Fully Unbundled with Private Sector Participation
The level of regulatory development for the legal mandate is rated substantial. The country’s electricity sector is governed by the Electricity Law No. 27/15. Having been established by a Presidential Decree (No. 59/16), the regulatory institution has all the legal authority it needs to carry out its functions and reassure all the actors in the sector, including investors and consumers.
Clarity of Roles and Objectives
The level of regulatory development for clarity of roles and objectives is rated high. IRSEA's missions have been clearly defined in the primary legislation and responsibilities of regulated entities are stated in regulations to avoid ambiguity and overlapping roles with other actors in the sector.
The level of regulatory development for independence of the regulator from government is rated medium. There is no requirement for institutional representation on the Board and the Chairman of the Board of Directors, the Chief Executive Officer (CEO) and the Commissioners are appointed by the sector minister, which limits the “arm’s-length” relationship with the executive. The tenure of the Board is 2-4 years although there is no formal provisions in the law to stagger the tenure of members to provide for institutional memory and transfer of regulatory knowledge to new commissioners.
IRSEA is rated low with respect to independence from stakeholders. The board members and CEO are not prohibited from holding positions in regulated companies before and immediately after their terms at the regulatory agency. This could lead to conflict of interest and professional nomadism. There are however provisions in the law that prohibit the CEO and commissioners from having any interests in a regulated entity.
IRSEA is rated low with respect to decision making independence. The executive can overturn regulatory decisions of the regulator and the regulator has to seek approval from government on its decisions although the regulator is supposed to consult stakeholders through public hearings and submission of written comments. This low level of development of the regulation is also reflected in the management of disputes and in the issue/revision of licenses, where the regulator's role is only advisory and its decisions non-binding.
The regulator’s financial independence is rated low. It relies on fees levied on regulated utilities and government budgetary allocation to finance its activities. The level of the fees is approved by the executive which also approves budgetary allocations together with the regulatory authority. Staff salaries which is based on the civil service salaries are approved by the government and regulatory authority board. It is lower than the regulated utilities and this could lead to high employee attrition and possible regulatory capture.
The level of regulatory development for the regulator's accountability is substantial. The regulator is accountable only to the executive and has a legal obligation to produce annual reports, which are submitted for information purposes only. Regulated entities can challenge the regulator's decisions through the traditional judicial system. This can cause delays and undermine the confidence of investors.
The level of regulatory development for transparency of decisions is high. The regulator publishes its decisions transparently and involves stakeholders before regulatory decisions are taken and all regulatory decisions, which are always supported explanations are accessible to the public, at the regulator’s website.
The level of regulatory development on predictability is substantial. The regulator has developed a documented tariff methodology and has put in place tools to give utilities visibility into the tariff-setting process. The tariff methodology can be changed by the regulator in consultation with regulated firms and stakeholders. A predictable mechanism to disallow costs considered unreasonably incurred by a regulated entity is available and published. Also published are procedures and timelines for obtaining licences.
The level of regulatory development for stakeholder participation in the regulator's decision-making process is rated substantial. Stakeholder consultation is required by law. The regulator is required to publish comments received during consultations, so that the cohesion necessary for a good business climate prevails in the sector. Key regulatory documents may be changed only by mutual agreement between parties to the regulatory instrument.
Open Access to Information
The level of regulatory development for open access to information is rated substantial. The regulator's website www.irsea.gov.ao is available and regularly updated. Information available on the website include primary and secondary legislations, regulatory documents such as Tariff Methodology, Grid Code, Quality of Service Code/Regulations and Schedule of Tariffs for regulated companies.
Economic Regulation – Tariff Setting
The level of regulatory development for economic regulation is rated low. The tariff methodology does not include a schedule for tariff reviews, both major and minor. There is a written formula that prescribes how end-user tariffs are to be set but there is no requirement for the utility to seek approval from the regulator prior to making major investments. Regulatory mechanisms to remunerate producers for the provision of firm capacity or ancillary services are yet to be developed. There is also a need to develop a model regulatory accounting framework for use by the utility in tariff applications and provisions in the regulations that ensure that utilities are compensated for the cost of stranded assets which occur as a result of regulatory change.
Technical Regulation – Quality of Service
The level of regulatory development for technical regulation is rated substantial. A Quality of Service regulation has been developed and is operational. Its includes requirements for SAIDI and SAIFI and technical requirements for connection to the grid. Transmission and Distribution grid codes are in operation since 2011. Time-based performance indicators such as time for the utility to connect a consumer after the latter has paid for the connection. However, there are no penalties for utilities who do not comply with quality-of-service standards. A penalty/bonus system could lead the latter to improve their quality of service, for the benefit of consumers.
The level of regulatory development for the licensing framework is rated substantial. It covers both grid and off-grid systems. For both systems, the framework covers documentation required to be submitted by applicant, approval process, time required to process application and inform applicant of outcome, format for the license and a schedule of license fees. Simplified and streamlined procedures for off-grid and small systems are not available. Their implementation would allow the regulator to serve any applicant for a license or authorization.
The level of regulatory development for institutional capacity is rated substantial. To maintain the level of capacity, a comprehensive multi-year capacity building plan should be developed, through which staff would regularly participate in appropriate training programs. The level of staff salaries will also play a role in attracting, training, retaining and maintaining qualified professional staff.
Renewable Energy Development
The level of regulatory development for renewable energy (RE) has a high rating. The legal framework and supporting tools for renewable energy development have been put in place and an assessment has been conducted to inform the public on the commercial development of renewable energy resources. The electricity regulator is in charge of RE regulation and the Ministry of Energy and Water is responsible for developing strategies for RE development. There is legal, policy and regulatory framework that allows the private sector to participate in grid-connected renewable energy investments. Technology-specific model contracts have been developed for different technologies and the grid code guarantees access to the grid for renewable energy, however, there are no tariffs determined according to the technologies and the size of the installation.
Mini-Grid and Off-Grid Systems
The level of regulatory development for mini-grids is rated substantial. There is a national program to support the development of mini grids. An integrated national electrification plan that sets out a least-cost electrification pathway including grid, mini-grid, and offgrid systems and clearly demarcating areas for each system has been put in place. Mini-grid tariff are based on the market approach and connection codes for connecting mini-grids to the grid are available.
There is a licencing and certification requirement for installers of stand-alone systems. This is good to ensure safety and quality of installations. Technical standards and specific regulations are yet to be developed. Financial incentives could motivate more local small and medium enterprises (SMEs) and other investors to enter the sector, thereby strengthening this framework.
Energy Efficiency Development
The level of regulatory development for energy efficiency is low. Legislation has been put in place aimed at improving the scale and scope of energy efficiency adoption, but it still lacks all the necessary elements for the development of energy efficiency (financial incentives and other codes). The regulator is in charge of energy efficiency regulation but the Ministry of Energy and Water is responsible for the development and implementation of energy efficiency strategy. There is no MEPS or labelling for electrical appliances in Angola. There is the urgent need to develop and implement MEPS for all the basic domestic and industrial appliances to prevent the dumping of inferior electrical appliances on the country. There is also a need to raise general consumer awareness to get consumers to buy into the energy efficiency process.
Financial Performance and Competitiveness
The level of development of the regulatory framework for the financial performance and competitiveness of the utility is rated medium. The regulator has conducted a cost-of-service study on the utility in the last five years. Although a total loss level of 23% is factored into the tariffs by the regulator, actual loss levels are at 11.8% technical and 18% non-technical. With a collection rate of less than 75% the average tariff does not cover operating costs. This undermines the performance and competitiveness of companies in the sector. The regulator approves PPAs before signature and recognises price adjustment clauses in PPAs for tariff adjustments. The regulator also follows procedures and schedules for tariff reviews. To keep tariffs as reasonable as possible, the regulator has formulated a predictable mechanism that is used to disallow costs considered unreasonably incurred by the utility and has put in place a regulatory mechanism to deal with electricity theft.
Quality of Service Delivery
The level of development of the regulatory framework of the technical and commercial quality of the utility's electricity supply is rated low. The regulator has developed Quality of Service Regulations to guide the operations of the utility. It is a regulatory requirement that the utility undertakes periodic technical audits to establish the true state of the facilities. Indicators on continuity of supply are calculated and published, but the System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) are not considered in the tariff calculation although the utility is required to compensate consumers if the QoS limits are exceeded. This could encourage the utility to improve the quality of its electricity supply for the benefit of consumers.
Facilitating Electricity Access
The level of regulatory development regarding facilitating access to electricity is rated substantial. The framework is contained in Regulamento do Fornecimento de Energia Electrica. There is a ceiling set by legislation on the number of days to provide electricity connection to a customer after making payments. Furthermore, Government, the utility and NGOs provide funding for electrification and there are provisions to take these investments into consideration in the tariff calculations for the utility. This arrangement has the potential of accelerating electrification in Angola and must be encouraged. It will also be necessary to assist the operator with other financial incentive mechanisms.
The regulatory law should be amended, or secondary legislations be developed to strengthen the level of independence within the sector. Specific recommendations include:
- Propose legal provisions for prohibiting appointment to the regulatory authority as board member, board chair or chief executive, if the person has recently held a position in a regulated company, and conversely to prohibit that person from holding a position in the said companies immediately after the end of their terms of office.
- Propose legal provisions to enable the regulator report directly to Parliament
- Amend the law to remove the provision that empowers the executive to overturn regulatory decisions of the regulator.
- Align the salaries of regulatory authority staff to the salaries of the utilities; Average level of salaries of regulator staff at least equal to those of utilities
- Parliament to approve the level of the annual regulatory fees and levies charged by the regulator
- Conduct regular cost of service studies and implement the findings.
- Develop technical standards for mini-grids since the lack of standards hinders their development.
- Put in place financial incentives to promote the development of autonomous systems
- Put in place financial incentives to promote the development of energy efficiency projects.
- Develop a quality-of-service code, on the basis of which it will conduct regular assessments on the quality-of- service performance of the utility
- Analyse the commercial performance of utilities in terms of quality of service, to encourage them to improve the quality of service provided to consumers.
- Set penalties for utilities who do not meet quality of service standards.