Private Solutions for Infrastructure in Angola - ISBN - ppiaf

Private SSolutionsfor IInfrastructurein AAngola

A C O U N T R Y F R A M E W O R K R E P O R T

THE WORLD BANK

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY

Private Solutionsfor Infrastructure

in Angola

Private Solutionsfor Infrastructure

in Angola

A Country Framework Report

The Public-Private Infrastructure Advisory Facilityand the World Bank Group

© 2005The International Bank for Reconstruction

and Development/THE WORLD BANK

1818 H Street, NWWashington, DC 20433

Telephone: 202-473-1000Internet: www.worldbank.org

E-mail: [email protected]

All rights reserved.

Manufactured in theUnited States of America.

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ISBN 0-8213-6017-5

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v

Acronyms and Abbreviations ixAcknowledgments xiExecutive Summary 1

1. Introduction 11Study Goal 11

2. Country Context and Role of PPI 13Economic and Political Setting 13Infrastructure in Angola 15Potential Role of Private Participation in Infrastructure 16Critical Importance of Independent Regulation 17Advantages of PPI and Range of Possible Forms 18PPI Investor Criteria 19

3. Crosscutting Issues 21Economic Environment 21Legal and Regulatory Environment 26

4. Electricity and Gas 38Introduction to the Electricity Sector 38Key Organizations 38Legal and Regulatory Framework 39Current Situation in the Electricity Sector 40PPI Opportunities in Electricity 45Identification of Barriers to PPI in Electricity 49Introduction to the Gas Sector 52Gas Sector Structure 52Legal and Regulatory Issues 53Current Situation in the Gas Sector 53Future PPI Opportunities 55Conclusions on Gas 56

5. Water and Sanitation 59Introduction 59Legal and Regulatory Framework for the Water Sector 59Water Sector Structure 60

Contents

Current Situation in the Urban Sector 61Water Supply and Sanitation in Rural Centers 64PPI Opportunities 65PPI Constraints—Water and Sanitation 70Solid Waste Collection in Luanda 70

6. Transport 75Roads and Highways—Organizations 75Legal and Regulatory Framework 75Roads and Highways—Current Situation 75PPI Opportunities in Roads 76PPI Barriers in Roads and Highways 78Railways—Sector Structure and Key Organizations 79Legal and Regulatory Framework 79Railways—Current Situation 80PPI Opportunities in Railways 82PPI Barriers in Railways 83Ports—Sector Structure and Key Organizations 84Legal and Regulatory Framework 84Ports Sector—Current Situation 84PPI Opportunities in Ports 85PPI Barriers in Ports 87Airports—Sector Structure and Key Organizations 87Legal and Regulatory Framework 87Airports Sector—Current Situation 87PPI Opportunities in Airports 89PPI Barriers in Airports 90

7. Telecommunications 91Scope of Sector 91Key Organizations and Sector Structure 92Legal and Regulatory Framework 93Current Situation in the Sector 95PPI Opportunities in Telecommunications 100Identification of PPI Barriers 100

8. Promoting PPI: Key Measures and Recommendations 102Crosscutting Issues 102Electricity 105Water, Sanitation, and Solid Waste 109Transport 113Telecommunications 115

AppendixesAppendix A: Independent Regulation 121Appendix B: Multi-Utility Regulator 123Appendix C: Targeting Subsidies 125Appendix D: Power Plants 129Appendix E: Telecommunications White PaperPrivatization Steps 131Appendix F: Telecommunications Sector Liberalization 132Appendix G: Angola Telecom Sales 133

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Appendix H: PPI Approval and Post-Approval Issues 135Appendix I: Angola Power Sector (Map) 137Appendix J: Angola Water Sector (Map) 138Appendix K: Angola Transport Sector Potential PPI Opportunities (Map) 139Appendix L: Angola Telecommunications Sector Proposed Development of Transmission Backbone (Map) 140

Figures2.1 Forms of PPI 183.1 Approval Process for Investments

(US$ 100,000 to US$ 5 million) 353.2 Approval Process for Investments

(US$ 5 million to US$ 50 million) 353.3 Contractual Regime 363.4 Post-approval Process 364.1 Power Sector Institutions 395.1 Institutional Arrangements for PPI in Urban Water

in Mozambique 676.1 Road Network in Angola 766.2 Port of Luanda Performance 846.3 Port of Luanda Forecasts 857.1 Growth in Sales of AT by Service 98

Tables1.1 PPI Investor Criteria 32.1 Educational Expenditures 142.2 Main Economic Indicators 142.3 SADC Infrastructure Indicators 152.4 PPI Experience in Angola 162.5 PPI Investor Criteria 192.6 Increasing Requirements for Satisfaction

of PPI Criteria 203.1 Provisions of Law on Tax and Customs Incentives

for Private Investment 243.2 Main Legal Instruments Relevant to PPI Investors 273.3 Infrastructure Sector Legal Instruments 284.1 Key Energy Statistics 414.2 Forecast Growth in Generation, 2006–2016 414.3 ENE’s Power Generation Capacity 424.4 ENE Rehabilitation Investment Plan 434.5 Low Voltage Electricity Tariffs 434.6 EDEL Profit/Loss 2001 444.7 ENE Profit/Loss 2000 444.8 PPI Constraints in Electricity 515.1 PPI Constraints in Water and Sanitation 716.1 Road Network by Type 766.2 Rail Rolling Stock by Company 816.3 Operating and Financial Data by Rail Company 816.4 Operating and Financial Statistics of Angolan Ports, 2001 85

6.5 Main Airport Network 886.6 Airport Passengers and Cargo Traffic, 2000 887.1 Telecommunications Act 937.2 Forecast of Fixed and Mobile Markets 967.3 SADC Countries: Comparative Teledensity 977.4 Estimate for Active Mobile Customers 998.1 Recommendations: Crosscutting Issues 1048.2 Recommendations: Electricity 1088.3 Recommendations: Water and Sanitation 1108.4 Recommendations: Transport 1168.5 Recommendations: Telecommunications 119

A1.1 Safeguards to Ensure “Independence” 122C1.1 Designing Incentive Structures 126C1.2 Structuring Subsidy Flows 127C1.3 Contract Procurement 127D1.1 Hydro Power Plants in Angola 129D1.2 Thermal Power Plants in Angola 130E1.1 Privatization Steps Proposed in the Telecommunications

White Paper 131F1.1 Preparation for Liberalization 132F1.2 MCT Strategies and Liberalization 132G1.1 Angola Telecom Sales 133G1.2 Angola Telecom UTT Sales 134

Boxes3.1 Infrastructure Political Risk Factors of Concern to PPI Investors 223.2 Improved Accounting and Fiscal Discipline in Public Enterprises 223.3 Angolan Taxation Policy and Levels 233.4 Concessionary Finance for Infrastructure Investments 254.1 Electricity Supply in Huambo 474.2 Guatemala: Large-Scale Rural Electricity Implementation 484.3 Cambodia: Small Rural Electricity Enterprises 495.1 Luanda’s Chafarizes 635.2 Technologies to Provide Different Levels

of Water Supply Service 665.3 PPI to Disseminate Alternative Water Delivery Technologies 685.4 Community Involvement in Solid Waste Management

in Luanda 726.1 Private Sector Involvement in Road Maintenance

and Construction in Mozambique 796.2 Recent Trends in Private Participation in Port Facilities 866.3 Recent Trends in Private Participation in the Airport Sector 90

H1.1 Legal Fees and Registration 135

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ix

ANIP National Private Investment Agency(Agência Nacional de Investimento Privado)

AT Angola Telecombbl BarrelBCI Banco de Comércio e Indústria bcm Billion cubic meters bn BillionBNA National Bank of Angola (Banco Nacional

de Angola)BOO Build-own-operateBOT Build-operate-transferBPC Banco de Poupança e CréditoCCGT Combined-cycle gas turbineCFB Railway Company of Benguela

(Companhia de Caminhos de Ferro de Benguela)

CFL Railway Company of Luanda (Empresa de Caminhos de Ferro de Luanda)

CFM Railway Company of Moçamedes(Companhia de Caminhos de Ferro deMoçamedes)

CFR Country Framework ReportCM Council of MinistersCRA Water Regulator (Conselho de

Regulação do Abastecimento de Água)

CRIP Private Investment Registration Certificate (Certificado de Registração de Investimento Privado)

DEOCSA Eastern Electric Distribution Company,Guatemala (Distribuidora Eléctrica deOccidente, S.A.)

DEORSA Western Electric Distribution Company,Guatemala (Distribuidora Eléctrica deOriente, S.A)

DNA National Directorate of Water (DirecçãoNacional de Águas)

DNE National Directorate of Electricity (Direcção Nacional de Electricidade)

DNT National Directorate of Telecommunications (DirecçãoNacional das Telecomunicações)

EAIF Emerging Africa Infrastructure FundEDC Cambodia Electric Power Company

(Electricité du Cambodge)EDEL Electricity Distribution Company of

Luanda (Empresa de Distribuição deElectricidade de Luanda, E.P.)

ELISAL Sanitation and Wastewater Company of Luanda (Empresa de Limpeza eSaneamento de Luanda)

ENANA National Airport and Air NavigationDevelopment Company (EmpresaNacional de Exploração de Aeroportos eNavegação Aérea)

ENATEL National Telecommunications Company(Empresa Nacional de Telecomunicações)

ENCT National Post and Telegraph Company(Empresa Nacional de Correios e Telégrafos)

ENE National Electricity Company (Empresa Nacional de Electricidade)

EPAL Water Company of Luanda (Empresa Publica de Águas de Luanda, E.P.)

Acronyms and Abbreviations

Acronyms and Abbreviations

x

ESCO Energy Service Company FADCOM Angolan Telecommunications FundFIPAG Water Supply Investment and Asset

Fund, Mozambique (Fundo de Investimento e Património do Abastecimento de Água)

GARE Office for Entrepreneurial Restructuring (Gabinete de Redimensionamento Empresarial)

GDP Gross domestic productGOA Government of AngolaGPL Governo da Provincia de Luanda

(Luanda Provincial Government)GT Gas turbineGURN Government of Unity and National

Reconciliation (Governo de Unidade eReconciliação Nacional)

GWh Gigawatt hourHDI Human Development IndexHV High voltageIIE Foreign Investment Institute (Instituto de

Investimento Estrangeiro)IMF International Monetary FundINACOM Angolan Institute of Communications

(regulator) (Instituto Angolano das Comunicações)

INE National Statistics Institute (InstitutoNacional de Estatistica)

INEA National Road Institute of Angola (Instituto Nacional de Estradas de Angola)

IPP Independent power producerIRSE The Electricity Sector Regulator

(Instituto Regulador do Sector daElectricidade)

ISP Internet service providerITEL Telecommunications Institute (Instituto

de Telecomunicações)JV Joint venturekm KilometerkV KilovoltKz KwanzakWh Kilowatt hourLNG Liquefied natural gasLOT Lease-operate-transfer LPG Liquid petroleum gasLV Low voltageMCT Ministry of Posts and Communications

(Ministério dos Correios eTelecomunicações)MINEA Ministry of Energy and Water (Ministério

da Energia e Águas)

MOF Ministry of Finance (Ministério das Finanças)

MOP Ministry of Planning (Ministério doPlaneamento)

MPLA Popular Movement for the Liberation of Angola (Movimento Popular de Libertação de Angola)

Mt Million tonsMt/yr Million tons per yearMV Medium voltageMW MegawattNFOBN National Fiber Optic Backbone

NetworkNGL Natural gas liquidsNGO Nongovernmental organizationNIE National Institute of Electricity

(Instituto Nacional de Electricidade)NRECA National Rural Electricity Cooperatives

AssociationOBA Output-based aidOGE Central government budget (Orçamento

geral do estado)p.a. Per annumPES Economic and Social Program for 2001

(Programa Económico e Social para o Anode 2001)

POTS Plain old telephone servicesPPI Private participation in infrastructurePPIAF Public-Private Infrastructure Advisory

FacilityPSA Production sharing agreementREE Rural electricity enterpriseROO Rehabilitate-own-operateROT Rehabilitate-operate-transferSADC Southern African Development

CommunitySMP IMF Staff Monitored Programme SOE State-owned enterpriseSonangol National Petroleum Company of Angola

(Sociedade Nacional de Combustiveis de Angola)

SSA Sub-Saharan Africa TAAG Angolan Airlines (Linhas Aéreas de Angola)tcf Trillion cubic feetUNITA National Union for the Total

Independence of Angola (UniãoNacional para a Independência Total de Angola)

US$ United States dollarsUTT Telecommunications tariff unitsWP Telecommunications White Paper

xi

The Country Framework Report for Angola is one of aseries of country reviews aimed at improving the envi-ronment for private sector involvement in infrastructure.Prepared at the request of the government concerned,country framework reports have three main objectives,namely to: (1) Describe and assess the current status andperformance of key infrastructure sectors; (2) Describeand assess the policy, regulatory, and institutional envi-ronment for involving the private sector in those sectors;and (3)Assist policymakers in framing future reform anddevelopment strategies and to assist potential private sec-tor investors in assessing investment opportunities.

The Public-Private Infrastructure Advisory Facility(PPIAF) and the World Bank are publishing this reportjointly. PPIAF is a multi-donor technical assistance fa-cility aimed at helping developing countries improvethe quality of their infrastructure through private sec-tor involvement. For more information on the facilitysee the website: http://www.ppiaf.org.

Alan Townsend and Stephan von Klaudy of theWorld Bank led the design and preparation of this re-port, with inputs from and a subsequent review bymembers of the World Bank’s Angola Country Team. Inaddition, the report was subject to an assessment by theWorld Bank’s Quality Assurance Group. The maincounterpart on the part of the Government of Angolawas the Ministry of Planning.The Ministry of Planningheaded an inter-ministerial steering group comprisingrepresentatives from the Ministry of Planning, theMinistry of Communications, the Ministry ofPetroleum, the Ministry of Water and Power, and theMinistry of Public Works,which supported the country

framework report process. The steering group alsoorganized reviews of the report’s drafts at various stagesof the process.Work on the report began in September2002 and was completed in December 2003.

The report preparation process of all countryframework reports is intended to facilitate dialogueamong key stakeholders on priorities for governmentreform and the concerns of investors, policymakers,and consumers of infrastructure services. Therefore,work in progress for the report was discussed at twohigh-level workshops held in Luanda in March andJuly 2003, where representatives participated from therelevant government ministries, sectoral agencies, in-frastructure state companies, and the private sector.

The consulting firm ECA Economic ConsultingAssociates prepared the report, under the leadership ofRay Tomkins, with the participation of PARTEXInformação, Gestão e Economia, and CONSULTSociedade Angolana de Estudos e Consultoria Lda.

The study team benefited enormously from the co-operation and insights of a large number of people inAn-gola,including members of the government,private sec-tor representatives, and staff members of bilateral andmultilateral donors. It would have been impossible toproduce this document without their help. PPIAF andtheWorld Bank wish to acknowledge the strong and sus-tained support and commitment of the Government ofAngola and the different stakeholders during the process.

The contents and recommendations of the reportare the exclusive responsibility of the study team anddo not represent the official position of the Govern-ment of Angola, PPIAF, or the World Bank.

Acknowledgments

1

A team of British, Portuguese, and Angolan consultantsprepared A Country Framework Report for Angola for theMinistry of Planning (MOP) in Angola. A countryframework report (CFR) describes the opportunities,barriers, and measures to promote private participationin infrastructure development.The work was done forthe Government of Angola (GOA); PPIAF financedthe activity.

The study’s main aim is to assist the government indeveloping policies and a framework to promote pri-vate participation in the rebuilding and developmentof Angola’s infrastructure.

Following the years of conflict and the resultingdamage to the country’s infrastructure, as well as thenegative impacts on economic growth and develop-ment, the country’s investment needs are enormous.This study is particularly focused on how to maximizethe private sector’s role and contribution.The report’sscope is on investment in infrastructure in the follow-ing sectors:• Electricity and gas• Water and sanitation• Transport• Telecommunications

For each sector, a separate section in the report cov-ers the current situation, opportunities for private sec-tor participation in infrastructure (PPI), PPI barriers,and measures and actions to promote more private in-volvement. A further section covers cross-sectoralissues. The CFR concludes with an action plan thatidentifies the steps that need to be taken to promote,

encourage, and facilitate PPI in the short, medium, andlong term.

The CFR examines PPI opportunities over themedium to long term, interpreted to mean from about2005 to 2020.There is also much need for short-termand emergency infrastructure rehabilitation andrepairs. Although these are mainly outside the study’sscope, the CFR identifies some immediate actions thatcan be conducted now at limited cost to start theprocess of promoting PPI.

Economic and Political Setting The April 4, 2002, signingof a formal ceasefire agreement between MPLA andUNITA in Luanda marked the end of nearly fourdecades of conflict in Angola.The protracted conflicthas had a devastating effect on the economy and onsocial conditions.While accurate data are lacking, it isestimated that over 1 million people may have beenkilled since the armed conflict began between rivalgroups following independence in 1975.The conflictalso displaced about 4 million people, about one-thirdof the country’s 13 million citizens (UN estimates asof April 2003). About 100,000 of these are unaccom-panied children. Most of the displaced fled from ruralareas to Luanda, Lobito, and other coastal cities. Thecapital, Luanda, for example, a city designed for a pop-ulation of half a million, grew from 1.6 million in1990 to about 3.6 million in 2002.Together with theother 17 provincial capitals and smaller urban centers,the urban population is estimated to be 7.4 million,which is 57 percent of the total population.The social

Executive Summary

infrastructure to support the explosion in the urbanpopulation is grossly inadequate, but with the ruralareas more severely impacted by the war and neg-lected by government services, standards of living areeven worse among the rural population.The situationis becoming even more complex as millions of inter-nally displaced people are now returning to theirprovinces of origin, and many resident communities,also severely affected by the war, are struggling tocope with the sudden influx of returnees.

Due to oil, Angola’s average GDP per capita atUS$ 710 is relatively high.1 However, the average masksthe distorted structure of the economy and the very highlevels of absolute poverty in the country. In terms of theUNDP Human Development Index (HDI), the coun-try is ranked 164 in the world.Life expectancy at birth is40.2 years, the under-five mortality rate, estimated at250 per 1,000 live births, and the infant mortality rate at154 per 1,000 live births (compared with 91 for Sub-Saharan Africa as a whole) are among the worst in theworld; the adult literacy rate is 42 percent and grosseducational enrolment only 23 percent. Malnutrition isacute and, within the Southern African DevelopmentCommunity (SADC), Angola has the highest propor-tion of underweight children (42 percent).

Angola has struggled for years with an unstablemacro-economy. A succession of failed or only partiallysuccessful stabilization plans characterized Angola’seconomic policy history since its first major attemptsto stabilize in 1987. Since 1987, the government haspursued a series of programs to move from the com-mand economy introduced at independence to a moremarket-based structure, but progress has been slow.Until recently, the economy was characterized by suc-cessive inflationary peaks [reaching briefly 12,000 per-cent per annum (p.a.) in 1996], as well as rapid depre-ciation of the kwanza (kz) exchange rate, that wereonly slowly reduced after introduction of the NovaVida Plan, which strengthened the connection be-tween “dollarization” and inflation. During the pasttwo calendar years, inflation has averaged about 100percent. Real growth rates in recent years have beenpositive, but at 2.7–3.2 percent per year they have beenlittle different from the population growth rate of 3 per-cent. Despite the revenues generated by the country’soil wealth,Angola is facing significant current account,as well as overall fiscal deficits, mainly as a result of

dividend payments to foreign oil companies and theservice on its substantial external and internal debt.

Significant progress has been made towards macro-economic stabilization over the last year. Majorachievements include: a decline in the 12-month infla-tion rate to below 36 percent in August 2004, from lev-els persistently in excess of 100 percent in previousyears; a downward trend in the fiscal deficit, benefitingrecently from higher oil prices; a decline in the non-oilfiscal deficit; positive real interest rates for governmentdebt; a decline in money supply growth (M3) to a15 percent level in July 2004, compared to a 40 percentgrowth rate in July 2003, and a considerable decelera-tion in the rate of depreciation of the kwanza exchangerate.There has also been a consistent improvement inthe current account balance since 2000, mirroringgrowing oil export values.

The sustainability of this progress, however, may belimited by some associated developments: external debtlevels have continued to rise following the accumula-tion of more, expensive oil-backed loans; internationalreserves are at a low level that is sufficient to cover lessthan one month of imports; the potential cost compet-itiveness of Angolan goods has been reduced; and, withinadequate expenditure control mechanisms, continu-ing payment arrears, and rising debt levels, the fiscalposition remains vulnerable to changes in oil prices.

Infrastructure in Angola The country’s infrastructure is ina perilous state, negatively impacting both the qualityof life of the people and the operation of almost alleconomic activities. At present, among the SADCcountries,Angola has the lowest level of access to safewater (22 percent of rural and 46 percent of urbanpopulation). Public water supply systems have eitherbeen destroyed during the civil war or have deterio-rated over decades due to lack of maintenance and in-vestments.The result is undersupply for a large part ofthe population, which in urban areas frequently de-pends on expensive, often unsafe water purchased fromunregulated private providers. In the transport sector,the road system is in a shocking state of disrepair, mak-ing several provincial capitals all but inaccessible byroad. In some areas, the roads have been mined and atleast 300 bridges have been destroyed.The three rail-way systems at their height carried 9.3 million metrictons of freight to the Atlantic ports, but this has now

Private Solutions for Infrastructure in Angola

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Executive Summary

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fallen to insignificant levels.The electricity system cov-ers only a small part of the country, is outdated andwar-damaged, and lacks renewal and maintenance.Some areas are today without any electricity supplyand most areas still being supplied suffer from frequentoutages. Urban infrastructure has dramatically deterio-rated, the streets in most urban areas are in a state ofvirtual collapse, and there are essentially no functioningsewerage or drainage systems.The fixed-line telephonesystem is antiquated, very limited in coverage, andprone to service interruptions,while the two small cel-lular networks, largely servicing the capital, are unableto meet fast-growing demand.

To bring an immediate “peace dividend” improve-ment in people’s lives and to lay the basis for produc-tive sector investment and hence higher GDP and em-ployment growth, substantial changes are needed in theway the infrastructure sectors are operated coupledwith massive investments to expand capacity and en-hance access. Hitherto, infrastructure provision hasbeen almost the exclusive preserve of the public sector,but the current context’s requirements will be impossi-ble to meet on that basis, given the human capacity andnational budget constraints.

The government’s recognition that it cannot alonemeet the development challenges are contained in anumber of policy statements.For example,in connectionwith the recent reform Programa Económico e Socialpara o Ano ole 2001 (PES), the government Letter of

Intent states that it“will rely heavily on the private sectorto accomplish its economic growth objectives, limitingits own role to that of creating the enabling environmentfor the private sector to flourish, or providing basic ser-vices (such as fuel, electricity, telecommunications,domestic air transport,water and sanitation) in which theprivate sector will also be invited to participate.”2

A number of changes have already been made to en-able private sector participation in different areas, withnotable progress in telecommunications. However, fur-ther and much more profound reforms will be necessaryto ensure that private operators gain the needed confi-dence in the business environment and assume a moresignificant role in meeting Angola’s vast infrastructureneeds. It is against this background that the Governmentof Angola has requested this Country FrameworkReport to analyze and document the barriers, opportu-nities, and measures to promote private sector participa-tion in infrastructure over the 2005–2020 period.

PPI Experience and Investor Criteria Potential private sec-tor investors in infrastructure would need a number ofconditions to be satisfied before they would begin for-mally appraising an investment opportunity in Angola.These criteria and the likely related questions and con-cerns of investors are summarized in table 1, below.Thecriteria have been formulated primarily with interna-tional investors in mind, but also apply to domestic in-vestors in infrastructure projects.

Table 1.1 PPI Investor Criteria

Criterion Investor questions and concerns

1. Data/Studies Is there a credible sector or project database available that covers demand, consumption, operating and capital costs, institutional structure, pricing regulation, measures of success, and so forth? Are there any comprehensive studies available (not just technical, but also economic and financial)?

2. Legal and Is the activity reserved for the public sector? Are there legal gaps or conflicts? Is the public procurement processRegulatory transparent and fair?Framework Are the identity, scope, and competence of the regulatory entity clear? Is the regulator able to operate without

undue political interference?3. Cost Covering Do current tariffs cover the provision costs, including not only operating costs, but also adequate maintenance,

Tariffs/Assured depreciation or capital cost provisions, financing costs, and rate of return? Are prices of infrastructure servicesRevenue Stream equitably structured? If subsidies are to continue, what assurance is there of prompt and reliable payments?

4. Contract Is the proposed structure of rights and obligations to be transferred to the private sector realistic? Are the Structure obligations, such as the private sector’s capital investment requirements, consistent with the project’s funding capacity?

5. Capital and Can the domestic credit and equity market supply loans and investment capital at reasonable prices? Will foreign Credit Markets institutions extend loans or make investments?

6. Political Does the government have a clear objective for private sector participation in infrastructure? Is it to improve Commitment productivity and efficiency, reduce government spending, or expand supply through introduction of technology or

commercial management? Are there interest groups that might divert the policy’s intentions?

There has been very limited recent experience ofinvolving the private sector in infrastructure.The mosthigh profile of these is the mobile phone license thatwas issued to Unitel in April 2001. Telecommunica-tions is also the only infrastructure sector for which aspecific regulatory body is operational. In some othersectors there have been management contracts that areconsidered to have been reasonably successful (i.e., thewater supply in Soyo and Caxito, solid waste collectionin Luanda, terminal operations in the port of Luanda,and ground handling services in Luanda airport). Newconcession contracts are being formulated for solidwaste collection in Luanda and terminal operations inthe port, while a concession was recently awarded inthe electricity sector to Alrosa for a small power proj-ect; in the telecommunications sector, four new fixedline licenses were issued to private operators.

These examples are important in demonstratingthat private sector participation can proceed in Angola,but in view of the long history of centralized control ofthe economy, quite profound changes are required tofully accommodate and promote private sector partic-ipation in infrastructure.

Crosscutting Issues In preparation for the introduction ofPPI, public infrastructure enterprises should be en-couraged to review current cost bases and set new lev-els and structures for infrastructure prices that willmove towards tariffs not only covering all productionand maintenance costs, but also generating an after-taxprofit sufficient to satisfy the return on initial capitalinvestment.

Transparent accounting consistent with interna-tional practices is important to help value the activities.The government has been tightening up accountingrequirements for public enterprises and introducedmandatory fiscal councils for the supervision of publicenterprise accounting. The measures should improvethe management and governance of infrastructure ser-vices providers, thereby providing greater confidence toPPI partners and a more satisfactory basis for the risktransfer implied by PPI contracts.

The domestic banking system’s financial capacity isvery limited.Access to foreign sources of finance for in-frastructure investment will be improved if some of theforeign banks are encouraged to expand their opera-tions.The establishment and development of long-term

lenders, such as pension funds and insurance compa-nies, could provide some future funding sources. Theavailability of finance may also change significantly ifplans for expanded (doubling) oil production are suc-cessful.As the economy starts growing and confidenceis restored, the return of private funds held offshorecould also provide significant levels of foreign resourcesto be channeled into investments to sustain economicgrowth. Consideration could be given to the establish-ment of an infrastructure development fund.

Another one of the elements of critical importanceto foreign investors is the prevailing foreign exchangeregime and law pertaining to the convertibility andtransferability of profits and investment proceeds.The National Bank of Angola supervises the market-determined kwanza exchange rate and authorizesdealers and banks to trade in foreign exchange.

A key matter of concern to all foreign investors isthe approach towards “Angolanization.” This term isused both in respect to the creation of a national bour-geoisie that has a significant ownership stake in thecountry’s productive assets and to refer to the variouslaws that require or reward a high level of employmentof Angolan nationals in enterprises. Against the back-ground of the extremely low education level inAngola, the practical problem for an investor is to findAngolan employees with the requisite skills.

A primary concern of foreign investors relates tothe legal framework for foreign investment.There is anew Private Investment Law (11/03) that updates theprevious Foreign Investment Law (Law 15/94), updat-ing the provisions to reflect postconflict circumstancesand to create a level playing field between domesticand foreign direct investors. The main investor riskarises from the provisions in the sectoral laws that en-able the state to nationalize assets (proceder ao resgate)when it deems it in the nation’s interest to do so.How-ever, the legal framework does guarantee the foreigninvestor the right to compensation if this occurs, in ac-cordance with international law and international dis-pute resolution procedures.At this point, there is also ahigh level of regulatory risk in that regulatory frame-works are largely undeveloped.

There are a relatively small number of entities in-volved in providing approvals for a project and thisfunction tends to lie with the Ministries and NationalPrivate Investment Agency (ANIP). Therefore, the


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Executive Summary

5

initial approval process is highly centralized, with largeprojects being directly accepted or rejected on the basisof a decision by the Prime Minister or Council ofMinisters. However, the post-approval process involvesmany entities and long delays.

There are steps to be taken in the short term tohelp nurture a more streamlined and transparent routeto PPI approval and realization of a transaction. In par-ticular, it is necessary to simplify and make less onerousthe processes for establishing and regularizing com-mercial enterprises and obtaining permits (includingwork permits) to exercise the commercial activity.The Private Investment Law aims to achieve much ofthis streamlining, but it remains to be tested in practice.

Electricity Despite the low-income levels and limitedaccess to electricity in Angola, a large part of the pop-ulation is willing and able to pay high prices for elec-tricity supply. Private operators could play an impor-tant role in helping restore the system during therehabilitation phase provided that the legal and institu-tional framework is amended to allow this to happen.A competitive power market would not be possible ordesirable but, if the framework were in place, the pri-vate sector could play an important role in restoringand expanding supply to consumers in the small ornot-so-small isolated networks.

Further concessions could be foreseen that are sim-ilar to the Alrosa project (which involves a large con-sumer as both investor and purchaser and thereforeavoids the need for state guarantees).

There are significant PPI opportunities in electricityin the short and medium term in five main activities:1. Increasing access to the electricity supply through

the electrification of rural areas;2. The operation and development of grids that have

been isolated from the main network as a result ofthe civil war;

3. Rehabilitating and operating power plants that sellto the National Electricity Company (ENE) underpower purchase agreements;

4. Building and operating power plants that sell toENE, or the Electricity Distribution Company ofLuanda (EDEL), or to large consumers underpower purchase agreements;3 and

5. Providing services under contract to ENE andEDEL.

In the long term there could be additional PPI op-portunities through the transfer of ENE and EDEL tothe private sector.

Ambiguities exist in the General Electricity Law,article 19, which states that concession contracts can-not exceed 50 years, but article 20 allows for cancella-tion of the concession contract if it is in the “public in-terest” to do so. Unfortunately, article 20 offers thepotential for nationalization of assets at any time andcould be a serious deterrent to investors.

The absence of powers for an independent regula-tor to set prices will deter private investors. Institu-tional arrangements that provide information and sup-port to potential and prospective private ruraloperators would help speed up the electrificationprocess. No such institution exists at present.

A lack of adequate prices implies operating subsi-dies to both EDEL and ENE. A major risk associatedwith subsidies is that they may be withdrawn if thegovernment budget is constrained.

Measures to promote PPI include improving thegeneral financial operating environment,where there isa need to limit subsidies to capital subsidies and notoperating subsidies and to make those subsidies avail-able to private service providers as well as ENE andEDEL. In addition, there needs to be consideration ofthe introduction of nonuniform tariffs in an effort toimprove the performance of both ENE and EDEL.

The commercial performance of ENE and EDELshould be improved to strengthen their credibility asprivate power buyers. To promote PPI in electrifica-tion,ENE should prepare,publish, and regularly updatean electrification plan. In accordance with this plan, aprivate operator should be contracted to provide sup-port services to private and municipal rural electricityoperators. A simpler system for licensing off-grid orsmall-scale electricity schemes should be introduced.

The general obligations of concessionaires shouldbe spelled out in advance and be transparent.Alterna-tively, a licensing system that the regulator operatescould replace concessions.

The regulator should be made fully operational, beindependent, and be responsible for setting electricityprices.

Gas In the Angolan domestic market, gas could be usedpotentially for power generation, large industrial

consumers, or distribution to small consumers. How-ever, the domestic market is too small to support gasdevelopment on its own and is dependent on theimplementation of the Liquefied Natural Gas (LNG)Export Project.

Onshore pipelines are the main infrastructure de-velopment opportunities.

Gas distribution would be developed under alicensing regime. Considering the lack of specific leg-islation concerning gas distribution, the cooperation ofthe local authorities will be required to secure the nec-essary land use access and rights-of-way.

Domestic gas exploitation has not yet started and isdependent on the development of the offshore gas in-dustry,which is itself an offshoot of the vitally importantoil industry. Gas development could proceed on theback of a proposed 4 million metric tons per year LNGExport Project, which is planned for 2006 and wouldrequire about 6 billion cubic meters (bcm) of feed gasper year. However, the siting of this project at Soyo,which is some 300 kilometers from the main demandcenters near Luanda, is likely to significantly delay thestart of the domestic market exploitation of gas.

Water and Sanitation The National Directorate of Waterhas prepared a comprehensive Water Sector Develop-ment Strategy4 and is forthright in identifying and an-alyzing current deficiencies and bold in formulating anambitious 14-year program that requires approximatelyUS$ 3 billion in investment.

In Luanda, where people living in the musseques(shantytowns) are accustomed to paying a high propor-tion of their income to obtain extremely limitedamounts of water, it is highly likely that the populationwould be willing to pay cost-recovery tariffs for higherstandards of service.

Even before PPI options could be seriously pur-sued, there is need to allow the Water Company ofLuanda (EPAL) to become more commercial in its op-erations, that is, to be given the financial and managerialautonomy necessary to conduct its mandate effectively.

One PPI option that EPAL is actively examining isthe Mozambique model of the water assets beinghoused in a holding company that the state owns, witha private company being given either a lease or a man-agement contract.There is also a regulator to set tariffsand performance standards.

An initial step for EPAL should be the unbundlingof discrete components of the water supply system andmaking separate PPI arrangements for these, in all casestransferring as much responsibility and risk as the pri-vate sector is able to bear.The unbundling might applyto raw water capture and storage, water treatmentworks, and possibly to the trunk transmission network.At the consumer end of EPAL’s system, functions thatare critical to generating a secure revenue source, suchas meter reading, billing, and revenue collection, mightalso be outsourced on a performance-related basis,again with the progressive transfer of investmentresponsibilities and risk.

There are a number of alternative technologies thatcould play a role in improving the access of people in themusseques to water.The quickest way to ensure that thepotential of these technologies is realized would be tobring in the private sector.A regulatory framework thatsets prices and standards of service needs to be created andthen bids invited from prospective private sector opera-tors.The first target should be to encourage private oper-ators to improve on the design and operation of chafarizes(communal standpipes where water is sold),where (basedon comparable facilities in other southern African cities)there is considerable scope for efficiency improvements.

A number of possible PPI opportunities are emerg-ing in sewerage and sanitation facilities in Luanda, suchas maintenance contracts and sewerage rehabilitation.Sewerage charges could be introduced.Options for newforms of contracting solid waste collection in Luanda areunder development. In peri-urban areas the private sec-tor should be encouraged to collaborate with local enti-ties and NGOs to provide more basic sanitation services.

In other urban centers public municipal enterprisesneed to be established and allowed to operate on com-mercial principles prior to involving the private sector.In rural areas opportunities are limited, but the privatesector could provide services such as well drilling,pump installation, and basic sanitation maintenance.

PPI in water is complicated by its nature as a localservice with large health and environmental externali-ties; it is easily politicized,with services being extendedirrespective of ability to pay; the assets are largely un-derground and thus difficult to value, and there is alarge currency risk.

The most pressing issue to overcome is the politicalpressure to maintain low tariffs for the minority with


6

Executive Summary

7

access to piped water, while accepting that the poormajority often have to pay more for water. In Luandathe informal market prices are 30 to 60 times higherthan the piped water price.

Immediate actions have been identified to improvethe sector’s operational performance and increase itspreparedness for involving the private sector. The ac-tion plan focuses on short-, medium-, and long-termactions on tariffs, the legal framework, commercializa-tion of public enterprises, planning, and institutionalreform covering urban water and sanitation supply,solid waste, and rural areas. A key objective is to havethe Water Law of June 2002 and associated regulationsfully operational.

In Luanda, EPAL’s financial performance has to beimproved by raising tariffs to the maximum extent per-mitted by Executive Decree 27/98. In the short term,EPAL should be provided with resources to enhancecompetition in the truck-tank supply chain, while atthe same time discussing, finalizing, and promulgatingtruck-tank regulations. Resources are also needed tocarry out projects to rehabilitate the sewerage andstorm water system, investigate options for sewage andwastewater treatment, and invite bids for a concessionto build and operate the treatment plant.

In reference to alternative technologies, a simpleregulatory framework needs to be established, whichspecifies prices and standards of service. The privatesector should then be invited to tender for the designand operation of chafarizes and to carry out pilot proj-ects on other water supply technologies.

In the provinces, water and sanitation should bemoved out of provincial directorates and public enter-prises created to take responsibility for these functionsin all the major urban centers. Where feasible, thesecompanies should be given responsibility for other util-ities as well (electricity being the most obvious sector tocombine with water and sanitation in a single utility).

Transport: Roads and Highways Transport infrastructurewas severely damaged during the conflict years and is aproblem in its own right as well as a constraint to thedevelopment of the other infrastructure sectors. Roadand bridge rehabilitation is an early priority.With theexception of Luanda, traffic densities and volumes arelow. Vehicle ownership and density are low outsideurban areas.

The Angola Roads National Institute (INEA) iswilling to implement the private ownership of the roadbrigades through the transfer of workers and the sellingof brigade assets to private operators.A further optioncould be to privatize the brigades through the provi-sion of national and regional rehabilitation and main-tenance contracts, permitting the brigades to acquirethe equipment and so increase the number of roadmanagement operators in Angola. INEA recently in-vited private operators to supply management servicesto 10 provincial brigades.

Toll-funded improvements depend on sufficienttraffic volumes to provide sufficient revenues. Shadowtolls are payments by the government to a road opera-tor rather than being collected from the road user.Shadow tolls do not affect demand but are a way ofpaying the operator for the actual usage. This ap-proach’s viability depends on a government capable ofpaying them and providing adequate revenue to theoperator. Maintenance and rehabilitation contractsbased on shadow tolls are a potential way of dramati-cally attracting financing and improving the state ofpublic road maintenance.

Many constraints exist in financing road develop-ment. At present, financing road rehabilitation andmaintenance is directly dependent on the state budgetas the Road Fund is not yet in operation. Gasoline anddiesel prices are heavily subsidized by the state, andthere is no collection of taxes from fuel consumptionby road users. Until the road user charges are reviewed,the Road Fund will be unable to serve as intended.TheRoad Fund should be revitalized and properly fi-nanced. Fuel and lubrication taxes, motor vehicle im-port duties, registration and road user charges, and soon would be the primary mechanisms for establishingthe Road Fund’s operating base.

Opportunities for shadow tolls or performance-based maintenance contracts should be examined,mainly for connections between Luanda-Viana,Benguela-Lobito (short distance), Huambo, and thecities of Benguela, Lubango, and Kuito (long distance).

A key obstacle to PPI relates to the government’scredit rating among private contractors. However, themost important difficulty is the poor knowledge andlimited prospects of the demand for services in termsof traffic volumes and composition. Current datarelate to road traffic in 1970, before independence. It is

necessary to improve data collection to understand thenature and volume of road traffic, to improve planning,to provide information to the private sector, and to ex-amine the respective roles of road, rail, and air modes inthe major transport corridors.

Finally, there is no clear legal framework concern-ing private sector involvement in roads.

Transport: Railways There are enormous investment re-quirements for the three rail systems.Not only does thenetwork require substantial rehabilitation as a result ofprolonged disuse and war damage, but also in manycases rolling stock and motive power have exceededtheir economic life.

The government has concluded the negotiationprocess with the Chinese government to open a creditline of US$ 90 million for the reconstruction of therailway trunk Bungo-Musseques-Baia (in Luanda’srailway) and the railway network inside Luanda’s port.

The concessioning of rail operations may start onsuburban lines like the Luanda-Viana-Cacuaco andBenguela-Lobito rail lines, supported by subsidizedpricing. For the Luanda region in particular, suburbanrail transport may assume an important role for mov-ing people in a city already overcrowded with privatevehicles.

The government believes the long-distance linesfrom Luanda-Malange (supporting the whole dia-mond activity) and the Lobito-Benguela-Huambo-Kuito corridor (supporting all the Central Regionreconstruction and development) are able to attractPPI in the medium term. Longer-term studies wouldneed to be commissioned to examine the viability ofthe three lines involving private interest.

However, recent PPI developments in southernAfrican rail sectors show it is not easy to introduce PPI.In Angola, present traffic is a fraction of prewar levels.Network costs frequently remain on the government’saccount; the private sector is unwilling to assume theliabilities of existing public rail companies; overseas op-erators are reluctant to commit substantial funds oncapital expenses for infrastructure or equipment andthen seek early renegotiation of obligations.

Considering the huge investment thought to beneeded for the three lines, including the subur-ban lines—more than US$ 4.5 billion—approachesneed to be viewed with caution. Studies are needed to

realistically assess traffic demand, plan the developmentof rail lines, and provide information to the private sec-tor. Surveys of the networks should be carried out togain a better understanding of the true situation of thelines, in terms of investment needs and reliable marketsurveys of users’ intentions, competitive position, andcapacity to pay.

However, even if the renewed road and highwaysystem capabilities will compete strongly with rail, railtraffic still could have an important role for the devel-opment of hinterland economic activity. Access is es-sential to the main traditional agricultural and miningregions, such as the Luanda and the Central and Southregions.Therefore this requires an overhaul of currentlegislation and the development of a legal frameworkfor rail operations and concessions that recognizes theopportunities and constraints of the present publiclyowned companies.

Transport: Ports The country’s principal cargo ports areat Luanda, Lobito, Namibe, Soyo, and Cabinda. In thepast they were used for exporting, but today they areprincipally used for imports.

The private sector already plays an important rolein the Port of Luanda. Currently under way is the reas-signment of the port into four concession areas,namely,general cargo, multipurpose (including bulk), contain-ers, and support to oil companies.The objectives of thenew contracts are focused mainly on improving the ex-isting infrastructure and equipment, extending ware-house facilities, providing more client-oriented ser-vices, and improving productivity. Under the newconcessioning arrangements, new operators are under-stood to be required to invest around US$ 83 million innew equipment and rehabilitation of facilities.

Lessons learned from the experience of early man-agement contract forms and later concessions inLuanda could be applied to opportunities in the otherports when there is sufficient demand (although lowvolumes now indicate private interest is unlikely ex-cept for service contracts without revenue risk).

Cabinda rehabilitation is included in the programof emergency repair and reconstruction of ports andshould be carried out as a part of an agreement with aprivate port operator. Investment estimates for 2003are US$ 6 million that the state and the petroleumcompanies involved will finance.


8

Executive Summary

9

One problem is that private operators need secureand predictable revenues from port operations, butclearing goods is subject to long delays. Most of thecurrent delays in port operations are related toimporters’ financial constraints. Importers typicallyhold goods at the port warehouses until paymenthas been made; the importer only pays port feesand import duties after payment has been receivedfrom the customer. Clearing procedures need to bestreamlined.

At present all goods are entering and leavingLuanda port by road, due to the rail link being inoper-able.An interesting potential strategy is for the oppor-tunity of multimodal connections in the Port ofLuanda. In coordination with the Railway Companyof Luanda (CFL) and within a larger project for therehabilitation of the Luanda suburban rail system, astudy could examine the feasibility for the develop-ment of rail evacuation of container and bulk cargoand the redevelopment of the CFL marshalling yards incentral Luanda.

Transport: Airports Demand for future air transport willbe determined by the pace at which the economy nor-malizes as well as the nature of the country’s medium-term economic development and the development ofcompeting transport modes, especially roads.

Some of Luanda’s airport services are already con-cessioned to private operators. The airport authorityhas concessioned cleaning, security, parking, and duty-free shops; the national carrier TAAG (Linhas Aéreas deAngola), baggage handling and catering.

The GOA and the National Airport and AirNavigation and Development Company (ENANA)are also studying the alternative of building a new air-port in Luanda. For these projects, particularly forLuanda, a strong PPI is being considered through con-cessioning of the different activities or terminals.Thisextension and rehabilitation will involve building anew taxiway, expanding parking facilities, and renovat-ing the passenger and cargo terminals.

In furthering the environment for private sectorparticipation, it is strongly advised to incorporateENANA, even if it remains state owned.

Private operators (mainly mining companies) arealready operating six local airports, mostly without aformal arrangement with ENANA.

Apart from opportunities in Luanda, conditions donot exist at the majority of provincial airports for prof-itable private operation, unless their operations are re-lated directly to private economic activities, as it is thecase for some mines or the Capanda Dam.

The principal obstacles to the introduction of PPIin the port and airport sectors (to include internationalbidders) relate to the degree to which the incumbentpublic owners are able and prepared to transfer respon-sibility to the private sector and the terms and condi-tions attached to that transfer.

Rehabilitation priorities are to improve the func-tionality of the Luanda and provincial airports, includ-ing runways, parking space, and terminals. Beyond thisthere is a requirement for changes and enactments ofcertain necessary legislation.

As with all other main infrastructure sectors, an in-dependent economic regulator for the airport sectorshould be established with the power to set cost-reflective prices.The legal basis for private participationin airport infrastructure needs to be clarified.

Once the minimum steps have been undertakenas highlighted above, an analysis is needed of theopportunities for concessioning Luanda airport pas-senger and cargo terminals and some of the provincialairports.

Telecommunications The major PPI development hasbeen the introduction of a private, competing mobileservice provider, but the growth of connections hasbeen hindered by problems that are partly due to thesector’s structure and partly due to the general difficul-ties of investment in Angola. A more recent develop-ment has been the issuing of four new fixed linelicenses to private operators. Concerning AngolaTelecom privatization, the GOA has taken someactions such as a basic network diagnosis, a study onthe economic and financial restructuring of AngolaTelecom, and the recent appointment of a committeeto study the action plan to implement the incumbent’sprivatization and prepare a performance contract.Thefirst performance contract draft for Angola Telecom(AT) was ready in 1995, and it was the first state-owned enterprise (SOE) performance contract madein Angola.

The telecommunications sector presents many op-portunities given the expectations that it is moving

towards full liberalization in the medium term. Fullmarket liberalization may occur before the end of thecurrent decade. During 2003-04, the GOA intends toensure free competition in all the services, exceptnationwide fixed voice. From 2005, the GOA will pre-pare the transition to full competition.

One of the GOA strategic goals is the implementa-tion of a long-distance national transmission backbonenetwork as the basic infrastructure to support thedevelopment of an information society, of Plain OldTelephone Services (POTS), and of cellular networksin Angola.

Other attractive PPI opportunities are likely to bethe letting of a further mobile license and private sec-tor involvement in some of Angola Telecom’s activities(as strategic partners or, eventually, in privatization).

Private investment is not authorized in the basicnetwork infrastructure because it is an area of absolutereserve. So PPI in this area can take place only in theform of financing, but cannot involve any type ofownership.

Although it is recognized that the GOA may retaina special role in and control over basic network devel-opment due to the substantial financial efforts required,a change in the law would be necessary so that the GOAcould find other methods and forms (see chapter 2) todevelop the telecommunications infrastructure. Thereis an urgent requirement for investment funds for alltelecom services. However, capital is not available insufficient volume in Angola’s domestic financial andbanking system.

A proactive, medium-term approach would be toenact legislation that defines the basic network as con-trolled reserve as opposed to absolute reserve, thereby

allowing a partial privatization of Angola Telecom andthe acceptance of a strategic foreign partner.

The Angolan Institute of Communications(INACOM), a regulatory agency, was established anddoes have some real powers; however, there is still arequirement to improve the regulatory structure andclarify roles in regulation.

AT should be restructured and unbundled into sep-arate incorporated business units. This would aim toenhance the necessary efficient signals for prospectiveinvestors and encourage the initiation of strategic part-nerships. A further mobile GSM license would pro-mote competition in mobile services.

As with other sectors, regional integration is a keenobjective in Angola, and this gives additional emphasisto the need to develop a National Fiber OpticBackbone Network (NFOBN) as a means of facilitat-ing interconnection among all the regions of the coun-try and among operators/service providers.

Within the next five years, up to five mini-backbone networks will coexist in Angola, nearly onefor each licensed operator, due to the lack of a nationallong-distance backbone.


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Notes

1. Figure for 2002, calculated using the World Bank Atlas method.2. Government of Angola, Memorandum of Economic and Finan-cial Policies,April 3, 2000.3. The proposed LNG project could provide such an opportunityas the plant will need its own power generation and additional ca-pacity could be provided to supply local consumers.4. Ministério da Energia e Águas, Estratégia de Desenvolvimentodo Sector das Águas, November 2002. The strategy was approvedby the Council of Ministers in early 2004.

11

Study Goal

The main goal of the study is to assist the Governmentof Angola (GOA) in developing policies and a frame-work for the promotion of private participation in therebuilding and development of Angola’s infrastructure.Angola is emerging from a long period of civil war andits infrastructure is severely damaged. It is an opportunemoment to create a more comprehensive understand-ing and framework for the promotion and financing ofthe infrastructure investment required to rehabilitateand extend the provision of infrastructure service, espe-cially for the poorer sections of the country.

Following the years of conflict, the resulting damageto the country’s infrastructure, and the negative impactson economic growth and development, the country’sinvestment needs are enormous. Investment in infra-structure will require multiple funding sources includingthe GOA’s own resources, international donors, and theprivate sector.This study is particularly focused on howto maximize the private sector’s role and contribution.

The report scope is on investment in infrastructureand improved operations in the following sectors:• Electricity and gas• Water and sanitation• Transport• TelecommunicationsIt should be emphasized that the scope is specificallyon infrastructure. For example, in road transport theproject will look at the highway infrastructure but notthe vehicles.

Another issue concerning the study’s scope is thetime frame. The Country Framework Report (CFR)examines opportunities for private participation ininfrastructure (PPI) over the medium to long term,interpreted to mean from about 2005 to 2020.There-fore, the CFR does not directly address the immediateshort-term needs, such as the urgent repairs required toroads, water supply, and sewage systems, as these aspectsare the concern of other investment and assistance pro-grams. However, some immediate actions are covered,which are relevant to PPI development.

The project has resulted in a CFR in collaborationwith the GOA. CFRs have been prepared for a num-ber of countries with the assistance of PPIAF and gen-erally cover three types of topics, which are reflected inthe contents of this CFR report:• Crosscutting issues, which relate to common

themes across sectors for establishing the appropriateregulatory, financial, and institutional environmentfor private sector participation.

• Sector analyses that provide a description of thecurrent sectors, their trends, performance, reformoptions, and investment opportunities, leading toconclusions on the modes of promoting PPI ineach sector.

• Recommendations, which detail the time-boundsteps to be taken to strengthen the policy frame-work and business environment.

This final CFR covers all items above and focusesspecifically on key measures to be taken (i.e., the recom-mendations) to promote PPI.

Introduction1

The CFR was developed with the GOA and inter-ested stakeholders through a series of steps, as follows:• First draft of the CFR (prepared in February 2003);• A workshop to review and discuss the first draft re-

port; the workshop focused mainly on the opportu-nities for PPI in the sectors;

• Second draft of the CFR (prepared in June 2003);• A second workshop with a wider audience includ-

ing participants from the potential investment com-munity to focus discussion on the recommenda-tions; and

• Final CFR.


12

13

Economic and Political Setting

The signing in Luanda of a formal ceasefire agreementbetween the MPLA and UNITA on April 4, 2002,marked the end of nearly four decades of conflict inAngola.The liberation struggle to free the country ofPortuguese colonial rule began in the early 1960s. Fol-lowing the revolution in Portugal in 1974, a transi-tional government was formed that included theMPLA, FNLA, and UNITA, but this soon collapsedand civil war erupted even before independence wasformally declared on November 11, 1975.

Since that time, the MPLA has been the recognizedgovernment in Luanda, initially under PresidentAgostinho Neto until his death in 1979, and sincethen under President José Eduardo dos Santos. Follow-ing the Bicesse Agreement in 1991 and the LusakaProtocol in 1974, there were short-lived periods ofpeace. These agreements made possible the establish-ment of multi-party structures of government, notableevents being national elections in 1992 and the forma-tion of a Government of Unity and National Recon-ciliation in 1997. The UNITA leader, Jonas Savimbi,was unwilling to accept a subordinate role and contin-ued the civil war until government forces killed him inFebruary 2002.

Angola is potentially a wealthy country. In additionto substantial reserves of oil (8 billion barrels), rich dia-mond deposits and other minerals, the country has con-siderable hydroelectric potential, extensive agriculturalland, and good rainfall.The protracted conflict has had

a devastating effect on the economy and on social con-ditions. Prior to independence, the economy was rela-tively diversified with agriculture, fishing, mining, andlight industry making significant contributions to GDP.Oil production was around 170,000 barrels per day.

With the decimation of other sectors and an in-crease in oil production to around 1 million barrels perday, the petroleum sector presently totally dominatesAngola’s economy. Oil and gas constitute over 60 per-cent of GDP and 90 percent of exports. Diamonds arealso important (around 9 percent of GDP and 13 per-cent of exports), with other sectors lagging way be-hind. Agriculture, which provides a livelihood forthe majority of the population, accounts for only7–11 percent of GDP, the main crops being maize, cas-sava, potatoes, beans, bananas, and coffee (in colonialtimes an important export). Livestock rearing and fish-ing are also important.

The rural population was particularly hard hit by thecivil war, resulting in a huge influx of people into urbanareas. Luanda, a city designed for a population of halfa million, grew from 1.6 million in 1990 to about3.6 million in 2002.Together with the other 17 provin-cial capitals and smaller urban centers, the urban popu-lation is estimated to be 7.4 million,which is 57 percentof the total 2002 population of 13 million.The socialinfrastructure to support the explosion in the urbanpopulation is grossly inadequate,but with the rural areasbeing directly impacted by the war and neglected bygovernment services, standards of living are even worseamong the rural population.

Country Context and Role of PPI2

Due to oil, Angola’s average GDP per capita atUS$ 710 is relatively high (45 percent above the aver-age for SADC, excluding South Africa). However, theaverage masks the distorted structure of the economyand the very high levels of absolute poverty in thecountry. In terms of the UNDP Human DevelopmentIndex (HDI), the country is ranked 164 in the world(above only Mozambique in SADC). Life expectancyat birth is 45.2 years; adult literacy rate is 42 percentand gross educational enrolment only 23 percent.1

Within SADC, Angola has the highest proportion ofunderweight children (42 percent), the next highestbeing Malawi (30 percent).2

With the advent of peace, there is now an impera-tive for the country’s development needs to be ad-dressed.The problems are daunting, however. As indi-cated by the education statistics just quoted, humancapital is a major constraint in Angola.The paucity ofeducation made available during the colonial periodhas not been offset during the civil war period, educa-tion expenditures being subordinated to militaryspending.Table 2.1 provides some comparative figureson the relative effort made by some SADC govern-ments in allocating budgetary spending to education.

The result is that the quality of the educational sys-tem remains very poor. Only 1 percent of the popula-tion of higher education age has access to a university.In the last 10 years, not a single engineer has graduated.The lack of local skilled and highly educated staff im-plies the need to recruit expatriate manpower. Operat-ing costs become very high, and usually there are somedifficulties getting the necessary entry visas and workpermits. The short time since the market economystarted in the 1990s means that entrepreneurial skillsare also barely developed.

The macroeconomic situation is another significantconstraint. Since 1987, there have been a series of pro-grams to move from the command economy intro-duced at independence to a more market-based struc-


14

Table 2.1 Educational Expenditures

Percent of government budget spent in education

1999 2000 2001 1992–2000

Angola Zambia Mauritius Namibia Zimbabwe Botswana Lesotho3 4.3 5.2 14 16 22 24 26 27

Source: UN System in Angola, Common Country Assessment–2002.

Table 2.2 Main Economic Indicators

1997 1998 1999 2000 2001 2002

GDP growth (percent) 6.2 3.2 2.7 3.0 3.2 9.0kz–US$ exchange rate, 0.3 0.6 3.2 10.7 24.4 45.3

unofficial, averagekz–US$ exchange rate, 0.2 0.41 2.84 10.16 22.27 44.0

official, averageInflation (percent) 111 134 329 268 116 106Sources: World Bank, IMF, BNA, and the Economist Intelligence Unit.

ture, but progress has been hesitant.The legacy of pastfiscal profligacy is a very high level of national debtamounting to over 150 percent of GDP in 1999 and anunstable macro economy with three-digit inflation anda sharply depreciating exchange rate (see table 2.2).Real growth rates in recent years have been positive,but at 2.7–3.2 percent p.a. have been little differentfrom the population growth rate (3 percent). Themost recent reform program (PES 20013) committedthe government to a comprehensive set of macroeco-nomic and structural reforms over the years 2000 and2001.The program was agreed with the InternationalMonetary Fund (IMF) as a Staff Monitored Pro-gramme (SMP) but, with many of the targets beingmissed, did not lead to a resumption of IMF lendingto Angola.

The extent and depth of the problems are such thateven Angola’s immense oil wealth is no panacea.Whilethe oil revenues give rise to a balance of trade surplus,dividend payments to foreign oil companies and othertransfer payments result in a significant current accountdeficit (�32 percent GDP in 1999 and �11 percentGDP in 2000). Similarly in the fiscal domain, while oilprovides the bulk (88 percent) of a relatively high levelof national revenues (48 percent GDP in 1999), evennon-interest expenditure is much higher and when in-terest on accumulated debt is added the overall fiscaldeficit is over 10 percent of GDP (�13.1 percent GDPin 1999).The authorities are in the difficult position of

needing to increase substantially recurrent expenditurein the social sectors—particularly education, health,and poverty reduction programs—and capital expendi-ture (a meager 4.2 percent GDP in 1999), while at thesame time reducing the overall budget deficit. Unlessand until a fiscal balance is restored, the underlying in-flationary momentum in the economy will continue,undermining attempts to restore national savings andinvestment, and achieve higher levels of economicgrowth and standards of living.

Angola is a country in transition—from war topeace and from poverty to prosperity. In starting to re-build the economy, the first target for increased invest-ment is infrastructure.As is elaborated in the next sec-tion, the country’s infrastructure is in a parlous state,negatively impacting both the quality of life of thepeople and the operation of almost all economic activ-ities.To bring an immediate “peace dividend” improve-ment in people’s lives and to lay the basis for produc-tive sector investment and hence higher GDP andemployment growth, substantial changes are needed inthe way the infrastructure sectors are operated coupledwith massive investments to expand capacity and en-hance access.

Hitherto, infrastructure provision has been almostthe exclusive preserve of the public sector, but the re-quirements in the current context will be impossible tomeet given the human capacity and national budgetconstraints. It is against this background that the Gov-

ernment of Angola has requested this Country Frame-work Report to analyze and document the opportuni-ties for private sector participation in infrastructureover the period 2005–2020.

Infrastructure in Angola

Table 2.3 presents data for SADC countries on accessto water, sanitation, electricity, and telephones. Thetable is ranked by the UNDP HDI and indicates thatone of the characteristics of countries with higherdevelopment levels is that they have progressivelyhigher levels of access to infrastructure. At present,Angola has the lowest level of access to safe water andscores badly on the other types of infrastructure listed.

The picture is similar in the transport sector. Theroad system is in a shocking state of disrepair, makingseveral provincial capitals all but inaccessible by road. Insome areas, the roads have been mined, and at least300 bridges have been destroyed.The three railway sys-tems at their height carried 9.3 million metric tons offreight to the Atlantic ports, but this has now fallen toinsignificant levels. On the 1,340 km Benguela line, forexample, services are now limited to the 30 km stretchbetween Lobito and Benguela, and it is mainly passen-gers rather than freight being carried.

Contained in a number of policy statements is thegovernment’s recognition that it cannot alone meet thedevelopment challenges the country faces.For example,

Country Context and Role of PPI

15

Table 2.3 SADC Infrastructure Indicators

Class of Percent of population Percent of population Electricity Telephones perhuman HDI with access to safe water with access to sanitation kWh per capita 1,000 population (2000)development rank Country Rural Urban Total Rural Urban Total per annum Fixed line Cellular Total

High (1) 47 Seychelles 235 320 555Medium (7) 67 Mauritius 235 151 386

107 South Africa 70 99 87 80 92 87 3,587 114 190 304122 Namibia 71 100 83 20 93 62 1,022 63 47 110125 Swaziland 576 32 33 65126 Botswana 88 100 90 41 91 55 755 93 123 216128 Zimbabwe 69 99 79 32 96 52 715 18 23 41132 Lesotho 57 91 62 35 56 38 188 10 10 20

Low (6) 151 Tanzania 58 92 66 83 98 86 45 5 5 10153 Zambia 10 84 38 57 94 71 609 8 9 17155 DRC 26 89 42 6 53 18161 Angola 22 46 31 27 62 40 69 5 2 7163 Malawi 40 95 47 1 18 3 71 4 5 9170 Mozambique 63 54 40 4 2 6

Source: SADC.

in connection with the recent reform program PES2001, the government Letter of Intent states that it “willrely heavily on the private sector to accomplish its eco-nomic growth objectives, limiting its own role to that ofcreating the enabling environment for the private sectorto flourish, or providing basic services (such as fuel,electricity, telecommunications, domestic air transport,water and sanitation) in which the private sector willalso be invited to participate.”4

To date, the experience of involving the privatesector in infrastructure has been quite limited (seetable 2.4).The most high profile of these is the mobilephone license issued to Unitel in April 2001.Telecom-munications is also the only infrastructure sector forwhich a specific regulatory body has been established.In some other sectors there have been managementcontracts, which are considered to have been reason-ably successful (water supply in Soyo and Caxito, solidwaste collection in Luanda, terminal operations in theport of Luanda, and ground handling services inLuanda airport). New concession contracts are beingformulated for solid waste collection and terminaloperations in the port, while in the electricity sector aconcession was recently awarded to Alrosa, and in thetelecommunications sector four new fixed line licensesare being issued.

These examples are important in demonstratingthat private sector participation can proceed in Angola,but in view of the long history of centralized control ofthe economy, the changes that are required to fully ac-commodate and promote PPI are quite profound.Thechanges that have already been made are documentedin the following chapter, which analyzes the extent

to which the economic and legal environment ispresently amenable to PPI. Further changes will benecessary, however, and the final chapter of the reportdraws on the detailed sectoral reports (chapters 3–6) topropose recommendations.

Potential Role of Private Participation in Infrastructure

Far from being unique, the problems that Angola nowfaces in providing adequate infrastructure for eco-nomic development and enhancement of the quality oflife have been tackled in recent years through sectorreforms in many developed and developing countries.The main lesson that can be drawn from this experi-ence is that countries that have pursued reforms vigor-ously and consistently have derived substantial benefits,whereas countries that have been hesitant in their ap-proach have not seen much improvement.

Countries have treated different sectors differently,in some cases progressing only as far as commercializa-tion that is requiring state-owned infrastructure serviceproviders to operate on a commercial basis, while inother sectors there has been full privatization. In be-tween these extremes are a large number of intermedi-ate PPI possibilities, which are reviewed in the nextchapter.

Whatever the type and degree of privatization, themain objectives governments have sought to pursueare:• Improvement in the efficiency with which infrastruc-

ture services are provided. Careful formulation ofPPI arrangements can ensure not just immediate


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Table 2.4 PPI Experience in Angola

Sector Public entities Form of PPI contract

Urban Water

Municipal Waste

Port

Airport

Electricity

Telecommunications

DNA and provincialgovernments

ELISAL and LuandaProvincial Government

Port of Luanda

ENANA

ENE and DNE

INACOM and DNT

Water supply management contracts in Soyo and Caxito (at termination, responsibilityreverted to provincial directorates of water)

Management contract by Urbana 2000 of ELISAL’s responsibilities for waste collectionNew concessions being formulated

Outsourcing of terminal operations and management in the port of LuandaFour new terminal concessions in process of tendering

Outsourcing of ground handling services at Luanda airport

Concession for power generation for use by mining company. Concession recentlyawarded to Alrosa.

Mobile phone license for UnitelThree new fixed line licenses issued, one being negotiated

efficiency gains but lasting performance improve-ments as well.

• Reduction in infrastructure demands on the nationalbudget. The greatest budgetary benefit is to be de-rived from full privatization, but the first privatiza-tion transactions may still require government guar-antees, implying large contingent liabilities for thenational budget. However, under a comprehensiveprogram, which gathers momentum and encour-ages investor confidence to grow, government sup-port mechanisms will diminish. Under partial pri-vatization options, the government may have tocontinue to provide capital and recurrent subsidies,but it is highly desirable for recurrent infrastructurecommitments to be phased out and subsidies lim-ited to capital provisions. Priority should be givenin the national budget to resources being used forsocial service provision (health and education),while infrastructure services can be self-sufficient,with vulnerable groups being protected via “lifelinetariffs” that are cross-subsidized by other infrastruc-ture consumers.

• Expand affordable access to infrastructure services tothe majority of the population. Within a privatizedframework, clever use of national subsidy resourcescan result in much more rapid progress towards thegoal of “universal service” than has typically beenthe case in fully state-owned and -run infrastruc-ture sectors. The main rules are for the state toavoid subsidizing recurrent costs and to offer capitalsubsidies to private operators on a competitive,performance-related basis.5

Critical Importance of Independent Regulation

Comprehensive infrastructure reforms often involvethe “unbundling” of sectors to break them up into vi-able business entities at the various industry levels.Theunbundling has to be carried out in such a way as tomaximize the competitive character of the structurethat emerges, but there are aspects of the infrastructureindustries that are inherently monopolistic.This createsthe potential for a utility to exploit its monopolisticposition, charging excessive prices, and delivering apoor-quality service to the customer, who cannot turnto any other supplier for infrastructure services. In ad-dition, a monopolist may well underinvest, depriving

those without access to modern infrastructure of theopportunity to be connected to the network. Thesetendencies may be evident even if the utility is stateowned and is certainly a danger when the private sec-tor is invited to participate in the supply of infrastruc-ture services. As has been proven in many countriesundertaking infrastructure reforms, these problems canbe overcome by having an effective regulator with amandate to mediate between consumers and suppliers.Each infrastructure sector needs to be covered by ade-quate legal provisions for effective regulation, but, forreasons of economies of scale, scope, and shortages ofcapacity, it is likely to be advantageous to have multi-sectoral regulatory agencies rather than costly separateagencies for each sector.

In Angola, it is essential that adequate regulatory ca-pability be established as soon as possible so as to ensurethat customer and national interests are protected at allstages of the reform process, while at the same timeproviding the assurances of a fair and predictable busi-ness environment that is needed to attract competentprivate sector investors.

In the past, departments within government min-istries have performed regulatory functions. However,it is no longer considered appropriate for structuresthat are part of the government to conduct regulatoryfunctions. Governments inevitably have conflictingobjectives, and this can result in a lack of consistencyabout crucial regulatory decisions. Both customers andinvestors seek regulatory mechanisms that will resultin decisions that are fair and predictable, with matterssuch as changes in tariffs (including lifeline tariffs)being implemented in a routine, transparent fashion.The international “best practice” that has emerged isfor infrastructure regulators to be independent agen-cies, able to operate without political interference, butwith a high degree of public accountability for thedecisions reached and implemented within the infra-structure sectors.

These concerns strongly apply to Angola,which hasa long path ahead in building the confidence that isneeded to make infrastructure reforms a success. Inview of this, the importance of independent regula-tion of infrastructure is discussed in more detail inappendix 1. Independent regulation is not an optional“add-on,”but a fundamental requirement for attractinginvestors and ensuring that the overall objective of least


17

cost, equitable provision of infrastructure services isachieved.The annex describes safeguards to ensure in-dependence in the establishment of regulatory agen-cies, together with the broader conditions needed forindependence to be fully effective.

Advantages of PPI and Range of Possible Forms

At present in Angola, the infrastructure sectors are al-most entirely publicly owned and operated with onlymarginal private sector participation (telecommunica-tions is to some extent an exception). Retaining full

public ownership and control is certainly an option tobe considered, provided there is full commercializationof the responsible entities. However, in addition to themajor advantages expected from properly planned pri-vatizations discussed in the previous chapter, in the caseof Angola there would be some specific additionaladvantages to fostering PPI:• Private operators have more flexibility to make best

use of human resources, an issue of major concernin a country critically short of skilled manpower.

• It is more acceptable in Angola for a private opera-tor to raise tariffs to cost-recovery levels than itwould be for a public enterprise.


18

Figure 2.1 Forms of PPI

Fully public (centralized) responsibility. A centralized state-owned public service provider conducts allinvestment, financing, and operations.

Public service provider directly engages local staff or subcontracts to a local firm for technical and commercialservices. Public service provider owns all assets and remains responsible for costs, revenues, and profits.Contractor is only responsible for own labor costs.

Public service provider carries out all investment and collects revenues; contractor is responsible for costs onlyrelated to defined services.

Public service provider carries out all investment; contractor is responsible for costs and revenues, thereforehas operating profit responsibility.

Public service provider carries out all (most) investment; leases or rents assets to contractor. Contractor isresponsible for costs and revenues, therefore has responsibility for operating profit as well asmaintenance of assets.

A project company is responsible for a specific project’s investment, costs, revenues, and profits; itscorporate aim is to be profitable over the concession period. Public service provider ensures that technicalstandards are met.

The cooperative is responsible for all investment, costs, and revenues; its corporate aim is non-profit-making to encourage local participation. Public service provider ensures technical standards met.

A joint stock company has similar responsibilities to a cooperative, but its aim is profit making. Public serviceprovider may be shareholder in a joint venture and also provides technical expertise.

Fully private (decentralized) responsibility. All investment, financing, and operations are carried out by aprivate company or local participants, with independent (national or local) regulation.

Centralized/state-owned service

provider

Subcontracting

Cooperative

Joint stockcompany

BOT orConcession

Asset rental/leasing contract

Managementoperating contract

Administrationservices contract

Fully privatecompany

• The payment of arrears and thereafter timely pay-ments for infrastructure services by governmentdepartments and other state enterprises (which to-gether constitute a significant part of the customerbase) would be more likely when the utility is inprivate hands.

• Private operators are likely to be more innovative inthe choice of technology for service delivery; this isan area that needs serious attention in Angola if thegoal of universal access to modern infrastructureservices is to be attained over any reasonable timeframe.

• Mobilization of private capital would foster the de-velopment of capital markets to assist productiveventures in the future.

These advantages apply not just to full privatization,but also in varying degrees to the wide range of op-tions, which exists for PPI.The main types of arrange-ment are illustrated in figure 2.1.This shows a progres-sion from a centralized public “service provider” (usedhere as shorthand for state-owned “infrastructure ser-vice provider”) to a fully private company. It is impor-tant to emphasize, however, that the progression is onlynotional. In practice, it may often be attractive to havehybrid arrangements.

For example, it would be quite possible to combinean overall management contract for a major utilitywith the operator having service contracts with a

number of other companies fulfilling particular func-tions. Lease or concession arrangements could be forcomponents of the overall system rather than for theutility as a whole. For example, the public sector couldretain full responsibility for transmission and distribu-tion in an electricity or water system while purchasingbulk supplies from an upstream private operator thathas a lease or concession over generation or water stor-age and/or treatment assets.

PPI Investor Criteria

Potential private sector investors in infrastructurewould need a number of conditions to be satisfied be-fore they would begin formally appraising an invest-ment opportunity in Angola. These criteria and therelated questions and concerns of investors aresummarized in table 2.5. The criteria have been for-mulated primarily with international investors inmind, but also apply to domestic investors in infra-structure projects. These criteria form the frameworkfor the analysis of constraints to PPI in the sectoral re-ports (see chapters 4–7). Proposals for addressing defi-ciencies are made in the sectoral reports and the rec-ommendations in chapter 8.

From an investor viewpoint, the degree to whichthe above criteria are satisfied is also an important de-terminant of the form of participation, which can be


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Table 2.5 PPI Investor Criteria

Criterion Investor questions and concerns

1. Data/studies

2. Legal and regulatory framework

3. Cost covering tariffs/assured revenue stream

4. Contract structure

5. Capital and credit markets

6. Political commitment

Is there a credible sector database available, covering demand, consumption, and operating and capital costs,institutional structure, pricing regulation, measures of success, and so on? Are there any comprehensive studiesavailable (not just technical but economic and financial)?

Is the sector reserved for the public sector? Are there legal gaps or conflicts? Is the public procurement processtransparent and fair?

Are the identity, scope, and competence of the regulator clear? Is the regulator able to operate without politicalinterference?

Do current tariffs cover the costs of provision (including not only operating costs but adequate maintenance,depreciation, or capital cost provisions, financing costs, and rate of return)? Are prices of infrastructure servicesequitably structured? If subsidies are to continue, what assurance is there of prompt and reliable payments?

Is the proposed structure of rights and obligations to be transferred to the private sector realistic? Are theobligations, such as the private sector’s capital investment requirements, consistent with the contract's fundingcapacity?

Can the domestic credit and equity market supply loans and investment capital at reasonable prices? Will foreigninstitutions extend loans or make investments?

Does the government have a clear objective for private sector participation in infrastructure? Is it to improveproductivity and efficiency, reduce government spending, or expand supply through introduction of technologyor commercial management? Are there interest groups that might divert the intentions of the policy?

considered technically, economically, and financiallyfeasible.Table 2.6 shows how the feasibility of greaterrisk transfer from the public to the private sector de-mands increasing satisfaction of the criteria (* � min-imum level of satisfaction of criterion is necessary,

****** � maximum level is essential).As summarized in table 2.6,most PPI examples that

have already been identified in Angola have been in theform of outsourcing and operating contracts. Theserequire limited satisfaction of the criteria or necessaryconditions. If the government of Angola is determinedto go beyond these forms of PPI and to transfer signif-icant investment and operating risk to the private


20

Table 2.6 Increasing Requirements for Satisfaction of PPI Criteria

PPI Criteria

Legal/ Cost Credit /Data/ regulatory covering Contract capital Political

PPI Option studies environment tariffs structure markets commitment

Outsourcing and operating contracts * * **Management contract ** * * ** ** ***Lease *** ** *** *** *** ****Concession **** **** **** **** ***** ****Divestiture ***** ***** ****** ** *** ******

* lowest; ****** highest

Notes

1. United Nations Development Program, Human DevelopmentReport 2002, New York, table 1.2. World Resources Institute,World Resources 2000–01,Washington,DC, table AF.3.3. Programa Económico e Social para o Ano de 2001.4. Government of Angola, Memorandum of Economic and Finan-cial Policies,April 3, 2000.5. Appendix 3 outlines mechanisms for efficient subsidies (such asoutput-based contracting) and international experience with these.

sector, it will need to be fully aware of the conditionssought by international operators and ensure that thesix criteria in tables 2.5 and 2.6 are fully met.

21

Economic Environment

IntroductionThe key criteria for PPI investors identified in the pre-vious chapter (see table 2.5) imply that private sectorinvestments in infrastructure can go ahead even if thebusiness, economic, and legal environment is not par-ticularly conducive. Provided sector-specific assurancesare in place (such as good database, independent sectorregulator, and cost-covering tariffs), and there is a con-tract that the investor regards as providing adequatesecurity, the transaction may well proceed.

However, the general business environment inAngola does have an important bearing on the identi-fied criteria, particularly on the PPI investor’s percep-tion of risk. As summarized in box 3.1, there areinfrastructure-specific risk factors for PPI investors, butthere are also broader concerns.A sound economic andlegal environment will raise confidence and contributeto reducing the risk premium, which would otherwisebe incorporated in the PPI investor’s target rate ofreturn. The consumers of infrastructure services ulti-mately pay for this enhanced profit element via highertariffs. This impacts negatively on the national objec-tives of providing access to infrastructure at the lowestpossible cost.

Business ConditionsFollowing the signing of the April 2002 ceasefireagreement, there is a unique opportunity to capitalizeon and reinforce investors’ positive perceptions on the

prospects for peace and political stability in Angola. Inbuilding confidence, it is equally important for thegovernment to enunciate and begin implementing acoherent macroeconomic stabilization program. It willtake some years to achieve the required objectives, butevidence of government commitment to a credibleprogram would be an encouraging start.

For many potential foreign investors consideringpostconflict Angola, there will be aspects of the busi-ness environment, which are unfamiliar.The legal sys-tem, based on Portuguese codes, is particularly impor-tant in this regard and is analyzed in more detail inthe legal and regulatory environment section, below.Accounting practices for private companies are beingbrought into line and being reformed to be more inline with international norms. Since January 2003 anaccounting policy has been put in place that is verysimilar to that in the European Community.

In the infrastructure sectors, the enterprises arepresently all state-owned, most with the legal status ofpublic enterprises (Empresas Publicas), which are com-mercialized state companies. The government hasbeen tightening up on accounting requirements forpublic enterprises and has introduced mandatory fiscalcouncils for the supervision of public enterprise ac-counting. A summary of what is entailed is given inbox 3.2.The measures should improve the managementand governance of infrastructure services providers,thereby providing greater confidence to PPI partnersand a more satisfactory basis for the risk transfer im-plied by PPI contracts.

Crosscutting Issues3


22

Box 3.1 Infrastructure Political Risk Factors of Concern to PPI Investors

Political risk in infrastructure PPI is always present. From inter-national experience, investors will seek to minimize possible riskthat could arise in the following situations:• Failure of a state-owned entity to pay under a “take or pay”

contract such as under a power purchase agreement be-tween a private power generator and, say, a state-ownedpower distributor, which had been unable to invoice andcollect from consumers.

• A competent public authority’s refusal for political reasonsto sanction or approve the increase of a tariff under anagreed formula contained in a PPI contract.

• Delay or failure to pay the private sector operators an op-erating subsidy payment under a PPI contract or failure tomake a timely payment for capital works undertaken by theprivate sector—typically in a construction contract.

• Delay or failure by a competent Ministry or public enterpriseto perform some function in preparation of a private sectorinvestment. Examples include securing title to land for trans-port projects, undertaking complementary investment—agrid connection for a private power station, and so on.

• Change of law that prevents the convertibility or transfer-ability of profits, dividends, or investment proceeds or per-mits the expropriation of private foreign investment in thesector in question.

Given the short period since the cessation of conflict in Angola,in common with the pattern of investor reaction in other post-conflict states, in the immediate future domestic and internationaloperators and investors will seek specific assurances and insiston structural and contractual ways to minimize or mitigate theserisks.

Box 3.2 Improved Accounting and Fiscal Discipline in Public Enterprises

Past accounting rules of public enterprises, in the context ofhigh inflation, have distorted enterprise balance sheets andmarkedly reduced their management value. Fixed assets typicallyappear in annual accounts at their historic cost without revalua-tion. This has led to underestimation of tariffs, overstatementof profitability (through charging insufficient depreciation), andthe consumption of the company’s capital.

The solution to unsound financial structures of public net-works is to raise tariffs, improve revenue collection, and re-structure public enterprise balance sheets to include the re-placement value of fixed assets to reflect the appropriateprofitability and return on assets.

From the beginning of 2002,public enterprises were required(by Decree 38/00 of 10 August 2000) to have chartered accoun-tants audit their accounts. From the start of 2003, public enter-prises are further required to abide by the General AccountingPlan approved by Decree 82/01 of 16 November 2001.The Gen-eral Accounting Plan follows international accounting practiceand applies to all companies operating in Angola, whether publicor private. Its intention is to improve the quality and detail of theaccounting information produced by the enterprises,the compre-hensibility of the accounts, and the quality of national statistics.

It should be noted that there is legislation through Decreeno. 6/96 of the Council of Ministers for the revaluation of fixedassets for all enterprises.

Public enterprise accounting will be assisted by the manda-tory appointment of a fiscal council, appointed jointly by the sec-tor and Finance Ministries, with responsibility for the supervi-sion of the enterprise accounting (Decree 42/01 of 6 July 2001).The fiscal council will have oversight responsibility over the fullscope of the enterprises’ activities. It will assess the standard ofthe enterprises accounts and, in particular, the annual report andaccounts, audit the enterprises’ accounting, and verify the equityvalues. It will report to competent bodies any financial irregular-ity identified and make declarations on any subject of financialinterest to the enterprise.

Under the new rules, public enterprises must submit theannual report and accounts for the previous calendar year tothe Finance Ministry by March 31.This document is to includethe directors’ report, the balance sheet, the profit and loss state-ment (including a proposal for the distribution of profits), thesource and use of funds, and the fiscal council’s opinion.

incentives for investors. This is a defensible positionbecause evaluation of fiscal incentives in a wide rangeof countries shows that reducing disincentives (suchas weak institutions and poor governance) matters far

Tax Provisions and Fiscal Incentives Angola has a straightforward tax system with relativelyhigh rates, comparable to several other SADC coun-tries.The main elements of the system and the rates ap-plicable up to January 2003 are summarized in box 3.3.The principal legislation is the Law on Taxation Policyand Levels (Law no 5/99 of 6 August 1999).There is aseries of other laws for specific taxes. Rates can onlybe changed by amendments being passed to the rele-vant laws.

Hitherto, while the Foreign Investment Law didallow for fiscal concessions to be negotiated whenthe foreign investment was made under the contrac-tual system, there was no system of automatic tax

Crosscutting Issues

23

Box 3.3 Angolan Taxation Policy and Levels

Corporate profits—whether public or private, domestic, orforeign—are taxed in Angola at 35 percent. Profits on agricul-ture, forestry, or cattle-raising attract the only concessional cor-porate tax rate (20 percent).Customs duties are levied on an “ad valorem” basis, and arecharged at rates ranging from 2 to 35 percent. Consumption taxvaries from 2 to 30 percent and is applied to both local andimported goods.Withholding taxes are levied at source on dividends and roy-alties (at a rate of 10 percent) and on interest (at a rate of15 percent). A tax on contracts is levied at the rate of 3.5 per-cent for construction, improvement, and repair of fixed assetsand at 5.25 percent for all other contracts.Personal income tax rates on salaries and wages, bonuses,and benefits ranges from 4 to 15 percent. Contributions for so-cial security are compulsory and total 11 percent.The employeecontribution is 3 percent, and the employer contribution is8 percent. It is understood that the current taxation levels andpolicies are in the process of being revised.Public enterprises are subject to taxation of profits at thecorporation rate—namely, 35 percent—as well as to the otherprincipal taxes.They are also obliged to deduct personal incometax and to contribute to the social security program in the sameway as private companies.

more in fostering investment.This applies particularlyin the infrastructure sectors. Addressing macroeco-nomic instability by restoring fiscal balance is a keyobjective at this point. Once this has been achieved, apolicy of reducing corporate taxes across the board islikely to bring larger benefits in terms of encourag-ing industrial and technological investment than of-fering selective incentives to particular categories ofinvestors.

Rather than targeting an increase in foreign invest-ment, the incentive legislation passed into law on July25,2003,seeks to promote certain sectors,encourage thedevelopment of deprived areas of the country, and assistsmall-scale enterprises.The provisions of this legislation,known as the Law on Tax and Customs Incentives forPrivate Investment, are summarized in table 3.1.1 To beeligible for the incentives, an investment project shouldbelong to one of the priority sectors, and the companyinvolved should be legally established, with an adequateaccounting system and no debts of any nature to the

state or the social security system.The level of incentivesis then related to the development area where the proj-ect is to be located. The law also makes provision forthe establishment of special economic areas, where ad-ditional incentives are to apply.

Prices and Subsidies At present most infrastructure service providers areforced to make do with inadequate prices and there-fore operate at a loss. Costs overwhelm revenues andenterprises depend on subsidies from central govern-ment, although in some cases the subsidies comethrough provincial governments or other channels.Subsidies generally cover varying proportions of bothcapital and operating expenses, are untargeted, and donot provide any sort of incentive to enterprise man-agers to improve efficiency.2

High inflation levels require frequent and substan-tial price increases for providers to break even.Whenservices are prone to interruption or are in short sup-ply, consumers are reluctant to agree to pay higher tar-iffs. Some consumers, particularly public sector institu-tions such as hospitals, schools, and the armed forces,are not in a position to pay for budgetary reasons.Revenue shortfalls compound the problems of delayedmaintenance and production difficulties.

In preparation for the introduction of PPI, publicinfrastructure enterprises should be encouraged to re-view current cost bases and set new levels and struc-tures for infrastructure prices that will move towardstariffs covering not only all production and mainte-nance costs, but also generating an after-tax profitsufficient to satisfy the return on the initial capital in-vestment. Any review of tariffs would provide anopportunity to introduce new tariff structures, whichhave an appropriate mix of fixed charges and volumet-ric charges (where sufficient metering is in place), andmake proper provision for “lifeline tariffs” to protectvulnerable groups of consumers.

The new Private Investment Law provides guaran-tees that the state will not interfere in setting prices.This is an important provision that will in due courserequire revision of all legislation currently in force thatprovides for government involvement in the establish-ment of prices of infrastructure services and a widerange of other goods and services.3


24

Table 3.1 Provisions of Law on Tax and Customs Incentives for Private Investment

Category Detailed provisions

Priority Sectors

Development areas (A = least favored)+

Allowable expenses

Waivers of customs duties*

Other waivers

Small-scaleenterprises (US$ 50,000–US$ 250,000)

Transport companies

Special economic areas

Schools and clinics

+ Parliament changed the Council of Ministers’ definition of the development areas.* Stamp duty and taxes related to provision of import services still payable.

Agriculture, livestock, fishing and fishery productsIndustry (packaging; capital goods—machinery, equipment, tools, and accessories, especially for the agricultural,

textile, and footwear industries; wood, paper, and plasterboard industries; food industry; construction materials;information and telecommunications technologies)

Health and educationCivil works, roads, highways, railways, and telecommunications infrastructure

Area A—Includes Luanda Province and the seats of the municipalities of Benguela, Huila, and Cabinda provincesArea B—Remaining municipalities of Benguela, Cabinda, and Huila provinces, and South Kwanza and Zaire

provincesArea C—Bengo, Uige, North Kwanza, North Lunda, and South Lunda ProvincesArea D—Huambo, Bié, Moxico, Kuando–Kubango, Cunene, Namibe, and Malange provinces

Up to 120 percent of all expenses incurred with the construction and rehabilitation of roads, railways,telecommunications, water supply, and social infrastructures for workers, their families, and populations in those areas

Up to 100 percent of all professional training expenses of Angolan workersUp to 100 percent of all expenses with the purchase of art objects from Angolan artists, provided that such

objects remain in the country and are not sold during a 10-year period

Capital goods: 3 years area A, 4 years area B, 5 years area C, 6 years area D (50 percent duty reduction for secondhand capital goods)

Imported inputs: 5 years

Industrial tax: 8 years area A, 12 years area B, 15 years area C, 15 years area D Withholding taxes: 5 years area B, 10 years area C, 15 years area D

Customs waivers*: 50 percent when various conditions met, including creating 20 jobs (75 percent when equipment is secondhand)

Industrial tax waiver: for 5 years when 30 or more jobs created (plus other conditions)Withholding tax waivers: for 10 years when 50 or more jobs created (plus other conditions)

Customs duties waiver* on trucks, buses, vans, and other vehicles (50 percent duty reduction for 3 years in case of secondhand equipment)

Customs duties waiver*: for 10 yearsIncome tax: blanket waiver for capital-related income and loans and income arising from technology transfer ;

other income exempt from tax for 12 yearsUrban property tax: owners of buildings in special economic areas exempt for 5 or 10 years.

Reduction of income tax from 20 percent to 10 percent when 10 percent of private school and health clinic capacity is granted to poor students and patients.

Financing Environment The finance sector in Angola is not well developed.There is no stock market, the money market has veryfew tradable instruments, the insurance sector is domi-nated by two state enterprises,4 and there are no insti-tutions specializing in housing finance. The bankingsector consists of nine commercial banks, one merchantbank, four representative offices of foreign banks, anda few institutions providing loans to small-scale enter-prises.Among the commercial banks, three are foreign-owned and two are state banks, Banco de Poupança eCrédito (BPC) and Banco de Comércio e Indústria (BCI).The state banks account for about 45 percent of com-mercial bank assets.

In the prevailing macroeconomic climate, profitableopportunities lie in short-term commission-relatedactivities, such as currency trading, trade finance, andcommercial business. Lending for productive purposeshas largely been to petroleum and diamond-relatedenterprises. At the end of 2002, commercial loansamounted to just kwanza 7.7 billion (US$ 230 million)or 13 percent of the total commercial bank asset baseof kwanza 58.5 billion (US$ 1.74 billion at the pre-vailing market exchange rate of 33.6). Low lendinglevels have also been due to a lack of demand, perhapsbecause for borrowers the very high interest rates(84 percent to 120 percent p.a. over the last three years)may have appeared unattractive and risky. More

Crosscutting Issues

25

recently, however, it is reported that demand for credithas been strong, with lenders seeking to take advantageof interest rates, which remain negative in real terms.

Over the medium term, if the government succeedsin strengthening the macro-economy, a much higherlevel of commercial bank lending could be anticipated.However, infrastructure investment is inherently long-term, and normal commercial bank instruments are notwell suited to this.Further development of the insuranceand pension industry and the establishment of a stock ex-change to provide equity finance would greatly enhancedomestic financing capacity.The establishment of a spe-cial purpose Infrastructure Development Fund to mobi-lize and channel resources from government, donor, andprivate sector sources may also be beneficial.This idea isdiscussed further in the recommendations (see chapter 8).

Access to foreign sources of finance for infrastruc-ture investment and competition within the bankingsector will be improved if some of the foreign banksobtain banking licenses and convert their representativeoffices into substantive banks.The availability of financemay also change dramatically if plans for expanded oilproduction are accompanied by maintenance of highprices on world oil markets (thereby perhaps doublingcurrent oil revenues). Return of private funds held off-shore as the economy starts growing and confidence isrestored could also provide significant levels of foreignresources to be channeled into investments to sustaineconomic growth.

In sectors such as telecommunications, it should bepossible to finance much of the equipment componentof investments through supplier credits. Angola willalso be eligible for various types of concessionaryfinance for infrastructure investments.This is discussedfurther in box 3.4.

Foreign InvestmentPotential foreign investors in infrastructure services inAfrican postconflict states such as Angola realize theyoperate in the most challenging parts of the world andin some of the most difficult sectors to gain economicreturns. To be successful in attracting foreign invest-ment, governments must therefore be able to meet thecompetition for those investment resources from themany other eligible countries.With the commitmentthe government has made to modernizing its privateinvestment regime,Angola is well placed to do this.

The PPI investor criteria section above deals withthe criteria for achieving private sector participation ininfrastructure. Once these criteria are satisfied, govern-ments are in a position to invite bids, usually by wayof international competition, in response to detailedrequests for proposals to transfer risks to the privatesector under the appropriate PPI contractual arrange-ments.The structure and quality of the transaction thatAngola offers is probably the single most important de-terminant of whether investment will occur, but thereare a number of other key issues which the foreigninvestor will need to consider.

One of the primary concerns of foreign investors inAngola will relate to the legal framework for foreigninvestment. This is discussed in the introductoryoverview and investment, privatization, and labor lawssections, below, where the provisions of the recentPrivate Investment Law (Law 11/03 of 13 May 2003)are discussed. When it comes into force, this law willreplace the previous Foreign Investment Law (Law15/94), updating the provisions to reflect postconflictcircumstances and to create a level playing field be-tween domestic and foreign direct investors.

Critically important elements to foreign investorsare the prevailing foreign exchange regime and lawpertaining to the convertibility and transferability ofprofits and investment proceeds.The exchange rate forthe kwanza is market determined, but is supervised bythe National Bank of Angola (BNA), which authorizes

Box 3.4 Concessionary Finance for InfrastructureInvestments

Potential sources of equity as well as of debt finance for infra-structure investment in Angola include regional developmentbanks (such as the African Development Bank, the COMESABank, and the Development Bank for Southern Africa), and mul-tilateral sources (including, within the World Bank Group, theInternational Finance Corporation).

There are a growing number of multilateral and bilateralfunds that are targeted specifically at assisting PPI in sub-SaharanAfrica (SSA). One example is the Emerging Africa InfrastructureFund (EAIF).This US$ 300 million concessional lender was es-tablished in 2001 with a view to supplying senior debt to viableinfrastructure projects in SSA countries. Soundly structuredmedium-sized (up to US$ 30 million) infrastructure projects inAngola would satisfy the principal geographic and investmentcriteria for the Fund.

dealers and banks to trade in foreign exchange. Allcapital operations and invisible operations greater thanUS$ 50,000, including movements of investor fundsand repatriation of dividends out of Angola, are subjectto prior license from the BNA. Foreign investors mayremit profits and dividends, subject to authorization bythe Ministry of Finance and provided the investmentexceeded US$ 0.25 million.

Another key matter of concern to foreign investorsis the government’s policy on employment. The newPrivate Investment Law requires an investor, whetherforeign or Angolan, to employ Angolan nationals,while the Law on Tax and Customs Incentives has pro-visions to reward companies for employment creationand for the provision of training to Angolan staff. Em-ployment of foreign workers is also allowed, but thereis to be no discrimination between local and foreignworkers. In all cases, salaries and social conditions areto be compatible with the employee’s qualificationsand experience.

This is consistent with previous legal requirements,in particular Decree 5/95 of 7 April 1995 and Decree6/01 of 19 January 2001.The first of these decrees set aspecific target for all companies with more than fiveemployees, namely that 70 percent of them should holdAngolan nationality.Against the background of the ex-tremely low level of education in Angola (documentedin the economic and political setting section, above),the practical problem that investors have encounteredhas been to find Angolan employees with the requisiteskills or an education level such that the employee canbe readily trained. A provision of Decree 6/01 is thatexpatriates cannot stay in Angola for more than 36months. However, exceptions are regularly made forhigh-ranking managers and highly skilled staff.

In sum, it is clear that while the investment climatefor potential participants in PPI contains a number ofconstraints, these are clearly articulated and can be un-derstood and planned for in advance. As the govern-ment’s program of legislative and administrative simpli-fication of investment procedures and requirementsgathers pace, the climate will become increasingly at-tractive for foreign as well as domestic infrastructureinvestors.

Other Constraints There are a number of other constraints that all in-vestors face, whether domestic or foreign. One of the

most significant is in fact the raison d’être of PPI in in-frastructure, that is the lack of reliable supply of infra-structure services, resulting in either interruptions toproduction (for example, when there is no water orelectricity) or unnecessarily high costs (e.g., the pur-chase of a standby generator or the use of airfreightbecause cheaper forms of transport are too unreliable).

Other major day-to-day concerns in operating abusiness in Angola are the state-imposed bureaucraticrequirements and the expectation by underpaid civilservants of additional remuneration for overcomingsome of the delays and frustrations that are involved.The establishment of a new business obviously entails ahigh degree of engagement with the bureaucracy (seethe section on the road map to transaction process andPPI approval, below), but this can be perpetuated if thefirm has ongoing requirements, such as the need toimport raw materials on a continuous basis.

Legal and Regulatory Environment

Introductory OverviewTo consolidate its pro-market economic policy stance,the government has committed itself in 2002–03 tooverhaul the legislative framework for private enter-prise activities in Angola. Of the nine main laws, sup-plemented by various decrees, which constitute theoverall legal framework for private investment in infra-structure in Angola, one was revised in 2002 and fourare new legislative instruments, which were passed in2003. These are the Law on the Delimitation of theSectors of Economic Activity (revised in May 2002),the Private Investment Law, the National Private In-vestment Agency Law, the Law on Tax and CustomsIncentives for Private Investment, and the VoluntaryArbitration Law (all passed in April 2003).5 A revisedPrivatization Law is expected to be passed in 2003.

As a result of the promulgation of the new laws, in-vestment in Angola will be more attractive, easier, andmore rapid than has been the case in the past. In par-ticular, the Private Investment Law establishes a systemof prior declaration, whereby the National Private In-vestment Agency (ANIP) will take a final decision oninvestments of up to US$ 5 million within 15 days.The Council of Ministers will approve larger invest-ments and those involving licenses or concessions(provisions that will apply to most if not all infrastruc-ture projects) within a period of 30 days. These


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approval mechanisms will remove a significant elementof uncertainty at an early stage in the project cycle.However, many of the detailed provisions relating tolarge complex projects will remain to be negotiatedand finalized in the postapproval phase and this will in-volve interacting with a number of national, provincial,and local government agencies.The requirements andprocedures involved in this process are explained fur-ther in the discussion of the “road map,” below.

An unambiguously beneficial advance relates tothe new law permitting voluntary arbitration. In thepast, resorting to the overburdened and cumbersomeAngolan court system to resolve disputes has taken upto 10 years to produce a result, even in quite straight-forward cases. The new law creates an alternative, yetrobust,legal mechanism for the resolution of commercial

disputes.This has the effect of replacing a key source ofconcern with a structure offering the flexibility, confi-dence, and efficiency required by investors.

The main legal instruments relating to private in-frastructural investments are summarized in table 3.2,below. These define which infrastructure activities theprivate sector is permitted to undertake (on its own orin partnership with the state), the contractual regimefor activities involving the private sector, the approvalprocess for investments (including the National PrivateInvestment Agency’s role), and the requirements forprivatization of state activities.The laws also lay out thefiscal rules and incentives and the legal requirementsfor the employment of foreign and Angolan employ-ees, and create the mechanism for private arbitration ofcommercial disputes.

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Table 3.2 Main Legal Instruments Relevant to PPI Investors

Law Number Date

1. Constitutional Law Law 22/92 September 16, 1992

2. Law on the Delimitation Law 5/02 April 16, 2002of the Sectors of (replacing Law Economic Activity 13/94)

3. Private Investment Law Law 11/03 May 13, 2003(replacing and (replacing Law supplementing Foreign 15/94)Investment Law)

4. Privatization of Public Law 10/94 August 31, 1994Enterprises (being revised)

5. Taxation Policy and Levels Law 5/99 August 6, 1999

6. Law on Tax and Customs Law 17/03 July 25, 2003Incentives for Private Investment

7. Labor Law Law 2/00 February 11, 2000

8. Voluntary Arbitration Law Law 16/03 July 25, 2003

Decree Number Date

1. Prices Decree Decree 20/90 28 September 1990

2. General Accounting Plan Decree 82/01 November 16, 2001

3. Public Enterprise Decree 38/00 August 10, 2000Accounts Requirements

4. Public Enterprises Fiscal Decree 42/01 July 6, 2001Councils

5. Employment of Non- Decree 5/95 April 7, 1995residents, Foreigners and Angolans

6. Professional Activity of Decree 6/01 January 19, 2001Nonresident Foreigners

7. National Private Decree 44/03 July 4, 2003Investment Agency (ANIP)

As already mentioned, PPI will generally requirethe issuing of a license or a concession.The license andconcession regime requirements are not uniform andare defined in the specific legislation for each sector.Table 3.3 provides a summary of the main legal instru-ments by infrastructure sector.

In assessing the PPI legal framework in Angola, aninvestor has to assess the framework laws and sectorlaws together and ensure that when it comes to nego-tiating a contract there are no conflicts with either setof legal instruments. The centralization of the ap-proval process for concession contracts in the Councilof Ministers, together with the lack of a single legalframework for concessions, remains a barrier to privatesector participation.When the Private Investment Lawand other new legislation come into force, the previ-ous highly bureaucratic process concerning privatiza-tions, specific foreign investment requirements, and theapproval of work visas for expatriate workers should

be dramatically simplified and streamlined, but this re-mains to be tested in practice.

The main investor risk arises from the provisions inthe sectoral laws, which enable the state to nationalizeassets (proceder ao resgate) when it deems it in the nation’sinterest to do so.However, the Constitution, the PrivateInvestment Law and the sectoral framework laws doguarantee the foreign investor the right to compensa-tion if this occurs, in accordance with international lawand international dispute resolution procedures. Atthis point, there is also a high level of regulatory risk inthat regulatory frameworks are largely undeveloped.The only stand-alone infrastructure regulatory bodypresently in operation (telecommunications sector)does not have an adequate degree of autonomy fromgovernment. Without a more robust legal frameworkfor infrastructure regulation, there is a high risk ofpolitical intervention in the granting of licenses andconcessions and the determination of prices.


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Table 3.3 Infrastructure Sector Legal Instruments

Sector and report chapter Law/Decree Number Date

Energy (see chapter 4) General Electricity Law Law 14-A/96 May 31, 1996Provision for Electricity Decree 27/01 May 18, 2001

Sector RegulationCreation of Electricity Decree 4/02 March 12, 2002

Sector RegulatorRevocation of Electricity Licenses Decree 43/01 July 6, 2001Regulation of the Production Decree 47/01 July 20, 2002

of Electrical EnergyRegulation of the Distribution Decree 20/90 July 13, 2001

of Electrical EnergySonangol sole concessionaire Hydrocarbon Law 1978

for exploration and production

Water (see chapter 5) Water Law Law 6/02 June 21, 2002Water Pricing Decree 27/98 May 22, 1998

Transport (see chapter 6) Creation of INEA Decree 28/90Enactment of Road Fund Decree 27/94Concession of Port Services Decree 53/97

Telecommunications Liberalization and Decree 18/97 March 27, 1997(see chapter 7) complimentary services

Decree 18/97 Modified Decree 9/99 June 4, 1999Concession for mobile services Resolution 12/00 May 19, 2000DNT functions Decree 2/98 January 16, 1998INACOM’s statutes Decree 19/99 and 12/99 June 25, 1999Rules for access to public Decree 44/02 & 45/02 September 6, 2002

telecommunications servicesApproval of GOA ToR for public Executive Decree 12/01 March 30, 2001

fixed line operators competitionTelecommunications Act and Law 08/01 May 11, 2001

creation of FADCOM

Investment, Privatization, and Labor Laws

Constitutional LawLaw 22/92 of 16 September

The Republic of Angola’s economic system allows forthe coexistence of several types of public, private,mixed, cooperative, and family property, all affordedequal protection under the law. The state encouragesthe participation of all economic agents and capital, inthe interest of national economic development and ofsatisfying the basic needs of the citizens.The law deter-mines those sectors and activities for which statecontrol is a necessity due to the national interest.According to the law, it is incumbent upon the stateto protect foreign investment and the property offoreigners.

Law on the Delimitation of the Sectors of Economic ActivityLaw 5/02 of 16 April, replacing Law 13/94

The original Law 13/94 was a fundamental piece oflegislation in defining the change from the centralizedstate-controlled system towards a market economy. Itestablished the concept of three levels of “reserve”economic activities for which the state reserved a spe-cial role, in recognition of its right to participate inthose areas that require coordination for the generalpublic good. The three levels of reserve, which aremaintained in the recently issued replacement Law5/02, and how these impact on the infrastructuralsectors are as follows:6. Absolute reserve: activities,which can only be carried

out by the state or wholly state-owned entities.The basic network infrastructure for telecom-

munications and airport and port infrastructure aredefined to be areas of absolute reserve.

7. Controlled reserve: activities, which must be carriedout by the state or entities in which the state has amajority shareholding.

The postal service and local communicationsnetwork, when they are an extension of the basictelecommunications network, are considered to beareas of controlled reserve, that is, where control,though not necessarily outright ownership, is re-served for the state.They can be developed by pub-lic companies or private organizations in which thestate has a majority shareholding.

8. Relative reserve: activities in which concessions canbe granted to private firms to carry out the activi-ties for a defined period of time.

The following infrastructure activities are con-sidered as the relative reserve of the state and there-fore require concession contracts if they are to becarried out by companies or entities not in thepublic sector:• Electricity generation, transmission, and distribu-

tion for public consumption;• Water capture, treatment, and distribution for

public consumption through fixed networks;• Basic sanitation;• Exploitation of port or airport services, rail

transport, and regular air transport of domesticpassengers;

• Complementary postal and telecommunicationservices, infrastructure that is not an integral partof the basic telecommunications network and as-sociated telecommunication services.

In summary, national and foreign private investorsare allowed to participate in those areas specified asthe controlled and relative reserve of the state.Variousforms of participation are possible, including in theareas of relative reserve management contracts or leas-ing contracts.

The delimitation law reiterates that the state is com-mitted, under the Constitution of Angola, to providingall types of property and management systems withequal protection and promotion and no discrimination.

Private Investment LawLaw 11/03 of 13 May

The Private Investment Law 11/03 succeeded the For-eign Investment Law 15/94. It is significant that thenew law applies to all private investment and is notspecifically oriented to foreign investment. One of itsmajor objectives is to avoid any distinction being madebetween national and foreign investors. For example,the definition of an external investor refers to the ori-gin of the capital investment, not to the nationality orcountry of residence of the investor.Angolan investorsand those from abroad are to be treated in the samemanner, with no special privileges, but with the assur-ance of the same legal rights and guarantees, which arespelled out in detail in the law.

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As mentioned in investment, privatization, andlabor laws, above, the Private Investment Law estab-lishes a system of prior declaration, whereby a final de-cision on investments of up to US$ 5 million is to betaken within 15 days by the National Private Invest-ment Agency.The lower limit of projects to be consid-ered by ANIP is US$ 50,000 in the case of Angolannational investments and US$ 100,000 for externalinvestments. Projects involving capital investmentsgreater than US$ 5 million, or those requiring a con-cession, are to be approved by the Council of Minis-ters, but ANIP is still to be involved in receiving andprocessing the applications.

A proposal can usually only be rejected for reasonsof a legal nature. Once a proposal is approved (whetherby ANIP or by the Council of Ministers), the law spec-ifies that ANIP is to issue a Private Investment Regis-tration Certificate (CRIP).This is to contain identifi-cation details of the investor, the procedural regime forthe investment, the economic and financial parametersof the investment, its location and time frame, and themanner in which the project is to be implemented.TheCRIP is to be the document certifying the acquisitionof rights and the assumption of duties by the investorand then is the basis for all investment operations, ac-cess to incentives and benefits, obtaining of licenses,and registration for the settlement of litigation.

The Private Investment Law makes provision for fis-cal incentives. Eligibility for incentives and the detailedprovisions are laid out in the companion Law on Taxand Customs Incentives for Private Investment: this issummarized in this report in table 3.1, above.The lawalso specifies certain financial rules for private invest-ment operations.These include mandatory use of legallyauthorized banking or financial service institutions andaccess to foreign currency at market-determined ex-change rates.

In times of exceptional balance-of-payments stress,the governor of the National Bank of Angola is em-powered to schedule the transfer of funds abroad overa period to be negotiated and agreed with the investor.The import of machinery and equipment is to belicensed directly by the National Bank of Angola. Aperiod of 15 days is stipulated for the issuance of animport license, after presentation of the necessary doc-umentation, including the CRIP.

While allowing for the contracting of qualified for-eign workers, the Private Investment Law obliges pri-vate enterprises to employ Angolan workers, assuringthem of the necessary professional education and offer-ing a salary and social conditions compatible with theirqualifications and experience.Any type of discrimina-tion between local and foreign employees is forbidden.

National Private Investment Agency Decree 44/03 of 4 July

The National Private Investment Agency’s (ANIP) roleand functions are spelled out in the ANIP enabling leg-islation and in the Private Investment Law.ANIP is thebody that henceforward will be responsible for enforc-ing the national private investment policy defined bythe government, as well as for the promotion, coordina-tion, orientation, and supervision of private investment.

ANIP’s key roles in approving investments betweenUS$ 50,000 and US$ 5 million, receiving and process-ing project documents, which are to be considered bythe Council of Ministers, and issuing the crucial CRIPcertificates to project promoters, have been spelled outin the previous section.ANIP is also to be in charge ofthe administration of the incentives system applicableto investment projects. In exceptional circumstances,the incentives can include compensation for aspects ofemployee training costs (to overcome skills shortages),for the additional costs of establishing a project in avery remote area, or for having to provide infrastruc-ture services, which would normally be expected to beavailable from public utilities.

ANIP is to be controlled by a board of directorswith four members appointed for a three-year renew-able mandate by the Council of Ministers.There is alsoto be a fiscal council and an advisory technical council.ANIP reports to the head of government.However, fora number of specific matters (participation in privateentities, acceptance of donations, inheritances, legacies,and so on), it reports to the Minister of Finance.

Privatization of Public Enterprises Law Law 10/94 of 31 August6

The privatization of enterprises and private participa-tion in other assets of the state are supposed to be madethrough public tenders, but in many cases limited


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tenders or direct negotiations are used.The Minister ofFinance is responsible for making a final decision basedon the evaluation and results approved by a Negotia-tion Committee [including representatives of the sec-toral and finance ministries, the privatization unit ofthe Ministry of Finance (GARE), the Office for Entre-preneurial Restructuring, and the National PrivateInvestment Agency]. The Minister of Finance is alsoresponsible for the approval of the privatization opera-tions of small and medium enterprises, other parastatalassets, and participation of the state or state enterprisesin commercial firms.

Approval of the privatization of large enterprises isthe responsibility of the Council of Ministers on therecommendation of the Minister of Finance. In the caseof total or partial privatization of the property of a state-owned enterprise, the state will assume the amount ofliabilities necessary to ensure the enterprise’s economicand financial feasibility. In other words, liabilities will beassumed by the state to an extent sufficient to providethe buyer with an enterprise that can be operated in acommercially viable fashion, and not one that is bur-dened by a legacy of unserviceable debts.

The employees of the enterprises or parastatal or-ganizations subject to privatization keep their rightsand obligations. Employee participation is encouragedthrough a proportion of the shares of the enterprisebeing sold being reserved for employees (30 percent inthe case of medium enterprises; 15 percent in the caseof large enterprises). Employees benefit from a 30 per-cent discount on the price of shares in the entity.

Labor LawLaw 2/00 of 11 February

The Labor Law applies to all workers in Angola,whether local or foreign. It lays out the basic rights ofworkers as being the right to work (including the freeexercise of their profession), to join a trade union, toparticipate in collective negotiation, to participate inmeetings, and to strike.The law makes various provi-sions, which are intended to protect workers’ rights,but are also likely to make employers more hesitantabout employing workers.

Employers are required to have contracts withworkers. These will generally be written contracts,

although consensual oral contracts are permitted forlocal employees. Normally contracts are to be of un-limited duration; contracts of restricted duration areonly allowed under specific conditions laid out inthe law and then for no more than 6–12–36 months(depending on the type of provision that applies).Con-tinued employment after the expiry of the limited du-ration contract requires an unlimited duration contractto come into force.

The law specifies the conditions under which anemployment contract may lapse or in which an em-ployee may be dismissed. In the latter case, the em-ployee may seek the assistance of the Trade Union orpetition the Ministry of Labor or, ultimately, the LaborTribunal. In almost all cases of workers leaving jobs,termination benefits will have to be paid, according toformulae defined in the law.

With exceptions provided in the law, the normalperiod of work cannot exceed 8 hours per day or44 hours per week.Workers have the right to 22 work-ing days of paid leave p.a., with a holiday and Christ-mas bonus equal to 50 percent each of the monthlysalary being paid amounting to 100 percent in total.Women have the right to three months of maternityleave on full pay.

Public Procurement, Licensing and Concessions

Public Procurement The license and concession grantingprocess has to be preceded by a tender following oneof the possibilities defined within the law relating topublic procurement (Decree 7/96 of 16 February):public tender, limited tender with pre-qualification,limited tender without expression of interest, negotia-tion with or without previous advertisement, and di-rect award. The easier processes are for less complexand lower-valued public procurement transactions.However, because the financial limits for these optionsare not indexed in the law, inflation has severelyeroded the financial values for the different levels.As things stand at present, any procurement involv-ing an amount above US$ 6,600 in terms of the lawshould be subject to the provisions of a full publictender.

In practice, some discretion is applied to the proce-dure that is relevant in any particular circumstance.

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License and concession applications for infrastructureprojects would all fall under public tender or else, insome cases, limited tender with pre-qualification re-quirements.At the same time, the specific requirementsof the sectoral laws have to be fulfilled.The steps thatare involved, taking both public procurement andsector-specific infrastructure issues into account, arespelled out in the road map to transaction process andPPI approval section, below.Tenders have to be openedin public, bidders have the right to scrutinize all thetenders, and there is a tight time-bound procedure forappealing against tender awards.

Licenses and Concessions Licenses are considered to be ofa lower level of national importance than concessions.This is evident from the fact that licenses are issued andsupervised by the sectoral ministries, the regulatorybodies, or by provincial governments, whereas conces-sions fall under the Council of Ministers.

The sector laws that regulate the issuing of licensesdo not grant specific rights to the licensees but do stip-ulate their duties (the water and telecommunicationssectors are exceptions, as both rights and duties arespecified in the recent Water Law and in Decree 44/02of 6 September 2002, respectively). Most of the rightsstipulated in licenses are transmissible. By contrast, thetransmission of the rights of a concessionaire is de-pendent on a previous authorization by the Cabinet orthe conceding entity or on the expiry of a previouslyfixed term.

Licenses and concessions are annulled by lapse, rev-ocation, redemption, reversal, cession by the licenseowner, or agreement between the parties.The revoca-tion of licenses is a major constraint. In fact, licenseesmay be revoked for reasons that are not stipulatedin the legislation, since the reasons included in the leg-islation are merely considered as examples. Anotherfactor already highlighted in the introductoryoverview section, above, is that both licenses and con-cessions may be revoked when the government deemsit in the national interest to do so. In such cases, li-censees or concessionaires would be entitled to com-pensation, but the criteria for determining the com-pensation amount and terms of payment is not clearlyspecified.

The concessions regime is spelled out more clearlyin legislation than that for licenses. The concession

provisions in the sector laws and related regulationsfor electricity, water, ports, and telecommunica-tions are briefly reviewed below. In all cases, the con-cessionaires have to pay taxes and tariffs that the gov-ernment sets.

Concessions for electricity generation, transmis-sion, and distribution will be granted for a period of upto 50 years, and the concessionaires have to submit aguarantee with a maximum limit of 5 percent of theinvestment’s total value.They are also liable to the taxesand tariffs that are fixed by decree of the Minister ofFinance. The electricity tariff system and the generalconditions of purchase and selling electricity at differ-ent levels within the public power system are the sub-ject of government regulations. Concessionaires arerequired to make tariff proposals, which may be ap-proved only after consultation with the representativesof consumers and the local government authorities.Concession contracts must include an initial tariffframework with a validity of five years.

Concessions for the private use of water are grantedfor a maximum of 50 years and are subject to renewal.This is a provision of the recently passed Water Act, andas yet there are no regulations or examples of opera-tional concessions in the water sector.

Concerning the ports, the domainal uses can onlybe granted by means of a domainal license title, a do-mainal concession contract, or under a public serviceconcession contract. Unless there is a contrary resolu-tion of the Council of Ministers, a domainal conces-sion contract cannot be granted for a period longerthan 30 years, and it cannot be renewed or extended inany way.The concessionaire has to submit a guarantee,to be defined in the contract, and pay the domainalrent plus taxes. Port concessions will be granted for pe-riods of up to 30 years; it is not possible to transfer theconcession to a third party.At the end of the contract,all the assets integrated in the concession establishmentrevert automatically to the port authority without anyadditional compensation being payable.The tariffs as-sociated with the concession are submitted to the con-cession authority for prior approval.

In the telecommunications area, the following ser-vices are subject to concession contracts:cellular mobileservice, leased line services, local telecommunicationsservices when representing an extension to the basicnetwork, Internet services, and other services subject


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to the availability of limited resources deriving fromtheir public utility, particularly the radio frequencyspectrum.The direct or indirect participation of singleor collective foreign entities in the equity capital ofpublic telecommunications or added value operatorscannot exceed 49 percent. Therefore, foreign entitiesmust remain minority shareholders. It is the regulatorybody’s responsibility to establish the tariff structure foreach type of service.

Telecommunications concession contracts have amaximum validity period of 15 years, successively re-newed after a five-year period. The concessionaireshave to pay an amount equivalent to 5 percent of theinvestment’s total cost projected for the first five years,(which represents the price of the license plus taxes),and to submit a guarantee with a minimum value ofUS$ 300,000.The minimum amount to be invested isUS$ 3 million.

Land and Pricing

Access to Land The Constitutional Law, Law 22/92 of16 September, establishes the principle that the land isoriginally the property of the state, but that the rightsto usage of the land can be transmitted via concessionsto individuals or legal entities, whether national or for-eign. Law 21-C/92 of 28 August defines the right ofuse and improvement of three categories of land, withmost of the provisions relating to agricultural land (theother categories are “nonagricultural” and “special”).PPI investors will mainly be interested in land that isdesignated for nonagricultural use. The first pointis that the state may auction concessions to non-agricultural land. There are also annual fees that haveto be paid. Land concessions may be unlimited induration, but more typically are issued for a period ofless than 45 years, with provision for renewals (forperiods no longer than the original fixed period).Theconcessions can be revoked under strictly defined cir-cumstances, with compensation then being payable tothe concessionaires. Land concessions can be trans-ferred in certain cases, although the state may havepreferential rights. Permission to make a transfer has tobe obtained and a fee paid equivalent to 5 percent ofthe amount involved in the transfer. Land rights are inrare cases accepted as surety for loans by certainAngolan banks.

General Basis for the Organization of the National System of Prices Decree 20/90 of 28 September

This decree lays out principles for establishing prices ofall goods and services available in the Angolan econ-omy. It also makes provision for the government todirectly control certain prices. In principle, the statefixes prices in the case of those goods and services thathave a significant impact on the population and are ofstrategic importance to Angola’s economic and socialdevelopment.The state also intervenes in the setting ofprices for goods and services for which demand is notelastic or for which production or distribution and saleare monopolistic or oligopolistic.

The Minister of Finance is responsible for establish-ing the lists of products and services that will be subjectto an administered price regime. Infrastructure itemsthat are subject to direct price controls are water, elec-tricity, ports, airports, and fixed line communications. Insome cases, the Ministry of Finance has delegated someof its price fixing powers to other agencies.This may bepart of government policy to decentralize (for example,water tariff setting has been delegated to the provincialgovernors via Exec Decree 27/98,22 May 1998),or dueto the establishment of a professional regulatory body(such as INACOM in the telecommunications sector).

As mentioned in the investment, privatization, andlabor laws section, above, the new Private InvestmentLaw provides guarantees that the state will not interferein setting prices.This is an important provision that indue course will require revision of the legislation dis-cussed above in respect to the pricing of goods andservices provided by private sector entities.

Judicial Process and Dispute ResolutionThere is provision in Angola for a three-tier courtsystem—Supreme Court, Provincial Courts, andMunicipal Courts—although as of the start of 2003,only a tiny fraction of the municipalities have courtsin operation. The Constitutional Law, Law 22/92 of16 September, grants sovereignty to the courts andindependence of judges in the administration of justicefor the people of Angola.The President of the Repub-lic appoints and dismisses Supreme Court judges,whileProvincial Court judges fall under the responsibility ofthe Minister of Justice.

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In situations of interest to potential investors, suchas lodging a claim arising from a breach of contract,there are clearly laid down procedures in the ProvincialCourts, with rights of appeal if necessary to theSupreme Court. In practice, the major obstacle to uti-lizing the judicial system in Angola is its extreme slow-ness. As a result, legitimate grievances remain unre-solved for long periods. For example, resorting to thecourts to settle disputes over compensation under acontract can take at least a decade.The long delays arecaused by a number of factors including the cumber-some system inherited from the colonial period (withno significant changes after independence), the ex-tremely low qualifications of the administrative staff,low salaries, low morale, work interruptions, and fre-quent strikes in the sector.

Because of these difficulties, it has become increas-ingly common to resort to unofficial arbitration courtsand to include provision for this in all commercial con-tracts.These cases have generally followed the judicialrules of the Chamber of Commerce of Paris or UNCI-TRAL. In response to this development, as mentionedin the introduction, the government has introduced amodern Voluntary Arbitration Law. This allows forcontractual parties voluntarily to agree to the settle-ment of disputes in an Arbitrational Court via a pre-specified arbitration convention. The court will becomposed of one or more referees selected by the par-ties for their independence, impartiality, and ability toprovide a rapid and fair process.The arbitrational ver-dicts will have the same executive force as judicial ver-dicts and a similar system of appeals (via the SupremeCourt).

The Voluntary Arbitration Law is expected to be-come the main framework for settling conflicts on is-sues arising from commercial contracts and asset rights,avoiding the overburdened public judicial system.Thearbitration procedure established under the new lawoffers an expeditious mechanism, which also ensuresjuridical safety and predictability that investors requirefor the settlement of disputes arising from internal andexternal commercial relations.

Road Map to Transaction Process and PPI ApprovalThis section summarizes the key steps in gaining thenecessary permits, licenses, and approvals for a privately

financed project. It is subdivided into the preapprovaland postapproval stages.

PPI Approval Private sector investment plays an impor-tant role in the development of a country’s economy,and its legal regime should be attractive to potential in-vestors, offering them an environment that guaranteesthe security and juridical stability of their projects.

Difficulties associated with private sector participa-tion in Angola generally do not emanate from a com-plex legal and regulatory framework. The number ofentities involved in providing approvals for the projectis relatively small and tends to lie with ANIP. There-fore, the initial approval process is highly centralized,with large projects being directly accepted or rejectedon the basis of a decision by the Council of Ministers.However, the postapproval process involves many enti-ties and long delays.

In accordance with the private investment law,there are a number of different approval processes thatare to be followed depending on the project size andwhether or not the sector investment qualifies as partof the contractual regime.

The National Bank of Angola can authorize foreigninvestments with a minimum value of US$ 60,000 anda maximum of US$ 250,000, but in this regime there isno right to expatriate the dividends or profits.Typically,three types of investment regime are defined:• Investments greater than US$ 100,0007 and less

than US$ 5 million• Investments greater than US$ 5 million and less

than US$ 50 million• Contractual regime

• Investments greater than US$ 50 million or • Investments being channeled into strategic

sectors.

Investments Between US$ 100,000 and US$ 5 Million Fig-ure 3.1 shows the approach to gaining approval for aprospective investment in the stated range.

Investments Between US$ 5 Million and US$ 50 Million Fig-ure 3.2 shows the approach to gaining approval for aprospective investment in the stated range.

Contractual Regime The contractual regime is manda-tory for all investments that are to be channeled to


34

Crosscutting Issues

35

Figure 3.1 Approval Process for Investments (US$ 100,000 to US$ 5 million)

Apply toMinistry ofCommerce

Dossier goes to theSector Ministry

ANIP must issue adeclaration of acceptance

within 15 days

If not refused

Social DesignationCertificate

ANIP must issue a PrivateInvestment Registration

Certificate (CRIP)

Submission of proposal toNational Private Investment

Agency (ANIP)

Prepares proposal

Depositamount in

a bank

Prospectiveinvestor

Figure 3.2 Approval Process for Investments (US$ 5 million to US$ 50 million)

Legal, economic,financial, and

technical studies

Council of Ministers tomake decision within

30 days

Must Issue PrivateInvestment Registration

Certificate

Submission of proposal toNational Private Investment

Agency (ANIP)

Prepares proposal

Prospectiveinvestor

special or restricted economic activities where its man-agement and exploitation can only be legally madeunder a concession. Such is the case for all activitiesthat are considered as a relative reserve of the stateunder the Law on Delimitation of the Sectors of Eco-nomic Activity. It also covers investments of equivalentvalue or higher than US$ 50 million or those, regard-less of the amount, that are considered to be of specialinterest for the national economy due to its structuralimpact.

Figure 3.3 shows the basic steps towards a conces-sion, which is an example of the contractual regime.

This is a lengthy and time-consuming process,whichtakes at least one year,as demonstrated by previous cases,e.g., in the ports and telecommunications sectors.

Postapproval Issues Figure 3.4 shows the necessary pro-cedures that should be followed once the project hasbeen approved.The postapproval requirements such aspermits, fees, and taxes are a significant part of theprocess to realize the PPI transaction.


36

Figure 3.3 Contractual Regime

Submission of bids

For a concession mustparticipate in the public

tendering process

Prospectiveinvestor

Public Hearingbefore award

Establishment of 3-personCommission chaired by

Ministry of Finance

Bids opened publiclybefore awarding a contract

Publication of the decisionby the Commission

Figure 3.4 Postapproval Process

Payment of various feesand taxes

Register the public deedand pay legal fees (0.75 to1.5% of statutory capital)

Approval ForeignInvestment

Obtain necessary permitto carry out activity

Apply for work visas forforeign staff if necessary

Public Deed certificateswill be granted

ANIP remits all projectdocumentation to National

Bank within 10 days

Ensure a license issued byNational Bank and a stamp

visa from the ANIP

Passed bymunicipality & granted

by sector Ministry

Key issues affecting investors,which can lead to sig-nificant delays, are the registration of the enterprise(with tax, commercial, statistical, and other authorities)and obtaining work permits for foreign citizens.Thesesteps are summarized in appendix 8.

Commercial activity in Angola is subject to inspec-tion by the following bodies: Economic Activities’National,Provincial, and Municipal Directorates,whichdepend on the Ministry of Interior; Fiscal Police; In-spection Services of the Ministry of Commerce; In-spection Services of the Ministry of Finance; InspectionServices of the Ministry of Health; Labour Inspection

Services of the Ministry of Public Administration, Em-ployment and Social Security; Inspection Services ofthe Provincial Governments; Inspection Services of theFire Brigade; and Inspection Service of the Regulators.

Way Forward There are steps to be taken in the shortterm to help nurture a more streamlined and transpar-ent roadmap to PPI approval and realization of atransaction. In particular, it is necessary to simplify andmake less onerous the processes for establishing andregularizing commercial enterprises and obtainingpermits to exercise the commercial activity. Simplifi-cation of the existing bureaucratic and administrativeprocesses can be achieved by reducing the costs andalso the substantial number of official entities inter-vening in these postapproval processes.A lack of trans-parency and the time-consuming nature of theprocess tend to encourage a system of urgent fees,which does not facilitate a fair and conducive invest-ment environment.

Crosscutting Issues

37

It is also important to regulate, in a clear and un-equivocal way, the inspection practice of the variousregulatory entities and inspection bodies and to coor-dinate their respective activities to avoid their multiple,persistent, and sometimes coincidental visits,which canbe construed as a real obstruction to free and legalexercise of commercial activity.

Notes

1. The summary is based on the version of the law approved bythe Council of Ministers and reported amendments by Parliament.Therefore, the provisions in table 3.1 should be treated as indicativerather than definitive.

2. Ways in which subsidy systems could be better designed are re-ferred to in the potential role of private participation in infrastruc-ture section and are analyzed in more detail in appendix 3.3. More detail is given on the new law and the existing pricingregime in the investment, privatization, and labor laws section andthe land and pricing section.4. ENSA with a 55 percent market share and AAA with a 45 per-cent market share.5. The summaries provided in this report are based on the textsapproved by the Council of Ministers, together with reportedamendments by Parliament.6. Law 8/03 of 18 April addressed to the transference of property(buildings) from the state to private entities. This law did not changethe main rules regarding state companies.7. It is US$ 50,000 in the case of Angolan national investments. In-vestments of less than US$ 50,000 can only be from internal capital.

The main energy infrastructure issues in Angola are re-lated to the development of the electricity sector.There is a minor interest in the development of a do-mestic gas sector linked to a gas export project (LNG);an important part of the demand for gas would be forpower generation.

Introduction to the Electricity Sector

The electricity sector infrastructure has been damagedin many areas of the country, and major investment isneeded in the rehabilitation of the system.Further, only20 percent ofAngola’s population has access to“formal”electricity supply, though many more may have accessthrough illegal connections to the state-owned networksor through small privately supplied electricity. Angolahas one of the lowest per capita consumption levels inthe SADC region.1 Major investment will be required toextend access to a larger proportion of the populationand to provide for increased electricity consumptionlevels as normality is restored and the economy grows.

The government’s strategy and policy for the powersector are contained in the Development Strategy ofAngola’s Power Sector, which was approved by theCouncil of Ministers in September 2002.2 The docu-ment proposes a number of strategies and policiesaimed at providing sustainable and reliable electricitysupply, including private sector participation in boththe urban and rural areas.

This CFR study is concerned with the potentialfor development in the electricity sector through privatesector participation in both urban and rural areas.

Key Organizations

The Ministry of Energy and Water (MINEA) is re-sponsible for the overall policy making in the sector.MINEA supervises the activities of electricity gen-eration, transmission, distribution, and usage. TheDirectorate Nacional Electricidade (DNE) is part ofMINEA; its role is to advise the Ministry on policy-making for electricity and proposals for tariffs. DNEhas offices within the provincial government that sup-port the development of electricity supply amongmunicipalities that are not connected to the maingrids.

EDEL3 is the distribution company responsible forthe electricity supply in Luanda Province. ENE is re-sponsible for electricity generation, transmission, anddistribution in the main cities of the 15 provinces out-side of Luanda. Neither has exclusive concession.4

EDEL supplies approximately 65 percent of nationalconsumption and ENE 35 percent. ENE’s supply in-cludes some high and medium voltage customers inthe city of Luanda.

The private operator Alrosa is an example of privatesector participation. Alrosa, a diamond mining com-pany, was recently granted a concession contract for a16 MW hydropower plant.

In those isolated regions where there is no grid-based electricity, municipal governments often provideelectricity within the larger towns.

A government decree5 established a regulator, Insti-tuto Regulador de Sector Eléctrico (IRSE), for theelectricity sector. IRSE exists only in name but is

38

4 Electricity and Gas

expected to be established with a budgetary allocationfor the coming financial year (2003/04).Once in oper-ation, IRSE will be responsible for the general supervi-sion of the electricity sector by enforcing the GeneralLaw of Electricity.

Figure 4.1 summarizes the institutional arrange-ment of the power sector and the relationships amongthe major players.

Legal and Regulatory Framework

IntroductionA legal framework exists for private sector participa-tion in the electricity sector. A regulatory frameworkalso exists but it is deficient in several areas.The frame-work is described below.Comments on barriers to pri-vate sector participation contained in the legal frame-work are discussed in the identification of barriers toPPI in the electricity section, below.

The Law of Delimitation of the Sectors ofEconomic Activity6 specifies in Article 13 that the“production, transport and distribution of electricpower for public consumption” are areas of relativereserve. This means that companies or other forms ofprivate entities can participate in these activitiesthrough concessions. The law does not distinguish

activities by scale. This implies that even small, iso-lated electricity schemes are restricted to relative reservestatus.

Licenses and ConcessionsThe General Electricity Law of 19967 allows for pri-vate sector participation in the electricity sector. It alsoincludes a framework for concessions, licenses, andthe import and export of electricity, and provides fora regulatory body. The law states that the Council ofMinisters is responsible for granting concessions, andthe provincial governments have the power to grantlicenses.

The law stated that a concession is granted wherethe generation capacity is either greater than 1 MW orwhere there are more than 50,000 inhabitants in thetown.Where the generation capacity is below 1 MWand there are fewer than 50,000 inhabitants, then theProvincial Government can issue a license to an oper-ator. However, the Law of Delimitation of the Sectorsof Economic Activity was enacted in 2002 and super-sedes the 1996 Electricity Law.The former states thatelectricity is an area of relative reserve and can beperformed only as a concession; this implies that any“production, transport and distribution of electricpower for public consumption,” whatever the size,must be implemented through a concession.

Electricity and Gas

39

Figure 4.1 Power Sector Institutions

Policymakingand planning

Regulation

Concession

Funding

CentralGovernment

Power SectorFunctions

ProvincialGovernment Parastatals Private Sector

MOP, DNE, MINEA

COM-concession

3 provinces

3 provinces

MOF

Key: MINEA = Ministry of Energy and Water; MOP = Ministry of Planning; DNE = National Directorate of Electricity; IRSE = National Regulatory Institute of theElectricity Sector (the Regulator); ENE = National Electricity Enterprise; EDEL = Electricity Distribution Enterprise of Luanda; COM = Council of Ministers;MOF = Ministry of Finance.

Distribution

Transmission

Generation

ENE (60 kV), EDEL

ENE

Alrosa

Private Co.

ENE

IRSE

Decree 43/018 cancelled all existing concessionsand licenses in the electricity sector in preparation forthe introduction of new concession arrangements. Itstates that those concessions or licenses existing onMay 31, 2000, were to be replaced by temporary con-cessions lasting for a period of up to three years.9

Decree 47/0110 regulates the physical productionof electricity. It gives the Council of Ministers the rightto grant concessions to electricity producers. Thedecree covers both public and private electricity gen-eration. Also included are the conditions and proce-dures under which a concession can be obtained.

RestructuringTo further the restructuring process, the strategy11

highlights the need for ENE to achieve financial stabil-ity. As an initial step, the focus is on the accountingseparation and unbundling of generation, transmission,and distribution activities.This will allow the effectiveidentification of cost drivers and determination oftransparent transfer prices.

After financial unbundling is completed, it is envis-aged that the next stage of restructuring will focus onthe physical and managerial separation of generation,transmission, and distribution. This will facilitate thefuture objective of creating separate and autonomousenterprises for each of the business functions.

Regulatory Body and Price SettingThe 1996 General Electricity Law provided the en-abling regulation that gave authority to the Council ofMinisters to establish a regulatory body. The Councilof Ministers passed Decree 4/0212 in 2002, whichestablished the regulatory body (IRSE), in principle.It is anticipated that IRSE will be set up, in reality,during 2003.

Unlike most regulatory bodies in other countries,IRSE is not granted authority to set prices or to issuelicenses. IRSE’s main role is to ensure that the GeneralElectricity Law is followed. The regulatory body hasa board of administration, consultative council, tariffcouncil, and financial council.The administrative boardhas three people, including a president of the organiza-tion, who are nominated by the Council of Ministers.There is an obligation on the Tariff Council to giveadvice on a proposal for a new tariff. After seekingadvice from the tariff council, the Administrative board

reviews the tariff proposal. However, tariffs are actuallyset by the Ministry of Finance in accordance withCouncil of Ministers Decree 20/90 that gives theMinistry of Finance the power to dictate electricitytariffs to be charged by public service companies.Thispower extends to any venture that is a concession orlicense.On this basis, the most recent tariff increase wasintroduced through Executive Decree 43/02 passed bythe Ministry of Finance. Every tariff increase must beadopted by issuing a similar decree including smallisolated electricity schemes.

This is clearly a cumbersome procedure and a hin-drance to setting cost-reflective tariffs. An executivedecree is being prepared13 for an interim system oftariff regulation that will allow automatic indexation oftariffs to inflation.This will continue until IRSE beginsto function.

According to Decree 45/01, article 6, uniform tar-iffs apply to both distribution concessions and licenses.However,“approved” differences are allowed based onthe geography and characteristics of the system.14

Although the new regulator will not issue or termi-nate licenses15 or concessions, it can submit a proposalto terminate licenses and concessions.

IRSE has the power to levy fines. In accordancewith administrative law in Angola, companies can ap-peal against fines imposed by IRSE.

IRSE will be financed from the state budget. It canalso obtain funds by selling information and policystudies, but this will not provide a substantial share ofits budget.

Current Situation in the Electricity Sector

IntroductionThe current situation in the electricity sector is de-scribed in the strategy. Following the civil war, thephysical condition of the infrastructure is very poor,and many consumers cannot depend on the statesector to supply their electricity needs.A map showingthe high-voltage electricity network and main powerstations is provided in the appendixes.

The poor financial performance of the two state-owned companies is partly the result of the civil warthat has affected the costs of power production and hasmade revenue collection difficult.However, prices havenot been raised to match the higher costs or inflation.


40

Electricity and Gas

41

Table 4.1 Key Energy Statistics

ActualDescription (2001)

Production (GWh) 1,634Distribution (GWh) 1,385Consumption (GWh) 1,274

Other IndicatorsConsumption per capita (kWh) 96.9Population access to power (percent) 20Source: Estratégia de Desenvolvimento do Sector Eléctrico de Angola.

Table 4.2 Forecast Growth in Generation, 2006–2016(GWh)

Year North Central South Uige Bie Cabinda Others Total

2006 2,130 409 143 11 10 88 12 2,8032011 3,006 608 191 16 14 153 18 4,0072016 4,110 855 260 22 18 215 25 5,505Source: Estratégia de Desenvolvimento do Sector Eléctrico de Angola.

Financial problems have limited the ability of the statesector to expand supply. Against this background pri-vate sector participation has flourished in the informalsector.The following subsections describe the currentsituation in the electricity sector before moving on todiscuss the opportunities for formalizing the privatesector role’s in rural areas and for further private sectorparticipation in the urban areas.

Demand in the Formal SectorTotal electricity consumption in Angola in 2001 wasreported in the strategy at 1,274 GWh16; this equatesto a per capita consumption of 96.9 kWh (table 4.1).The strategy also reports total electricity generation of1,634 GWh—implying total energy losses of 22 per-cent. However, this value is inconsistent with informa-tion from EDEL, where total losses were 36 percentin 2001.

The majority of electricity, approximately 70 per-cent of the total supply, is consumed in Luanda.Luandais supplied principally by EDEL, but ENE does havesome high voltage (HV) and medium voltage (MV)industrial consumers in the province.

Only 20 percent of the population currently hasaccess to electricity but the government expects this torise to 36 percent by 2011. With a very similar per

capita income level to that of Angola,17 Zimbabwe hada per capita consumption of electricity of 893 kWhcompared to Angola’s 97 kWh (in 2001).This suggeststhe potential for significant growth in electricity con-sumption in Angola.

The electricity sector strategy sets out a scenario forincrease in electricity generation18 as shown in table 4.2,below. This indicates a relatively modest growth of7.4 percent p.a. between 2006 and 2011 and 6.6 per-cent p.a. from 2011 to 2016. Acknowledging the lownational access rates and the high levels of suppresseddemand, the scope for increased sales in electricity islarge in both Luanda and the rest ofAngola; the govern-ment demand projection may be very conservative.

There are about 180,000 consumers that are regis-tered with ENE and EDEL. It is estimated that another50,000 consumers exist that are not yet registered.The2001 EDEL accounts report that there are almost100,000 customers, including 21,000 nonmetered con-nections. The most recent information19 from 2002shows that there are now 102,000 registered EDEL con-sumers with about 30,000 nonmetered connections.

In Luanda, residential customers consume 57 per-cent of electricity, the industrial sector 23 percent, theservice sector 18 percent, and the agricultural sector2 percent.

Demand Outside the Formal SectorThe strategy notes the existence of “a significant infor-mal electricity distribution market” that is illegal anduses power plants licensed for industrial or agriculturalpurposes.The strategy welcomes this as an indicationof opportunities to promote private participation; itproposes that these schemes be properly regulated tosafeguard consumers regarding tariffs and technicalstandards. No information is available on the numbersof such private electricity schemes or on the numbersof customers supplied in this way.

Though there are no statistics, there is clear evi-dence that a large amount of electricity is producedusing autogeneration based on small diesel generatingsets. Small diesel generators have very high fuel andother operating costs, and this points to a high willing-ness to pay for electricity and again points to businessopportunities for the private sector to meet this elec-tricity demand reliably using larger,more efficient gen-erators supplying small (or large) networks.

Supply in the Formal Electricity SystemElectricity generation in Angola is organized into threesystems operated by ENE, the Northern, Central,and Southern system (see table 4.3 above).The largestsystem by far is the Northern system, with 348 MW ofavailable capacity,20 and includes the capital city ofLuanda.Available capacity in the central and southernregions is only 27 MW and 23 MW,respectively.21

There are an additional nine separate island gridsthat ENE operates. Some of these islands were createdas the result of the civil war and the destruction oftransmission networks, but others have existed sincebefore the war.

In the Northern system, the 220 kV transmissionnetwork is relatively intact, with 424 km of the total of549 km of line in operation.The lower voltage trans-mission lines were, however, badly damaged during thefighting. None of the 159 km of 100 kV line in theNorth or the 288 km of 150 kV line in the Central re-gions are operating. In the South, however, 330 km ofthe total 450 km of 150 kV line are operating. ENEhad a total of 540 km of 60 kV line in total across all ofAngola and of this 180 km is functioning.

ENE is responsible for the bulk generation, trans-mission, and distribution of energy to the major citiesof 15 out of 18 provinces.

In addition to the isolated grids operated by ENEand shown in table 4.3, there are a large number of iso-lated systems where the municipal government orga-nizes its own energy generation and distribution.

Thermal generation capacity in Angola consists ofdiesel and gas turbine plants.The largest existing hydroplant, Cambambe, is in the North and also the Capandahydropower plant on the Kwanza River, which is underconstruction and is due to be completed during 2003.The first two turbines were recently installed with a totalgeneration capacity of 260MW(2 � 130MW).The civilworks and reservoir are planned for an eventual capacityof 520 MW.The remaining two turbines have not yetbeen ordered and would take about three years to install.

Angola’s goal is to eventually create a national elec-tricity transmission system that connects all regions toone integrated grid. However, there are also manytransmission lines within each region that require reha-bilitation. In the absence of interconnection betweenregions, there are missed opportunities for the importand export of electricity between the regions.

A small interconnection exists with Namibia, butwith a maximum import capacity of only 1.5 MW thatsupplies the isolated system at Ondjiva near the border.

A recent investment plan that ENE22 prepared andis shown in table 4.4 estimates that Angola needs toinvest23 over US$ 1 billion24 over a four-year periodto rehabilitate the current system. From this total in-vestment value, US$ 334 million is allocated for therefurbishment of power plants. The plan does not,however, envisage major electrification programs.


42

Table 4.3 ENE’s Power Generation Capacity

TotalNominal Available Nominal Available thermal thermal hydro hydro Nominal Available capacity capacity capacity capacity capacity capacity

System (MW) (MW) (MW) (MW) (MW) (MW)

North 177 168 198 180 375 348Central 62 23 49 4 112 27South 26 9 41 14 66 23

Subtotal 265 200 288 197 553 397

Isolated 73 29 2 – 76 29

Total 338 229 290 197 629 426Source: Sistema Eléctrico da ENE, Rehabilitacão, Carteira de Investimentos; a full list of plants is in appendix 4.

Electricity and Gas

43

Recent estimates prepared by MINEA suggest thatthe immediate investment program will cost approxi-mately US$ 320 million, but MINEA acknowledgesthat there have been no comprehensive technical as-sessments of investment requirements, particularly fortransmission.

PricesThe Ministry of Finance sets uniform prices.25 Histor-ically, electricity tariffs have been below the long runmarginal cost26 and have not even covered operatingcosts.The shortfall has been met through direct gov-ernment subsidies to EDEL and ENE. ENE’s genera-tion and transmission activities are, in principle, sup-posed to be financially viable, and subsidies are nolonger provided for ENE’s generation and transmissionactivities. We could not confirm whether revenuescover ENE’s full costs of transmission and generation ata level that would cover its future investment needs.Formal subsidies continue to be provided only forENE’s distribution activities.

A tariff increase occurred in September 2002through Executive Decree no. 43/0227 and raisedprices to kz 2.36/kWh (US$ 0.047/kWh) for residen-tial customers and to kwanza 2.16/kWh (US$0.043/kWh) for low voltage (LV) industrial con-sumers.The tariffs are shown in table 4.5.

Table 4.4 ENE Rehabilitation Investment Plan(US$ million)

Year 1 Year 2 Year 3 Year 4 Total

Generation 164 117 52 1 334Transmission lines 87 114 27 9 236Substations 37 31 8 – 75Distribution 154 175 9 1 339General 25 2 1 – 28

Total 466 439 96 10 1,012Source: Estratégia de Desenvolvimento do Sector Eléctrico de Angola, paragraph 130.

Table 4.5 Low Voltage Electricity Tariffs(kz/kWh, September 2002)

Social tariff Industrial tariff Commercial & serviceDomestic (�50 kWh) (�1 kV) (�1 kV)

2.36 1.00 2.16 2.40Source: ENE.

ENE believes that the tariff structure is distortedwith low voltage consumers currently benefiting fromrelatively low prices, and medium and high voltageconsumers paying relatively high prices.Tariff increasesthat ENE proposed to be cost reflective would raise thelow voltage tariffs substantially more than high andmedium voltage tariffs.

Losses and Revenue CollectionTechnical and nontechnical losses in the EDEL systemare very high with values of 15 percent and 21 percent,respectively, giving total losses of 36 percent. Many ofthe nontechnical losses are due to inefficient billingand settlement systems, illegal connections, and thelack of proper metering systems.

Revenue collection has improved markedly overthe last few years although from a very low base. In1999, EDEL’s average collection rate was only 10 per-cent. In 2001 this improved to 54 percent, and in Sep-tember 2002, it had improved to 68 percent. Improve-ment in EDEL’s revenue collection to 68 percent is saidto have been achieved through better management ef-forts, although it should be noted that this is still a verypoor figure by international standards.

ENE has experienced a similar improvement incollection performance, but this was largely due to im-provements in EDEL payments to ENE.

Combining losses and noncollection together sug-gests that only 45 percent of the electricity that EDELreceives from ENE is paid for; the other 55 percent isstolen, lost as heat in the transmission or distributionlines, or sold but not paid for.

ENE has negotiated a performance contract withthe government and a 30 percent target level for lossesand noncollection (combined) was proposed to be


44

Table 4.6 EDEL Profit/Loss 2001

Kz (millions)

Sales from energy (cash receipts) 399Subsidy 238Other revenues 8Total revenues 645Power purchase costs 675Other costs 306Total costs 982Profit/loss �337Source: EDEL, Relatório de actividades 2001.

Table 4.7 ENE Profit/Loss 2000

Kz (millions)

Sales from energy (cash receipts) 365Subsidy 150Total revenues 515Cost of sales 448Other operating costs 137Total costs 585

Profit/loss on ordinary activities �68Other earnings 41Overall profit/loss �27Source: ENE Relatório e Contas 2000.

achieved by 2005.This compares with a figure for 2000of nearly 60 percent.

Financial Situation and SubsidiesTable 4.6 shows that the total revenue obtained byEDEL from the sale of energy does not even cover thepurchase of that energy from ENE.This is still the case,even when the government’s subsidy is included.28 In2001, EDEL had a loss of kz 337 million on sales of kz399 million (approximately US$ 15 million). Losses,end-consumer prices, and revenue collection needto be improved significantly if EDEL is to become aviable corporate entity.

ENE’s financial performance for the year 2000 isshown in table 4.7. Despite a direct subsidy equivalentto nearly 25 percent of its costs and an implicit subsidythrough fuel prices, ENE had an overall loss in the year2000.The level of loss at kwanza 27 million (approxi-mately US$ 4 million) was, however, small comparedwith EDEL’s loss in 2001 (see table 4.6).

Until the end of 2001, there were considerable ac-cumulated debts among the parastatal companies andbetween these companies and the government. EDEL’sstate-owned customers owed EDEL; EDEL and otherstate-owned customers owed ENE;and ENE owed So-ciedad Nacional de Combustiveis deAngola (Sonangol)(for fuel). In January 2002, the balance sheets of ENE,EDEL,and Sonangol were tidied up, and from that dateinvoices were supposed to be paid promptly.

By the end of 2002, though the debtors’ positionwas much improved, payments from EDEL to ENEcontinued to be a problem, as did payments by ENE toSonangol.

Neither EDEL nor ENE borrows commercially tofinance investments. Both rely on the government forthis purpose.

Alrosa Private Power ProjectThere has been very little private sector participationin the formal electricity sector in Angola, but the Al-rosa project represents one of the first examples of aproject with a concession that the Council of Ministersapproved.

The scheme will supply electricity to the Catocadiamond mine, partly owned by the Alrosa miningcompany,29 and the local area. The developers andDNE have finalized the contract and concessionarrangements.The scheme will cost US$ 40 million toconstruct a 16 MW hydroelectric plant on the ChicapaRiver in northern Angola, together with a transmissionline. Most of the generating capacity will be used tosupply power to the Catoca diamond mine, cuttingfuel costs by one-third.The remaining electricity, esti-mated at approximately 2 MW, will be sold to a smalllocal network around Saurimo.

A development and operating company, Hy-droshokapa, was established as an independent powerproducer.ENE is involved as a partner with a 45 percentownership,while Hydroshokapa and Alrosa own the re-maining 55 percent of the company. It is understoodthat ENE will make no investment in the plant but willreceive 45 percent of the company’s profits.

The security of revenues to Hydroshokapa is basedalmost exclusively on the power purchase agreementwith the Catoca mine, and the project has no govern-ment guarantees. Sales to the local area will be a rela-tively small share of the total revenues.

Electricity and Gas

45

The concession term will be for 40 years, afterwhich the assets will become state property.

National Fund for Electrical EnergyAs with the transport sector, a national fund is foreseenfor the electricity sector to be used to widen access toelectricity through a rural electrification program.Thefund was foreseen in the 1996 electricity law.

Proposals for activating the fund were submitted tothe government in October 2002. It was intended inthe 1996 law that the fund could be financed througha range of measures including levies on electricity orpetroleum products, state budget, and grants or loansfrom international financing institutions. The levy onelectricity is not, however, expected to raise significantsums of money.30 Curiously, one suggestion is that re-serves created through depreciation of ENE and EDELassets could be held within the National Fund.31

The fund currently exists in concept but not inpractice. Levies on electricity or petroleum productsneed the National Assembly’s approval.

The government recognizes that, even when theNational Fund is operating, it will be wholly inade-quate to finance the investments required in the sectorand that private financing will be required.

PPI Opportunities in Electricity

IntroductionDespite the low access levels to electricity in Angola, alarge part of the population is willing and able to payhigh prices for electricity supply. In the urban and peri-urban centers, many consumers have electricity accessthrough unregulated markets where prices are high.Forexample, in one of the suburbs of Cazenga on the out-skirts of Luanda, 77 percent of consumers surveyed32

claimed to have access to electricity, but of these onlyone-third were EDEL customers. The survey authorssuggest that even those who claim not to have access toelectricity may in fact be enjoying free electricity butare unwilling to report this. It is not clear how many ofthe households with electricity access do not pay forelectricity. The strategy33 suggests that intermediaries,as in the water sector, supply electricity in these urbanand peri-urban areas, and consumers pay for access tothis service at prices that the market will bear.The strat-egy also suggests that other households rely on supply

from third parties operating very expensive diesel gener-ators.This suggests that ability to pay is favorable for theprivate sector to invest in electricity supply and that whatis needed is a regulatory framework that protects cus-tomers but does not discourage entrepreneurial activity.

Private sector participation is also possible in the ex-isting state-owned organizations. Possible forms of PPIinclude management contracts, concessions, or privati-zation.These are reviewed below. First, the next sectiondiscusses the policy framework.

Policy FrameworkThe Council of Ministers approved the strategy inSeptember 2002; the strategy describes current gov-ernment policy in the electricity sector.

An important element of the strategy is identifiedas the need to increase access to electricity for a largerproportion of the population and specifically to:

Guarantee the access to the electricity supplyservice to a growing number of citizens andcommunities, in appropriate conditions and ataffordable prices.The strategy introduces a target to increase access

to electricity from 20 percent in 2001 to:• 28 percent by 2006• 36 percent by 2011• 46 percent by 2015

Another important objective of the strategy is toreduce the regional asymmetries in access to electricitythat originated before Angola’s independence and wereaggravated during the civil war.34 The strategy notesthat there are insufficient data at present to identify theextent of the asymmetry or to identify targets.

The strategy outlines the government’s commitmentto reform and to private investment in the electricitysector.Proposed reforms include, among other things:• Accounting unbundling of ENE into generation,

transmission, and distribution, and• Introduction of cost-reflective tariffs.

The strategy welcomes private sector participa-tion.35 Paragraph 99 states that one objective is to cre-ate “conditions to promote the private investment par-ticipation in the sector.” It recognizes that the statedoes not have the financial resources to fund necessaryinvestments in the power sector and that the state’s an-nual budgeting process is inappropriate to the needs ofmajor investments, which require a commitment to

finance projects that may take several years to com-plete.36 The strategy also identifies the need to pro-mote the establishment of local entrepreneurs to pro-vide electricity services.37

However, the strategy believes that possibilities forprivate participation will be limited during the post-conflict reconstruction because of the “current specificconditions of Angola.”38 In particular, it believes thatIndependent Power Producer (IPP) schemes such as thatatAlrosa,where an industrial customer is able to providerevenue guarantees, offer the best options for privateparticipation in the immediate future.

On the contrary, we would suggest that private op-erators could play an important role in helping restorethe system during the rehabilitation phase providedthat the legal and institutional framework is amendedto allow this to happen. This does not imply that acompetitive power market would be possible or desir-able, but, if the framework were in place, the privatesector could play an important role in restoring andexpanding supply to consumers in the small or not-so-small isolated networks.

Management ContractsManagement contracts encompass a range of optionsthat do not involve responsibility for investment, in-cluding:• Outsourcing• Service contracts (cost responsibility)• Operating contract (cost and profit responsibility)

All of these are possible in the power sector espe-cially in relation to the activities of ENE and EDEL.Good rewards to strong private management could beobtained, for example, by outsourcing metering andrevenue collection services. This approach could beapplied to a range of services required to operate anelectricity system such as construction, maintenance,and manufacture or treatment of poles.

Outsourcing of metering and/or revenue collectionservices could require a private contractor to undertakeinvestments in metering equipment or revenue collec-tion facilities (setting up revenue collection servicepoints, computerized billing systems, networks of dataentry terminals, and so on), as well as the operation ofthe service. Or the contractor’s responsibility couldbe limited to the operation of metering and billingfacilities that ENE and EDEL provided. The latter is

unlikely to be effective in achieving improvements inrevenue collection and reduction in losses.

Management contracts could also be employedmore generally covering the whole electricity busi-nesses of EDEL and ENE:• The simpler of these could be service contracts

where the contractor only takes responsibility forsome costs—those over which he has control—andearns profits by reducing those costs.

• Alternatively,a more complex system would give thecontractor responsibility for both revenue and cost.A full operating contract would be extremely diffi-

cult at the present time and would require a series oflegal and regulatory reforms and changes to policies(such as subsidies) that are discussed in the identifica-tion of barriers to PPI in the electricity section, below.

Successful private service contracts of the simplertype, without the transfer of revenue responsibility,could help prepare the companies for later fuller pri-vate participation. In that sense they should be seen astransitional steps.Those companies that improve theiroperating performance would then be more attractiveto private investors and their sale value would increase.

Private Investment Through BOO and BOT SchemesOne of the ultimate objectives in private sector partic-ipation is to attract private investment into the sector.The build own operate (BOO) or build operate transfer(BOT) contracts for power plants offer the possibil-ity for private investment.These involve a private in-vestor building a power plant and selling power undera long-term power purchase agreement to an entitysuch as ENE or EDEL.The advantage of a BOT con-tract is that the government and ENE are relieved ofthe direct financing costs and construction and operat-ing risks. However, project developers do not have di-rect access to consumers and are invariably unwillingto accept market risk; if the market collapses, the devel-opers still expect to be paid. Since ENE and EDEL willbe seen as bad credit risks, the developers will also insiston state guarantees. BOO and BOT schemes maytransfer the direct financing costs to the private sector,but ultimately the government provides guarantees andthe government’s credit rating and borrowing costswould be adversely affected; the net result could besimilar to that which would have occurred if govern-ment itself had financed the investments.


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BOT or BOO contracts are clearly an option forlarge power plants but can be equally attractive for sup-ply to smaller isolated grids.Huambo city (see box 4.1),for example, is currently supplied from container-mounted diesel generators with a unit capacity of 1 to1.5 MVA. Container-mounted or skid-mounted plantsare ideal for private sector participation. Since they aremobile, they can be relocated if demand declines or ifthe transmission network is extended, bringing cheapersources of electricity to the area; this implies that privateproviders are less exposed to the market risk and rev-enue risk. Mobility also means that if there is a defaulton payment, the plant can be moved to another loca-tion and to paying customers.Therefore, this can lead toreduced requirement for government guarantees, al-though the cost of power would be high. Box 4.1 illus-trates the electricity supply problems in an example inthe provincial capital town of Huambo.39 This caseillustrates both the problems and the opportunities ofelectricity supply outside Luanda.

A number of variants of BOO and BOT exist,including:• Lease-operate-transfer (LOT) can be used for

new plant or existing plant. For example, a lease-operate scheme operates in Guyana for diesel plantsupplied by Caterpillar. The generator units areowned by Caterpillar and leased to the powercompany for a fixed monthly fee. Caterpillar alsooperates the plants under contract to the powercompany. Lease schemes have the advantage thatthe direct financing costs are the responsibility ofanother party (e.g., the supplier or the private de-veloper). The contract’s operation component hasthe advantage that the private sector undertakesoperation efficiently and professionally.

• Rehabilitate-operate-transfer (ROT) schemescan be used to rehabilitate existing plant. InNigeria, for example, some existing gas turbineplants owned by the Nigerian Electricity PowerAuthority were offered to private developers torehabilitate and to sell electricity to NEPA over afixed contract period. The plants would then betransferred back to NEPA. In Huambo, a 10 MWgas turbine has been inoperable for approximately10 years because spare parts were not available. Itis debatable whether this could ever be restoredto operation, but other plants that have fewer

Box 4.1 Electricity Supply in Huambo

Huambo is one of the key cities of central Angola,40 but was atthe center of some heavy fighting during the civil war. Apartfrom a handful of factories, industry in and around the city hasbeen destroyed. Agriculture in the province is mainly run on afamily scale, producing maize, sweet potatoes, and beans withlittle or no large commercial-scale farms.

Huambo was originally connected by 150 kV transmissionlines with a larger central electricity network that includedBenguela and Lobito.The transmission grid was destroyed in thewar, and electricity is now supplied to the city’s 7,000 customersfrom five container-mounted diesel generators (3 � 1.4 MVA,1 � 1.0 MVA, and 1 � 1.13 MVA, although their available capac-ity is much lower than nameplate capacity because the units werenot designed for conditions in Huambo). ENE transferred theseunits to Huambo secondhand in 1989.A 10 MW gas turbine hasnot operated since 1993 because of the absence of spare parts.41

A new diesel plant with a capacity of 2.2 MVA has been installed,but is not yet commissioned. There is insufficient generatingcapacity to meet demand in full, and there is continuousload shedding in the city. Load shedding also occurs due to fuelshortages.

Outside of Huambo city, each of the 11 district towns has asmall isolated electricity distribution network run by the munic-ipal government. Small diesel generators with capacities thatgenerally range from 150 kVA to 350 kVA supply them. Thebiggest, at Kale, has a capacity of 550 kVA. DNE helped financethe schemes, and ENE provides them with technical help, butotherwise the systems are self-reliant.

Electricity prices in Huambo are the same as those in therest of Angola, despite the very high cost of running plant-burning diesel that is expensively transported to Huambo byroad.The cost of electricity produced in Huambo is around 20cents; this is said to be four times the price of electricity currentin December 2002 (approximately US$ 0.05/kWh). The lossesare covered by cross-subsidies between Luanda and other partsof the ENE system.

problems might be suitable for offering under ROTcontracts.

Private Investment Through PrivatizationOne of the major options for PPI in the long term isthe privatization of EDEL and ENE. This would passresponsibility for financing investment to the privatesector. However, this is unlikely in the near term due toa number of reasons:• Dependence on unreliable state subsidies,


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Box 4.2 Guatemala: Large-Scale Rural ElectricityImplementation

In 1999, the Guatemalan government sold concession rights totwo rural electricity distribution zones representing the west-ern half and eastern half of the country (outside of GuatemalaCity) to the Spanish firm Union Fenosa. The two independentprivate companies thus created were Distribuidora Eléctrica deOccidente, S.A. (DEOCSA) and Distribuidora Eléctrica de Ori-ente, S.A. (DEORSA), respectively.

DEOCSA and DEORSA were given a 50-year concessionand contracted to connect nearly 280,000 new consumers by2004, and in return they received a grant of US$ 650 percustomer and other transmission investments at total cost ofUS$ 333 million.The two companies have nonexclusive conces-sions but have obligations to connect any consumer who wishesto take a supply within 200 meters of the existing network.Thesubsidy (grant) is a performance-related payment made after theconnection is completed satisfactorily; this is an example ofoutput-based aid.

Part of the funds for the electrification program wereprovided through the reinvestment of the revenues from thesale of the DEOCSA and DEORSA (US$ 100 million),with mostof the balance financed by the Government of Guatemala andloans or grants from international financing institutions andbilateral aid.

By January 2002, DEOCSA and DEORSA were on targetand had made 105,000 connections (target of 280,000 by 2004).

• Pricing that is dependent on MOF and not on theregulator,

• Unstable macroeconomic situation and uncertaindemand,

• Difficulty of quantifying the investment obligationsfor rehabilitation of the network, and

• Unknown market risk because of unknown de-mand in different areas.These barriers are discussed below and in the cross-

cutting issues section.More feasible in the midterm would be concessions

to private operators for the larger isolated grids thatENE operates. In addition to ENE’s three main grids, itoperates nine separate island grids that in some caseswere created following the destruction of transmissionlines during the war. Some will be absorbed into thewider ENE network when the transmission lines are re-stored. In addition to ENE’s isolated grids, there are alarge number of isolated systems where the municipalgovernment organizes its own energy generation anddistribution, often with ENE and/or DNE support.

Most of the isolated grids are in need of major re-habilitation and have inadequate generating capacity tomeet local demand.

The problems faced by these isolated grids also pro-vide an opportunity for PPI. ENE may not have theresources to invest in new generating plant or to reha-bilitate the local network but, under the right condi-tions, the private sector might be willing and able toundertake such investment and to operate these grids.

When the isolated grids are connected to the ENEgrid, the local distributors could continue to operatethe local network and purchase power wholesale fromENE. Container-mounted power plants that are in-stalled to meet the demand of these isolated gridscould then be transferred to other isolated sites.

To be successful, uniform prices would need to beabandoned and responsibility for pricing transferred toan independent regulator.These preconditions are dis-cussed below in the identification of barriers to PPI inelectricity section.

Private Electrification and Off-Grid InvestmentIn addition to Alrosa-type investments involving inde-pendent power producers selling to large, financiallysecure customers under long-term power purchaseagreements, possibilities exist for small-scale

distribution networks to be developed by the privatesector.At the moment there are isolated systems oper-ated by municipalities and some by ENE. There arealso an unknown number of informal systems operat-ing outside the current legal framework that suggestthat the willingness of consumers to pay for electricityis high. Examples of large-scale and small-scale ruralelectrification arrangements are given in boxes 4.2(Guatemala) and 4.3 (Cambodia).

As part of a rural electrification strategy, privatecompanies could be involved in the management andextension of existing distribution networks around thecountry. For the small isolated towns or even cities, pri-vate companies could be involved in the building ofsmall-scale generation and the associated micro-gridsfor the local community.This could continue up untilthe time that ENE is able to connect its transmissionsystem to the distribution system, at which time eitherthe distribution grid would be taken over by ENE or

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ENE would supply bulk power to be distributed by thesmall distributor.Where ENE takes over the network,the distributor should be compensated.The generationcosts might also be compensated or ENE could paycapacity payments for the small-scale generation as astanding reserve. It is in Angola’s interest to encouragethe development of distribution companies to facilitatethe population’s rapid expansion of access to electricity.The rural distributors should be eligible for similar,or larger, subsidies than those provided to EDEL andENE’s distribution activity.

Identification of Barriers to PPI in Electricity

ConcessionsThe Law of Delimitation of the Sectors of EconomicActivity and the General Electricity Law both allowfor private sector participation in electricity genera-tion, transmission, and distribution through conces-sions. In the General Electricity Law, article 19 statesthat concession contracts cannot exceed 50 years, butarticle 20 allows for cancellation of the concessioncontract if it is in the “public interest” to do so. Unfor-tunately,Article 20 offers the potential for the nation-alization of assets at any time and could be a seriousdeterrent to investors.

The restriction in the Law of Delimitation of theSectors of Economic Activity potentially acts as a bar-rier to private investment in small, isolated electricitysystems. This implies that all schemes, whatever size,need to be approved by the Council of Ministers.Thiswill clearly be a deterrent to small developers. A sim-pler licensing (or concession) scheme, operatedthrough IRSE—the electricity regulator—would bemuch more attractive to small private developers.

The Alrosa IPP concession illustrates some of theproblems with the current concession arrangements.ENE has taken a 45 percent share in the develop-ment company Hydroshokapa and will be entitled to45 percent of the profit; but ENE will make no invest-ment in the project or make any other substantivecontribution. ENE’s 45 percent shareholding was acondition imposed on the developers to allow theconcession to go ahead. It is, effectively, a tax on theowners of the diamond mine and is collected throughENE. In this example, the diamond mining companywill gain from the scheme through lower net electric-ity costs, but if similar conditions are imposed on otherindependent developers, it will be a deterrent to pri-vate sector participation and to economic develop-ment. It would be better to have a clear, simple, andtransparent framework for awarding concessions (orlicenses) that IRSE administers, with fair terms fornetwork access.

RegulatorThe General Electricity Law and Decree 4/02 havecreated a regulatory body, though it is not yet func-tioning. However, even when it is functioning, it will

Box 4.3 Cambodia: Small Rural Electricity Enterprises

Like Angola, Cambodia has very low rates of electricity access,estimated to be less than 20 percent of the population, and lowlevels of per capita income. The state-owned Electricité duCambodge (EDC) is the main electricity company,with 140 MWof capacity supplying nearly 90 percent of total consumption.EDC operates isolated grids in the 16 main towns. EDC’s elec-tricity prices are very high at US$ 0.15–0.20/kWh. The highprices are because electricity is generated from oil-fired plants.

Outside of the main towns served by EDC there has beenlittle public provision of electricity.This gap has been partly filledby small private entrepreneurs, serving an estimated 115,000customers in 600 small rural electricity enterprises (REEs), witha total capacity estimated to be around 60 MW and approxi-mately 5 percent of total consumption. Most are very small—the average number of customers is under 200 and the averagegenerating capacity is a little over 100 kW. The schemes arebased on diesel generation with high costs and typically operatefor only four hours per day.This results in very high final pricesin the range of US$ 0.30–US$ 0.90/kWh and, on average, areUS$ 0.50/kWh. Nevertheless, the REEs provide a useful serviceand are welcomed by consumers.

A survey shows that REEs are most likely to be set up onthe outskirts of towns (or sometimes on the fringes of theurban areas), which have a large number of households with in-come levels sufficient to afford to pay for the electricity.This im-plies that, although some REEs have been established in rela-tively remote rural areas, the majority are in semi-rural areasand close enough to EDC’s operations that the interface be-tween the activities of EDC and the activities of the REEs be-comes an issue. REEs face uncertainty concerning when EDC’ssupply might be extended to encompass their own supply area.To build on the initial success, Cambodia needs a frameworkto reconcile the roles of EDC and REEs while continuing toencourage REEs.

not be responsible for pricing and should not be re-sponsible for awarding concessions. An independentregulatory body with responsibility for pricing is im-portant in providing reassurance to the private sectorthat prices will be allowed to cover reasonable costsand earn a reasonable rate of return.The absence of alegal framework for an independent regulator with au-thority to set prices will deter private investors.

Institutional Arrangements for Rural ElectrificationThe small size of private rural electricity operators andtheir dispersion over a wide area will make them diffi-cult to regulate, difficult to support, and difficult tosubsidize. Institutional arrangements that provide in-formation and support to potential and prospectiveprivate rural operators would help speed up the elec-trification process.The Institute for Rural Electrifica-tion currently exists in Angola and it could serve thefunction of promoting and providing support to pri-vately operated isolated grids. The support servicecould be provided by a private operator, similar to anEnergy Service Company (or ESCO) in the demand-side management culture. For example, the institutioncould assist the private developers to put forward ap-plications for investment subsidies.

Prices and SubsidiesAs with many other developing and transitioneconomies, one of Angola’s major barriers to privatesector participation in the electricity sector is the lowlevel of prices. Electricity prices being charged to endconsumers in Luanda do not even cover the purchasecost of that energy. The government is attempting toraise electricity tariffs but price rises have generally notkept up with inflation.There is no provision for auto-matic indexation of the tariffs.

Uniform tariffs are another obstacle to attractingprivate participation. Those consumers connected tothe ENE grid in isolated areas pay prices that are a frac-tion of the production cost in those areas, while thosewithout an ENE connection must pay very high pricesfor electricity produced from small diesel generatingsets.A policy of nonuniform tariffs would allow privatedevelopers (and ENE) to operate supply systems inrural areas with much reduced or no dependence onthe state for operating subsidies.

A lack of adequate prices implies operating subsi-dies to both EDEL and ENE. A major risk associatedwith subsidies is that they may be withdrawn if thegovernment budget is constrained. IPPs selling elec-tricity to ENE or EDEL under a BOT, BOO, or simi-lar arrangement are therefore more likely to demandextensive government guarantees.

Subsidized electricity prices also have two sideeffects:• Subsidies create a culture in which consumers re-

gard low prices as a right. Private developers thatestablish isolated electricity networks then find itharder to convince their consumers to pay the fullsupply cost.

• Even if ENE is not subsidized overall, cross-subsi-dies can create large distortions between prices inneighboring areas. If ENE applies a uniform tariffacross all networks, then prices to end users in ruralareas in small isolated grids will be heavily subsi-dized. Users buying from ENE will pay one pricewhile users buying from a private supplier close bymay pay a price several times higher than the ENEprice.This may make it harder for the private de-veloper to attract customers or to collect revenuesfrom the customers who do connect to his net-work.There is clearly a conflict between the desire to

provide electricity to consumers at low (affordable)prices and expanding electricity access to a wider pro-portion of the population.

The above suggests that in order to maximize accessto electricity:• Tariffs should be nonuniform and, to some extent,

should reflect differences in supply cost to ruralareas and isolated grids;

• Where subsidies are desired, they should be avail-able to private developers as well as ENE andEDEL.In 1996, DNE undertook a pilot project to subsi-

dize diesel generators supplied to local entrepreneurswith the intention of developing private distributionnetworks supplying local communities. We believethat the project was unsuccessful and abandonedafter a short time because of the escalating conflictand, because of this, the expected demand didnot happen. However, this failure in the particular


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circumstances does not mean that it should not betried again.

Local AuthoritiesThe strategy mentions the role foreseen in the 1996Electricity Law for local authorities in the provision ofelectricity supply: “it is the competence of the localauthorities to ensure the public service of electricenergy supply, in their jurisdiction areas.” The localauthorities did not necessarily have to provide theservice themselves, though, in practice, many local au-thorities have introduced municipal-owned schemes.

The role of local authorities is not developedstrongly in the strategy, but it remains a theme. The2002 Law of Delimitation of the Sectors of EconomicActivity gave authority to the Council of Ministers toissue concessions for all electricity schemes; this effec-tively took away the automatic right of local authori-ties to license private operators at the municipal level.

The lack of clarity over the responsibility of localauthorities to ensure electricity supply services and therole of the Council of Ministers to issue concessionscould be a barrier to increased electricity access. It isalso possible that local authorities will be competitorsto private operators in the electricity supply. It is desir-able to introduce a flexible framework that allows localauthorities to build and operate electricity supplyschemes on a commercial basis if they wish. But to en-sure that inefficient local authority “monopolies” arenot created that deter efficient private operators, wesuggest that these schemes be licensed by an indepen-dent regulator and lightly regulated in association withlocal authorities and the Institute for Rural Electrifica-tion mentioned above.

Summary of BarriersTable 4.8 summarizes the constraints to private sectorparticipation.

Table 4.8 PPI Constraints in Electricity

Constraint area Comments

Legal and regulatory A simple system of licensing or concessions should be introduced for small-scale electricity schemes.framework The procedures for issuing licenses (or concessions) should be standardized and made transparent. Conditions

should not be imposed on developers requiring that ENE hold shares, though developers may voluntarily wish to seek a joint venture with ENE.

The regulator should be independent of policymakers and should be responsible for setting tariffs and issuing licenses.

Tariffs and revenues Tariffs should be nonuniform and, to some extent, should reflect differences in supply costs to rural areas and isolated grids (this is recognized in the strategy).

Subsidies should be phased out, but while they exist they should be available to private developers as well as ENE and EDEL.

Subsidies should be limited to capital subsidies (not operating subsidies).To benefit rural areas, the subsidies could be targeted at rural networks. For example, subsidies could be targeted on the basis of the number of connections made (output based) in rural areas.

Financial standing ENE and EDEL need to reduce losses and improve revenue collection.Tariff revenues plus subsidies should be raised to a level that is sufficient to attract financing for new investments. A regulatory framework should exist that ensures that total revenue is adequate.

Rural electrification To allow investors to identify opportunities for supplying electricity in isolated grids or rural areas, investors masterplan need information about ENE’s plans to extend its network to rural areas or to reestablish transmission

connections to cities or large towns. ENE should therefore prepare, publish, and regularly update an electrification plan and a transmission plan.

Institute for Rural The small size of private rural electricity operators and their dispersion over a wide area will make them difficult Electrification to regulate, support, and subsidize. Institutional arrangements that provide information and support to potential

and prospective private rural operators would help speed up the electrification process.The role of the Institute for Rural Electrification should be enhanced to encourage private sector participation in rural electrification.

As the strategy recognizes, private sector participa-tion is already happening in the informal electricitysector, but it happens outside the law and is unregu-lated. Despite the constraints and barriers, further op-portunities for PPI exist in the short and medium termin five main activities:1. Increasing access to electricity supply through the

electrification of rural areas;2. The operation and development of grids that have

been isolated from the main network as a result ofthe civil war;

3. Rehabilitating and operating power plants that sellto ENE under power purchase agreements;

4. Building and operating power plants that sell toENE or EDEL or to large consumers under powerpurchase agreements; and

5. Providing services under contract to ENE andEDEL.The proposed steps to exploit these opportunities

are described in the recommendations (see section 8).

Introduction to the Gas Sector

Angola is a significant oil producer42 and exporter, buthas yet to start exploiting its offshore gas reserves.Thedevelopment of gas will be dependent on the continuingexploitation of oil. Oil production to date has reached800,000 bbl/day and is expected to go on, increasing toaround 2 million bbl/day at an investment cost expectedto be up to US$ 50 billion.By comparison, this is nearlyhalf the daily production of Norway. Angola exportsnearly half its crude to the USA and is dependent on itsoil revenues to over 40 percent of its annual GDP andnearly 90 percent of its export earnings.During the yearsof conflict, it is widely thought that much of the militaryexpenditure was financed through signature bonuses andforward sales of crude and oil-backed loans.

Angola has significant gas reserves in two oil-producing areas: Soyo (which is over 300 km north ofLuanda) and Cabinda.43 About two-thirds of the oil(and gas) reserves are in the offshore Cabinda regionand one-third is off the coast near Soyo. Gas is pro-duced in association with oil. Although gas is notsupposed to be flared, in the absence of markets for thegas, Angola currently flares over 70–80 percent of itsgas,44 which is estimated to account for 30 percent of

gas flared in Africa.The only significant domestic useof gas is currently for LPG production.

Offshore gas is expensive to develop and requireslarge “anchor” demands to secure new project financ-ing. Such demands are only likely to come from thepower sector or from export projects, although the oilcompanies have also been investigating the industrialmarket. However, power sector demand would be in-sufficient within the next decade to support a gas proj-ect on its own. This is the reason why Sonangol andthe other producers have been examining the viabilityof a gas (LNG) export project for a number of years.

The development of natural gas for export is po-tentially hugely significant for Angola.The global ben-efit of the LNG project is expected to be a reductionin gas flaring, while the local benefits would be:• Enhanced oil recovery, with associated revenue for

the government and Sonangol;• Sonangol’s dividends on its equity stake in LNG

(offset by remuneration to the international part-ners for any carry of Sonangol’s interest, which maybe considerable if Sonangol requires 20 percentequity), and its revenue from sale of feedstock gas tothe plant;

• Tax revenue to the government from LNG (offsetby any tax incentives granted to make the projecteconomic);

• Some development of the domestic gas market, par-ticularly through LPG provision; and

• Local sourcing of goods and services for the con-struction and operation of the plant.There may also be some positive demonstration ef-

fect from LNG being perhaps the first major postwaronshore investment.

However, as regards the CFR, interest in gas is lim-ited to the scope for development of infrastructure fora domestic gas market on the back of the expectedLNG export project.45 Our analysis of the sector willtherefore focus on the domestic opportunities createdby the spin-off from a large export project.

Gas Sector Structure

The gas sector as such does not yet really exist but willbe created as an offshoot of the oil industry.The mainoperators in Angola’s offshore oil industry, in addition


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to the state-owned company Sonangol, which is themonopoly concessioner, are ChevronTexaco, BP,ExxonMobil, Norsk Hydro, and TotalFinaElf. Theseproducers would be partners with Sonangol in theLNG project.

Gas would be gathered from a number of associatedand nonassociated fields in several of the license blocksand brought to shore near Soyo, where a terminal andLNG liquefaction plant would be constructed for LNGexport. Private oil and gas producers operating undercontracts from Sonangol would conduct the activity.

The earlier concept was for an LNG terminal andliquefaction plant near Luanda.This would have facili-tated the development of a domestic gas market, sincegas for domestic use would have been taken by shortpipeline from the terminal and delivered to major cus-tomers such as the power plants and large industrialconsumers. Any private or state enterprise may under-take this activity. However, the added distance fromSoyo now puts such short-term development of thedomestic gas market into doubt.

Legal and Regulatory Issues

The commercial terms for oil production are set inproduction sharing agreements (PSAs), which allowthe producers to recover their costs and then share thenet revenues between the producers and the GOA.Gasis excluded from the revenue sharing arrangements inmost of these PSAs and is owned by Sonangol or thestate.46 Sonangol effectively receives the gas free fromany upstream tax or royalty payments to the GOA.The Ministry of Petroleum regulates the upstream oiland gas industry.

Sociedade Nacional de Combustiveis de Angola(Sonangol) was established in 1976.The HydrocarbonLaw passed in 1978 made Sonangol the sole conces-sionaire for exploration and production. Some earlierdevelopments were carried out under joint ventureswith foreign companies, but most are now carried outwith PSAs in which the foreign company acts as a con-tractor to Sonangol.

The LNG project has been approved by a resolu-tion of the Angolan Council of Ministers on 21 Octo-ber 2001.This resolution authorizes Sonangol to con-tinue discussions with the foreign partners and sets upa joint ministerial commission including the ministries

of petroleum, finance, industry, agriculture and ruraldevelopment, fisheries and environment, and publicworks.

Sonangol and ChevronTexaco are the joint projectleaders under the terms of a Participation Agreementexecuted in February 2002 by all the partners. Thisagreement gives ChevronTexaco the role of primaryservices provider.

The activity of gas distribution (through pipelines)is not specifically mentioned in Law 5/02 on the De-limitation of Sectors of Economic Activity (or the ear-lier Law 13/94) although article 13 (Relative Reserve)sub-para 3 states that the exploitation of natural re-sources, which are the property of the state under theterms of the constitution, can only be undertakenthrough concessions. Offshore gas is under the conces-sion regime while onshore pipelines are to be devel-oped under a licensing regime involving the ministriesof industry and petroleum and the local authorities.The Ministry of Industry will have overall responsibil-ity for the development of gas distribution.

Current Situation in the Gas Sector

Gas Production and the LNG ProjectIt was estimated in 1998 that Angola had 1.6 tcf ofproven natural gas reserves. A 2001 independent con-sultant study raised this estimate to 4 tcf of proven gas.Even this estimate is likely to be conservative, withsome experts forecasting reserves increasing to be-tween 10 and 20 tcf. Current estimates of probable re-sources south of the Congo River are 8.8 tcf. The lackof gas pipeline infrastructure,underdeveloped domesticmarkets, and lack of financial resources to develop a gasexport project have hindered Angola’s exploitation ofits gas resources up to now.

The LNG project has been proposed as both a re-sponse to environmental pressures to stop flaring gasand a business opportunity to exploit the gas in therapidly expanding international LNG market. Theproject is designed to produce 4 Mt p.a. starting in2006/7. If there were 8.8 tcf of gas, it would be enoughto support this level of LNG production for about40 years.47 The inclusion of gas from north of theCongo River would significantly increase this periodor allow expansion of the export volume.

Angola currently flares over 70 percent of its asso-ciated gas (some 20 percent is reinjected, and the rest isfor its own use).48 The benefits of the LNG project areexpected to be a reduction in gas flaring and conse-quent environmental benefits, profits from the exportof LNG, as well as the small additional benefit thatmight come from the establishment of a domestic gasmarket.

The LNG plant will be sited at Soyo and initiallytake gas from the producing blocks south of the CongoRiver.The blocks near Cabinda province and north ofthe Congo river will face two problems: the distanceand the difficulty of crossing the Congo Canyon, aseither a deepwater route or a drilled route.This is notconsidered feasible for the initial development stage ofLNG. As there is insufficient demand in Cabinda tosupport a separate project, the gas from these blockswill not be involved in the first stage of the project.Gaswill initially be gathered from the non-associated gasfield near Soyo, and the associated gas production fromblocks 2, 15,17, and 18.The gas is high quality and richin liquids.49

A consortium of multinational oil companies havealready agreed to develop an LNG project.The project’sestimated cost is in the range of US$ 3.5 to 5 billion.

The participating interests in the LNG project are:ChevronTexaco 32 percentSonangol 20 percentBP 12 percentExxonMobil 12 percentNorsk Hydro 12 percentTotalFinaElf 12 percent

Under the terms of the PSAs, the operators are al-lowed to use the gas for their own operations, but sur-plus gas belongs to Sonangol (the state). However, thesurplus gas from associated oil production will not,alone, be enough for the LNG project, and the opera-tors will be required to invest substantial long-termamounts to increase gas production (as well as for thegas gathering system).Therefore a long-term gas salesagreement (for the LNG) is required to undertake thefinancing for this major investment.

The economics of LNG projects depends on thestate of the international oil and gas markets.The inter-national LNG market is currently highly competitive,with a number of new LNG projects coming on stream.Angolan LNG has low gas costs as the production costs

are reasonable and the offshore pipeline distances arenot excessive. However, new “greenfield” LNG lique-faction projects are expensive and have to compete withexisting LNG projects and expansion projects (wherethe capacity of an existing project is increased, withgenerally lower incremental costs than a new project).

Therefore, the economics of the LNG project arethought to be marginal.The project requires the rev-enues from the natural gas liquids (NGLs) to achievean acceptable return and a supportive fiscal regime.The project sponsors are therefore requesting theGOA to provide fiscal and other incentives. In particu-lar, the project is requesting the Ministry of Finance togrant a tax holiday for 10 years on the assumption of a35 percent corporate tax rate. Such a request was pos-sible under the Law on Foreign Investment and it isstill possible under the new Private Investment Lawand Law on Tax and Customs Incentives for PrivateInvestment, although for an eight-year period. TheGOA has not yet decided whether to grant a tax holi-day and, if so, for how long.

Gas Demand and Gas MarketsIn the Angolan domestic market, gas could potentiallybe utilized for power generation, large industrial con-sumers, or distribution to small consumers. The lastoption is not really under consideration, but some de-mand will exist for power and industrial use. However,as will be seen below, the total domestic demand for gasis unlikely to be more than a small percentage of the gasfor export (as LNG). During the next decade, demandfrom power and industrial consumers together is likelyto be little more than 0.5 bcm p.a., which is less than10 percent of the gas required for the LNG project.

Power Demand Many developing countries with accessto gas are taking advantage of the efficiency gains ingas-fired combined-cycle plants to introduce gas orexpand the share of gas in power generation. However,small gas pipelines are costly and power stations needto be sited reasonably close to the gas field or shoreterminal to make a project economic.This means thatinitial development of domestic gas markets in Angolais likely to be based in or around Luanda.

The major limitation for domestic gas developmentin Angola is the limited scope for gas in power genera-tion in the medium. Luanda is in the Northern system,


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one of three separate electricity networks in Angola.Total capacity in the Northern system is about 350MW,50 of which only half (177 MW) is thermal capac-ity. New hydro capacity of 260 MW at Capanda hydroplant is due to become available in 2003 with scope todouble the capacity to 520 MW after 2005. Comparedto current capacity (and therefore current demand forelectricity in the Northern system), this is a substantialincrease. The immediate prospects for gas in powergeneration are therefore limited to use as a substitutefor oil-fired generation (currently jet fuel is used) inLuanda’s thermal power capacity.

Luanda’s thermal plant comprises two jet B fuelfired gas turbines (GTs) on a site approximately 7 kmfrom the refinery. A 7 km pipeline is planned to beinstalled soon as a multi-fuel line; it will initially carryjet fuel but could be switched to carrying gas when/ifgas becomes available.51 The two GTs have a capacityof about 130 MW and, if converted to gas and usedfor baseload generation,52 would only use about0.25 bcm/yr of gas, compared to about 6 bcm of feedgas required for the LNG project, i.e., power genera-tion would add only about 4 percent of incrementaldemand to the project at the start.The conversion togas of these GTs would have been feasible if the LNGplant had been sited in Luanda,but if sited over 500 kmaway in Soyo, it is not feasible to build such a longpipeline for such a small demand.

The future demand forecasts (see table 4.2) showthat no more major capacity additions are required(after completion of Capanda) in the Northern systemup to the year 2016.Therefore, the scope for additionalgas-fired generation would be dependent on intercon-nection of the Northern system with other systems orwith more rapid growth in demand.

Industrial Demand Industrial demand for gas could po-tentially come from large industrial users or a petro-chemical industry. As the industrial sector recoversfrom the decline due to the civil war, Angola’s mainheavy industries would be potential gas consumersby switching from their current fuels (mainly petro-leum products). The critical factor for determiningthe economics of switching to gas (essentially, this isthe economics of a gas pipeline) is the length ofpipeline required compared to the volume of gasconsumption.

Industrial consumers that could theoretically switchto gas and absorb enough gas to justify investmentsin pipelines are in industries such as glass produc-tion (now using LPG), iron and steel, and metallurgy(now using oil). There is also a study going on foran aluminum plant. There are some smaller potentialcustomers such as water supply and drinks producersand bottling plants. Other potential consumers are thecement factory and the Luanda refinery, both locatednear the Kwanza field. Sonangol is currently carryingout a masterplan for the development of gas includinga gas market study. No firm industrial demand fore-casts are available, but the total industrial demand isthought to be less than 0.3 bcm/yr in the foreseeablefuture.

An ammonia/urea plant using gas as the feedstockhas been proposed for the Soyo area and has beenunder study since the 1980s. An economic scale ofplant (e.g., 1,500 t/d of ammonia) is far in excess ofAngolan domestic requirements and would thereforeonly be justified on export grounds. It would use lessthan 0.5 bcm of gas per year. The worldwide urea/ammonia industry is highly competitive, and it is likelyto be less economical to construct this type of plantthan to use the gas for LNG.

The market potential for gas in the industrial sectoris not therefore particularly promising in the shortterm and could only be developed if the LNG projectgoes ahead.

Developing LPG is also a policy being undertakenby GOA to reduce the amount of energy wasted in gasflaring, as stripping and marketing LPG (and conden-sate) from the gas stream will significantly improve theeconomics of any gas recovery scheme, whether gas ismarketed for power generation or industrial use, or isreinjected. Cabinda currently produces 2 millionbbl/yr of condensate and LPG.

Future PPI Opportunities

The offshore gas production and gas gathering compo-nents of the LNG project, together with the LNGplant and terminal, are not considered within the scopeof this study.

The main opportunities for infrastructure develop-ment are the onshore pipelines.There is a definite plan

to construct the 7 km pipeline from the refinery to theLuanda power plants. No plans yet exist to constructpipelines to other larger industrial customers, but sincethe earliest time for gas is likely to be 2006,53 it isprobably premature for industrial customers to con-sider the issue.

The oil pipeline to the Luanda power plants is ex-pected to start construction soon. It will be a joint ven-ture project between Sonangol and ENE.However, thegas at Soyo is too far away for connection to such asmall demand.

This type of joint venture approach is likely tobe taken for pipelines to industrial customers—theycould be jointly owned by the consumer and themarketer.

Despite being the owner of the offshore gas, So-nangol does not necessarily expect to be the sole com-pany carrying out local distribution. Gas distribution isnot a reserved activity (see legal and regulatory issues,above), and any other company could be involved.Given the risks of pipeline development and the needto secure long-term sales contracts for the financing ofpipelines, it seems likely that the major gas consumerswill enter into the pipeline construction joint venture.They could then use additional pipeline capacity toon-sell gas to other (smaller) consumers.

Gas distribution would be developed under a li-censing regime. Considering the lack of specific legis-lation concerning gas distribution, the cooperation ofthe local authorities will be required to secure the nec-essary land use access and rights of way.

The major barriers to gas distribution pipeline de-velopment are likely to be the limitations of the mar-ket, economic viability of projects, the monopoly posi-tion of Sonangol, the subsidized prices for petroleumproducts, and the weakness of contract enforceability(discussed in the judicial process and dispute resolutionsection); one important step Angola could take to im-prove enforceability of contracts would be to sign onto the New York Convention. As Sonangol is the mo-nopoly offshore gas owner, competing gas suppliers arelikely to face barriers unless anti-monopoly practicesare controlled. The GOA Oil fixes product prices atvery low prices (subsidized),54 despite the fact thatboth refinery and distribution costs are high, and GOApays a price subsidy to Sonangol.

Conclusions on Gas

The domestic exploitation of gas has not yet started anddepends on the development of the offshore gas indus-try, which is itself an offshoot of the vitally importantoil industry. Gas development could proceed on theback of a proposed 4 million metric tons/yr LNG ex-port project, which is planned for 2006 and would re-quire about 6 bcm of feed gas per year. However, thesiting of this project at Soyo, near to the gas field55 butover 300 km from the main demand centers at Luanda,is likely to delay the domestic market exploitation ofgas significantly.Under the terms of the PSAs Sonangolmostly owns the gas. Gas reserves are not a constraint,since Angolan gas discoveries (mostly in associationwith oil) would support the LNG project for at least40 years. Domestic use of gas in the short to mediumterm is likely to be limited to areas reasonably close tothe expected landing point of offshore gas and theLNG terminal at Soyo. Domestic gas demand is likelyto add not more than 10 percent to the gas requirementfor the LNG project in the medium term.

The main uses of gas would be for power generation(possible demand 0.25 bcm/yr) and large industrialconsumers (possible demand 0.3 bcm/yr). A petro-chemical industry is not thought to be viable for now.

The scope of the gas industry as regards this CFRstudy is limited to the onshore pipeline infrastructurethat would be required for gas sales to domestic con-sumers. With the siting of the LNG project at Soyo,there are unlikely to be short-term opportunities for gaspipelines to gas fired power stations. As yet, there areno definite plans for pipelines to serve industrial con-sumers. Such pipelines are likely to be developed asjoint ventures between the gas suppliers and consumersto mitigate the risks of long-term financing of pipelines.

Gas distribution will be developed under a licens-ing regime involving the Ministries of Industry andPetroleum as well as local authorities. Sonangol is notnecessarily intending to be the sole gas distributor, butany competing supplier would face difficult competi-tion against Sonangol (which also distributes all oilproducts), unless regulation of oil product and gasprices is designed to facilitate gas competition. Gasmarketing would also benefit from the end of subsidiesto competing petroleum product prices.


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Notes

1. Angola’s per capita consumption is 83.8kWh,compared with an average of 760 kWhper capita for the SADC region in 1999.2. Estratégia de Desenvolvimento doSector Eléctrico de Angola announced inDiário da República I Série 78 –01.10.2002.3. Established by Decree 33/99 as a publicenterprise. It operates in accordance withDecree 45/01, which regulates electricalenergy distribution.4. Following Decree 43/01 in 2001, ENEand EDEL were issued with temporary con-cessions that expire in 2003.5. Decree 4/02.6. The Law of Delimitation of the Sectorsof Economic Activity (Law 13/94, revised asLaw 5/02).7. The General Electricity Law (Law 14-A/96).8. Decree 43/01 extinguishes or adapts thelicenses for electricity production, transmis-sion, and distribution.9. Article 1.10. The Regulation of the Production ofElectrical Energy (Decree 47/01).11. Article 81.12. The Establishment of the Regulator forthe Electricity Sector (Decree 4/02).13. As of March 2002.14. It is not clear who approves non-uniform tariffs.15. Following the enactment of the Law ofDelimitations of Sectors of Economic Activ-ity in 2002, the provincial governments willnot issue licenses.16. Estratégia de Desenvolvimento do Sec-tor Eléctrico de Angola.17. In 1999, the EIU estimates GDP perhead in Angola to be US$ 344, and inZimbabwe to be US$ 479.18. This is not necessarily demand but nev-ertheless provides an indication of expectedgrowth in demand.19. Data obtained from meetings withEDEL management, October 2002.20. From Sistema Eléctrico da ENE, Reha-bilitacão, Carteira de Investimentos; thenominal capacity in the northern region is375 MW.21. Nominal capacity is 112 MW and 66MW in the central and southern regions,respectively.22. Sistema Eléctrico da ENE, Rehabili-tacão, Carteira de Investimentos,April 2002.

23. This is in generation, transmission, anddistribution.24. In year 2000 terms.25. As noted in the regulatory body andprice setting section, above, nonuniformtariffs may be approved under some circum-stances.26. Long-run marginal cost is said to beUS$ 0.11/kWh, although the authors wereunable to identify the basis for the calcula-tion of this estimate.27. Issued on September 27, 2002.28. It was reported that until recentlyEDEL paid 33 percent of the revenue itcollected to ENE, and also pays 30 percentof the subsidy it receives to ENE.29. Alrosa is a Russian diamond miningcompany that produces 20 percent of theworld’s diamonds.30. Estratégia de Desenvolvimento doSector Eléctrico de Angola, paragraph 164.31. Paragraph 110.32. Profabril, Community Management ofSolid Wastes in the Suburbs of Luanda.33. Estratégia de Desenvolvimento doSector Eléctrico de Angola, paragraph 130.34. Paragraph 93.35. The strategy also qualifies the welcomegiven to private investors. It suggests thatthis should be promoted “when it can bedone with the due safeguard of the publicinterest and national interests” (paragraph100.v).36. Paragraph 107.37. Paragraph 83.38. Paragraph 120.39. Huambo is provided as an examplesolely because the consulting team visitedHuambo and not because it is necessarilythe best electricity system for launching aprivate power project.40. The province itself is estimated to havea population of approximately 1 million, butHuambo city suffered rapid populationmovements as a result of the civil war, andthe current population is not known withany certainty.41. In addition, a small hydropower plant,with its oldest units built in 1929 and lo-cated 4 km outside the city, supplies thewater treatment plant, but is inadequate tomeet the demand of the treatment plant infull. The water treatment plant is separatefrom the city grid.

42. Angola’s oil production reached aboutone million barrels per day at the end of2003, making it the second most significantproducer in Sub-Saharan Africa afterNigeria and the largest non-OPEC exporteroutside the western hemisphere.43. Oil production inAngola started in 1955with the discovery of the onshore Kwanzafield, which also contains a small quantity ofgas.44. The rest is reinjected back into the oilwells, which can have the benefit of main-taining the well pressure and enhancing oilproduction. The gas could potentially beproduced in the future.The gas from Block17 near Luanda is reinjected, whereas almostall the gas in Cabinda (blocks 0, 2, 3) isflared.45. The offshore gas production andpipeline infrastructure is considered out ofthe scope of this study, although it will al-most certainly be financed by the privatesector if the project goes ahead. Started in2002, LPG production and marketing arealso outside the scope of the CFR.46. Gas produced from associated fields iscovered by the production sharing contracts,although these allow the parties to negotiatefreely with Sonangol for the exploitation ofthe gas. If the parties are not interested,Sonangol, which has ownership of the gas,decides how to proceed. Nonassociated gasis to be developed through negotiations andcontracts with Sonangol.47. One million tons of LNG requiresabout 1.4 bcm of gas. One tcf of gas isequivalent to 28 bcm.48. Estimates of the quantity of gas beingflared vary. Sonangol is not supposed to flaregas and is taking steps to reduce the quantity,including the proposed LNG project.49. In addition to LNG production, LPGand NGLs will be produced.50. This is about 75 percent of the totalcapacity in Angola.51. A fuel pipeline is needed since there isinadequate fuel storage on the power stationsite and severe logistical problems incarrying enough jet fuel to the power sta-tions by road tanker, especially during theperiod when the GTs have been workingnear full capacity due to the shortage ofhydro generation, while the reservoir for thenew Capanda hydro generators is beingfilled.

52. GTs on their own are not very efficientand not really suited for baseload operation.They could be converted to combined cycle(CCGT) operation by adding a heat recoverysteam turbine. This would significantly im-prove the overall efficiency (thereby makingthe plant suitable for baseload operation), butwould hardly increase the gas consumption.

53. Sonangol is now expecting the commis-sioning of the LNG project to be the end of2007.54. Jet fuel is sold at market prices; all otherproduct prices are controlled below marketprices.55. The location of the plant near Soyo hasthe benefit that resettlement impacts are

considerably reduced. However, the localpopulation would expect some benefitsfrom the project, such as access to a powersupply from on-site generation at the LNGplant.


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Introduction

The coverage of the water and sanitation sector in theCFR is oriented to those aspects of water and related ser-vices that have already attracted or may in the near futureattract private sector participation. In the main, this in-volves urban water supply and sanitation (including con-ventional sewerage systems and basic sanitation facilities)in the urban areas. The map in appendix 8 shows themajor water consuming centers by population.

The scope also covers the collection and disposal ofsolid waste in Luanda. In addition, short sections havebeen included on the current situation and potentialopportunities in rural areas.

At the national level, the water sector is undergoinga major reform process. A new Water Law recentlycame into effect (June 2002). It is focused more on inte-grated water resource management than on water supplyper se. Many of the provisions, which will be importantfor private sector participation in the water sector, re-main to be specified in secondary legislation (regula-tions).According to the law, the regulations were to bepromulgated within 120 days of the law being passed(i.e., by the end of September 2002), but drafting onlycommenced during 2004. It will thus be some time be-fore the significance of the law from the viewpoint ofprivate sector participation can be fully assessed.

The National Directorate of Water (DNA) andthe Ministry of Energy and Water (MINEA) have pre-pared a comprehensive Water and Sanitation SectorDevelopment Strategy1 covering both national waterresource management and the provision of potable

water and sanitation to the people of Angola.The strat-egy is forthright in identifying and analyzing currentdeficiencies and bold in formulating an ambitious14-year program requiring approximately US$ 3 bil-lion of investment. The policies and institutions re-quired to implement the strategy are identified, includ-ing welcoming private sector involvement (albeit inrather general terms). One of the main constraintshighlighted is the shortage of adequately trained staff atall levels. Human resource development is thus a cru-cial building block in the implementation proposals.

Legal and Regulatory Frameworkfor the Water Sector

In the Constitution of Angola, it is stipulated that wateris the property of the state. The Law of Delimitationof the Sectors of Economic Activity2 specifies inArticle 13 that the “collection, treatment and distribu-tion of drinking water through fixed networks” and theprovision of “basic sanitation” are areas of “relative re-serve.” This means that companies or other forms of pri-vate entities can participate in these sectors through fixedterm concession contracts but not outright ownership.

The new Water Law3 enables a private sector entityto be granted a water right and then to apply for alicense or a concession to use water.A license is to begranted for a renewable period of 15 years, whereasa concession is more significant in several respects,including being granted for up to 50 years. Inter alia,the new Water Law specifies the duties and rights oflicenses and concessions, and the circumstances in

5 Water and Sanitation

which they can be terminated. One of the main dutiesis to pay the taxes, which are to be levied in terms ofthe law to cover the costs of water resource manage-ment. Operators are also required to pay tariffs for theuse of any upstream infrastructure.

Neither theWater Law nor theWater and SanitationSector Strategy envisages an independent regulatorybody being created for the service provision aspect ofthe water sector.Key aspects of both water resource andsupply regulation are to be decentralized, reducing thehighly centralized situation that has prevailed hitherto.In the crucial area of prices, an Executive Decree fromthe Ministry of Finance had in 1998 already delegatedthe responsibility for setting potable water tariffs to theprovincial governors.The decree4 lays out the basis fortariffs as being full recovery of the costs of storage, ex-traction, treatment, and distribution of potable water.The decree notes “people are prepared to pay a justprice for water provided the supply is reliable and at-tains at least minimal standards.” To bridge the gapbetween the required level of tariffs and the actual level,the decree makes provision for six monthly real in-creases (provided these do not exceed 15 percent oneach occasion), coupled with three monthly inflationadjustments (the formula for this allows full indexationrelative to the national price index). The decree alsomakes provision for a “Social Tariff ” to be set by theMINEA with a view to protecting the poor and othervulnerable groups.

Water Sector Structure

The DNA is the lead institution in the water sector,andit falls under the MINEA. Under the water sector re-form proposals, hydrological information gathering isto be improved by the formation of aWater ResourcesInstitute, with financing being provided by a NationalFund that is provided for in the Water Law. For themanagement of water resources, a National WaterCouncil is to be formed that will be an umbrella bodyfor a decentralized structure of catchment councils.

The exact structure, responsibilities, and functionsof the catchment councils are to be specified in detail inthe pending regulations, but the Water Law does givethe catchment councils the important role of issuing li-censes to private water users.Where a catchment coun-cil does not exist, the power to issue licenses is granted

to local authorities or else to the DNA. By contrast,concessions for water use are to be decided at thehighest level in the state structure (the Council ofMinisters). Water rights, which have to be obtainedbefore applying for either a license or a concession, areto be granted by the DNA.5

In the urban areas of Angola, the respective provin-cial government is responsible for the supply of potablewater together with the treatment and/or disposalof wastewater. The strategy document enunciates apolicy of forming public enterprises in the major urbancenters to assume responsibility for potable water andwastewater, with the role of provincial directorates inthe future being limited to policy issues and supervisionof the enterprises. In addition to Luanda (discussed indetail below), there are a few smaller urban centers thatalready have enterprises responsible for water supply orwhere a degree of incorporation of the water supplyentities has taken place. These include the provincialwater companies created in Benguela and Lobitounder the PRUALB project6 that theWorld Bank sup-ported, and two cases (Soyo and Caxito) where privateAngolan-owned companies were given managementcontracts to operate the water systems, with the assetsremaining the property of the state.The World Bank’sImplementation Completion Report on the PRUALBinvestment (June 2001) concluded that project imple-mentation was generally satisfactory despite the ongo-ing civil war in the late 1990s; but further progresswould be required in the key areas of human resourcedevelopment, institutional capacity building, realistictariffs,and effective financial management if the munic-ipal enterprises were to be viable and sustainable intothe future. In the case of Caxito, the contract requiredcapacity building to be carried out and,at the end of thecontract, the management of the water system revertedto the provincial government.The DNA has a study inprogress that is to provide recommendations on the for-mation of commercialized water utilities in all majorurban centers.

As noted in the previous section, an ExecutiveDecree issued in 1998 gave power to the provincialgovernments to set water tariffs.The decree envisagedtariffs being raised in real terms to meet costs, withdifferent tariffs applying across the country reflectingvariations in the costs of supplying potable water.In fact, tariffs remain remarkably uniform across the


60

country at levels that the strategy document describesas “derisory” (irrisório). It would seem that in practice,the Ministry of Finance (with advice from theMINEA) continues to establish the tariffs for Luandaand the Provincial Government of Luanda’s role is re-duced to promulgating the new tariff schedules. Otherprovincial governments then generally adjust tariffs tothe new Luanda levels.

The largest and most important water supply com-pany in Angola is Empresa Pública de Águas de Luanda(EPAL), which is responsible for treating and distribut-ing water in Luanda but is not responsible for thesewerage system (which conveys both sewage andstormwater). EPAL was originally formed as a state en-tity, but its status was changed (by means of PresidentialDecree no. 36/01) to that of a public enterprise inOctober 2001. The change was the first step in thegovernment’s declared objective to improve and extendservice delivery in Luanda. In March 2003, it was re-ported that senior managers would sign a performancecontract that gives increased management autonomyto control and develop the enterprise. Furthermore, inApril 2003, the government announced its intention todevelop private sector participation in the managementand operation of the city’s water supply system.

Nevertheless, at present,EPAL is not free to hire andfire staff, nor is it able to raise tariffs to match its costs.The enterprise is still subject to tariff increases decidedby the Ministry of Finance, the last increase being inOctober 2001. In conditions of three-digit inflation,the mismatch between costs and revenues, which areonly sporadically adjusted, tends to grow rapidly.Withlimited ability to borrow, EPAL’s survival depends onsubsidies from the central government budget (OGE).In the last two years, receipts from government for bothcapital and recurrent purposes constituted between30 percent and 60 percent of total EPAL receipts.Theresources provided to EPAL from the OGE are in theform of general budget support rather than specific,targeted subsidies.

Current Situation in the Urban Sector

Water Supply and Sanitation in LuandaAs a result mainly of inward migration, Luanda’spopulation is estimated to have grown very rapidlyfrom 1.6 million in 1990 to about 3.6 million in 2002

(7 percent p.a.).7 Approximately 800,000 people livein the “formal” part of the city while 2.8 million livein the so-called “peri-urban” poor areas, colloquiallyknown as musseques. The infrastructure differencesbetween the two parts of the city are stark. Poor hous-ing and roads, and basic services (water, sanitation, andelectricity) characterize the peri-urban areas.

In respect to potable water, EPAL has nominaltreatment capacity of 93 million cubic meters p.a.(255,000 m3 per day), which would theoretically allow(with zero losses) an average consumption of 72 litersper capita per day (including nondomestic uses). Inpractice, with actual treated water production of onlyaround 60 million cubic meters (165,500 m3 per day—due to technical problems, material shortages, and pro-longed power cuts), and substantial losses in the trans-mission and distribution system, the amount attributedto customers by EPAL in 2001 was only 23.5 millioncubic meters8 (64,000 m3 per day). Nonrevenue watermay be as much as 60 percent of actual production,which is attributable to the age and condition of pipesand equipment, inadequate maintenance, and unofficialconsumption (illegal and shared connections9).

In view of the almost complete absence of peren-nial surface water or of nonsaline groundwater inLuanda,10 city areas that are not on EPAL’s reticulationsystem are supplied from tanks filled by trucks, some ofwhich buy their supplies from EPAL while others drawunsafe water from rivers.Taking account of the addi-tional bulk supply this represents, the total that ispresently distributed may be around 30 million cubicmeters p.a. (82,000 m3 per day).This is equivalent to anaverage for domestic users of less than 20 liters percapita per day, this being a weighted average of around34 liters per capita per day in the piped water areas(supplying approximately 1.3 million people) and only10 liters per capita per day in the areas supplied via thetruck-tank chain (approximately 2.3 million people).11

The World Bank estimates that consumption via thetruck-tank supply chain is only half this amount—5 liters per capita per day,equivalent to one-eighth of theminimum amount considered necessary by the WorldHealth Organization (40 liters per capita per day).12

The large differentials in per capita consumption re-flect grossly inequitable pricing and the limited ability ofpoor peri-urban households to purchase high-pricedwater. The price of piped water is heavily subsidized,

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but truck-tank supplied water is subject to private sec-tor markups that take advantage of monopoly condi-tions for a commodity with a uniquely inelastic de-mand at low levels of consumption.The markups areover 1,000 percent by the truck operators and between50 percent and 200 percent by the tank owners.Theseare calculated from a starting price of US$ 0.45/cubicmeter (26 kwanza/cubic meter, exchange rate US$ 1 =kwanza 55 in late 2002) when the trucks buy waterfrom EPAL. Some truck owners obtain “free” waterfrom the river, but incur other costs to do so.The wateris sold to tank owners at prices typically around US$ 3to US$ 6.00/cubic meter (165 to 330 kwanza/cubicmeter),who in turn sell to retail customers,who collectwater in 20-liter containers, at between US$ 4.5 andUS$ 13.5 per cubic meter (250 to 750 kwanza/cubicmeter, corresponding to 5 kwanza to 15 kwanza per20-liter container).

This price structure for the truck-tank supply chainin Luanda compares with EPAL’s rising block domestictariff structure in the piped water area, which rangesfrom US$ 0.23 to US$ 0.36 per cubic meter (12.5 to20 kz/cubic meter).These figures imply that the priceof truck-tank supplied water is roughly 20 to 60 timesthe piped water price. On a monthly basis, householdsin the peri-urban areas have to pay between 10 and20 times as much for water as households in the pipedwater area, while at the same time consuming 70 per-cent less water per capita.Average incomes in the peri-urban areas are much lower than those in the centralpart of Luanda, and relative standards of living are fur-ther undermined by the hugely disproportionate costof water for the poorer majority of the population.

The present highly differentiated market also im-plies that EPAL only has a small share of the marketwhen measured in terms of turnover. The total rev-enue associated with the retail sale of water in Luandais between US$ 40 million and US$ 160 million peryear, the estimated range being so wide because ofuncertainties about both the quantities and the pricespaid in the truck-tank channel.What is certain is thatmost of the turnover is generated in the private do-main, with EPAL currently only being able to appro-priate between 5 percent and 20 percent of therevenue associated with retail water sales.The challengeis to ensure that EPAL becomes more efficient andexpands its sphere of operation. In so doing, new cus-tomers will benefit from lower water prices and higher

consumption levels, while it can be confidently pre-dicted that EPAL’s turnover will increase as even low-income households have already demonstrated veryhigh levels of willingness to pay for water.

In many countries, the poor paying more than therich for water is a common outcome of state-run util-ities not being allowed to raise tariffs sufficiently tocover costs. This results in inadequate resources foroperations and maintenance, let alone for investmentto expand supply. The case of Luanda is an extremeexample, and the state has responded by initiatinga number of projects to expand supply and extenddistribution. For example, the third phase of the US$180 million Sistema III project to improve supplies tosoutheast Luanda is nearing completion.Households inthe area that had been supplied by the truck-tank chainwill have access to kiosks (chafarizes), where they willbe able to buy piped water at a controlled price. Thekiosks introduced by EPAL in project phases I & II havebeen well received by local communities (see box 5.1).

In 2001, according to DNA, there were 290 cha-farizes in Luanda of which 142 (49 percent) were in reg-ular operation and 148 (51 percent) only functionedintermittently due to inadequate pressure and lack ofwater.EPAL estimates that each chafarize serves approx-imately 70–80 households, implying that chafarizes cansupply about 21,750 households or around 152,000people.This represents less than 7 percent of the popu-lation who do not have access to piped water (2.3 mil-lion).Therefore, the majority of poor households are stilldependent on the truck-tank supply chain. EPAL haslimited capacity to increase the number of chafarizes,but by franchising the chafarize design, construction,and operation to the private sector (as suggested at theend of box 5.1), this constraint could more rapidly beovercome.There are other possible technologies, whichcould provide water at affordable prices, some of whichare suitable for development by private sector operators.These are discussed later in this chapter (see opportuni-ties for private sector participation).

The authorities acknowledge that the truck-tanksupply chain will continue to play a key role in manyparts of the city and have included additional loadingpoints for the trucks in planned investment projects.This is intended to encourage more trucks to enter theindustry, improve turnaround times for many operators,and reduce the risk of truckers loading unsafe riverwater. It is important that the benefits of reduced costs


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Box 5.1 Luanda’s Chafarizes

Grossly inequitable access to water is a common phenomenonin African cities, which have experienced rapid rural-urban mi-gration.Water kiosks—communal standpipes from which wateris sold—are increasingly being seen as an appropriate way forwater utilities to dramatically improve the access of poor peri-urban communities to clean water at an affordable price. Citiessuch as Ouagadougou, the capital of Burkina Faso, have shownthat it is possible to ensure minimum services for all, yet achievecost recovery and sustainability.13 Prerequisites are a water util-ity with the autonomy to operate on commercial lines, carefuldesign of the kiosk system for operational efficiency and ease ofuse by customers, and a tariff policy that requires connectedhouseholds to pay a realistic price for the much higher servicelevel they enjoy.

Kiosk systems are also becoming more widespread in south-ernAfrican countries such as Malawi and Zambia.14 The chafarizestructure in Luanda is expensive. It consists of a long counterwith six sets of taps on each side, with a roof to provide shade.There is a high security perimeter fence with a guardhouse atone end. Customers prepay for the water by buying cards fromagents or the EPAL official at the chafarize.During opening hours(typically 6 am to 3 pm), family members collecting water line upand have their cards punched as they are admitted through thegate and allowed to fill their containers.This is a rather hecticprocess, with the taps being left open continuously, resulting in aconsiderable amount of water being wasted.A contrast can bedrawn with kiosks in Lilongwe, for example, where the invest-ment costs are lower and use of water is more efficient.

Although the presence of EPAL staff and security officersgives the water utility prominence in the chafarizes of Luanda,community involvement is nonetheless very much part of theconcept.The cards that cost 24 kwanza (kz) (allowing 50 collec-tions of 20 liters, i.e., 1 cubic meter) or 120 kz (100 collections of50 liters, i.e., 5 cubic meters) reflect a price made up of two ele-ments: the “social tariff” of 11 kz/cubic meter, which is paid overto EPAL, and a community contribution of 13 kz/cubic meter thatis apparently being used for maintenance purposes. Although theutility is adamant that the chafarize tariff is no higher than thesocial tariff (as is required by Executive Decree 27/98), the effec-tive price from the user’s viewpoint (24 kz/cubic meter) is morethan double the social tariff and at present is higher than theaverage domestic piped water tariff (around 18 kz/cubic meter).

Given the observations above about the inefficiencies of theEPAL chafarizes, if private operators were given the opportunityin Luanda to design and operate their own chafarize systems, itis highly probable that they would be able to establish profitablebusinesses providing water to the public at a price equal to orlower than the effective EPAL chafarize price of 24 kz/cubic meter.EPAL could initiate a franchising system by establishing acceptableservice standards and prices at chafarizes and inviting bids fromprivate sector operators willing to meet those standards.

are passed on to the final consumers in the poorperi-urban areas. Indeed, while acknowledging the de-pendence of a large segment of the population on thetruck-tank supply chain, the exceptionally high pricesthat presently prevail call out for some form of regula-tion to be imposed. The regulations currently beingdrafted by the DNA are apparently targeted principallyat the truck owners, but the tank segment of the chainneeds also to be tackled (by regulation and/or increasedcompetition) if the policy intentions for the final con-sumer are to be realized.15

The losses in EPAL’s physical distribution system aremirrored in the financial realm by low billing levels(only 52 percent of the supplied water is billed to149,000 customers), and an even lower collection rate(44 percent of the invoiced amount). This implies aneffective revenue generation from only 23 percent ofthe water supplied.The largest debtors are governmentagencies and state enterprises.These figures refer to thesupply volume presently imputed by EPAL, but im-proved distribution system management would allowillegal connections to be identified and the billablecustomer base to be expanded.There is thus an urgentneed for EPAL to install bulk meters and improve themapping of its distribution system. This would alsofacilitate pressure management, leading to fewer pipebursts and better leakage control. The deficiencies inthe billing and revenue collection system are beingaddressed through a US$ 3 million investment project.In addition, EPAL should actively address the issue ofunpaid water bills with the government’s full support.

Sanitation services throughout the city and theperi-urban areas are inadequate, in poor condition, andpresent a serious health risk. The formal part of thecity is served by a conventional waterborne sewer sys-tem, but much of the network is in a state of virtualcollapse. The sewers carry both sewage and stormwater.There is no treatment works and most of the rawsewage, which reaches the pipes, is discharged througha 2 km sea outfall pipe. Urbana 2000, the private com-pany responsible for solid waste collection in the city,was awarded a contract to maintain and clean the sewersystem,but significant investment is still required to ad-dress the underlying structural problems. A seweragemaster plan for Luanda was prepared in 1995 by Frenchconsultants, and the same consultants completed atechnical condition survey of the existing seweragesystem in 2002.

Other parts of the city are served by septic tanks,which are periodically emptied by private companies(including Urbana 2000). While the majority of thepopulation in the poor peri-urban areas depend onbasic family-owned or communal latrines, many haveno basic sanitation facilities at all. In 2001, DNArecorded a total of only 2,612 latrines in Luanda.A studyof water and sanitation requirements in the peri-urbanareas was completed in 2002 by Italian consultants.

Water Supply and Sanitation in Other Urban CentersThe prolonged civil war and major movements of ruralpopulation into the main urban areas have placed in-creasing pressure on dilapidated and poorly maintainedwater supply and sanitation systems.The Water Sectorand Sanitation Development Strategy documents thewater supply situation in 29 provincial capitals andother urban centers, which together constitute about25 percent (3.4 million) of the total population ofAngola.16 Service coverage has declined from an esti-mated 75 percent in 1990 to 51 percent at present, ofwhom only 16 percent have piped household connec-tions; the majority are dependent on chafarizes, stand-pipes, and truck-tank systems. The average installedcapacity in the urban centers is estimated to be equiva-lent to 42 liters per capita per day, with actual con-sumption at around 20 liters per capita per day.Waterthat is unaccounted for is reported to be as high as50 percent to 60 percent of nominal production. It isnoted that in the peri-urban areas, which house thepoorest and most vulnerable communities, consump-tion is at the grossly inadequate level of around 5 litersper capita per day.Besides Luanda,only four other cities(Huambo, Namibe, Lobito, and Benguela) have water-borne sewage systems, and in all cases, these only serveparts of their respective urban areas. As part of thePRUALB project, sewage treatment works were con-structed in Lobito and Benguela.

Although the figures indicate that the situation inother urban centers is as bad as in the capital,most othercities do have the “safety valve” of groundwater beingavailable. In Huambo, for example, families withoutaccess to piped supplies are often able to obtain waterfrom hand-dug shallow wells, and therefore are notforced to buy water at very high prices from privatevendors. Even those with house connections oftensupplement piped supplies with water from wells or

boreholes. Development agencies17 have installedhandpumps in various parts of Huambo and built ac-companying infrastructure (sinks for washing clothesand bath rooms), these providing a greater range offacilities to the residents than the chafarizes in Luanda.The main types of handpumps used in Angola areAfridev,Volanta, or India Mark II.The Directorate ofWater is promoting standardization in different parts ofthe country and encouraging private suppliers to set upcommercial networks to make spare parts readily avail-able for the particular pump that is used in each area.

All of the other urban centers have severe financialproblems with inadequate tariff levels, low billing rates,and very poor collection ratios.This leads to low levelsof maintenance and continuing degradation of existingwater supply assets. Lack of adequately trained andmotivated staff is also a major problem.

In terms of sanitation, besides Luanda, only fourother cities (Huambo, Namibe, Lobito, and Benguela)have waterborne sewerage systems and in all cases theseonly serve the central areas (17 percent of the urbanpopulation). As part of the PRUALB project, sewagetreatment works were constructed in Lobito andBenguela. In general, the systems are poorly main-tained and dependent on inadequate government sub-ventions. A mix of septic tanks and pit latrines servesthe majority of the urban population, but many haveno basic sanitation facilities.

Water Supply and Sanitation in Rural Centers

DNA estimates that only 15 to 20 percent of the ruralpopulation (approximately 6.1 million in 2002) haveaccess to a safe water source, mainly from a network ofmore than 3,300 water points (largely boreholes withhandpumps),of which up to 50 percent could be out ofoperation due to lack of spare parts and regular mainte-nance.Therefore,a high proportion of the rural popula-tion is dependent on seasonal supplies of surface waterthat can involve significant distances to collect modestamounts of water.Against this background, theAngolanauthorities recognize the need for increased commu-nity participation and training, plus effective technicalsupport and secure supplies of spare parts.

With regard to sanitation,DNA figures indicate thatonly 20 percent of the rural population has access tobasic sanitation facilities (mainly pit latrines adjacent to


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the home or communal facilities within 25 meters).Improvements in basic rural sanitation need to focus oncommunity education and the provision of appropriatefacilities at affordable prices.

PPI Opportunities

IntroductionAll of the possible forms of private sector participationoutlined in chapter 1 (except full privatization), couldhave a role in water supply and sanitation in theurban areas of Angola.18 The particular circumstancesof Luanda and of each of the other urban centers needto be considered before any particular option is chosen,with a view to further developing the private sector’srole as experience is gained and demand for servicesgrows. The objectives of private sector participationare to improve efficiency, reduce infrastructure demandson public budgets, and expand affordable water andsanitation services to the majority of the population.

Private operators have a particularly important roleto play in respect of the last objective, as they are likelyto be more innovative in the technology choice forservice delivery.As was made clear in the previous sec-tion, there are a very large number of urban dwellersin Angola without reasonable access to clean water.Atpresent, the technologies being offered are at the twoextremes—at the top end, individual house connec-tions to the piped water network, and at the bottomend, shared communal facilities. It would be temptingfor the government to set a goal of providing pipedhouse connections for all urban areas, but adopting thisas a strategy would entail the majority of the populationbeing condemned to decades of poor water access as theexpansion of house connections would necessarily takedecades rather than years to complete. At the sametime, restricting people to the lowest service levels isboth unfair and economically inefficient.

The designation of “unfair” is made in the contextof the common finding from willingness-to-pay studiesthat poor people are willing to pay a surprisingly highproportion of their income in order to obtain not justaccess to water, but a higher service standard than theminimum that is achieved via shared communal facili-ties. In Luanda, where people living in the mussequesare accustomed to paying an unreasonably high pro-portion of their income to obtain extremely limited

amounts of water, it is highly likely that the populationwould be willing to pay cost-recovery tariffs for rela-tively high service standards. Ideally, a strategy needs tobe devised by supply entities to give people the highestservice level at the earliest possible time, while makingit possible to continuously upgrade technologies onceuniversal coverage at some level of affordable servicehas been achieved.The same argument applies to pro-viding a range of sanitation technologies.

Bringing in the private sector would be the mostexpeditious way to get this process started.A regulatoryframework, which sets prices and standards of service,needs to be created.This must be designed to create theincentive structure to ensure that private operators de-ploy the most efficient technologies to provide servicesto the public.

To broaden consideration of possible technologicaloptions for Angola, box 5.2, briefly describes the rangeto be found in urban water supply in South Africa. Ofimmediate interest for Luanda are the yard tank options;this is discussed further at the end of the next section.Expanding the range of water delivery technologies isnot just an issue for Luanda,however,but potentially hasan important role in all of Angola’s urban centers.

Addressing Luanda’s Water Supply ChallengesThe water utility of Luanda, EPAL, is presently provid-ing a creditable service given the extraordinarily diffi-cult circumstances in which it operates. The problemsfaced by management span every aspect—technical,commercial, financial, and human resources. On thephysical supply side,when the current investment proj-ects and others in the pipeline19 have been completed,there should be a considerable improvement in thewater supply to Luanda and moderation of the highlyinequitable prices that exist at present.To address theother problems, there is need at the same time to allowEPAL to become more commercial in its operations;that is, to be given the financial and managerial auton-omy necessary to conduct its mandate effectively.

On paper, following its conversion to a public enter-prise, EPAL is moving in the direction of commercial-ization, but in practice, the modus operandi of the stateeconomic unit appears to be deeply entrenched. Forexample, the only financial reporting is a statement ofthe source and application of funds; there is no balancesheet for EPAL and no profit and loss statement in the


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company’s reports.This should now change as the pro-visions of the GeneralAccounting Plan are to be imple-mented under the supervision of the Fiscal Councilfrom January 1, 2003.20 The projects that are intendedto improve EPAL’s position are negotiated and financedby the Ministry of Finance, with the utility playing asubsidiary role. Tariffs continue to be decided by theMinistry of Finance,with infrequent and inadequate in-creases. Being financially dependent on subsidies fromthe national budget,EPAL lacks the freedom of maneu-ver to operate as an effective water utility for Luanda.

The commercialization of EPAL would be a signif-icant step in the right direction,paving the way for pos-sible privatization. In some respects, this process hasstarted with the reported signing of a performance con-tract with EPAL’s senior management in March 2003,followed inApril 2003,by the government’s announce-ment to develop private sector participation in the

operation and management of Luanda’s water services(see below). The options, timing, and contract/concession details should be carefully considered, withthe support of appropriate independent advice.

One PPI option which the government and EPALare actively examining at present is the Mozambiquemodel of the water assets being housed in a holdingcompany owned by the state [Fundo de Investimento ePatrimónio doAbastecimento de Água (FIPAG)],with a pri-vate company Águas de Moçambique (majority owned bya competent technical partner) being given either a lease(Maputo) or a management contract (Beira,Quelimane,Nampula,and Pemba).There is also a regulator,Conselhode Regulação do Abastecimento de Água (CRA), to set tar-iffs and ensure adherence to standards and the attain-ment of performance targets.This institutional structureis illustrated in figure 5.1.Despite various problems (notleast the withdrawal of the initial technical partner from


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Box 5.2 Technologies to Provide Different Levels of Water Supply Service

This box outlines the technological “menu” available to water supply authorities in South Africa.The paper referenced below gives aprofile of the technical, social, managerial, and environmental advantages and disadvantages of each option, together with details of theassociated capital and operating costs.The options may be classified in various ways, in this presentation by level of pressure at the tap:Full pressure (volumetric payments):• House connection with prepayment meter• House connection with conventional metering and monthly billingMedium pressure:• Regulated roof tank (volume controlled by “equity” valves at key nodes in supply network; customer receives water at roof pres-

sure; flat rate monthly payments)• Metered roof tank (customer receives unlimited water volume at roof pressure; conventional metering and monthly billing)Low pressure (flat rate monthly payments—water supply shut off if customer fails to pay):• Regulated yard tank (volume controlled by “equity” valves at key nodes in supply network)• Manual yard tank (water bailiff opens valve and fills tank on a daily basis)• Trickle feed yard tank (inlet flow regulator designed for, say, 25 liters per capita per day)Basic service:• Street tap with prepayment meter (allows 24 hour access and volumetric payment, but prepayment meters are disproportionately

expensive at this supply level)• Communal street tap (in South Africa payments for access to street taps are on a monthly, flat fee basis; design criteria are taps to

be within 200 meters of each dwelling and be capable of supplying 25–60 liters per capita per day with 98 percent reliability)Total monthly supply costs in South Africa (capital repayment, operation, and maintenance costs) range from US$ 9 per household permonth for 25 liters per capita per day collected by the customer from a shared street tap to US$ 16 per household per month for120 liters per capita per day for a prepaid full pressure house connection. These figures may not be directly comparable with costs inLuanda, but they do provide challenging food for thought given that the present situation in the musseques is one where a householdreliant on the truck-tank supply chain is paying between US$ 19 and US$ 38 per month for 10 liters per capita per day.

The philosophy that the South African paper (33) enunciates is that:Experience has shown that a policy of providing mixed levels of service is usually the most successful strategy.Through the useof alternative service options, one can select the appropriate levels of service and by so doing ensure significantly higher costrecovery and a more sustainable service.

Source: Department of Water Affairs and Forestry,Water Supply Service Levels: A Guide for Local Authorities, Pretoria, November 2000.

the operating company), the institutional model is con-sidered to be fundamentally sound. It could be strength-ened, however, by extending the jurisdiction of FIPAGand CRA to cover sanitation as well as water supply, andto do so throughout the country (not just in the cities inwhich Águas de Moçambique operates). If Angola doesdecide to draw on the Mozambique model, it would beadvisable to establish national coverage of both waterand sanitation by the asset holding company and thesector regulator from the start.

Privatization options for EPAL were the subject ofintense scrutiny and debate in 1998–99, culminating ina workshop held in Luanda in January 1999. At thetime, a US$ 102 million LuandaWater Supply and San-itation project was being prepared for World Bankfinancing, which was to involve rehabilitation ofLuanda’s water and sewerage systems and institutionalstrengthening.21 It was concluded that the best wayforward for EPAL was to invite bids from potentialprivate operators for a phased 15-year PPI contract. Ini-tially (1–2 years), the technical partner was to be remu-nerated on a fixed fee basis. During this period therehabilitation work would commence and more de-tailed information on the state of the system would becompiled.In years 3–4,the operator was to be subject to

a performance-based management contract, and there-after a concession was to be negotiated, which was toinvolve the private operator in successively taking oncapital investment requirements and assuming progres-sively larger shares of commercial, operational, andproject-related risks.

A flexible, phased introduction of an increasinglysignificant private sector role in Luanda’s water supplyand sanitation has attractive features for the current sit-uation, where rehabilitation and expansion of EPAL’snetwork remain very much on the agenda, and the in-formation a private operator would require about theolder Sistema’s I and II remains patchy. However, aphased approach to developing the ultimate concessionarrangement entails a significant risk that the privateoperator will exploit its incumbent position once it ison board, demanding generous provisions once it be-comes difficult to disengage and start afresh with a newoperator. In other words, once the incumbent has a“foot in the door,” it will not be possible to bring anycompetitive pressure into subsequent negotiations.

In view of these problems, the recommendationmade in this report is for a different approach. Takingaccount of EPAL’s current situation, the most expedi-tious and risk-minimizing way forward would be to


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Figure 5.1 Institutional Arrangements for PPI in Urban Water in Mozambique

Government of Mozambique

Águas deMocambique

OnlendingAgreement

LeaseContract

ManagementContract

SubscriptionContract

Note: MPF = Ministry of Planning and Finance, MOPH = Ministry of Public Works and Housing.

Source: Fundo de Investimento e Património do Abastecimento de Água, Mozambique.

Consumers

FIPAG

MPF

CRA

PerformanceContract

InternationalFunding Agencies

MOPH

StakeholdersForum


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Box 5.3 PPI to Disseminate Alternative Water Delivery Technologies

As outlined in box 5.2, there are a number of technologiesthat could play a role in improving the access of people in themusseques to water. The quickest way to ensure that the po-tential of these technologies is realized would be to bring in theprivate sector. A regulatory framework, which sets prices andstandards of service, needs to be created and then bids shouldbe invited from prospective private sector operators.

The first target should be to encourage private operators toimprove on the design and operation of chafarizes (see box 5.2).Of the other technologies described in box 5.2, the yard tankoptions might be immediately relevant for Luanda.This would beparticularly so if the underground tanks (cisternas), which al-ready exist as part of the truck-tank supply system, were in thefuture to be supplied via the piped network, with flows beingcontrolled by regulatory valves in the network or trickle valvesat the tanks themselves.

Being underground, water would have to continue to be re-trieved from the tanks with buckets.Tank owners could initiallycontinue to sell water to their neighbors, but under properlyregulated conditions, which would preclude the exploitativeprices presently being charged. This approach could readily beupgraded by moving to yard tanks (making it possible to drawwater from taps at low pressure), and to roof tank options(higher pressure, allowing reticulation). To promote equity,households that do not presently own underground tanksshould be given priority for yard and roof tanks.

In short, supplying existing underground tanks in Luandawith regulated or trickle feed piped supplies looks to be a prom-ising, economical option at this juncture. From the viewpoint ofEPAL, the advantages of this would include low peak factor(24-hour supply), self-regulated flow, and flexibility for subse-quent upgrading of the service level.

avoid going straight into a concession arrangement forthe utility as a whole,but instead to opt for a progressiveapproach. Within a very short time frame, this couldstart with unbundling discrete components of the watersupply system and making separate PPI arrangementsfor these, in all cases transferring as much responsibilityand risk as the private sector is able to bear.The un-bundling might usefully apply at the upstream end toraw water capture and storage, water treatment works,and possibly to the truck transmission network.At theconsumer end of the system, functions that are criticalto generating a secure revenue source, such as meterreading, billing, and revenue collection, might alsousefully be outsourced on a performance-related basis,again with progressive transfer of investment responsi-bilities and risk. In addition, steps should immediatelybe taken to outsource the construction and operationof chafarizes and other technologies suitable for deliv-ering water to those presently without service. Oneparticular technology is highlighted in box 5.3.

Unbundling and outsourcing would have the effectof narrowing EPAL’s core functions (largely to operat-ing the transmission and distribution networks), mak-ing the enterprise more amenable to tight manage-ment. At a later stage, a decision could be made ofwhether to retain these core functions in state hands orwhether to involve the private sector via one or moreoutsourcing,concession,or joint venture arrangements.

The above recommendation for private sector par-ticipation in Luanda’s water supply is further elaboratedin the recommendations outlined in chapter 8. Thisstrategy is largely oriented to reinforcing EPAL, butas the previous section made clear, a wide-rangingapproach will be required if the water supply is to beimproved to the majority of Luanda’s population livingin the musseques.

One element should be to require private sectoroperators brought into the sector to offer a wider rangeof water supply technologies than is presently available.Of the technologies described in box 5.2, the yard tankoptions might be immediately relevant for Luanda.This would be particularly so if the underground tanks,which already exist as part of the truck-tank supply sys-tem,were in the future to be supplied via the piped net-work, with flows being controlled by regulatory valvesin the network or trickle valves at the tanks themselves.Being underground,water would have to continue to be

retrieved from the tanks with buckets. Tank ownerscould initially continue to sell water to their neighbors,but under properly regulated conditions, which wouldpreclude the exploitative prices presently being charged.This approach could readily be upgraded by moving toyard tanks (making it possible to draw water from taps atlow pressure), and to roof tank options (higher pressure,allowing reticulation). To promote equity, householdsthat do not presently own underground tanks should begiven priority for yard and roof tanks.

In short, supplying existing underground tanks inLuanda with regulated or trickle feed piped supplieslooks a promising, economical option at this juncture.From EPAL’s viewpoint, the advantages of this would

include low peak factor (24-hour supply),self-regulatedflow, and flexibility for subsequent upgrading of thelevel of service.

With regard to sewerage and sanitation facilities inLuanda, there are a number of possible opportunitiesto introduce PPI to improve services. In the short tomedium term, the current maintenance and cleaningcontract (with Urbana 2000) for the central sewersystem should be reinforced and extended, with thecontractor responsible for all his own machinery andequipment, and subject to a clear set of performancetargets. It is also recommended that the governmentinitiate a cost-effective sewerage rehabilitation invest-ment program, with special attention being given toindustrial wastewater pollution.These initiatives shouldbe coupled with the establishment of sewerage chargesand separate financial accounts.In the longer term,con-sideration should be given to the water utility takingover responsibility for the waterborne sewerage system(including wastewater treatment).This would be con-sistent with international practice.

In the peri-urban areas, the private sector in collab-oration with NGOs and local community groupscould be encouraged to provide more basic sanitationservices, for example, construction and servicing of pitlatrines and septic tanks, and small bore sewerage sys-tems in more-well-established communities with aregular water supply system.

Water Supply and Sanitation in Other Urban CentersIn other urban centers, in the period up to 2016, theWater and Sanitation Sector Development Strategyseeks to achieve 85 percent coverage in respect of bothwater and sanitation. The specific target set for wateris 70 liters per capita per day (through increasing pro-duction to 90 liters per capita per day and reducinglosses to around 25 percent). The estimated financialrequirement to achieve these targets is US$ 2.3 billion(44 percent for water). As in the case of Luanda, itis recommended that this ambitious development pro-gram include adopting a range of technologies forwater supply and sanitation, and not be limited tothose currently in common use (see discussion relatedto box 5.2). Water and sanitation master plans arepresently being developed for seven cities (Lubango,Namíbe, Ondjiva, Huambo, Kuito, Malange, andN’Dalatando). When these are complete, nine more

master plans are to be commissioned (Cabinda,Saurimo,Uíge, Menongue, Luena, Sumbe, Caxito, Dundo, andM’Banza Congo).

The strategy gives priority in the short term toforming public municipal enterprises to take responsi-bility for water supply and sanitation in all major urbancenters. This would be an essential initial step beforeany of the privatization options specified above couldbe pursued. Ideally, the municipal enterprises should begiven complete managerial and financial autonomy.Provincial governments would need to start imple-menting the provisions of Executive Decree 27/98with vigor, as even if the maximum allowed real in-crease in tariffs of 15 percent every six months were tobe consistently applied, together with the indexationformula to prevent tariffs being undermined by infla-tion, it would still typically require at least five yearsbefore cost-covering tariff levels would be achieved.

The negative consequences of extremely low tarifflevels in the water sector could be mitigated by possiblyallowing temporary cross-subsidies between electricityand water,22 and to facilitate this, the public enterprisesthat are to be formed could be given responsibility forelectricity, water, and sanitation.23 Such multi-sectorutilities would have a number of advantages. First andforemost, they would make it possible to make the bestuse of very limited numbers of people with the requi-site skills in skilled areas such as accounting and engi-neering.There are broader ways in which economies ofscale and scope would make combined utility compa-nies more cost efficient and sustainable, for example, byhaving a common meter-reading, billing, and revenuecollection system. Furthermore, it is not uncommon inprovincial centers for there to be close links betweenthe two sectors at the bulk supply level, for example,water production capacity being limited by inadequateelectricity supplies. By putting responsibility for bothsectors under one roof, it is more likely that joint solu-tions to problems will be found.The benefits of this willaccrue as improved service to customers in respect ofboth electricity and water.

Cutting across sectoral boundaries is particularly ap-propriate for the smaller urban centers, where separateutility companies would clearly be inefficient and waste-ful,but multi-sectoral utilities would also be appropriatefor the provincial capitals of Angola.The arguments infavor of this approach are spelled out in more detail in


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chapter 8. This also deals with broader national issueson how best to use capital subsidies to achieve universalaccess to services, how to involve recipients in prioritiz-ing the use of such subsidies across sectors, and how bestto provide the professional, independent regulation thatis needed to ensure sustainable achievement of nationalinfrastructure objectives.

For conventional sewerage and basic sanitation fa-cilities, the private sector should be encouraged to offermaintenance and basic construction services, especiallyin the peri-urban areas, in collaboration with NGOsand local community groups.

Water Supply and Sanitation in Rural AreasThe introduction of PPI in rural water supply andsanitation will be a challenge for the government to setappropriate incentives and an effective regulatory envi-ronment that is not too onerous.The main beneficiarieswill be the rural population, but it will also encouragelocal entrepreneurs and skill development, and fosterpartnership with local communities and NGOs. Theprivate sector could provide services in the form of welldrilling, pump supply, installation, and maintenance,plus construction and maintenance of basic sanitationfacilities.The opening up of these opportunities couldbe accomplished in two ways: through either competi-tive contracts awarded by the provincial government, orsector deregulation in which the private sector is ac-tively encouraged to develop local and provincial ser-vices for the rural water and sanitation sector.

PPI Constraints—Water and Sanitation

Due to the unique risks, water and sanitation are noto-riously unattractive for private sector investors. Waterand sanitation are local services with large health andenvironmental externalities, and they are easily politi-cized with services being extended irrespective of abilityto pay; the assets are largely underground and are thusdifficult to value and there are large currency risks(revenues in local currency,and capital expenses to a sig-nificant extent in foreign currency).“Even in industrial-ized countries, the credit strength of off-taking munici-pal governments and the sector’s traditional monopolystructure expose lenders to potentially significant credit,regulatory and political risks.”24

These concerns apply a fortiori to Angola.The mostpressing issue is the political pressure to maintain low

tariffs for the minority with access to piped water,whileaccepting that the poor majority often have to pay morefor water. As noted earlier, in Luanda the informalmarket prices are 30 to 60 times higher than the pipedwater price. While this issue is now being addressedthrough the investment projects, a short-term measurewould have been to allow EPAL to purchase trucks tocompete with the private truck owners and to subsidizethe building of tanks within the peri-urban residentialareas to reduce the local monopoly power of the limitednumber of tank owners.

Table 5.1 summarizes the water supply and sanita-tion situation as regards the six criteria identified asbeing important to potential private sector participantsfor the CFR as a whole (see chapter 1). Each of theissues has been discussed in more detail in previouschapters.

Solid Waste Collection in Luanda

Legal and Institutional Framework—Solid WasteThe responsibility for refuse collection, cleanliness, andsanitation of the city of Luanda is legally vested in thestate economic entity Empresa de Limpeza e Saneamentode Luanda, Unidade Económica Estatal (ELISAL-UEE).25

In 1997, the Luanda Provincial Government con-tracted the ELISAL management to a private Angolan-owned company, Urbana 2000. Under the contract,the equipment was to remain state property (throughELISAL),but would be made available to Urbana 2000.Urbana 2000 contracted out equipment maintenanceto a German company (Nehlsen), but the contractdid not require or make provision for Urbana 2000to replace equipment or make any other form ofinvestment.

In short, the Urbana 2000 arrangement was a rudi-mentary management contract, not a performance-based one. The contract ran initially for three years,but has subsequently been renewed twice. It lapsed inSeptember 2002, pending new concession proposalsbeing agreed, and is currently being continued on anad hoc basis.

Performance of Urbana 2000Since it was contracted in 1997,Urbana 2000 has had asignificant initial impact, increasing solid waste collec-tion from 869 cubic meters per day in August 1997 toabout 3,500 cubic meters per day in 2001.At that time,


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daily garbage generation is estimated to have beenaround 2,600 cubic meters per day, so Urbana 2000 wasbeginning to make inroads into the accumulated back-log. However, as the contract progressed, the volume ofrubbish generation rose rapidly, for example, to an esti-mated 3,400 cubic meters per day by 2001, while thecompany’s ability to remove rubbish declined sharply.

With no investment in the already aging fleet oftrucks, dumpers, tractors, and other equipment, whichUrbana 2000 took over in 1997 from ELISAL,by 2002only 50 to 60 percent were reported to be still in oper-ation. With growth in traffic, the city also becamemuch less accessible over the years, forcing Urbana2000 as early as 1998 to abandon daytime shifts in favorof working mainly at night.The company also experi-enced financial difficulties; in January 2002, for exam-ple, the provincial government was one year behindin payments to Urbana 2000, with a debt of over US$10 million.26

Future contractual arrangements must involve amechanism to ensure that there is adequate invest-ment in equipment and containers, keeping pace with

growth in the city, and protection for operators fromthe risk of late payments by the provincial government.The contracts and associated arrangements (with com-munities and local enterprises) also need to ensure thata more comprehensive removal of rubbish is achieved.Urbana 2000 is only required to locate and empty skipsinto which residents place their solid waste.The rubbisharound the skips is not collected by Urbana 2000, sothat the superficial impression even in the formal part isof a city inundated with refuse. The city’s pavementsand roads are in poor condition,so there are plenty of in-dentations,which attract filthy wastewater and rubbish.The main stormwater drains,which are open canals, arealso clogged with garbage. These feed into the sewersystem, which ultimately discharges into the sea.

Even if Urbana 2000 had had adequate equipmentat its disposal, other constraints it has encountered havemade clear that a satisfactory solution to solid waste inLuanda must involve the participation of the communi-ties,particularly in the inaccessible musseques.To obtaina better understanding of the problems and the pos-sible role of communities in formulating solutions, the


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Table 5.1 PPI Constraints in Water and Sanitation

Constraint Area Comments

Data/studies Luanda: Major gaps in both technical & financial information (e.g., information on Sistemas I & II and sewerage networkis poor; no balance sheet and proper financial statements for EPAL).

Other urban centers: Seven cities soon to have completed master plans with another nine to follow; scant or patchyinformation about water and sanitation in other urban areas.

All urban centers: High levels of water that is unaccounted for, poor maintenance, high rehabilitation costs, andsignificant underinvestment.

Rural areas: Inadequate information on service coverage and conditions

Legal and New Water Law is not license- or concession-friendly; regulations are yet to be published.regulatory Delegation of water tariff-setting to provincial governors has not resulted in higher, cost-reflective tariffs.framework No commitment at present to establishing a professional regulator independent of policymakers to be responsible for

setting tariffs and adherence to standards (for customer service, environmental sustainability, and so on).

Tariffs and revenues Piped water is heavily subsidized. Revenue deficiencies arise from low tariffs, inadequate billing, and poor collection rates.There are no sewerage charges in the main urban centers with conventional waterborne sewerage systems.In peri-urban areas, people forced to buy water from the informal private market at prices that are 30 to 60 times

higher than the piped water tariffs. Even people receiving water from communal facilities (such as the chafarizes inLuanda) pay more for water than consumers with piped house connections (24 kz vs. 18 kz per cubic meter).

Contract structure Luanda: Most advanced proposal is for flexible, phased 15-year contract with a private operator—if revived, safeguardsneed to be put in place at the start to prevent undue incumbent advantage in subsequent negotiations.

Other urban centers: Limited experience to date of management contracts. Contracts with private operators to supplyservices across various sectors, including water, would require very careful formulation.

Financial standing EPAL and other urban water utilities need to reduce financial losses and improve revenue collection.Tariff revenues plus subsidies (with some mechanism to assure adequate and timely payment) should be sufficient to

attract financing of new investments.The government should grant more financial autonomy to municipal utility enterprises, including more capital investment

to start the process of network rehabilitation.

Political commitment The government should give a firm lead in implementing key components of the Water and Sanitation Sector Strategy,including commitment to cost recovery tariffs (including capital costs) and private sector participation.


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Provincial Government of Luanda commissioned astudy that was carried out during 2002.

Some of the main study findings are summarized inbox 5.4, above.As in the issue of access to water in thecenter and the peri-urban areas, the solid waste studyhighlights further inequities within Luanda:• The formal part of Luanda is well served by garbage

containers, the roads are all accessible to collection

vehicles, and residents do not have to make anydirect payment for rubbish collection.

• The musseques are presently poorly served byUrbana 2000—the future solution that is envisagedwould be a great improvement, but would requireresidents to pay for what would still be a much lowerservice level.To achieve greater equity within the city would re-

quire establishing a system of property-based taxation.This should include a rates element to provide a basicrevenue level for the Provincial Government, as well asa specific rubbish collection charge. As no such systempresently exists, it will be an enormous exercise. Ini-tially, it is the residents of the formal part of the city whoshould be targeted, as they should be making a specificfinancial contribution to cover the far superior servicesthey enjoy.

Options for the FutureThe report summarized in box 5.4 analyzes the prosand cons of a number of options for institutional re-sponsibility for solid waste collection and removal.Thefive options considered are:1. Continue with Urbana 2000 covering the whole

city;2. Establish area concessions with different private

operators in each area;3. The nine local municipalities within Luanda assume

responsibility for solid waste;4. A large number of local private enterprises;5. Community organizations supported by coopera-

tives and NGOs.The report does not make a definitive conclusion

on which of these options should be chosen,but it doeshave some overarching recommendations, namely that:• There should be standardization on the skips used

for bulk collection and transport and a standard setfor their accessibility (proposal is 12 cubic metercontainers adapted by Urbana 2000 for ease of accessby children, placed at intervals of 200 to 500 meterson main roads);

• Locally available labor (probably organized in localenterprises paid for by residents) should be involvedin transporting garbage from all those parts ofthe musseques, which are inaccessible to collectionvehicles, to the 12 cubic meter containers on themain roads;

Box 5.4 Community Involvement in Solid WasteManagement in Luanda

During 2002, a team of consultants conducted a study on com-munity involvement in solid waste management in the suburbs ofLuanda.The report (referenced below) summarizes available in-formation about the demography and socioeconomic status ofthe residents of Luanda and presents the results of a survey of362 households conducted in Cazenga and of a focus group dis-cussion held with community leaders. It also analyzes the per-formance of Urbana 2000 and of two NGO projects establishedto assist in rubbish collection and removal. The main reportfindings are that:• There is an acute awareness among residents of the problem

of solid waste accumulation and the health dangers thisposes (compounded by the lack of stormwater drainage);

• The areas around and between peoples’ houses are keptclean and tidy—garbage accumulates once it reaches a col-lection point that is not adequately served by Urbana 2000;

• People are willing to participate in the costs of solid wasteremoval (to the extent of 20 kz to 50 kz per household permonth), provided they are involved in defining, monitoring,and refining the way that this is done;

• Local private initiative and the widespread availability oflabor should be channeled into solving the problems of solidwaste in the city; and

• Another essential ingredient of any solution is the need togreatly increase the amount of heavy equipment available forbulk collection and removal, together with the capacity ofcontainers available to the public (in 2000, installed containercapacity was around 4,400 cubic meters, as compared with aminimum requirement of 7,000 cubic meters,most of the de-ficiency being in the peri-urban areas of the city).

The report’s main recommendation is that solid waste bulk col-lection and removal should be the responsibility of one or moreformal private sector operators, while delivery of rubbish fromhomesteads to the bulk skips should be handled by small-scalelocal enterprises, paid for by local residents.

Source: AgriPro Ambiente e Profabril Programa de GestãoComunitária de Resíduos Sólidos dos Bairros Suburbanos deLuanda, November 2002.

• The willingness of the population to separategarbage to facilitate recycling should be exploited,starting with a pilot project to investigate the viabil-ity of recycling aluminum beverage cans.In early 2003, Brazilian consultants completed a

complementary report,“Reestruturacão do Sistema deLimpeza Publica na Provincia de Luanda.” The reportexamined a number of options, including: a state-operated entity;concessions operated by private compa-nies; and a mixed public-private enterprise.The recom-mended solution favors ELISAL as the main concessionholder for solid waste services with the authority tosign subcontracts with private sector operators that, inturn, would be selected through a competitive biddingprocess.The following general structure is envisaged:• Provincial regulator for solid waste;• Provincial supervision unit for solid waste;• ELISAL to hold the main concession for solid waste

services in Luanda and be responsible for the mainassets and equipment, which would be leased to thesubcontractors;

• Solid waste collection—five private sector subcon-tracts in five designated areas of the city, includingthe peri-urban areas;

• Landfill site(s) to be managed and operated by a pri-vate subcontractor;

• Hospital and other clinical wastes—a private sub-contractor to collect and dispose of hospital andother clinical wastes. It is assumed that this will besupported by the construction of an incinerator;

• Sewerage and drainage system—a private subcon-tract to manage and operate the sewerage anddrainage system in the formal area of the city;

• Industrial solid waste (including solid waste from theport and airport)—a private subcontract to collectand dispose of industrial solid waste.It is reported that the Provincial Government favors

the structure outlined above, because it will introducemore competition,attract moreAngolan companies be-cause of the smaller size of the subcontracts,and providean improved service throughout the city. However, theproposed structure is quite complicated and cumber-some and will require strong leadership by the regulatorand the supervision unit if it is to operate with reason-able efficiency. In addition, in the longer term, it wouldbe more appropriate for the water utility company totake responsibility for the waterborne sewerage system.

PPI Constraints—Solid Waste CollectionSince a private sector operator has been responsible forsolid waste collection in Luanda for the past five years,there is less concern than in other sectors about some ofthe general categories of PPI constraints that the CFRhas identified. For example, unlike in other infrastruc-ture areas, there is a wealth of information availablefrom recent studies.There is also more experience onthe required legal framework and political commitmentto private sector participation.

The main constraint or risk from a private operatorviewpoint relates to assurances about payments. Untilproperty-based local taxes or service charges are estab-lished, there will be no direct payments by the benefici-aries of the solid waste, sewerage, and stormwater ser-vices. It is understood that the Provincial Governmentwill continue to pay the private contractors for theirservices.This presents a major risk for private compa-nies, because late payments will cause severe cash flowproblems and a decline in service provision, as experi-enced recently by Urbana 2000.The risk of late pay-ments could be considerably reduced by adequate let-ters of credit being established in favor of private sectoroperators.

It would be possible, however, for the concession-aires to make contractual arrangements with particularcustomers that generate large amounts of solid waste.Servicing such commercial customers should not be tothe detriment of the mass of the population.The con-tracts should contain specific performance require-ments on which payments will be based (availability ofskips, regularity of collections, metric tons of garbagemoved, and so on), but should also require accountabil-ity to Luanda’s citizens and to the local initiativeenterprises responsible for moving the garbage fromhomesteads to the bulk skips.At a minimum,this shouldinvolve the formation of joint citizen-government-operator monitoring committees in each concessionarea. Regular reports should be published in the news-papers and public report-back meetings held.


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Notes

1. Ministério da Energia e Águas, Estratégia de Desenvolvimentodo Sector das Águas, November 2002; at the time of writing stillawaiting formal approval by the Council of Ministers.2. Law 13/94, recently revised and published as Law 5/02 on16 April 2002.

3. Law 6/02, 21 June 2002.4. Executive Decree 27/98, 22 May 1998.5. Water rights falls under the ambit of waterresource management, whereas a license orconcession will encompass the financial,commercial, and contractual rights and obli-gations on a private sector operator.6. World Bank Project P000035: Lobito/Benguela Urban Environmental Rehabilita-tion Project, implemented over the period1993–1998 (PRUALB = Projecto de Reabili-tação Urbana e Ambiental de Lobito e Benguela).7. Calculations based on data in the Profab-ril and Agri-Pro Ambiente report on Com-munity Management of Solid Wastes in theSuburbs of Luanda, November 2002. Othersources have higher estimates for Luanda’spopulation (up to 4 million in 2002).8. Due to a lack of bulk metering, even im-portant global numbers like the total watersupplied to customers are not known withany accuracy. Some relatively modest invest-ments on the engineering side could greatlyimprove the information available to managethe system more effectively.9. EPAL’s contracts with customers stipulatethat water should not be passed on to thirdparties.10. This situation is especially the case inLuanda; other areas more typically have ac-cess to groundwater or boreholes.11. These calculations allow a modestamount of 6 million cubic meters p.a. fornondomestic uses in the city.12. If the peri-urban average is 5 liters, thecorresponding piped area domestic averagewould be 43 liters per capita per day.

13. For a description of development of thekiosk concept in Ouagadougou, see R.Werchota (2001), Sustainable Service Provi-sion for the Urban Poor, 27th WEDC Con-ference, Lusaka, Zambia.14. See Peter B Robinson (2002) “All forsome”: Water Inequality in Zambia andZimbabwe. In Physics and Chemistry of theEarth, 851–857.15. As part of the elaboration on water pric-ing policy, Executive Decree 27/98 (22 May1998) empowered provincial governors tostipulate prices for truck-tank suppliers orother forms of informal private providers ofwater. In Luanda, no regulatory requirementshave yet been imposed on the truck-tank op-erators. While the inordinately high waterprice to final consumers is bemoaned, thereare fears that imposing regulations could de-stroy this supply channel, thereby makingthings even worse for people in the peri-urban areas.16. Tables 2 and 3 of the Strategy docu-ment; to be consistent with the figures in theprevious section, an adjustment to the popu-lation of Luanda has been made to bring itup to 3.6 million.17. Many of these facilities have been con-structed, with a high degree of communityinvolvement, under the FAS Program (Fundode Apoio Social ).18. A slightly different, water-focused pre-sentation of the spectrum of options is avail-able in Penelope J. Brook Cowen,The Pri-vate Sector in Water and Sanitation—Howto Get Started, Public Policy for the PrivateSector Note 126, World Bank, Washington,

DC, September 1997 (also available inPortuguese).19. The largest proposed project is the US$57 million for Luanda water envisaged aspart of the World Bank’s Post-ConflictRehabilitation & Reconstruction Program.20. These public enterprise accountingprovisions are summarized in box 3.2.21. The project was not finalized or imple-mented due to Angola falling into arrearswith the Bretton Woods Institutions.22. This possible benefit of a multi-utilityenterprise presupposes that electricity pricescan be set above economic levels in order toprovide an element of cross-subsidy.23. See Appendix 2 for a fuller discussionon multi-utility regulators.24. For more detail see David Haarmeyerand Ashoka Mody,Financing Water and San-itation Projects—The Unique Risks, PublicPolicy for the Private Sector Note 151,World Bank, Washington, DC, September1998.25. The legal framework for ELISAL isDecree 26/91.This lays out the rationale forthe formation of the company and gives itsstatutes (including a detailed specification ofits structure and operations prior to themanagement contract with Urbana 2000).26. Information in this section is fromUrbana 2000 and from the consultant reportreferenced in box 5.4. The estimates of solidwaste generated are based on an assumptionof 500 grams per resident per day.To convertto tons, the average specific gravity is esti-mated at 500 grams per liter.


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The transport sector in Angola is discussed in terms ofthe four principal modes: roads and highways, railways,ports, and airports.The locations of the main facilitiesare indicated in appendix map.

Roads and Highways—Organizations

Responsibility for managing Angola’s national high-ways lies with the Instituto Nacional de Estradas deAngola (INEA, the Angola Roads National Institute).

Created by Decree 28/90, INEA is responsible forplanning and managing the primary road network, andfor the operation of a Road Fund, under the umbrellaof the Ministry of Public Works and Urbanism. INEAhas a staff of 1,300.

Decree 27/94 of July 22 enacted a Road Fund. Itwas intended to cover financing the construction,rehabilitation, and maintenance of roads and bridgeswith proceeds coming, according to Executive Decree61/95, November 24, from the State Budget, 10 per-cent of fuel taxes and customs duties, 20 percent oflubricant taxes, and 50 percent of the circulation taxand traffic fines, which are collected by MOF andconsidered quite low.

The Road Fund is not yet operational and willrequire the Board to be selected and appointed andthe Fund and its staff and offices to be established.Road user and motor vehicle charges would need tobe revised in order to put the Road Fund on a sus-tainable basis.

Financing, construction, and maintenance of re-gional roads are the responsibilities of the provincialgovernments, under INEA’s technical supervision; thisincludes procurement of services.


Roads services are not specifically mentioned in Law05/02, of Delimitation of the Sectors of EconomicActivities, that grants the opportunity for privateparticipation in the transport sector within certainlimitations.

It is not clear if the ownership of the roads networkwill be considered, in accordance with this Law, as sim-ilar to the ownership of ports and airports, which aredefined as areas of absolute state reserve and limited to thepublic sector. Neither is it clear if providing roads ser-vices would be considered as relative state reserve, andcan be conducted by corporations or entities that arenot in the public sector, but operated by the privatesector through temporary concession contracts.

Roads and Highways—Current Situation

Road NetworkMost of the existing road network was built beforeindependence in 1975.The road network is classified asset out in table 6.1 and figure 6.1.

The national roads network (Rede Fundamental), in-cluding the paved roads and 15,571 km of earth roads

Transport6


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connecting mainly provincial capitals and local roads, isunder the INEA’s direct supervision.

Much of the network has received little or nomaintenance as many roads are located in former warzones and have carried little or no traffic. Because ofthe security situation, INEA has limited knowledge ofthe true condition of many roads and of the likely re-habilitation costs. Currently, it is known that over 300bridges of varying lengths and capacities have been de-stroyed and will need to be rehabilitated or replacedwith Bailey bridges and ferries.

Sector Operating CharacteristicsDemand for road transport has been distorted by secu-rity, seasonal, and serviceability considerations. Forinstance, roads that are passable in the dry season maynot be passable during the rains because of the lack ofbridges or ferries. During the course of a year, demandmay be met by both air and road transport, at vastly dif-ferent financial and resource costs. It may be severalyears before the pattern of transport demand stabilizes.Rehabilitation priorities are likely to be determined byneeds to resettle population displaced by the war andpossibilities for improving access of agricultural pro-duction, in particular, foodstuffs, to markets.

Traffic density throughout Angola is still light and isconcentrated in Luanda.The number of light vehicles

operating in 2001 was 139,284; there were 27,843trucks and buses.

The regional concentration of road use is also re-flected in consumption of diesel and gasoline. During2001, 66 percent of the total demand of 340,000 met-ric tons was sold in the Luanda area. Interprovincialtraffic volumes are also still small.Traffic volumes alongarterial routes are still affected by security and season-ality factors, but are understood to be very low.

Road and Highway Network InvestmentIn April 2002, the GOA approved a program of emer-gency repair and reconstruction of roads. The firstphase, to be completed in the 30 months to September2004, envisages basic repairs to create the minimumconditions for traffic.The first phase is planned to costUS$ 55 million, and comprises US$ 45 million forrebuilding roads and US$ 10 million for bridges.Thesecond phase is aimed mainly at improving regionalconnections with the main roads and is budgeted tocost US$ 171 million.

Fifteen INEA brigades and contractors will under-take the work.The capacity of the INEA brigades willbe improved through investment in equipment, andnine new brigades will be created.

PPI Opportunities in Roads

Road and bridge rehabilitation is an early priority.With the exception of Luanda, traffic densities and vol-umes are low.Vehicle ownership and density are lowoutside urban areas. This is the sector background toPPI opportunities, which are short term (e.g., privatiz-ing road brigades) and medium term (e.g., contractroad maintenance and tolled facilities).

Privatizing Road BrigadesINEA has been studying the possibility of restructur-ing a sample of four road brigades and has evaluateddifferent alternatives for their future:• State ownership

o Maintaining the INEA brigadeso National Enterprise of Road Equipmento Provincial Enterprises of Road Equipment

• Private operationso Joint ventureo Private enterprise

Table 6.1 Road Network by Type

Paved Gravel Earth Total

Length (km) 7,777 28,018 36,528 72,323Percent 11 38 51 100Source: INEA.

Figure 6.1 Road Network in Angola (km)

Paved7.777

Gravel28.018

Earth36.528

Source: INEA.

INEA is willing to implement the last option, i.e.,private ownership of the road brigades, through thetransfer of workers and the selling of brigade assets toprivate operators.This option is seen as bringing bettermanagement, efficiency, and additional financial capa-bilities, compared with maintaining the assets and theoperations within state ownership, even under a cor-porate organization.

A further solution could be to privatize thebrigades through the provision of national and regionalrehabilitation and maintenance contracts, permittingthe brigades to acquire the equipment and so increasethe number of road management operators in Angola.To pursue the privatization of INEA brigades further,valuations must be completed and the privatizationmethodology and timing defined. International expe-rience of creating brigades and private provincial orinterprovincial pools of equipment could also beconsidered (for at least part of the equipment), to beused by different private operators, particularly smalleroperators.

INEA recently invited private operators to supplymanagement services to the Provincial Brigades ofZaire, Uige, Malange, Kwanza Sul, Benguela, Huambo,Bié, Moxico, Lunda Sul, and Kuando Kubango. Fivecompanies bid in this tender, 18 having purchased thebidding documents. In support of this approach, an-other recent study on the privatization of four INEAbrigades (Huila, Lunda, Kwanza Sul, and Cabinda),found four private contractors operating in theseprovinces, two of them operating nationwide and twoonly locally.

Besides the main rehabilitation works that maybe started under the Emergency Program for 2003and 2004, provincial road maintenance enterprisesmay soon assume an important role, ensuringimproved road conditions. This constitutes a fur-ther opportunity for national entrepreneurs andsmaller public works companies to develop theiractivities.

There are a number of private contractors inAngola that are able and willing to carry out road andbridge rehabilitation, particularly participating in ten-dering for provincial brigades. Recently in a tenderon a cross road bridge in Luanda, 11 contractors, bothnational and foreign, presented bids, 18 having pur-chased the bidding documents.

Toll-Funded ImprovementsInternational experience shows that rehabilitation,construction, and operation of new and replacementbridges and road structures—tunnels and so on—canbe financed by tolls levied on users. However, financialfeasibility depends critically on traffic volumes, users’willingness to pay, and the opportunities for avoidingtolled facilities. No opportunities have so far beenidentified in Angola, considering, in particular, the factthat traffic levels are not well established, due to thepoor condition of roads. Even if tolls were introducedin the bridge over the Kwanza river (on the Luanda-Benguela road), under a concession contract, and Lebaclimbing on the Lubango-Namibe road, collected di-rectly by MOF, the current small traffic volumes areunlikely to make toll roads profitable for private oper-ations. However, maintenance contracts with privatecompanies on the basis of shadow tolls according totraffic volume or performance-based contracts for cer-tain main roads, may also be an option.

Shadow tolls are payments that are made by thegovernment to the operator of a road rather than beingcollected from the road user. Shadow tolls do not affectdemand but are a way of paying the operator for theactual usage.

Performance contracts guarantee certain paymentsto the contractor based on keeping the road parame-ters, like possible speed or number and size of potholesper km, within established limits.

The viability of this approach depends on a govern-ment capable of paying them and providing adequaterevenue to the operator.Maintenance and rehabilitationcontracts based on shadow tolls or performance-basedcontracts are a potential way of attracting privatefinancing and improving the state of maintenance onpublic roads.

Under such contracts, most short-term investmentis the contractor’s responsibility. His task is to financethe road’s rehabilitation and assure its maintenance.During contracted years, the state’s obligations are topay a fee based on the number of vehicles using theroad and the maintenance of a preestablished standardof road quality.

The benefits include lower road investment costthan available under traditional construction as the op-erators seek the lowest construction, rehabilitation, ormaintenance costs, thus improving the efficiency of the

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whole system and avoiding the high costs of currentcontracts. Delays in execution tend to be minimized asoperators also minimize construction times to start thepayment of toll fees.

Shadow tolls contracts can be viable in situationswhere traffic levels are too low to support real tollroads. However, private sector acceptance requiresconfidence in the state’s ability to maintain regularpayment.

PPI Barriers in Roads and Highways

At present, financing road rehabilitation and mainte-nance is directly dependent on the state budget as theRoad Fund is not yet in operation. Gasoline and dieselprices are heavily state-subsidized, and there is no col-lection of fuel consumption taxes from road users.Until the road user charges are reviewed, the RoadFund will be unable to serve its intended purpose tofund road rehabilitation and maintenance.

A February 2000 report on Strengthening the Institu-tional Capacity of the Ministry of Transport recommendedthat income from road users must cover maintenancecosts in a first phase and should contribute to rehabili-tation costs in a second phase.A review of Road Fundrevenue sources and allocation mechanisms will benecessary for PPI in road network rehabilitation andmaintenance to be put on a sustainable basis.

Funds generated by road users should be definedsoon, as users must be the main payers for road rehabil-itation and maintenance. For this purpose, subsidizedfuel prices should end and be replaced by prices in-cluding significant taxes that will be mainly used onroads.

Independent management and financial autonomyof the Road Fund from INEA is a fundamental re-quirement to assure regular payment to contractorsboth on works and on any kind of rebuilding andmaintenance agreements.

Under discussion are proposals of new legislation,made by INEA, defining a new approach to the pro-ceeds and management of the Road Fund.

INEA is proposing a strong increase, particularly infuel and circulation taxes, with all proceeds revertingdirectly to the Road Fund.

In March 2003, for instance, the price of gasolinewas around US$ 0.17, while the price in the interna-tional bulk market was over US$ 0.25. In the region(South Africa and Mozambique), the price of gasolineis more than US$ 0.50.

Considering that the estimated consumption ofgasoline and diesel by vehicles is around 336,000 met-ric tons (respectively, 83 percent of 150,100 metrictons of gasoline and 36 percent of 588,200 metric tonsof diesel sold in 2001), an estimation can be madeabout the proceeds that could be generated by taxes onfuel similar to taxes charged in neighboring countries.Each 10 cents of US$ taxed per liter consumed ofgasoline and diesel used by motor vehicles would gen-erate an annual revenue of more than US$ 30 million.

The Road Fund is proposed to have an indepen-dent management with the participation of differentstakeholders, constituting the main source of revenuesto INEA.

During the second phase of the emergencyprogram, the GOA is expecting to contract out furtherrepairs of the highway and crossings network. INEAwill assume the role of executing agency and contractmanager, and private contractors will conduct mainte-nance and construction.

A principal obstacle at present to private sector par-ticipation in the road sector relates to the government’scredit rating among private contractors.Risk of defaulton payments has led to suspicions by contractors of thestate’s capacity to honor financial commitments. Afirm commitment from the government and INEAto honor financial undertakings on time could lowerrehabilitation costs as operators tend to inflate prices tocompensate for these avoidable financial risks.

In the case of shadow tolls contracts, the privatesector’s confidence in the capacity of the state to honorits commitments is very important as contracts canstretch up to 30 years.The private sector and its finan-ciers will not attempt to mobilize the huge financialcommitment if they distrust government’s ability tohonor the terms of the contract, especially payment.

The process by which the private sector bids tobuild own (operate) and transfer a road or bridge iscritically dependent on the revenues likely to be gener-ated. In crude terms this is the volume of traffic multi-plied by the charges collected.A minimum volume of


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Transport

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Box 6.1 Private Sector Involvement in RoadMaintenance and Construction inMozambique

In Mozambique, donor support to the transport sector has ledto major improvements in the road network’s condition. Underseveral recent loans for about US$ 260 million,over 3,800 km ofprimary, secondary, and tertiary roads were rehabilitated, 2,000km of roads have received periodic maintenance, and about14,000 km of roads are benefiting from routine maintenance.The loans have also brought about significant progress in institu-tional strengthening and capacity-building programs.

The program’s overall purpose is to stimulate economicgrowth and contribute to poverty reduction through improvedroad infrastructure, better sector policy, and enhanced roadssector management.With large donor support, a sound frame-work has been set with good procurement practices and finan-cial commitments by the state that has facilitated strong andvery competitive private participation in the road sector.

Ten provincial road maintenance state enterprises weretransformed into six share companies, jointly owned by theworkers (20 percent) and the state (80 percent), three for roadmaintenance and construction and another three for rentingequipment.These companies now compete with other privatecompanies for road maintenance and construction.

The rationale for private participation was to improve effi-ciency and quality of services offered, to attract private invest-ments, and to open the participation of private local partners inthe share capital of new businesses. State shares will be soldprogressively, as the local private sector becomes able to tenderfor these new companies.

Creating enterprises to rent heavy road equipment wasto allow smaller local operators to be involved in larger roadworks at a lower investment cost.

20,000 vehicles per day paying US$ 0.05 per km wouldtake 12 years to repay a credit costing US$ 2 million.Rehabilitation of existing roads is less expensive andrequires a lower capital cost and so can be feasible atlower volumes and lower charges. Future developmentwill depend on the growth of traffic volumes towardsthese minimum levels and users’ willingness to pay,which at this point are completely unknown.

Finally, it must be emphasized that pursuing bestprocurement practices, along with timely allocation offunds, will interest private parties in supplying mainte-nance and rehabilitation services, creating competitionbetween existent and new operators, with relevantbenefits for the state in terms of costs.An example of asuccessful program in Mozambique is given in box 6.1.

The most important obstacle, however, to PPIdevelopment in the transport sector,and roads in partic-ular, is the poor knowledge of the demand for services interms of the traffic volumes and composition. Currentdata relate to road traffic in 1970, before independence.

Civil war, lack of maintenance, changes in eco-nomic activity, and population movements havecompletely changed the pattern of supply and demand.The greatest medium-term contribution to PPI in theroad sector would be undertaking a national transportstudy that identified priority corridors, economicallyefficient transport modes, and the quantification andallocation of government support to each for the pur-poses of introducing PPI.

Finally, there is no clear legal framework concern-ing private sector involvement in roads. It is importantto create a legal framework that defines concessionconditions for the introduction and management offuture PPI opportunities and clearly states the owner-ship of the infrastructure, concession periods, and basisfor fees, bidding, and award procedures.

Railways—Sector Structure and KeyOrganizations

The National Directorate of Land Transport (DirecçãoNacional dosTransportesTerrestres),under the umbrellaof the Ministry of Transport, is responsible for railwaysupervision and regulation. Three railway enterprisesfall under the umbrella of the Ministry of Transport andare responsible for the whole management activity.


In accordance with Law 5/02, on Delimitation ofEconomic Activities, rail transport is relative state reserveand can be carried out by non-state corporations orentities through temporary concession contracts. TheCabinet prepares regulations for concessions of railwayservices for approval.

Law 5/02 doesn’t mention expressly rail infrastruc-ture, current interpretation of rail transport referringmostly to rail operations services.

However, recently, the National Assembly approvedthe Base Law of Surface Transports that states the rail


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national network as state public domain, including themain and the complimentary network.

According to this new Law:• Building, maintenance, and inspection of rail infra-

structure, included in the national network, may bedone by the state or other entities under conces-sion, delegation, or contracting of works.

• Operations of transport for the whole or part of therail national network constitute a public service tobe assured under concession, delegation, or con-tracting of services.

• Tariffs must consider the concessionaire productioncosts and the situation of the transport market, thestate granting compensations for imposed socialtariffs that don’t cover production costs.

Railways—Current Situation

The Luanda RailwayEmpresa de Caminhos de Ferro de Luanda (CFL), astate enterprise, operates the Luanda Railway. In 2001,it employed around 800 staff and carried 754,000 pas-sengers and 51,265 metric tons of cargo, continuing atrend of decline in services.1 In 1986, CFL “carried 1.7million passengers, (about 40 percent of its 1978 level),and 21,000 (metric) tons of cargo, well down from the1985 figure of 63,000 (metric) tons.”

The service from Luanda to Dondo (181 km) andMalange (424 km) stopped before the end of 2001,dueto war and floods. The main operations are currentlythe passenger services between Luanda (Musseque)and suburban areas out as far as Viana (35 km); recentlya service of four trains per week started from Luandato Dondo (180 km).

The rail link with the port of Luanda is notcurrently operational.This contributes significantly tovehicular congestion in the downtown area ofLuanda. CFL’s terminal facilities and shunting yards inLuanda cover many hectares of developable land andconstitute a major asset that might be used to financethe reestablishment of the port evacuation railservices.

Not surprisingly, CFL is not covering its opera-tional costs. In 2001, its (unaudited) losses are under-stood to have reached more than kwanza 12 million.

The Benguela RailwayThe Benguela Railway—Companhia de Caminho deFerro de Benguela, SARL (CFB), was Belgian-ownedthrough a 99-year concession that expired in 2001. Itis now formally state-owned. It has a total length of1,340 km.The line starts from the port of Lobito, trav-els south to Benguela, then eastwards via Huambo(where the engine sheds are located), to Luau on theDemocratic Republic of Congo border.Very little isserviceable. The Benguela Railway played an impor-tant role for the carriage of exports and imports to in-land countries and Angola’s central region during thethird quarter of the 20th century.

Past damage to structures and permanent way andthe continuing security problem have closed the inter-national mineral and national freight traffic businessto the central inland region of Huambo and Bié. Atpresent, CFB operates four trains a day only on theBenguela to Lobito link (30 km), transporting mostlypassengers (1.9 million in 2000), moves cargo only inthe port of Lobito area (26,774 metric tons in 2000),and recently started the operation between Stª Iria,Huambo,and Caala (96 km). Its revenues (based on cur-rent fares of 5 kz per passenger in the Lobito Benguelaline), do not cover its operating costs. Unaudited lossesamounted to kwanza 19.848 million in 2000.

The Moçamedes RailwayThe Moçamedes railway, Companhia de Caminho deFerro de Moçamedes (CFM), is a state enterprise andcomprises 987 km of track, running between Namibeand Menongue in the Cuando-Cubango province.There are two branches: Lubango-Chibia-Chiange(120 km) (now completely abandoned) and Dondo-Kassinga (110 km), also closed since the iron ore minesceased operations in 1975. The mines produced morethan 5 million metric tons a year between 1967 and 1974.

Currently, traffic is carried normally only betweenNamibe and Matala (320 km) via Lubango. CFM hasmanaged to maintain a limited passenger and cargoservice, carrying 200,000 passengers and 42,652 metrictons of cargo, during the first half of 2001.

Currently cargo freight rates are lower than that ofroad transport in ton/km. The railway plays an im-portant role in the transport of essential goods tothe Lubango plateau and of agricultural and quarry

products (granites and marbles) to the coast.The rail-way manages this with seven locomotives, 13 carriages,and 586 wagons. Its (unaudited) income is understoodto roughly cover its daily operating costs.

CFM employs around 1,396 staff. As with otherrailways, it is experiencing a severe lack of trained per-sonnel in all professional categories.

Rolling StockThe low percentage of rolling stock and motive powerthat are serviceable is shown in table 6.2. In many cases,the proportion of available rolling stock is likely to beoverestimated.

Railway Operating PerformanceRecent operational and financial performance of thethree railways is set out in table 6.3, below.

The three railway companies either do not coveror just cover their operating costs. Losses for Luandain 2001 were approximately 13 million kwanza forLuanda and 43 million kwanza for Benguela, and 2 mil-lion kwanza for Moçamedes in the first half of 2001. In2001, Benguela also received a government grant ofapproximately 52 million kwanza.

State subsidies have covered operational losses.Ac-cording to former agreements with the government,tariff increases should occur every three months.Long-distance tariffs are not controlled, which per-mits the companies to increase fares when needed.Suburban tariffs are controlled and subject to authori-zation from the Ministry of Finance. On the Lobito–Benguela line, the train tariff is 5 kwanza (US$ 0.1)while the bus tariff for the same distance is around 30kwanza (US$ 0.60).

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Table 6.2 Rail Rolling Stock by Company

Luanda Benguela Moçamedes Total

LocomotivesExisting 19 126 25 170Available 4 9 13 26

CarriagesExisting 85 39 25 149Available 4 13 13 30

WagonsExisting 580 2,128 883 3,591Available 261 750 586 1,597

Source: Direcção Nacional dos Transportes Terrestres–Departamento dos Transportes Ferroviários.

Table 6.3 Operating and Financial Data by Rail Company

Moçamedes

Luanda 2001 Benguela 2001 First half 2001

OperationsCargo (tons) 51,265 32,936 42,652

Cargo (1,000 tons/km) 5,787 9,383Passengers 754,319 2,403,705 201,588

1,000 Passengers/km 26,901 18,738Number of trains 2,829 5,026 513

FinancialSales (1,000 kz) 26,436 13,854 29,340Net costs (1,000 kz) 39,072 �57,013 27,115Profit/Loss (1,000 kz) �12,636 �43,159 2,225

EmploymentEmployees 799 1,840 1,396

Source: Company reports.

The government has not given regular authoriza-tion of price increases, especially on suburban lines.Asa result, revenues remain well below operating costs.

This has resulted in increasingly difficult financialconditions for the railway companies. As the long-distance operations of the Benguela and Luanda railwaycompanies have almost stopped, the railways dependincreasingly on the suburban traffic at low tariffs andcontinue to lose ground, operationally and financially.

Investment Requirements in Railways Infrastructure and OperationsThere are enormous investment requirements in thethree rail systems. Not only does the network re-quire substantial rehabilitation as a result of prolongeddisuse and war damage, but also rolling stock and mo-tive power in many cases have exceeded their eco-nomic life.

There are similar constraints within the three rail-way systems. First, large sections of the network arenow unusable due to damaged bridges and minedtrack. Second, large amounts of credit and technical as-sistance will be required to help maintain locomotives,upgrade rolling stock, and check electrical equipment.Third, there is lack of spare parts and special suppliessuch as lubricants that has resulted in low utilizationpatterns as equipment awaits repair and the prematurescrapping of locomotives and rolling stock. Finally,track infrastructure is weak and many stations andsupply points have been abandoned.

Short-term investment programs can be devised forall systems, though they are challenging because theyare multifaceted. Even modest programs require engi-neering, management, technical, and planning inputs,which need careful coordination and synthesis. Allthese skills and the experience to execute these tasksare in critically short supply in Angola.

Within the scope of the Emergency Program (subse-quent to the 2002 peace agreement) for the Repairing ofRoads, Railways and other Infrastructures, the Councilof Ministers Permanent Commission, during its 2ndExtraordinary Session of July 8, 2003, approved the“Program of Rehabilitation of Angola’s Railways”(“Expeditious Rehabilitation”). This program aims atthe recovery of Luanda’s railways tracks, between Zenzaand Lucala (150 km), of the Moçamedes Railway inthe trunks, Namibe–Lubango–Matala (424 km), as well

as the Benguela Railway, from Lobito to Luau(1,273 km),to be undertaken within a 24-month period.

The rehabilitation works of these 1,847 km in-cludes the removal of mines, reconstruction and repair-ing of bridges (Luinha, Lucala, Bero, Giraúl, Cubal,Catumbela, and so on), and the acquisition of rollingstock material and other equipment.The work is beingconducted by the railway enterprises themselves andsubcontractors in agreement with the establishedprogram.

The works should allow the start of transport ofbulk cargo (mainly fuel) between the ports and distri-bution centers in the hinterland and operation of lim-ited passenger service.

The government has concluded the negotiationprocess with the Chinese Government for the openingof a credit line of US$ 90 million, which is destinedfor the reconstruction of the railway trunk Bungo-Musseques-Baia (in Luanda’s Railway) and the railwaynetwork inside Luanda’s Port.

A rail and road integrated project is now beingdeveloped with a French company for the Lobito-Benguela connection, including the complete rehabil-itation of the rail line.

Even if, in the short term, the private involvementin rail should be restricted to some rehabilitation worksby contractors, this investment may keep the railwaysin operation until the concessioning process to privateoperators is carried through, which is indicated for2005. The GOA is seeking international private andinstitutional financial support to proceed with thesedifferent projects.

PPI Opportunities in Railways

The Angolan railway network is a large one and hasplayed an important economic role in the past. In theexpectation of substantial public investment in therailways, private parties have shown an interest in re-equipping and operating the three lines, albeit withsubstantial government support.

Because of the past security situation, the use of railtransport, and particularly passenger traffic, has beenimportant for people of the railway hinterlands. Expe-rience in other Sub-Saharan African countries showsthat the improvement of roads and the consequentialcompetition will challenge rail transportation in the


82

future. Railway transport, albeit socially priced, couldcontinue to play a role among low-income popula-tions. Railways (with subsidies) can play an importantrole in terms of the economic activity in the regionand serve as an alternative to more expensive roadtransport in the movement of goods and people.

The government plans to offer rail services to theprivate sector under concession contracts in themedium term. In the short term, private involvementin rail will be restricted to some rehabilitation worksby contractors. The Directorate of Land Transport isconfident that this investment should keep the railwaysin operation until the concessions are offered later.

The concessioning of rail operations may start onsuburban lines like the Luanda–Viana–Cacuaco andBenguela–Lobito rail lines, supported by subsidizedpricing. For the Luanda region in particular, suburbanrail transport may assume an important role for movingpeople in a city already overcrowded with privatemotor vehicles.

The government believes the long-distance lines—Luanda–Malange (supporting the whole diamond ac-tivity), the Lobito–Benguela–Huambo–Kuito corridor(supporting all the Central region reconstruction anddevelopment), and the Moçamedes line—are able toattract PPI in the medium term. Further studies arefundamental. Private sector participation will dependcritically on the terms of entry.

A study (Angoferro) aiming at phased rehabilitationof the present rail lines and its development, consider-ing the interconnections with the hinterland countriesand between the three east–west national lines, consti-tutes an important framework for PPI involvement inrail services in Angola.

PPI Barriers in Railways

Railways contributed enormously to the early settle-ment and development of many southern Africancountries. Originally virtual monopolies, railways wereable to carry huge volumes of primary production,pas-senger, and commercial freight long distances at lowcosts. Railways are suitable for the carriage of low-value, high-volume traffic over long distances—hencetheir use in movement of bulk materials.Railways tendto cross-subsidize loss-making passenger traffic withprofitable goods traffic.At present, there is virtually no

goods traffic in Angola, the operational network is afraction of the actual network, and there is more com-petition for the available traffic.

Railways were typically constructed when therewas no competition from road or air transport. Theexistence of rail access facilitated the exploitation of anumber of primary industry activities—growing sugar,coffee, and cotton and mining iron ore and other min-erals. War, capital flight, and the emigration of manyof the managers of these industries together with thegrowth of other sources of supply in more stable (andmore competitive) environments are all factors (in ad-dition to the new modal competition) that will need tobe taken into account in estimating future rail trans-port demand in Angola.

Not only is present traffic a fraction of the prewarlevels,but also the rehabilitation costs of the railways areenormous. Destruction of part of the network, longperiods of disuse, and obsolete rolling stock and motivepower imply huge costs to rehabilitate railways withoutthe assurance of the old traffic and the comfort of anynewly identified traffic.Even railways in EastAfrica thatare currently in use and have established revenues andtraffic are experiencing difficulties in attracting PPI.

The development of road and air transport, the im-provements in road vehicle technology, the competi-tion in world commodity prices (which has altered thepatterns of trade and demand in some goods), togetherwith the declining investment (and hence reliability) ofrail services, have all weakened the attractiveness andviability of some rail links. Major capital and opera-tional commitments to the railways need to be consid-ered in the context of the economics and prices oftransport services offered by competing modes.

Recent PPI experience in the southern Africa railsector shows that it is not easy to introduce. Networkcosts frequently remain for the government’s account;liabilities of existing public rail companies often in-clude substantial redundancy, pension, and retrainingobligations that require financing as a precondition ofPPI involvement; overseas operators are reluctant tocommit substantial funds on capital expenses for infra-structure or equipment and then seek early renegotia-tions of obligations. Finally, PPI in railways frequentlyis dependent on substantial restructuring of existingstate-owned enterprises, which requires time and firmpolitical commitment to achieve.

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Considering the huge investment thought to beneeded for the three lines, including the suburbanlines—a little more than US$ 4 billion—the ap-proaches need to be viewed with caution. However,even if the renewed road and highway system capabil-ities will compete strongly with rail, rail traffic stillcould have an important role in the development ofhinterland economic activity, mainly mineral extrac-tion and agriculture. The phased GOA approach forrail rehabilitation allows a commitment of funds, bothpublic and private, according to demand needs.

Ports—Sector Structure and Key Organizations

The National Directorate of the Merchant Marine andPorts, under the umbrella of the Ministry of Transport,is responsible for the supervision and regulation of theport activity.


In accordance with Law 5/02, of Delimitation of Eco-nomic Activities, port ownership is defined as an areaof absolute state reserve, to be undertaken exclusively bythe public sector. However, provision of port services isan area of relative state reserve and can be undertaken bynon-state corporations or entities through temporaryconcession contracts. Concessions of port services areregulated by Decrees 52 and 53/97.

The Ministry of Transport formulates concessionprograms and the coordination of bidding with theport enterprises.The port authorities propose the con-cession contracts, but the final award remains with theMinistry of Transport.

Ports Sector—Current Situation

The country’s principal cargo ports are at Luanda, Lo-bito, Namibe, Soyo, and Cabinda. In the past they wereused for exporting, but today they are principally usedfor imports. Due to the large value of oil and diamondexports, the trade in other goods is predominantlyfrom imports.Together, the ports handled 4.8 millionmetric tons during 2001 (up from 3.6 million metrictons in 2000 and 3.0 million in 1999). Currently, thesefive ports trade at levels that appear to cover cash oper-ating costs.

The Luanda port comprises 2,738 meters of quaysand piers, with 17 berthing facilities, 19 warehousesof 55,500 m2, and a total land space of 792,219 m2.Depth alongside the main piers ranges from 10.5 to12.5 meters and 3.5 to 5.5 meters alongside the cabo-tage quays.The port is well protected by the large bayof Luanda.

The traffic in the Luanda port has grown from1.41 million metric tons in 1999, to 1.87 million in2000 and 2.12 in 2001 (see figure 6.2, below), of which0.25 million metric tons were exports and 1.86 metrictons were imports. The number of vessels calling atLuanda increased from 1,876 in 1999, to 1,891 in2000, and 2,598 in 2001.

The Port of Luanda, a state company, is profitable;its revenues are comprised largely of concession rentsfrom port operators. Besides the container, bulk, andgeneral cargo berths, Sonangol, the state-owned oilcompany, operates an oil terminal adjacent to theport.

Delays in the loading and unloading, customs clear-ance, and movement of cargos at the port have been apersistent problem at Angolan ports.The concessioningof commercial operations of eight terminals in Luanda10 years ago contributed to the port’s improvedperformance, reducing ship turnaround delays to anaverage of 4.4 days for international ships and 2.7 daysfor domestic trade. Notwithstanding the concessioningthat has occurred in the port of Luanda, port users andgoods owners have complained at the time andexpense of clearing goods through customs.


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Figure 6.2 Port of Luanda Performance

0

500

1000

1500

2000

2500

3000

Source: Port of Luanda.

1999 2000 2001

No. of vessels Cargo (1000 tons)

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The Port of Luanda forecast an increase of the trafficfrom 2.1 million metric tons in 2001 to 5.0 million in2006 (see figure 6.3, above).The forecast relies signifi-cantly on past trends rather than detailed estimates. Inpreparation for this growth, it has devised a US$ 150million investment plan for the next 10 years to improvethe productivity of the port and provide for the in-creased traffic. It is currently in the process of invitingtenders to construct and operate these planned facilities.

The port at Cabinda in the north of the countryhas severe operational limitations for large vessels andwill require dredging and major rehabilitation works in

berthing facilities, warehouses, and pavements. It isimportant to mention that the Port of Malongo inCabinda that CABGOC manage handles importantfreight volumes and is the main support to the oil-exporting activity for the whole offshore of Cabinda.Demand for port services is understood to be wellwithin capacity at each of the other Angolan ports.Table 6.4 presents the Angolan ports’ operating andfinancial statistics.

PPI Opportunities in Ports

More than 95 percent of Angolan imports are nowcleared through seaports. In Angola, as elsewhere (seebox 6.2), there are private sector opportunities to de-velop this trade. With the cessation of hostilities andAngola’s prospective reconstruction and economic de-velopment, the demands placed on port facilities areexpected to increase in the short term. In the longerterm, the reestablishment of the major extractive andagricultural industries may add to the demands on portfacilities, although export substitution could lead to atrend in the opposite direction.

The private sector already has played an importantrole delivering improved efficiency in the Port ofLuanda, which handles more than 70 percent of totalcargo, being the main entry point supplying the wholecountry and particularly the northern provinces.

Figure 6.3 Port of Luanda Forecasts (1,000 metric tons)

0

1000

2000

3000

4000

5000

6000

2002 2003 2004 2005 2006

Source: Port of Luanda.

Table 6.4 Operating and Financial Statistics of Angolan Ports, 2001

Luanda Lobito Namibe Soyo Cabinda Total

General Cargo (’000 metric tons) 2,120 754 151 33 38 3,096

Container Cargo (’000 metric tons) 1,225 89 43 10 9 1,376

Bulk Cereals (’000 metric tons) 79 129 91 299

Total 3,424 972 285 43 47 4,771

Vessels [(in�out)/2] 2,595 631 261 809 231 4,527Sales

(kz ’000) 382,382 190,554 62,455 23,936 33,988

Sales(US$ ’000) 9,693 4,839 1,766 607 863

Net Costs (kz ’000) 301,289 177,647 61,760 23,687 24,967

Net Costs (US$ ‘000) 7,650 4,509 1,201 601 634

Source: Ministry of Transport.


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Box 6.2 Recent Trends in Private Participation in Port Facilities

The private sector became increasingly involved in the opera-tion of common-user port facilities during the 1990s, followingpublic sector dominance of the sector since the 1940s. Between1990 and 1998, 112 port projects with private participationreached financial closure in 28 developing countries, with invest-ment commitments totaling more than US$ 9 billion.This trendis expected to continue.

The shift toward PPI has been driven by two factors:• The strong growth in world trade has led captive port users

to demand improved efficiency, reduced port user fees, andexpanded facilities from port authorities. Many public portauthorities, however, have achieved only limited success inimproving labor and other practices to increase the produc-tivity and efficiency of existing installations.

• Economies of scale in cargo shipment have led to the emer-gence of a few global players in shipping, able to control theallocation of transshipment business to strategically located,well-equipped, and efficiently managed hub ports. To staycompetitive, port authorities have to upgrade facilities. Butwith larger ships, the advance of containerization, andsophisticated cargo information systems, the investment re-quired has often gone beyond the financial and managerialcapacities of public port authorities.

Long-term concession contracts involving private operation andmanagement and significant private investment in existing publicassets have been the most common arrangements; in mostcases, land ownership has remained with the public portauthority. Private investment has fostered the rehabilitation ofterminals and the renewal of superstructure, such as cranes andyard equipment.

In most projects the new private port operators have takenon significant investment obligations for expansion and modern-ization of existing facilities (commonly buildings and equipment),assuming full commercial risks for the facilities.With few excep-tions, the public port authorities have retained obligations forinvestment in berths and breakwater facilities and maintenanceof access channels. Three-fourths of the 112 projects areoperations and management contracts with significant capitalexpenditure for existing facilities (49 projects) or greenfielddevelopment (35).

Most transactions to date have taken place in Latin Americaand East Asia. Mozambique and Kenya have awarded privatecontracts for port operations. Mozambique awarded leasecontracts for Maputo coal terminals in 1993 and containerterminals in 1996. Kenya entered into a management contractfor a container facility with an international operator in 1996that was later cancelled. But in 1998, a consortium invested inthe development of a grain and fertilizer terminal at the port ofMombasa.

The commercial operations, which began in Luanda10 years ago, are carried out by a number of specialistoperators, both private and public. They includeCabotang, Angonave, Intercomercial, Secil Maritima,Unicargas, Intertransit, SGEP, and SONILS. Some ini-tiatives have already been taken for the construction ofa new port for containers in the Cacuaco area (20 kmnorth of Luanda).This will make it possible to release90 percent of the freight currently processed throughthe Port of Luanda.

Currently under way is the reassignment of theport into four concession areas, namely, general cargo,multipurpose (including bulk), containers, and supportto oil companies. It is expected that the oil servicesterminal will remain with the incumbent operator(SONILS) and a new concession contract will be ne-gotiated with one of the present operators (Unicargas)for the multipurpose terminal. More than 10 pre-qualified bidders have shown an interest in the conces-sions for the construction and operation of the generalcargo and container terminals.

The objectives of the new PPI are focused mainlyon improving the existing infrastructure and equip-ment, extending warehouse facilities, providing moreclient-oriented services, and improving productivity.Under the new concessioning arrangements, new op-erators are understood to be required to invest aroundUS$ 83 million in new equipment and rehabilitationof facilities. Concession periods have also been rede-fined to 20 years.

The main criteria for evaluating tenders are un-derstood to be the level of tariffs, a fixed rent ele-ment, a variable rent element (according to volumesof cargo), and the scale and specification of invest-ments committed by the concessionaires. It has notbeen revealed what risk transfer is included in theconcession contract. However, it is expected that thenew phase of concessioning will be largely completedby 2005.

The government expects that the Luanda conces-sioning system could be extended to other Angolanports as and when required, such as Lobito, Namibe,Cabinda, and Soyo.

Cabinda rehabilitation is included in the programof emergency repair and reconstruction of ports andshould be carried out as a part of an agreement witha private port operator. Investment estimates for 2003

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are of US$ 6 million, to be financed by the state andthe petroleum companies involved.

In theory, commercialization or privatization ofthe port assets in addition to the private participationin port operation could attract investment and in-crease efficiency. But considering the present legalframework that limits ownership to the public domain,it does not seem that the GOA will assume the neces-sary legal adjustments to allow full privatization of portassets.

PPI Barriers in Ports

As indicated above, the private and commercial sectorsalready play an important operational role in the portof Luanda. Concessioning has already improved itsproductivity and efficiency.

According to information provided by the port ofLuanda, most of the current delays in port operationsare related to importers’ financial constraints. Importerstypically hold goods at the port warehouses until pay-ment has been made; the importer pays port fees andimport duties only after payment is received from thecustomer. These delays create shortages of warehousespace and parking space for containers. Importers’financing constraints, therefore, increase port costs andcould discourage private operations in ports.

Besides the shortage of warehouse space, related tothe congestion and delay in clearing goods, the port ofLuanda’s location in the midst of the urban area willimpose some constraints on its growth in the longterm.This may require the port authorities to adopt anew site for specialized cargos north of the present site.This may also represent a major PPI opportunity in thelonger term.

At present all goods enter and leave the port byroad because the rail link is inoperable. In commonwith many urban roads, the road is heavily traffickedand in poor condition. Once again, the redevelopmentof the rail link will have the effect of reducing thecongestion currently experienced and improving theenvironmental conditions in the immediate area.PPI in this 20 km section to Viana will probably belinked with the redevelopment of the major CFLmarshalling yards in central Luanda.Again, this currentobstacle may become an opportunity in the longerterm.

Airports—Sector Structure and KeyOrganizations

The National Directorate of Civil Aviation is the reg-ulatory body for air transport supporting the Ministryof Transport in the definition of policies, particularlyfor the use of air space and airports.

Ownership and management of most airports andcontrol of airspace are the responsibility of the NationalAirport and Air Navigation Development company(ENANA), formed in 1980. ENANA’s basic activitiesare to ensure an adequate network of airports and to pro-vide and operate the basic facilities at each airport site.

ENANA is also responsible for the provision of air-port safety services needed by the operators, especiallyradio beacons and navigational assistance. Finally, itmust maintain satisfactory and safe air traffic controlover Angolan airspace.


In accordance with Law 05/02, of Delimitation ofthe Sectors of Economic Activities, airport ownership(understood to include terminals) is defined as an areaof absolute state reserve, to be conducted exclusively bythe public sector. However, provision of airport ser-vices is a relative state reserve and can be undertaken bynon-state corporations or entities through temporaryconcession contracts.

Airports Sector—Current Situation

ENANA manages 18 airports and the air navigationservices for all the airports; seven more are under thecontrol of provincial governments, mining companiesoperate five others, and six are used by the air force.Details are set out in table 6.5.

With the exception of Luanda, most airports werebuilt in the 1960s to meet the modest aviation needsof that decade.Aircraft were slow and of medium size,the Douglas DC3 being a representative type. Sinceindependence, the rapid and persistent growth in de-mand for aviation has not been accompanied by match-ing investment in air infrastructure. Facilities generallytrail the demand for them.

Typically, runways constrain airport capacities; theyare too short, have poor geometry for modern craft,

and possess rough surfaces and weak subbases.Accord-ingly, Boeing 737s cannot operate over the full net-work and cannot use high-pressure tires for risk ofrunway damage through impact loadings. The moreexpensive low-pressure tires wear more rapidly onrough runway surfaces and consequently have shorterlives, which leads to higher operating costs.

During 2000, Luanda Airport handled 1,405,125departing passengers (362,129 international and1,038,495 domestic) and 478,305 metric tons of cargo(32,163 international and 446,142 domestic). Landingswere 25,910 (4,017 international and 21,893 domes-tic); 100 aircraft were regularly using the parking spacedesigned for 18 aircraft.

The picture painted by these statistics shows a high de-mand level for airport services.The cessation in hostilities,

with the consequent reduced dependency on air trans-port,has resulted in a fall in traffic of around 35 percent.Asimilar sized and populated southernAfrican country,in astate of peace and without the oil-based economy,wouldnot be likely to experience even these levels of traffic.However, demand for future air transport will be deter-mined by the pace at which the economy normalizes aswell as the nature of the medium-term economic devel-opment of the country and the development of compet-ing transport modes,especially roads.

The 10 provincial airports listed in table 6.6 han-dled 438,808 passengers, 138,138 metric tons of cargo,and 56,228 landings in 2000. Passenger and cargo ter-minals as well as parking space are currently recognizedas overcrowded, and even if the runways are consideredlarge enough, taxiing facilities limit the traffic.


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Table 6.5 Main Airport Network

Category Paved Earth

ENANAMain national airport LuandaSecondary national airports Benguela, Cabinda, Huambo, Lubango, LuenaRegional Airports Dundo, Kuito, Malange, M’Banza Congo, Menongue,

Namibe, Ondjiva, Saurimo, Soyo, Sumbe, UígeLocal Airports Ambriz, Andulo, Damba, Jamba,

Kangamba, Luau, NzetoPorto Amboim,Wako Kungo

Privately managed Airports Capanda Lucapa, Catoca, Gove, NzajMilitary Airports Lobito, Cabo Ledo, Ngage, Cahama,

Changongo, CatumbelaSource: ENANA.

Table 6.6 Airport Passengers and Cargo Traffic, 2000

Passengers Cargo Aircraft(No.) (Tons) (Landings)

Luanda Total 1,405,125 478,305 25,910International 362,129 32,163 4,017

Transit 4,501Domestic 1,038495 446,142 21,893

Benguela 75,887 5,962 8,287Cabinda 87,214 2,036 14,022Huambo 61,843 74,408 9,610Lubango 108,991 4,742 7,576Kuito 5,102 10,809 4,520Luena 26,264 15,011 4,688Malange 21,264 1,772 1,496Menongue 16,548 17,524 3,088Namibe 18,936 3,821 1,597Ondjiva 16,759 3,045 1,344

Total Provincial Airports 438,808 138,1358 6,228Source: ENANA.

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However, in the domestic sector, traffic inquiries toprovincial airports already showed a marked decreasein both passengers and cargo in 2002, some air compa-nies having already ceased their activity. Experiencefrom other postconflict countries, such as Mozambique,shows that with the opening of land transport facilities,domestic air transport drops dramatically.

Due to the weak security situation, passenger andcargo aircraft played an important role in supplying thehinterland areas not accessible by road or rail, withbasic consumption goods, such as food, building mate-rials, or fuel.These circumstances make traffic forecastsin peacetime very difficult.The rehabilitation of mainsurface traffic infrastructures will progressively createalternatives at lower costs.

The impact of years of conflict has been that facilitiesand management at airport sites are generally weak andsometimes inadequate. With the lack of refueling sys-tems, there are additional flight fuel loads, thus reducingpayloads. Few airports control cargo weight adequately(due to a lack of scales and trained personnel),which canresult in overloaded, dangerous takeoffs and landings.Passenger facilities of every type are poor and levels ofcomfort and security minimal.

ENANA employs over 1,400 workers. Secondarynational airports typically employ between 10 and 20ENANA staff, while other categories have frequentlyfewer than five personnel.Over half the staff is engagedin various cleaning activities, and turnover in thiscategory is high, despite the prevailing low Angolanemployment rates.

We understand that ENANA’s financial conditionis not healthy, even if the company earns a significantamount of foreign exchange from international carri-ers and currently covers its operating costs.

ENANA has prepared preliminary traffic forecasts,estimates of rehabilitation costs, and revenue projec-tions.Their program for the development of civil avia-tion facilities in six airports is US$ 45 million. Thisdoes not include a new aerial navigation system that isexpected to cost US$ 35 million. Emergency rehabili-tation costs are US$ 36 million for the airports ofLuena, Huambo, Negage, Uíge, Ondjiva, Saurimo,Kuito, Lobito, and Menongue.

According to the National Development Plan of theAirports Network, 2 million passengers for Luanda and580,000 for provincial airports are forecast by 2005.

However, traffic forecasts, particularly for domestictraffic, are difficult.With the improvement of the secu-rity situation and the rehabilitation of land infrastruc-ture, transport of passengers and goods tend to useroads and rail when they are available.

It is expected that air transport will continue to playan important, if moderated, role in Angola. Present lev-els of demand may increase in the regional and inter-continental segments, particularly for passengers, aspresent land alternatives are not directly comparable.

PPI Opportunities in Airports

PPI opportunities in airports are attractive in thoseparts of the activity that can earn foreign currency,as experience elsewhere shows (see box 6.3). Some ofLuanda Airport’s services are already concessioned toprivate operators. The airport authority has conces-sioned cleaning, security, parking, and duty-free shops;the national carrier TAAG (Linhas Aéreas de Angola),baggage handling and catering.

Despite uncertainties about traffic volumes, thegovernment is seriously considering extension of run-way facilities and rehabilitation investment and opera-tions by private investors under concessions contracts,particularly for the airports with large traffic volumes.

The GOA and ENANA are also studying the alter-native of building a new airport in Luanda, as the pres-ent airport is crowded, located in an urban area, and haslimited expansion conditions. For this project strongprivate sector participation is considered, through con-cessioning, on a BOT basis, of the different activitiesor terminals.This extension and rehabilitation will in-volve building a new taxiway, expansion of the parkingfacilities, and renovation of the passenger and cargoterminals.

Private operators (mainly mining companies) arealready operating six local airports, mostly without aformal arrangement with ENANA. Recognizing theneed for the rehabilitation of the runways and terminalareas of all provincial airports, the government is alsoconsidering the possible involvement of private in-vestors for the operations of these airports.

Concessioning Luanda will be an important experi-ence that could be used in the future,particularly for thelarger domestic airports, as an example to attract privateoperators (Huambo, Benguela, Cabinda, and Lubango).


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Angola. However, PPI is possible for the majority ofairports for profitable private operation, if their opera-tions are related directly with private economicactivities, as is the case for some mines or the Capandadam.

Airports are important transport modal inter-changes. They have many of the characteristics ofnatural monopolies with all the implications for lowefficiency and high pricing.

They have the capacity to generate substantial pri-vate rents for incumbent owners and operators pro-vided there are adequate traffic volumes. Even if inpostconflict Angola, it is likely that air traffic volumesmay decline before they start to increase again; some ofthe airports will still keep important traffic in regionalterms. Properly executed, PPI can avoid many of thecosts and delays to all the airport user groups.

Airport authorities can introduce competition forthe market in airport terminal operations by adoptingthe landlord ownership structure used in ports. Effi-ciency is achieved by bidding out well-structured con-cession contracts.

A distinction must be made between the govern-ment granting exclusive concessions or licenses (withsignificant market power) to the private sector on theone hand and government procurement of activitiesthat cannot be cost-effectively undertaken by the pub-lic sector.

The principal obstacles to the introduction of PPI inthe airports sector (to include international bidders) re-late to the degree to which the incumbent public own-ers are able and prepared to transfer responsibility to theprivate sector and the terms and conditions attached tothat transfer.The reluctance of state-owned enterprisesto transfer or cede control of the provision of servicesperceived as “public,” “essential,” or “strategic,” espe-cially in Africa, is widely recognized.

Box 6.3 Recent Trends in Private Participation in theAirport Sector

During the 1990s, private sponsors participated in projects in-volving 89 airports in 23 developing countries, with investmenttotaling US$ 5.4 billion.

Private sector participation has been spurred by the growthin air transport and airport revenues, which are denominatedlargely in foreign currency, and operational costs, mostly in localcurrency.This provides a hedge against currency risk, facilitatingproject financing.

Most projects have involved building terminal and runwayfacilities. Terminals offer potentially large “nonaeronautical”revenues.While aeronautical or traffic revenues originate frompassenger fees, aircraft landing and parking fees, and cargo andluggage handling fees, nonaeronautical revenues come fromcommercial services. Since airports have been seen as facingonly limited competition from other airports and transportmodes, traffic fees have generally been subject to price regula-tion. By contrast, nonaeronautical activities offer unregulated,often large revenue streams, which are highly attractive to pri-vate sponsors. Concession fees from these activities oftenaccrue to private airport operators. Except for projects imple-mented in Africa in the early 1990s, all airport projects involvingterminals have granted private sponsors the right to raise rev-enue by selling concessions for commercial activities (such asrestaurants, parking facilities, and duty-free shops). On average,these projects derive about half their revenue from non-aeronautical services.

Private participation in airports has been concentrated inthree regions: Latin America and the Caribbean, East Asia andthe Pacific, and Europe and Central Asia. Although publicprovision of airport facilities and services remains dominant, theprospects are strong for growth in private participation in air-ports.The steady expansion in air transport combined with therevenue security and limited competition in the sector can beexpected to continue to attract private participation in airportprojects. Several countries, notably in Latin America, haveannounced plans to carry out projects in the near future.

PPI Barriers in Airports

The government considers PPI in airport servicesunder concession contracts an important way tomobilize funds needed for airport rehabilitation in

Note

1. CFL Annual Report, 2001.

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Scope of Sector

The telecommunications sector in Angola, as in manyother countries, is at the forefront of private sector in-volvement, compared to other infrastructure sectors.Nevertheless, the sector’s liberalization has experiencedcertain difficulties and has not proceeded as fast asmight have been initially planned.The major PPI de-velopment has been the introduction of a private, com-peting mobile service provider, but the growth of con-nections has been hindered by problems, which arepartly due to the sector’s structure and partly due tothe general difficulties of investment in Angola. Amore recent development has been the issuing of fournew fixed line licenses to private operators. Concern-ing Angola Telecom privatization, the GOA has takensome actions, such as the diagnosis of the basic net-work, the study for the economic and financial restruc-turing of Angola Telecom, the recent appointment of acommittee to study the action plan to implement theincumbent’s privatization, and the preparation of a per-formance contract.

The telecommunications sector in Angola is underthe Ministério dos Correios e Telecomunicações(MCT) (Ministry of Posts and Telecommunications),set up in 1997, when the Government of Unity andNational Reconciliation (GURN) was sworn in.TheMCT deals with policies and strategies both for postand telecommunications. The CFR study covers theinfrastructure for fixed line, mobile, Internet, and datanetworks, and their interconnections. Other value-added services and postal services are not covered.

At the time of Angola’s independence (November11, 1975), the PTT ran posts and domestic telecommu-nications (local and intertoll). A Portuguese company,CPRM (Marconi), operated international telecommu-nications.The latter was nationalized in 1977 under thenew name EPTEL. In 1980, PTT was restructured intotwo separate entities: Empresa Nacional de Correios eTelégrafos (ENCT) (Post and Telegraph Company) andEmpresa Nacional de Telecomunicações (ENATEL)(Telecommunications Company). The latter operatedonly domestic telecommunications. Legislation passedin 1992 led to the formation of Angola Telecom (AT),after the merger between EPTEL and ENATEL.

AT had the monopoly of the telecommunicationsmarket (fixed and mobile) up to April 2001, whenUnitel started its mobile operation.

During 1997, the sector started the first steps of aprocess for the definition of a new telecommunicationspolicy, which ended up with the approval of theCabinet’s Permanent Commission TelecommunicationsWhite Paper (WP) in June 2001.

The liberalization process was started, aiming atmaking a clear distinction among the main sectorplayers: policymaker, regulator, and operators. Othermajor aims were AT restructuring and privatization,the establishment of the regulator INACOM, and theopening of the sector to competing private serviceproviders.

Earlier, the cabinet had passed Decree 18/97(27 March) allowing the liberalization of complemen-tary services and value-added services. The decreestated that any license, for both fixed and cellular

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complementary services, should be the outcome of apublic tender process, under the responsibility of thecabinet for the cellular and MCT for the fixed services.

Decree 18/97 was later amended by Decree 9/99(4 June), with provisions, which allowed, under specificconditions, that a license could be issued without anycompetitive bid.

Cabinet Resolution no. 12/00 (19 May) awarded acellular license to the private operator, Unitel, withoutany competition.

In 2001, the GOA authorized INACOM to opena competitive bid for the award of up to four licensesfor the provision of fixed public telecommunicationsservices, with some restrictions. Licensees shall not beallowed to operate mobile services. Five companieswere selected during the pre-qualification phase. Onlyfour submitted proposals for the qualification phaseand were finally licensed. One of the companies,Multitel, decided not to apply for the qualificationphase. However, this company is keeping a previouslicense and is competing with the four newly licensedoperators in various services and resources (radiofrequency). Such a fact does not configure a fullytransparent process.

The GOA’s economic and social program for1998–2000 includedAT privatization.This is reiterated inDecree 74/01,dated 12 October,dealing with the GOA’sprivatization policy for 2001–2005.However,anAT pri-vatization process has not yet seriously commenced.

In support of the policies defined in the whitepaper, the GOA implemented two important studies: asurvey and diagnosis of the existing basic network, andidentification of the main activities to financially re-structure AT. The GOA intended to identify the obsta-cles to a smooth development of its liberalization poli-cies posed by the limitations of the existing basicnetwork.

Meanwhile, a performance contract has been undernegotiation between AT and MCT. It will be signed byAT,MCT,and the Ministry of Finance,covering variousissues including theAT restructuring.TheAT core busi-ness should deal mainly with the basic network; all theother services are to be operated by separate entities.

It is foreseen that, between 2003 and 2004, AT willnegotiate two strategic alliances: one for mobile andanother for fixed services, and a domestic transmissionbackbone network.

Key Organizations and Sector Structure

The Ministry of Post and Telecommunications (MCT)supervises the sector at the political level. The NationalDirectorate for Telecommunications (DNT), an ex-ecutive body within MCT, assists the Minister in for-mulating the sector policies. DNT functions and re-sponsibilities are defined in the Telecom Act and inDecree 2/98 (16 January). The latter covers MCTstatutes.

The regulatory body, Instituto Angolano das Co-municações (INACOM) (Angolan Institute for Com-munications), reports to MCT. Its functions aredescribed in the Telecom Act, MCT statutes, andINACOM’s own statutes (Decree 19/99, 25 June).However, there are a number of gray areas and overlapbetween INACOM and DNT functions; in effect,both INACOM and DNT have regulatory functionsfor the sector. This is the origin of some conflicts,which the Minister arbitrates. Table 7.1, taken fromthe Telecommunications Act, shows a number ofexamples.

DNT is a department within MCT. Its role is toadvise the MCT on sector policies. It can initiate pol-icy discussions, but it generally acts at the request of theMinister. DNT mostly provides technical support toregulation of the sector. It also monitors performance(compliance with licenses) and collects and reviewsinformation on sector performance.

INACOM was set up in 1999 as a public institu-tion.While intended to be an independent regulator, inreality it only has a limited measure of autonomy:• The director general is appointed by the Minister

and can be dismissed for any reason.• The Ministry has influenced staff appointments.

INACOM has insufficient skilled staff to cover itsmain areas of required competence.

• Funding is partly dependent on the state approval forfees (although INACOM’s fee income is sufficient).

• Too many ministries are involved in sector policy.Apart from MCT, there are also the Ministries ofSocial Communication, Computers, and Scienceand Technology.

• INACOM’s Board of Directors has not yet beenappointed.

INACOM’s role is to manage and monitor the radioelectric spectrum, license, and control emitting centers

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(radio and TV broadcast), supervise quality and pricesof public services, issue licenses to private networksystems, supervise the opening of the market to com-petition, run tenders for licenses, promote increasedcoverage of telecom services, and monitor servicestandards and obligations in licenses and concessions.

Operators and Service ProvidersThe state-owned monopoly service provider domi-nates the sector, but a range of new entrants providinga variety of services is increasingly exploiting the op-portunities in new technologies.

Angola Telecom (AT), the incumbent operator, isthe original monopoly service provider and still thedominant player. It operates across the whole sector, butits main activities are fixed line telephone, internationalconnections, and mobile. It has a nominal share capitalequivalent to US$ 200 million.AT has shares in the fol-lowing subsidiary companies:• Movicel (99 percent AT and 1 percent ENCT), for

mobile services.Movicel is already operating follow-ing the recent transfer ofAT’s mobile business into it.

• TV Cabo (cable TV—50 percent AT and 50 percentGrupo Visabeira Portugal) for multimedia services,mainly supported by a fiber optic infrastructure.

• Multitel (50 percent AT and 50 percent PortugalTelecom) for Internet and data communicationsequipment and services.

• ELTA, telephone directories (partners: AT, DirectelPortugal and Angola Data Services).

• BCI Bank (shareholders are GOA plus 9 SOEs.ATholds 1 percent of share capital).

• A number of very small holdings: INTELSAT (AT0.23 percent); SKY NEWS, NV (AT 0.2 percent);RASCOM (AT 0.5 percent); SAT3 (AT 3.75 per-cent); COLUMBUS (0.45 percent).

Unitel, a GSM mobile operator (Portugal Telecom25 percent, Mercury 25 percent and Angolan privateshareholders 50 percent). The share capital, originallysubscribed in its statutes (20 April 1998) in kwanza, isnow equivalent to less than US$ 100.

Multitel, managed by Portugal Telecom,offers datatelecommunications services to local companies.

Mercury, a company fully owned by the Sonangolgroup, set up in 1999, holds a license to provide corpo-rate telecom services within the group. CurrentlyMercury is providing some public services.

Internet (ISPs): There are 20 licensees but only5 are operating: Netangola (Sistec), Multitel, Ebonet(Pacom), Snet (NCR), and Mercury.

DINATEL operates the GOA administrativetelecommunications services.

ITEL or Instituto de Telecomunicações (Telecom-munications Institute) is a telecommunications trainingcenter, administratively reporting to MCT but effec-tively to the Ministry of Education. ITEL holds an au-thorization as an Internet backbone provider, but is notyet operating the service.

FADCOM—Telecommunications Fund, relatedto universal service/access. It has not yet been estab-lished and therefore is not yet subject to regulation.


A specific law (the Telecommunications Act), othergeneral legislation, and a number of regulations andrules govern private sector participation in the tele-communications sector.

One important factor for PPI is the perception thatinvestors may have regarding the real independence ofthe judiciary power. Given the involvement of thedominant state-owned companies (AT and Sonangol)

Table 7.1 Telecommunications Act

Functions of the two regulatory bodies

Article 6—DNT Article 7—INACOM

d) Manage radio electric spectrum and orbital positions a) Manage and monitor radio electric spectrum and orbitaland monitor its utilization positions

e) Standardize and approve telecommunications equipments d) Award licenses or concessions for the operation of networks and materials and define conditions for their connection for telecommunications services, under the rules defined to public telecommunications networks by the telecommunications authority

f ) Award licenses, concessions, authorize or cancel setting up g) Standardize and approve telecommunications equipment and and operation of networks for telecommunications services materials and define the conditions for their operation within

National Telecommunications System

in most activities in the sector as well as the role of pri-vate Angolan shareholders, potential new investorsmight be cautious if they were uncertain about theprocess for resolution of disputes that could arise overfuture contracts.

General LegislationThe main items of general legislation concerning PPIin telecommunications are:

Law of delimitation of the sectors of eco-nomic activity (05/02), which defines the areas intelecommunications open to PPI and those reserved tothe GOA:• Infrastructure, which is an integral part of the

“basic” telecommunications network, is the GOA’sabsolute reserve (full state monopoly).

• Local networks,when an extension to the basic net-work, are part of the state’s controlled reserve (onlyfor SOEs or companies with a majority GOA stake).

• Infrastructures not included in the basic network, aswell as corresponding telecommunications services,are part of relative reserve (private companies underconcession).

Laws dealing with privatization and foreign investmentdo not have any specific telecommunications elementsand are described in chapter 3.

Labour Law (02/00): This law is not fully regu-lated. It poses some difficulties concerning efficientmanpower deployment. It is well known that all theSOEs have far more employees than the economicallyviable levels. If SOEs are privatized, it will not be easyto reduce the size of the workforce. The problem ofexcess labor resources is also an issue in the privatesector. Large-scale redundancies could create seriouspolitical and public repercussions for the firm.

Sector LegislationThe specific legal and regulatory framework for tele-communications is set out in the sector law and tworecently issued regulations, supplemented by thestatutes of key organizations and a number of rulesissued by the regulator.

Telecommunications Act (08/01—11 May2001): This is the main law for the sector and includesthe following restrictions for PPI:• A majority share of foreign private capital is not

allowed in all the public telecommunications and

value-added operators (Article 18, foreign compa-nies not allowed to own more than 50 percent).

• Only the incumbent operator can run a nationwidepublic switched network, for fixed services (“basicnetwork”).

This law also establishes the basis for the UniversalService Fund (FADCOM), although it is not yetoperational.

There are two types of authorization for publicservices provision: concession and license. In areas thatconstitute the GOA’s relative reserve, a concession isawarded by the government to a public or private en-tity for the provision of nationwide public services,under a contract for a given period of time andwithout exclusivity. Licenses are issued by the sectorminister or, following his delegation, by the regulator(INACOM).

Ministry of Posts and TelecommunicationsStatutes: These set out the objectives, functions, andthe various bodies within or under the ministry.Important entities for the telecommunications sectorare: Direcção Nacional de Telecomunicações (DNT);Instituto Angolano das Comunicações (regulator)(INACOM); Instituto de Telecomunicações (ITEL);and FADCOM.

INACOM statutes (Decree 12/99): The manage-ment should include a board of directors and a directorgeneral. So far only the director general has been ap-pointed. Some of INACOM’s decisions are clearly po-litically influenced.

Telecommunications White Paper (WP): Thisdocument does not have the same legal force as otherlegal documents because, although the Cabinet’s per-manent commission approved it, it was not publishedin the Official Gazette. However, sector policies areclosely related to the WP contents.

Rules for access to and provision of publictelecommunications services (Decree 44/02—6 September) defines the terms and conditions to setup, manage, and operate infrastructure and provision oftelecommunications public services. AT should beissued with appropriate concessions and licenses forbasic and all other services provided by AT within180 days after this decree comes into force.

This decree defines:• “Support services to public telecommunications

networks” as the provision of transmission or


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interconnection resources to“transport”transit trafficfrom/to other public telecommunications networks.

• “Nationwide fixed telephony services” as the provi-sion of voice telecommunications services withnationwide coverage to residential and corporateclients.

In article 8.1, the decree states that “fixed nationwidetelephony services” and “support services to publictelecommunications networks” are reserved to theincumbent operator.

Rules applicable to public telecommunica-tions services (Decree 45/02) sets out the rules andconditions that govern contractual relations betweenoperators and customers, aiming to provide appropri-ate telecommunications services to all the citizens ofAngola (universal service).

Price regulation: This regulation should deter-mine the rules to be complied with by the operatorswhen setting their prices. It is based upon the “pricecap” model. The cabinet approved it after publicconsultation.

Interconnection regulation: INACOM pre-pared a draft of this document and later the cabinetapproved it after public consultation.

Numbering Plan: INACOM is now taking overthe responsibility to develop the national telephonenumbering plan. A draft has been submitted to all theoperators and is under discussion.

There has been an absence of full coordinationamong the various laws and regulations,with respect tothe telecommunications sector. A consequence of thisis that it is unclear as to which services are left to thenewly licensed, public, fixed line operators. One of thereasons for this is the manner in which the regulatoryframework has evolved.

It is important to point out the following sequenceof events in an ascending order, by date:• Approval by GOA of the Terms of Reference for

the public, fixed line operators’ competition (Exec-utive Decree 12/01—30 March 2001).

• Enactment of the Telecommunications Act(08/01—11 May 2001), which revoked legal sup-port to the terms of reference.

• Launch of the competition (17 May 2001) with re-vised terms of reference.

• Enactment of the Law of delimitation of thesectors of economic activity (05/02—16 April

2002). This law invalidated some of the assump-tions in the revised terms of reference.

• Issuing of Rules for access to and provision ofpublic telecommunications services (Decree44/02—6 September 2002), which states that“fixed nationwide telephony services” and “supportservices to public telecommunications networks”are reserved to the incumbent operator.

In contrast to the original terms of reference, the latterdecree is far more restrictive than expected with respectto the spectrum of services left to the new entrants.

The concepts of basic network, fixed nationwidetelephony services, and support services to public tele-communications networks, and the corresponding roleof the GOA towards it, should be clarified and revisedto remove uncertainty about which activities the pri-vate operators are permitted to carry out and to im-prove the possibilities for real competition in the de-velopment of the voice fixed services market segment.

Current Situation in the Sector

The current situation in the sector is described in termsof the current market and forecasts, the status of priva-tization of the incumbent AT, the fixed line and mobilebusiness participants, and new entrants to the sector.

The provision of telecommunication services is at alow level but growing, despite many difficulties infunding, provision of equipment, and skilled personnel.The incumbent AT is a highly dominant monopolyprovider in many areas, although there is already oneprivate mobile operator and four new local, fixed lineservice providers.

There is a clear commitment to liberalization andfull market liberalization may occur before the end ofthe decade. Some laws need to be adapted to facilitatePPI. The telecommunications sector is the only onewith a white paper and a specific regulator in place(although water and electricity sectors have strategypapers), and the electricity regulator is expected to befunctioning soon. Liberalization started before a strongregulator was in place. Now INACOM faces some po-litical interference and a lack of skilled staff that hinderits attempts to become more independent.

The incumbent operator has not yet been fully pre-pared for the liberalization of the sector. AT should be-come a commercial company with public capital. In

the future,AT (basic services) will face strong compe-tition, not only from other fixed line operators, but alsofrom mobile services. In the mobile segment, Unitelhas not yet brought real competition. Both AT andUnitel mobile networks remain saturated for long pe-riods of time. Shortage of capital and capacity, as well asservice differentiation, are limiting competition.

Costs and prices are high.The poor educational sys-tem, high cost of transportation, and low quality ofpublic electricity infrastructures impact on high costsfor the telecommunications operators. The very highprice of the handsets restricts access to people with arelatively high income.This situation could be modi-fied with the award of at least one more cellular license,in a competitive bid, to stimulate PPI and demonstratepolitical transparency and real commitment to privati-zation and competition.

Market Development and ForecastsThe current provision of service level is low but grow-ing quite fast, although constrained by financial andother limitations.

Based on the development of service provision up to2000, a market (fixed and mobile) forecast was preparedusing various methodologies such as the conventionaltop-down models, logistic curve analysis (for mobile),and the correlation (linear and exponential) betweenGNP per capita and teledensity. The forecast, includedin theWhite Paper, is shown in table 7.2, below.

Compared to other SADC countries (see table 7.3)and using projections of typical teledensities relative toincome levels, Angola’s teledensity should have been

3.03 (with linear regression) or 1.71 (exponentialregression) in 2001. This means that Angola shouldhave had between 2.5 and 5 times (depending on theregression method used for comparison) more sub-scriber lines than the existing level (in 2001).

The current rate of increase of the number of tele-phone subscribers, especially mobile lines, is higher thanpreviously forecast, despite funding and other difficul-ties. By 2005 the total number of mobile and fixed sub-scribers are expected to be about 650,000, equivalent toaround four times the current level.The prevailing lowteledensity and the low geographic coverage couldstimulate an important development in the telecommu-nications sector if the GOA promotes the implementa-tion of an integrated development program. This rateof increase and potential market development indicatesthe considerable scope of PPI opportunities.

PrivatizationThe proposed AT privatization process is similar to thegeneral pattern in most of the sub-Saharan countries.The following steps delineate the main aspects:• Split between posts and telecommunications• Set up a regulatory body• Incorporate the telecom incumbent operator• Separate the core (monopoly) functions from new

business areas and form the latter into independentsubsidiaries

• Partial privatization of the incumbent operator andsharing the management with the strategic partner

• Access to company shares by private companies,employees and public.2


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Table 7.2 Forecast of Fixed and Mobile Markets

Fixed Lines Mobile

Year Population Customers Teledensity Customers Teledensity

Actual to date

2000 14,602,000 66,892 22,6292001 15,068,242 76.800 75.000

Forecast made in 2000

2002 15,549,371 73,748 0.47 91,741 0.592003 16,045,862 84,811 0.53 157,249 0,902004 16,558,207 97,532 0.59 258,308 1.502005 17,086,910 136,545 0.80 512,607 3.002010 19,994,692 262,652 2.52 1,007,951 6.00Source: INEA; population: Instituto Nacional de Estatistica [(INE) National Statistics Institute]. Economic data:World Bank.Telecommunications statistics: SADC and ITU.Forecast: CFR Consultants.

Telecommunications

97

This defines a comprehensive liberalization process.The first two steps have been accomplished so far.ATprivatization was originally proposed in 1999, butnone of the important steps for privatization have beenaccomplished. Recently, the GOA appointed a com-mittee to study the action plan to implement AT pri-vatization.The next key steps for AT will be to separateits new business areas into independent subsidiarieswith properly separated accounts. Mobile was recentlytransferred to Movicel, and there is a study to set up acompany for data services. Due to legal restrictions thefixed network privatization will follow different stepsfrom the mobile network.

The process of full AT privatization could start by2005. More details on the profile of these changes inthe transition to full competition can be seen in appen-dix 5 (information taken from the TelecommunicationsWhite Paper.

Fixed NetworkNationwide fixed network provision for the “basic” in-frastructure for public service is formally reserved forthe state through its entity, AT. However, alternateproviders are permitted to provide networks forcommercial users. In practice, a number of commer-cial firms have created private networks, under an

INACOM license, for their own use, which may alsobe used by other firms in the vicinity.

INACOM issued provisional licenses to some pri-vate companies to exploit public fixed line services.The new entrants expect that INACOM will cancel allsuch licenses to the companies that had not entered thecompetition process, started May 17, 2001, which re-sulted in the recent issue of four new licenses.

The concept of what is the “basic network” is key todetermining where PPI opportunities lie. INACOM isnot satisfied with the loose definition of basic network,as it is very unclear where the boundaries lie.The cur-rent understanding is that local residential services canbe provided by alternate suppliers, subject to the law ofdelimitation of the sectors,which must then either con-nect to AT’s public service basic network or providetheir own alternate commercial national network.

Angola Telecom AT is currently operating the basic net-work without any license. This is a consequence ofthe inheritance from the prevailing situation beforeliberalization. Under the provisions of Decree 44/02(6 September),AT should apply for a license.

In 2000, AT had 66,892 subscriber lines and only66 percent utilization of all switching capacity. Thedigitalization rate was 60 percent. By 2001 there were

Table 7.3 SADC Countries: Comparative Teledensity

Teledensity

GDP/capita Linear Exponential Country (US$) Actual Regression Regression

Angola 690 0.59 3.03 1.71Botswana 3,047 9.27 12.87 11.62Congo,

Democratic Republic of 203 0.04 1.00 0.35

Lesotho 418 11.03 1.90 0.89Malawi 152 0.47 0.79 0.24Mauritius 3,881 25.56 16.35 15.88Mozambique 209 0.44 1.02 0.37Namibia 2,040 6.57 8.66 6.92Seychelles 6,862 26.73 28.79 33.16South Africa 2,976 11.35 12.57 11.27Swaziland 1,353 3.14 5.80 4.07Tanzania 257 0.41 1.22 0.48Zambia 463 0.80 2.08 1.02Zimbabwe 487 1.86 2.18 1.09Average 1,162 2.62Sources: Teledensity: ITU; GDP/capita: Ministry of Finance of Angola, for Angola and South Africa, and IMF and World Bank databases.


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Figure 7.1 Growth in Sales of AT by Service

SALES PER SERVICE

0

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

140,000,000

160,000,000

1998 1999 2000 2001Year

US$

Source: Angola Telecom.

Fixed ServicesOther Services

Mobile ServicesTotal

about 76,800 subscribers and a digitalization rate of87 percent.The 2002 estimate is 105,000 subscribers;note that this is much greater than is shown in table 7.3.

Growth in sales has been modest up to 2001 asshown in figure 7.1, above.

Although sales have been growing,AT’s investmentprogram is constrained by a lack of funding.The GOA,as the owner ofAT,has not fully subscribed its share cap-ital, which is now only equivalent to US$ 200 million.AT cannot expand the interconnection capacity quicklyenough. However, its loans from the GOA are some-times at preferential rates,or connected to clauses of ori-gin, or not repaid back to the GOA, with the potentialto distort competition for private service providers.

The fixed line system comprises a number of sepa-rate networks with satellite links. AT would like todevelop a fiber optic backbone along the coastline andinland, but there is no funding available.

In addition, debt to AT from entities dependenton the state budget and SOEs is higher than US$100 million. Prepaid services are aiming to reduce thenegative effects of such arrears on payments by smallcustomers.

Growth in sales of fixed line and mobile telephonyservices has been increasing at an average annual rate of4.0 percent and 7.7 percent, respectively, in U.S. dollarterms. A notable increase in sales can also be seen inthe usage of the Internet, boasting an average annualgrowth in sales of over 45 percent.

Further data on sales growth and trends in othertelecommunications services can be seen in appen-dix 7. The data show growth in sales in U.S. dollarsand in telecommunications tariff units (UTT).3

International International access is provided via satel-lite (AT and Mercury) and a new fiber optic submarinecable—SAT3 (AT). Angola Telecom is now usingSAT3, which commenced operation in late 2002.

New Entrants INACOM recently carried out a processfor tendering four new fixed licenses to provide localresidential services.This partly recognizes the existenceof unlicensed commercial operators, as well as providingopportunities for local authorities to develop networksfunded by private operators. In theory, the bidders coulddevelop national commercial networks and link theirlocal networks to these, but in practice they must agreeon interconnection with AT’s national public network.

In the original invitation to express interest,INACOM wanted each local party to have a foreignpartner. However, only five bidders expressed interestand none of them found a foreign investor. Finally, onebidder dropped out and INACOM issued four licensesto the following candidates: MERCURY, MUNDOSTARTEL,TELESEL, and WEZACOM.

These licensees will not be allowed to provide mo-bile services or a nationwide public switched fixedtelecommunications services for residential clients.They will get authorization to provide the local accessnetwork for residential clients, subject to interconnec-tion of such access network to a point agreed uponwith AT. However, the precise details of the servicesthey will be allowed to provide are not yet defined, andit is therefore urgent to clarify what the “basket ofservices” allows to new entrants. These restrictions(no mobile) and uncertainty (definition of scope ofservices) explain why there was a lack of interest byforeign investors.

Universal Access/Service Angola has around 160 munici-palities. Fewer than 40 are connected to the publictelephone network.

All future licenses shall include clauses concerninguniversal access/service. The Telecom Act has provi-sions for a special fund (FADCOM, which is not yetoperational), which aims to provide some subsidy for

Telecommunications

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Table 7.4 Estimate for Active Mobile Customers

2000 2001 Mid-2002

AT 22,629 33,000 40,000Unitel 42,000 47,569

Total 22,629 75,000 87,569Source: INACOM.

universal access. One of the contributions to the fundwill be a given percentage (1 percent) of the total op-erator income.

MCT and the regulator both favor the reduction ofcustoms taxes and other fiscal taxes to the telecommu-nications investors, which may be accomplishedthrough the new Private Investment Law.This wouldassist with moving towards universal access.

Mobile ServicesThere are two operators of mobile services offeringdifferent services:• AngolaTelecom (AMPS—analogue—and CDMA—

digital)• Unitel (GSM).Estimates of the number of active mobile customersare given in table 7.4, below.

Mobile services are available only in Luanda,Bengo, Cabinda, and Lobito/Benguela. Nationwidecoverage is hampered by the lack of a national trans-mission backbone network.

The expansion of the services is also constrained bya number of other key factors:• Funding. AT has no access to government funds

for mobile services.Unitel has negligible equity anddifficulty in raising loans—foreign banks are not in-terested to lend within Angola and domestic banks’capacity is very limited.4

• Equipment installations take a long time.Thisis due to the need to import most equipment, thelengthy time taken for imports to clear customs, thedifficulty of delivering equipment to locations out-side Luanda due to the lack of transport infrastruc-ture, and the difficulty of obtaining permissions forforeign technical experts to enter the country to as-sist with the installations and commissioning.

• Lack of qualified engineers.There are almost noengineers graduating from Angola’s universities.

The lack of capacity for new connections is reflected inthe unfavorable terms offered to new customers. Thecost of the handsets can be up to five times higher thanin the international market. One of the operators isselling the subscriber numbers subject to the conditionthat the client pays a US$ 200 credit up front.This in-dicates that there is no competition in the mobile mar-ket.The customer is not free to decide the best prod-ucts. It may be observed that current customers areeffectively being made to finance the future develop-ment of the network. In addition, these practices showthe need for stronger sector regulation.

The two providers have different services. AngolaTelecom is operating a mobile network with two stan-dards (analogue AMPS and CDMA). Currently, ATdoes not have a license (and is not paying a license feeto INACOM), although it should apply for one. AT’smobile services were recently transferred to Movicel.AT operates a credit service, and most of the largecommercial organizations are its customers.

In 1998,AT negotiated a technical assistance con-tract with COMMUNICO, a company without anyprevious experience as a mobile operator. Later, inJanuary 2001, the parties signed a management con-tract, once again showing the early emergence ofsome limited forms of private sector participation inAngola.

Unitel holds a GSM license, issued by the regulatorwithout any competitive bid,under authorization fromthe Cabinet. Unitel only provides a pre-pay serviceand therefore tends to mainly have smaller domesticcustomers.

It is not easy for customers to make a comparisonbetween the tariffs of the existing mobile operators.Theregulator is aiming to deal with this situation whenissuing the new regulation on tariffs. In the meantime,it presents yet another barrier to competition.

The different services, nontransparency of tariffs,and the severe shortage of capacity have led to a situa-tion where there is no real competition.

There has been discussion of a third license for an-other GSM operator for some time. MCT advocatesthe award of at least a third license, in a competitivebid, to bring competition to the mobile market withreal affordable access prices for the public. Obviously,AT would be a very forceful contender for a new GSMlicense.

Other Services

Internet—ISP There are 20 organizations that are li-censed as Internet Service Providers (ISPs), but only 5are currently operating.There are around 9,250 Inter-net users, which is a very low number, but growingfast. The access prices to the services are high and atypical PC cost is four to five times higher than in theU.S. AT is testing ADSL access.

Cable TV AT set up a company with a Portuguese part-ner to provide multimedia services, using fiber opticsystems. One of the services is cable TV. Other entitieshave demonstrated public interest in such services.

PPI Opportunities in Telecommunications

New PPI opportunities are being created by peace inAngola, the reformulation of an important set of laws,and the relative improvement in the macroeconomicenvironment. In the telecommunications sector thereis a clear political commitment to liberalization.

The rate of increase of the telephone subscribers,especially mobile lines, is higher than previously fore-cast despite funding and other difficulties. By 2005,total mobile and fixed subscribers are expected to beabout 650,000 (the 2000 forecast) or higher, equivalentto more than three times the current level.The prevail-ing low teledensity and low geographic coverage couldstimulate an important development in PPI in thetelecommunications sector if the GOA starts the im-plementation of an integrated development program,especially considering the lack of public funds availablefor the sector.AT is to be privatized and should nego-tiate international strategic alliances for both fixed andmobile services.

The sector is favorable to licensing a third mobileoperator through a competitive bid. Although it islikely that the new license operator will be GSM stan-dard or higher, the licensee should not be tied to anyspecific standard or technology to facilitate entry ofnew technologies such as 2.5 G or 3 G.

One of the GOA strategic goals is implementationof a long-distance national transmission backbone net-work, as the basic infrastructure to support the devel-opment of an information society, of POTS, and cellu-lar networks in Angola. It will require the participation

of private investors, due to the high volume of neces-sary investments. Such a backbone would become theprimary interconnection infrastructure for all the pub-lic telecom operators. Satellite can provide high bandlinks, but at a very high cost. Links between Luandaand all other major towns are currently done via satel-lite, with traffic being mainly for voice communica-tion. A fiber optic backbone would enable services tobe expanded much faster.

Full market liberalization may occur before the endof the current decade. During the period 2003–2004,GOA intends to ensure free competition in all theservices, except nationwide fixed voice. From 2005GOA will prepare the transition to full competition.See appendix 6 for further description of this process.

Investment requirements in sub-Saharan countriescan be quite large due to the relatively high cost per fixedline, which can be up to US$ 5,000 per line.This in-cludes equipment at FOB prices,international transport,customs clearance in the importing country, local trans-portation, civil works, installation, commissioning, andafter-sales assistance.The latter includes the presence ofthe manufacturer’s experts during the first one or twoyears of operation. In South Africa, the average cost isabout US$ 1,000, whereas in Angola it is estimated thatfixed lines cost an average of US$ 2,500.

Identification of PPI Barriers

The main PPI barriers concern the existing legalframework.There is a clear move to liberalization, andto PPI. However, as referred to in the legal and regula-tory framework section, above, there are some legalconstraints.

Private investment is not authorized in the basicnetwork infrastructure because it is an area of absolutereserve. So, PPI can take place only in the form of fi-nancing, but not involving any kind of ownership.

The basic network infrastructure is responsible foronly about 0.5 percent of teledensity, which means avery low level of development.According to the WhitePaper and the Telecommunications Act, the GOAshould invest with priority in the development of suchinfrastructure, which is not happening.

For normal development in the telecommunica-tions sector, and a smooth implementation of the liber-alization policy, it is necessary to provide the country


100

Telecommunications

101

with a nationwide transmission backbone network,equipped with the appropriate transit switching cen-ters, as the main support to the possibility for intercon-nection among the various regions of the country, alloperators, and service providers. Without such a net-work, the expansion of services will be very slow andat a higher cost than would otherwise be the case.Evennow, Unitel and Angola Telecom are facing expansiondifficulties.The present situation will worsen with newentrants.

The existing basic network and its ownership aremajor barriers to sector development and to PPI. Achange in the law would be necessary to overcome thisbarrier. In the meantime, the GOA should find othermethods to develop the telecommunications infrastruc-ture. There is an urgent requirement for investmentfunds. It is known that capital is not available in the do-mestic financial and banking system in Angola.The op-erators may find ways to borrow money from foreignsources including equipment supplier financing.

If the basic network were under controlled reserve,PPI participation would be facilitated, and GOA couldretain the control of its infrastructure.

Investment in telecommunications requires largeupfront expenditures and rapid returns due to techni-cal obsolescence over a short period of time.This re-quires removal of all barriers to rapid expansion of thecustomer base so that the buildup of sales can be fastenough to recover the cost of invested capital.

Factors in the general business and economic cli-mate that can deter investors include the need for moremacroeconomic stabilization, lack of transparency ofadministrative processes such as procurement, tender-ing, and approvals, and need for the strengthening ofthe independence of the regulator and the judiciary.

The domestic banking system and financial marketsare at an early phase of development and unable toprovide the size of credits required by this rapidly

expanding sector. Unitel, for example, expects to fundits expansion only 50 percent from new debt and50 percent from revenue; this limits the rate ofgrowth.5 In other countries, it is typical for mobile op-erators to have much higher gearing levels.

The quality of the existing educational system isvery poor. Only 1 percent of the population of highereducation age has access to a university. In the lastdecade,not a single engineer has graduated.The lack oflocal skilled and highly educated staff implies the needto recruit expatriate manpower. Operating costs be-come very high, and usually there are some difficultiesgetting the necessary entrance visas and working per-mits.The short time since the market economy startedin the 1990s means that entrepreneurial skills are alsobarely developed.

The lack of good transportation infrastructure andthe very low performance and territorial coverageof the public electricity supply have an impact ontelecommunications infrastructure development. Thecosts of delivering equipment to new sites are veryhigh and compounded by the need to construct sup-porting infrastructure (e.g., standby generation).

The current high level of customs and fiscal taxesleads to a lack of incentives to investment in this sector,given the heavy reliance on imported equipment.

Notes

1. The small letters for the items are not in alphabetical order sincethey correspond to the numbering in the Act itself.2. The GOA intends to retain a “golden share” in AT.3. 1 unit = US$ 0.08 4. For example, recently Unitel was offered domestic credit ofUS$ 10 million, only a fraction of what it requires to meet itsexpansion targets.5. Due to Unitel’s corporate structure, additional equity is unlikelyto be available. The Angolan shareholders are unable to providemore equity, and Portugal Telecom is unwilling to do so alone as itis only a 25 percent shareholder and only has a five-year agreementto be a consortium partner.

Angola is at the very early stage of creating opportuni-ties and a supportive environment for PPI develop-ment. It is evident that many actions will be required tocreate the type of environment within which privateinvestment can be carried out with confidence andwhich will encourage the flow of private capital intothe infrastructure sectors.

The risks of long-term investment in Angola arecurrently viewed as very high by the private sector, andmany risk-reducing steps will be necessary to persuadethe private sector to accept significant amounts of risktransfer at reasonable costs. These steps cannot all becarried out rapidly, and we have therefore set out theactions within a loose time frame labeled short,medium, and long term.We have deliberately not putprecise years against this designation but would charac-terize the terms as being within the next 3–5 years(short), 5–10 years (medium), and up to 2020 (long). Inaddition, we have identified some steps for which im-mediate action is recommended, as they can be carriedout at low cost and with potentially important effectsin stimulating or enabling PPI.

Crosscutting Issues

For both local and foreign investors, Angola’s attrac-tiveness for investment outside of the petroleum andgas sectors has been greatly enhanced by the advent ofpeace.This development is still so recent, however, andthe reconstruction problems so daunting that percep-tions of risk remain very high. For example, as of the

first quarter of 2003, the Economist Intelligence Unithas a country risk rating of D for Angola (A � leastrisky, E � most risky) and a risk score of 72 (this is outof a possible 100, where 100 is most risky).

Looking ahead, the IMF projects a near doublingof Angola’s GDP between 2001 and 2007, this beingbased largely on a projection of a rapid rise in oilproduction (from 740,000 barrels per day in 2001to nearly 2,000,000 barrels per day in 2007). Othercommentators are more sanguine about Angola’sprospects, expressing concern about governance issuesand the economic and social legacy of four decades ofconflict.

To realize the high growth potential the IMF hasidentified, it is imperative that the government tacklethese concerns head-on. Infrastructure deficiencies areamong the most pressing issues to be addressed. In thepolicy section of the Recommendations table below,it is recommended in the short term that the govern-ment review the competitive position of Angola in at-tracting PPI and publish a document laying out andexplaining national policy on private sector participa-tion in infrastructure.This should aim to provide boththe factual information useful to a potential investorand an assurance of consistency and transparency in thepolicy implementation.The document would form thebasis for conducting a public awareness campaignwithin the country on PPI.

It is further recommended that consideration begiven to the establishment of a PPI Unit. This unitwould incorporate the Infrastructure Development

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8 Promoting PPI: Key Measures and Recommendations

Fund, which is being proposed as a dedicated fund tochannel finance into infrastructure sectors. It is mainlyfor this reason that it is envisaged that the PPI Unitwould fall under the Ministry of Finance.Alternatively,it may be deemed more effective to have an infrastruc-ture PPI unit within the new Agency for Private In-vestment (which has succeeded the existing Institutefor Foreign Investment).

Medium-term policy targets are to liberalize entryconditions in each infrastructure sector and ensure thatadequate regulatory frameworks are in place. Movingfrom the medium to the long term, decisions will haveto be made at the policy level on the extent of foreignprivate participation and the coverage of PPI withinthe economy.

In respect of finance and credit, the immediateobjective is to stabilize the macro-economy, therebycreating the environment for financial institutions toextend loans, which will be used for productive ratherthan speculative purposes.The capacity and incentivestructure within the domestic credit market needs tobe examined and,where possible, improved,with com-petitive pressures being enhanced by encouragingforeign banks to expand their financing of domesticas well as export-oriented activities. Considerationshould also be given to the establishment of the Infra-structure Development Fund, mentioned above. Thiswould channel government and private sector financ-ing into viable infrastructure projects.

In the medium term, both foreign and domesticsources of infrastructure financing need to be ex-panded. It is recommended that a strategy to marketAngola to international providers of risk capital andlong-term credit be developed and that the emergenceof a domestic pension and insurance industry be en-couraged.The establishment of a local stock exchangeshould complement this. It is crucial that the expansionand deepening of the financial sector in Angola beaccompanied by strengthening the agencies responsiblefor supervision and regulation of banks and otherfinancial sector institutions.

As documented in chapter 3, the passing of recentlegislation has greatly strengthened the legal frameworkfor PPI, but more remains to be done to improve thelegal and regulatory environment. The most ur-gent requirement is to ensure that there is an adequateregulatory framework for each sector, the legislation

facilitating the creation of “best practice” regulatoryagencies, characterized by professional competence andindependence from political influence. Considerationsof capacity constraints and of economies of scale andscope may point to the formation of multi-sectoral reg-ulatory bodies, but each sector would still need to haveits own legal provisions for regulation of that particularsector.

It is also recommended within the short-term hori-zon that the legal provisions giving the right of thestate to nationalize infrastructure assets be removedby amending the various sectoral framework laws. Itwould also be advantageous to reduce the number ofentities involved in the registration and inspection offoreign-owned enterprises. The speed and efficiencyof the judicial process need to be markedly improved.Changes to the legal system to improve the environ-ment for private sector participation in infrastructureare best regarded not as an event but as an ongoingprocess, with bolder measures being contemplated asexperience is gained.

Until there is a strong and independent regulatoryframework, private investors will continue to rely ontheir contracts.There is a need to increase confidencein both the sanctity and enforceability of contracts.One immediate measure Angola could take to boostinvestor confidence is to provide assurances over thearbitration process by signing on to the New YorkConvention.1

A further supporting measure would be to stream-line the whole process of transaction approval by iden-tifying bottlenecks in the process (as described in theroadmap in chapter 3) and take steps to remove them.

At present, most infrastructure service providers arestill in state hands.The remaining enterprises shouldbe incorporated as soon as possible, with proper ac-counting systems being adopted and institutionalized.The new sectoral regulators are to be responsible forstabilizing the frameworks for the setting of prices,which will balance the interests of consumers and theutilities, but the prices themselves in most cases are tobe periodically changed by the companies themselvesin accordance with the specified regulatory parametersto reflect external factors.

As the CFR has made clear, varying marketcircumstances and opportunities exist in the differentinfrastructure sectors.The challenge is for government

Promoting PPI: Key Measures and Recommendations

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104

and the regulators to promote competitive condi-tions wherever possible and obviate monopolistic fea-tures arising through appropriate regulation. Whencircumstances permit, full-scale divestiture is to beconsidered.

In the sphere of employment, a major disincen-tive to foreign investment would be removed by easingthe procedures for the issuing of work permits to for-eign technical experts. It is understandable that thereshould be a fear that too liberal a policy in this regardmight deprive Angolans of substantive employmentopportunities but, given the extreme shortages of na-tionals with the necessary technical and professional

skills required in the infrastructure sectors, this fear ispresently rather misplaced.

As peace is consolidated and the economy takes off,the problem will rather be one of skills shortagesconstraining the recovery. The emphasis should thusbe on initiating a wide range of capacity-building ac-tivities inside and outside existing enterprises designedto enhance skills at all levels and expand the pool ofavailable skills as soon as possible. Increasing the num-ber of university graduates is a particular medium-termobjective. In the longer term, as these programs takehold, the “Angolanization” employment requirementsare to be phased out.

Table 8.1 Recommendations: Crosscutting Issues

Action area Short term Medium term Long term

Review the competitive position ofAngola in attracting PPI

Publish document laying out andexplaining Angola’s policy on PPIin infrastructure

Conduct public awareness campaign on PPI

Consider establishing dedicated PPI Unit in Ministry of Finance or ANI

Stabilize macro-economy to createenvironment for lending toproductive activities

Review the capacity and incentive structure of the existing domestic credit market

Encourage foreign banks to expandtheir operations

Expand the infrastructure regulatoryframework so that each sector is covered

Remove legal provisions giving rightfor state to nationalize assets

Streamline transaction approval process by removing bottlenecks

Incorporate remaininginfrastructure service enterprises.

Ensure adoption of proper accounting practices

Transfer pricing responsibility tothe enterprises subject to pricingframeworks and supervision established by regulatory body

Ease procedures for issuing workpermits to foreign technical experts

Initiate capacity-building programsfor all levels of skilled personnel

Liberalize entry conditions in each infrastructure sector

Introduce regulatory frameworks that cover all infrastructure sectors

Consider the role of international providers in competitive elements

Market Angola to international providers of risk capital and long-term credit

Encourage development of sources of long-term finance, including pension and insurance industries

Establish local stock exchange

Reduce number of entities involved in registration and inspection of foreignowned enterprises

Improve speed and effectiveness ofjudicial process, improve enforceabilityof contracts (e.g., sign on to New York Convention)

Develop appropriate market and competitive structures for eachinfrastructure sector

Improve flexibility of “Angolanization”requirements

Review the efficiency and valuefor money of expanded PPI into new areas

Strengthen financial sectorsupervisory and regulatorycapacity

As experience is gained,streamline regulations and laws to provide continual improvement in environmentfor PPI

Consider the costs and benefitsof full-scale divestment ofselected infra service providers

Increase substantially the number of higher level (university) technically qualified graduates

Policy

Finance and credit

Legal and regulatoryenvironment

Enterprise level

Employment

Electricity

PPI Opportunities There are significant PPI opportunities in electricity inthe short and medium term in five main activities:• Increasing access to electricity supply through the

electrification of rural areas.• The operation and development of grids that have

been isolated from the main network as a result ofthe civil war.

• Rehabilitating and operating power plants that sellto ENE under power purchase agreements.

• Building and operating power plants that sell toENE or EDEL or to large consumers under powerpurchase agreements.2

• Providing services under contract to ENE andEDEL.

In the long term, there could be additional PPI oppor-tunities through the transfer of ENE and EDEL to theprivate sector.

The five short- and medium-term opportunitiesare discussed below.

Electrification Formal access to electricity in Angola isavailable to only 20 percent of the population, thoughmany more may have access through illegal connec-tions to the state-owned networks or through smallprivate suppliers of electricity. Angola has one of thelowest per capita electricity consumption levels in theSADC region and yet its per capita income level is rel-atively high.3 Many consumers have access to electric-ity through unlicensed and unregulated markets whereprices are high and a large part of the populationappears to be willing and able to pay high prices forelectricity supply. This suggests that ability to pay isfavorable for the private sector to invest in expandingaccess to electricity.

This opportunity is noted in the Strategy. Thisnotes the existence of “a significant informal electric-ity distribution market” that is illegal and uses powerplants licensed for industrial or agricultural purposes.The Strategy welcomes this as an indication of oppor-tunities to promote private participation.

Operation and Development of Isolated Grids In additionto ENE’s three main grids, ENE operates nine separateisland grids that were, in some cases, created following

the destruction of transmission lines during the war.Some will be absorbed into the wider ENE networkwhen the transmission lines are restored. In addition toENE’s isolated grids, there are a large number of iso-lated systems where the municipal government orga-nizes its own generation and distribution of energy,often with the support of ENE and/or DNE.

Most of the isolated grids are in need of major re-habilitation and have inadequate generating capacity tomeet local demand.

The problems faced by these isolated grids alsoprovide an opportunity for PPI. ENE may not havethe resources to invest in new generating plant or torehabilitate the local network, but, under the rightconditions, the private sector might be willing andable to undertake such investment and to operatethese grids.

When the isolated grids are connected to the ENEgrid, the local distributors could continue to operatethe local network and purchase power wholesale fromENE. Container-mounted power plants that are in-stalled to meet the demand of these isolated gridscould then be transferred to other isolated sites.

Rehabilitating and Operating Power Plants The immediatelyidentified power plant investments in Angola for thenext four years are generally for the rehabilitation of ex-isting plants.4 The rehabilitation could be offered to theprivate sector under rehabilitate operate transfer (ROT)or rehabilitate own operate (ROO) arrangements.Theseare similar to build own operate (BOO) or build operatetransfer (BOT) except that the initial investment comesin the form of rehabilitation.

This type of PPI would be most suited to the reha-bilitation of larger hydropower plants. It could also berelevant for smaller thermal power plants but these aregenerally used to serve isolated grids; it would be bet-ter to involve the private sector in the total operationand rehabilitation of these isolated grids (generation,distribution, and supply).

Building and Operating Power Plants When new powerplants are needed, they could be contracted with long-term PPAs under BOO arrangements or its variants.Long-term PPA arrangements can lead to subsequentproblems when the market is opened to competition.Under current circumstances, they would probably


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require state guarantees5 that would partially under-mine one of the benefits of transferring financing re-sponsibility to the private sector.6 However,on a limitedscale, they can be a first step toward PPI.

The planned Alrosa IPP in Angola provides an ex-ample of a power plant built mainly to supply a largeelectricity consumer that is also part of the IPPcompany, thus mitigating the need for guarantees.7

This is an attractive model for other IPPs but doesdepend on the existence of large consumers that canguarantee the revenue stream from the power pur-chase agreement.

Contracting Out Services to the Private Sector Good re-wards for strong private management could be ob-tained by outsourcing non-core activities such as me-tering and revenue collection services.This approachcould be applied to a range of services required to op-erate an electricity system, such as construction, main-tenance, and manufacture or treatment of poles.

Outsourcing of metering and/or revenue collec-tion services could require a private contractor toundertake investments in metering equipment orrevenue collection facilities (setting up revenue collec-tion service points, computerized billing systems,networks of data entry terminals, and so on), as well asthe service operation. Alternatively, the contractor’sresponsibility could be limited to the operation ofmetering and billing facilities provided by ENE andEDEL.The latter is unlikely to be effective in achiev-ing improvements in revenue collection and reductionin losses.

Actions within the Existing Legal and Regulatory Framework

Prices and Subsidy Policies Though subsidies have beeneliminated, in principle, from the generation/transmission part of the electricity supply chain, lowend-user prices combined with high losses and poorrevenue collection results in the need for operatingsubsidies from government to both EDEL and ENE.8

A major risk associated with subsidies is that they maybe withdrawn if the government budget is con-strained. IPPs selling electricity to ENE or EDEL aretherefore certain to demand extensive governmentguarantees.

Subsidized prices for electricity also have two sideeffects:• Subsidies create a culture where consumers regard

low prices as a right. Private developers that estab-lish isolated electricity networks then find it harderto convince their consumers to pay the full cost ofsupply.

• Even if ENE earns a reasonable profit level, cross-subsidies between urban and isolated rural users cancreate large distortions. If consumers buying fromENE will pay one price, while users buying from anearby private supplier pay a higher price, it will beharder for the private developer to attract customersor to collect revenues.

There is clearly a conflict between the desire to pro-vide electricity to consumers at affordable prices andexpanding access to electricity to a wider proportionof the population. This is recognized in the Strategy,which states that “. . . studies will have to take into con-sideration the existing conflict between tariffs set upon the basis of the real costs and the need of crossedsubsidization to support and develop the access to theelectricity service by low income consumers in urbanand rural areas. . . .”9

The above suggests that to maximize access toelectricity:• Tariffs should be nonuniform and, to some extent,

should reflect differences in cost of supply to ruralareas and isolated grids (this is recognized in theStrategy).

• Subsidies should be limited to capital subsidies (notoperating subsidies). To benefit rural areas,performance-based subsidies could be targeted atrural networks. Subsidies could, for example, be tar-geted on the basis of the number of connectionsmade (output based) in rural areas.

• The capital subsidies should be available to privateservice providers as well as ENE and EDEL (or notat all).

• Automatic tariff indexation should be introducedthat would allow electricity tariffs to be increasedwith inflation during the year10 without the needfor the Ministry of Finance’s approval.

Financial Performance of ENE and EDEL For any of theBOO,BOT,ROO,or ROT options that involve sellingpower to ENE or EDEL, a private investor will be


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discouraged by the poor financial condition of ENEand EDEL: high losses, high noncollection rates, anddependence on an unreliable government budget foroperating subsidies.With the exception of Alrosa-typeprojects, where a customer provides the guarantee, andthe possible exception of mobile plants (container-mounted, barge-mounted, or skid-mounted), investorswill insist on state guarantees and will demand highrates of return to compensate for the high risk. Animprovement in the financial performance of ENE andEDEL would reduce the level of state guarantees and/or reduce the risk premium demanded by investors inpower purchase prices.

A reduction in losses and an improvement incollection rates would also improve the profitability ofthe company and would reduce the need for priceincreases. This would also improve the attractivenessof EDEL and/or ENE if they were eventuallyprivatized.

Electrification Master Plan/Support for Small Developers Toidentify opportunities for supplying electricity inisolated grids or rural areas, investors need informa-tion about ENE’s plans to extend its network to ruralareas or to reestablish transmission connections tocities or large towns.The Strategy also recognizes thisneed. ENE should therefore prepare, publish, andregularly update an electrification plan and a transmis-sion plan.

The small size of private rural electricity operatorsand their dispersion over a wide area will make themdifficult to regulate, support, and subsidize. Institutionalarrangements that provide information and support topotential and prospective private rural operators wouldhelp speed up the electrification process. No such in-stitution exists at present in Angola.

The institution could assist operators with:• Technical designs• Applications for regulatory approvals• Ongoing regulatory issues (e.g., tariffs)• Applications for financing (commercial or conces-

sionary) and/or investment subsidies.A private operator under contract to MINEA or DNE(similar to an Energy Service Company or ESCO inthe Demand-Side Management culture) could pro-vide this support, but MINEA or DNE will need toinitiate it.

Actions that Require Changes to the LawAs the Strategy recognizes,private sector participation isalready happening in the electricity sector; it happensoutside the law and is unregulated,but it is happening. Itis important that this activity is regulated, but it isequally important that it is encouraged to increase accessto electricity. This requires light-handed regulation.

Concession and License Regime The General ElectricityLaw11 allowed for private sector participation in theelectricity sector and provided a framework for con-cessions and licenses.The law states that the Council ofMinisters is responsible for granting concessions, andthe provincial governments have the power to grantlicenses. However, the Law of Delimitation of theSectors of Economic Activity enacted in 2002 super-sedes the 1996 Electricity Law.The former states thatelectricity is an area of relative reserve and can be per-formed only as a concession. Since this applies what-ever the size, it will be a major PPI barrier for small-scale isolated grids or other small-scale investments.Animportant and urgent condition for PPI outside of theENE and EDEL network areas is therefore to intro-duce a simpler system for licensing off-grid or small-scale electricity schemes.

The Alrosa IPP scheme illustrates an additionalproblem with the current concession arrangements—the lack of transparency over the issuance of conces-sions.The Alrosa scheme was burdened with a require-ment that ENE take a 45 percent equity share in thecompany while ENE makes no contribution to the in-vestment costs nor does it provide other investmentsin kind.Though this obligation did not deter Alrosa, itcould deter other investors in future.To attract powersector investments, it would be better if obligationson investors are spelled out clearly in advance andare transparent or, preferably, a licensing system thatthe regulator operates could replace concessions forgeneration.

Regulation of Electricity Prices The electricity regulator(IRSE) was established in principle in 2002, and it wasnot anticipated that IRSE would be created in 2003.Unlike most regulatory bodies, IRSE is not grantedauthority to set prices or to issue licenses. IRSE’s mainrole is to ensure that the General Electricity Law is fol-lowed. However, tariffs for any concession or license


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are actually set by the Ministry of Finance in accor-dance with Council of Ministers Decree 20/90.

An independent regulator is important to give in-vestors confidence that their investments will be pro-tected.Without this confidence, investors will demandextensive state guarantees and will require higher

returns on their investment to compensate for uncer-tainties over prices. To increase investors’ confidence,the regulator must be made responsible for settingprices.

The team’s recommendations for the electricitysector are detailed in table 8.2, below.


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Table 8.2 Recommendations: Electricity


Examine geographical differences incosts of electricity supply;prepare a tariff study

Introduce nonuniform tariffs over time

Eliminate operating subsidies to ENE and EDEL

Develop procedures for automatictariff indexation with inflation

Introduce output-based capital subsidies

Allocate funds from state budgetfor year beginning 01/2005

Implement agreed performance contract

Reduce losses, improve revenuecollection

Improve financial reporting

Develop and publish the first master plan

Develop the concept for anelectricity enterprises supportagency and set out thegoverning principles

Identify the services to be contracted out (e.g., metering,billing and revenue collection)

Identify candidate pilot isolated grid to be offered as a concession,develop the tendering concept

Transfer concession process for small projects to the regulator

Conduct assessment of benefits and practicality of ROT schemes

Introduce simple licensing for small projects (amend the General Electricity Law or the Law on Delimitations)

Strengthen the role of the regulator (amend the General Electricity Law)

Offer new power plants as BOO projects, develop the concept

Continue adjusting tariffs until tariffs arecost-reflective

Make the same subsidies available tothe private sector on equal terms

Establish a fund with clear policies andtransparent procedures

Seek funding from donor agencies

Continue to reduce losses

Allocate state budget and/or seekdonor support

Issue tender for private company tooperate the agency

Issue tenders for private operators

Draft concession contract and tender documents and launch tender

Approve pilot concession (CM or regulator)

If appropriate, prepare documents and launch a tender

Transfer responsibility for price setting to the regulator

Make the regulator independent of policymakers

Draft contracts and tender documents

Eventually phase out subsidies

Eventually privatize ENEand EDEL

Update master plan regularly

Transfer responsibility for the agency to its members

Continue tendering concessions / licenses

Launch tender when new plant is needed

Tariffs

Subsidies

Improve financial performance of companies

Electrification policy andprogram

Contracting out of services by ENE and EDEL

Concessions for the operation of isolated grids

Rehabilitation of existing plant and networks

Amend the concession regime

Regulation

New large power plant investments

Water, Sanitation, and Solid Waste

Private sector participation in the water and sanitationsector is a complex process that will require sustainedcommitment from the government if the potentialbenefits are to be fully realized through the provisionof improved services, especially for the poor and disad-vantaged groups. In developing partnerships with theprivate sector, the government should also encourageactive cooperation and collaboration with recipientcommunities and NGOs, particularly in peri-urbanand rural areas.

The proposed recommendations are summarized intable 8.3. It should be noted that many of the proposedinitiatives have been highlighted in the government’sown Water and Sanitation Development Strategy.Themain aim now should be to convert the proposals intofirm and effective action.

Water and SanitationChapter 5 analyzed the current water and sanitationsituation in Luanda, other urban centers, and ruralareas, and outlined government policies and strategies.Recommendations have been made to encourage pri-vate sector participation, expand the range of tech-nologies for water delivery, broaden the sectoral scopeof responsible public enterprises, and create an inde-pendent water sector regulator.The government’s ex-isting program, supplemented by the CFR’s recom-mendations, is summarized in the following actions:

Framework Issues• Water sector legal framework: The objective is to

have the Water Law of June 2002 and associatedregulations fully operational.The immediate prior-ity is to draft the regulations, present these to stake-holders for discussion, then finalize and publish theregulations as soon as possible. Subsequently, as ex-perience is gained in implementing the new law,further regulations or refinements may be required.

• Water sector regulator: In the newly created institu-tional structure, regulation of water as a natural re-source will be the responsibility of the catchmentcouncils, operating under the National WaterCouncil.However, there is no provision for the reg-ulation of service provision to ensure that high-standard water and sanitation services are delivered

to existing customers at affordable prices and thataccess to services is expanded as rapidly as possible.

Given skill constraints in Angola and synergiesbetween sectors, water and sanitation regulatory ca-pacity would best be created within a multi-sectoralregulatory agency which, crucially, should have ahigh degree of autonomy relative to government.Such a regulator is very desirable even if water andsanitation assets remain in state hands, but becomesessential when private sector participation is beingconsidered.The immediate requirements are to cre-ate the legal framework for a water service regula-tor and to establish the regulator as soon as possible.

• Local entrepreneurs and companies:There is substan-tial scope for local private sector entrepreneurs andcompanies to participate in the water and sanitationsector in urban and rural areas. However, in someareas the private sector lacks the skills and access tocapital resources to enter the market in an immedi-ately useful and effective way. In this context, thegovernment could initiate an appropriate trainingand technical assistance program.

Luanda• EPAL tariffs and financial and operational manage-

ment: Starting immediately, raise tariffs to the max-imum extent permitted by Executive Decree 27/98(i.e., full quarterly indexation to compensate for in-flation, plus real tariff increases of 15 percent every6 months). Many forms of PPI are dependent ontariffs that ensure commercial viability.

Continue tariff increases until full cost recoveryis achieved. Implement the public enterprise ac-counting requirements, under the guidance of a fis-cal council, as stipulated in Decrees 38/00, 42/01and 82/01.12

Improve bulk and customer metering and otheraspects of the physical network to provide reliablewater balance reports and improve flow manage-ment within the distribution system.

• Peri-urban water and sanitation: In the short term,invite private operators to build and operate cha-farizes (on a more efficient basis than EPAL is ableto do); provide EPAL with the financial resources toenhance competition in the truck-tank supplychain, while at the same time discussing, finalizing,and promulgating truck-tank regulations.


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Table 8.3 Recommendations: Water and Sanitation


Present draft regulations to stakeholders for discussion,finalize and publish

Create legal framework for water supply regulator

Promulgate regulations to allowfranchising of chafarizes

Provide training and financialassistance

Raise tariffs consistently by fullamount allowed under Decree27/98

Invite private operators to build and operate chafarizes

Provide EPAL with resourcesenhance competition in truck-tank supply chain

Regulate truck-tank supply chain

Carry out study on unbundling andoutsourcing

Implement public enterpriseaccounting requirements

Improve bulk metering to providereliable water balance and improve management of physicalflows

Conduct project to rehabilitate sewerage system

In peri-urban areas, encouragebasic construction and maintenance services by privatesector

Raise tariffs consistently by full amount allowed under Decree 27/98

Complete Master Plans for sevenurban centers

Reorganize water departments as semi-autonomous Public Municipal Enterprises

Where water and sanitation enterprises already exist, allow greater autonomy

Carry out study on feasibility/desirability of multi-sector utilities

Refine and add to regulations, as necessary

Establish regulator (preferably as part of autonomous multi-sector regulatory agency)

Continue training and financial assistance

Continue with tariff increases until costrecovery levels are achieved

Tender demonstration projects on appropriate technologies for water and sanitation in the musseques

Enforce regulations under increasinglycompetitive conditions

Unbundle and progressively outsourceidentified functions

Investigate options for wastewater treatment; and invite bids to build and operate the facilities

Further develop private sector involvement in collaboration with NGOs and local community groups

Continue with tariff increases until costrecovery levels are achieved

Master Plans for next nine urban centers

Drawing on experience of EPAL and other utilities, start outsourcing of functions

Tender demonstration projects on appropriate technologies for water and sanitation especially for peri-urban areas

Establish multi-sector utilities

Water Law of June 2002 and associated regulations fully operational

Water tariffs to be subject to decisions of independent regulator

Invite private operators to replicate successful pilot projects

Complete process by concessioning core functions

Integrate water supply andsewerage services into one utility enterprise

Water tariffs to be subject to decisions of independent regulator

Master Plans for remaining 15 urban centers

Building on past experience,continue outsourcing

Invite private operators to replicate successful pilot projects

Operate under a multi-sector regulator

Framework Issues

Legal framework

Water sector regulator (service provision)

Local PPI entrepreneurs

Luanda—water and sanitation

Water tariffs

Peri-urban water

EPAL

Sewerage

Sanitation

Other urban centers—water and sanitation

Tariffs

Planning

Institutional reform

Tender demonstration projects on alternativewater and sanitation delivery technologies (as wellas considering modifications to existing deliverysystems, such as EPAL’s chafarizes, to reduce costsand water wastage). Ensure technical and user-leveldiscussions are held. In the medium to long term,encourage PPI operators, community enterprises,and NGOs to replicate successful pilot projects.

• EPAL PPI options: Reconsider the range of PPIoptions, including the 1998 proposal for a flexible,phased private sector agreement and the Mozam-bique institutional model (i.e., assets holding com-pany, private operator, and independent sectorregulator). The choice of PPI option partly de-pends on whether revenues will cover costs orwhether subsidies are available to cover revenueshortfalls.

• EPAL recommendation:The CFR recommendationis for a phased approach, which will make it possibleto introduce PPI in the near future and allow expe-rience to be gained before the entire enterprise isprivatized. This approach involves EPAL defining itscore business, unbundling, and outsourcing, leasingor granting concessions for as many functions as theavailability of suitably qualified firms makes possible(candidates could include: the capture, storage, and

treatment of bulk water; operation and maintenanceof the trunk transmission system and/or the distri-bution network and/or the sewerage system; readingof meters, billing and collection of revenue; mainte-nance and operation of the chafarizes).

Action to advance this approach requires animmediate study of the options, followed, in theshort run,by the unbundling and granting of licensesor concessions to private sector operators.

In the medium term, a decision should be madeon the optimum strategy of how to involve the pri-vate sector in the remaining core functions.The finalobjective would be a competitive tender for a long-term private concession.

• Sewerage and stormwater drainage: In the short tomedium term, rehabilitate the sewerage and storm-water drainage systems, and investigate options forwastewater treatment. Invite bids for a concessionto build and operate the treatment plant. In thelonger term, consider the full integration of thewater supply and sewerage services into one utilityenterprise.

• Sanitation: In peri-urban areas, encourage the pri-vate sector to offer basic construction and mainte-nance services in collaboration with NGOs andlocal community groups


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Table 8.3 Recommendations: Water and Sanitation (continued)


Carry out feasibility studies on waterborne sewerage and stormwater drainage systems in selected urban centers

In peri-urban areas, encourage basic construction and maintenance services by privatesector

Prepare framework and incentivesfor private sector involvement inwater and sanitation

Finalize and implement plans for regulator and management contracts with private sector

Resolve and clarify main outstanding issues

Invite bids to build and operate sewerage and wastewater treatmentsystems in selected urban centers

Further develop private sector involvement in collaboration with NGOs and local community groups

Develop private sector involvement incollaboration with NGOs and local community groups

Encourage solid waste recycling

Conduct study on property-based taxes and solid waste charges

Integrate water supply and sewerage services into one utility enterprise

Implement proposed taxes andcharges

Sewerage

Sanitation

Rural areas—water and sanitation

Luanda—solid waste


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Other Urban Centers• Tariffs: Starting immediately, raise tariffs to the

maximum extent permitted by Executive Decree27/98 (i.e., full quarterly indexation to compensatefor inflation, plus real tariff increases of 15 percentevery 6 months).

• Planning: Complete the masterplans for the sevencities where these are in progress.Thereafter, com-mission masterplans for the next 9 urban centers al-ready identified, and finally for the remaining 15urban centers included in the Water and SanitationSector Development Strategy.

• Institutional reform: Move water and sewerage outof provincial directorates and create public munici-pal enterprises that are semi-autonomous and takefull responsibility for these functions in all majorurban centers. Where feasible, these enterprisescould also be responsible for other sectors (e.g.,electricity).

Where public enterprises already exist forwater and sewerage (i.e., in Lobito and Benguela),give management increased autonomy and con-sider expansion into multi-sector utilities.

• Private sector participation: Encourage public mu-nicipal enterprises to define their core business, un-bundling and outsourcing, leasing or granting con-cessions for as many functions as the availability ofsuitably qualified firms makes possible (the sameareas as outlined for EPAL apply, with the additionof other sectoral activities where multi-sector utili-ties have been formed).

• Expanding the range of technologies for service de-livery: Implement demonstration projects on alter-native water and sanitation delivery technologiesand community participation approaches. Ensuretechnical and user-level discussions are held. In themedium to long term, have PPI operators, commu-nity enterprises, and NGOs replicate successfulpilot projects.

• Sewerage and stormwater drainage: Conduct feasi-bility studies on waterborne sewerage and stormwa-ter drainage. Invite bids for concessions to build andoperate sewerage systems. In the longer term, con-sider the full integration of the water supply andsewerage services into one utility enterprise.

• Sanitation: In peri-urban areas, encourage theprivate sector to offer basic construction and

maintenance services in collaboration with NGOsand local community groups.

Rural Areas• Framework and incentives to encourage PPI: Pro-

vide framework and incentives for the private sec-tor to provide construction and maintenance ser-vices for improved water and sanitation facilities incollaboration with NGOs and local communities.

Luanda—Solid WasteIn respect of solid waste services, important experiencehas been gained from the Urbana 2000 managementcontract. Based on the recommendations of a recentstudy, the government is preparing to implement sig-nificant reform of solid waste services in collaborationwith the private sector.The following main actions areproposed:• Solid waste regulator and management contracts

with the private sector (immediate): The ProvincialGovernment of Luanda is proposing to implementa new structure that includes: a provincial regulator;provincial supervision unit; ELISAL to act as themain asset holding company and lease equipment tothe private contractors; five area-based contracts forsolid waste collection; and three contracts to man-age the landfill site, disposal of hospital waste, anddisposal of industrial waste.The proposed structurewill require strong leadership from the regulator.

In addition, six issues require further considera-tion and clarification: (a) whether the contractorsfor solid waste collection should be financially re-sponsible for their own vehicles and equipment in-stead of leasing from ELISAL; (b) standardizationrequirements for vehicles and equipment; (c) con-tract payment procedures and lines of credit tominimize the risks of delayed payments by theprovincial government; (d) consultations with localcommunity groups and other interested parties; (e)options for the introduction of levies and chargesfor solid waste services (see below); and (f ) full con-sideration of the environmental implications andrequirements for both the public and private sec-tors, especially at the landfill site, and the disposal ofhospital and industrial wastes.

• Solid waste recycling (short to medium term): En-courage households to separate recyclable solid


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waste (e.g., paper, glass,metals, and plastics), and mi-croenterprises to collect the items for industrialrecycling.

• Property-based taxes and solid waste charges(medium to long term): Commission a study on theoptions, levels, and procedures to introduceproperty-based taxes and solid waste charges to fi-nance the service. Initially, it could be implementedin the formal part of Luanda.

Transport

In Angola all the transport modes serving domestictransport (road, rail, and air) need development but arepotentially in competition with each other and forscarce development funds.The investment priority inany or each mode should be considered after prepara-tion of a multimodal transport study of each relevantcorridor.This should identify the total traffic require-ments, prepare long-term traffic growth forecastsunder various scenarios, and consider a rational alloca-tion of traffic to each mode based on least cost and anintegrated view of transport development.

Roads and HighwaysThe road network in Angola has been severely dam-aged throughout the country. Resettlement has oc-curred on a grand scale and the effect on the volume oftraffic has been negative. It is necessary, therefore, toimprove data collection in order to understand thepresent condition of roads and bridges and the natureand volume of road traffic, to be better able to planhighway and roads development, and supply informa-tion to the private sector. Initially road transport plan-ning should be considered on a regional or networkbasis rather than provincial basis.

Following the cessation of hostilities, there nowexists the opportunity for resettlement, reestablishmentof past enterprises, particularly in agriculture, and thereopening of trunk routes connecting the rural popu-lation to the main centers.The GOA needs to facilitatethe process.

A secure source of government revenue must beestablished to ensure regular road rehabilitation andmaintenance, establishing the best budget and procure-ment practices to create confidence in the private sec-tor, the revitalization and proper financing of the Road

Fund being an important element of this policy.Fuel and lubrication taxes, motor vehicle import du-ties, registration, and road user charges would be theprimary mechanisms for establishing the base for theoperation of the Road Fund. Furthermore, an inde-pendent governing body of the Road Fund should beestablished and its members appointed from all stake-holder groups—road users, vehicle suppliers, and roadtransport users—passenger and freight—as well asgovernment representatives from line and oversightministries.

Legislative changes must be completed or initiatedin order to revive the Road Fund including setting ap-propriate revenues by taxing mainly road users.There isalso a need to clarify the “reserve” conditions of infra-structure ownership and road services operations (i.e.,which areas are open to the private sector and whichreserved for the public sector), and also to set the insti-tutional framework for road maintenance, construc-tion, and operation, including concessions based ontolling, shadow tolling, or performance-based con-tracts.To improve the institutional framework, INEA’scapacity and role should be strengthened.

INEA’s technical, managerial, and operationalcapacity must be improved to ensure the developmentof the roads network, particularly in terms of planning,forecasting, financial control, and procurement.

To further enhance the environment for private sec-tor participation the GOA should privatize the INEAbrigades into road construction and maintenanceenterprises and heavy equipment rental companies.

Studies need to be conducted to analyze opportu-nities for shadow tolls or performance-based contracts,in the short term for connections between Luanda–Viana, Benguela–Lobito (short distance), Huambo andthe cities of Benguela, Lubango, and Kuito (long dis-tance). There are also opportunities to consider theconcessioning of tolled bridges on heavily traffickedroutes.

RailwaysIn the past, as well as just carrying passengers for travelpurposes, the railway provided useful services to portsand to mines to transport raw materials around thecountry and to bring exports to the ports. One ofthe initial steps that should be taken is to pursue thecommissioning of Angoferro as a national master plan

type of study. It is important that studies are under-taken to assess the present condition of rail lines,bridges, and traffic demand, improve the planning ofthe rail lines development, and provide information onopportunities to the private sector. Surveys of the net-works should be carried out to gain a better under-standing of the true situation of the lines, in terms ofinvestment needs and reliable market surveys of users’intentions, the competitive position of rail comparedto other modes, and ability to pay.

Rehabilitation priorities are to reopen rail lines tofacilitate the resettlement of the displaced rural popu-lation and to transport agricultural and mineral pro-duction to markets.Access to the main traditional agri-cultural and mining regions, such as the Luanda andthe Central and Southern regions, is essential for futureeconomic development. However, realistic estimatesmust be made of the likely future regional andexport/import trade from these sectors, as well as therole that rail will play.

After the National Assembly’s approval of the BaseLaw of Surface Transport, there will be a further needto pursue the overhaul of current legislation, and thedevelopment of a legal framework for rail operationsand concessions that reflects the opportunities andconstraints of the present publicly owned, verticallyintegrated companies through a new railways act.Thisshould clarify the reserve conditions of infrastructureownership for public and private rail services opera-tions.Moreover, to attract the private sector, a clear sys-tem of subsidies according to passengers transportedmust be defined. Allocation and payment of subsidiesto operators must be timely to facilitate sound financialmanagement.These measures need also to be consid-ered in terms of their cost-effectiveness, taking accountof competition from other transport modes.

There needs to be an initial emphasis on commis-sioning feasibility studies for suburban rail operatingconcessions to analyze the possible PPI opportunitiesfor the main suburban lines, i.e., Benguela–Lobito andLuanda–Cacuaco–Viana.

Medium- and longer-term studies should also becommissioned along with multimodal studies to un-dertake technical, economic, institutional, and financialstudies of the viability of involving private interestsin the three lines, Luanda to Malange, Lobito to Luauvia Huambo, and Namibe–Menongue via Lubango.

Studies should rigorously assess the demand for trans-portation of agricultural and mining products, fuel, andimported goods for the hinterland and for other coun-tries, and the role of competing modes, particularlyroad transport.

PortsThe Port of Luanda is one of the most prominentexamples of private sector participation in Angola; theletting of second-stage concession contracts is in pro-cess for the main port activities. However, measuresneed to be taken to reduce delays in port operations.Most of the delays are related to importers’ financialconstraints for payment of duties. Therefore measuresneed to be taken to expedite procedures, in associationwith the Customs Authorities, to clear the cargo faster,using increasing penalties for those goods not clearedby the importers in due time.

It is understood that the reconcessioning of the Portof Luanda is under way. Tenders or negotiations for fourterminals in the Port of Luanda need to be finalized.Moreover, the concession for the Port of Cabinda alsoneeds to be completed. Lessons learned from the expe-rience of early management contract forms and laterconcessions in Luanda could be applied to opportunitiesin the other ports when demand is sufficient (althoughlow volumes now indicate private interest is unlikelyexcept for service contracts without revenue risk).

An interesting strategy that could develop is for theopportunity of multimodal connections in the Port ofLuanda. In coordination with CFL and within a largerproject for the rehabilitation of the Luanda suburbanrail system, a study should examine the feasibility forthe development of rail evacuation of container andbulk cargoes, and the redevelopment of the CFL mar-shalling yards in central Luanda.

AirportsDuring the period of hostilities domestic air traffic ex-panded due to the extremely poor conditions of theother transport modes. As the road (and possibly rail)networks are rehabilitated, there will be considerableuncertainty about the demand for air transport; generaleconomic development will lead to growing demandbut,on the other hand, some traffic will be lost to othermodes. These demand uncertainties will make plan-ning difficult and increase risks for PPI.


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Rehabilitation priorities are to improve the func-tioning and facilities of Luanda and major provincialairports, including runways, parking space, and termi-nals.Beyond this there is a requirement for changes andenactment of certain necessary legislation. Throughdata collection and technical studies, clarification issought for the sector as a whole as to where private in-vestment can be made.The Law of Delimitations indi-cates and it should be confirmed or clarified whetherthe main airport infrastructure such as (i) runways and(ii) terminals is in “absolute reserve.”There is likely tobe a need to overhaul and complete the legal frame-work for the introduction of PPI in airport operationsand concessions, to bring the opportunities into linewith GOA policy for the sector.

As with all other main infrastructure sectors, theestablishment of an independent economic regulatorfor the airport sector (National Institute of Civil Avia-tion) should be completed with powers to set prices ofairport services and to protect private sector suppliersand users of services from unwarranted commercialexploitation.The emphasis should be for the regulatorto set cost-reflective prices as far as possible subject toconstraints.

In furthering the environment for private sectorparticipation, it is strongly advised to incorporateENANA management, even if it is kept state-owned.This will help in improving transparency and deter-mining the expected rate of return on airportinfrastructure.

Once the minimum steps have been undertaken ashighlighted above, the opportunities for concessioningLuanda airport passenger and cargo terminals andsome of the provincial airports should be analyzed bycommissioning detailed technical and financial studies.This will be a valuable source of information for po-tential private sector investors. Table 8.4, lists the trans-port recommendations.

Telecommunications

The telecommunications sector in Angola, as in manyother countries, is at the forefront of the involvementof the private sector compared to other infrastructuresectors. However, the liberalization in the sector hasnot proceeded as fast as might have been initiallyplanned. The incumbent, Angola Telecom (AT), has

made only modest steps towards restructuring. Con-cerning Angola Telecom privatization, the GOA hastaken some actions such as the diagnosis of the basicnetwork, the study for the economic and financial re-structuring of Angola Telecom, the recent appointmentof a committee to study the action plan to implementthe incumbent’s privatization, and the preparation of aperformance contract.

The major PPI development has been the intro-duction of a private, competing mobile serviceprovider, but the growth of connections has been hin-dered by the structure of the sector and the generaldifficulties of investment in Angola. A more recentdevelopment has been the issuing of four new fixedline licenses to private operators.

It is clear that measures including the refinement ofthe legal framework need to be taken to promote pri-vate sector investment in the infrastructure of the“basic network.”A proactive approach in the mediumterm would be to enact legislation that defines thebasic network as controlled reserve as opposed to ab-solute reserve, thereby allowing a partial privatizationof Angola Telecom and acceptance of a strategic for-eign partner. At the moment, with the existing law,AT reserves the right to provide for interconnection ofvarious operators.This needs to be modified since ATis struggling to cope with current connections, and theforecasts for the future are of further robust growth.

Clarity is lacking in some of the legislation.Thereneeds to be clearer definitions of the concepts ofbasic network, support services to public telecommu-nications networks, and nationwide fixed telephonyservices. Furthermore, it is important to make appar-ent the relationships (boundaries) between thesedefinitions.

INACOM has been established and does havesome real powers; however, there is still a requirementto improve the regulatory structure. This warrants areview of INACOM’s current statutes to ensure thatit is legally an independent entity. To this end, it isalso required that there be further clarification be-tween the roles of MCT and DNT and their corre-sponding relationship with INACOM. Hence, clearroles for the governmental institutions will foster amore transparent institutional environment, whichwill be perceived as very positive by potential privatesector investors.


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116

Table 8.4 Recommendations: Transport


Carry out multimodal studies in each transport corridor to develop integrated transport plans for the development of each mode

Improve data collection in order tounderstand the present condition of roads and bridgesand the nature and volume of road traffic; make information available to the private sector

Determine expenditure priorities in rehabilitation, e.g., to reopentrunk routes to facilitate the resettlement of displaced rural population

Revive the Road Fund

Complete the restructuring of theRoad Fund legislation and bring up to date, including the appropriate institutional framework

Revise the basis for allocating revenues in the Road Fund,establishing rules for financing maintenance, rehabilitation, andconstruction

Privatize the INEA Brigades into road construction and maintenance enterprises and heavy equipment rental companies

Analyze opportunities for shadow tolls and performance-based contracts

Improve INEA technical,managerial, and operational capacity

Improve data collection in order toassess the present condition of rail lines and bridges and traffic demand

Priorities in rehabilitation are to reopen rail lines to facilitate resettlement and access to the main traditional agricultural and mining regions

Consider road transport planning on aregional or network basis rather than provincial basis

Focus on investments to get agricultural and mineral productionto markets

Establish an independent governing bodyof the Road Fund and appoint its members from all stakeholder groups

Clarify “reserve” conditions of infrastructure ownership and roadservices operations

Consider the phasing out of subsidies to motor vehicle fuel and the introduction of appropriate taxes onfuel; ensure that other taxes on vehicles are paid to the Road Fund

Establish the best budget and procurement practices to create confidence in the private sector

Undertake initial tolling contracts

Complete surveys of the networks to improve understanding of investment needs

Establish an institutional framework capable of introducing a modern railway operation

Set legal framework for privateinvolvement in road maintenance, construction,and operation, including for concessions based on tolling,shadow tolling, and performance-based contracts

Expand the concessioning of tolled bridges, and tolled and shadow tolled roads, on heavily trafficked routes

Consider the vertical separation of the existing railway companies and the basis for concessioning of railoperations

All transport

Data collection, studies

Roads and highways

Data collection

Political commitment

Legislation

Cost covering tariffs—Road Fund

Starting PPI in roads maintenance

Tolling, shadow tolling,and performance-based concession contracts

Institutional capacity building

Railways

Data collection



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Table 8.4 Recommendations: Transport (continued)


Revision of the current legislation,setting a legal framework for railoperations and concessions

Analyze opportunities for suburbanlines to identify any that may attract PPI

Expedite procedures in Luanda port, in association with Customs, to clear the cargo faster

Finalize tenders or negotiations forfour terminals in the Port of Luanda, and the concession of the Cabinda port

Assess traffic demand, provideinformation to the private sector

Clarify policy on role of PPI in airport rehabilitation and development

Clarify for the sector as a wholewhere private investment can bemade, and confirm whether main infrastructure such as (i) runways and (ii) terminals are in “absolute reserve”

Review airport user charges; seek charges consistent with the costsof the resources engaged in theservices

ENANA management, even if keptstate owned, should be entirelyincorporated

Establish a clear system of subsidies defined and targeted at specific social groups; payment of subsidies must be in due time

Analyze and assess possible PPIinterest for the three lines,Luanda to Malange, Lobito to Luau via Huambo, and Namibe–Menongue via Lubango

Analyze opportunities for other ports

Examine the feasibility of rail evacuation of container and bulk cargoes, and redevelopment of the CFL marshalling yards

Complete the legal framework for the introduction of PPI in airport operations and concessions

Provide guidelines for the expected rate of return on airport infrastructure

Analyze opportunities for concessioning Luanda airport passenger and cargo terminals and provincial airports

Complete the establishment ofan independent economic regulator for the airport sector (National Institute of Civil Aviation)

Tender the concessions

Legislation

Clarification of subsidiessystems

Suburban rail operatingconcessions

Studies of potential long- distance concessions

Ports

Reducing delays in port operations

Concessioning tenders

Multimodal connections in the Port of Luanda

Airports

Data collection, demandstudies


Legislation and economicregulation

Cost covering tariffs

Incorporate ENANA

Airport concessioning

The incumbent operator has not yet been fully pre-pared for the liberalization of the sector. AT shouldbecome a commercial company, with public capital.AT should keep the basic fixed line services as its corebusiness but all other services (mobile, data,TV, and soon) should be run by autonomous subsidiaries. How-ever, even fixed line services are not necessarily a com-plete monopoly activity, especially with technologicalprogress on fixed wireless services that allow for com-petitive services to emerge. Restructuring AT manage-ment and finances should take place in the short term,otherwise there is the risk that AT will lose its marketvalue, so that its partial privatization will not bring theneeded cash forAT development.In the future,AT (basicservices) will face strong competition not only fromother fixed line operators but also from mobile services.

To continue the reform and liberalization process,there is a need for transparency in investment and op-erating costs. AT should be restructured and unbun-dled into separate incorporated business units. Thiswould aim to enhance the necessary efficient signalsfor prospective investors and encourage the initiationof strategic partnerships. In this regard it is quite essen-tial that AT prepare a long-term investment plan tohighlight the necessary investment and financing needsto meet the objective of increased service and coverageof the network.Generally, the mobile network businessis much more profitable than the fixed-line network;therefore it is advised that any strategic partner shouldbe involved in both segments, since fixed line commu-nications on their own would be relatively unattractive.

It is a universal requirement for all sectors that thereshould be an increase in the number of strategic stud-ies, feasibility studies, and data collection from a census,for example. This process has been initiated with thegovernment’s White Paper on telecommunicationsliberalization. However, it may be useful for INACOMto assume a more communicative role by producing itsown studies for use by the private sector.13

Once the restructuring and incorporation processhas taken place, AT will be in a position where it canbe privatized.This process could be started by associat-ing AT with a strategic partner to begin with, allowingthe company to assume an increasing role over time,thereby progressively building equity in its own posi-tion in the company. This could be done through a

phased private participation contract, for example.Management of the new business units should also begiven the autonomy to make decisions, particularlyin areas where the potential exists for outsourcing,leasing, and other service contracts, which should beencouraged as much as possible.

Regional integration is a keen objective in Angola,and this gives additional emphasis to the need for thedevelopment of a National Fiber Optic BackboneNetwork (NFOBN) as a means of facilitating inter-connection among all the regions of the country andamong operators/service providers. AT should focuson this objective in its long-term strategic plan andidentify barriers, opportunities, and necessary arrange-ments to bring this project to fruition in partnershipwith the private sector, since major private financing islikely to be required.

The general approach to the respective roles of ATand the private sector is as follows:• The backbone is considered as the incumbent’s

responsibility• AT to open an international tender for that

backbone• Tenderers are requested to propose a financing

scheme• The GOA and AT will negotiate the loan.A national interconnected network will bring benefitsfor all existing operators, particularly with respect tointerconnection issues and open up the market forfixed line communication to the rest of Angola. How-ever, there may be a need initially to have the GOA’sinvolvement in providing guarantees of foreign credi-tor loans to kick-start the project. Any such loansshould be free from clauses of origins, so as to maxi-mize the potential private sector input.

In the mobile segment Unitel has not yet broughtreal competition. Both AT and Unitel mobile net-works remain saturated for long periods of time.Capital and capacity shortages as well as service differ-entiation are limiting competition. The mobile com-munications market is a fast-growing segment of thetelecommunications business and has relatively lowerfixed cost requirements. The GOA needs to improvefurther the conditions for real competition in mobileservices, launching an open tender for a new mobilelicense.


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119

Table 8.5 Recommendations: Telecommunications


Immediate action to redefine theinfrastructure of basic network to become state-controlled reserve, to allow partial AT privatization to a strategic partner

GOA to create incentives (customand tax reductions) to telecommunications operators

Clarify the concepts of: basic network, support services to public telecommunications networks, and nationwide fixed telephony services and their corresponding PPI opportunities

Make clear what are the servicesto be provided by the newly licensed fixed line operators

Revise MCT statutes. Establish a clear and transparent delimitation between policymaker (Ministry—DNT) and the Regulator (INACOM)

Revise INACOM’s statutes to ensure regulator’s independence.

MCT to appoint INACOM’s BoardStart monitoring quality of service,

pricing policies, numbering, and interconnection, etc.

Incorporate ATSeparate the core (voice fixed

services) from other business areas into independent subsidiaries

Strategic partnership with an experienced mobile internationaloperator, through Movicel partialprivatization

Implement performance contractbetween GOA and AT

AT to prepare a long-term investment plan (15 years), to ensure company viability and thefeasibility of NFOBN

AT to get credits in the domestic market

Start the process of tendering a NFOBN

Start the process of launching an open tender to license a third mobile operator

Eliminate restrictions to telecommunications infrastructure ownership and in general to telecommunications full liberalization

Implement legislation to allow full liberalization of telecommunicationsmarket

Start full telecommunications market liberalization

Harmonize all the sector legislation tonear future full market liberalization

Ensure further regulation of AT tospeed up interconnections

Start AT (fixed lines) privatization,selling to a strategic partner a stake for the core business (nationwide voice fixed services)

Implement AT’s management and financial restructuring

GOA to provide funds to AT, through the state budget and/or foreign credit loans. In the latter case, GOA to become the Guarantor. Such loans to be free from clauses of origin

Installation and commissioning of backbone

Complete AT privatization

Final installation and commissioning of backbone

General legislation

Sector legislation

Sector organization

Regulator

AT privatization

AT funding

National Fiber Optic Backbone Network (NFOBN)

Mobile services


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Further private sector participation has recentlyemerged with the letting of four new fixed line licensesto private operators.

Some of the actions in table 8.5 are foreseen in theWhite Paper, but their implementation has been de-layed and needs more impetus. Most of the key actionsare required in the short or medium term as, in thelonger term, it is expected that the sector will be fullyliberalized.

Notes

1. New York Convention on the Recognition and Enforcement ofForeign Arbitral Awards. A party that has ratified the Conventionagrees to permit the enforcement within its jurisdiction of arbitraldecisions reached in the jurisdictions of other convention countries.2. The proposed LNG project could provide such an opportunity;the plant will need its own power generation and additional capac-ity could be provided to supply local consumers.

3. Compared with others in the region.4. Apart from the Capanda hydropower scheme, which is underconstruction.5. ROT and ROO arrangements would also require state guaran-tees under current circumstances.6. An option that might avoid long-term PPAs is container-mounted, small diesel generators. Because these can be movedquickly if the buyer does not pay, they can be installed withoutsignificant government guarantees; however, the generating cost canbe very high.7. Another opportunity might be the proposed LNG project inSoyo.8. ENE’s distribution activity.9. Paragraph 131.10. Wholesale tariffs could be increased monthly or quarterly, butretail tariffs to consumers should probably increase only every sixmonths or at most quarterly.11. The General Electricity Law (Law 14-A/96).12. See box 3.2 in chapter 3.13. If these were sold to the private sector, it could be a smallfurther source of revenue to INACOM.

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Conditions for Independence

Independence of a regulator from policymakers cannever be absolute, but in practical terms it means thatregulation is distanced from policymaking with safe-guards to allow it to take and enforce decisions withoutundue political interference.A set of safeguards consid-ered necessary to underpin independence is listed1 intable A1.1.There is no precise definition of indepen-dence but the table provides an indication of the issuesthat affect independence.The table indicates that someof these safeguards should have relatively greater im-portance than others in their relevance to conditions inAngola.

A further condition necessary to support the inde-pendence of the regulator is to have adequate andeffective procedures for dispute resolution and appeals.If there is a dispute or appeal against a regulator’s deci-sion, it should be dealt with in the first instance by theregulator’s own procedures.The procedures should bespeedy and fair, aiming to solve most of the disputesbrought to the regulator.

If the dispute is taken outside the regulator to thejudicial courts or, worse still, to the executive for aMinister’s decision, it will undermine the regulator’sauthority and could lead to a situation where partiesignore the regulator and wait to take their case to thecourts or the Minister.

How Important Is Independence?A well-established regulatory framework is one of thekey building blocks that a private investor (and the

banks providing their finance) seek to create a stableand predictable business environment for long-terminvestment. Independence is a particularly importantquality for a regulator who regulates prices and otherkey conditions for the operation of privately ownedutilities; it gives assurance to the private companies andinvestors that revenues will cover costs and provide areasonable return on investment.2 A politically de-pendent regulator is likely to be influenced by short-term political factors, usually to maintain low pricesthat often override the interests of investors and ulti-mately lead to a long-term decline in investment anddeterioration in the utilities’ performance.

Independence is less important where the utility isstate-owned and where the state is the shareholder ofthe utility, though it does remain of considerableimportance to commercial banks that need assurancethat their loans will be serviced. In the absence of anindependent regulator, banks will seek stronger sover-eign guarantees. Independence is also less important toprivate investors where their revenues are determinedthrough long-term contracts, though again they willseek some assurance that the buyer will have therevenues to meet their contractual commitments.

The Value of Independence Depends on Other ConditionsFor the independence to be fully effective, other con-ditions need to exist:3

• Effective political and economic institutions• Separation of powers, particularly between the

executive and the legal system• A well-functioning legal system and sound courts

Appendix AIndependent Regulation

• A good commercial law framework and some com-petition policy basis

• A supply of well-qualified staff able to conduct thevarious functions

• A functional commercial framework.There are clearly weaknesses in all the above areas

in Angola.This does not mean that attempting to createindependent regulators is not worthwhile; on the con-trary, it implies that independent regulation couldmake a useful contribution to building confidence in

the regulatory environment to compensate for some ofthe inadequacies elsewhere.

Appendix A: Independent Regulation

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Table A1.1 Safeguards to Ensure “Independence”

Safeguard Importance and relevance to Angola Providing the regulator with a distinct legal mandate,

free of Ministerial control

Prescribing professional criteria for appointment

Involving both the executive and the legislative branchesin the appointment process

Appointing regulators for fixed terms and protecting them from arbitrary removal

Staggering terms so that they do not coincide with the election cycle, and, for a board or commission,staggering the terms of members

Exempting the agency from civil service salary rules that make it difficult to attract and retain well-qualified staff

Providing the agency with a reliable source of funding,usually earmarked levies on regulated firms or consumers

Yes.This is one of the key necessary conditions that define an independent regulator.The regulator should report (e.g., annually) to a representative body such as Parliament.

Yes, although it is difficult to define professional criteria precisely in Angola without excluding most candidates. More important is that the appointment should be based on competence rather than politics.

It is common for the executive branch to propose candidates and the Parliament to approve. Approval by a representative body such as Parliament helps to diffuse the strength of individual lobbies.

Yes, this is one of the most important factors.The regulator should be protected from dismissal except for medical or other reasonspreventing him from performing. In the absence of this safeguard,even if the regulator is nominally independent, the threat of dismissalwill ensure it is not independent.

Where there is a commission with more than one member or a board,staggering appointments ensures that there is continuity in decision-making and the complexion of the regulator cannot be changed overnight.

It is important to be able to pay salaries comparable to those of the utilities they regulate, but this is not easily resolved if regulators are civil servants and tied to civil service salaries.

It is essential that the regulator have an independent source of funding not dependent on the annual state budget. License fees are a common source of income. Sometimes it is necessary for the regulator’s initial budget to be covered by the state budget until fees are sufficient.

Notes

1. The World Bank Group, Viewpoint, October 1997; UtilityRegulators—The Independence Debate, by Warwick Smith.2. Providing that the investments have been properly made.3. Jon Stern, Styles of Regulation: The Choice of Approach toUtility Regulation in Central and Eastern Europe, London Busi-ness School Discussion Papers, November 1999.

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Multi-utility regulatory agencies (public utility com-missions) are universal in the U.S.These regulators havequasi-judicial powers, normally with a five-personcommission that is supported by technical staff.

Outside the U.S., the privatization of utilities oropening of markets to private participation began inthe larger countries such as the UK, Argentina, andChile. Different sectors were privatized at differenttimes often separated by several years.The large size ofthe countries meant that regulatory agencies needed tobe large and the scope for staff and resource savings bycombining sectors under one regulatory agency waslimited. This, together with separation in time of theprivatizations,meant that regulatory agencies tended tobe established separately for each sector.

As utility sector liberalization extended to smallercountries, multi-sector utility regulators began toappear outside the U.S. in countries such as Ghana,Guyana, Jamaica, Latvia, and Lithuania.

The advantages1 of having a single regulator coveringseveral sectors are:• Resource sharing and therefore cost saving;• It allows the experience gained in one sector to be

used in other sectors;• It gives the regulator increased confidence in

confronting powerful utilities or resisting politicalpressure; and

• It allows smoother decisionmaking over issues thatstraddle two or more sectors (e.g., regulation ofmulti-sector utilities).

The advantages of a system of separate regulators eachresponsible for a separate sector are that it:• Permits comparative performance among different

regulators;• Does not concentrate power within one body;• May provide greater transparency in decisionmak-

ing over issues that straddle two or more sectors;and

• Recognizes some different regulatory requirementsin different sectors.There is no universal answer to whether there

should be one multi-utility regulator or several single-utility regulators. However, the relative importance ofthe different factors that favor single-utility or multi-utility regulators depends heavily on the country’s sizeand the human resources available.

For small countries, such as Jamaica (population2.5 million) or Guyana (population 800,000), the con-straints on human resources dominate the decision. Forlarger countries, the benefits of single-utility regulationmay be more important than resource saving. Formedium-sized countries, the choice is less clear.

Angola is a middle-sized country with a populationof 12 million.However,Angola has major constraints asto the availability of personnel with management andbusiness skills.The same constraints would be magnifiedin relation to personnel with the economic,accounting,technical, and legal skills required to run several single-utility regulatory agencies. We therefore recommendthe development of one or two multi-utility agencies

Appendix BMulti-Utility Regulator

(with a separate transport regulator in the secondcase). If Angola were to create separate regulators forwater,wastewater, electricity,natural gas, telecommuni-cations, airports, seaports, rail, toll bridges, and postalservices, there would be major constraints on humanresources to fill these organizations.The two options inAngola are:• One regulator:

o Multi-utility: electricity (piped gas, if it devel-ops), water, wastewater, telecom, rail, airports,and ports (toll roads or bridges if they develop)

• Two regulators:o Multi-utility: electricity (piped gas, if it devel-

ops), water, wastewater, and telecommunicationso Transport:2 rail, airports, and ports (toll roads or

bridges if they develop)

The solid waste regulation in Luanda is presentlythe provincial government’s responsibility; we recom-mend that this arrangement continue.The implemen-tation of multiple contracts to replace the Urbana 2000exclusive contract is urgent and should not await theestablishment of a multi-sector utility regulator. How-ever, at a later stage, when the multi-utility regulator isfully operational, it may make sense for the regulationof solid waste (for other urban centers as well asLuanda) also to become part of its mandate.

Appendix B: Multi-Utility Regulator

124

Notes

1. See, for example, Utility Regulators—Roles & Responsibilities,Warwick Smith, Public Policy for the Private Sector, 1997.2. Possibly including buses and taxis.

125

Given the subsidy-ridden environment in Angola, thisannex sets out some general guidelines for performance-related subsidies [also referred to as Output Based Aid(OBA) and“smart subsidies”] and how these work withprivate operators. It applies particularly to network ser-vices such as electricity, but also to the other infrastruc-ture sectors.

Governments tend to justify subsidizing infrastruc-ture services to provide these benefits on equitygrounds (since services such as electricity and water aremore affordable in higher income urban areas, access toinfrastructure services needs to be subsidized in poorareas), and development grounds (poor areas cannotafford the costs of access to electricity and water, butbasic infrastructure services are needed to support eco-nomic and social development). In other words, subsi-dizing infrastructure services is seen as one of the waysof correcting for biased income distribution.

However, finding the right way to inject subsidiesto improve incentives for efficient project implemen-tation and management has proved elusive. In theworst cases, subsidies have created perverse incentivesresulting in increased losses1 and weakened financialsustainability.

Therefore, the key problem is how to deliver subsi-dies that give incentives to profit-motivated companiesto supply communities in areas where the capital costs,the operating costs per customer, and losses are high,and revenues are low. In addition, the potentially largenumber of such schemes and their small size2 make ittime-consuming and expensive to implement andregulate.These issues are discussed in four areas:

1. Designing incentive structures2. Structuring of subsidy flows3. Procurement of contracts—competitions4. Monitoring and regulation of contracts

Designing Incentive Structures

It is increasingly apparent that many of the highly cen-tralized approaches to infrastructure investment failbecause of the poor incentives. In the typical central-ized approach, the state-owned monopoly utility car-ries out investment to improve access in low-incomeand low population density areas as a function withinits distribution activity and is the monopoly investor,owner, and operator.There is no separation of businessactivity or accounting.The activity may be loss makingand is often viewed unfavorably from a commercialand technical standpoint (the utility prefers big infra-structure projects to small rural projects).These lossesare absorbed within the centralized accounts or com-pensated by a subsidy, which disappears into thecentralized budget and is not properly earmarked forinfrastructure investments.

In this type of centralized structure there are weakincentives to carry out infrastructure investmentprojects efficiently, often resulting in overstaffing,bureaucratic procedures causing delays, and expensivepurchasing. Since each new consumer could be anadditional loss, the utility is in no hurry to make newconnections.Where losses are compensated retrospec-tively through an annual budget, there is a lack offinancial discipline to reduce losses.

Appendix CTargeting Subsidies

Decentralization of various responsibilities such asownership, operation, and regulation provides oppor-tunities to inject incentives that promote efficiencythrough the various stages of the project cycle. Decen-tralization also involves bringing in new players: e.g.,local involvement through cooperatives, various formsof private sector participation in investment and man-agement, small businesses offering private delivery ofservices (e.g., for off-grid electricity systems andpotable water supplies), and independent rural agenciesfor funding or regulation.

Structuring of Subsidy Flows

Smart subsidies are delivered through targetingassistance on measurable performance indicators orcontracting for service delivery (also known as OBAcontracting).While targeting in some form has been acomponent of most subsidized infrastructure projects,OBA contracting is a more recent and promisingdevelopment assistance concept. There are a growingnumber of pilot schemes and proposals in the pipelinethat incorporate OBA contracting elements and thatshould provide a learning base on which to developfull OBA approaches in the future.

OBA schemes should be most effective where sub-sidies are disbursed for actual performance against out-put measures. For Angola, output measures mightinclude:• Numbers of connections, where the company has

obligations to supply all consumers who want theservice and who are willing and able to pay the

required (subsidized) costs in a given area (grants forproviding access)

• Aggregated supply of groups of households orvillages in a specified area, but subsidies areprovided en bloc rather than per building orhouse

• Installation of service points (water tanks or photo-voltaic, for example) in houses or buildings.

Other performance areas include efficiency improve-ments in reduced losses and improved revenue collec-tion.However,these areas are more complex to measureand we are not aware of any aid disbursement directlylinked to them.

Subsidy could, in principle, be directed towardeither capital expenditure or operating expenditure.However, experience strongly indicates that operatingsubsidies can damage incentives.Whereas aid for capi-tal expenditure has a directly measurable benefit interms of increased access or new connections, aid tocover operating losses results in poor financial disci-pline (the larger the loss, the larger the aid) and deteri-orating financial performance. Organizations depend-ent on operating subsidies are highly vulnerable to anyreduction in aid availability, which creates a disincen-tive to provide supplies to new customers.

Most successful subsidy schemes are delivered ascapital grants for the improvement in incumbent infra-structure access or the installation of new supply points(e.g., water wells or small generators). They are alsodelivered for increasing the access to consumers. Insome instances they are delivered as subsidies for therehabilitation of networks.3 Another issue concerning

Appendix C: Targeting Subsidies

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Table C1.1 Designing Incentive Structures

Elements of structures Description Problem addressed

Allocating responsibility for investment decisions so that the party who has to bear the costs also benefits from the investment

Setting of transparent and objective criteria

Decentralization and promotion of private initiatives,projects prioritized according to local financial contribution

Local and private organizations participate in financing and management

The owner of equipment does not benefit from efficiency improvement and thereforehas weak incentives to invest.

Selection of financially viable projects, efficientallocation of subsidies, avoidance of politicalinterference

Ensures demand exists and improves financialviability and sustainability of infrastructureinvestment program

Improved incentives for universal access,better maintenance and management

Investment and ownership responsibility

Clear, simple criteria for project selection

Demand-based project selection

Local participation


127

the structuring of subsidy flows is the disbursementrate and its linkage to performance achievement,without jeopardizing the project’s financial viability.

Targeting aid on specific outputs has been a featureof many infrastructure investment programs. However,there have been a number of problems when targets arenot sufficiently clearly defined or monitored, or wherethe supporting infrastructure for delivery of utility ser-vices is absent. Subsidies that are targeted at equipmentinstallation may end up supporting the better-offhouseholds rather than the poor, since they are the onesbetter able to afford their share of the costs. OBA couldincrease that tendency since it increases the incentivesfor delivery, regardless of the ultimate beneficiary.

It is essential that when a country such as Angolafollows a target-oriented approach, there is still a riskthat the infrastructure is poorly constructed or house-hold connections not made, so that little supply actually

gets to consumers. If there is a lack of an adequate sup-porting institutional framework, the specific target maybe achieved, but the delivery of the service may not be.

Procurement of Contracts—Competitions

Infrastructure investment schemes should introducesome element of competition with the grant linked tothe number of new registered consumers.The compe-tition can be based around, e.g., the lowest grant tosupply a given number of consumers or the largestnumber of consumers for a set amount of grant.

In some cases the competition gives the winner thefranchise to supply all potential consumers in a givenarea (exclusive franchise), but in others it only gives thewinner the responsibility to supply the nominatedvillages or households (i.e., open entry in which othercompetitors could supply further consumers).

Table C1.2 Structuring Subsidy Flows

Option Description Problem addressed

Grants are provided for providing access to a villagebut not per consumer.

Grants are provided per connection achieved.

Projects prioritized according to financial contributionfrom local sponsor, funds may be prorated to local contribution.

Payments linked to actual performance

Responsibility to register for service is given to the consumer.

Utility responsible for ensuring that take-up of service is high.

Ensure schemes are economically worthwhileand likely to be financially successful

Direct incentive to meet obligations

Capital grants disbursed for providing access to service

Capital grants disbursed for connection of consumers

Contributions from localcommunities

Disbursement rate and milestones

Table C1.3 Contract Procurement

Option Description Problem addressed

Subsidies are paid to utilities/cooperatives with territorial franchises.

Competition for concession to supply designated area

Bidder asking for lowest subsidy per consumer wins the competition.

Fixed amount of subsidy offered. Bidder offering to connect the highest number of consumers wins.

Strong supervision required to ensure that subsidies are well focused. It gives no incentive to minimize costs.

Incentive to minimize costs

Nonexclusive franchise leads to greater competition but risk of cherry picking.

Exclusive franchises

No competition for grant

Grant competition

Without exclusive franchises

Grant competition to supply nominated consumers

Grant competition to supplymaximum number of consumers

Contract Monitoring and Regulation

Concessions and other models for private sectorparticipation in infrastructure investment create a con-tractual relation for carrying out certain obligations,which might include the connection of newcustomers, defined investment levels, stand-aloneequipment installations, tariffs, and so on.These obliga-tions need to be regulated.The regulatory function canbe fulfilled by the local entity granting the concession,a national regulator, a specific agency, or even theutility (e.g., in the case of technical standards).

Monitoring systems are generally necessary to ensurethat subsidies have been used for their intended purposeand disbursed correctly according to agreed milestones.This requires some form of auditing function.

Where a demand-based approach is adopted, thelocal community will be close to the utility schemeand will be expected to alert regulators or the govern-ment if promised programs are not delivered.


128

Notes

1. Subsidies have mostly in the past been provided implicitlythrough price subsidies (e.g., through cross-subsidies or lossesabsorbed by a state-owned utility. Where there is a state-ownedmonopoly company it is possible to provide utility services withoutdirect explicit subsidies.This is achieved by cross-subsidizing fromurban to rural consumers or from industrial/commercial con-sumers to rural consumers.This raises the price of the service forurban consumers but allows rural consumers to pay the same priceas urban consumers. In practice, many state-owned monopolycompanies face tariffs that are kept too low to allow them to furtherinvestment and do not receive direct subsidies from the stategovernment. Price subsidies can damage financial discipline by cre-ating a climate of losses, distort the demand for such services, anddiscourage private participation.2. In many villages the number of customers ranges from a fewhundred to a few thousand.3. In many countries an implicit subsidy exists between urban andrural consumers. This is the case wherever rural consumer pricesare below full cost and urban prices are above.

129

Appendix DPower Plants

Table D1.1 Hydro Power Plants in Angola

Installed capacity Availability System Plant (MW) (MW)

North Cambambe 180.0 (4*45) 180.0Mabubas 17.8 (2*3 � 2*5.9) –

Central Lomaum 35.0 (2*10 � 1*15) –Biopio 14.4 (4*3.6) 3.6

South Matala 40.8 (3*13.8) 13.6

Subtotal 288.0 197.2

Bie Cunje 1.6 (3*0.54) –

Uige Luquixe 1.1 (2*0.36 � 0.4) –

Subtotal 2.7 –

Total 290.7 197.2Source: ENE—Sostema Eléctrico da ENE, Rehabilitaçâo, Carteira de Investimentos.

Appendix D: Power Plants

130

Table D1.2 Thermal Power Plants in Angola

Installed capacity Availability System Plant (MW) (MW)

North Gas Turbine 93.2 93.2Diesel 83.6 74.4

Central Gas Turbine 22.0 –Diesel 40.2 23.0

South Diesel 25.6 9.0

Subtotal 264.5 199.6

Cabinda Gas Turbine 10.5 10.0Diesel 21.0 8.8

Huambo Gas Turbine 10.0 –Diesel 5.8 2.8

Bie Diesel 3.4 1.0Uige Diesel 2.2 1.0Malange Diesel 3.4 0.7K. South Diesel 12.6 2.6Luena Diesel 1.1 –Caxito Diesel 1.2 1.2Saurimo Diesel 2.0 0.9

Subtotal 73.2 29.0

Total 337.8 228.6Source: ENE—Sostema Eléctrico da ENE, Rehabilitaçâo, Carteira de Investimentos.

131

Appendix ETelecommunications White PaperPrivatization Steps

Table E1.1 Privatization Steps Proposed in the Telecommunications White Paper

2000 2001 2003–2004 2005AT financial and economic

restructuring

The study has been done.Implementation ongoing

Incorporate AT and revise the AT’s existing statutes, accordingly

Set up strategies for partnerships with AT

Appointment of a non-executive board

Sign a performance contract betweenAT and GOA

AT not incorporatedNo strategies for partnershipsNo non-executive boardPerformance contract under

negotiation

Set up a strategic partnership for fixed services and carrier services

Strategic partnership for the operation of mobile services and UMTS licensing

By end-2004 the performance contract had not been signed.

Ongoing separation of the core(monopoly) functions from new business areas into independent subsidiaries.

Movicel for mobile services. Studies to set up a data communications company

Define a privatization policy

What Has Been Done

132

Appendix FTelecommunications SectorLiberalization

Table F1.1 Preparation for Liberalization

2000 2001 2003–2004 2005Start law issuance aiming at

opening the market tocompetition

Start actual competition inmobile services

Allow resale of servicesAllow local fixed services, especially in

rural remote areasTelecom sector to move to less

restrictive areas of state reserve

Free competition in all the services,except nationwide fixed service

Pro-competitive initiatives from GOA,MCT, and INACOM

Set up a legal framework allowing telecom sector development in acompetitive regime

Preparation for the transition to full competition

Table F1.2 MCT Strategies and Liberalization

2000 2001 2003–2004 2005Draft the telecom actDraft the regulations for

public telecommunications services

Draft rules for access to and provision of public telecommunications services

Submit legal documents to regulate telecom market under competitionto the Cabinet

DNT to concentrate on analysis and monitoring telecom policies and set up corresponding development strategies

DNT to start analysis and monitoring of telecom policies

Consolidate legal framework for full competition in the telecom market

Evaluate whether sector is ready for full competition

133

Appendix GAngola Telecom Sales

Table G1.1 Angola Telecom Sales*

1997 1998 1999 2000 2001 TMAC**

Services Value Percent Value Percent Value Percent Value Percent Value Percent Percent

Fixed line 58.2 54.4 59.5 52.9 61.3 48.9 52.3 49.3 72.4 48.4 4.0Cellular 23.3 21.8 29.7 26.4 39.7 31.7 31.8 30.0 43.0 28.7 7.7Telex 1.9 1.8 1.8 1.6 1.4 1.1 0.6 0.6 0.2 0.2 �33.4Maritime mobile – – 0.1 0.1 – – – – – – �25.8Datex – – 0.3 0.3 0.5 0.4 0.7 0.7 0.9 0.6 21.4International Calls 12.3 11.5 – – – – – – – –Internet – – 0.2 0.2 0.7 0.5 0.8 0.8 1.4 1.0 47.2Balance with other 11.3 10.6 – – – – – – – –

operatorsIBS – – 2.2 1.9 4.0 3.2 2.8 2.6 2.8 1.9 4.9VSAT – – 0.6 0.5 1.0 0.8 1.2 1.1 2.0 1.3 27.8TV signal transmission – – 0.7 0.6 1.4 1.2 1.4 1.3 1.4 1.0 16.7Radio signal transmission – – 0.1 0.1 0.3 0.2 0.5 0.5 0.7 0.5 45.4Leased lines – – 5.8 5.1 4.1 3.3 2.3 2.2 2.3 1.6 �16.5Telephone cards – – 0.6 0.6 0.6 0.5 0.3 0.3 1.1 0.8 11.9Telephone directory – – – – – – 0.1 0.1 – –Sales of branches – – 0.9 0.8 8.8 7.0 9.8 9.3 20.9 13.9 88.0Other services – – 10.0 8.9 1.5 1.2 1.4 1.4 0.6 0.4 �43.8

Total 107.8 100.0 112.5 100.0 125.5 100.0 106.1 100.0 149.8 100.0 5.9* Value is in US$ millions.** TMAC is the average annual growth rate.Source: Angola Telecom.

Appendix G: Angola Telecom Sales

134

Table G1.2 Angola Telecom UTT Sales*

1997 1998 1999 2000 2001 TMAC**Services Value Percent Value Percent Value Percent Value Percent Value Percent Percent

Type of Service

Fixed line 746.7 55.4 789.3 57.5 857.7 55.4 833.6 57.0 991.4 55.2 4.7Cellular 291.1 21.6 399.5 29.1 469.2 30.3 439.8 30.1 617.7 34.4 9.1Other services 310.0 23.0 184.0 13.4 221.5 14.3 188.6 12.9 187.2 10.4 0.3

Total 1,347.8 100.0 1,372.8 100.0 1,548.5 100.0 1,462.0 100.0 1,796.3 100.0 5.5

Service Category

International calls 975.8 72.4 689.1 50.9 766.5 49.5 745.8 51.0 669.1 37.3 �0.9Domestic calls 12.6 9.1 435.0 31.7 482.8 31.2 408.1 27.9 725.0 40.4 10.8Other services 249.3 18.5 161.1 11.7 201.2 13.0 194.3 13.3 220.4 12.3 6.5Leases – – 78.6 5.7 97.9 6.3 113.8 7.8 181.8 10.1 18.3

Total 1,237.7 100.0 1,363.8 100.0 1,548.5 100.0 1,462.0 100.0 1,796.3 100.0 5.5* Value is in Telecommunications Tariff Units (UTT); UTT 1.0 � US$ 0.08.** TMAC is the average annual growth rate.Source: Angola Telecom.

Angola Telecom UTT Sales

135

Once a project is approved, there is a requirement todeal with the necessary regulations and permits that arecommon to both national and foreign investors. Thisprocess can be quite cumbersome and lengthy andcould be an important source of uneasiness for apotential private investor. Box H1.1 highlights some ofthe bureaucratic issues that have to be dealt with.

Work Permits In the case of foreign investors or foreigncitizens, the granting of a work permit precedes theopening of a bank account in the name of the com-pany or the single person. In addition, for single per-sons, and sometimes also for collective persons, thegranting of a work permit precedes the request for apermit to exercise the activity.

The work visa is mandatory for all foreign citizens.This visa is granted for a period of one year and is re-newable for up to three years at the Angolan Con-sulate in the country of residence of the citizen apply-ing for the respective work contract, which is to bewritten in the usual legal terms, curriculum vitae, pro-fessional diplomas, health certificate, criminal record,photographs, and passport photocopy. This is to beapproved in advance by the Small and MediumEnterprises (SME) (the official service that controls theAngolan borders), upon favorable inspection given bythe respective Ministry.The process is submitted to theSME in Angola and, after approval, remitted to therelevant Angolan Consulate abroad to stamp the workvisa on the passport.

The granting of a work visa is subject to the pay-ment of a guarantee, which is to be deposited in a bankaccount in the name of the SME, in a convertible

Appendix HPPI Approval and Postapproval Issues

Box H1.1 Legal Fees and Registration

Legal Fees

Legal fees to the IIE used to be calculated as a fraction of con-tract value, declining from 15/1,000 to 1/1,000 depending oncontract size, with a minimum of US$7,500.These fees are cur-rently being re-assessed by ANIP, the successor institution of IIE.

After the public deed is registered, all the legal fees (0.75 to1.5 percent of the Statutory Capital) are paid.

Publication of the By-Laws in the Official Gazette (cost perpage: US$52.50; waiting period: up to 18 months).

Registration with the fiscal authorities to be made in theresidential area of the company’s headquarters, which is renew-able annually (cost: US$26.00; waiting time: up to three months).

Commercial registration to be made with the CommercialRegistration Office (cost: 0.75 percent to 1.5 percent of theStatutory Capital; waiting time: around three months).

Statistical registration to be made at the National StatisticsInstitute (cost: US$20.00; waiting time: around two weeks).

Obtaining the necessary permit to exercise the requestedactivity; this is to be issued by the Ministry responsible for therespective economic sector (cost: US$150; waiting time: up tothree months)

Registration at the Social Security Services

Registration as an Importer/Exporter entity at the Ministry ofCommerce (cost: 1�1,000 of the Statutory Capital, plus US$50;waiting time: around three months)

currency, and amounting to a value equal to the cost ofa flight ticket to the origin or usual residence countryof the person.The waiting time is undetermined.

Once the work visa is obtained, it has to be regis-tered at the Ministry of Public Administration,Employment and Social Security against a paymentequivalent to 5 percent of the monthly salary subject tothe relating work contract.The expatriate’s work con-tract cannot be registered without proof that he/shehas obtained the work visa.The work visa, as describedabove, is conceded after a very bureaucratic processthat takes an undefined period of time.

Public Tender The license and concession grantingprocess has to be preceded by a tender following one ofthe possibilities defined within the law relating to pub-lic procurement (Decree 7�96, 16 February 1996):public tender, limited tender with prequalification,limited tender without expression of interest, negotia-tion, with or without previous advertisement, and di-rect award. The easier processes are for less complexand lower-valued public procurement. Because the fi-nancial limits for these options are not indexed in thelaw, all license and concessions applications would fallunder the public tender requirements.

The steps for a public tender are as follows:(1) The tender is advertised in the Official Gazette and in

a high circulation newspaper, or otherwise throughdirect communication to previously selected enti-ties, respectively, for public or limited tenders.

(2) Submission of bids: In both cases the relevant detailsreferred to in the law must be included.Concerning

public tenders, a tender program and terms of refer-ence are both mandatory. The latter must containthe technical, legal, special, and general clauses, dulynumbered, that have to be included in the contract.Through a bid, the bidder expresses its interest inbeing contracted and states the conditions underwhich he is available to sign a contract.

(3) Establishment of a three-person commission,chaired by the Ministry of Finance, with prescribedsteps to scrutinize and evaluate the proposals.The bids are opened publicly before a contract isawarded and the license or concession is granted tothe bidder that submits the most economical bidafter the evaluation of key factors, such as quality,technical standing, technical assistance, executionor delivery terms, and price, or to the bid with thelowest price.

(4) Following publication of the decision of thecommission (which has to be signed by allmembers), there is provision for an appealsprocess. Applications must be submitted within5 days, and decisions on appeals will be givenwithin 10 days.In general, a public hearing precedes the licenses

and concessions granting process. The umbrella min-istries or provincial governments grant licenses, andconcessions fall under the sphere of the Cabinet.

The accomplishment of all these steps, togetherwith the submission of the required proposal to theForeign Investment Institute (IIE), took at least oneyear. As a result of replacement of IIE by ANIP, thisperiod will probably be slightly reduced.

Appendix H: PPI Approval and Post-Approval Issues

136

137

138

139

140

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Telephone: 202.458.5588

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ISBN 0-8213-6017-5

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY

THE WORLD BANK

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