Powering up: An Exclusive Report on Angola Power, Oil & Gas Development by EIU

Angola has set out ambitious targets for electricity and water provision in a bid to boost its non‑oil economy as well as placate a population frustrated by poor service delivery and power shortages. However, significant private investment will be needed to fund new energy generation and supply, while wholesale sectoral reform is required to improve efficiency.

Speaking at the conclusion of the fourth Consultative Council of the Ministry of Energy and Water, Angola’s energy and water minister, João Baptista Borges, announced that the country would be producing 5 gw of power by 2017, and 9.9 gw by 2025, when he says more than 60% of Angolans will have access to electricity. At present the country produces just over 3 gw and only one‑third of the population has access to electricity. The minister added that by 2017 all provincial capitals would have piped water, and urban sanitation coverage would reach 85%.

Energy shortages are constraining manufacturing development

Even wealthy families have poor water access, using private water tanks filled at great expense, and in urban slum areas communal taps and pipelines are badly maintained and supplies are sketchy. Meanwhile, the lack of reliable grid electricity and the reliance on diesel generators mean that producing anything in Angola is expensive. This high cost and inconvenience is undermining efforts to diversify the economy away from oil, efforts that are required to generate new income streams and employment for a growing population. The government wants to foster a manufacturing sector so it can cut back on high-priced imports and create jobs, but because of the electricity shortfalls it still remains cheaper and more reliable to bring goods in than produce them domestically.

Angola’s lack of electricity also impedes social development. Schools are over-subscribed but cannot operate at night because they have no lights; hospitals cannot run basic life-saving machinery, and subsistence farmers and fishermen cannot store their produce for more than a few days because of the heat. Poor sanitation and a lack of clean drinking water also mean that the country has some of worst social indicators in Africa, despite the country’s vast oil wealth. The shortfall in water and electricity is also a daily complaint among the country’s population, which wants to share in the fruits of peace so visibly enjoyed by urban elite in the capital, Luanda, who have links to the ruling party and the state-owned oil company, Sonangol. Failure to address this in the short to medium term is sowing the seeds for social upheaval.

Not the first time such pledges have been made

The government’s commitment to boost Angola’s power supplies is positive, but it is not the first time that such an announcement has been made. In September 2010, for example, Carlos Feijo—then minister of state and presidential chief of staff—told reporters at a news conference in Luanda that the government would be spending US$18bn to end all power cuts by 2016. This pledge was repeated by the president, José Eduardo dos Santos, in the run‑up to Angola’s general election in 2012. A new and longer timeline has now been announced, along with a call for outside investment to help to make it happen.

Privatisation of utilities possible

Earlier this year the African Development Bank (AfDB) announced a US$1bn “strategic partnership” with Angola’s Ministry of Finance to overhaul the energy sector, increase efficiency and create opportunities for private-sector investment. At the time the AfDB’s president, Donald Kaberuka, stressed the need for institutional reform. There are some signs that this may be happening. Although Angola has many problems with the transmission and management of its power supplies, owing to bloated and ineffective parastatals, legislation is being prepared to facilitate privatisation of the utility companies in a bid to increase efficiency and value for money. Devolving power to a regional level should also improve service delivery and make the firms more accountable.

It is clear that Angola needs significant private investment if it is to meet its energy supply targets. According to the AfDB, the country is currently spending US$5bn a year on public investment on its power sector. This is not sustainable, however, especially as oil production and hydrocarbons revenue have fallen this year.

According to Mr Baptista Borges, Angola plans to use private investment to generate 3.2 gw of new supplies, out of the 9.9 gw it hopes to have available by 2025. A number of hydroelectric and transmission projects are already under way, with investment from Brazil, China, Portugal and other European countries. Some are public-private partnerships, while others are being funded by bilateral credit lines or other international financing such as that provided by the World Bank’s Multilateral Investment Guarantee Agency.

There are also plans under way to convert existing diesel-fired power plants, which currently produce over 40% of the country’s electricity, to be run on gas. Two facilities are already in the process of being upgraded, and several more, including recently built plants, have also been earmarked for conversion. Using gas will be cleaner than diesel, but it is still a fossil fuel and therefore comes with an environmental cost. Angola has a US$10bn liquefied natural gas (LNG) plant and in theory has access to gas to make liquefaction viable. However, the newly opened plant has been dogged by problems since its launch, and is currently expected to be closed until mid‑2015 for repair works.

Green options

The government has also made a commitment to alternative energy and says that of the 9.9 gw it plans to be producing by 2025, 800 mw will come from renewable sources such as biomass, solar and wind. Mr Baptista Borges announced that the country would be creating a renewable energy centre to promote research and knowledge about alternative energy sources.

If all of the planned projects come to fruition, Angola could end up with surplus electricity and be in a position to export to neighbouring countries, such as the Democratic Republic of Congo and Zambia, both of which have their own energy challenges. However, given the growth of domestic demand and how long it takes the government to deliver on its commitments, energy exports are unlikely in the short to medium term.

Source: The Economist Intelligence Unit