submitted to Cabinet“Casa Civil” by 2014 andapproved by 2015

Letter from the
Minister ofEnergy and
Water

None

Renewable Energy Resource
Mapping Published by 2014

Published RE
Resource Map

None exists

Adoption of RE Regulationand launch of RE Feed-In
Tariff by 2015

Published RE
Regulation and
IRSE reports

Mitigation: The operation
includes a complementary
capacity building component
with the aim tostrengthening capacity inareas supported by PBO.

Component 2: Fostering private sector investment in renewable energies
Output 2.1: Improved Submission of a Renewable
incentives andEnergy White Paper
business environment
for private sector
participation
Publication of Renewable
Energy Resource Mapping
Publication of Renewable
Energy Regulations and FeedIn Tariff

Component 3: Enhancing efficiency and transparency in public finance to achieve value for money in public investment
Output 3.1
Strengthened budget
credibility andtransparency andenhanced gender
responsivenessOutput 3.2
Improved efficiency
and value for money
in procurement

Publication of the 2014
“citizen” budgetNone2014 “citizen” budget
published and posted in the
MINFIN website by 2014

Publication of 2013 Oil
Revenue Reconciliation
ReportReports for 2011
and 2012

2013 Oil Revenue
Reconciliation Reportpublished and posted in the
MINFIN website by 2014

Submission of the 2012
General State Accounts to the
Court of Accounts, andParliament

2011 accounts
submitted

2012 General State
Accounts submitted to the
Court of Accounts, andParliament by 2015

Court of
Accounts
reports

Adoption of Medium Term
Reform Action Plan

PEMFSR diagnostic
planned for 2014

PFM Reform Action Plan
adopted by 2015

Action Plan

Evaluation of gender
responsive expenditures in
the financial reports

None

Evaluation report endorsed

Evaluation
ReportAdoption of Gender Policy tomainstream gender in line
ministries

None

Gender policy adopted by
2014, and Gender action
plan rolled out by 2015

MINFAMU
Progress
ReportApproval of Public
Procurement Action Plan

None

Public Procurement Action
Plan approved by the
MINFIN by 2014

Letter fromMINFIN

Establishment of Procurement None
PortalProcurement Portal online
by 2014

Procurement
PortalRevision of Procurement Law,
and adoption of procurement
regulation and standard
bidding documents (SBD)a) A revised procurement bill
adopted by 2015b) Regulation adopted by2015b) SBD adopted by 2015

Legal texts

Law enacted in
2010
Draft regulation
2013

MINFIN
websiteComponents
Major activities under each component: Power sector regulatory framework review, drafting new legal frameworks, implementation of power sector
reform action plan, change management, capacity building support, and public finance reform action plan implementation. Monitoring and supervision
missions. Financing from AfDB (US$ 1,000 million). US$ 6 million will be earmarked for the Capacity building Program for the power sector and key
Ministries involved in power sector development including the MINEA and MINFAMU

viii

REPORT AND RECOMMENDATIONS OF THE MANAGEMENT OF THE ADBGROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO ANGOLA
FOR THE POWER SECTOR REFORM SUPPORT PROGRAM

I. THE PROPOSAL
1.1
Management submits the following Report and Recommendation for a loan of
USD 1,000 million to the Republic of Angola to finance the Power Sector Reform
Support Program (PSRSP) over two years (2014 – 2015). This is a two-tranche sector
budget support operation and responds to a request from the Government of Angola (GoA) in
November 2013. The program is aligned with Angola’s National Development Plan (20132017), and the National Energy Security Strategy and Policy (NESSP) of September 2011.
The operation supports the GoA’s policy priorities and reform program, as set out in the
Letter of Development Policy (Appendix 1). Program implementation will be further
strengthened through the provision of complementary technical assistance and capacity
building support.
1.2
Angola’s transition to the Bank’s middle-income country (MIC) borrowing
status and from ADF recipient to a contributor to the ADF-13 and a potential
contributor to Africa50 fund reflects the GoA’s strong economic performance as well as
commitment to consolidate relationships with key strategic partners, in particular the
Banks. Angola has come a long way since the end of a 27-year civil war (1975-2002). The
Government has been implementing governance and structural reforms primarily aimed atmaintaining peace and stability, enhancing fiscal consolidation, and achieving macroeconomic stabilization.. Once an agricultural based economy, the country is now the second
leading oil-producer in Africa with a per capita GDP estimated at USD 5,706 in 2012, up
from less than USD 1,000 in 2001. Angola has remained politically stable, with peacefulmulti-party elections organized in 2008 and 2012, and achieved high levels of economic
growth (over 10% on average since 2002). However, living standards remain low for mostAngolans and infant mortality rate is among the worst in the world. Like in many resourcerich countries, income inequality represents a major challenge.
1.3
Angola has made significant progress in rebuilding its economy and physicalinfrastructure which was severely damaged by the 27 years of civil war. The GoA has
been making substantial investments to restore and reconstruct the social and economic
infrastructure that was destroyed during the civil war. But increased investments ininfrastructure have not necessarily translated into inclusive growth. For example, only 30% of
Angola’s population benefits from access to power, lower than the 46% average for thenation’s resource-rich African peers. Going forward, the operation seeks to support ongoingreforms aimed at addressing the power sector’s structural weaknesses and increasing thelevel, efficiency and effectiveness of the sector’s spending to support diversification andcompetitiveness of the economy.
1.4
This Program is the outcome of close and sustained dialogue between the Bank and
the Angolan Authorities. In this dialogue, the Government showed its strong determination toaccelerate and deepen ongoing reforms aimed at restructuring the power sector, andstrengthening the PFM systems. To do so, it requires the support of its partners, with the
Bank taking the lead. To this end, the Bank is working in synergy with the other partners
active in Angola. The Bank’s main value addition lies in the fact that, as a trusted partner itwill bring the needed expertise and technical knowledge required for the successful
implementation of the Government’s investment program and play a catalytic role in creatinga platform for policy dialogue between development partners and GoA.
1.5
The operation is fully aligned with the objective of the Bank Group Ten Year
Strategy (2013-2022), and Country Strategy Paper for Angola (2011-2015). Further, it is1

consistent with the Bank Group’s Energy Sector Policy, as well as the Governance Strategic
Framework and Action Plan (GAP II, Draft 2014-2018). It is also in line with the PBO
Policy.
1.6
The overarching objective of the operation is focused on promoting inclusive
growth by strengthening power sector reform, and greater transparency and efficiency
in public finance. The program is built around three areas of engagement in which the GoA
intends to accelerate reform implementation: (i) restructuring the power sector, (ii) fostering
private sector participation in the power sector, and (iii) enhancing transparency andefficiency in public financial management, to achieve value for money in public investment.
The common theme across each of these areas is to increase efficiency and effectiveness of
public spending in the power sector, which accounts for a considerable share of the national
government’s public investment program (US$ 4.6 billion per year), to boost its contribution
to inclusive economic growth. To this end, the operation is designed to support GoA’s efforts
to enhance power sector governance and PFM system. The expected program outcomes are:(a) improved operational efficiency, competitiveness and sustainability of the power sector,and (b) strengthened transparency and efficiency of PFM. Ultimately, the operation is
expected to contribute to enhancing the foundation for resilient and inclusive growth throughbroader access to reliable electricity supply. Improvement of the performance of the power
sector is key to the GoA’s efforts to (a) diversify the economy and improve economic
competitiveness for job creation; and (b) scale up the provision, and access to public services(e.g. health, education) thereby raising the living standards of ordinary Angolans.

II. COUNTRY AND PROGRAM CONTEXT
2.1 Government overall development strategy and medium-term reform priorities
2.1.1 Angola’s long-term development strategy is Box 1: National Development Priorities
outlined in the Vision 2025 and National Development  Macroeconomic stability;
Plan (NDP, 2013-2017). Building on the country’s  Modernization of public administrationconsiderable resources, the Vision 2025 set out Angola’s
and public finance management;
aspiration for equitable and inclusive development. NDP is  Entrepreneurship and private sector
development;
anchored on key policy priorities (Box 1) and provides
Accelerated infrastructure development
strategic direction to implement an ambitious program of(energy, water, roads, and railway);reforms aimed at improving the well-being of all Angolans,  Job
creation
andeconomic, expanding youth employment, diversifying the economy
diversification;and reducing extreme poverty. It includes far reaching  Human development (education,science and technology, health, gender,reforms in key sectors of the economy, such as the power
rural development and housing); andsector. Underpinning the NDP is a public expenditure
Better natural resources management
management reform program that aims to increase the level(agriculture, fisheries, oil, and mining).
of efficiency and effectiveness of public investment. The
Source: National Development Plan, 2013-2017
proposed operation seeks to support GoA’s policy agenda topromote sustained and inclusive growth, through power sector and public financemanagement (PFM) reforms.
2.2 Recent developments, perspectives, constraints and challenges
A.

Political Context

2.2.1 Angola’s political environment is stable.. In 2002, the country ended a 27-year civil
war that began soon after independence from Portugal in 1975. The war was fought mainly
between the groups that had successfully fought for independence: the Popular Movement for
the Liberation of Angola (Movimento Popular de Libertação de Angola, MPLA) and the
National Union for the Liberation of Angola (União Nacional para a Independência Total deAngola, UNITA). The MPLA, obtained parliamentary majorities in the national elections
held in 1992, 2008 and 2012. The new Constitution adopted in February 2010 established a2presidential parliamentary system, allowing the leader of the party winning the most seats in
Parliament to become President. The Constitution sets a limit of two five-year presidential
terms effective from the 2012 election. Parliamentary elections, held under the newConstitution in August 2012, gave MPLA an absolute majority in parliament (175 out of 220
seats), while UNITA obtained 32 seats, with the remaining 13 seats divided among threeother parties. The long-delayed first municipal elections and a new legislative election are
expected in 2015 and 2016, respectively.
B.

Economic Context

2.2.2 Angola is the second largest crude-oil producer in sub-Saharan Africa after
Nigeria. Angola’s economy is highly dependent on oil, which accounts for 47% of GDP,over 95% of exports and nearly 80% of government revenues. The government predominatesin the oil sector through the state-owned oil company Sonangol, which is responsible for all
oil-related operations in the country. Sonangol works together with foreign investors in
exploration and production through joint-ventures and production-sharing agreements. Given
its significant contribution to the budget and foreign exchange reserves, the performance ofthe oil sector and management of oil resources have been central to Angola’s changing
economic fortunes over the years.
2.2.3 Angola has maintained robust economic growth rate that places it among thefastest growing economies in Africa. Economic reform measures over the years was geared
to support macroeconomic stability in the
country, during which growth averaged 10%,Graph 1: Real GDP Growth (%)
mainly driven by the oil sector (Graph 1).
25
Despite the economic slowdown since 2008,20
real GDP growth rose to 5.2 % in 2012.. In
15
2013, GDP growth is estimated to havedecelerated to 4.1 %. Growth in the non-oil
10sector was constrained by the agricultural
5
sector’s slow recovery, due to a drought that0affected large parts of the country in 2012.
2004 2005 2006 2007 2008 2009 2010 2011 2012
Inflation, after reaching single digits for the first
AngolaSouthern Africa
Africatime in decades at end-2012, further declined to
7.7% by end-2013, below the authorities’ 9%
Source: AfDB Statistics Department, African Economic Outlook, March 2013
target. Gross international reserves were US$
33.2 billion at the end-of December 2013, equivalent to 6.9 months of projected 2014
imports.3
2.2.4 In 2013, the government budget went into deficit for the first time since 2009.
According to the IMF, the fiscal surplus of 5.1% of GDP in 2012, is estimated to have turned
into a deficit of 1.5% in 2013, due to GoA’s ambitious infrastructure investment program. Oilrevenues in 2013 fell to about 29.6% of GDP (compared to 37.3% of GDP in 2012), as aresult of lower prices and declining export volumes. Non-oil tax revenue remained at 7.0% of
GDP in 2013 (below the 9.2% budgeted) due to delays in adopting tax reform legislation.
Current spending is estimated to have remained at its 2012 level (29% of GDP), while capital
expenditure is estimated to have fallen to 10.6% of GDP, compared to a budgeted expansionof 13.8% of GDP.
2.2.5 The pace of economic activity in 2014 is expected to increasegradually as public
investment in infrastructure creates opportunities for non-oil sector growth. The 2014
budget envisages a further increase in the overall fiscal deficit to 4.8% of GDP (compared toa deficit of 1.5% of GDP expected in 2013) to finance a sizeable expansion in public
3

IMF Second Post-Program Monitoring, March 20143

investment needed to address infrastructure bottlenecks. Non-oil sector growth is expected toreach 6.4%, underpinned by expanded investment in infrastructure. The 2014 budget
continues the precedent set in 2013 of using conservative oil price projections (price of US$
98 per barrel), implying a more realistic budget. Capital spending as a share of total spending
is projected to increase to 32%, up from 29% in 2012.
2.2.6 The government policy agenda focuses on rebuilding and diversifying the
economy. Key policy priorities aim to accelerate reforms associated with the oil sector andinfrastructure development with a view to diversifying the economy away from hydrocarbons
and reducing the country’s large income disparity. Thus far, the government has madesignificant progress in promoting macroeconomic stability and achieving high and sustained
growth rates. Angola now has an improved fiscal position, exchange-rate stability, low levelof debt, relatively low inflation and healthy reserves. However, a number of structural
deficiencies remain. To address these deficiencies, plans are underway to improve thecountry’s infrastructure ,deepen public sector reform, strengthen PFM, and promote ruraland industrial development, as well as job creation.
2.2.7 Angola’s public debt has been declining in the past few years as a result of fiscal
consolidation. Public debt has reduced from over 49 percent of GDP in 2009 to an estimated
26.6 percent in 2013. External debt still accounts for the largest share of total public debt
(17.3% of GDP), with domestic debt at 9.3% of GDP. The current level of public debt, whichis quite low compared to other emerging countries, shows that Angola can absorb additionalloans without jeopardizing debt sustainability. The composition of external debt also suggests
fairly limited risks for debt Table 1: Selected Macroeconomic Indicators, 2012-2016
sustainability. Going forward, the2012 2013 2014 2015 2016
debt outlook is expected to
Indicators
Act. Est. Proj. Proj. Proj.
remain sustainable, in spite of theReal GDP (%)
5.2
4.1
5.3 5.5 5.9Government’s capital expenditure
Consumer Price Index - end of period (%)
97.7
8
7.5 7.3
program.
Overall fiscal balance, budget basis (% of GDP)
Total Revenue (% of GDP)
Total expenditure (% of GDP)
Current Account balance (% of GDP)

5.1
45.9
40.8
9.2

-1.5
38.1
39.6
5

-2 -2.6 -2.1
39.3 37.2 35.8
41.3 39.8 37.8
2.2 -0.4 -2.7

2.2.8 Medium-term Economic
Outlook:Angola’s
growth7.5
7
6.9 6.8 6.8
prospects over the medium Gross official reserves (months of import cover)
19.3 17.3 18.7 19.9 21
term remain positive (Table 1), External public debt(% of GDP)
Sources:Angolanauthorities
andIMFstaffestimatesand projections; March 2014
although its strength will dependon structural reforms aiming to loosen constraints to investment. According to the IMF,
average GDP growth is projected at 5.4% in 2014-2016. Inflation is expected to remain at
single digits, supported by a stable exchange rate and prudent monetary policy. The externalcurrent account is projected to deteriorate due to a rapid increase in imports linked togovernment-led capital investment and declining export revenue as oil prices weaken over the
medium term. The current account surplus in % of GDP would contract from an estimated
5.0% in 2013 to 2.2% in 2014, becoming a deficit of 2.7% in 2016. Gross international
reserves are expected to cover 6.8 months of imports in the medium term. . Despite its
favourable outlook, Angola’s reliance on oil revenues and consumer-goods imports leaves the
economy highly vulnerable to external shocks, emphasizing the need for structural reforms topromote economic diversification.
C.

Social Context

2.2.9 The poverty headcount in Angola has decreased but inequality still remains high,with a Gini coefficient of 0.55. The country has made reasonable progress in the areas ofpoverty reduction, health, primary education, and gender equality, but still ranks low in the
Human Development Index (HDI) at 148th out of 187 countries in 2012. Despite progress4

made to reduce poverty from 68% in 2001 to 37% in 2009, unemployment remains high at
25%4, in particular among the youth. Infant mortality was 84 deaths per 1,000 live births in2012 which places Angola among the 10 countries with the highest infant mortality rates outof 221 countries.5 In the same year, life expectancy increased to 51.5 years (52.98 for womenand 50.02 for men), demonstrating a gradual improvement in the past decade. 6 The World
Economic Forum ranked Angola 87 th /135 countries in its 2011 Global Gender Gap Reportcompared to 106 out of 134 countries in 2009. Participation of women in political andbusiness activities has increased in recent years and today, Angola has one of the highest
shares of women MPs (36.4% in 20137) in the region; nonetheless, the country’s poor are
predominantly women, especially in the rural areas. In order to further enhance genderequality, GoA approved a National Gender Equality Policy (Politica Nacional para Igualdade
e Equidade de Genero) in 2013. GoA is also committed to increasing public investment in thesocial sector, to accelerate progress towards achieving the MDGs. In this regard, the 20102015 National Poverty Eradication Strategy (Estratégia de Combate à Pobreza), sets out thepriorities and action plans for attaining the MDGs. GoA has also established an institutionalframework for entrepreneurship development and employment creation. GoA is now
developing a Social Assistance Strategy to create a system to support the extremely poor andvulnerable populations.8
D.

Governance context

2.2.10 The government has embarked on important reforms to improve governanceand accountability but corruption remains a challenge. Following Angola’s civil conflictthat damaged the institutions of governance and accountability, the country has experienced
modest improvements in its governance indicators: the Mo Ibrahim Index of African
Governance improved from 35 to 41/ 100 points from 2006 to 2013; the Bank’s CPIA scorefrom 3.33 in 2010 to 3.96 in 2012 (Cluster A-C), and Cluster D from 2.8 to 3.18 in 2012; theTransparency International CPI from 168th in 2011 to 153/178 countries surveyed in 2012;
and the World Bank’s Worldwide Governance Indicators in four out of six dimensions ofgovernance improved between 2000 and 2012, especially in political stability, and voice andaccountability. Nonetheless, the business institutions and infrastructure remain weak: Angolaranks 179/185 economies in the 2014 Doing Business Report; and 127th/130 countries(23rd/24 countries in the region) in the Intellectual property Rights 2012 Index; and 142/ 148
economies in the 2013-2014 Global Competitiveness Index (GCI), highlighting corruption,inefficient government bureaucracy, and an inadequate supply of infrastructure as the main
challenges for doing business in the country. Measures are being taken to reduce
opportunities for corruption, including the adoption of (a) a law strengthening the AML/CFT
framework, in particular criminalizing money laundering and terrorist financing; and (b) the
Public Probity Law (Lei de Probidade Pública) in March 2010, requiring all government
officials to make a declaration of wealth and income in the country and abroad, andintroducing criminal sanctions.
2.2.11 GoA has been pursuing reforms to enhance governance and transparency in the
management of oil revenue. First, GoA’s commitment to phase-out quasi-fiscal operationsof Sonangol and to incorporate them into the fiscal account has been strong, and as of March
2014, those off-budget operations have been discontinued. Second, the GoA has madesubstantial progress on the reconciliation of oil revenue transfers from Sonangol to Treasury,
to further promote budget transparency and predictability. This is essential for a proper4

http://www.tradingeconomics.com/angola/unemployment-rate
http://www.indexmundi.com/g/r.aspx?c=ao&v=29
6
http://countryeconomy.com/demography/life-expectancy/angola
7
MINFEMU Relatorio do Balanco de Execução do Plano Nacional – 2013
8
Ibid.
5

5

assessment of the fiscal policy stance and accuracy of oil revenue transfers. Third, thecreation of the Sovereign Wealth Fund (SWF) in 2012, aimed at social and economic
development, could serve as a pillar of macroeconomic stability by insulating the annual
budget from volatile oil-revenue inflows.
Box 2: Angola’s Sovereign Wealth Fund
In August 2012, the Government of Angola launched its Sovereign Wealth Fund, known as the Fundo Soberanode Angola (FSDEA). The mandate of the FSDEA is to “secure long-term sustainable financial returns topositively impact the lives of Angolans today and in the future.” To do so, the FSDEA will invest in: (i)domestic investment projects that contribute to growth and economic diversification over the medium term; and(ii) financial assets abroad to save for future generations. FSDEA was established with an initial endowment of
US$5 billion that had been held in the Oil for Infrastructure Fund, subsequently topped up by revenues from thesale of 100,000 barrels of oil per day, about US$3.5 billion per year at current prices.

2.2.12 GoA has started to improve PFM but more international best practices need tobe adopted. The Bank’s Fiduciary Risk Assessment (FRA) concluded that the overall risk
level of PFM (financial management and procurement) is high, and the residual risk is
substantial, in spite of the ongoing and planned reform initiatives and mitigation measures in
the program. Additional fiduciary safeguards will be implemented under the program tostrengthen PFM. To this end, measures have been proposed in the program to mitigate theserisks including: the Government will submit quarterly Budget execution reports to the Bank
during the program implementation period; the operations will be audited (covering the funds
flow and the use of funds) by the Court of Auditors (Tribunal de Contas) or private audit
firm; a consolidated annual state accounts for 2014 and 2015 will be submitted to the
National Assembly and Court of Auditors for audit; implementation of procurement
improvement action plan; building procurement capacity; review and adoption of new
procurement law and regulations; technical assistance to carry out a Public ExpenditureManagement and Fiduciary Systems Review (PEMFSR) and preparation of PFM reform
action plan drawing on the findings and recommendations of the PEMFSR. Monitoring andquarterly reports of the flow of funds will reinforce the control of the fiduciary risk. A
detailed FRA and mitigation measures are also presented in Technical Annex 8. By focusing
on PFM reform, the operation aims to support GoA’s efforts to address existing weakness inthis area. The program will be monitored through enhanced supervisions, regular follow-up
by the Bank’s Field Office (AOFO) and in consultation with all the other partners.
2.3 Energy Sector Review
2.3.1 Infrastructure and Development: The civil war had virtually destroyed Angola’s
infrastructure. However in just the past decade, strong government commitment propelled
infrastructure development, buoyed by strong revenue streams from mineral exports and apeaceful environment that has attracted significant private sector investments. For example,
by 2013, over 2,000 km of roads and 1,333 km of railway had been constructed or
rehabilitated and the installed power generation rose from 830MW in 2002 to over 1,700
MW in 2013.
2.3.2 Key participants in the Power Sector in Angola: The Ministry of Energy and Water(MINEA) is responsible for the energy sector policy development, coordination andoversight. The main power utility company in Angola is the Empresa Nacional deElectricidade (ENE) which manages the transmission network and operates over 80% of
power generation facilities and distribution system outside of Luanda. In the capital, power
distribution is managed by the Empresa de Distribuição de Electricidade (EDEL). To
facilitate design and development of large hydropower projects in the Kwanza river basin,
MINEA established a Gabinete de Aproveitamento do Médio Kwanza (GAMEK) thatcurrently owns hydropower plants totaling 520 MW and is implementing the 2,000MW
Laúca Hydropower Project. The sector has a national regulatory agency, Instituto Regulador
6do Sector Eléctrico (IRSE) established in 2002. Sonangol is constructing a total of 900MWof combined cycle thermal power plant.
2.3.3 Regional Grid Integration: The GoA in collaboration with Government of Namibia
is undertaking feasibility studies for the 600MW Baynes power project and a transmission
line linking Angola power grid to Namibia, and by extension to the Southern Africa Power
Pool. However, the current General Electricity Law does not provide for cross-border power
exchange or transit power. The proposed revisions to the General Electricity Law provides
clear definition of international transmission interconnectors, import, export and transit
power, making it possible for Angola to implement regional grid interconnection projects andbenefit from regional power trade while providing electricity wheeling services toneighbouring countries. Power Pool membership has many inherent advantages such as,
sharing surplus cheap energy across borders, moderating the effect of climate change as
countries are impacted differently by seasonal variations, and most importantly enhancing
stability and security of electricity services. The policy advice under the PSRSP will include
support for Regional Power Planning in line with the Bank’s Regional Integration Strategy.
2.3.4 Institutional setup and status of the power sector: ENE, EDEL and GAMEK forma vertically integrated market structure, albeit with significant overlaps in their objectives andno contractual and commercial agreements (Technical Annex 4). The electricity
infrastructure is characterized by: (i) inadequate generation capacity; (ii) very low levels ofelectricity access, averaging 30% nationwide and less than 9% in rural areas, posing major
constraints to the delivery of social services; (iii) limited revenue collection, as over 80% of
the consumers are not metered; (iv) technical and commercial losses that account for over
55% of the electricity energy supplied; and (v) a high cost of electricity production anddistribution (approximately US$ 220/MWh), well above the average consumer tariff (US$38/MWh). The sector lacks a clear regulatory framework, capacity and skill to manage its
operations effectively.
2.3.5 Power Sector Development Plan and Rationale for Reforms: GoA needs tourgently mobilize vast resources to address perennial power shortages, expand and modernize
its electricity infrastructure, improve customer connection and metering, and reduce technicaland commercial system losses. However, with ENE, EDEL and GAMEK operating as pseudovertically integrated companies without any contractual obligations prevents effective sector
re-capitalization and motivation for these companies to run efficiently and profitably. The
Government’s National Power Security Strategy and Policy (NESSP, 2011) was the first stepin establishing and prioritizing the needed actions. The key priority actions recommended by
the NESSP include: (a) restructure the sector and allow public-private partnerships (PPP) to
become a viable business model, (b) promote contractual relationship among sector
participants, (c) accelerate implementation of investment programs, and (d) promoteempowerment of the IRSE. The NESSP also recommends the development of policies thatallow the use of endogenous energy resources, ensuring the convergence between theprinciples addressing energy security, efficient technologies, efficient management andpromotion of environmentally sustainable power development 9.
2.3.6 To convert the strategy document into implementable actions, the GoA adopted theElectricity Sector Transformation Program (PTSE), with key deliverables being thesector diagnostic study; submission of the optimum electricity market model; and a sector
reform roadmap. The PTSE feasibility study recommended restructuring the market into aclassic single-buyer model, unbundling the power utility into Generation, Transmission andDistribution core activities, establishing commercial contracts between the market
9

Currently the installed grid generation is less than 33% hydro and the remainder comprising diesel power. The
government objective is to rapidly eliminate the use of diesel based generation by 2025.

7

participants, and amending laws to improve regulations and attract PPP. The study further
proposed four (4) reform phases, each with specific deliverables (Appendix T7): (i)Preparation Phase (2010-2013), for the design of a new market structure; (ii) Phase I (20142017), the stabilization phase following sector restructuring and unbundling of power utility;(iii) Phase II (2018-2021), the transition to efficient operation with limited use of IPPs,
mainly in RE using RE Feed-In tariffs; and (iv) Phase III (2021-2025), the partial
liberalization of the power market, introducing PPP and IPPs and limited concessions for the
distribution system. The transmission system, a natural monopoly, will remain a public sector
entity. To improve rural access to electricity services and efficiency, the distribution system
will be further unbundled into 5 geographic regions, with a total of 18 business units.
2.3.7 The NESSP is aligned with the infrastructure development pillar of the National
Development Plan 2013-2017.Together with the PTSE program, the NESSP underpins the
US$ 23 billion investment program under the Energy and Water Action Plan 2013-17 ofwhich the government has already mobilized from its own resources USD 5.3 billion for
ongoing power infrastructure expansion, rehabilitation and modernisation (Appendix 7 andTechnical Annex 4). The Plan aims to double electricity access from currently 30% to 60%
by 2025, with a focus on the rural areas, and extensive exploitation of cleaner energy
resources..
2.4 Bank Group Portfolio Status
2.4.1 The overall performance of the Bank Group portfolio in Angola is satisfactory(Technical Annex 1). As of 31st March 2014, the portfolio consists of 8 operations (7 nationaland one multinational project), totalling UA 74.920 million. The sector portfolio distribution
comprises Agriculture (50%); Environment (16%); Multi-Sector (8%), Water and Sanitation(16%), Social (6%) and Transport (4%). The implementation progress rating is 2.18, anddevelopment objective rating 2.8, on a scale of 0 to 3. The percentage of Projects-at-Risk(PAR) is 10%, that is, under the Bank’s current threshold of 18.99% but the Commitmentsat-Risk is high at 50%. Thus, there is a need for greater monitoring, and the Angola Field
Office has put in place plans to strengthen implementation capacity in government, enhancecountry dialogue, and improve portfolio follow-up and performance. The proposed program
will complement ongoing projects through providing more fiscal space, enhancing reform
implementation and efficiency in sector spending.

III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY
3.1 Link with the Country Strategy Paper (CSP), country readiness assessment,
and analytical works underpinnings
3.1.1 The proposed operation is aligned with the Bank’s CSP 2011-2015, which is
focused on two pillars: Stimulus to the competitiveness of the economy and Support toeconomic infrastructure development. The midterm review of the CSP envisages new
financing instruments, including PBOs, to (a) strengthen ggovernance and PFM and (b)promote private sector and infrastructure development. The PSRSP is linked to the CSP’s
focus on energy infrastructure development, private sector development, and sound PFM(Table 3). By focusing on energy sector reform and public finance management, the proposed
program is consistent with the Bank Group’s Ten-Year Strategy in its support for
infrastructure development, promotion of private sector participation, governance andaccountability and skills development.. The operation is also aligned with the Bank’s Energy
Sector Policy in supporting Angola’s efforts to scale-up access to modern, affordable,
reliable, socially and environmentally sustainable energy services. In addition, it is well8

aligned with the Banks’s Governance Strategic Framework and Action Plan10 by helping toaddress shortcomings in PFM. The program is also anchored in the country’s National
Development Plan (NDP, 2013-2017) and National Energy Security Strategy and Policy(NESSP, 2011).
Table 3: Linkage of the PSRSP with the NDP and CSP
National Development Plan
CSP
Strategic Objective: Aims at
Strategic Objective: Support Angola’s
improving the quality of life ofdevelopment plan with emphasis toAngolans, reducing poverty,
economic diversification, fostering
expanding employment opportunities
entrepreneurship and private sector
and diversifying the economy.
development, and sound PFM systemessential for inclusive economic growth
Priorities
Pillars/priorities(i) Macroeconomic stability(i) Stimulus to the competitiveness of(ii) Public administration and public
the economy through capacity
finance managementbuilding, climate change andenvironment management, public(iii) Private sector development;
expenditure and financial(iv) Infrastructure development (e.g.
management reviews, policy
energy);dialogue and diagnostic work.
(v) Job creation and economic (ii) Support to economic infrastructuredevelopment including power
diversification;(vi) Human development

PSRSP
Operational objective:
Promote inclusive andsustainable growth throughenergy sector reform andstrengthened public financemanagement
Program components(i) Restructuring the power
sector & Improving
Regulatory Environment(ii) Fostering private sector
investment(iii) Enhancing efficiency
and transparency inpublic finance to achieve
value for money inpublic investment(vii) Natural resources management(fisheries, oil, and mining).

3.1.2 The proposed operation meets the Bank’s eligibility criteria for PBOs (Appendix2). The country enjoys overall political and macro-economic stability (see Section 2.2.1);
GoA’s commitment to reform in the two main areas supported by this operation (i.e., power
sector and PFM) is strong and grounded in the GoA’s Vision 2025 and National
Development Plan, which prioritize inclusive growth and poverty reduction. The proposed
operation has been prepared in consultation and coordination with other development
partners (DPs) active in the power sector; and a Fiduciary Risk Assessment (FRA) carried out
for this operation has identified a positive trend, manifested in several ongoing or planned
reform initiatives, as well as specific mitigation measures for certain persisting risks.
3.1.3 Program Rationale: Since 2008, the Government has been implementing major
structural reforms supported under the IMF stand-by arrangement. These reforms haveresulted in significant progress as confirmed by the IMF post program monitoring reports.
Despite progress, Angola still continues to face challenges and constraints, mainly (a)inadequate supply of infrastructure, especially power, (b) inefficient government bureaucracy
and a challenging business environment, and (c) weak institutional capacity and governance.
The power infrastructure in Angola is underdeveloped, access to electricity is low andunequal, and supply is often unreliable due to insufficient investment in maintenance andrefurbishment. In addition, the state-owned companies perform poorly due to weak
governance and lack of competition. So far, the Government has demonstrated its strong
commitment to implement the reforms. For this reason, it requires the support and assistanceof its principal partners, with the Bank at the forefront. The PSRSP is set in this context, andaims to support Government efforts to address the country’s development challenges relating
to the energy sector through complementary structural, regulatory and governance reforms to
improve efficiency, transparency and competition in the sector.
10

Governance Strategic Framework and Action Plan II for 2014-2018 sets the priorities into (a) public sector
and economic management, (b) sector governance with emphasis to infrastructure and natural resource
management, and (c) investment and business climate.

9

3.1.4 The successful implementation of the bold power sector reforms needs to beunderpinned by a strong governance framework that facilitates efficient utilization of
public resources. Meanwhile, reforms supported by the IMF stand-by arrangement havestarted to bear fruits and significant progress has been confirmed by the IMF post-program
monitoring reports. Notably, macroeconomic stabilization has been achieved and Angola is
now on a path of rapid economic growth with single digit inflation, a strong international
reserves position, and a stable exchange rate (see Table 1). To sustain this progress, reforms
need to be intensified especially to address weaknesses in PFM systems and to improve thebusiness enabling environment. These reforms are necessary to improve the quality of public
expenditures and attract the needed foreign investment for infrastructure development(including in the power sector), so as to enhance fiscal sustainability and close the fiscal gap.
Government is committed to pursuing reforms which it has already started implementing andneeds the expertise, knowledge base and best practices of the Bank to support this process. It
is on this basis that the GoA has approached the Bank for support as a “trusted and preferred”
partner. This will enhance the credibility of the GOA’s reform agenda and provide the bases
for implementation monitoring.
3.1.5
Further the Bank’s intervention is justified for the following reasons. (a) the reformof the power sector has taken into account national circumstances, international experienceand good practices tailored to national conditions; (b) the power sector’s ability to meetdemand for electricity is a critical driver of Angola’s economic growth and businessenvironment; (c) this first sector reform provides a model for other utility and infrastructure
sectors; (d) the operation is an effective way for the GoA and Bank to intensify thepartnership and dialogue on energy sector reform, and (e ) the GoA has decided to diversify
its financing sources to fund infrastructure program as indicated in Appendix 7 and TechnicalAnnex 4. To this end, the Government has taken several measures from the time the Bank
initiated dialogue with the Government on PSRSP, and the following main measures havebeen implemented (Table 4).
Table 4: Main Measures Taken since the Bank Engaged in Dialogue with the Government on the
Program
1 Amendment to the Organic Budget Law and Budget Execution Rules to strengthen budget institutions
and reduce the recurrence of Government Domestic Arrears
2 Publication of the 2014 “Citizen budget”.
3 Publication of the 2013 Oil Revenue Reconciliation Report.
4 The approval of the Public Procurement Action Plan by the Ministry of Finance.
5 The establishment of Technical Procurement Agency (UTN) by the presidential decree 169/13.
6

The establishment of a Task Force to initiate and coordinate the Public Expenditure Management andFiduciary Systems Review (PEMFSR) and preparation of PFM reform action plan drawing on the findings

and recommendations of the PEMFSR
7

Submission of a tariff proposal to the Economic Commission

3.1.6 The design of this operation is guided by various analytical diagnostic works(Technical Annex 2), including the: 2005 Public Expenditure Management and Financial
Accountability Review (PEMFAR); National Energy Security Strategy and Policy (2011);
Energy and Water Sector Action Plan for 2013-2017; Energy Sector Challenges andOpportunities (USAID; 2012); Electricity Sector Transformation Program (2013-2017)
feasibility study; IMF Second Post-Program Monitoring (March 2014); Economic Update(World Bank; 2012); 2011 Bank’s National Competitive Bidding Assessment Report; Bank’s
Country Strategy Paper Midterm Review; Country Portfolio Performance Review (2013); andAfDB Country Gender Profile (2008). Recommendations from these documents are reflectedin the program. The design of the operation has also benefited from the Bank’s Power Sector
10Analytical Review, and the Bank’s Fiduciary Risk Assessment (FRA).11 Stakeholder
consultations and a workshop were carried out during the appraisal mission.
3.2 Collaboration and coordination with other donors
3.2.1 In preparing the operation, the Bank has consulted key DPs12. Average ODA
disbursements represented less than 2% of GDP during 2010-2013, and DPs’ development
coordination has been limited. Their activities are concentrated in institutional capacity
building, health, education, water and sanitation. The Bank has organised a multi-stakeholder
workshop in collaboration with GoA and DPs to enhance collaboration and leverage its
support by working in partnership with various stakeholders (parliamentarians, private sector
and civil society organizations). The program was informed by the outcome of theconsultation workshop.
3.2.2
Furthermore, PSRSP complements the IMF post program monitoring andconsultations. Consultation with the other partners regarding this operation reveals that, on
the whole, they support the idea of supporting power sector reform as key driver of economic
diversification and transformation. Joint discussions have already been initiated and the Bank
intends to play a key role in creating the platform for dialogue among DPs and between DPs
and GoA. Against this backdrop, the PSRSP policy matrix (Appendix 5) provides themechanisms through which the Bank intends to play a driving role in creating the platform
for policy dialogue. The Bank’s Angola Field Office (AOFO) is taking the lead and had
already initiated policy dialogue between the GoA and DPs.
3.3 Outcome of Past and On-going Similar Operations and Lessons
3.3.1 The design of this operation has benefitted from lessons learnt from past Banksupported budget support operations, CSP midterm review and other Bank funded
operations in Angola. Table 5 summarises the main lessons and how they have been
incorporated into the proposed operation.
Table 5: Lessons learned from past Bank-supported program based operations and CSP Mid-term review
Lessons learned(i) Flexibility in responding to thecountry’s evolving development
challenges including the use of
new financing instruments(ii) The significance of country
ownership and the need to anchor
the program on the country’s
development strategy to ensure
effective program implementation.
(iii) Importance of focusing on few
but crucial reform priorities andperformanceindicatorsformonitoring results. Disbursement
triggers should be realistic, giving
consideration to the policy
environment and the feasibility oflegal changes.
(iv) Need to address capacity
constraints
inprogramimplementation.

11
12

Actions taken to integrate lessons into the PAR
The program responds to the GoA’s desire to reorient cooperation with the
Bank towards large-size transformative projects, as opposed to small-scaleinterventions. It provides predictability and flexibility to disburse the loan
in line with the country’s budget calendar, and financing needs.
The proposed operation is based on the country’s reform agenda inparticular the power sector reform plan and the ongoing PFM initiatives,
both of which identify critical measures essential for the delivery of theobjectives of the National Development Plan.
The proposed operation has been designed with the objective ofconsolidating the progress made so far in connection with its main
components (power sector restructuring, private sector participation, andPFM reform). The streamlined conditions for disbursement are considered
critical to the success of the government-led reforms in the power sector
and public finance. They have been carefully selected from upstream
dialogue with the two key ministries of the Government of Angola.
A complementary capacity building component is incorporated into theprogram to strengthen implementation capacity, thus enhancing theprospects of program development outcomes. The capacity building
program will also allow key ministries to play a stronger role inaddressing gender issues and promoting gender awareness at all levels ofgovernment and civil society, with a focus on budget, planning and policy.

FRA undertaken as part of the PBO preparation and appraisal missions in February and March 2014
Including the World Bank, IMF, EU, USAID, Norway, and Sweden.

11

(v) Effectiveness ofprogrambased operations is enhanced if
combined with policy dialogue andcapacity building interventions(vi) Need to deepen and scale up
the governance reform process inthe areas of PFM, and sector
governance

The program complements the ongoing country dialogue led by the AOFO
and technical assistance project funded by development partners including
the Bank (ongoing projects supporting PFM and PIP). It is also included a
strategic technical assistance and change management support
The PSRSP components have been selected and focused on key PFM
reforms (budget, and procurement) that would improve transparency,
efficiency and value for money in public spending. Furthermore, theprogram addresses critical policy changes in the energy sector

3.4 Relationship to on-going Bank’s operations
3.4.1 This operation has a strong relationship with the other Bank Group funded
operations in Angola (Technical Annex 1). The PSRSP will positively impact the Bank’s
operations through three channels. First, the program will contribute towards strengthening
the GoA’s procurement and financial management systems. Second, it will provide an
incentive to MINEA to pursue urgent reform in the sector, including in water services. Third,
the proposed program will complement projects in water and sanitation, agriculture,environment and climate change, and financial governance, including capacity building inpublic investment programs. The program’s focus on PFM and energy sector reforms will
provide synergy in the execution, development and sustainability of Bank-funded projects
and infrastructure development. The 2014 PEMFSR exercise, financed under the Bank’s
Angola Financial Management Support Project (PAGEF) will serve as a monitoring tool forthe program and for fiduciary risk.
3.5 Bank’s Comparative Advantages and Added Value
3.5.1 The operation will build on the Bank’s vast experience and engagement in
Africa, covering infrastructure development, institutional reforms at both the generaland sector levels, and capacity building. The Bank’s comparative advantage in supporting
the program derives importantly from (i) being an African premier multilateral development
institution with a deep knowledge of the African socio-economic setting; and (ii) scaling up
its engagement and reorientation of its policy and institutional actions to respond tochallenges in infrastructure and economic governance in Africa. The Bank’s experience
gained from participation and leading sectoral and governance reforms in several regional
member countries puts it in an advantageous position in bringing expertise, knowledge andbest practices into Angola’s reform agenda, and the successful management of the operation.
Thus the Bank’s support will bring credibility, consistency and coherence to policy reform
process in Angola. This will send a powerful signal to the market and the international
community that Angola is committed to doing business differently by engaging with the
Bank in a sustained policy dialogue as a “trusted partner”. The PSRSP will create a catalytic
platform for policy dialogue and advisory services in Angola. The Bank’s field presence inAngola will facilitate close supervision of the operation and enhance the policy dialogue
process. In this context, the Bank will continue to work in synergy with the other
Development Partners active in Angola.`. Unless met, the vast infrastructure needs would
weaken the business environment and imped economic diversification and inclusion. In thisregard, the loan is important for closing the infrastructure gap and further reducing cost ofelectricity and improving business environment. The size of the loan (USD 1.0 billion) is also
justified on the basis of the huge government fiscal deficit estimated at AON 630 billion(equivalent to USD 6.45 billion) in 2014 and AON 360 billion (equivalent to USD 3.68
billion) in 2015. The huge planned investment in the energy sector, estimated at USD 4.6
million per year over the next five years is an additional justification for the size of the loan.
3.6 Application of Good Practice Principles on Conditionality
3.6.1 The program design incorporates good practice principles on conditionality(Technical Annex 3) through: (a) aligning the program policy matrix with the country’s
12energy sector reform plan and PFM reform process; (b) selecting reform actions critical to thesuccess of the program and for achieving results as a condition for disbursement; and (c)streamlining the conditions to improve predictability and facilitate disbursement as requiredby the GoA, accompanied by policy dialogue and technical assistance. The Bank isprocessing this program in time so as to improve alignment with budget cycle and financing
needs.
IV. THE PROPOSED PROGRAM
4.1 Program’s Goal and Purpose: The overarching objective is promoting inclusive
economic growth by improving efficiency in the energy sector and consolidating PFM
reforms. The reforms envisaged in the program will support and facilitate theimplementation of the government’s ongoing and future investments in the power
sector, which will create employment opportunities and extend access to electricity to alarger share of the population, in particular the most vulnerable ones.
4.2 Program Components, Operational Objectives and Expected Results
4.2.1 Operational Objectives. The operational policy objective is to support ongoing
Government effort to improve operational efficiency, competitiveness and sustainability ofthe energy sector as well as greater transparency and efficiency in PFM.
4.2.2 Program Components: The program has four components: (a) restructuring theenergy sector and improving its regulatory environment; (b) fostering private sector
investment in the energy sector; (c) enhancing transparency and efficiency in PFM; and (d)capacity building and change management support. The rationale for the choice of thesecomponents is based on the complementarity between power sector reforms and thepromotion of an enabling environment for private sector investment, skills as well as PFM
reforms. Weaknesses in PFM have an impact on energy sector development in terms ofinvestment planning, procurement, budget execution, and value for money. These weaknesses
lead to an increase in the fiduciary risk associated with increased public spending in energy
infrastructure development. Conversely, improved PFM will increase the level, efficiency
and effectiveness of public investment in the energy sector.
Component 1: Restructuring the power sector and improving the regulatoryenvironment.
4.2.3 Challenges and constraints: Inadequate infrastructure is one of the key constraints to
private sector development in Angola. Evidence suggests that the costs resulting fromunreliable energy supplies constitute a major constraint for the competitiveness of Angolan
businesses and thus a major barrier to the creation and expansion of businesses, andeconomic diversification. Importantly, two-thirds of Angolan businesses are estimated to relyon their own generators in Luanda, 13 jumping to over 90% outside the city. Mostly dieselbased, costs can run as high as $0.40 per kWh, roughly double ENE’s production anddistribution costs.14 A 2010 study estimated that Angolan firms lose roughly 13% of theirannual turnover due to the impact of unreliable power supply (more than 40% downtime),
almost three times more than in 2007 (5%).15 Finally, Angola ranks 170th/189 economies forthe “Getting Electricity” indicator of the 2014 Doing Business Report (DBR). Nonetheless,Angola’s 7 different procedures and 145 days for an SME located in Luanda to obtain anelectricity connection are not too different from the sub-Saharan African averages of 5 and
13

AfDB, Angola Private Sector Country Profile, October 2012. A recent survey carried out by the Norwegiancooperation agency indicates that the average monthly expenditure in fuel for generators among the sample ofsmall businesses surveyed (e.g., shops, small offices) is about USD 110.
14
Angola’s Infrastructure: A Continental Perspective, World Bank Policy Research Working Paper, No. 5814,
September 2011.
15
World Bank, 2010 Angola Enterprise Survey.

13

141, respectively. Power sector reform can therefore have a significant impact on private
sector development and competitiveness and, more specifically, SMEs, where women
entrepreneurs play a prominent role, thus enhancing inclusiveness. In addition to hurting
competitiveness and the investment climate, inadequate power supply is a major constraint
for public services such as education and health as well as on overall reduction in the qualityof life.
4.2.4 Recent Government Action: GoA has commenced restructuring the power sector byaddressing the institutional weaknesses and constraints summarized in Section 2.3 anddetailed in Appendix 7 and Technical Annex 4. The power sector reform program aims at
improving the institutional and regulatory frameworks, restructuring and unbundling theutilities, reviewing the current tariffs and subsidies, improving the efficiency of utilities,
strengthening the capacity of the sector’s regulator, promoting development of Renewable
Energy and attracting private investment. To date, the Government has completed a numberof studies detailing the specific arrangements for the unbundling and held stakeholder
consultations on the draft revised General Electricity Law.
4.2.5 Program Activities: The proposed program will support the Government in its effort
to implement the structural and regulatory reform measures under Phase I of the PTSE (see2.3.6). The specific policy actions supported by the program include two complementary
priorities: (a) power sector restructuring, and (b) improving the regulatory environment.


The Power Sector Restructuring policy action focuses on the unbundling of thegeneration, transmission and distribution systems and the establishment, by Presidential
Decree, of three new utility companies: (a) Empresa Pública de Produção de Electricidade(PRODEL) dealing with power production, (b) Rede Nacional de Transporte deElectricidade (RNT) as the national transmission company and Single Buyer ofelectricity, and (c) Empresa Nacional de Distribuição de Electricidade (ENDE) as thenational distribution company. This policy action also supports (i) the approval of
General Electricity Law by Cabinet, (ii) the establishment of contractual agreements(PPAs) between the three established utility companies; and (iii) the adoption of the bylaws (“estatutos”). Consistent with the national objective of integrating women atdecision making levels, the program will promote gender equality in the appointment of
the board and top management in the utility companies. The revised General Electricity
Law will establish the basic principles for regulating the role of stakeholders in the
production, transport, distribution, supply and marketing of electricity, and will define forthe first time the Angolan “Electricity Market”. It will also enhances the autonomy of thesector regulator and confer on IRSE the responsibility to approve electricity market rules,
develop tariff methodologies, and approve concessions and licenses for electricity
services16. The revised law will promote an energy mix composed of renewable energy
resources and less polluting combined-cycle thermal power plants. To ensure financial
sustainability of the power sector, the revised law will also strengthens Pre-Payment ofelectricity services and power project assessment based on least cost planning. This will
speed up the implementation of the Government’s roll-out of the pre-paid electricity
metering program which had stalled. Regional power grid integration, power trade andenergy wheeling is an integral part of the Angola’s medium-term power development
strategy. The GoA has therefore ensured that clarity of definition of the concept of export,
import and transit power is addressed in the proposed revision of the General Electricity
Law.

The “Improving the Regulatory Environment” policy action supports government efforts
to strengthen the sector’s regulatory environment by enhancing business efficiency and16This is limited to 10MW plant capacities and distribution services for up to 50,000 inhabitants.

14

productivity through amendment of the Presidential Decree establishing IRSE. The
proposed amendment aims to give IRSE greater autonomy regarding sector operations,approve and publish Network Access and Connection regulations, establish and publish
performance criteria for Quality of Service, design the tariff structure, and monitor
commercial relations between the sector operators. It will include a funding mechanism
based on fees and other payments from the sector, further boosted by the adoption of a
Tariff Adjustment Proposal. The first step in tariff adjustment is aimed at compensating
for annual inflation since 2006 (the last time tariffs were adjusted) as an initial financial
remedy for the sector. A tariff methodology is being proposed that would ensure a social
safety net for vulnerable consumers while providing for a gradual adjustment towards
cost-covering tariffs by 2021.
4.2.6 Expected Results: The combined effect of the above reforms will be a drastic
improvement in the operational efficiency of the new utilities in the form of increased
revenue collection and improved service delivery (through increased availability). Ultimately,reforms will aim at ensuring the long-term financial sustainability of the sector and expanded
reliable access to electricity in line with the NESSP. In addition, a gender approach will bemainstreamed into sector restructuring, as the operation provides support for an increased
representation of women in senior management positions in the power sector.
Component 2: Fostering private sector investment in the energy sector
4.2.7 Challenges and constraints: Private sector participation in the energy sector isnecessary to support the GoA’s reform agenda in two main aspects: financing and skills.
First, GoA has projected that, in order to double the country’s electrification rate by 2025,
total investment of about USD 23 billion will be needed between 2013 and 2017. It is highly
unlikely that this can be achieved without a sizeable participation of private investors.
Second, private investment, in particular FDI, can address the important skills gaps in the
sector through knowledge and technology transfer. However, to date private sector
investment in energy has been limited, mostly due to a deficient enabling environment.
Indeed, as of 2013 private operators only accounted for 13% of installed capacity.
4.2.8 Recent Government Action: In recent years, GoA has adopted various reforms aimed
at improving the business environment and attracting investment, including the recent
adoption of the (a) Private Investment Law (Law 20/11 of May 20, 2011), which provides
various incentives to foster FDI and identifies energy and water as priority areas; and (b) PPP
Law (Law 2/2011, of March 14, 2011). At the sector level, the General Electricity Law of1996 explicitly provides for privately-owned enterprises entering the generation anddistribution areas of the electricity value chain. This law is currently under review. The 2011
National Energy Security Strategy and Policy, the Energy and Water Sector Action Plan
(2013-2017), and the Electricity Sector Transformation Program (PTSE) all prioritize theattraction of private sector investment, in particular at the generation/production level with a
special emphasis on renewable energies and isolated systems for rural electrification.
4.2.9 Program Activities: The program will support ongoing and planned initiatives toimprove the business environment for private sector participation in the power sector. Someof the reforms supported under Component 1 are also instrumental in meeting the GoA’s
objective of attracting private sector investors into the power sector. In addition, the program
will support policy actions to improve the enabling environment for private sector investment
in energy generation, with an emphasis on the development of renewable energies.
4.2.10 In particular, the program will support the adoption of the White Paper on Renewable
Energies as strategic for the development of renewable power production. The White Paper is
expected to introduce a regulatory framework that fosters private sector investment in clean
energy solutions as the preferred choice for rural electrification and isolated power systems,
15

with a prominent role of small-scale privately-owned generation units in the hydro, wind, andsolar segments. Furthermore, renewable energies is a tool for improving gender equality bysupporting access to and control of renewable energy resources and providing women withknowledge (Technical Annex 5). The program will also support the completion of therenewable energy resource mapping, and the launching of a special Renewable Energy FeedIn Tariff (REFIT) scheme providing incentives for private investment into small green energy
and rural electrification projects for isolated grids (below 10 MW), with a special focus on
mini-hydro power plants.
4.2.11 Expected Results: It is expected that private investors will respond to the above
reforms of the enabling environment by entering the sector as independent power producers(IPP), in particular in the renewables sub-sector, thereby contributing vital financial resources
and knowledge transfer to meet the sector’s sizeable investment needs.
Component 3: Enhancing transparency and efficiency in public finance management
4.2.12 Challenges and constraints: Progress has been made in several areas of PFM,
including macroeconomic and debt management, budget formulation, accounting, andreporting. The budget and accounting functions were further improved with the adoption androll-out of the Integrated Financial Management Information System – IFMIS (SIGFE). The
adoption of Treasury Single Account, submission of financial statements (2011-2012) to the
Court of Audit, and availability of fiscal information in the public domain also show
important improvements. Nonetheless, an analysis of the Annual Financial Statements for thethree years to 2011 reveals variances in terms of quality as well as shortcomings in
expenditure control. Weaknesses include outdated regulatory frameworks, weak humanresources capacity, and poor organizational arrangements in some of the key PFM
institutions. Further, the Bank’s FRA reveals capacity constraints and weaknesses in budget
execution, expenditure control, and procurement. Also, the actual implementation of genderresponsive budgeting in sectors has not yet materialized.
4.2.13 Recent Government Action: The Ministry of Finance has placed PFM reform at the
top of its reform agenda to ensure delivery of quality service and maximize the impact of the
public investment program. The establishment of a Sovereign Wealth Fund represents a stepin the right direction in terms of Angola’s fiscal policy and expenditure planning. GoA has
recently enacted important measures to increase transparency of oil revenues and reduce
quasi-fiscal operations (QFOs) by state-owned enterprises. Incorporating these QFOs into thebudget is an important step in consolidating the fiscal accounts. In addition, following thepolicy dialogue with the Bank, GoA has requested, and is in the process of receiving, TA
support from the Bank to undertake a comprehensive PEMFSR to assess the strength of the
PFM systems and produce a medium-term action plan to address persistent weaknesses.
Further reform in PFM will help reduce the vulnerability of the budget and improve theefficiency of public spending.
4.2.14 Program Activities: The program will support policy measures in the areas of (a)budget credibility and transparency and (b) improving efficiency and value for money inpublic procurement. Under budget credibility and transparency, the key policy actions
supported by the program are: (a) publication of the 2014 “Citizen budget” with the aim to
improving citizen participation in the formulation and monitoring of the government’s
budget; (b) posting of the 2013 Oil Revenue Reconciliation Report; (c) adoption of a revised
National Inspectorate of Finance Regulation; and (d) approval of a PFM action plan.
4.2.15 In addition, the Ministry of Finance has hired an auditing firm to verify outstanding
domestic payment obligations incurred by ministries and provincial governments. The
verification process is ongoing, with repayment of outstanding claims pending the completionof the verification process. The program will support measures to address the recurrence of16

government domestic arrears through an amendment of the budget law that will strengthen
the enforcement of budget legislation and coverage of the budget monitoring system. The
program also supports efforts to improve the collection and reporting of oil revenues andrelated transfers by completing a flow-of-funds report, which is expected to improvetransparency and accountability in the management of oil revenues, as well as reducing theuncertainty of revenue flows from Sonangol.
4.2.16 The Inspectorate General of Finance (IGF) has a primary mandate over the financial
administration of the GoA, offering technical support to the Minister of Finance. Since it isstill operating under outdated regulations, limiting its scope to expenditure audits, a new
regulation is being prepared17. The Program will support these efforts. In addition, the Public
Expenditure Management and Fiduciary Systems Review (PEMFSR) action plan that will
guide PFM reforms over the next 3-4 years will receive further support from the Bank. The
operation also supports the adoption of a gender policy that will guide gender mainstreamingin line ministries. More specifically, the operation will provide a platform for policy dialogue
with the government on sectoral programs that use gender-disaggregated data to ensure thatboth women and men benefit from public spending.
4.2.17 In light of the principle that procurement needs to ensure delivering value for money,
the public procurement system is currently not providing sufficient benefit to the population.
The Government needs to urgently revise procurement regulation, primarily by developing
operational standard bidding documents and a manual consistent with international goodpractices. In this context, the program seeks to support the following policy actions: (a)adoption of a PFM Reform Action Plan based on the recommendations of the PEMFSR
Review (to be completed in 2014); (b) establishment of a Technical Procurement Agency; (c)launching of a Procurement Portal; (d) adoption of a revised procurement law; and (e)adoption of procurement regulations, including Standard Bidding Documents.
4.2.18 Expected Results: The combined effect of the above reforms would strengthentransparency and efficiency of PFM. This will allow a more efficient execution of the PIP,
which is of vital importance to address the country’s infrastructure challenges. In addition,
program-supported reforms will improve budget execution (measured by higher rates ofbudget execution) and internal and external controls (measured by a reduction of the stock of
domestic arrears, one of the main challenges to GoA’s fiscal discipline), and greater value formoney in procurement.
4.2.19 Capacity building and change management support: The new market model to be
implemented for the energy sector under Components 1 and 2 will require additional skills
that do not exist in the sector today. To ensure the success of the reform program, GoA has
developed a comprehensive capacity building plan with three broad objectives covering over
30 fields of specialization (Technical Annex 4): (i) develop leadership skills to manage thetransition phase, (ii) enhance management capabilities needed for improving business andoperational efficiencies, and (iii) acquire the new skills to manage new processes.
Importantly, local universities, colleges and vocational institutions will help tailor courses tothe sector’s needs. The PSRSP supports strategic capacity building and change management
for the transition and stabilization of the new market model. In this regard, GoA will earmark
US$ 6 million over two years for training of board members, senior managers, mid-leveltechnical and management staff, and system operators and support staff. The capacity
building program will also strengthen the capacity of key ministries, such as MINEA andMINFAMU, to promote gender sensitive budgeting, planning and policy formulation. In
addition, capacity building under Component 3 (PFM reforms) will be provided following the17

The IGF currently operates under a Decree passed in 1958, and there is need to align to among others the2010 Constitution and the Presidential Decree No. 93/10 establishing the Ministry of Finance.

17

identification of needs under the PEMFSR. The Bank will consider additional instruments to
support the Government in this respect, including a potential restructuring of the current ISP,
based on the recommendations of the PEMFSR. In addition the Bank, through EADI, ispreparing a tailored program for capacity development for the Ministry of Finance, includingin the areas of statistics and public financial, and investment management.
4.3 Financing Needs and Arrangements
4.3.1 The proposed operation is part of the external financing sources that will help
close the 2014-2015 financing gap. Table 6 presents the Government’s financing needs for
2014-2015. For 2014, total revenues are projected at Kwanza 4,745 billion, while total
expenditure are projected at Kwanza 5,375 billion. Revenues are projected to grow at above
8.4% per year in nominal terms. The budget envisages a significant increase in expenditure(10% compared to 2013) needed for rehabilitation of the country’s infrastructure network.
Capital expenditure as a share of total expenditure is projected to increase to 32% up from
29% in 2012. With the current fiscal policy, the overall fiscal deficit for 2014 and 2015 is
projected as kwanza 990 billion, and of which 63.6% is required in 2014. Given the fact thatthe critical reform implementation is being implemented in 2014, the disbursement plan
would contribute about 10.6% to the financing gaps.
Table 6: Projected Financing requirements and sources, 2014 and 2015 (in billions of Kwanza)
2012
2013
2014
ActualPreliminary
Budget
5,054
4,474
4,745
Total Revenue
4,826
4,291
4,540
 Taxes
4,103
3,472
3,313
 Oil Revenue
723
819
1,227
 Non-oil revenue
4,490
4,647
5,375
Total Expenditure
Recurrent Expenditure
3,191
3,396
3,674
1,031
1,125
1,369
 Of which: Compensation of employees
1,303
1,400
1,431
 Use of goods and services
105
86
128
 Interest (domestic and foreign)
548
563
394
 Subsidies
Capital Expenditure
1,299
1,251
1,701
564
-173
-630
Overall fiscal surplus/deficit (-)
0
173
567
 Domestic and external financing
0
0
63
 ADB
0.00
0.00
0.00
Residual Financing gap
Source: Angolan Authorities and IMF staff estimates and projections, March 2014.

2015
Projection
5,144
4,964
3,844
1,120
5,504
3,900
1,620
1,360
130
580
1,604
-360
318
42
0.00

4.3.2 The GoA does not intend to have recourse to the Sovereign Wealth Fund tofinance the fiscal deficit. Furthermore, the Fund does not have stabilization
mandate and as such its assets are not readily available to the treasury if neededin the event of a budget shortfall.
4.4 Beneficiaries of the Program
4.4.1 The PSRSP is designed to assist the GoA in implementing its National
Development Plan and reform priorities in the areas of PFM and Energy Sector. The
direct beneficiaries are Angola’s key public institutions responsible for PFM and ministries
responsible for the delivery of energy infrastructure development. The indirect beneficiaries
are the population of Angola, with the private sector benefiting from better access to reliable
and affordable electricity as well as transparency and efficient management of PFM, inparticular procurement practices.

18

4.5 Social and Gender Impact
4.5.1 The operation will have positive social and gender impacts. Reform in the energy
sector is expected to expand affordable access to electricity for the population, particularly
for the very poor who are concentrated in rural areas and make up 45.2% of the 72% who areliving in poverty.18 The number of female-headed households is reported at 31% of allhouseholds and represents the majority of households living in extreme poverty. 19 Increased
access to energy resources will positively impact the most vulnerable segments of the
population, notably women. It will contribute to an increase in their productivity as women
will have greater opportunities of employment through, for example, the development of new
businesses. Furthermore, women and children will save time by avoiding trips for collecting
or buying fuel, firewood, charcoal, etc. This will enable women and children to focus notably
on education and income generating activities. Similarly, shifting to renewable energies will
positively impact women’s and children’s health, mainly respiratory diseases, as they nolonger have to be exposed to smoke and carbon monoxide from cooking indoors with woodand charcoal. Renewable energy also mitigates deforestation. There are other indirect impactsof this operation, specifically in the rural areas, which include improved access to piped water(contributing to e.g. cleaner water that reduces the incidence of water-borne diseases); better
provision of maternal health services, contributing to reduced child and adult mortality andmorbidity and improved newborn and maternal health; development of vocational training
centers that rely on electricity that will allow increasing the number of women and youth
attending evening classes; increased access to information (telecommunications, etc.); andboosted security (Annexes T5 and T6).
4.5.2 Inclusive Infrastructure: Improved energy efficiency and service will help the
population in terms of income generation, as it will reduce household and business losses
from power shortages. The reform includes changes to the existing subsidy framework, which
may impact the price consumers pay for electricity. In that context, GoA has been encouraged
to phase out fuel and utility subsidies (which account for 7.8% of GDP), and in fact GoA is
preparing a new Social Assistance Strategy. To mitigate the adverse social impact on themost vulnerable population, GoA has prepared a ‘pro-poor’ tariff adjustment that is based on
the consumption level of households. GoA is also in the process of preparing acommunication plan in parallel with the tariff adjustments that will educate the consumer onbilling, collection and energy savings (Technical Annex 6).
4.6 Environmental Impacts
4.6.1 The PSRSP is classified as a category III impact, according to the Bank’s
procedure for environmental and social impact assessments. The policy and institutional
reforms supported by the operation are not expected to have any direct adverse impact on theenvironment. Improvements in policies and institutions for managing public resources, andimproving sector governance in the energy sector as outlined above, cannot by themselves
have a direct negative impact on the environment. Furthermore, GoA has put in place an
Environmental Impact Assessment system that makes an EIA mandatory prior to theimplementation of any project, private or public, to ensure compliance with environmental
and social safeguard policies. In order to further strengthen the capacity of the energy sector
in undertaking EIAs and assure that projects are screened in accordance with EIA guidelines,
the operation supports the adoption of sectoral EIA guidelines, complementing the ongoing
AfDB Support to the Environment Sector Project. The operation similarly supports Angola’stransition to a greener pathway through key policies such as the Renewable Energy White
Paper. This will ultimately lead to supporting legislation and institutional changes that
18
19

IBEP 2013. Prefil da Pobreza. Relatorio Vol. III
African Development Bank (2008) Angola Country Gender Profile

19

promote renewable energy technologies as the preferred choice for rural electrification andisolated systems in Angola (Technical Annex7).
V. IMPLEMENTATION, MONITORING AND EVALUATION
5.1 Implementation Arrangements
5.1.1 Implementation institutional framework: The Ministry of Finance (MOF), in
collaboration with the Ministry of Energy and Water (MEW) and other agencies, will be
responsible for implementing the reform programs supported by PSRSP. To further
strengthen capacity the operation will be accompanied by a Capacity Building Program andTechnical Assistance program as indicated in paragraph.
5.1.2 Disbursement Arrangements: The funds under the program will be disbursed in two
tranches: USD 600 million in the first tranche and USD 400 million in the second tranche.
Disbursement will be effected after fulfilment of conditions precedent. The proposedtranching is justified on the following grounds: (i) a number of critical reforms have alreadybeen implemented by GoA, as part of its dialogue with the Bank (see table 4). This confirms
the GoA commitment to the reform program; (ii) a large number of critical measures of the
program will be implemented in 2014; and (iii), the proposed tranching has been designed totake into account the Government’s financing requirements (see Table 6).
5.1.3 The funds will be disbursed by the Bank into a foreign currency account to be openedin the Central Bank of Angola by the Ministry of Finance. In addition, a designated accountin local currency will also be opened at the Central Bank and managed by the Ministry of
Finance. Transfers will be made from the foreign currency account to the local currency
account to meet local expenditures as required. The management of funds from these two
accounts will be in accordance with GoA rules and procedures on budgeting, reporting andauditing.
5.1.4 Financial Management, Audit and Reporting Requirements: As indicated in paragraph2.2.12, the fiduciary risk assessment revealed that the control environment and public financemanagement systems in Angola continue to present significant risks, in spite of the progress
being achieved in PFM reforms. The proposed program is addressing fiduciary risks in twocomplementary ways: (i) including a specific component in the program (component 3) tosupport and monitor reforms to improve PFM systems and to reduce fiduciary risks. The
envisaged reforms will introduce greater budget transparency, strengthen control systems andimprove the procurement framework; and (ii) providing for specific disbursement andfinancial management arrangements for the funds of the proposed operation. In this respect,
the program resources will be maintained in a dedicated account and centrally managed by
the Debt and Aid Management Unit in the Ministry of Finance. This account will be subject
to periodic audits by the Court of Accounts or an independent auditor. In addition, theGovernment will be required to submit to the Bank quarterly progress and funds flow reports
to provide the requisite assurance on the expenditure of the resources. Also, an annual audit
of fund flows and use of funds will be provided. The audit will be carried out by the Auditor
General (Tribuno de Contras) or alternatively by an independent audit firm acceptable to theBank. The audits will be performed in accordance with the Bank-approved Audit Terms ofReference and the audit reports will be submitted to the Bank within six months after the endof each respective financial year.
5.1.5 Procurement: The procurement arrangements for the budget support program will be
undertaken using country systems. The FRA concluded that the overall risk level of thecountry’s procurement system is high, and the residual risk is rated substantial, taking into
consideration of the ongoing and planned reform initiatives and mitigation measures. The
program will support and monitor the implementation of key policy actions to reduce
fiduciary risks related to procurement. The proposed procurement risk mitigation measures20

include but not limited to: (a) Approval and implementation of procurement improvement
action plan, (b) ongoing Bank support to building procurement capacity, (c) review andadoption of new procurement law and regulations, and Standard Bidding Documents, (d) the
launching of a Procurement Portal to improve information on public procurement, (e) theestablishment of independent complaints and appeals mechanisms, and (f) the establishmentof a Technical Procurement Agency (UTN) by the presidential decree 169/13 with the
responsibility to manage all procurement transactions which requires approval at the level ofthe President (above US$ 10 million).
5.2 Monitoring and Evaluation Arrangements
5.2.1 Quantitative indicators have been agreed upon with the Government to monitor the
implementation of the Program. These indicators are defined in the Results Based logical
Framework. The Bank will monitor the implementation of the Program through enhanced
supervision and close follow-up and oversight by the Angola Field Office, which will play animportant role in this regard, particularly with respect to policy dialogue and monitoring of
the program results and impact. To this end, the Bank plans to strengthen the Field Officewith high caliber lusophone experts in the areas of energy and public financial management.
This will enhance the capacity of the office to effectively engage in policy dialogue, provide
advice and facilitate program implementation. The Government will be required to provide to
the Bank quarterly progress reports on the implementation of the program. Upon its
completion, a Program Completion Report (PCR) will evaluate progress against outputs andoutcomes set out in the Results Based Logical Framework (RMF) to assess the program
achievement and impact, and to draw lessons for follow-up operations.

VI. LEGAL DOCUMENTATION AND AUTHORITY
6.1 Legal documentation
Loan Agreement between the African Development Bank and the Republic of Angola.
6.2 Conditions associated with Bank Group intervention
6.2.1 Conditions precedent to entry into force of the Loan Agreement: The entry into
force of the Loan Agreement shall be subject to the fulfilment by the Borrower of theprovisions of Section 12.01 of the General Conditions Applicable to Loan Agreements of theBank.
6.2.2 Conditions precedent to disbursement of the first tranche of USD 600 million:
Disbursement of the first tranche of the loan shall be conditional upon the entry into force of
the Loan Agreement, and the Borrower providing evidence of the fulfilment of the following
conditions, in the form and substance satisfactory to the Bank:
Condition precedent to disbursement of first tranche
1. Opening of a foreign currency account at the Central
Bank of Angola
2.
3.

4.

Presidential Decree establishing three utility
companies. (¶4.2.5)
Submission of draft revised General Electricity Law to
Cabinet “Casa Civil”. (¶4.2.5)
Submission of a Renewable Energy White Paper toCabinet “Casa Civil”. (¶4.2.8)

Evidence required
1. A letter from the Ministry of Finance providing evidence of
having opened a foreign currency account at the Central Bank ofAngola dedicated to receiving the proceeds of the Loan
2. Copy of the signed Presidential Decree
3. A letter from the Minister of Energy and Water confirming
the submission of the draft revised general Electricity Law to
Cabinet “Casa Civil”.
4. A letter from the Minister of Energy and Water confirming
the submission of the Renewable Energy White Paper toCabinet “Casa Civil” and copy of the White Paper

6.2.3. Conditions precedent to the disbursement of the second tranche of USD 400
million: The obligations of the Bank to disburse the second tranche of the Loan shall be21

conditional upon the fulfilment of the following conditions, in the form and substancesatisfactory to the Bank:
Conditions
1. Amendment of the Presidential Decree establishing
IRSE(¶4.2.5).
2. Adoption of the by-laws “estatutos” for the generation,transmission and distribution companies (¶4.2.5).
3. Adoption of a revised National Inspectorate of FinanceRegulation (¶4.2.16).
4. Adoption of the procurement regulation (¶4.2.17).

Evidence required
1. Copy of the signed Presidential Decree
2. Copy of the by-laws (“estatutos”) for thegeneration,transmission
anddistribution
companies.
3. Copy of the signed Presidential Decree4.

Copy of the signed Presidential Decree

6.3 Compliance with Bank Group policies
6.3.1 This program complies with all applicable Bank Group policies and guidelines.
These include: (i) the 2012 Bank Policy on Program-Based Operations, (ii) the Bank Group
Ten-Year Strategy (2013-2022); (iii) Governance Strategic Framework and Action Plan
2014-18, and (iii) the Energy Sector Policy of the Bank Group.
VII. RISK MANAGEMENT
7.1

The risks and mitigation measures for the program are presented in Appendix 4.

VIII. RECOMMENDATIONManagement recommends that the Board of Directors approve an ADB loan not exceeding
USD 1.00 billion to the Republic of Angola for the purposes, and subject to the conditions,stipulated in this report.

22

Appendix 1: Letter of Development Policy

REPUBLIC OF ANGOLAMINISTRY OF FINANCE
1205
April 24, 2014
Dr. Donald Kaberuka
President
African Development Bank Group
B.P. 323, 1002 Tunis Belvedere
Tunisia

RE: LETTER OF DEVELOPMENT POLICY
1. On behalf of the Government of Angola, I hereby write to request the approval of theAfrican Development Bank (ADB) loan of US$ 1 billion to finance strategic interventions
and development priorities for the 2014 and 2015 fiscal years that would help addressinfrastructure bottlenecks and promote inclusive economic growth. More specifically, theloan would support efforts to implement the structural and regulatory reform in the power
sector and enhance transparency and efficiency in public finance management.
2. This Letter of Development Policy presents the macroeconomic performance in Angola
and sets out the actions that Government has already taken and will take over the medium
term to implement its development agenda.
I. ECONOMIC PERFOMANCE
3. Angola’s economic growth rate places it among the fastest growing economies in Africa.
Economic reform measures over the last 10 years have improved macroeconomic stability
and growth averaged about 8.3% in the past decade, mainly driven by the oil sector.
Nonetheless, in recent years growth in the non-oil sector has been reduced by the agricultural
sector’s slow recovery from the 2012 drought. Inflation, after reaching single digits for the
first time in decades at end-2012, fell further to 7.7% by end-2013, comfortably below our
9% target.
4. In 2013, preliminarily, the Government’s budget produced a fiscal deficit below 1.1%
(well below the 2012 GDP surplus of 6.7%) , due to government’s ambitious infrastructure
investment program. Oil revenue fell to 29.5% of GDP (37.7% of GDP in 2012), due to lower
prices and declining export volumes. Non-oil tax revenue remained at 7.5% of GDP (9.4%
was budgeted) due to delays in adopting tax reform legislation. Preliminary current
expenditures recorded a slight decrease to 28.6% of GDP (29.3% of GDP in 2012), while
capital expenditure showed a slight increase to 12.3% when compared to 10.5% of GDP in2012 (14.1% of GDP was budgeted).
5. The pace of economic activity in 2014 is expected to accelerate reflecting public
investment in infrastructure, resulting in a further increase in the budgeted overall fiscal
deficit for 2014 to 4.9% of GDP. The 2014 budget, as in 2013, uses conservative oil priceprojections (US$ 98 per barrel), allowing a realistic increase in total expenditures (7% over23

2013). Capital spending as a share of total spending (31.6%) is projected to experience a
nominal increase of about 1.5% when compared to 2013 preliminary budget figures.
6. The medium-term fiscal framework 2014-17 aims at achieving fiscal balances consistent
with macroeconomic stability. Average GDP growth is projected at 7.15% in 2014-2017.
Inflation is expected to remain in single digits supported by a relatively stable exchange rate
and prudent monetary policy. Further improvement in the quality of spending is being
achieved through streamlining government procurement processes, evaluation of projects,
and rigorous cost-benefit analyses. The Government is committed to strengthening theseprocesses further.
II. POLICY PRIORITIES FOR 2014 AND 2015
8. The Government’s National Power Security Strategy and Policy (NESSP, 2011) was thefirst step to establishing and prioritizing urgently needed actions in the power sector. To
convert that strategy document into implementable actions, the Government commissioned
the Electricity Sector Transformation Program (PTSE), with key deliverables being a sector
diagnostic study, submission of the optimum design of the electricity market model, anddevelopment of the sector reform roadmap with clear milestones and goals.
9. With regard to governance and accountability, the Government has been pursuing reforms
to enhance governance and transparency in PFM and the oil sector. First, the government iscommitted to phase out the quasi-fiscal operations of Sonangol; as of March 2014, these offbudget operations have been discontinued. Second, the Government has made substantial
progress in reconciling oil revenue transfers from Sonangol to the Treasury. Third, thecreation of the Sovereign Wealth Fund (SWF) in 2012 will boost macroeconomic stability by
insulating the annual budget from volatile oil revenue inflows.
10. The requested loan would support key short-run policy measures in the energy sector andimprove access to electricity and create an enabling environment for private sector
participation in the medium to long run, as detailed below. Macroeconomic stability is anecessary condition for addressing the critical challenges in the energy sector, and the loan
will also help consolidating PFM reforms. This will contribute to job creation and poverty
alleviation.
III. Power Sector Reform Support Program
11. The program’s overarching objective is promoting inclusive economic growth by
improving efficiency in the energy sector and consolidating PFM reforms. It seeks to improve
operational efficiency, competitiveness and sustainability of the energy sector as well as
greater transparency and efficiency in PFM. The program has four components: (a)restructuring the energy sector and improving its regulatory environment; (b) fostering
private sector investment in the energy sector; (c) enhancing transparency and efficiency in
PFM; and (d) capacity building and change management support.
Component 1: Restructuring the power sector and improving the regulatory environment.
12. The Government has begun restructuring the power sector, aiming to improve theinstitutional and regulatory framework, restructuring and unbundling the existing utilities,
reviewing the current tariff and subsidy frameworks, improving the efficiency of utilities,
strengthening the capacity of the sector regulator, promoting Renewable Energy, andattracting private investment. The Government has completed a number of studies detailingthe unbundling process and held stakeholder consultations on the draft revised General
Electricity Law. The proposed program will support the Government in its effort toimplement Phase I of the PTSE. The policy actions supported by the program include twocomplementary priorities: (a) power sector restructuring, and (b) improving the regulatoryenvironment.
2413. The Power Sector Restructuring priority focuses on the approval of the unbundling of thegeneration, transmission and distribution systems and the establishment, through Presidential
Decree, of three new utility companies for those activities. The program also supports (i) the
approval of General Electricity Law by Cabinet, (ii) the establishment of contractual
agreements (PPAs) between the three existing utility companies; and (iii) the adoption of the
by-laws (“estatutos”) of the three utilities. Consistent with the national objective ofintegrating women at decision making levels, the program will promote gender equality in theappointment of the board and top management in the utility companies. To ensure financial
sustainability of the power sector, the revised law strengthens Pre-Payment of electricity
services and power project assessment along value for money considerations.
14. The “Improving the Regulatory Environment” priority supports the Government’s efforts
to improve the sector regulatory environment through amendment of the Presidential Decree
establishing IRSE. This aims to give IRSE greater autonomy regarding sector operations,approve and publish Network Access and Connection regulations, establish and publish
performance criteria for Quality of Service, redesign the tariff, and monitor the sector
operators. It will also reinforce IRSE’s regulatory functions and independence, including
through a funding mechanism based on fees and other payments from the sector. The
program seeks to support the adoption of a Tariff adjustment Proposal. The first step in tariffadjustment is aimed at compensating for annual inflation since 2006 as an initial financial
remedy for the sector. A tariff methodology is being proposed with the aim to ensure a social
safety net for vulnerable consumers while providing for a gradual adjustment towards costreflective tariffs by 2021.
Component 2: Fostering private sector investment in the energy sector
15. In recent years, the GoA has adopted various reforms aimed at improving the businessenvironment and attracting investment, including the recent adoption of (a) the Private
Investment Law that provides various incentives to foster FDI, identifying energy and water
as a priority area; and (b) the PPP Law. At the sector level, the General Electricity Law of1996 explicitly provides for the possibility of privately-owned enterprises entering thegeneration and the distribution areas of the electricity value chain. This law is currently underreview. The 2011 National Energy Security Strategy and Policy, the Energy and Water Sector
Action Plan (2013-2017), and the Electricity Sector Transformation Program (PTSE) all
prioritize the attraction of private sector investment, in particular at the generation/productionlevel with a special emphasis on renewable energies and isolated systems for rural
electrification.
16. The program will support ongoing and planned initiatives to improve the businessenvironment for private sector participation in the power sector. In particular, the program
will support the adoption of the White Paper on Renewable Energies as strategic for thedevelopment of renewable power production sources. The White Paper will introduce a
regulatory framework fostering private sector investment in clean energy solutions as thepreferred choice for rural electrification and isolated power systems in the country with aprominent role of small-scale privately-owned generation units in the hydro, wind, and solar
segments. The program will also support the completion of the Renewable energy resource
mapping, and the launching of a special Renewable Energy Feed-In Tariff (REFIT) scheme
providing incentives to attract private investment into small green energy and rural
electrification projects for isolated grids (below 10 MW), with a special focus on mini-hydropower plants.
Component 3: Enhancing transparency and efficiency in public finance management
17. The Ministry of Finance has placed PFM reform at the top of its reform agenda to ensure
delivery of quality service and maximize impact of public investment program. The
25

establishment of a Sovereign Wealth Fund represents a very important development in termsof Angola’s fiscal policy and expenditure planning. Government has recently enacted
important measures to increase transparency of oil revenues and reduce quasi-fiscal
operations (QFOs) by state-owned enterprises. The Government also wishes to undertake acomprehensive PEMFSR to assess the strength of its PFM systems and produce a mediumterm action plan to address persistent weaknesses. It acknowledges receiving technicalassistance already from the Bank; further reforms of PFM will help to reduce thevulnerability of the budget. .
18. The program will support policy measures in the areas of (a) budget credibility andtransparency, and (b) improving efficiency and value for money in public procurement.
Under budget credibility and transparency, the key policy action supported by program are:(a) publication of the 2014 “Citizen budget” with the aim to improving citizen participation in
the formulation and monitoring of the government’s budget; (b) the 2013 EITI Oil Revenue
Reconciliation Report; (c) Adoption of a revised National Inspectorate of FinanceRegulation; and (d) approval of a PFM reform action plan based on the recommendations of
the Public Expenditure Management and Fiduciary Systems Review which will be completed
in 2014. In addition, the program will also support government efforts to improve thecollection and reporting of oil revenues and related transfers by completing a flow-of-funds
report, which is expected to improve transparency and accountability in the management ofoil revenues, as well as reducing the uncertainty of revenue flows from Sonangol.
19. In order to improve efficiency and value for money in public procurement, the program
will support key policy measures including: (a) adoption of a PFM Reform Action plan; (b)launching of a Procurement Portal; (c) a revision of the procurement law; (d) adoption of the
procurement regulation; and (e) adoption of Standard Bidding Documents.
20. Finally, to ensure the success of the reform program, the Government has developed acomprehensive capacity building plan. It is seeking technical assistance and change
management support for a successful implementation of the reform.
21. In conclusion, we would like to reiterate the commitment of the Government to all thesereforms, and we trust that this request for your support for the implementation of ourDevelopment Agenda will receive your favorable consideration.
Yours sincerely,

Minister of Finance26

Appendix 2: Assessment of Eligibility Criteria of PBO
Prerequisite
Government
commitment topoverty
reduction,
andinclusive growth
Macroeconomic
stability

Satisfactory
fiduciaryrisk
assessment

Political stability

Comments on current situation
The Government of Angola is committed to reducing poverty and improving the well-being of its
population. This commitment is driven by the Government’s long-term development agenda as outlined
in its Vision 2025 for equitable and inclusive development for all Angolans. The strategic direction andoperational priorities are articulated in the National Development Plan (2013-2017), and Poverty
Reduction Plan (Estrategia de Combate a Pobreza, ECF, 2010-2015). This is also accompanied by the
National Energy Security Strategy and Policy 2011; and Energy and Water Action Plan 2013-2017.
Angola has emerged from a more than four decades of war to become Africa’s second largest oil
exporter. During the oil price boom of 2003-2008 Angola began to rebuild infrastructure, the oil andnon-oil sectors grew substantially, and per capita gross domestic product (GDP) reached middleincome levels. Nonetheless, the economy remained highly vulnerable to oil revenue volatility. Withhighly expansionary policies backing a full-steam reconstruction effort, Angola faced severe
macroeconomic imbalances after the collapse in oil prices in 2008-09. In response, government put inplace a stabilisation program accompanied by several reform measures towards regaining
macroeconomic stability. The program was supported by the IMF Stand-By Arrangements. Under the
program, considerable progress has been made, and Angola attained an improved fiscal position, amore comfortable level of international reserves, a stable exchange rate, and lower inflation. Largedomestic arrears were settled, and progress was made in strengthening fiscal transparency andaccountability. Macroeconomic conditions continued to improve in 2010 - 2013. Headline inflation
declined to single digit, the overall fiscal surplus increased, mainly due to high oil price. The externalcurrent account improved, and international reserves rose to the equivalent of 6.9 months import cover.
Based on the joint World Bank-IMF low-income country DSA, Angola remains at a low risk of debt
distress. The outlook for 2014-2016 remains favorable, notwithstanding the recent decline in oil prices.
The pace of the economic activities is expected to accelerate. The energy, transportation, andconstruction sectors are likely to benefit from a gradual scaling up of public investment program.
However, agriculture and food prices are affected by a drought. Over the medium term the government
is focusing on creating a fiscal space to support the scaling up of investment spending within reduced
revenue envelop. Threats to the outlook include the risk of slowing of the global economy anddeclining oil prices. Government of Angola maintain its relation with the IMF, and the second postprogram monitoring concluded successfully in March 2014 (see appendix 3).
A fiduciary risk assessment was carried out as part of the program preparation. Angola has recorded
steady progress in a number of aspects with in the PFM systems since the 2005 review of the
PEMFAR. In addition to the legal framework, there has been an improvement in the budgeting andreporting process with the adoption and use of the IFMIS (SIGFE). The system was rolled out to all
budget units to reinforce the budgetary mechanisms. The financial accounts have been subject to audit
by the Court of Auditors for the years 2011 and 2012. Reform has been introduced to enhancetransparency and accountability of oil revenue management. The quasi-fiscal operations undertaken bystate owned oil company (Sonangol) were phased out. The 2013 and 14 budget preparation included afirst-ever medium term macroeconomic framework (2013-2017). Although improving, capacity
constraints and weakness exists in the areas of budget, procurement and audit. The assessment
concluded that the fiduciary risk of Angola is high, and recommend the program to incorporate risk
mitigation measures and fiduciary safeguard measures and indicators to monitor its implementation. To
this end, measures have been proposed in the program to mitigate these risks including: theGovernment will submit quarterly Budget execution reports to the Bank during the program
implementation period; the operations will be audited (covering the funds flow and the use of funds) by
the Court of Auditors (Tribunal de Contas) or private audit firm; a consolidated annual state accounts
for 2014 and 2015 will be submitted to the National Assembly and Court of Auditors; implementationof procurement improvement action plan; building procurement capacity; review and adoption of new
procurement law and regulations; technical assistance to carry out a Public Expenditure Management
and Fiduciary Systems Review (PEMFSR) and preparation of PFM reform action plan drawing on thefindings and recommendations of the PEMFSR. It is also worth noting monitoring and quarterly reportsof the flow of funds will reinforce the control of the fiduciary risk. The program will be also bemonitored through enhanced supervision missions, regular local supervision by the Bank’s Office(AOFO) and in consultation with all the other partners.
Angola has maintained political stability since the end of the civil war in 2002. The new Constitution
adopted in February 2010 established a presidential parliamentary system. Parliamentary elections were
held under the new Constitution in August 2012. Movimento Popular de Libertação de Angola (MPLA)
has an absolute majority in parliament, with 175 out of 220 seats. The long-delayed first municipal
elections are expected to take place in 2015 and the next legislative election is scheduled for late 2016.

27

Harmonization

Average ODA disbursements in Angola represent less than 2.3% of GDP, and therefore donors’
influence in development coordination has been limited. In the process of preparing the proposed sector
budget support operation, the Bank consulted key development partners such as the World Bank, IMF,
EU, Norway and USAID. During the appraisal mission, the Bank organised a multi-stakeholder
workshop to discuss Bank’s intervention in infrastructure and the power sector in particular. The Bank
will continue to engage with cooperating partners to (a) develop a common understanding of thedeveloping challenges facing Angola; and (b) promote dialogue, and partnership in infrastructure andother areas of interventions critical for economic diversification and job creation.

28

Appendix 3: IMF Country Relations Note
IMF Executive Board Concludes the Second Post-Program Monitoring with Angola
Press Release No. 14/110
March 19, 2014
IMF Executive Board Concludes the Second Post-Program Monitoring with Angola
On March 5, 2014, the Executive Board of the International Monetary Fund (IMF) concluded theSecond Post-Program Monitoring with Angola.
Macroeconomic performance in 2013 reflected a marginal increase in oil production and a moderationof non-oil growth compared to previous years’ growth rates. Overall real GDP growth is estimated tohave decelerated to 4.1 %, down from 5.2 % in 2012. Growth in the non-oil sector was held down by
the agricultural sector’s slow recovery from the drought that affected large parts of the country in
2012, but is still expected to have reached 5.8 % in 2013 due to government spending bolstering
performance in the construction and power sectors. Inflation, after reaching single digits for the firsttime in decades at end-2012, declined to 7.7 % by end-2013, comfortably below the authorities’ 9 %target. The favorable inflation performance allowed the Monetary Policy Committee of the National
Bank of Angola (BNA) to reduce its policy rate by 100 basis points cumulatively throughout 2013, a
bit less than the decline in inflation. Gross international reserves stood at US$33.2 billion at endDecember 2013, the equivalent of about 7 months of projected 2014 imports.
Preliminary fiscal data indicate that Angola returned to a fiscal deficit for the first time since 2009,reflecting a sharp decline in oil revenue, while non-oil revenue and investment expenditure fell shortof their targets. The fiscal surplus, which had reached 5.1 % of GDP in 2012, is expected to haveturned to a deficit of about 1½ % of GDP in 2013. To finance the deficit and pay down domestic
arrears, Angola drew down its government deposits from the equivalent of about 5 months ofdomestically-financed government expenditure to around 4 months. As a result of arrears repayments,
total public debt is estimated to have declined to about 27 % of GDP.
Three significant institutional reforms were introduced in 2013. First, a new oil-sector foreignexchange law was implemented. The law requires oil firms to channel payments through the domesticbanking sector and to settle payments to resident suppliers in domestic currency. The legislation has
helped deepen Angola’s financial markets and aided with the de-dollarization process. The second
was the launch of Angola’s sovereign wealth fund, the Fundo Soberano de Angola (FSDEA), which
will be funded from some of the proceeds previously allocated to the Oil for Infrastructure Fund. Partof the funds from FSDEA will be invested in infrastructure projects with the objective of reducing
bottlenecks and supporting growth. The third was the legislative package which introduced, as part ofthe 2014 budget, a legal definition of arrears and a new procedure requiring the co-signature of the
Ministry of Finance for authorizing investment expenditure. These measures, along with institutional
capacity building efforts, are intended to address the recurrence of domestic arrears.
The pace of economic activity in 2014 is expected to accelerate gradually as public investment ininfrastructure creates opportunities for non-oil sector growth. Non-oil sector growth is expected toreach 6.4 %, underpinned by expanded investment in the power sector and road construction. The
2014 budget, if fully implemented, implies a further relaxation of the fiscal balance, with a projected
increase in the overall fiscal deficit to about 5 % of GDP to finance a sizeable expansion in public
investment needed to address infrastructure bottlenecks. Efforts to ease infrastructure gaps, improvethe business environment, and reform the financial sector are expected to support diversification andfurther non-oil sector growth. However, a rapid increase in government spending in 2014 may also
contribute to renew price pressures, limiting the scope for further interest rate reductions.
Executive Board Discussion
Executive Directors commended the authorities for Angola’s return to solid economic growth, withsingle-digit inflation, strong international reserves, and a stable exchange rate. However, they29regretted the continued weaknesses in public financial management and called for decisive efforts toaddress arrears.
While recognizing the continued improvement in the non-oil primary deficit, Directors expressed
concern that, based on preliminary data, the Angolan economy returned to an overall fiscal deficit
in 2013. Directors stressed the importance of mobilizing domestic resources, especially non-oil
revenue, and cautioned against permanent increases in government spending not accompanied by abroadening of the non-oil tax base, to avoid accumulation of debt. Directors also recommended
replacing fuel subsidies with targeted transfers for the most vulnerable.
Directors commended the progress in reducing inflation, while advising continued readiness toaddress any inflationary pressures. They were encouraged by the decisive progress toward reform andbetter oversight of the financial system, in line with the recommendations of the Financial Sector
Assessment (FSAP), as well as by the creation of a Financial Stability Committee. Directors notedthat the implementation of the foreign exchange law has proceeded as planned, and underscored theneed for continued careful monitoring, further strengthening of supervisory capacity, and enforcementof prudential rules. Directors saw merit in the creation of a sovereign wealth fund, but noted the needto clarify its objectives, integrate it into a broader asset-liability management strategy, and ensure aneffective accountability and transparency framework. They commended efforts to improve
compliance with international standards to combat money laundering and terrorist financing.
Directors underscored the importance of addressing key challenges for public financial management.
They urged the authorities to strengthen their efforts to reconcile oil revenue data, ensure a timely andcomplete transfer of oil revenue to the treasury, and continue to make progress in integrating quasifiscal operations in the budget, including infrastructure expenditure undertaken by Sonangol.
Directors noted the need to increase public investment in the context of enhanced efficiency of public
expenditure and service delivery, while taking into account absorptive capacity. They encouraged theauthorities to put in place reforms that will lead to higher, more inclusive, and diverse growth.
Directors expressed disappointment over the inaccurate reporting of data on domestic arrears
during 2010 and accounts payable during 2011, which led to noncomplying disbursements and breachof obligations under Article VIII, Section 5. Directors noted that capacity constraints and the lack of aclear definition of arrears under Angola’s legal framework were among the factors contributing to thisinaccurate reporting. They took note of the authorities’ corrective measures and new legislation
clarifying the legal definition of arrears and requiring the co-signature of the Ministry of Finance on
contracts for public investment projects. They underscored the need for resolute implementation of
the corrective measures, firm commitment to ending recurrent domestic arrears, and further progressin strengthening public financial management, taking advantage of Fund technical assistance.
In view of the corrective actions taken by the authorities, the Executive Board decided to waive thenon-observance of the performance criteria, the conditions for granting prior waivers for nonobservance of performance criteria, and the prior action that gave rise to non-complying purchases byAngola following the second through sixth reviews under the 2009 Stand-By Arrangement, anddetermined that no further remedial action is required in connection with the breach of obligations
under Article VIII, Section 5.

30

Appendix 4: Risks and Mitigation Measures
Risk

Mitigation measures

Macroeconomic risks due tovolatility of the commodity prices /oil price shocks

Probability/
ImpactMediumprobability/High
impactFiduciary
corruption.

includingHigh probability/
High impact

Implementation capacity risk.
Capacity constraints in Government
could cause delays in theimplementation of reforms.

Medium probability/
medium impact

Coordinated monitoring and dialogue aroundmacroeconomic management to manage shocks,
including the IMF article IV consultations. Accelerate
implementation of the ongoing structural reform toincrease the competitiveness of domestic production /diversification. Effective Management of theSovereign Wealth Fund to guarantee that theimplementation of capital projects continues
uninterrupted.
A fiduciary risk assessment was carried out andidentified mitigation measures to addresses theidentified risks. The mitigation measures include but
are not limited to: (a) Ongoing reforms to the budget
process, procurement, and the Public Investment
Program to appraise and manage capital projects, allsupported by the ongoing Bank’s capacity building
project; and the proposed operation. (b) The PBO
funds flow will be subjected to quarterly progress
reporting and annual audits. (c) Bank’s support to
PEMFSR and its action plan. (d) Quarterly fiscal
information (budget execution); and submission ofannual audit reports (covering the funds flow and theuse of funds) to the Bank. (e) Preparation of aconsolidated annual state accounts and submission to
the National Assembly and Court of Auditors(Tribunal de Contas) for audit. (f) Implementation of
procurement improvement action plan, and building
procurement capacity. (g) Review and adoption of
new procurement law and regulations. (h) Technicalassistance to carry out a Public ExpenditureManagement and Fiduciary Systems Review(PEMFSR) and preparation of PFM reform action
plan drawing on the findings and recommendations of
the PEMFSR. Monitoring and quarterly reports of theflow of funds will reinforce the control of thefiduciary risk. Details of the mitigation measures ispresented in Technical Annex 8. The program will bealso be monitored through enhanced supervision
missions, regular local supervision by the Bank’s
Office (AOFO) and in consultation with all the otherpartners.
The operation will include a complementary capacity
building component with the aim to strengthening
capacity in areas supported by PBO. The ongoing two
PFM projects will help strengthen the capacity of key
institutions that are entrusted with the responsibility ofensuring transparency and efficiency in public finance

risk

31

Appendix 5: Operations Policy Matrix
POWER SECTOR REFORM SUPPORT PROGRAM

Medium term
policy objectives

Restructuring
power sector

Improving
regulatoryenvironment

Outcomes(Monitoring indicators)
2016
Pillar 1: Restructuring the power sector and Improving Regulatory Environment
Presidential Decree establishing three utility Contractual agreements (PPA etc.) Electricity sector revenue collection
companies signed. Evidence required: Copy of the between the three utility companies increased to USD 140 million (fromsigned Presidential Decree.
signed.
USD 90 million in 2013)
Policy measures (2014)

Policy measures (2015) –Adoption of the by-laws “estatutos”
for the generation, transmission anddistribution companies.

theSubmission of draft revised General Electricity
Law to Cabinet “Casa Civil”. Evidence required:A letter from the Minister of Energy and Water
confirming the submission of the draft revised
general Electricity Law to Cabinet “Casa Civil”.
Submission of a tariff proposal to the Economic Amendment of the Presidential Decree
Commission. Evidence required: A letter from the establishing IRSE.
theMinister of Finance confirming the submission of Adoption of a new Tariff Adjustment
the Tariff Proposal to Economic Commission.

CSP goals to which theprogram is contributing
Pillar 2: Support to economic
infrastructuredevelopment
includingpower,
water,
transport etc

Distribution System Average Service
Availability Index (ASAI) 20 of 75%(up from less than 60% in 2013)
40% of all customers metered (upfrom less than 20% in 2013)
Board and senior Management
positions of new power utilities and
IRSE comprise at least 30% women.
1,120 members of staff trained, atleast 30% women.

Pillar 2: Fostering private sector investment in the power sector
Submission of a Renewable Energy White Paper Renewable
EnergyRegulation At least 6 IPP RE contracts awarded
to Cabinet “Casa Civil”. Evidence required: A including Feed-In Tariff (REFIT) based on REFIT
letter from the Minister of Energy and Water adopted.
Improved incentive
confirming the submission of the Renewable
and business
Energy White Paper to Cabinet “Casa Civil”, Renewable Energy Resource Mapping
environment for
together with a copy of the White Paper.
Published.
the private sector
participation

Pillar 1 - Stimulus to thecompetitiveness of theeconomy through capacity
building of entrepreneurship,
climate change andenvironment management,
public expenditure andfinancial management reviews,
policy dialogue and diagnostic
work.

Pillar 3: Enhancing transparency and efficiency in public finance
Maintaining budget The 2014 “Citizen budget” published and posted
credibility
and in the Ministry of Finance Website. Evidencetransparency
required: Copy of the 2014 citizen budget and20

Submission of the 2012 General State
Budget to Tribunal Court of Account,
and Parliament.

Variance
betweenexpenditure
outturns and original budget reduced
from over 25% (2013) to below 10%

Pillar 1 - Stimulus to thecompetitiveness of theeconomy through capacity

Is the ratio of the total number of customer hours that service was available during a given time period to the total number of customer hours demanded.

29

Medium term
policy objectives

Policy measures (2014)

Policy measures (2015) –print screen of the website

Outcomes(Monitoring indicators)
2016(2016)The 2013 Oil Revenue Reconciliation Report
Adoption of a revised National
published and posted in the Ministry of FinanceInspectorate of Finance Regulation.
Website. Evidence required: Copy of the 2013 oilrevenue reconciliation report and print screen of
the website.
Amendment to the Organic Budget Law andA medium term PFM reform action
Stock of outstanding domestic arrears
Budget Execution Rules to strengthen budget
plan adopted by the Ministry of(USD 1.6 billion in 2013) reduced to
institutions and reduce the recurrence ofFinance.
0 by 2016.
Government Domestic Arrears. Evidence
required: Copy of Presidential Decree 232/13.
Public Procurement Action Plan approved by the
Submission of a draft revised
Execution rate of Public Investment
Ministry of Finance. Evidence required: A letter
procurement law to Parliament.
Plan (PIP) increased from 50%
from the Ministry of Finance confirming the(2013) to 75% (2016)
approval of the 2014-2016 Public Procurement
Adoption of the procurement
Improved
Action Plan together with a copy of the Public
regulation.
efficiency
and Procurement Action Plan
value for money
Establishment of Technical Procurement Agency
Adoption of Standard Bidding(UTN). Evidence required: Copy of theDocuments (SBD) by the Ministry of
Presidential Decree 169/13
Finance.
Procurement Portal established. Evidence
required: print screen of the Procurement Portal
Pillar 4: Enhanced gender mainstreaming and environmental and social safeguards
Improved gender Adoption of Gender Policy to mainstream gendermainstreaming in in main ministries
policy making

Implementation of gender action planin main ministries for the roll out of
the gender policy

Female representation in boards ofutility companies increased from 23%
in 2013 to at least 30% by 2016

Strengthened
New tariff proposal submitted to Economic Commission
environmental
and included a special tariff for most vulnerable households
social safeguards inthe power sector

Adoption and implementation ofcommunications plan regarding tariff
revision

100% of energy projects screened inaccordance with EIA guidelines

Adoption of Environmental Impact
Assessment guidelines for the energy
sector

CSP goals to which theprogram is contributing
building of entrepreneurship,
climate change andenvironment management,
public expenditure andfinancial management reviews,
policy dialogue and diagnostic
work.

Pillar 1 - Stimulus to thecompetitiveness of theeconomy through capacity
building of entrepreneurship,
climate change andenvironment management,
public expenditure andfinancial management reviews,
policy dialogue and diagnostic
work.

30

31

APPENDIX 6: ANGOLA: COMPARATIVE SOCIO-ECONOMIC INDICATORSGNI Per Capita US $
4500
4000
3500
3000
2500
2000
1500
1000
500
0

2011

2012

2011

2012

2011

2012

Infant Mortality Rate
( Per 1000 )
120
100
80
60
40
20
0
2010

last update :

0

2009

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators;
UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports.
Note : n.a. : Not Applicable ; … : Data Not Available.

2010

10.8
-0.2
40.4
11.6

2010

10.7
0.4
28.7
3.0

Africa

2008

7.6
0.6
23.0
1.2

2009

3.3
0.2
46.8
1.4

2011
2000-2009
2011
2009

2009

Environmental Indicators
Land Use (Arable Land as % of Total Land Area)
Annual Rate of Deforestation (%)
Forest (As % of Land Area)
Per Capita CO2 Emissions (metric tons)

0

2007

102.7
102.3
100.4
100.0
81.3
…
…
…
5.5

71
61
51
41
31
21
11
1
2008

107.8
106.2
66.4
65.1
58.6
80.2
85.9
74.8
4.5

2008

107.0
103.1
46.3
41.9
39.2
71.5
78.4
64.9
5.3

Life Expectancy at Birth(years)

2006

124.5
111.6
31.3
25.5
40.0
70.4
82.6
58.6
3.5

Africa2007

Education Indicators
Gross Enrolment Ratio (%)
Primary School- Total2009-2012
Primary School- Female
2009-2012
Secondary School - Total
2009-2012
Secondary School - Female
2009-2012
Primary School Female Teaching Staff (% of Total) 2009-2012
Adult literacy Rate - Total (%)
2011
Adult literacy Rate - Male (%)
2011
Adult literacy Rate - Female (%)
2011
Percentage of GDP Spent on Education
2008-2010

2007

291.9
734.3
...
99.1
100.0
96.1
0.5
23.0
95.4
93.5
1.4
3 285
7.4

2005

103.7
168.7
64.3
86.5
80.0
56.8
0.9
146.0
83.9
83.7
17.0
2 675
2.9

0

2006

49.2
133.0
53.7
67.8
65.2
40.2
4.6
234.6
81.6
76.5
19.8
2 481
5.9

2006

8.0
135.0
47.3
53.4
24.0
58.7
2.1
310.0
88.0
88.0
15.6
2 079
2.2

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

2004

Health & Nutrition Indicators
Phy sicians (per 100,000 people)
2004-2010
Nurses (per 100,000 people)*
2004-2009
Births attended by Trained Health Personnel (%)
2006-2010
Access to Safe Water (% of Population)
2011
Access to Health Serv ices (% of Population)
2000
Access to Sanitation (% of Population)
2011
Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS
2011
Incidence of Tuberculosis (per 100,000)
2011
Child Immunization Against Tuberculosis (%)
2011
Child Immunization Against Measles (%)
2011
Underw eight Children (% of children under 5 y ears) 2007-2012
Daily Calorie Supply per Capita
2009
Public Ex penditure on Health (as % of GDP)
2010-2011

AfricaPopulation Growth Rate (%)

2005

0.3
0.7
16.4
16.6
49.2
94.3
45.6
77.7
81.1
11.3
10.3
5.6
6.7
1.7
16.0
71.4

2004

1.3
2.6
28.5
6.0
52.6
103.3
53.3
68.2
70.1
21.4
7.6
40.9
57.7
2.6
240.0
62.4

2005

2.3
3.4
40.0
3.6
77.3
100.0
49.8
58.1
59.1
33.3
10.9
71.4
111.3
4.2
415.3
34.5

2004

3.1
4.4
47.7
2.4
93.9
98.3
22.2
51.5
53.0
44.8
14.2
96.8
156.7
6.0
450.0
14.4

2011

0

Demographic Indicators
Population Grow th Rate - Total (%)
2012
Population Grow th Rate - Urban (%)
2012
Population < 15 y ears (%)
2012
Population >= 65 y ears (%)
2012
Dependency Ratio (%)
2012
Sex Ratio (per 100 female)
2012
Female Population 15-49 y ears (% of total population)
2012
Life Ex pectancy at Birth - Total (y ears)
2012
Life Ex pectancy at Birth - Female (y ears)
2012
Crude Birth Rate (per 1,000)
2012
Crude Death Rate (per 1,000)
2012
Infant Mortality Rate (per 1,000)
2012Child Mortality Rate (per 1,000)
2012
Total Fertility Rate (per w oman)
2012
Maternal Mortality Rate (per 100,000)
2006-2010
Women Using Contraception (%)
2012

2010

35,811
1,249.2
78.0
23.5
37 653
72.0
44.5
0.911
...
...

2009

98,4585,830.9
47.1
69.8
3 795
68.7
38.9
0.694
...
20.6

2008

30,323
1,070.1
40.8
34.5
1 604
37.8
42.5
0.525
...
40.0

2007

1,247
20.8
60.0
15.7
4 580
35.4
45.8
0.439
148
43.4

2006

Basic Indicators
Area ( '000 Km²)
2011
Total Population (millions)
2012
Urban Population (% of Total)
2012
Population Density (per Km²)
2012
GNI per Capita (US $)2012
Labor Force Participation - Total (%)
2011-2012
Labor Force Participation - Female (%)
2011-2012
Gender -Related Dev elopment Index Value
2005-2011
Human Dev elop. Index (Rank among 187 countries) 2008-2012
Popul. Liv ing Below $ 1.25 a Day (% of Population) 2009-2011

2005

Africa2004

Angola2003

Year

Develo- Developing
pedCountries Countries

Africaoctober 201329

Appendix 7: Rationale for Power Sector Reforms
With the end of civil war in 2002, Angola has remained on a fast growth path and recognizes
that the status of the power sector characterized by electricity shortages and frequent outages
is far below what is needed toBox1: National Energy Security Strategy & Policy (2011), Priority
support its economic development
Actions
agenda. Aware of this reality, the 1. Conclude investment monitoring structure and begin regular progress
Government prepared the National
monitoring;
Energy Security Strategy and 2. Ensure implementation of the investment program and accelerate thelaunch of the projects on future energies (CCGT and hydro) as well as the
Policy (NESSP) 2011 paper totransmission and distribution projects.
establish and prioritize the actions 3. Implement the restructuring plan, and the public private participation
framework in the sub-sector according to the business model andneeded to address apparent
organization target, and strengthen internal capacities through recruitment/
institutional and infrastructure
training of skilled technicians;
weaknesses, in particular the 4. Develop policy and regulatory framework for renewable energy;
relationship between the various 5. Promote IRSE empowerment (roles and abilities strengthening) anda revision of the regulatory framework;
power utility entities and the need 6. undertake
Define a private investment attracting framework as well as its regulatory
for mobilizing resources from theframework;
public and private sector to 7. Propose a progressive tariffs evolution in order to ensure the reduction ofsubsidies to the final consumer tariffs and uniform prices all over the
rehabilitate, expand and modernize
country;
the electricity network. The 8. Restructure and strengthen the public sector capacities and efficiency inthe entire sub-sector.
strategy recommended nine (9)9. Promote a contractual relationship among the sub-sector stakeholders inpriority Actions (Box 1) ranging
order to ensure the economic and financial sustainability throughout thefrom unbundling of the power
value chain.
utilities to empowering theregulatory agency, IRSE for better supervision of the electricity sector. In addition the
NESSP also recommended development of polices that allow the use of endogenous energy
resources, ensuring the convergence between the principles addressing energy security,
efficient technologies, efficient management processes and promotion of environmentally
sustainable power development 21.
To convert the strategy document into implementable actions, the Government commissioned
a detailed feasibility study, the Electricity Sector Transformation Program (PTSE) with
key objective of undertaking a diagnostic study of the sector and submission of the mostappropriate design of the electricity market model, and development of the sector reform
roadmap. In its recommendations, the PTSE study proposed that power sector reform evolve
through four (4) phases each with clear milestones and specific deliverables (Table 1).
Preparatory Phase has three Stages. Stage 1, completed in September 2013 undertook
diagnostic study and design. Stage 2 is expected to be completed by April 2014 with thedecree on unbundling of ENE, GAMEK and EDEL and establishing in their place three new
power entities (Generation, Transmission, and Distribution), and strengthening of the IRSE.
Stage 3 expected to last until mid-2014 is the actual restructuring stage and introduction ofbest practices in utility management. Phase 1, runs from 2014 to 2017 and coincides with theend of the Energy and Water 2013-2017 Action Plan. This is the stabilization phase of the
new power companies and has three stages starting with tariff and subsidy review andmodelling. Phase 2, commencing from 2018 – 2021 introduces the concept of sector-wide
operational efficiency with tariffs approaching cost of production and includes incentivized(Feed-In tariffs) participation of private sector in the Renewable Energy (RE) in rural areas.
21

Currently the installed grid generation is less than 33% hydro and the remainder comprising diesel power. The
objective is to eliminate the use of diesel based generation so that by 2025, combined cycle thermal power
plants will account for 10% and hydropower will account for 90% of the total installed capacity of 8,742 MW.

30

Phase 3, 2021 – 2025 will introduce the concept of liberalization of the energy sector
including full participation of Independent Power Producers at all levels and improvement of
the energy mix with greater attention to RE and cleaner thermal based power plants. This
stage will also see partial liberalization of distribution systems. To ensure sector
sustainability and attract adequate private investment in power infrastructure development, tt
is vitally important that at the time of market liberalization, tariff have reached cost reflective
levels. This will depend on the overall pace of sector reforms, improvement of sector-wide
operational and business efficiencies and the ability of the GoA to accelerate implementationof cheaper sources of energy. The proposed capacity building under this operation and close
dialogue with Bank and other DPs on the reform process will be crucial for the sustainabilityof the reform and achievement of the set targets. .
The new market structure accepted by the Government is the classic Single-Buyer model
which calls for unbundling the power utility into intrinsic core business areas (Generation,
Transmission and Distribution), establishing commercial contracts between the market
participants, and amending laws to improve market regulations, enhance sector efficiency andencourage participation of the private sector. The single-buyer model has inherent advantages
such as (a) its simplicity which allows for gradual transition to competitive market for
generation, (b) it enables the Government to efficiently re-capitalise the core business units
and closely monitor their performance, (c) it provides for better balancing of supply anddemand, and (d) it contributes to maintaining a stable power system in a rapidly evolving
electricity market. It is worth noting that the Transmission system, as a natural monopoly,
will remain a public sector entity. To address rural access to electricity services and enhance
operational efficiency, the PTSE study proposed that the distribution be further unbundled
into 5 geographic regions with a total of 18 business units.
Prep Phase2010-2013

Diagnostic
and Design

Phase I
2014-2017

Stabilization

Phase II Transition to
2018-2021
efficiency
Phase III
Partial2021-2025 Liberalization

Table 1 – PTSE Reform Phases – Actions and Goals
Studies to determine the most appropriate restructuring Goal: Revision of Generalmodel, amend applicable laws and develop other
Electricity law; Decree on creation
instrument required to support it.
of 3 new utilities
Stabilize; Reducing system & revenue losses; Develop Goals: All points supply metered.
Tariff model; Roll-out prepayment;
Tariff adjustment towards costreflective value
Reduction of system losses; Setting the tariff model; Set Goals: Regulatory model defined;
regulatory model with efficiency incentives. Allow
Effective sector regulation by IRSE
limited RE IPPs using RE-FIT
Restructuring of the sector (PPPs, IPPs, Distribution
Goals: Sector sustainability,
system concessions); Reduction of system costs;
efficiency and high quality of supply
coexistence of bilateral contracts & market competition

The NESSP is aligned with the infrastructure development pillar of the National
Development Plan 2013-2017 and together with the PTSE program underpins the US$ 23
billion Energy and Water Action Plan 2013-17 that includes nearly 300 infrastructure projects
on power generation (US$13.8 billion), transmission & distribution lines (US$5.9 billion),and electrification of 13 Municipalities (US$3.3 billion) adding over 800,000 new customers
by 2017 with greater focus to the rural areas where access is less than 9% to stimulatesocioeconomic activities in the rural areas and stem the flow of young people to cities where
prospects for gainful employment are slim. In particular the Government has alreadycommitted USD 5.3 billion for several ongoing power infrastructure projects including
construction of the first phase of Soyo 900 MW combined cycle gas power plant, upgradingof Cambambe hydropower plant to 700MW, extension of transmission lines, rehabilitation of
the distribution system and installation of energy meters. Table 2 shows some indicative
target figures.

31

Table 2 - Plan start point and objectives22.
Designation

2012

2017

2025

Installed Power – Hydro and other Renewables

798MW
1322MW

3832MW
1868MW
5700MW
17TWh
4,694 Km
1.500.00019%42%7842MW

Installed Thermal based Power
Total Installed Capacity

2120MW

Total Estimated Electricity Energy Demand

8TWh

Grid Length

2.942 km

Customers

752.000

Technical and Commercial energy losses23

24%

Electricity Access

30%

900MW
8742MW
33TWh
5.500 km2.500.000
9%
60%

22

PTSE Feasibility study
23 Billing not collected, not included (losses of 32%)

32

Appendix 8:Country Map

29