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JOINT UNDP/WORLD BANK ENERGY SECTOR ASSESSMENT PROGRAMREPORTS ALREADY ISSUED

Cori ntrv Date Number

Indonesia November 1981 3543-INI)Matir iLxIs December 19891 3 91IO-MNASKenya May 1982 3800-RESri La n ka Mav 1Q82 3792-CKZimbabwe Junie 1982 3755-ZIMlaitI .utine 1982 3672-HIA1'apuia New Guinea June 1982 '3892-PNGBiriundi idiine 1982 3778-Hi!Rwa Ial;i .h1lime 1982 37 79-RWMa lawi Aguwlis t [98 39111-MIAILRang lade stl (Iictoer 1982 8 7 -)Z;anli;4 T n.in,ar% )ix l 4 I If'-V>.Al'Turkev '1;ir-h 1981 V8 ;7-I' :;

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FOR OFFICIAL USE ONLY

Report No. 5803-STP

SAO TOME AND PRINCIPE

ISSUES AND OPTIONS IN THE ENERGY SECTOR

OCTOBER 1985

This is one of a series of reports of the Joint UNDP/World Bank EnergySector Assessment Program. Finance for this work has been provided, inpart, by the UNDP Energy Account and by the UNDP Government of theNetherlands Trust Fund for Round Table preparation. The work has beencarriedt out by the World Bank and the report will constitute the EnergyTheme for an International Donors' Round Table to be heLd in late 1985.This report has a restricted distribution. Its contents may not bedisclosed without authorization from the Government, the UNDP or theWorld Bank.

ABSTRACT

The economy of Sa5 Tome and Principe has been in declinesince 1980 and the prospects for future economic growth areuncertain. Between 1980 and 1983, GDP was estimated to havedeclined about 50Z. The impact of lover prices and volumes forSTP's export products, especially cocoa, has been magnified by poormanagement of the economy and of the major state-owned enterprises.

Institutions in the energy sector are embryonic and theenterprises serving the various subsectors are weak. Energy hasbeen relatively cheap in the past, which has led to highconsumption. Furthermore, overvaluation of the exchange rate haskept the price of imported energy (86Z of commercial energy) artifi-cially low. As a result, petroleum product imports (althoughsubsidized by Angola) now take up 20 - 25Z of total export proceeds,while peak electricity demand is pressing against installedcapacity, making an in-depth rehabilitation program (costing about$2.5 million) absolutely necessary and urgent.

This report proposes policy changes - mainly prices basedon economic costs - to reduce the growth of energy consumption;small investments (especially in rehabilitation); and significantamounts of technical assistance for institution building, trainingand further studies (especially of hydroelectricity potential).

ACROYS

AfDB African Development BankBADEA Arab Bank for Economic Development in AfricaDIE Directorate of Industry and EnergyEdP Electricity of PortugalEEC European Economic CommunityEKAE State Enterprise for Water and ElectricityENPESCA State Enterprise for FisheriesENCO State Enterprise for Petroleum ProductsGSTP Government of the Democratic Republic of Sa5 Tomzu and

PrincipeIBRD International Bank for Reconstruction and DevelopmentIDA International Development AssociationEFP Institut Fran9ais du PetroleMAL Ministry of Agriculture and LivestockMICK Ministry of Industry Construction and HousingOPEC OPEC Fund for International DevelopmentPARTEX Petroleum Services Consultants (Portugal)PETROGAL State Oil Company of PortugalSONANGOL State Oil Company of AngolaTAAG Airline of AngolaTAP Airline of PortugalTRANSCOLMAR State Enterprise for Public TransportUNDP United Nations Development ProgramUNIDO United Nations Industrial Developmat Organization

ABBREVIATIONS

AIC Average Incremental CostLRMC Long Run Marginal CostCEM Country Economic MemorandumGDP Gross Domestic ProductTOE Metric Ton of Oil Equivalentbbl 1 Barrel = 42 US Gallons or 35 Imperial GallonsCIF Cost, Insurance, FreightFOB Free on BoardAPI American Petroleum Institute (specific gravity measure)GWh Gigawatt-hourha HectareHP HorsepowerKg?e Kilogram of Oil EquivalentKm Square KilometerkWh Kilowatt-hour1 Literm Meterm3 Cubic MeterNW Megawattn.a. Not availableton Metric ton

PREFIXES

kilo = 1,000mega = 1,000,000giga = 1,000,000,000

CURRENCY EQUIVALENTS

Currency Unit: DobraExchange Rate: 46.00 Dobras/US$ 1/

FUEL CONVERSION FACTORS

(Net calorific content expressed in ton of oil equivalentof 10.2 million kilocalories)

Product Conversion Factor Density

Electric Power 86.00 toe/GWh ai

3utane 1.05 toe/ton 0.58Gasoline 1.03 toe/ton 0.74Kerosene 1.01 toe/ton 0.83Jet Fuel 1.02 toe/ton 0.83Gas Oil 1.00 toe/ton 0.84Fuel Oil 0.94 toe/ton 0.96Firewood 0.33 toe/ton 0.70

a/ This reflects the energy content of electricity. The amount offuel that is required to generate electricity in STP is about250 toe/GWh, which implies a conversion efficiency of 34Z.

This report is based on the findings of an Energy Assessment missionwhich visited S&5 Tome and Principe in January 1985. The missionmembers were: Mr. Michel Del Buono (Economist, Mission Leader),Ms. Katrina Sharkey (Researcher), Messrs. Pedro Vidal Pinheiro(Petroleum Specialist, Consultant) and Hernani Verdelho (PowerEngineer, Consultant), and Mme. Sayuri Carbonnier (ForestrySpecialist, Consultant). The report was discussed with the CSTP inJuly/August 1985.

TABLE OF CONrTEn

Page

I. ENERGY IN THE ECONOMY ..................................... 1Energy Balance Overview ........ .. . 3Energy Sector Institutions ............................ 4

Il.WOFELS................................. 7Present Woodfuel Resources.............................. 7Consumption of Woodfuels .......... e. . o.o.... .............. . 9Households...' 9Other Users........... ............. 4. ................. . 10

Supply-demand Situation: Present and Projected ......... 11Prices and Markets ...... ......... ................... 11Fuelwood, Charcoal, Kerosene: Household Energy ......... 12Forestry Recommendations. ................. .. ..... .......... 13Organization and Training .......... ................... .. 13

III. TEE PETROLEUM SUBSECTOR ................................................. . 15Principal Issues........................................ 15High Consumption and Low Prices ......................... 15Investments ... eo... oe.............................................. 15Petroleum Exploration. -.-. ....... o .......... . ... . 16

Historical Consumption........................................... 16Demand Projections ..................... .............. 18Supply and Distribution Arrangements ...............* ..... 19s-upply ....................................... .8.6-4 ............ 19

Main Elements of a System of Supply forPetroleum Products to Principe.. .................... 21

Airport-eso ... ................. e..e.... ........ ..*............. 22Petroleum Prices ...................................... 22Postscript on Petroleum Prices..00-0. ................ 25

Prospection and Exploration for Hydrocarbons ............ 27Organizational Issues and Training ...................... 28

IV* ELECTRICITY ...e........ o... ............................. ........... 29Basic Resources and Existing Facilities ................. 29Hydropower Resources .................... .... . ...... . 29Existing Facilities .................................................. 29Sub-transmission and Distribution ..................... 30

Electricity Growth and Demand Projections ................. 31Electricity Tariffs ............... 00..................O.. 33Postcript: Effect of Higher Diesel Prices onElectricity Tariffs..... . .49.4.4........ 4...44444 44 36

Power System Operations and RehabilitationRequirements .......................................... 36System Operations .....................................4 36

Rehabilitation Requirements........................... 38Incremental Costs *s................................. 40

Power System Expansion and Service Improvement.......... 40Organizational Aspects and Training .......... ....... 41Summary of Recommendations (Power) ............ 43

V. SUMKARY OF SECTOR WIDE RECOMMENDATIONS ........... 44Policies ........6 *6666..66666. 44Investments .................................. 44Institutions, Technical Assistance, Training andStudies ....................................... 45

TABLES

1.1 STP Main Economic Indicators .............................. . 11.2 STP: Energy Imports ...................... .............. 21.3 STP Energy Balance 1984 ....................... *.............. 52.1 STP: Forest Resources ... ........... ................ 72.2 STP Estimate of Forestry Resources ........................... 82.3 STP: Estimated Consumption of Fuelwood, 1984 ............... 102.4 STP: ComparisOn of Supply and Demand for Fuelwood

1984, 1993 and 2000 .................... *6 *** ** * * * * *666.. ........ 123.1 STP - Consumption of Petroleum Products, 1975-1984 ........... 173.2 Petroleum Product Demand by Sector, 1984 ....................... 183.3 Petroleum Demand Projections by Fuel Type to 1994 ............ 183.4 STP: Domestic Price Structure, Selected Petroleum Products ... 233.5 STP: Illustrative Prices of Petroleum Products ............... 254.1 STP - Installed Capacity, 1984 (Inter-Connected Grid Only) ... 304.2 STP - Electric Supply and Demand .................. .......... 314.3 STP - Electricity Sales ... ........ 6 ........666 66666 324.4 STP - Electricity Demand Projection, 1985-1994 ............... 34

ANNEXES

1. Principal tree species found in STP ....................... 462. STP: Functions of the Ministry of Agriculture and

Livestock's Forestry Sectioni............................ 473. Cost Estimates for 1, 2 and 3 MW Dendrothermal

Power Plants lants............ 66..... 6.... 484. International Comparison of Per Capita Energy

Consution smt.i.o 66 .66 .66666 e6.6.6666666.*.o.n... 6 495. Petroleum Product Sales by Pru6"ct and Class of

Trade or Consumption ..... a ...66 666 .6.6.6.666666 506. STP Petroleum Product Demand Projections by Sector,

7. STP Petroleum Product Demand Projections by Fuel Type,1985-94 ............................ 6 52

8. STP Stock variations of Petroleum Products betweendeliveries, (6/year) ............... 53

9. STP Existing and Proposed Storage Capacity andDelivery for Petroleum Products................. ........ 54

10. STP Car Population (Active)....)....... 5411. Energy Conservation in the Transport Sector

- Project Outline...........................ut l......... 5612. STP Hydropower Potential, 1984 ............................ 5813. STP Installed Capacity, 1984 (W) .......................... 5914. STP Aggregate Electricity Consumption (CWh), 1981-84......

(Large and Small Consumers)..nm... 6015. STP Electricity Demand Projection, 1985-94

(Basic Scenario).c..-ri....)....... 6116. STP Electricity Demand Projection 1985-94

(Thermal-only Scenario)....a .... 6217. STP Electricity Demand Projection 1985-94

(Thermal/Hydro Scenario)e..ri....o ).... ... *6 ..... 6318. STP Power Plant Rehabilitation and Loss Reduction Program

(Cost Estimate)......................................... 6419. Comparison of Diesel and Small Hydro Generation Costs..... 6520. STP Project Briefs:............... ........................ 67

Project No. 1 - Institutional Support to MICE and Study of PowerSystem Ezpansion Options-oo.....o....oo-s. 67

Project No. 2 - * .erseas Training for MICE & ENCO personnel..... 71Project No. 3 - Power Plant Rehabilitation and Power Loss

Reduction Progrm............... . 74Project No. 4 - Expansion of Capacity at Guegue hydroplant...... 76Project No. 5 - Technical Assistance to Empresa de Agua e

Electricidade (EMAE) .......... 77Project No. 6 - Overseas Training in Power Engineering....... . 79Project No. 7 - Preliminary Forest Inventory (Phase I) and

Legislation...... ..... 80Project No. 8 - Study of Woodfuels Supply and Demand Patterns in

STP Households ................ 82Project Nm. 9 - Technical Assistance to Forestry Section of MAL 84Project No. 10 Ovrseas Training in Forestry Engineering ....... 86Project No. 11 - Technical Assistance (Educator) to

Agricultural Technical School (CATAPE) ........ 87Project No. 12 - Fuelwood and Multipurpose Species Trials ........ 88

MAPS

IBRD 19290: Relief and RainfallIBRD 19170: Principe Power SystemIBRD 19171: Sao Tome Power System

SUNKARY, CONCLUSIONS AMD RBCOHKFMDATIOUS

Background

1. The energy situation of Sa5 Tome and Principe (STP) is, in manyrespects, similar to that of other low-income African countries. Most ofits energy supply (66%) is provided by firewood, (29,000 TOE); 29% isprovided by imported petroleum products (roughly 12,050 TOE); and 4.52(2,000 TOE) is from hydroelectricity. Imported energy thus accounts for29% of overall energy supply, but 86% of commercial energy. Notsurprisingly, in view of the cheapness of energy in STP, per capitaconsumption, at 422 Kgoe is much higher than in similar countries(e.g. Guinea Bissau at 213 Kgoe, Mozambique at 200 Kgoe). In overall percapita energy consumption, STP ranked 12th in a sample of 38 countriesstudied by the Energy Assessments Division. In per capita consumption ofpetroleum products (122 Kgoe), STP ranks far above countries at its ownlevel of development (e.g. Tanzania with 35 Kgoe, Rwanda with 9 Kgoe,Guinea Bissau with 17 Kgoe), and equals or exceeds the consumption ofsome oil exporters (e.g. Indonesia with 128 Kgoe, Nigeria with 77 Kgoe)and that of some much more advanced countries (e.g. Kenya with 84 Kgoe,Senegal with 91). Also, since commercial energy is relatively cheaperthan non-commercial, the share of commercial energy in overaLl energyconsumption in STP (34%) is much higher than other countries at a similarlevel of development (Gambia, 26%, Malawi, 52, Guinea Bissau, 9Z).

2. STP enjoys an abundant and varied forest cover comprising botbindigenous and exotic species and covering about 80% of its 1,000 kmlandmass. Its potential is presently barely used and will yield muchgreater benefits when rationally exploited. An estimated 150,000 m ofwoodfuels were consumed in 1984 by households and small-scale indus-tries whereas estimates 3of sustainable annual exploitation range from150,000 mj to 350,000 mi. Poor transport infrastructure and lack oftrucks sometimes cause disruption in supplies to the cities, especiallyin rainy periods. Dendrothermal power generation might be feasible butits economics in the context of STP are, as yet, unknown.

3. STP is totally dependent for its petroleum supplies on importsfrom Angola which have increased from about 6,000 tons of products in1979 to about 12,000 tons in 1984. Fortunately, however, STP has beensupplied at prices ranging from 40% to 60% of world prices (unchangedsince 1978). Furthermore, Angola has continued to supply products to STPin spite of payment arrears of nearly $5 million. Important consumers ofpetroleum products are the power plants (about 50% of generation isdiesel-fired), transportation (about 50% of total petroleum productsconsumption), and households.

4. In power, total installed capacity is about 5.3 MW of whichabout 2.2 NW are hydroelectric and 3.1 MW are thermal (diesel-fired).All power supply (about 13 GWh in 1984) is generated in almost equalshares by thermal and hydroplants. An important hydroelectric potential

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(estimated at 230 GWh p.a.) is being identified. It is spread over about30 sites with capacities ranging from 50 kW to 6 MW. The utility, EMAE,is financially and technically very weak and requires immediateassistance.

S. In the medium to long-term, it is probable that some of thishydroelectric potential will provide STP with low-cost energy. Cal-culations based on preliminary studies, show that there are potentialcost advantages to small-hydro over diesel generation. Small-hydrogeneration could provide energy at about 8.50 USC/kWh (including thecosts of a 50% diesel supplement) in comparison to a cost of 11.00-12.00 USO/kWh in diesel units of comparable power. At a more appropriateexchange rate, the advantages of hydro generation could be greater.

Conclusions

6. The price of energy in Sao Tome and Principe (STP) has beenunusually low in the past several years because of a combination ofexceptional circumstances:

(a) supplies of petroleum products by Angola at very low pricesbecause of a special relationship between the two countries;

(b) the gen3ration of a major share of electric power by old, fullydepreciated hydro-power plants (the rest, thermal power,generated from cheap diesel) together with unchanged elec-tricity tariffs over a long period of time;

(c) the relative abundance (and good state of conservation) offorestry resources; and

(d) the overvaluation of the Dobra which makes imported energyrelatively cheap (this causes widespread problems and it is tobe hoped that discussions with the IMF come to fruition soon,thereby removing a strong bias in the pricing of petroleumproducts).

7. This combination of low prices and abundant supply provoked anexcessive growth in energy consumption (particularly electricity andpetroleum products) which, in time, led to the following problems:

(a) peak demand for electricity is pushing against available firmcapacity;

(b) high consumption of petroleum products is causing balance ofpayments difficulties (although petroleum products account fora small share of imports, about 10Z, they are roughlyequivalent to 25X of exports).

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Recommendations

8. The central recommendation of this Assessment is that theGovernment of STP intervene to reduce the growth of energy consumption tolevels that the economy needs and can accommodate, and that thi3reduction be effected primarily through the mechanism of pricing.

9. The basic principles to be followed in energy pricing policyare:

For woodfuels: prices of woodfuels appear relatively highbecause of the exchange rate problem mentioned earlier andbecause they are free market prices (not subsidized, notcontrolled) and reflect economic costs of supply. In thiscase, the Government of STP should concentrate in helping themarket perform better through better institutional support toforestry and a better regulatory environment, relying, as atpresent, on competition to maintain efficiency in the supply offirewood and charcoal.

For petroleum products: price should reflect full cost on theworld market plus freight, storage and distribution; fuels usedin transport should additionally cover road maintenance costs.

For electricity: tariffs should be raised immediately to coverat least the costs of diesel (at world market prices, asabove). The financial situation of EMAE would also improvewith higher tariffs; (the long-term marginal cost of power willbe estimated in a study to be carried out which will provideuseful guidelines to electricity pricing in future years).

10. The recommendation for immediate increases in electricitytariffs is made in advance of studies to determine a least-cost expansionprogram and the LRMC associated with it. 1/ Y,)netheless, an immediateincrease can be justified to reflect the economic cost of diesel (i.e.,C.I.F. price). This alone would require an increase in the averagetariff to about Db. 6.2/KWh (up from about Db. 4.38/KWh at present).

11. The utility, EMAE, has no credible accounting system and it istherefore difficult to estimate financial losses and needs precisely.HGwever, the condition of the utility clearly shows it to be short ofresources. This provides further justification for an immediate tariffincrease.

1/ As an indication, the Average Incremental Cost (AIC) of electricityin preliminary calculations works out at 11.90 US cents/kWh (Db 5.47at the present official exchange rate of Db 46.00/US$) and is set bya 1 MW increase in diesel-fired generating capacity operatingoptimally.

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12. Lastly, the existing declining-block tariff structure (threeblocks) should be turned into an increasing-block tariff (with only twoblocks) to neutralize the incentive to increase consumption thatdeclining-block tariffs usually provide.

13. STP suffers from substantial suppressed/hidden inflation. Theliberalization measures being gradually introduced by the government(including, possibly, a realignment of the exchange rate) are bound tomake. the inflation more visible. To protect against the erosion oftariffs by inflation, electricity tariffs should be reviewed, perhaps,annually. Petroleum prices should be reviewed as often as necessary(e.g., whenever world prices undergo major changes, or the value of theDobra fluctuates significantLy, by, for example, more than lOZ).

Specific Recommendations

Prices

14. The main recommendation of this Assessment is that the pricesof petroleum products and electricity need to be increased immediately toreflect the economic costs of supply. The most significant advantages tobe gained from an increase in energy prices include:

(a) the transfer of resources to the sector enterprises, andespecially to EMAE, the power utility;

(b) the reduction in the growth of consumption of petroleumproducts (which is having a visible impact on the balance ofpayments and accounts for almost half of STP's externalpayments arrears);

Cc) the reduction in the growth rate of consumption of electricityto permit rehabilitation of the system and postpone investmentin new capacity;

(d) an offset of the effects of exchange rate overvaluation makingdomestic energy (especially biomass and, later, hydro power)relatively cheaper.

15. More specifically, the price suggestions are the following:

Electricity. Tariffs should be increased to an average ofbetween Db. 6.00 and Db. 6.50 per kWh (see paras. 4.12 and4.13), and revised every year.

Petroleum Products. 2/ Gasoline and gasoil prices should beset to reflect economic costs (in this case, world prices, CIFSTP. Fuels used in transportation could also help theGovernment collect revenues for the maintenance of the roadneLiork. Illustrative calculations show that the presentdifferential favoring diesel would be reversed. The pricescalculated are:

Casoline: Db. 17.00 per litercasoil: Db. 18.00 per liter for retail automotive use.Gasoil: Db. 15.25 per liter, for other uses.Kerosene: Db. 12.00 per liter.

Since these prices are significantly higher than the present ones, theincrease cos'd be effected in, say, two steps over a year.

Woodfuels. No direct government price intervention is neededin woodfuels, but monitoring this subsector should ensure thatthere are no barriers to entry into the activity, so that acompetitive environment is fostered and maintained.

Sector Policy and Investment Priorities

16. The policy changes that are proposed in this Assessment,especially on pricing, are required to ensure successful implementationof the other actions. In terms of priority, therefore, policy changescome first, followed by investmeats, training, technical assistance andstudies.

17. Urgent investment needs in energy in STP are not large. Thoseof greatest urgency are essentially the rehabilitation of the powersubsector and the construction of the Neves Petroleum ProductsTerminal. Training and technical assistance for the strengthening ofinstitutions are needed at the sectoral level and in all subsectors.

18. Since the present Energy Assessment has been prepared in partas an input for the UNDP-sponsored Donors' Round Table (scheduled for

2/ While this report was being processed, the GSTP markedly increasedthe prices of petroleum products, e.g. gasoline to Db 30/It, gasoilto Db 12/lt and kerosene to Db 10/lt. This is a very useful step inhelping restrict consumption of these products and very much in linewith the central recommendations of this report. However, the GSTPshould continue to review the pricing policy for the products andmodify the structure of prices to maintain rough proportionalitywith world prices. As an example, given the price of Db 30/lt forgasoline, rough proportionality with world prices would require agasoil price in the range of Db 25-35/lt (Db 20-30/lt for non-automotive uses) and a kerosene price in the range of Db 18-22/lt.

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December 1985), a number of briefs (some not mentioned in the text) havebeen prepared, covering useful investments, studies, and technicalassistance. These briefs are preliminary and would need further workbefore being ready for implementation. They are presented, in Annex 21,as initial ideas to be discussed, clarified, and prioritized at the timeof the Round Table.

19. In this context, the joint UNDP/World Bank Energy SectorKanagement Assistance Program (ESMAP) is available to assist potentiallyinterested donors to carry out preinvestment work or supervise projectexecution for donors. ESMAP can also finance and carry out for its ownaccount, strategy and preinvestment work, and technical assistance, atthe request of the GSTP. ESMAP's participation in these activities willbe determined in conjunction with the GSTP, bilateral donors, and UNDP inaccordance with the policies and priorities of all parties.

Investments, Studies, Technical Assistance 3/

20. Forest resources in STP are abundant and indications are thatSTP's fuelwood needs can be accommodated until the end of the centurywithout threatening either the quantity or quality of the fcrest cover.No major capital investments are required in the woodfuels subsector.There does exist, however, a real need for institutional improvements,studies, technical assistance, and training. The most urgent actionsare:

(a) the performance of a Preliminary Forest Inventory of regionspresently exploited (including forests on state farms) leadinginto a national inventory later;

(b) technical assistance to the Forestry Management Section of theMinistry of Agriculture (to fully establish the section andtrain its staff), and

(c) the execution of a study on the supply and demand patterns ofwoodfuels.

21. In the petroleum products subsector, all indications are thatthe Port of Neves storage rehabilitation and expansion project financedby BADEA and the OPEC Fund is useful and justified. The terminal to servethe Island of Principe, however, far exceeds tne supply/storage require-ments of the island and may well cost US$2 million rather than the US$1.3million which is foreseen.

22. The Principe terminal should therefore, be seriously recon-sidered and an alternative, cheaper means of meeting the fuel needs of

3/ Details of the priority actions mentioned in the text and of otheruseful ones are provided in Annex 4.8.

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Principe chosen. For example, a monthly cargo of between 70 and 100drums of products transported by the EEC-financed vessel "Pague", wouldmeet the island's future petroleum product demand. The expansion ofexisting storage capacity in underground tanks would ensure a securestock in the event of interruptions in supply. A small project based onthe above elements could easily be prepared by the World Bank, should theGSTP request it.

23. STP is now preparing legislation governing petroleumexploration by foreign enterprises. Geological information, while notparticularly favorable, suggests that there are probabilities of findingoil. There are surface infiltrations of rather heavy crude oil (about 20AI) on two sites.

24. STP's strategy in this activity should be to enact the bestpossible legislation to provide incentives to foreign oil companies toundertake the additional aeromagnetic, gravimetric, and seismic workrequired for a fuller evaluation of the potential of finding oil. Inthis context, it is premature to create a national petroleum company whena small nucleus of people in an appropriate ministry would suffice tosupervise the activities of foreign oil companies. In this regard, theGovernment's intention of demanding a 51% share is unrealistic at thisstage and should be significantly scaled down.

25. The power subsector is in need of urgent rehabilitation becauseof large losses in relation to the small grid, lack of preventivemaintenance, and shortage of spares to effect timely repairs. It is mostlikely also, that some capacity investment (1 MW) will be required in1988.

26. The most cost-effective means of increasing electricity supplyand reducing the cost of generation simultaneously is through therehabilitation of existing generation capacity and the reduction ofsystem losses from the current level of 21% p.a. to a more acceptablelevel of 12% p.a. Total costs for a joint power-plant rehabilitation andpower loss-reduction project are estimated about US$2.0 million. Thisproject deserves the highest priority and should be carried out as soonas possible, because of its complementarity with ongoing investmentsfinanced by AfDB (technical assistance in accounting and billing) and IDA(US$452,000 to EMAE for metering equipment, spare parts and technicalassistance for installation and repairs).

27. The main elements of the rehabilitation program are: to repairthe Contador hydropower plant (especially the canal), to replace an oldturbine at the Guegue hydropower plant, to rehabilitate the buildinghousing the Sa5 Tome thermal plant, and to improve the transport/distribution grid, including the connection of the A. Neto hydro plant tothe grid. On the T.A. and training side, the most important items are:(a) a study of the least-cost expansion path (including prefeasibilitystudies of Abade III and Abade II hydro sites) and (b) the provision oftwo years' T.A. by an experienced electrical engineer to help run the

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power system and further train STP staff. Again, the technicalassistance/training recommended here complement the AfDB-financedtechnical assistance in the billing/finance/accounting sphere.

28. While the development of new and renewable energies is notconsidered to be a priority in the context of the Energy Assessment, itwould nonetheless be useful to implement a few pilot or expermentalprojects in the solar and wind energy applications to make thesetechnologies available to STP should they be needed in the future.

I.* ENERGY IN THE Economy

1.1 The Democratic Republic of Sa5 Tomi and Principe (STP) com-prises two main islands lying just north of the Equator in the Gulf ofGuinea, some 300 and 200 kilometers respectively to the northwest ofGabon and due south of Nigeria. Saa Tome, the largest island, covers anarea of 854 PO aud Principe island, situated 150 km to the north, coversabout 110 km .

1.2 Because of maritime influences and dramatic variations inaltitude (0-2,000 m), STP experiences a range of micro-cLimates varyingfrom humid tropical type at sea-level (270 C average yearly temperatureapart from the rainy season from October to May) to drier cooler tem-peratures in the elevated interior (20° C average yearly temperature).STP enjoys fertile soils, as both islands form part of a volcanic moun-tain range radiating from Cameroon through Equatorial Guinea. Annualrainfall in Sa8 Tome ranges from 990 mm in the north east to 7,000 m inthe southwest and in Principe, from 2,000 mm to 4,000 mm. The islandsare heavily forested and the runoff from high precipitation feeds a largenumber of streams and rivers.

1.3 The lack of statistics does not permit an accurate evaluationof STP's economy, but per capita CDP peaked at about US$480 in 1980because of high world prices for cocoa, the country's main export. Sincethat time, however, plummeting cocoa output and falling prices on worldcocoa markets, combined with poor management on the cocoa estates haveprovoked a decline in real per capita GDP to an estimated $240 in 1983and US$200 in 1984 (at 1980 market prices). Main economic indicators areshown in the table which follows.

Table 1.1: STP MAIN ECONOM IC INDICATORS

1980 1981 1982 1983 1984

Population (000) 94.0 96.6 99.5 102.5 105.6

GOP at 1980 constantprices (millions of USS) 45 32 29 25 21

GDOP per capita 480 330 300 240 200

Source: IBR, Drtaft CEM on STP; and IW, Sa6 Tone and Principe: RecentEconomic Developments.

1.4 In recent years, power and forestry have accounted for about 4%of GDP. However, the value-added in forestry only covers sawn lumber,not firewood and thus represents an U derestimate of the contribution toGDP. Valuing approximately 110,000 m (average annual consumption) offirewood at about Db. 1000/m and deducting 25% for intermediate pur-

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chases leaves a value-added of about Dl. 100 million which by itself isequivalent to about 10% of average GDP in the perioi' 1981-83.

1.5 An overvaluation of thet Dobra in relation to the currencies ofSTP's major trading partners makes imports (petroleum products, food,manufactured goods) appear less expensive than domestic products. Thisbiased consumption against domestically produced goods (e.g., keroseneversus charcoal and firewood) causes a misallocation of resources ininvestment (e.g., imported cement versus domestic timber).

1.6 In part because of this inappropriate exchange rate, thebalance of payments has been in chronic deficit since 1981 when thecurrent account deficit exceeded 50% of GDP. Large deficits as in 1982(78% of CDP) and 1983 (26% of GDP) are expected to continue, at least forthe next three to four years. Since the surge in imports in 1981 and1982 was mostly of externally-financed investment goods, the share ofenergy imports appears relatively low. However, excluding imports ofinvestment goods roughly doubles this percentage and comparing energyimports to STP exports gives a different impression: between 20% and 25%of STP export proceeds go to pay for energy imports. Furthermore, theseimports (entirely oil products) are purchased from Angola at pricesvarying between 40% and 60% of world prices; their share would be almosttwice as high if STP paid world prices.

Table 1.2: Sm: ENERtY IMPORTS

1981 1982 1983 1984

Energy Imports(in millions of Oobras) 56 93 87 110(in millions of USS) 1.5 2.3 2.1 2.6

Ratios of Energy Imports to:Total Imports (%) 6.6 8.4 11.7 8.7Total imports excludinginvestment goods (%) 6.8 13.8 13.9 18.0

Total exports (%) 20.3 25.8 23.8 17.5

* Staff estimates.

1.7 In conclusion, while unpaid energy bills have been an importantcomponent of STP's external payments arrears (about half), energy has notbeen an important cause of the recent balance of payments difficultieswhich are much more a result of excessive, externally-financed investmentand large food imports. Nonetheless, if STP were obliged to procure itspetroleum products on the world market, the impact on the balance ofpayments would be much more severe; at world prices, STP's petroleumproducts imports could use up about 50% of STP's export proceeds.

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Energy Balance Overview

1.8 The energy balance for 1984 (Table 1.3) shows that 66%(29,370 TOE) of the country's gross energy supply was provided bywoodfuels (firewood and charcoal combined), which are and should remainabundant provided their exploitation is adequately managed. Apart fromthe blending of 738 TOE of jet fuel from imported kerosene and additives,no fuels are refined in STP and all petroleum products are imported fromAngola. Some 12,700 TOE of products were imported in 1984 which,together with some 857 TOE of stock drawdown, constitute 29% of energysupply, the remaining 4Z coming from electricity generation.

1.9 On the consumption side, the energy balance shows that the onlysecondary export of energy took the form of bunker sales of jet fuel tothe airlines of Angola and Portugal amounting to 738 TOE in 1984. Theremaining 44,377 TOE constituted domestic consumption for that year (netof re-exports).

1.10 A sectoral breakdown by type of energy consumed internallyin 1984 shows that 661 of total woodfuel consumption went to the house-hold sector for cooking purposes (18,533 TOE for both firewood andcharcoal). The remaining 9,710 TOE of firewood was used for small-scaleindustrial activities, largely in crop-drying, restaurants and in day-care centers/kindergartens associated with State enterprises. Withinthese figures for firewood, it is estimated that some 600 tons ofcharcoal were consumed in 1984.

1.11 In the case of petroleum products, 53% was consumed in thetransport sector as gasoil, gasoline and jet fuel with 6,700 TOE. Thehousehold sectorp using 16%, took second place with consumption of 2,000TOE (2,000 tons of kerosene) in 1984. Over 1,800 TOE of gasoil (14Z)were consumed for electricity generation. The fishing industry used1,600 TOE of gasoil or 13Z of the total figure, the remaining 536 TOE(4%) being accounted for by consumption in agriculture. A small amountof butane, 28 TOE (26 tons of butane) is imported each year from Portugalfor household consumption.

1.12 A breakdown of electricity consumption by sector shows that theState was the most important consumer with 571 TOE or 32% of total elec-tricity consumption. This figure represents electricity consumed byState enterprises (industrial and agricultural), government services andadministration.

1.13 A ready availability of electricity, an inadequate billingsystem and significant unmetered use (39% consumers are unmetered)provoked an uncontrolled use of electricity by the household sector with

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356 TOE consumed in 1984 (35X of total electricity consumption). 4/Small-scale private industry and small businesses consumed 72 TOE (or 7X)with the remaining 25 TOE (2Z) used for public lighting.

Energy Sector Institutions

1.14 The institutions serving the energy sector in STP are embry-onic. While the sector is not excessively complex, certain importanttasks (such as coordination of sector investment, policy-making, supportto the sector-operating enterprises) are only partially carried out. Theoperating enterprises themselves are basic and just able to carry on day-to-day activities. Forestry has the weakest institutional framework butthe petroleum products and power subsectors also need strengthening.

1.15 Formally speaking, the management of the energy sector is theresponsibility of the following two government agencies:

(a) The Directorate of Industry and Energy (DIE) of the Ministry ofIndustry, Construction and Housing (MICH) is responsible forenergy policy formulation and energy conservation and pricingissues. A reorganization, currently in preparation, wouldshift the utilities into a new Water and Energy Service throughwhich the DIE would carry out its responsibilities.

(b) The Forestry Section in the Department of Perennial Crops ofthe Ministry of Agriculture and Livestock has formal responsi-bility for the formulation of forestry policy, the managementof forestry plantations, and the supervision of exploitationand sale of forest products. In reality, lack of trainednanpower and resources severely restricts the ability of theSection to carry out its mandate.

1.16 The following State Enterprises supply commercial energy:

(a) The Water and Electricity Enterprise (EMAE) is the State-ownedutility responsible for the generation, transmission and dis-tribution of electric power through a grid which covers thenorth-western part of Sa5 Tome island. EMAE was formed in thelate 1970's to take over power and water from municipalauthorities.

(b) The National Petroleum and Fuels Enterprise (ENCO) isresponsible for the import, storage and distribution ofpetroleum products. The enterprise was created in 1982 whkenthe GSTP nationalized Shell's operations in the country. It isa small, efficient operation in its day-to-day activities outrelies on the MICH for planning and policy support.

4/ Consumption of electricity was roughly 130 kWh per capita in 1984.

Table 1,3: STP ENERGY BALANCE 1984(toe)

Primary Energy Petroleum Products LinoFuslwood Biomass Hydro Charcoal Electricity LPG Gasoline Kerosene Jet Fuel Gas Oil Total Total

Gross SupplyProduction 29,373 n,a, 2,059 31,432Imports 28 3,054 b/ 2,517 b/ 7,127 12,726 12,726Stock 252 - 605 - 857 857Total Available 29,373 n.a. 2,059 28 3,306 3,122 7,127 13,583 45,015

ConversionCharcoal Prod, (283) (283)Jet Fuel Productlon (1,040) 1,040 /Power Generatlon (2,059) 3,873 (1,814) - (1,814)Converslon

Losses (1,130) (2,594) (3,724)Trans. & Dlst.

Losses (255) (255)Net Supply 27,960 n.a. 283 1,024 28 3,306 2,082 1,040 5,313 11,769 41,036

Reexports (738) (738) (738)Consumption

by Sector 27,960 n.a. 283 1,024 28 3,306 2,082 302 5,313 11,031 40,298

Industry 9,710 f/ 72 1,651 1,651 11,433Transport 3,306 302 3,126 6,734 6,734Households 18,250 283 356 28 2,082 2,110 20,999Agriculture 571- 536 536 1,107Public Lighting 25 25

a/ Includes avgas and methanol.b/ Including statistical discrepancles (actual stock not available),c/ Private Industry and Comerce.dl Includes State Enterprlses and Government Administration.*/ Sales of gas oll to EMAE were 1,621 TOE while actual consumption was 1,814 TOE. Therefore, stock drawdown of 193 TOE Is

Indicated.f/ Includes crop drying, bakeries, soap and oil manufacture, day-care centers, restaurants.

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1.17 The improvement of energy planning and management at thenational level would require some strengthening of the MICH team which isin charge of the sector, the main objective being to supervise theefficient allocation of scarce human and financial resources. The MICHteam would also serve as the focal point of T.A. to the sector. It wouldcreate and maintain a data bank, calculate and update energy balances aswell as make forecasts for energy demand and supply and foster acoordinated, integrated approach to problem-solving.

1.18 The MICH would also:

(a) formulate a national energy policy in harmony with STP'seconomic development plans; analyze possibilities of efficientsubstitutions based on the internal energy situation and oninternational energy markets;

(b) formulate and supervise the implementation of an energy pricingpolicy based on economic costs of supply to ensure efficientallocation of energy resources;

(c) define an energy sector investment program in collaborationwith energy institutions and enterprises;

(d) promote energy-efficient measures and simple energy-savingtechnologies for use in industry, agriculture and households.

1.19 The expanded duties to be carried out by this Energy team wouldrequire additional technical and professional staff which is not avail-able in STP. Consequently, an expatriate economist/energy planner and abroadly-trained and experienced engineer should be recruited tostrengthen the team and train local staff. Simultaneously, STP technicaland professional staff could be trained abroad (in an academicenvironment and in a well-managed small power company).

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II. WOODFUEl5

Present Woodfuel Resources

2.1 STP is fortunate to be endowed with a dense and varied forestcover which is composed of both indigenous and exotic species, inter-mingled between sea level and 600m with plantations of the country's maincash crops (Annex 2). Combined forest and agro-forest cover on the tugislands is estimated at about 80% of the total landmass of 1,M WSS(Table: 2.1). No comprehensive forest inventory has yet been carriedout in STP but based on aerial photographs and records datiq frouPortuguese colonial times and soil maps completed in 1971, the presentbreakdown by type of forest is as follows:

Table 2.1: STP: FOREST RESOURICES(Ha)

Saa Tomb Principe

Humid Broad leaved Forest 37,000 5,000Secondary Forest (Capoelra) 12,900 2,900Agro-Forest 22,500 ,SOO

Sub-Totals 72,400 9,400

Total 81,800 ha

2.2 The main function of the humid broadleaved forest formation isto protect the eco-system by preventing soil erosion on steep gradientsand by regulating the watersheds. Found between altitudes of 3 a and1,500 m, about half of this type of forest should stay intact asprotection for the ecological balance of the islands. 5/ The refiaiaghalf or 21,000 ha, could be exploited as production Sorest (with a ces-mercial, mainly saw timber, volt-me averagiMg 28 m /ha) and a totalstanding volume probably in excess of 100 m /ha. Main species includeFicus sidifolia, Celtis dusandii, Monodora myristica, scytopelatuhKamerunianum and Albizia mulucana. Table 2.2 below sumarizes infor-mation on STP's forest resources.

51 Logging for high value species (about lOX of standing volume) couldbe permitted. However, other areas are more easily accessible (thuscheaper). Further, the absence of proper supervision of togningsuggests that it is more prudent to ban logging altogether in thispart of the humid forest.

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Table 2.2: STP ESTIMATE OF FORESTRY RESOURCES

Standing Maximum a/Volume Extraction

(000 m) (000 3)5% 10%

Humid, broadleaved forest- reserved 21,000 ha (not to be exploited)- exploitable 21,000 ha 2,100 105 210

Secondary forest (Capoeira) 15,800 ha 400 20 40

Agro/Forestry formation 24.000 ha 500 25 50

Totals 81,800 3,000 150 300

a/ Including lumberb/ Including 21,000 ha. of closed reserve

Source: Mission estimates.

2.3 The secondary forest ("capoeira") originated from former coffeeand cocoa "ROCAS" or plantations. Certain species of high commercialvalue are found in these zones and the total commercially-exploitablevolume is estimated to be 15 to 25 m3 ha with a total standing volume ofbetween 60 and 80 m3/ha. The older capoeiras (50 years or more) are verysimilar to the original forest.

2.4 The agro-forestry formation contains indigenous trees of highcommercial value in addition to exotic species which were introduced forshade to protect cocoa trees from excessive light and heat. The agro-forestry formation is an outstanding example of multiple-use forest.Trees in this formation provide fuelwood and lumber (for households andenterprises), shade for cocoa trees, and food (especially the jack fruit-- Artocarpus Integer -- , the bread fruit, the banana, the safu). Inthis formation, the main indigenous species are: Chlorophora excelsa,Manilkara multinervis, Scytopelatum kamerunianum, Carapa procera, Albiziafalcata and Pycnanthus angolensis. The main exotic species which are nowcompletely naturalized are Cedrela odorata, Artocarpus integer,Artocarpus cumminis and Erythrina sp.

2.5 On average, there are about six large shade trees per hectareof cocoa (in addition to smaller trees and banana trees). These aregenerally well-developed and of high commercial value. If plans to

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introdI3ce cocoa cultivation methods without shade 6/ go ahead, the16-20 m/ha of standing timber of conmercial value should be recuperatedfor timber or, where not practical, carbonized in situ for charcoal).Since arual logged volume normally averages between 5,000 and10,000 m>, 7/ careful cutting of this reserve could cover STP timberneeds for many years.

2.6 Finally, there also exist in STP about 10,000 ha of old coconutplantations (including lesser areas of oil palms) which are virtuallyunproductive (yields below 100 kg/ha) and are due for renewal in the next10 years. Again, the old trees should not be completely wasted when theyare cut. Producing charcoal from these tree trunks should at least beenvisaged when the renewal (or clearing) of these plantations isprepared.

Consumption of Woodfuels

2.7 Data on the consumption of woodfuels in STP has never been col-lected systematically. Fuelwood and charcoal production are essentiallyinformal sector activities conducted along traditional lines. Woodfuelconsumption in the household and agro-industrial sectors was estimatedusing parameters derived from similar low-income developing countries andthrough direct field observation. The greater part of fuelwood use takesthe form of free gathering of wood, for which no records are kept. Themain quantifiable sources are from logging, sawmill operations, and landclearing.

Households

2.8 About 95% of households rely principally on firewood for theircockcing and heating needs. This includes about 15% of urban householdsthat use charcoal (about 6,000 persons) but excludes an additional 15%that use mostly kerosene. 8/ Household use is estimated at about 1m3/year per capita.

6/ The estates would plant fast growing species on steep slopes toprovide fuelwood and timber and to replace the wood supplied fromshade trees.

7/ This volume, however, is insufficient to meet the demand and lumberL5 also imported. Nonetheless if total standing volume is 500,000m , demnind for even 20,000 m /yr. of finished lumber (requiring40,000 mu of cutting) can be met for nearly 15 years.

8/ Total population was approximately 106,000 in 1984, of which about42,000 can be considered urban and 64,000 rural.

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Table 2.3: S1.O: ESTIMATED CONSUMPTION OF FUELNOOD, 1984 -

(1000 M3}

Households- as firewood 95- as charcoal 5 100

Enterprisos- for cocoa drying 15- for other uses 15 30

Kindergartons/Cr6ches 5

Bread Bkoeries 15

Total 150

a/ Although the table Is for 1984, this pattern would be typicalof any year In the oarly and eid-1980s.

Source: STP authorities and mission estlmates.

Other Users

2.9 The agricultural estates are major users of fuelwood for the

drying of cocoa and coprah. The Ministry of Agriculture estimates that 2

kg. of fuelwood are required to dry 1 kg. of cocoa, t us at present

levels of production (3,000-4,000 T/yr), 13,000-15,000 m are required

(assuming a density of 0.6-0.7 T/m3). Cocoa drying is inefficient in STP

because the dryers are in need of repair. In order to obviate future

potential fuelvood supply problems, and as an ecnnomic alternative to the

use of diesel-based or electric drying systems, STP will repair its

fuelvood dryers under the proposed IDA-financed Cocoa Rehabilitation

project. It would seem that substantial economies of fuelwood are

possible at relatively little cost. The alternative of replacing

existing dryers with more efficient ones is not reasonable because of the

high investment cost and the still relatively low cost of firewood.

2.10 Little is known about consumption of fuelwood in other agro-

industrial processes. However, it is estimated that3 copra drying and the

manufacture of palm oil and soa,% use about 15,000 m of woodfuels, while

bakeries also use about 15,000 m for baking bread.

2.11 Kindergartens and creches (day care centers) theoretically

provide a cooked meal per day for their charges. In fact, disorgani-

zation and lack of coordination between the agricultural estates (which

are supposed to supply the firewood) and the users cause frequent supply

interruptions. Civen this situation, the 5,000 m per year figure shown

is probably an overestimate.

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Supply-demand Situation: Present and Projected

2.12 In comparing the estimates of supply and demand, there appearsto be no immediate danger of deforestation (or of a "fuelwood crisis") inSTP between now and the end of the century. Present consumption is atthe lower end of the estimated supply range while projected consumptionin the late 1990's is in the upper end of the estimated supply range.

2.13 The range of supply i3 projected to remain constant over thisperiod as no large-scale land clearing or deforestation is expected.Agricultural expansion will most probably take place on lands not clas-sified as forests or within the agro-forestry formation. This leavesabout 40,000 ha on which agricultural expansion or intensification cantake place (present, effectively cultivated area is probably between15,000 and 20,000 ha). Although it is probable that by the year 2000,agricultural estates will have their own rapid-growing tree plantations,this is not taken into account in the supply scenario as no concreteplans exist yet.

2 14 The estimates o demand (roughly 150,000 m3 at present, 230,000m in 1993, and 260,000 m in the year 2000) are based upon:

- rapid increases in cocoa production in late 1980's and early1990's, with increasing efficiency in the use of fuelwood,without substitution.

- population growing at 3Z p.a. will rise to about 170,000 by theyear 2000 and only limited substitution of firewood isexpected.

2.15 Table 2.4 provides very broad estimates of likely demand andsupply from 1984 to the year 2000. The table indicates that by the endof the century, demand will be catching up with the more optimisticsupply estimates. Given the long lead times in forestry, this situationshould be kept under observation and planning for forestry projectsshould begin as soon as essential knowledge about the subsector isgathered and analysed.

Prices and Markets

2.16 A large share of the fuelwood used by STP households is coL-lected freely and therefore bypasses the market mechanism. Almost allfuelwood used on the agricultural estates is produced directly by theestates and therefore, does not go through a market transaction. Themarket for firewood is therefore relatively small. The cost of cuttingand transporting 1 m of fuelvood has been estimated at Db. 1000-1200which seems a little high, probably because of the high labor costsincurred by the agricultural estates. Private or informal sector loggingcosts are thus probably a little lower.

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Table 2.4: STP: COMPARISON OF SUPPLY AND DEMAND FOR FUELWOOD1984, 1993 and 2000

(in '000 m )

Supply DemandMn. Max. Households Agr. Estates Other Total

1984 150 300 100 30 20 150

1993 150 300 130 50 40 230

2000 150 300 150 60 50 260

Source: Staff estimates and computations.

2.17 The substantial number of wood and charcoal producers andvendors suggests that entry into these activities is not difficult and,prima facie, this implies that the environment is basicallycompetitive. Comparisons of expenditures for fuelwood as a share of theminimum wage shows that fuelwood is relatively inexpensive in STP:annual fuelwood costs for a family of four are equivalent to roughly fiveweeks' wages. No information was available on the efficiency ofhousehold use of fuelwood; however, opportunities for reducing the costof fuelwood to households through higher end-use efficiency (e.g.improved stoves) should be investigated.

Fuelwood, Charcoal, Kerosene: Household Energy

2.18 As there is little rekiable information on fuelwood and char-coal in STP, the discussion in rhis section should therefore be consid-ered to be tentative. !t- present prices, fuelwood is almost competitivewith kerosene on a heet conteut basis. 9/ This is an unusual situationand is one which denotes an abundant and low cost supply of fuelwoodgiven that kerosene is procured at a very low cost and is subsidized(paras. 3.26 to 3.36) whereas fuelwood is priced competitively and itsprice reflects economic costs. It is estimated that approximately 17Z ofthe total population (mostly urban households) uses kerosene for cookingand that about 50X of rural households use kerosene for lighting.Kerosene usage would be higher but the lack of foreign exchange prevents

91 At Db. 1000-1200/cubic meter, heat contained in firewood costs alittle bit less than equivalent heat in the form of kerosene. Sincethe aonversion efficiency of kerosene is higher, firewood on auseful heat content basis costs twice as much as kerosene. There isno information on elasticities (income, price) or cross-elasticitiesof demand, so it is not possible to quantify the substitutionsresulting from a relative reduction in the price of fuelwood andcharcoal.

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the import of stoves, thus hindering kerosene consumption which nonethe-less grew at 7.22 p.a. over the past eight years.

2.19 With kerosene priced to reflect world market prices (as isproposed in Chapter III), fuelwood (and charcoal) prices would be atrough parity with imported kerosene. As forest resources are plentifulin STP (while foreign exchange is in short supply) it should be possibleto shift increases in household fuel consumption toward fuelwood andcharcoal. The immediate goal would be to stop the growth of keroseneconsumption, and then possibly reduce consumption, although theincreasing cost of eLectricity might raise the demand for kerosenelighting. This would not be a problem as long as power, kerosene, andfuelwood prices all reflect economic costs of supply (under theseconditions the market's choice would be efficient).

Forestry Recommendations

2.20 No important capital investments in forestry are urgentlyneeded in STP. Rather, the priority need is for strengthening insti-tutions (including legislation), gathering basic information andtraining, establishing a simple structure of forestry facilities andimproving the regulation of economic activities linked to forestry.

Organization and Training

2.21 An important step toward the satisfactory management of wood-fuel supply and demand is to set the MAL forestry section on a firmerinstitutional footing, vesting it with the full legal powers necessary toput policy and planning measures into practice (in addition to itspresent duties which include dendrology, nurseries, reforestation,cutting permits, taxation, and statistics) (Annex 3). Resources andstaff constraints, which impede the section's ability to carry out evenits present duties, need to be addressed.

2.22 The highest priority actions are described below:

(a) Since the head of the forestry section is going for higherlevel training abroad, an expatriate technical advisor shouldbe recruited to head the forestry section for about two years;the advisor's tasks could be to assist in carrying out thesection's expanded duties and to train STP staff on the job.The advisor would also help define forestry legislation andregulations (see below). The section would also need to begiven the resources to carry out its work (vehicles, officeequipment, nursery materials, field support centers, experi-mental/observation facilities, etc.).

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(b) Since there is no forestry legislation in STP, this needs to bepromptly defined and enacted (based on the findings of theforest inventory which is also urgently required). The legis-lation and regulations would need to cover cutting permits,marketing, taxation, and reforestation.

(c) Since lack of up-to-date knowledge on STP forests is a majorhandicap in planning, it is proposed to carry out immediately adetailed forest inventory in all areas presently under exploi-tation or easily accessible and a broad national inventory at alater date. The primary goal of this study would be to delimitforestry reserve areas and to designate areas for exploitation(timber, firewood, etc.), in addition to helping to definelegislation and regulations.

(d) Since there is almost no information available on the networkof firewood/charcoal production and marketing, a small survey(including household aspects) of these activities should beconducted immediately. The primary goal would be to help theGovernment identify bottlenecks or difficulties and to estab-lish a favorable regulatory environment, which fosters acompetitive market, as a guarantee of efficiency in the suppLyof firewood and charcoal Another goal would be to derive moreprecise estimates of consumption and to compare these with thesupply to be studied under the forest inventory (see above).

(e) The feasibility of installing a dendrothermal 10/ power planton the Ribeira Peixe or Porto Alegre State Enterprises shouldbe studied in conjunction with the major land clearingoperations for a palm oil plantation. The cost of dendro-thermal power should be compared to extending the power grid tothe southeastern part of the island. Alternatively,carbonization could be considered. The forestry potential ofthis region, which has extensive Capoeira, is high and it wouldbe a favorable site for a dendrothermal power pLant.Indicative costs for dendrothermal power plants are given inAnnez 4, but firmer estimates would need to be obtained and adecision could only be taken in the context of a power systemleast cost expansion program (see below).

(f) A number of smaller studies, technical assistance and trainingactions are detailed in Annex 21.

il/ The term "dendrothermal" which is well established in thelitarature, is not accurate; it should be substituted by the termNy,lothermal", putting the emphasis on the wood (where it shouldbe)-, rather than on the tree.

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III. THE PETROLEUK SUBSECTOR

Principal Issues

3.1 The main issues in the petroleum products subsector in STPconcern high levels of consumption, low prices, the selection and, to alesser degree, the promotion of petroleum exploration.

High Consumption and Low Prices

3.2 There are obvious links between the high consumption ofpetroleum products and their low prices. At the present exchange rate(Db. 46.00/US$), gasoline is sold at 23.90 USc/liter, gasoil (diesel) at13.50 USc/liter, and kerosene at 13.00 USc/liter. These Low prices haveresulted in petroleum products consumption growing at more than 101 overthe past ten years, turning STP into one of the highest per capitaconsumers of petroleum products among developing countries (see Annex 5).

3.3 Not only are these prices low, but their structure, with a highdifferential in favor of diesel, has shifted the pattern of consumptionst, engly towards diesel, especially in road transport. Consumption offuels for retail automotive use grew at 6.4% p.a. over 1976-84. Over thesame period, gasoline consumption grew at 5.6Z while diesel grew at8.6%. These trends were greatly accentuated between 1980 and 1984 whenthe growth rates became 2.4% and 11.2% respectively. The differential infavour of diesel is not justifiable and this Assessment proposes toreverse it (where gasoline would be sold for marginally less than gasoil)to reflect relative costs on the world market.

3.4 The future growth rate ef consumption is estimated at roughly3% p.a. overall, with a reduction of the bias against gasoline. Thefastest growing consumers will be agriculture, public transport, andpower plants, especially in the latter part of the 1985-1994 projectionperiod. Given the higher prices and the slow economic growth expected inthe first half of the projection period, 3% p.a. can be considered arelatively high rate of growth of consumption. However, it would seemunrealistic to expect Sao Tomeans to radically alter their consumptionstandards overnight. Overall, consumption of Setroleum products isexpected to grow from 18,380 ml in 1985 to 23,720 m in 1994.

Investments

3.5 One major investment foreseen in the period of projection isthe Petroleum Storage Project financed by a US$4.8 million loan from theBADEA/OPEC FUND. The port of Neves terminal, on the North coast of SaoTome island is probably well justified (its cost would add less than oneUS¢ per liter of fuel sold over a 20 year life) because STP has nostorage capacity beyond that needed for current consumption. The projectwould permit the holding of 45 days' stocks. However, the ocean terminal

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proposed for Principe is clearly more than is required to solvePrincipe's fuel supply problems. Only improved logistics and a smallinvestment (about US$100,000) are required, especially since an excellentsmall vessel, the Pague, has recently become available. The Pague wouldresolve the transport bottleneck which frequently caused problems in thepast. STP should proceed with the cheaper alternative proposed in thisAssessment (see para. 3.24) and seriously review its position on thenecessity of the Principe terminal.

Petroleum Exploration

3.6 STP is preparing legislation to govern future exploration forhydrocarbons by foreign companies. Two main issues need to be addressedin this subsector:

(a) the legislation should be attractive enough for STP's difficultand poorly known geology (i.e., the idea of obtaining a 51%participation will probably not be feasible -- STP needs toscale down its demands substantially);

(b) STP itself should take no risks in exploration, hence the needfor the petroleum legislation to be attractive to foreignpetroleum companies.

A subsidiary issue concerns STP's intention of setting up a state oilcompany: that is clearly premature at this point. The one Sao Tomeancurrently experienced in petroleum exploration legislation could form anucleus where a few persons, in an appropriate Ministry, would monitorthe activities of foreign oil companies.

Historical Consumption

3.7 Total demand for petroleum products increased from an averageannual consumption of 7,855 m (6,143 TOE) in the period 1975-1977 to17,058 m3 (13,560 TOE) in 1984, an average growth rate of 10.2X p.a.(Table 3.1 and Annex 6). The first half of the period, from 1976 to 1980shows rapid growth in overall demand (average of 13.0%) because ofbooming prices and exports of cocoa. During 1980, falling cocoa outputand prices caused a slump but petroleum product consumption continued torise between 1980 and 1984, albeit at the lower rate of 7.4%.

3.8 Between 1980 and 1983, consumption stagnated at about 13,000 m3(10,000 TOE) p.a. and experienced a sudden upswing only at the end of theperiod (1983-1984), reflecting an increase in gasoil and gasolineconsumption by the private transport sector. In the 1980-1984 period,the main developments in demand were a progressive substitution of gasoilfor gasoline in transport and an increase in consumption of gasoil forpower generation and fisheries.

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Table 3.1: Sm - CONSUMPTION OF PE?LEU4 PRODIJCTS, 1975-1984(in '000 m )

Growth Rate a1 Growth Rate AverageProduct 197644 1980-84 1975-77 1980 1981 1982 1983 1964

(%) (M)

Gasoline 6.3 3.0 2,672 3,874 3,716 3,457 2,628 4,368

Kerosene 7.2 1.3 1,4757 2,405 2,169 2,084 1,608 2,537

Jet Fuel 5.8 1.0 825 1,252 988 1,203 700 1,296 b/

Gasoil 15.2 13.8 2,851 5,251 5,334 6.521 8,222 8,807

LPG - - 50 50 50 50 50 50

Total 10.2 7.4 7,855 12,832 12,257 13,315 13,208 17,058

a/ Base year 19763is used for growth rate calculation.

b/ Of which 920 m3 were exported.

Source: ENIO statistics.

3.9 Between 1976 and 1984, the share of gasoil increased from

36% to 52% of total petroleum product consumption which is due both to

the commissioning of two new thermal generation units in 1982 and to an

increase in the import of private diesel cars because of the artificiallylow price o the fuel (6.20 Dobras/liter). In 1984, gasoil consumption

of 2,097 m3 (1,650 -OE) in industry was accounted for mainly by

fisheries. The 258 m of gasoil under Public Transport represerted sales

to the State Enterprise for Public Transport (TRANSCOLMAR) which operates

the bus fleet and the two shipping vessels serving Sa5 Tome and Principe

islands. Public transport figures also include domestic and bunker sales

of jet fuel, th consumptioi of which increased by 5.8% between 1976 and

1984 from 825 m to 1,296 m . An average growth of 6.3Z p.a. in gasoline

demand from 1976 to 1984 conceals a decline in demand during the 1980-

1983 period in response to increasing consumer preference for diesel-

driven private motor cars, given the price advantage of diesel.

3.10 In the case of both diesel- and gasoline-driven private cars,

STP authorities estimated average monthly mileage per car to be constant

at about one thousand miles, which is a high figure but which can be

explained by the consistently low price of automotive fuels (Paras. 3.26

to 3.36) and the shortage of vehicles. 11/ Fuel efficiency is low at

roughly 17 miles/US gallon 12/ due to the poor maintenance of vehicles

and lack of spare parts, combined with the island's mountainous terrain.

_l/ And the fact that almost all private cars double as taxis.

12/ Almost 14 liters/100 kn.

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Table 3.2: PETROLEUM PRODUCT DEMAND BY SECTOR, 1984

('000 m3)

Sector LPG Gasoline Kerosene Jet Fuel Gas Oil Total S

Fishing Industry 2,097 2,097 13.0Power generation 2,059 2,059 12.0Private transport 4,368 3,713 8,081 46.0Public transport 1,296 1 258 1,554 9.0HousehoJds 50 2,537 2,587 16.0Agriculture 680 680 4.0

Total 50 4,368 2,537 1,296 8,807 17,058 100.0

o1.0 24.0 15.0 8.0 52.0 100.0

a/ Of which 920 m were exported.

Source: ENCO statistics.

3.11 Demand for kerosene between 1976 and 198 increased by anaverage 7.2% p.a. from 1,457 m3 (936 TOE) to 2,537 m (2,000 TOE), buthas not grown substantially since 1980, reflecting the lack of foreignexchange to import stoves and the progress of electrification. Approxi-mately 50Z of the rural population uses kerosene for lighting, theremaining 50% having access to electricity. Some 17% of the totalpopulation currently uses kerosene for cooking.

Demand Projections

3.12 The mission projects a 3.0% p.a. average increase in totalpetroleum product demand during the next decade (Table 3.3 and Annexes 7and 8) based on the assumption that economic growth will be slow untilthe late 1980's but will pick up by 1988. Also, higher prices willencourage the adoption of energy conservation mea.ures in all sectors ofconsumption. The conservative but realistic 3.0% average annual growthin petroleum product demAnd takes into account the projected consumptionof gasoil for power generation and an end to the advantage of gasoil overgasoline as an automotive fuel.

Table 3.3: PETROLEUM DEMAND PROJECTIONS BY FUEL TYPE TO 1994M3){m )

Average p.aGrowth Rate

Fuel Type 1985 1990 1994 1985-1994

LPG 60 65 70 1.7Gasoline 4,500 5,220 6,475 4.0Kerosene 2,600 2,900 3,065 1.8Jet Fuel 1,335 1,810 2,060 4.8Gaso i 9,885 11,180 12,055 2.2

Total 18,380 21,175 23,720 3.0

Source: Mission estimates; detail in Annex 8.

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Supply and Distribution Arrangements

Supply

3.13 Since 1978, the GSTP has benefitted from a preferentialagreement with the Angolan Government for the supply of petroleumproducts, whereby all of STP's fuel needs are met at mutually negotiatedprices which are currently between 45% and 60% of world prices. Thesenegotiated prices have not changed since they were agreed to in 1978 andthe Government of STP has not introduced any increases in the internalprices of these products either. Products are delivered by tanker sixtimes year (Annex 9).

3.14 In spite of the favorable pricing regime, STP has been unableto meet its petroleum payments. By end-1984, STP had accummulatedarrears of US$4.875 million, or about two years' volume of consumption.

3.15 It is evident that STP has a strong interest in mainteining itsagreement with Angola so it is therefore important that the arrears dueon petroleum be amortized, perhaps by an agreed, longer-term schedule ofrepayment with a low interest rate. Similarly, STP should quicklyconclude negotiations on the new prices proposed by Angola.

3.16 Other actions which STP should take include:

(a) to examine alternative sources of supply, one potential sourcebeing Gabon's Port Gentil refinery which has a ready avail-ability of products and a tanker of the required (small) sizeto make delivery feasible;

(b) to ensure that ENCO personnel acquire skills in procurementoperations in order to avoid problems of disruptions in supply.

Investments

3.17 The main delivery and storage point for petroleum products isthe Port Neves Ocean terminal, located 27 km. from Sao Tome city.Present storage facilities c nsist of two tank farms with four tanks anda total capacity of 4 750 m (30 thousand bbl's) for which the productbreakdown is: 1,!300 m capacity for each of gasoline, kerosene andgasoil; and 250 m capacity for jet fuel. Before the GSTP's nationa-lization of petroleum supply and distribution in 1982, the facilitieswere owned by Shell. The off-loading system has been in operation for30 years and is in need of repair.

3.18 Expansion of the Port Neves terminal forms a US$3.5 millioncomponent of a US$4.8 million loan under negotiation with the Arab Bankfor Economic Development in Africa (BADEA) and the OPEC Fund for Inter-national Development.

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3.19 The main elements of the project include:

(a) installation of two additional tanks of 2,000 m3 each forgasoil (as the product demand mix is expected to change, one ofthe tanks could be used for gasoline);

(b) installation of one 500 m3 utility/reserve tank connected toboth gasoline and kerosene tanks;

(c) instailation of one 500 m3 tank for jet fuel (the existing250 m tank being converted to water storage);

(d) acquisition of safety equipment, a decantation system and theinstallation of electric pumps for the transfer of products;

(e) acquisition of three tank trucks (the project proposes 8 meach but 16 m3 would be preferable because of similar costs andlower per liter delivery costs).

3.20 This project appears justified on the basis of the projectedgrowth in demand for each product up to 1994, assuming the currentcorrect product mix 13/ is maintained. The possibility of importingproducts in larger tankers with fewer annual deliveries and of increasingstocks to 45 days' consumption are priority steps toward the improvementof security o' supply. Calculations show that a supply schedule of fiveannual tanker deliveries is the best option (Annex 10). Freight ratesavings would be minimal in view of the small variations in volume.

3.21 The rehabilitation of Principe Island's supply and storagenetwork is the second major component of the BADEAIOPEC loan mentionedabove (para. 3.18). The project would establish a small ocean terminalat Ponta da Mina, a steep promontory close to Principe's capital, SantoAntonio. The BADEA/OPEC cost estimate was US$1.3 million at 1982 prices(about $1.45 million at 1984 prices) for the construction of the ter-minal. The sharp gradient requires the addition of a pumping station atsea level, and an access road to Ponta da Mina would also be necessary.These changes would bring the estimated total cost of the terminal toover US$2.0 million at 1984 prices.

3.22 Petroleum products are currently supplied to Principe in drumsfrom Sao Tome but a combination of irregular suppLy and inadequatestorage 'acilities are disrupting supplies. Consumption of petroleumproducts was only 688 m3 in 1984, 4.0% of total domestic consumption ofpetroleum products and is growing at about 5.8% p.a. No major increasein the Island's consumption is envisaged in the near future.

13/ One type of gasoline (90 RON) one type of diesel fuel (ADO) and onedual purpose jet/kerosene.

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3.23 The modest volumes required by Principe over the next 10 yearsmake it highly unlikely that a terminal would be justified. The highinvestment and operating costs over the small volume of fuels handledwould imply a large cost increase. Furthermore, terminals are usuallyjustified on the basis of savings in freight costs; in this case, freightcosts would probably increase following construction of the terminal,because:

(a) in order to maintain a regular flow of 3products to Principe,two annual deliveries of about 600 m of three differentproducts (gasoline, gas oil, kerosene) would be required; it isdifficult to find a tanker of such limited capacity for thispurpose;

(b) tanker deliveries to the terminal will incur high freight costsbecause of the small size of the tanker. Even with thehypothesis of combining deliveries to both islands, the totalfreight bill will include an additional fee for the second portand a daily demurrage charge of an additi snal US$8,000-10,000in hard currency to transport the 600 m from Sao Tome toPrincipe.

3.24 Fortunately, there are cheaper alternatives to building a seaterminal, at a small fraction of the cost. The method suggested belowwould cost only a fraction of the proposed ocean terminal in terms ofinvestment, and would have negligible operating costs. It is a flexiblesolution, which could be applied in the medium term or as a definitivearrangement. A small project could easily be prepared based on theelements below:

Main Elements of a System of Supply for Petroleum Products to Principe

(a) The acquisition of 300 heavy duty drums for the transportationof fuels from Sa5 Tome to Principe, or alternatively, two skidtanks.

(b) The new cargo vessel "Pague", recently donated by the EEC,could be used to transport a monthly cargo of 70-100 drums toPrincipe. The ship has littie regular cargo and would welcomefreight. Payment would be made in Dobras to the Sao TomeanPublic Transport Enterprise (TRANSCOI.VXR), which own the"Pague";

(c) Rehabilitation o the existing filling station by iistalling anadditional 50 m tank for gas oiL and a '0 m tank forkerosene. The existing tank would be kept for gasoline.

(d) Attribution to ENCO of responsibility for the distribution offuels on Principe.

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Airport

3.z5 Sao Tom6 airport is currently supplied with jet fuel by tanktruck and with avgas in 200 liter drums from Port Neves terminal. Giventhe volume of air traffic, facilities and procedures are satisfactory.However, some increase in the frequency of quality control of fuels andsafety inspection would be desirable. The existing contract withPetrogal, (Portugal Petroleum Co.) would therefore need to be revised.

Petroleum Prices

3.26 Angola is presently supplying STP (since 1978) with petroleumproducts at a fraction of their world prices. Gasoline is supplied atUS$151/Mton (58% of world price), gasoil at US$114.75/Mton (45% of worldprice), jet kerosene at US$140/Mton (55% of world price). 14/ The GSTPhas chosen to pass along this subsidy to the final consumers, a policywhich has been responsible for the remarkable upvard trend in demand.STP's declining export performance, however, is making it impossible topay for these products and more than US$4.8 million of arrears haveaccumulated vis-i-vis Angola.

3.27 The policy suggested in this Assessment is to increase internalprices to the level of world prices without delay. This is requiredbecause of the clear benefit which would result were the subsidy toaccrue as general Govermnent revenues rather than as specific subsidiesto final consumers; it would anticipate a revision of prices which Angolahas already requested (sizeable increase *n delivered prices, but stillbelow world market prices); and it would lower the growth rate ofconsumption.

3.28 The current domestic price structure for petroleum products isas follows:

14/ These prices are CIF STP; world prices for comparison are January1985 Platt's FOB Rotterdam + $25/Mton of freight (this is a notionalamount as freight would be much higher for the small tonnagesrequired by STP).

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Table 3.4: STP: DOMESTIC PRICE STRUCTURE, SELECTED PETROLEI.M PRODUCTS

Gasoline Gas oil Kerosene

CIF terminal Db. 5.19/liter Ob. 4.30/iIter Ob. 5.14/liter

Charges (cusos,port, ect.) 1.78 1.18 1.50

Sales tax 2.80 0.50 0.20Road fund .50_Cost ex-terminal 10.26 5.97 6.84

Total cost a/ 10.78 6.39 7.41Retail price 11.00 6.20 6.00Unit profit (loss) 0.22 (0.20) (1.41)

a/ Includes delivery and margins.

3.29 The following observations can be made on the above table:

(a) gasoline is sold at a price which makes it marginally profit-able, based on the actual cost billed by Angola. ENCO makesmore than 75% of its profits on Avgas and Jet Fuel and theremainder on lubricants, while it breaks even on gasoline;

(b) gas oil is marginally unprofitable to ENCO and bears no chargesfor the Road Fund although it is the preferred automotive fuel,and is taxed much less than gasoline (gasoil causes ENCO onethird of its losses);

(c) kerosene is sold at a substantial loss (24% of tt retailprice), presumably for social reasons (accounts for 2/3 ofENCO's losses);

(d) the retail price differential between gasoline and gas oil ismuch too wide (even greater than the CIF differential):

(e) the amount charged for the Road Fund is much too low :o coverthe costs of maintaining STP's road network.

3.30 A revision of pricing policies should be based on the followingprinciples:

(a) all prices should be revised on the basis of world prices CIFSTP. The difference between the price actually billed byAngola and world CIF should go into a reserve;

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(b) the Government should not incur losses 15/ on any of theproducts (although it could forego imposing some charges ifeconomic, social, or political factors justified it). Closesubstitutes should be taxed at the same rates (e.g., diesel andgasoline) so that taxes do not distort user choices (unlessthere are good reasons to do so);

(c) the Road Fund should earn enough to pay for routine maintenanceof the road network. Gas oil should therefore also be requiredto pay this charge.

(d) world prices could be reached in two steps; first, byincreasing domestic prices in line with the new Angolan supplyprices, and then, perhaps, six months later by increasingdomestic prices to CIF world prices. Any exchange rateadjustment would clearly have to be additional.

3.31 As an illustration, the selling prices of the three productsembodying the above principles (except that all charges and the exchangerate are maintained as they now are) are computed in Table 3.5.

3.32 This hypothetical price structure has the advantage ofeliminating Government losses on the sale of petroleum products and gene-rating revenues for the maintenance of STP's vital road network.Furthermore, it eliminates the unjustifiable price advantage of diesel inautomotive use while still maintaining a low price (essentially equal tocosts) for kerosene for cooking and lighting purposes.

3.33 The proposed, hypothetical price structure would probably nothave an important impact on the cost of transportation. In fact, publictransportation, power, and productive uses of fuels (in agriculture andfisheries) are exempted from the Road Fund charge which is one of themain elements behind the increased cost of automotive fuel. 16/

15/ That is, internal prices should at least reflect full, actual costs;at present, Kerosene does not.

16/ Thus, the price of diesel for non-automotive uses would be Db 15.25per liter.

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Table 3.5: STP: ILLUSTRATIVE PRICES OF PETROLEUM PROI3UCTSBased on International prices

(Dobras/Liter)

Gasoline Gas Oil Kerosene

CIF terminal a/ 8.76 10.23 9.61Charges (port,customs, etc.) 1.78 1.18 1.50

Sales tax (32%) 2.80 3.25 0.20Road fund b/ 2.75 2.75 e

Cost - ex-terminal 16.09 17.41 11.31Total cost cl 16.61 17.83 11.88

Selling price 17.00 18.00 12.00

Increase 55% 190% 100%

a/ Based on early 1985 costs: FOB Rotterdam + S25AMetric ton freight,I.e., Gasoline at S257-261 CIF; Gas oil at S282-283 CIF; andJet/Kerosene at S256-258 CIF. This Is equivalent to paying worldprices but for freight to be charged as If products originated inAngola (or Gabon); true world prices, CIF Sa6 Tom6 would be about120 more per ton, for freight. In fact, Angola currently chargesabout S47 for freight rather than the S25/m. ton used here and whichis felt to be a fairer charge. The difference between actual costand CIF world prices should go into a reserve.

b/ Road Fund is based on Ob. 100,OOC/km (S2,147/km) of paved road perannum for maintenance and is computad only on gasoline and gas oilused for retail automotive use Oi. , excludes power, public trans-portation, and production, especially agriculture and fisheries).The total amount required is i)b. 22 million over approximately8 mIllion lIters of gasolIne ond gasoil for retail automotive use.To avoid fraud, EMAE, EMPESCA, TRANSCOLNAR, and the agriculturalestates would have to pay the Road Fund charge but Government wouldcredit it at year end.

C/ Including delivery + margins.

Note: Exchange rate: Ob. 46.00/USS.

Postcript on Petroleum Products Prices

(i) While this report was in preparation, the CSTP took the firstfar-reaching, courageous steps to rectify the distortions inthe economy by increasing energy prices and public transportfares while liberalizing economic activity. The steps takenconcur with the main recommendations of this Assessment,whereby the GSTP raised petroleum products prices onMay 23, 1985, essentially as a measure to curb excessivedemand. The new prices are:

Gasoline: Db. 30/ltGasoil: Db. 12/ltKerosene: Db. 10/lt

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The new prices will hopefully achieve the Government'sobjective of reducing the consumption of energy, especiallyover the medium-term. These higher prices are being appliedonly to private consumers at present, lat the Governmentintends to extend them to the State, its agencies andenterprises probably in January 1986, which is the beginningof STP's fiscal/financial year.

(ii) The structure of the new prices shows gasoline essentiallysubsidizing gasoil, and covering the losses incurred on salesof all products to Principe, thereby improving the financialperformance of ENCO. The price of gasoline established byGSTP is higher than what was calculated in this report(i.e., Db. 30/lt vs. Db. 18/lt) because of other consi-derations (which possibly include deflationary goals of theGovernment and/or partial or total anticipation of price orexchange rate variations).

(iii) Given those considerations, the current price of gasoline iswell founded. However, these considerations, in addition tothe analysis in this report also justify a higher price fordiesel oil and kerosene. In this light, the Government shouldcontinue to review the petroleum products pricing policy and,when the new higher prices are extended to the whole economy(possibly in 1986), should modify the structure of prices tomaintain rough proportionality with world prices. As anexample, given the price of Db. 30/lt for gasoline, an appro-priate price for gasoil would be in the range of Db. 25 to 35per liter for automotive use, and roughly Db. 5/lt less fornon-automotive use (e.g., power generation, fishing,farming). Similarly, the price of kerosene could be set inthe range of Db. 18 to 22 per liter.

(iv) Until now, the GSTP has maintained low gasoil (diesel) pricesas an encouragement to productive activities, especiallyfishing. The State fishing fleet (composed of two largetrawlers) is the main beneficiary of these low prices. Itwould be more appropriate (and less disruptive) if the Statefishing vessels were subsidized directly rather than throughthe price of gasoil which causes an economy-wide distortionaffecting the choices of all other economic agents (that mayor may not warrant subsidization). The price of kerosene hassocial implications and the Government exempts it of certaintaxes and levies, hence the lower price. But this should notbe exaggerated, lest cheap kerosene distort consumptionexcessively in its own favor and against domestically producedfirewood and charcoal.

3.34 The cost of transportation in STP is relatively high, notbecause of high fuel prices, but probably because of the high scarcityrent on automobiles (and other vehicles). If this is the case, low,

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subsidized fuel prices do not help to reduce the cost of transport, whichwould only be reduced by encouraging the import of more vehicles, butwith fuel prices reflecting full costs. This new price structure wouldavoid the effects of the present fuel price policy and allow the Angolansubsidy to accrue to the Government of STP rather than to vehicleowners. The suggested alternative price structure also eliminates theincentive to import light diesel vehicles which are often significantlymore expensive than gasoline-powered vehicles.

3.35 About 60% of all vehicles imported in the last seven years(i.e., 471 out of 805) have been passenger cars, which are relativelyenergy inefficient. In addition, the percentage has been increasingappreciably in the last three years (Annex 11). Higher fuel prices(together with Government guidelines) would help to shift the demand infavor of more efficient vehicles, such as minibuses for taxi or quasi-taxi service. Should the Government officially import passengertransport vehicles for sale to private operators (as it did in 1980), itis recommended that 10- to 15-passenger vehicles be imported (rather thanordinary passenger cars as in 1980).

3.36 In recent years, retail automotive saLes of fuels (i.e., ex-cluding public road transportation and air transport) have accounted for40Z-45Z of petroleum product consumptio i, or about 7,755 m3 (in gasoiland gasoline) out of a total of 17,000 m . Little is known about the ageor efficiency of the road vehicle fleet. The little data availablesuggest that kilometers traveled per vehicle are on the high side andthat fuel efficiency is low. This could be due to a scarcity of vehicles(forcing each one to travel more), poor vehicle maintenance, bad roads,and/or steep slopes (SaW Tome has altitudes exceeding 2,000 m.a.s.l. inan area of 850 km2). In any case, a study of energy use efficiency intransport would be useful. The study, however, should include publictransportation, fisheries and agriculture sectors and a project outlineis included in Annex 12. The suggestions emerging from this studytogether with the higher price proposals may result in fuel savings.

Prospection and Exploration for Hydrocarbons

3.37 Existing geological data on STP show traces of petroleum in twoonshore sites which have surface infiltrations. A study by the InstitutFrancais du Petrole (IFP) hypothesizes that a sedimentary basin existedat one rime but was disturbed by volcanic activity during the Tertiaryperiod. Samples of oil taken from the two onshore sites in Norro doPeise and Uba Budo show a heavy oil (about 20 API) with a high sulphurcontent, which differs radically in nature from the crudes of neighboringGabon and Cameroon.

3.38 The current depressed world petroleum market may make itdifficult to attract oil companies to carry out high risk petroleumactivities in STP at the present time. The current oil market glut may

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well continue into the next decade and African sweet crudes are beingtraded on the spot market at prices substantially lower than present OPECbenchmarks.

3.39 Given the lack of sufficient information to make a firm judge-ment on STP's chances of finding oil, additional work could be useful,provided that interested oil companies can be found to carry it out. Thework would consist of:

(a) a reevaluation of existing geological and geophysical data (ifneeded, after taking into account the work being done byPARTEX);

(b) an aeromagnetic survey to determine the distribution ofvolcanic rock on the continental shelf surrounding the islandsand their position in relation to the regional fracture withwhich they are associated;

Cc) additional seismic work and gravimetric readings.

3.40 With particular reference to the legal framework for petroleumexploration, the final version of the present Draft Petroleum Law shouldallow oil companies to contract exploration acreage directly with theGSTP rather than through the intermediation of a yet-to-be creatednational oil company. The State's participation in oil operations shouldbe limited to realistic percentages considerably below the 51Z con-templated in the present draft.

Organizational Issues and Training

3.41 The ENCO State Enterprise assumed ownership and management ofthe import, storage, and distribution of petroleum products in 1982 andis now ; sponsible to the Ministry of Industry, Construction and Housing(MICH). The enterprise is headed by a General Manager and isstructurally sub-divided into three Departments -- Commercial/Aviation,Operations, and Accounting/Finance -- with a separate Personnel servicelinked to the General Manager's office. As most of ENCO's SeniorManagement gained their work experience with major oil companies, thereis a reasonable level of professional competence within the enterprise.However, in view of the need to acquire skills in the procurement ofpetroleum products on international markets and in the improvement ofdomestic supply and distribution management, (including the new oceanterminal), it is essential for senior staff to receive training in theprocurement and operations divisions of an oil company. In addition, aworking knowledge of English will be indispensable in order to enableENCO personnel to deal directly with international oil markets.

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IV. ELECTRICITY

Basic Resources and Existing Facilities

4.1 The national water and electricity enterprise (EMAE) isresponsible for the generation, transmission and distribution of electri-city through a grid covering the most densely populated zone in thenortheast of Sa5 Tome island. The grid is connected to the two hydro-plants and to the capital city's diesel plant. The current mix of powergeneration in 1984 is 53% hydro and 47% diesel.

Hydroower Resources

4.2 In terms of topographical, geoLogical and climatic conditionspSTP is well endowed with hydro resources. A recent UNIDO report 17/examined the hydropower potential of nine rivers on Sao Tome island with29 sites having capacizies of between 500 kW and 6,000 kI. Totaltechnical and economic potential is estimated at 52 MW with a totalannuaL power generation of 238 CGh. The Io Grande, Lemba, and Abaderiver resources alone constitute more than 60% of hydro capacity on Sa8Tome. Current hydro generation, at about 7 GUh, thus represents amere 3% of the total theoretically producible power. The report alsoidentifies four hydroelectric sites on Principe, with in estimatedcapacity of 1.5 NW and an annual production of 5.2 CWh. In addition, anumber of mini-hydro stations (of between 50 kW and 500 kW) could beinstalled after completion of an inventory of potential sites. Aninventory of hydroelectric resources conducted in 1981 under Soviettechnical assistance makes very preliminary estimates of investment costswhich range between US$3,000 and US$6,000 per kW. It is clear thatbetter, more detailed studies will be needed before proceeding with anyhydro investment. Details of current estimates of STP's hydropowerpotential are provided in Annex 13.

Existing Facilities

4.3 The main hydroplant is situated on the Contador River in thenorthwest of Sa5 Tome island and it has an installed capacity of1,920 MW. The second hydroplant - the Guegue station - is almost40 years old and is situated on the Manuel Jorge River a few miles southof Sao Tome city. Power house equipment includes an old 180 HP turbine(which must be replaced) and a new 200 kVA alternator which went intooperation in 1984. Diesel generation capaciry (totalling 3.36 NW) isprovided by three recently instaLled units and an older GM unit.

17/ "Report on the Request for aid from UNIDO for the development of aprogramme for building small and medium-sized hydroelectricstations".

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4.4 In addition to the interconnected grid, one diesel plant existson Principe Island. The plant is in good working order and is equippedwith two units 18/ of 330 kW each which will remain underutilized formany years to come, the current peak demand being only about 50 kW. OnSaa Tom6 island, there are three further independent thermal plants, onehydro plant which is associated with a State enterprise and several othersmatl capacity generators of varying vintages, serving specificfetilities.

Table 4.1: STP - INSTALLED CAPACITY, 1984 (INTER-CONNECTED GRID ONLY)(In kW)

Capacity

Hydroplants, nominal 2,364(of which 444 kW are either In poor shapeor not physically connected to grid)

Hydroplants, net 1,920Diesel plants 3,360

Total 5,280

Reserve: 1,000 kW GM (largest) unit l,OOO

4,280

Less: Bobo-Forro (not yet working) 760

FIrm Capacity, wet season 3,520less: loss of capacity of isydroplant

In dry season 420

Firm Capacity, dry season 3,100

Source: Annex 14.

Sub-transmission and Distribution

4.5 EMAE's sub-transmission and distribution installations are oldand rundown but correct (if not always economical) methods appear to beused for setting up the 6 kV and 30 kV lines, the transmission poles, andthe sub-stations. There are, however, major supply deficiencies in thelow voLtage distribution network: 39% of all consumers have no metersand there are no automatic turn-off devices on street lights.

18/ One these units could possibly be moved to Sao Tome in case ofurgent need, for example during repairs on the Contador hydro plant.

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Electricity Growth and Demand Projections

4.6 Between 1981 and 1984, gross electricity generation increasedby 15.6% p.a. from 10.027 GWh to 15.496 CWh (Table 4.2). An increase indiesel generation after 1982 was due to two new diesel units of 800 kWeach coming on line in that year (the third one, of 760 kW is still notworking). Electricity consumption levels show a similar 16.0% averageannual increase, from 7.920 GWh to 12.363 GWh during the 1981-1984period. By 1984, peak demand, at 3.3 MW, was pushing against a firmcapacity of 3.5 MW during the rainy period and was even exceeding firmcapacity during the dry season. However, the number of consumersincreased more rapidly than actual consumption, much of which was unpaidand unmetered, a situation which caused a reduction in per capitaconsumption (Annex 15). In broad terms, practically all the increaseddemand between 1981 and 1984 was met by diesel generation.

Tabie 4.2: STP - ELECTRICITY SUPPLY AND DEMAND(1981-19e4)

1981 1982 1983 1984 GrowthE P.a.

Gross generation (GWh) 10.027 10.766 11,558 15,496 15,2Hydro (G6h) 7.415 7.987 6.081 8.239 3,5Diesel (GWh) 2.612 2.779 5.476 7.257 40.5Consumption (GWh) 7.921 8.346 10.555 12.363 16.0Peak demand (MN) 2.990 3.050 3.000 3.300 3.3Firm capacity (MW) b/ n.a. n,a, n.a. 3,520 -

Losses (GWh) 2.106 2.420 1.003 3.133 --

Losses (S) 21.0 22.5 8.7 20.2

No. of consumers 4,560 5,618 7,369 8,528 23.2

a/ 1983 figures are unreliable.b/ Firm capacity in the dry season (3-4 months) is only 3.1 MW.

Source: EMAE.

4.7 In the 1981-1984 period, the most pronounced growth(22.6% p.a.) occurred in consumption by the State, the figures for whichinclude all StLte enterprises (industrial and agricultural), Governmentservices, administration, party, political and religious institutions.Household consumption between 1981 and 1984 rose by 19.5% p.a., whichreflects both a rapid increase in new connections (about 1,300 p.a.) anda collapse in the billing system which made electricity practicallyfree. Electricity sales to private agroindustrial concerns and smallbusinesses -- shops, bars, restaurants -- decreased by a significant14.4%. reflecting a decline in private economic activity. Sinceindependence in 1975, public lighting has not been billed but it isreckoned by EMAE to be constant at about 25,000 kWh per month.

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Table 4.3: STP - ELECTRICITY SALES CGWh)(1981-1984)

1981 1982 1963 1984 GrowthS P.a.

Total Sales 7.921 8.346 10.555 12.363 16.0Private Industry &Couierce 1.345 .943 .906 .849 (14.4) a/

Households 2.473 2.730 3.584 4.216 19.5State b/ 3.794 4.373 5.765 6.998 22.6Public Lighting .300 .300 .300 .300 -

a/ Parenthesis indicates negative growth.b/ Includes industrial and agricultural State enterprises, Gcvernment,

administration.

Source: EMAE figures and mission estimates.

4.8 In spite of a 16% overall rise in total sales between 1981 and1984, average consumption figures over the whole population (large andsmall consumers) indicate a reduction of 6.7% p.a. in per capitaconsumption, which translates into a decline from 150 kWh per capitaper month to 120 kWh per capita per month (Annex 15).

4.9 Table 4.4 below (and Annex 16) sets out a growth projection(basic scenario) for electricity consumption over the period 1985-1994 onthe basis of the parameters and hypotheses enumerated below:

(a) an annual increase in consumption to 32 p.a. between 1985 and1987, to be achieved through higher prices, effective billingand collection, and, if necessary, by placing limits on newconnections (considerably below the 1,300/year of the recentpast); the increase in consumption will rise to about 6% p.a.from 1988, reflecting both a resumption of economic growth andgreater availability of power (attributable to therehabilitation/ loss reduction program);

(b) a reduction in power losses between 1985 and 1988 from thecurrent level of 21% p.a., to about 12S p.a. where they willstabilize (although a 7Z-8% level of losses could be achievedin a small system such c.s STP's);

(c) a best estimate of the date when investments included in theNational Plan currently under preparation will come on stream;

(d) the system load factor will remain constant at 53% to 54% inline with the annual growth rate of demand. Given thestructure of consumption in STP, very little improvement in theload factor is possible anyway;

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(e) overall demand for electricity will thus grow at about 40Z(7Z p.a.) of the rate during 1980-84.

For the purpose of comparison, two additional scenarios based on thermaland hydro requirements under more positive economic conditions in STP areincluded (Annexes 17 and 18).

Electricity Tariffs

4.10 Given that about 50% of electricity is generated with diesel,low prices for diesel fuel have kept down the cost of electricity. Theremainder of the electricity is generated also at low cost by the old andfully depreciated hydropower plants mentioned above (para. 4.3).

4.11 Electricity rates have not risen since independence in 1975 andhave been eroded by inflation. Rates were kept stable because theutility, EMAE, was unable to conduct the financial planning exerciserequired to justify a rate increase and because the Government failed tosee the need for a revision of tariffs given that cheap power was readilyavailable. Existing tariffs are: 191

0 - 15 kWh Db. 5.00/kWh15 - 30 kWh 4.00/kWh30 + kWh 3.00/kWh

4.12 This situation resulted in an excessive growth in electricityconsumption (roughly 16Z p.a. overall), so that peak demand is quicklyapproaching firm capacity. In the short run, the GSTP should increaseelectricity tariffs (as a measure to contain demand) and facilitateEKAE's efforts to collect outstanding debts both as a brake toconsumption and as a badly-needed infusion of resources to the utility.Tariffs should be increased without delay to reflect the world price ofdiesel oil, which would require an increase of about Db. 1.80/kWh 20/ or

from a current average of Db. 4.38/kWh to about Db. 6.20/kWh.

19/ Unmetered residential customers pay a flat fee of Db. 165/month; ifthey use more than 33 kWh/month, which they do, they therefore payless than the average tariff, maybe considerably less.

20/ At existing gasoil prices, fuel costs amount to about Db. 1.70/kvhwhereas at world prices, they would be about Db. 3.50/kWh, or abouttwice as high. Assuming that non-fuel costs are constant, tariffswould have to rise to nearly Db. 6.20/kWh.

Table 4.4: STP - ELECTRICITY DEMAND PROJECTION, 1985-1994(GWh - Baslc Sconarlo)

Growth Rates ()1_

1985 1990 1991 1992 1993 1994 1985-87 1985-94

Total Demand 13.140 18.800 19,740 22.500 23,540 24.410 7.0 7.1

Small consumers (mostly households) 11,430 13,500 14.300 15.450 16,350 17.100 3.0 4.6

Large consumers (50 kVA) 1,610 1.720 1.760 1.790 1.830 1,850 0 1.6

New consumers (projects) 0,100 3.580 3,680 5,260 5,360 5,460 269 56.0

Losses (% ot gross generatlon) 20 12 12 12 12 12 (16.3)

Total Generation required 16,420 21.300 22,400 25,500 26.800 27,750 3,7 6,0

Peak Demand Incl, Losses (MW) 3,480 5,240 5.510 6.090 6,400 6.720 2.6 7.6

Source: Annex 16.

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4.13 The tariff increase should be effected with the least dis-ruption possible, keeping a similar structure so as to facilitateadoption by EMAE. 21/ The new tariff would have two blocks (simpler thanthe existing one) but the price would increase with increasing consump-tion, as opposed to the present tariff (declining block). The smallest(and presumably poorest) consumers would be protected and suffer noincrease in tariff at all, but larger consumers would pay higher rates.A simple structure is proposed for all residential connections.

0-30 kWh Db. 5.00/kWh30+ kWh Db. 6.50/kWh

Since average residential consumption is about 1,200 kWh/year,this measure would bring the average price/kWh sold to Db. 6.20/kWh,which is enough to cover diesel costs calculated at world prices, and toimprove EMAE's financial position.

4.14 Other types of consumers (commercial, industrial, high voltage)would also have only two levels of tariffs to keep billing simple andincrease the average price of power. These activities would still beencouraged by being able to buy larger blocks of power at the lowerrates:

Commercial, artisanal 0- 50 kWh Db. 6.00/kWh(stores, shops, warehouses) 50+ 7.00/kWhIndustry 0- 60 kWh 6.00/kWh

60+ kWh 7.00/kWhHigh Voltage 0- 250 kWh 6.00/kWh

250+ 7.00/kWh

4.15 These new tariffs, combined with the direct measures discussedbelow, would fully protect poorer consumers against a large priceincrease and, at the same time, discourage higher consumption (while theolder tariff encouraged it) and ultimately transfer larger revenues toEMAE.

4.16 While the above price increase might help to slow consumption,the characteristics of past growth in consumption (essentially level orfalling consumption per household but large numbers of new connections)suggest that direct measures to reduce growth probably should be enactedalso. These measures would be:

(a) to reduce the number of new residential connections andincrease the initial cost of connections;

21/ Theoretically, there should be a demand (capacity) tariff. Such atariff could possibly be suggested for the larger consumers(>50 kVA) but given EMAE's present billing difficulties, theproposition of a demand tariff at this time would create additionalcomplications.

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(b) to install meters when justified by estimated consumptionLeveLs, or tamper-proof load limiters on connections which areexpected to use only small amounts of electricity. 22/

4.17 Higher prices, higher effective collections and limits on thenumber of new connections will dampen demand, while small rehabilitationsand/or expimsions (e.g., a second unit at Guegue small-hydro plant,repairs to the cooling system of one of the units at the Contador hydroplant) and a loss reduction program will marginally increase the amountof power available (capacity and energy). These steps are urgent,inexpensive (they avoid an immediate investment to increase capacity),and are an essential pre-requisite to any planning exercise (e.g., least-cost expansion program) to be undertaken in the future.

Postscript: Effect of Higher Diesel Prices on Electricity Tariffs

While this report was being processed, the STP authoritiesincreased the price of gasoil from DB 6.20/lt to Db 12/lt.This is still below full CIF costs, calculated at roughly Db15.25/lt for a non-automotive use such as power generation.However, since the price of gasoline is now Db 30/lt,maintaining a reasonable ratio between the price of diesel andgasoline would require the price of diesel to be between Db 20and Db 30/Lt for non-automotive use. Assuming a price of Db25/lt would imply a fuel cost of Db 7.25/ kWh. Assuming thatnon-fuel costs of generation remain constant, this would implyan average tariff of about Db 10/kWh. Given the presentstructure of consumption, if the iirst 30 kWh remain at Db5/kWh, consumption above 30 kWh/month would require a tariff ofDb 12/kWh. For non residential consumers, a flat rate of Db10/kWh would be easiest to apply, or alternatively a somewhatlower rate for the first tranche could be chosen at Db 9/kWhwith a second (and last) tranche, at Db 12/kWh.

Power System Operations and Rehabilitation Requirements

System Operations

4.18 Combined technical and non-technical losses are currentlyrunning at an annual average of 21X of generation. A major share oftechnical losses can be attributed to inefficient operations (poor main-tenance, and perhaps inappropriate design standards, poor control ofreactive energy) at power plant and distribution levels. Non-technicallosses were largely due to faulty and non-existent meters, power theft,

22/ Or to charge a flat fee, if a system can be designed to effectivelymonitor consumption and keep it within the limits envisaged whensetting the flat fee.

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and a lack of control devices (such as photoelectric cells) for streetLighting.

4.19 The main hydro plant on the Contd'or River went into servicein 1967 and it remains the country's prime source of electric power. Thestation's electro-mechanical equipment is in fair condition and onlyneeds small repairs and better maintenance. However an 8 km - long canalwhich serves to channel water to the station has deteriorated throughtime, suffering from frequent landslides which threaten to paralyzegeneration if repairs are not carried out immediately. Access roads tothe station, the desilting pond and the canal are almost impassable andneed to be rebuilt.

4. d's) Most of the power house equipment at the country's second hydrofacility, the Guegue power station, has been in operation since 1945,although the alternator has been replaced recently. Present output islow because of the poor condition of the turbine which needs to bereplaced. The control and measurement instrumentation ceased functioningand also needs replacement. The introduction of a second turbine/alter-nator unit appears to be possible but would need to be verified; thiswould permit an approximate doubling of capacity (to about 200 kW).

4.21 While in reasonably good working order, operations at the SaoTome power station could be improved because each of the three maindiesel units requires minor repairs (e.g., oil leaks, broken excitercoils). In addition, two older units of 280 kW each, which are used onlyin emergencies, have reached the end of their working life and should bedismantled as soon as the rehabilitation program is completed. 23/Operational efficiency of the system is hindered by the lack ofcentralized load dispatch control and the absence of basic telecom-munications between the hydro and thermal plants.

4.22 In the case of non-technical losses, the most serious andonerous appear to be due to:

(a) poor metering: 3,350 out of 8,528 customers (39X of the total)a.e unmetered;

(b) a disintegration of the billing s!stem where, by June 1984,EMAE could no longer bill customers due to the breakdown ofbilling machinery and a lack of paper;

(c) a probable inaccuracy in present meter recordings due to damagefrom overload and old age; customers make unauthorized

23/ The Bobo-Forro diesel electric unit (760 ki which can be consideredpart of the grid although it is not yet connected to it), and theAngolares diesel plant (25 ki) are currently out of service and thelatter is in need of repair.

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connections to neighboring houses and add appliances which werenot counted in establishing the flat monthly rate;

(d) an absence of control devices on public lighting (in additionto the fact that it has never been billed).

Rehabilitation Requirements

4.23 Preliminary observation and analysis make it clear that STP'sgeneration system requires immediate rehabilitation and that the tech-nical and non-technical losses found throughout the system should bereduced. It should be possible to reduce current average annual lossesof 21% p.a. to about 12% p.a. or even less (of gross generation) throughthe implementation of a series of measures outlined in the followingparagraphs. Rehabilitation of the canal at Contador hydro plant is apriority action which should be planned to minimize the interruption ofwater flow to the station. The station's electro-mechanical equipmentneeds to be repaired (bearings, cooling and protection systems). Theconstruction of access roads should be completed prior to the repair ofthe canal to allow for the transportation of contruction materials andmachinery to the canal area. 24/

4.24 At the Guegue hydro power station, the 40-year old turbineneeds to be replaced by a new 150 kW tu.bine and the remaining elec-trical/mechanical equipment should be overhauled. All instrumentationhas ceased functioning and needs to be replaced. The station's powerhouse could accommodate a second turbine/alternator unit and the existingcanal can carry the increased water flow. Enough water is available fora second unit. A feasibility study of the installation of such a unitshoull be carried out as soon as possible, the cost estimate for which isincluded in the overall rehabilitation program (Annex 19).

4.25 In the Saa Tome thermal plant, the dismantling of two obsoleteunits will provide adequate space for two or three new diesels. Thiseffectively obviates the need for a new power plant within the nextdecade. A potential sound pollution problem associated with thisproposed installation should be minimized by using exhaust silencers andby lining the inside of the power house with a layer of mineral rock woolprotected by perforated plate.

4.26 General efficiency in system operations should be ensuredthrough an improvement in load dispatch procedures which ideally shouldbe monitored from the thermal plant, where diesel consumption could beeconomised. The telecommunications network also requires up-gradingthrough the acquisition of transmitting/receiving sets.

24/ Very rough calculations (assuming that a total of US$0.9 million areinvested in rehabilitating the plant) show that a 27% rate of returncan be expected by only valuing the diesel oil saved in generation.

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4.27 Technical losses should be reduced, in part, through a com-bination of repair/expansion work on the 30 kV, 6 kV and 380/220 Vnetwork, preliminary proposals for which include:

(a) the installation of a 30 kV line from the ceramics factory(Bobo Forro) to the Guegue power plant (replacing an old6 kV line) and an increase in cable-sections;

(b) for the 6 kV network, repair of the Santo Amaro - airport lineand interconnection of the airport and hospital; connection ofPrincipe's 6 kV line from the Principe thermal plant to theSundy and Porto Real enterprises and to the hospital;

(c) the independent Rio de Ouro hydro plant on the Agostinho NetoState Farm should be connected to the EMAE grid, therebyincreasing energy supply by 1.0 GWh p.a. At current prices theconnection would imply savings of some 290,000 liters of dieselfuel p.a. or US$87,000. 25/ The investment costs for con-nection to the grid, including the construction of a sub-station and the installation of a 30 kV line of 1.5 kms, isestimated at US$60,000;

(d) unfortunately, given the structure of consumption in STP,little can be done to improve the load factor (capacitors couldbe installed to reduce losses on peak).

4.28 More, better trained transmission/distribution personnel isalso essential to a successful technical loss reduction program. Linecrews need to be trained and provided with vehicles and mobileequipment. There is a need for an electricity laboratory facilityincluding an adjustment bench for meters, an oil testing unit and cablefault detection equipment. Existing workshops require new drilling andwelding equipment and a lathe.

4.29 The reduction of non-technical losses would require measuressuch as the following:

(a) installation of meters for the current unmetered connections;this activity should be combined with a reduction in the numberof annual connections;

(b) replacement of worn meters starting with high users andrelocation of meters in clearly visible outside locations wherethey can be sealed and checked regularly for tampering;

(c) improvement of EMAE's customer billing department to coordinateinformation from the enterprise's transmission and distributionservice;

25/ At rough CIF World Prices of US$0.30tliter.

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(d) installation of photoelectric cells for control of streetlighting;

(e) encouragement of energy conservation among the public (throughinD.zrmative radio programs, for example).

Incremental Costs

4.30 The total costs for the rehabilitation and power loss redudtionprogram are estimated at roughly US$2.5 million (for a capacity of about5.5 KW over 1985-86 (Annex 19). About US$452,000 of this total sum willbe provided under an IDA Line of Credit as described in para. 4.39. Therehabilitation program would rehabilitate installations of varying ageand useful lives with an average of about 12 years. A discount rate of12%, gives an annualized capital charge of $109/kW/year. At a plantfactor of about 60X, this gives roughly Db. 1.00/kWh (2.20 USc). Addingfuel costs (Db. 3.70 per kWh, or 8.10 USC) and operation and maintenancecharges (7% capital costs or 0.90 USC per kWh, or Db. 0.40/kWh), thisgives an average incremental cost of about 11.20 USC/kWh, equivalent toDb. 5.20/kWh at the official exchange rate of Db. 46.00/US$.

4.31 The above rehabilitation program (and incremental costs) wouldbe valid up to a peak capacity of about 5.5 MW and a total energygeneration of about 23 GWh, equivalent to an energy demand of roughly17-18 Cih, given losses of 20-21Z. This would be sufficient until about1988-1989, at which time maximum (peak) demand would be about 4.4 KW.The big jump in demand is expected to come about in 1990-1992 whenseveral projects currently under preparation will come on stream. Anexpansion in capacity, therefore, would probably need to take placein 1988.

Power System Expansion and Service Improvement

4.32 The GSTP wishes to increase hydro capacity in the future toeconomize on imported diesel, but there is no capacity expansion plan asyet in STP. Existing capacity is 60% thermal to 40Z hydro but hydroprovides about 53% of the energy generated.

4.33 The present system has an installed capacity of 5.7 MW (ofwhich 1.5 MW are seriously in need of rehabilitation). At present, thepeak of 3.3 MW can be accommodated with a 1 NW uait reserve. In the dryseason, firm hydro power is reduced from 2 MW to about 1.5 MW and thepresent peak cannot therefore be accommodated while maintaining a reserveof 1 NW (firm capacity of only about 3.1 NW is available).

4.34 In the absence of an optimal system expansion plan and firmcost data, preliminary calculations seem to favor hydro over diesel whendiesel fuel is costed at $300 per metric ton CIF Sa5 Tome (which is arealistic estimate of the true CIF cost of diesel in STP). Preliminarycalculations also indicate that electricity would cost about 11.9 USc/kWh

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in a 1 MW thermal (diesel) plant and about 8.5 USO/kWh in a 1 MW hydroplant (supplemented by a 500 kW diesel). This comparison is based onassumptions that are more favorable to diesel than hydro generation 26/and if small hydro sites are selected with a view to economizing oninvestment costs, small hydro could prove to be more attractive thanthese illustrative calculations show. 27/ However, the very preliminaryinformation available is insufficient to make an immediate decision infavour of hydroelectricity. Any work being done on hydro should notproceed beyond the prefeasibiLity stage. This applies especially to theIo Grande where the site being studied is too large for Sao Tomean needs,and too costly (estimated cost is US$24 million - $4,O00-6,000/kW). 28/

4.35 On completion of the aforementioned rehabilitation programin 1988 (paras. 4.23 to 4.29), the projected maximum demand for elec-tricity will have reached 3.940, MW which exceeds the firm capacity ofthe generation system for that year (3.4 KW wet season, 3.1 MS dryseason). It probably will be necessary, therefore, to install anadditional generation unit to meet dry season demand (3-4 months p.a.)and medium-term expansion for the 1988 to 1990 period. Beyond thismedium term, a comprehensive study should be carried out to define aleast-cost power expansion program or "Master Plan". This study wouldevaluate all existing data on hydro/dendro resources for powergeneration, complete the inventory of hydroelectric (including smallhydro) sites and do a prefeasibility analysis of the few most promisingsites. The study would also determine a least-cost expansion program andcompute the long run marginal cost of energy produced. This wouldrequire a forecast of world fuel prices and the assumption of a realisticgrowth rate for STP's economy over 10-15 years. The total cost of thestudy, based on 3 man-years of professional services, is estimated atabout US$400,000. Details of the study are provided in Annex 21; ProjectNo. 1, Sector II.

26/ Investment costs are $750/kW on the thermal alternative plant, about$2,000/kW in hydro plant plus about $400/kW for transmission, plusabout $700/kW for the thermal complement to the hydro plant.

27/ See Annex 20 for details.

21/ Present increments in capacity required are of the order of 1 MWevery two years whereas Io Grande would add 4 to 6 MW in the early1990s. Furthermore, a comparison of Io Grande with an all diesel ormixed diesel/hydro (Abade river) solution showed these alternativesto be markedly cheaper than Io Grande, based on presently availablecost estimates.

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Organizational Aspects and Training

4.36 Prior to independence from Portugal in 1975, STP's electricityand water supply was managed by the municipalities. On the creation ofthe new State, responsibility for these sectors was consolidated underEKAE (total current staffing of 340 people), the structure of which issplit between technical and administrative services under the jointauthority of one managing Director. EMAE is subordinate to the MICH forall matters pertaining to energy policy and electricity tariffs.

4.37 Skilled manpower is very limited in the enterprise. TechnicalServices are managed by two recently-qualified electrical engineers whohave little practical experience in power utility management. At thetechnical level, EMAE manages to function with a generous measure of goodfortune and a dedicated technical crew consisting of one mechanic and afew linesmen on each of the country's two islands.

4.38 The Accounting and Administrative Services lack operationalaccounting/billing equipment and, since mid-1984, there has been aserious shortage of paper. A study carried out in 1981 by Electricity ofPortugal (EdP) signalled an urgent need for the setting up of a basicaccounting system but little progress has since been made in thatdirection.

4.39 In an attempt to alleviate EMAE's administrative constraints,the GSTP has requested the International Development Association (IDA) tofinance, through the Economic Rehabilitation and Modernization Line ofCredit (which has been approved recently), the import of electricity (andwater) meters, accounting machines, and billing equipment. 29/ Fundsmade available under the Line of Credit would include two man-months oftechnical assistance to be provided by the manufacturer. The total costfor the import of electricity meters and billing equipment (includingtechnical assistance) is currently estimated at US$452,000. In addition,the African Development Bank has also proposed a technical assistanceproject to ENAE which comprises the services of a certified accountantover a two-year period to assist in the installation of an accountingsystem and training of Sa5 Tomean staff.

4.40 In the area of training, the French cooperation agency (CaisseCentrale de Cooperation Economique) has financed and equipped a newPolytechnical School which is due to open in 1985. The training ofmechanics, electricians and other "obreiros qualificados" is foreseen.

4.41 In view of the need to reinforce EKAE's Technical Services, thefollowing additional measures are vital:

29/ Purchase of a small computer should also be envisaged as it greatlyfacilitates billing and accounting procedures.

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(a) provision of the services of a technical adviser withexperience in power utility management (for two years);

(b) overseas scholarships for the training of additional powerengineers;

(c) the organization of refresher courses for professional andtechnical personnel, to be given in STP by experts where localissues (metering, power theft, transmission/distribution, etc.)can be d.scussed more easily.

Summary oi Recommendations

4.42 The following measures should be taken to improve the perfor-mance of the electricity sub-sector:

(a) introduction of a progressive tariff structure aimed at regu-lating demand through making power more expensive as consump-tion increases (paras. 4.10 to 4.17);

(b) execution of a study to define STP's medium to long-term powerexpansion Master Plan (para. 4.35);

Cc) strengthening administrative and accounting/metering proceduresin EMAE; provision of technical assistance to management and totechnical services (para. 4.41);

(d) rehabilitation of existing hydro and diesel generationcapacity, beginning with priority reconstruction of theContador hydropower station's canal (paras. 4.23 to 4.26);

(e) aim to reduce combined technical and non-technical losses fromthe current average of 21Z p.a. to about 12% p.a. (paras 4.27to 4.29) partly through actions suggested here;

(f) increasing the cost of connection for new customers to cut thenumber of applications and to facilitate the rehabilitation ofthe power system;

(g) installation of an additional 1 KW diesel-based capacity at SaoTome power station to meet short-term increases in demAnd overthe period 1988-90.

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V. SiIKARY OF SECTOR-WIDE COKNEED&TIOES

5.1 The mission concludes that, while STP's energy situation hasbeen favorable until now, it will soon begin to deteriorate. Thefollowing problems exist: forestry institutions need to be improved fromthe embryonic stage at which they are; consumption of petroleum productsis very high; the power system is seriously run down. Finally, theovervaluation of the Dobra is a pervasive phenomenon which distortsprices and costs. While the discussion of exchange rate policy as suchis not appropriate for an Energy Assessment, the rectification of theexchange rate (which is under discussion with the IMF) will remove animportant bias in the pricing of energy, among other things.

5.2 Most of the problems mentioned above can be rectified through amix of policy reforms and rather modest investments. Policy reformsshould aim both to reduce the growth of consumption, especially throughcorrect pricing, and to shift consumption towards domestic sources ofenergy, especially woodfuels and possibly hydroelectricity. Theinvestments required to support STP's energy sector for the next decadetotal Less than $20 million and concern mostly petroleum products andpower. The priority policy actions and investments recommended in thisAssessment are enumerated below. However, preliminary terms of referencefor activities that would be useful to undertake, but which are neitherhighlighted in the text nor prioritized, are also given in Annex 21.

Policies

(a) Increase the prices of petroleum products to reflect theireconomic costs of supply (world prices, CIF Sao Tome);

(b) Increase electricity tariffs to cover the full cost of diesel(immediately), prepare to use LRMC of power as a guide orsetting tariffs as soon as as estimates of LRMC can be made;

(c) Foster and protect a competitive environment in theexploitation and marketing of forestry products.

Investments

(a) Rehabilitation of existing hydro and diesel capacity, givingfirst priority to the reconstruction of the canal to theContador hydro plant;

(b) Reduction in power losses from 21% to 12Z, requiring smallinvestments, especially in transmission, distribution andmetering;

(c) Port of Neves P-troleum Products Terminal (includingscaled-down version for Principe Island);

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td) Provision of a 1 MW expansion in generation capacity around1988.

Institutions, Technical Assistance, Training and Studies

Forestry

(a) Technical Assistance to the Forestry Section of the Ministry ofAgriculture and Livestock (two-year assistance to strengthenSection, train staff and establish legislation andregulations);

(b) Carrying out a detailed forest inventory in all areas presentlyunder exploitation, and delineate various types of forestryreserves;

(c) Study/survey the firewood and charcoal production and marketingsystems, including a survey of fuelwood efficiency inhouseholds (e.g. use of open fires or stoves);

Cd) Study feasibility of a dendrothermal plant.

Petroleum

(a) Enactment of petroleum exploration legislation that will giveinternational oil companies incentives to explore for oil inSTP, and to bear the costs and risks of this activity;

Cb) Training of ENCO personnel in the supply and procurementdivision of an oil company to familiarize them with world oilmarkets and prepare them for running the new Neves Terminal.

Power

(a) Execution of least-cost ezpansion path for power and estimationof LRMC (including prefeasibility studies of Abad III and II);

(b) Provision of Technical Assistance to Management (financial andtechnical) t, improve metering/billing, maintenance andrepairs;

(c) Study of capacity ezpansion at Cuegue.

New and Renewables

(a) Carry-out a pre-feasbility study of solar and wind energyresources in order to determine the potential role of theseenergies in the household and agro-industrial sectors.

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Annex 1

PRINCIPAL TREES SPECIES FOUWND IN STP

Humid Broadleaved Forest:

Zones between 1,200 and 1,500 m altitude (ombrophilic forests)

Scientific Name Common Name (Portuguese)

Ficus sidifolia pau figoPseudospondia microcarpa safu do oboCeltis dusandll pau fedeNonodora myristica oboFicus exasperante pau lixaCynometra manil quebra-_achadoVapaca guineensis Nespla d'obo

Zones between 600 and 1 200 (humid forest)

Scytopelatum kamerunianum voro brancoFagara macrophyla marapiauPentadessma butyracea oboAIbizzia mulucana acaclaPeutaclethra sp muandim

Zones up to 600 (sub-humid forest)

-anilkara multinervis azeltonaClorophora excelsa amoretraCleistantus pelytachus viro pretoCarapa procera g9-goSterculia sD bungaCeiba pentandra oca

Secondary Forest (capo Ira):

Clorophora excelsa amoreiraScytopetatum kamerunianum viro brancoCeiba pentandra ocaAlbizzla mulucana acaciaCecropla p Itata cofe

Agro-forestry formation:Indigenous species:

Clorophora exceisa smoretraNanlikara eultinervis azeltonaScytopelatum kamerunlanum viro broncoCleistantus pelytachus viro protoCarapa procera go-goStercullo sp. bungaFicus sidifolla figo porcoPycnanthus angolensis pau caixaoAlbizzla falcata acacia

Non-indigenous specles:Cedrella odorata cedrelaArtocarpus Integer Jeca au JacqueiraArtocorpus cuuinis fruta poo ou fruteiroE-ythrina sp. eritrina

- 47 -

Annez 2

STP: FUNCTIONS OF THE KAL FORESTRY SECTION

(a) Dendrology

- establishment of a forest herbarium- seed collection and planting- monitoring of species distribution- classification and pricing of species according to

commercial value

(b) Nursery/Reforestation

- establishment of nurseries, plantation management andreforestation

- research on agro-forestry techniques

(c) Cutting Permits, Fiscality and Statistics

- field supervision- concessions and supply norms for cutting permits- elaboration of general statistics, cutting plans, etc.

Source: STP Ministry of Agriculture and Livestock.

- 48 -

Annex 3

COSTS ESTIMATES FOR 1, 2 AND 3 MW DENDROTHERMAL POWER PLANTS a/

Installed power Current US$

1 MW 2,400,000

2 units of 1 MW 4,000,000

2 MW 2,800,000

3- MW 3,400,000

The average fuelwood/wood waste consumption levels are:

-1 MW - 20,000 m3 /year (500 ha of plantation with fast-growing species)-2 KW - 30,000 m3/year I

I increased cost effectiveness-3 MW - 41,000 n3/year }

a/ Estimates supplied to mission by Balfour Beatty Group (London).Prices (FOB) include supply of equipment, construction, projectmanagement, training of local personnel.

- 49 -

Annex 4

INTERNATIONAL COMPARISON OF PER CAPITA ENERGY CONSUMPTION

Petroleum Commercial TotalProducts Electricity Energy Energy

tear (Kgoe) (kWh) (Kgoe) (Kgoe)

Sao Tome and Principe 1984 122 130 142 422

Bolivia 1981 188 88 209 376Burundi 1980 8 12 10 12Cape Verde 1982 100 13 116 279Ethiopia 1982 17 9 36 268Cambia 1982 63 17 66 248Cuinea Bissau 1982 17 11 19 213Indonesia 1979 128 76 150 300Kenya 1979 84 28 95 -Liberia 1983 202 148 239 554Malavi 1980 25 16 30 553Niger 1981 19 12 22 166Nigeria 1980 77 18 94 284Paraguay 1981 114 88 149 500Portugal 1982 675 528 807 899Ruanda 1979 9 12 12 205Senegal 1981 91 32 99 279Sudan 1981 54 12 57 323Tanzania 1981 35 13 38 470Uganda 1980 17 40 63 353Zambia 1981 115 992 439 802Zimbabwe 1981 97 936 535 763

Source: Energy Assessments Division, The World Bank.

Annex 5

PETROLEWI PRODUCT SALES BY PRODUCT AND CLAS5 OF TRADE OR CONSUWPTION('000 n3)

1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984

GasolineRetail Automotive 1,356 2,120 2,785 3,050 3,777 5,052 3,850 3,676 3,394 2,596 4,342Other 19 19 21 24 20 23 24 46 63 32 26

Total 1,375 2,136 2,806 3,074 3,797 4,055 3,874 3,716 3,457 2,628 4,368

KeroseneHome use 784 1,141 1,584 1,640 1,777 1,929 2,400 2,164 2,079 1,604 2,531Others na na 4 4 5 5 5 5 5 4 6

Total 784 1,141 1,588 1,644 1,772 1,934 2,405 2,169 2,084 1,608 2,537

Gasoll Power Plants na 854 287 485 372 423 580 850 905 2,287 2,059 °Public Transportatlon na 140 70 140 120 130 190 190 205 368 258Automotive na 1,750 1,681 1,875 1,708 1,927 2,180 2,094 3,001 3,121 3,713Fishing no na na na na 500 1,350 1,800 1,850 1,876 2,097Agriculture na 470 360 442 570 584 951 800 560 570 680

Total 2,333 3,214 2,398 2,942 2,770 3,564 5,251 5,334 6,521 8,222 8,807

Jet FuelDomestic Aviation na 430 12 336 230 400 360 300 360 300 376International Aviation na 1,044 58 606 913 911 892 688 843 400 920

Total na 1,474 60 942 1,143 1,311 1,252 988 1,203 700 1,296

Grand Total3 4,492 7,965 6,852 8,602 9,482 10,864 12,782 12,207 13,265 13,158 17,008i I' 10 Bbls. 13,6 50.1 43.1 54,1 59.6 68,5 80.4 76.8 83.4 82.7 107.0

Source: ENCO.

Annex 6

STP PETROLEUM PRDOUCT DEMAIC PROJECTIONS BY SECTOR, 1985-1994('000 3)

Average Growth

Sector 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 '85-194

Fishing Industry 2,200 2,250 2,200 2,300 2,350 2,375 2,420 2,450 2,480 2,500 1.4

Power Generation 2,860 2,910 2,000 2,700 3,100 3,200 3,250 3,400 3,500 3,600 2.5

Private Transport 8,325 8,500 8,500 8,500 8,720 9,655 10,080 10,380 10,715 11,075 3.2Li'

Pubilc Transport 1,635 1,685 1,965 2,025 2,080 2,130 2,195 2,260 2,330 2,410 4.4

Households 2,660 2,725 2,760 2,815 2,895 2,965 3,000 3,030 3,050 3,135 1.8

Agriculture 700 750 765 800 825 850 890 930 965 1,000 4.0

Total 18,380 18,820 18,190 19,140 19,970 21,175 21,835 22,450 23,040 23,720 3.0

Source: Mission estimates.

Annex 7

STP PETROLEUM PRODUCT DEMAND PROJECTIONS BY FUEL TYPE, 198S-1994('000 *3)

Average Growth Average GrowthFuel Type 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 '85-'90 '85-'94

S ~~~~S

LPG 60 60 60 65 65 65 70 70 70 70

Gasoline 4,500 4,635 4,775 4.920 5,065 5,220 5,600 5,950 6,200 6,470 3.0 4.0

Kerosene 2,600 2,650 2,700 2,750 2,830 2,900 2,930 2,960 2,980 3,065 2,2 I.oU'

Jet Fuel 1,335 1,375 1,655 1,705 1,760 1,810 1,865 1,920 1,990 2,060 6.3 4.8

Gasoll 9,885 10,100 9,000 10,250 11,180 11,370 11,550 11,800 12.055 2.5 2.2

Total 18,380 18,820 18,190 19,140 19,970 21,175 21,835 22,450 23,040 23,720 2.9 3.0

Source: Mission estimates.

- 53 -

Annex 8

STP STOCK VARIATIONS OF PETROLEUM PRODUCTSBETWEEN DELIVERIES

(6/year)

UNITS = m3

Date of delivery Gasoline Ke. osene Gasoil

04/09/83 1,091 917 40

29/07183 1,091 none 2

18/06/83 930 1,117 5

13/05/83 736 820 31

28/03/83 606 679 146

10/02/83 470 632 334

24112/82 315 840 179

21/10/82 351 590 74

23/08/82 325 564 149

03/07/82 204 571 24

17/04/82 286 639 4

26/01/82 432 173 477

20/10/81 226 1,079 335

28/08/81 199 1,043 166

30/06/81 289 891 37

18/04/81 469 577 442

16/02/81 505 348 108

Source: ENCO.

- 54 -

Annex 9

STP EXISTING AND PROPOSeD STORAGE CAPACITY ANDDELIVERY FOR PETROLEUM PRODUCTS

Existing and Proposed Storage Capacity (m 3)

Reserve a/ Gasoline Gasoll Jet Fuel Kerosene

Existing - 1, 50 1,500 250 b/ 1,500Proposed 500 - 4.000 cl 500

Total 500 1,500 5,000 500 1,500

Future Stock/Delivery Recomnendation (m )

5 tanker deliveries and 45 days security stocks

1990 1994Gasoline Gasoll Jet/Kero Gasoline Gosoll Jet/Kero

Consumption betweendeliveries 1,044 7,262 942 1,295 2,410 1,025

Security Stock 644 1,345 574 725 1,704 621Minimum Storage Capacity 1,688 3,607 1,516 2,020 4,114 1,646

a/ Reserve/utility tank to serve as storage for either gasoline or kerosene.b/ This tank will be converted to water reservoir.c/ 2 tanks of 2,000 m3 each.

Source: Mission estimates.

Annex 10

STP CAR POPULATION (ACTIVE)NEW tEGISTRATIONS

(Dec, 31) 1977 1978 1979 1980 1981 1982 1983 1984 1978/84 (Dec 31) 1984

Passenger cars I/ 1000 34 73 46 54 72 79 113 471 1471

Station wagons 15 6 1 - - 1 3 1 12 27

Pick-ups 50 32 20 15 3 2 12 3 87 137

Trucks 40 4 35 6 11 14 2 3 75 115 1

Car tanks 5 - - 1 - 2 - - 3 8n

Passonger bus 10 - 1 17 2 - 9 4 33 43

Tractors 70 34 25 18 1 30 1 15 124 194

TOTAL 1190 110 155 103 71 121 106 139 805 1995

Motorcycles 120 54 31 11 21 a 13 7 145 265

Jeeps 40 4 39 1 22 34 4 5 109 149

I/ Excluding Jeeps.

Note: Active car population In the base year 1977 was estimated after consultations with Ministry of

Transport officials, No records of cancelled registrations wero available,

Source: Ministry of Transport.

Annez 11-56 - Page I of 2

ENERGY CONSERVATION IN THE TRANSPORT SECTOR

The improvement of fuel efficiency levels in transport can beensured through the implementation of specific measures, the mosteffective of which include improvements in road maintenance andconstruction, transport planning and mode shifts (e.g. towards publictransport), the import of fuel-efficient vehicles, the improvement ofmaintenance for existing vehicles and the provision of an adequateinfrastructure for the training of car mechanics. Given that appropriateroad maintenance 1/ alone can bring about average fuel economies ofbetween 10Z and 20X p.a., it is clear that STP's fuel consumption intransport should be studied as soon as possible.

Assistance to STP's road maintenance and construction forms acomponent of an IDA Line of Credit which, when implemented, is designedto carry out a resealing program of the existing paved network and shouldprovide adequate road maintenance tools and vehicles to ensure good roadconditions in future.

However, a.s little or no reliable data is available on currentvehicle counts and Euel consumption patterns, an energy conservationstudy of the sector should be carried out without delay and shouldideally include the following components:

(a) analysis and updating of available data on the existing publictransport fleet and on private vehicles (including theirworking condition);

(b) analysis of diesel consumption in the fishing industry; 2/

(c) establishment of a vehicle count and an inventory of farmmachinery used in the agriculture sector; the state enterprisesare highly mechanised in relation to the country's level ofdevelopment and little is known of fuel consumption levels inthe sector;

(d) assessment of current courses gix'en in STP's technical schoolfor the training of car mechanics and presentation of proposals

1/ Costs for the proper maintenance of asphalt roads are estimated atabout $2000/kmi, including the cost of resealing the surface every5-7 years.

2/ The fleet is composed of only two mediumr-sized vessels, an est'mated600 outboard motors and 30 inboard motors (tugs. At 2,097 m , thesector's consumption of diesel in 1984 appears high for such a smallfleet as it almost equals that year's diesel consumption for powergeneration.

Annex 11Page 2 of 2

for an improvements in curriculum, facilities and relatedpractical experience.

The total cost for executing of such a study (including travelexpenses, fees, per diem) is estimated to be about US$100,000, whichcomprises 8 man/months of professional services as follows:

US$- 1 energy conservation specialist

(3 months in the field and1 month at base/in Washingzonfor prepration of report) 40,000

- 1 transport specialist, experienced intransport sector problems in LDC's

(3 months in the field and1 month at base/in Washingtonfor preparation of report) 40,000

- contingencies 20,000TOTAL 100,000

- 58 -

Annex 12

Sm HYDROP0ER POTENTIAL, 1984(Estimated)

Number of Average Height of Total Install- Annual EnergyRiver Statlons Flow Drop ed Capacity Generation

w"/s ) t ) Cm) (GWh)

Sao Tome

lo Grande 6 7.3 831 16.8 81.3

Le ba 4 5.3 380 9.4 44.4

Contador & Cantador 4 2.3 525 5.4 24.0

Quija & Xufexufo 4 3.9 570 9.7 41.0

Abode 4 1.25 505 5.4 27.7

Ric de Ouro 3 0.55 315 1.8 7.4

Manuel Jorge 4 0.75 355 1.7 7.8

Principe

Papagalo 2 0.28 200 0.8 2.4

Bibi 1 0.20 150 0.4 1.6

Banuzu 1 0.26 88 0.25 1.2

Total 33 53.71 238.1

Source: UNIDO.

- 59 -

Annex 13

STP- INSTALLED CAPACITY, 1984

Installed Capacity Coments

(kW)

HydroContador 1967 (2 units) 1,920 Reduced to 1,500 In dry soeson.Guegue 1945 100 Nominal 160, but reduced

because of disrepair.Rio do Ouro n.ea. (2 units) 344 Not physically connected to grid.

Total hydro 2,364 "true" copy 1920ntrue" dry season 1500

ThermalCumains 1983 (2 units) 1,600GM 1975 1,000Bobo Forro 1982 760 not yet working

Total, diesel 3,360

Total, on grid 5,724

less: in disrepair or

not connected 1 .201 (444+760)

4,520

less: Reserve (GMlargest unit) 1.000

Firm Capacity, wet season 3,520Firm Capacity, dry season 3,100

Isolated systems: Angolares 25R. Afonso 12Principe 670

Source: EMAE.

Annex 14

STP AGGREGATE ELECTRICITY CONSUWPTION (MWh), 1981-1904(Large and Small Consumers)

Large Consumers (>50 kVA) Small Consumers (<50 kVA) Total ConsumersNo. No. Average No. Average

Annual of Annual of Annual Annual of AnnualYear Consumption Consumers Consumptlon Consumers Consumption Consumption Consumers Consumption

(GWh) (GWh) (NWh) (GWh) (IWh)

1981 1.901 18 6.020 4.542 1.33 7.921 4,560 1.74

1982 2.080 18 6.266 5.600 1.22 8.346 5,618 1.49

1983 5.723 a/ 19 -- -- -- 10.555 7,369 1.43

1984 1,610 19 10.453 8.509 1.23 12.063 8,528 1.41

a/ Unrellable figure.

Source: EMAE figures and mission estimates.

Annex 15

STP: ELECTRICITY DEMAND PROJECTION, 1985-1994BOslc Scenario a/

(GWh)

Average Growth Average Growth1985 1986 1987 1985-1987 1988 1969 1990 1991 1992 1993 1994 1985-1994

Generation 16.420 16.800 17.570 3.7 18,400 19.800 21,300 22.400 25.500 26.800 27.750 6,0

- Hydro 8.060 8.110 11.220 18.5 12.560 13.210 14.500 14.500 14.500 14.500 14.500 6,7

- Diesel 8.360 8,690 6.350 (12.8) 5.840 6.590 6.000 7.900 11.000 12.300 13.250 5,3

T&D Losses S 20.0 16.0 14.0 12.0 12.0 12.0 12,0 12,0 12.0 12.0

Demand 13.140 14.040 15.120 7.0 16.180 17.350 1B.800 19.740 22.500 23.540 24.410 7.1 Ch

Large Consumers 1.610 1.610 1.610 0.0 1.640 1.690 1.720 1.760 1.790 1.830 1.850 1.6

Small Consumers It430 11.750 12,150 350 12.560 12.900 13.500 14.300 15.450 16.350 17.100 4,6

New Industries 0.100 0.680 1,360 269.0 1.980 2.760 3.580 3.680 5.260 5.360 5.460 56,0

System MaximumDemand (Incl.losses) (MW) 3.48 3.55 3.66 2.6 3.80 4.21 5.10 5.35 5,89 6,05 6.40 7,0

a/ Based on rehabll!tatlon of existing hy1ro capacIty and connection of Agostlnho Noto (Rio de Ouro) station to the grld; noaddition to dlesel capacity.

Source: Mission estimateb.

A,ux 16

STPW ELECTRICITY OEMAWD PROJECTION 1965-1994Thermal Only Scenorlo a/

(GWh)

Average Growth1985 1986 1987 19 1969 1990 1991 1992 1993 1994 1965-1994

(%)

Generation 16,420 16.800 17.670 18.910 20.800 23.930 25.160 28,150 29.530 30.980 7.3

- Hydro 8.060 8.110 11.320 12.560 13.210 14.500 14.500 14.500 14.500 14.500 6,?

- Diesel 8.360 8.690 6.350 6.350 7.590 9.430 10.660 13.650 15.030 16.480 7.8

TUD Losses % 20.0 16.0 14.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0

Demand 13.140 14.110 15.190 16.640 18,300 21,060 22,150 24.770 25.980 27.260 8.5

Large Consumers 1.700 1.750 1.800 1.910 2.020 2.140 2.270 2.410 2.550 2.700 5.3

Small Consumers 11.340 11.680 12.030 12.750 13.520 14.340 15.200 16.100 17,070 18.100 5.3

Now Industries 0.100 0,680 1.360 1.980 2.760 4,580 4.680 6.260 6.360 6.460 59.0

System MaximumDemand (incl.Losses) 3.48 3.55 3,66 3,94 4,34 5,24 5.51 6,09 6.40 6.72 7.6

e/ Three new diesel units of 1 W each In Sao Tomb diesel plant coming on stream In 1988, 1990 and 1292 respectivoly.

Source: Mission estimates.

Annex 17

STP: ELECTRICITY DEMAND PROJECTION 1985-1994TharmalA4ydro Scenario a/

(GWh)

Average Growth1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1985-1994

()

Generation 16,420 16.800 17,670 18.910 20.800 23,930 25,160 28;150 29,530 30,980 7.3

- Hydro 8.060 8.110 11.320 12.560 13.210 23.930 25.160 28.150 29.530 30.980 16.1

- Diesel 8.360 8.690 6.350 6.350 7.590 -- -- -- -- --

TlD Losses (%) 20,0 16,0 14,0 12.0 12,0 12.0 12.0 12.0 12.000 12.000

Demand 13.140 14.110 15.90 16.640 18.300 21.060 22.1S0 24.770 25.980 27.260 8.5

Large Consumers 1.700 1.750 1.800 1.910 2.020 2.140 2.270 2.410 2.550 2.700 5.3

Small Consumers 11.340 11.680 12.030 12.750 13.520 14.340 15,200 16.100 17.070 10.100 5.3

New Industries 0.100 0.680 1.360 1.980 2.760 4.580 4.680 6.260 6.360 6,460 59.0

System tHaximusDemand (In.l,Losses) 3.48 3.55 3.66 3.94 4.34 5.24 5.51 6.09 6.40 6.72 7.6

a/ Introduction of one new diesel unit of IMW In 1988 followed by two hydropower units of IMW each on the Abade RlverIn 1990 and 1992 respectively.

Source: Mission estimates.

- 64 -

Annex 18

STP: POWER PLANT REHABILITATION AND LOSS REDiUCTION PROGRAMCost Estimate (US S 1985 prices)

Contador hydropower station- Repairs to canal- Repairs to electro-mechanical equipment

and broken bearings- Construction of access roads to plant,

load chamber and canalSub-total 900 000

Guegue hydropower station- General repairs and replacement of safety devices

and measurement gauges- Replacement of old turbine with new 150 kw turbine- Feasibility study of Installation of

second 150 kw turbine and alternator groupSub-total 120,000

Sao Tome thermal plant- Dismantling of two redundant units- Repair of sealing ring and exciter- Installation of anti sound pollution measures- Improvement of load dispatch procedures and

Installation of telecommunications for the wholegrid (to be centraliseu at the thermal plant)

Sub-total 170,000

Loss reduction measures- Rapairs to 30 & 60 kv lines- Connection of Agostinho Neto hydro plant to grid- Meters and installation

Sub-total 950,000

Assistance to technical services- Provision of equipment for utility's workshop

and electrical laboratory 8/

- Provision of 1 Jeep b/Sub-total 250,000

Contingencies 110,000

Grand Total 2,500,000

a/ Workshop equIpment Includes: I drilling machine, I lathe, 1 millingmachine, 2 soldering machines.Electrical laboratory equipment includes: I adJustment bench forelectric meters, 1 standard meter, 1 oil testing unit, I cable faultdetecting unit.

b/ i 6-seater diesel jeep at USS10,720 at current prices (includingfreight to West Africa of about USS1,200).

Annex 19- 65 - Page I of 2

COMPARISON OF DIESEL AND SMALL HYDRO GENERATION COSTS

1. The assumptions underlying the calculations mentioned in thetext are the following:

(a) the comparison is taking place at a point at which a one mega-watt expansion in capacity is needed; the comparison thereforerequires that all costs (capacity and energy) be taken intoaccount;

(b) The diesel unit is assumed to be install2d in the Sao Tom6power plant, requiring little civil works and no transmissionline whereas the small hydro plant is assumed to be sited onthe Abade River and to require 20 km of 30RV line. The dieselr-mplement is also sited in the Sao Tom6 power plant;

(c) Both 1 MS plants are assumed to operate at a 60% factor; thisimplies some load growth and these plants would be at the samelavel in the load duration curve (at the "shoulder"); thethermal complement to the hydro plant iA assumed to function ata 252 plant factor;

(d) characteristics and costs are as follows, in 1984 prices:

The. wma I:IncI. replacement)

Thermal Hydro Complement

Capacity 1 NW I MW 500 kWCapital cost USS 750,000 ,920,000 350,000Transmission USS none 400,000 noneO + M 7% of cost 3% of cost 7% of costEconomic life 12 yrs 23 yrs (average) 12 yrsDiscount rate 12% 12% 12%Plant factor 60% (5,000 hrs) 60% (5,000 hrs) 25% (2,000 hrs)Capacity costs(incl. 0 + M) 3.8$/kWh 7.3f/kWh 3.4 /kWh

Energy costs 8.1 AkWh none 8.1 pkWh

Total costs 11 .9$/kWh 7.3f/kWh 11.5A/kWh

Average total cost (hydro & Thermal suppl.) 8.5/kWh

Annex 19-66- Page 2 of 2

2. The abovementioned preliminary calculations, which would needto be more accurate and better supported, show that hydrogeneration mightbe the cheaper alternative. However, small hydro sites in STP have onlyrecently been identified and a comprehensive inventory of hydro anddendrothermal resources will be necessary before viable and economicoptions for medium-term power system improvement or expansion plans canbe defined. Additional calculations show that small hydro would becompetitive with diesel generation if capital costs of small hydro areless than $4000/kW at rates of discount of 121-15Z.

Annex 20-67 - Page I of 24

SAO TOME AND PRINCIPE

Project Briefs

Project No. 1(two componeats)

1. Sector I: Energy Planning and Management

2. Name of Activity: Institutional Support to Directorate of Industryand Energy, Ministry of Industry, Construction and Housing (MICH).

3. STP Executing Agency: Directorate of Industry and Energy, Ministryof Industry, Construction and Housing (MICH).

4. Nature of Activity: Technical assistance to new Energy Planning andManagement operations of MICH (recoimended. in Energy AssessmentReport).

5. Total Cost Sector I:

- Current Prices: US$500,000 (including salary, relocation,travel, all expenses).

- Financing Requested: US$500,000

6. Timetable: 4 man years, 1986 to 1988 or period of 2 years beginningwith implementation of assistance programme.

7. Background and Justification: While the Directorate of Industry andEnergy of the MICH has nominal respo!.sibility for energy sectormanagement, energy policy formulation and energy conservation andpricing, the effective coordination of energy-related issues has notyet been put into practice due to financial and personnel con-straints. Sector-wide Energy Planning and Management is required inSTP in order to set national energy management on a sound footing.The Energy team will define the roles and functions of energyinstitutions and coordinate activities within the sector. Given thecurrent scarcity of manpower resources in the MICE, the successfulestablishment of this activity requires the input of technicalexperts until such time that local personnel have acquired necessarymanagerial/technical skills to operate it effectively themselves.

8. Objectives:

- to assist the MICH in setting up Energy Planning and Managementoperations.

- to coordinate existing manpower/financiai resources across theenergy sector to ensure their efficient deployment.

Annex 20-68 - Page 2 of 24

to collaborate with MICH personnel in the establishment of anenergy sector expansion program.

to transfer energy planning and management skills to HICHprofessional/technical staff.

9. Activity Description: The activity entails the provision ofprofessional services of three technical experts who will performthe following tasks:

(a) One energy planner/economist (2 years) who will assist the MICHin the formulation and implementation of:

- a national energy policy to be developed in conjunction withSTP's economic development plans;

- an energy pricing policy;

- a long-term energy sector investment program;

- the expert will also coordinate relations among nationalinstitutions responsible for er-ergy sub-sectors, therebyencouraging an integrated approach to solving supply/demandproblems;

- the expert will transfer energy planning skills to localcounterparts.

(b) One power engineer (1 year) who wil' contribute to theformulation of the first three elements of (a) above; willmonitor rehabilitation of the power system and the definitionof future power expansion plans; will organize and coordinaterelations between the power utility (EMAE) and the MICH.

(c) One statistician/economist (1 year) who will (a) organize andparticipate in the systematic collection of data from allenergy sub-sectors, (b) establish a data bank for use by energyinstitutions, (c) update and analyse data on local energyresources, (d) prepare an up-to-date energy balance and futuresupply and demand forecasts (e) establish an energy informationcenter/energy library within the MICH.

Annex 20-69 - Page 3 of 24

1. Sector II: Electricity

2. Name of Activity: Study of Power System Expansion Options (MasterPlan).

3. STP Executing Agency: MICH

4. Nature of Activity: Study to determine future power systemexpansion/service improvement.

5. Total Cost Sector II:

- Current Prices: US$400,000

- Financing Requested: Total

6. Timetable: 3 man-years. January 1986 to January 1987 (or atearliest convenience)

7. Background and Justification: STP enjoys an abundance of un-tappedand unquantified hydro-power and dendrothermal resources which mightbe used in future to meet medium-term electricity demand. TheCovernment of STP wishes to increase hydro capacity in future inorder to economise on imported diesel but no capacity expansion planyet exists. Existing capacity is 60% thermal to 40% hydro, buthydro provides about 53% of the energy generated. The presentsystem has an installed capacity of 5.360 MW (of which 1 MW is inneed of rehabilitation). At present, the peak of 3.300 MW can beaccommodated with a 1 MW unit reserve. In the dry season, firmhydropower is reduced from 2 NW to about 1.5 MW and the present peakcannot be accommodated while maintaining a reserve of 1 MW (firmcapacity of only 2.860 MW is available). It is hoped that therehabilitation of the existing two hydroplants and one thermalplant, and the reduction of power system losses will be completedbetween 1986 and 1988, upon which the projected maximum demand forelectricity will have reached 3.940 MW. This demand exceeds thefirm capacity of the system in 1988 and an additional generationunit will be necessary to meet dry season demand (i months p.a.) andmedium-term expansion in the 1988 to 1994 period. A comprehensivestudy is therefore required to define a least-cost power expansionplan in line with realistic economic growth from 1988 onward.

8. Objectives: To define a least-cost master plan designed to meetSTP's medium-term electricity demand.

9. Activity Description: The activity concerns the execut.on of thefollowing tasks:

- inventory of all hydro and dendrothermal resources;

- technical/economic appraisal of present generation system;

Annex 20-70 - Page 4 of 24

- technical/economic appraisal of eventual future powerstations (hydro/thermal/dendro) and choice of appropriatetechnologies;

- selection of optimal expansion plan using computer models(to be defined).

The study will involve the technical/professional services of thefollowing experts:

- 2 power system planner/economists;

- 1 thermal power engineer;

- 2 hydro power engineers;

- 1 power distribution engineer.

10. Total Cost Project No. 1: US$900,000.

Annez 20- 71 - Page 5 of 24

Project No. 2(two components)

1. Sector I: Energy Planning and Management

2. Name of Activity: Overseas training for Directorate of Industry andEnergy personnel, Ministry of Industry, Construction and Housing.

3. STP Executing Agency: Ministry of Industry, Construction andHousing (MICE).

4. Nature of Activity: Secondment of two Directorate of Industry andEnergy staff members for on-the-job training in basics of energyplanning and management with energy services of Portuguese-speakingcountry.

5. Total Cost Sector 1:

- Current Prices: US$10,000 (including travel, livingexpenses).

- Financing Requested: Total

6. Timetable: 3 month period in 1986.

7. Background and Justification: While the Directorate of Industry andEnergy of the MICH has nominal responsibility for Energy SectorManagement, the effective coordination of energy-related operationshas not yet been put into practice due to financial and personnelconstraints. Sector-wide Planning and Management is required withinthe MICH to set national energy management on a sound footing. Inorder to ensure this, it will be necessary to second (two)professional staff from MICH for on-the-job training overseas in thebasic concepts and application of energy planning methods.

8. Objectives: To enable MICH personnel to acquire basic skills in:

- energy planning techniques

- energy sector organization and management.

9. Lctivity Description: Both candidates will be received for on-the-job training (observer status is also negotiable) within thenational energy services of a Portuguese-speaking country where thelevel of automation and operations are adaptable to the needs ofSTP.

Annex 20-72 - Page 6 of 24

10. Sector II: Petroleum

11. Name of Activity: Training for ENCO Personnel in PetroleumProcurement Operations

12. STP Executing Agency: Empresa Nacional de Combustiveis e Oleos(ENCO)

13. Nature of Activity: Overseas on-the-job training for two ENCOprofessionals with procurement operations of Portuguese-speaking oilCompany.

14. Total Cost Sector II:

- Current Prices: US$10,000 (including travel, all expenses).

- Financing Requested: Total

15. Timetable: 3 month period in 1986.

16. Background and Justification: Since 1978, STP has benefitted from apreferential bi-lateral agreement with Angola for the supply of allpetroleum products, whereby all of STP's fuel needs are met atprices almost 50% below those enforced on the internationalmarket. The terms of the agreement, which is based on politicalgoodwill between the two countries, will probably be maintainedthrough STP's acceptance of recently-proposed price increases andthrough the clearance of accumulated arrears of some US$4.8 milliondue to Angola. However, STP's total dependence for petroleumproducts on one country and the country's geographical isolationincrease its vulnerability to problems associated with interruptionsin supply. ENCO personnel therefore needs to acquire skills inprocurement in order to enable STP to diversify its sources ofsupply if and when necessary.

17. Objectives:

- To provide ENCO personnel with skills in procurement andtrading of petroleum products on the international market;

- to enable ENCO personnel to carry out an on-going assessmentand selection of the most economical and reliable source ofsupply at any given time;

- to enable ENCO personnel to improve the enterprise'smanagement of domestic supply and distribution arrangementsfor petroleum products.

Annex 20- 73 - Page 7 of 24

18. Activity Description: Two ENCO professionals (to be nominated bythe enterprise) wlil complete a total of 3 months each of on-the-jobwork experience with the trading operations division of an oilcompany in a Portuguese-speaking country. Each candidate will spendone month in crude trading and two months in product trading.Subject to the agreement of both sides, observer status may beacceptable both to candidates and to the oil company concerned.

19. Tot-i Cost Project No. 2: US$20,000.

Annex 20~ 74 - Page 8 of 24

Project No. 3

1. Sector: Electricity

2. Name of Project: Power Plant Rehabilitation and Power LossReduction Program

3. STP Executing Agency: Empresa de Agua e Electricidade (EMAE)

4. Nature of Project: Rehabilitation of existing hydro and thermalplants attached to the national grid and reduction of technical andnon-technical losses to an acceptable level (12Z).

5. Total Cost:

- Current Prices: US$2.4 million

- Financing Requested: US$2.0 million

6. Timetable: January 1986 to January 1988 (2 year period)

7. Background and Justification: STP's power utility (EMAE) isresponsible for the generation, transmission and distribution ofelectricity through a grid network which operates in the mostdensely populated zone in the northwest of Sao Tome island. Thegrid is connected to two hydroplants and to the capital city'sthermal plant. The current supply ratio is 531 hydro generation to47% diesel generation. The main hydro plant, situated on theContador river, has an installed capacity of 2,400 RVA. Thestation's electro-mechanical equipment needs to be repaired. Thewalls of an 8 Km-long canal which channels water to the station havebecome weakened and frequent landslides threaten to paralysegeneration if immediate repairs are not carried out. Access roadsto the station need to be rebuilt. The second bydroplant, theGuegue station on the Manuel Jorge River, is 40 years old andsuffers from excessive leaks. Control apparatus needs to besubstituted. At the Sao Tome diesel-fuleled thermal plant, oil leaksand broken exciter coils are in need of repair and two redundantunits of 350 KVA need to be dismantled. Operational efficiency ofthe grid is reduced by the lack of simple load dispatch proceduresand basic telecommunications. Joint technical and non-technicallosses are currently running at about 21% p.a.Transmission/distribution lines are in need of immediate repair. Asevere shortage of meters, power theft and absence of a systematisedbilling system aggravates operational inefficiencies.

Annez 20- 75 - Page 9 of 24

8. Objectives: To increase electricity supply and reduce the cost ofgeneration simultaneously through:

- the rehabilitation of existing capacity;

- the reduction of system losses from the current level of21% p.a. to a more acceptable level of 12%.

9. Project Description: The project entails the execution of thefollowing actions:

- repair of canal at Contador hydroplant to prevent landslidesand flooding of the load chamber; repair of electro-mechanical equipment and broken bearings; construction ofaccess roads to plant, load chamber and canal;

- the Guegue hydroplant, general repairs and replacement ofsafety devices and measurement gauges; replacement of oldturbine with new 150 KW turbine; feasibility study ofinstallation of second 150 KW turbine and alterrator group;

- at Sao Tame thermal plant, the dismantling of two redundantunits, with a view to future construction of new 4:eselunits with unit power of up to 2 MW; repair of sealing ringand exciter; installation of anti-sound pollution measures;improvement of load dispatch procedures and installation oftelecommunications for the whole grid system (to becentralized at the thermal plant);

- The reduction of technical losses will include repairs to 30and 60 KV lines, the connection of Agostinho Neto hydroplantto the grid and the provision of equipment for workshop,electrical laboratory and vehicle for improvement oftechnical services. Non-technical losses will be reducedthrough the installation of some 3,350 meters for currentunmetered connections. Financial assistance for purchaseand installation of these meters will probably be assured byan IDA line of Credit.

Annex 2076 - Page 10 of 24

Project No. 4

1. Sector: Electricity

2. Name of Project: Expansion of Capacity at Guegue hydroplant.

3. STP Executing Agency: Empresa de Agua e Electricidade (EMAE)

4. Nature of Project: Installation of second 150 kW turbine/alternatorgroup at Guegue hydroplant

5. Total Cost:

- Current prices: US$250,000

- Financing requested: Total

6. Timetable: To begin in 1986 following completion of pre-feasibilitystudy on its installation (component of project No. 3).

7. Background and Justification: STP's second hydroplant at the Cueguestation on the Manuel Jorge river is almost 40 years old and thee_isting turbine needs to be replaced, as present output at theplant is believed to be low due to excessive leaks. When theexisting turbine has been replaced with a new 150 kW turbine,preliminary observations suggest that the existing power house andcanal capacity could accommodate a second 150 ki turbine/alternatorgroup which would enable the Cuegue station to produce an additional880,000 kWh/year. Following the execution of a pre-investment studyto confirm the technical and economic viability of the project (tobe carried out under the rehabilitation program), the second unitwill contribute to an improvement in the operational efficiency ofthe grid and economize on the use of diesel for thermal generation.

8. Objectives:

- to improve the operational efficiency of the grid;

- to economize on the use of diesel for thermal generation.

9. Project Description:

- transport to STP and installation of a second 150 KWturbine/alternator group in Guegue hydroplant power house;

- execution of necessary civil construction works;

- connection of unit to the national grid.

Annez 2077 Page 11 of 24

Project No. 5

1. Sector: Electricity

2. Name of Project: Technical Assistance to Empresa de Agua eElectricidade (EMAE)

3. STP Executing Agency: EMAE

4. Nature of Project: Provision of technical advisory services to EKAE

5. Total Cost:- Current Prices: US$240,000 (including travel, relocation,

fees, all expenses).

- Financing Requested: US$240,000

6. Timetable: 2 man years to begin in 1986.

7. Background and Justification: Prior to independence from Portugalin 1975, STP's electricity supply was managed by municipalities. Onthe creation of the new state, responsibility for generation,transmission and distribution of electricity was consolidated underEMAE (total current staffing of 340 people), the structure of whichis split between technical and administrative services under thejoint authority of one managing director. EMAE is responsible tothe Ministry of Industry, Construction and Housing for all matterspertaining to energy policy and electricity tariffs. Skilledmanpower is very limited in the enterprise. Professional technicalservices are managed by two recently-qualified electrical engineerswho have little practical experience in power utility management.At the technical level, ENAE manages to function with a generousmeasure of good fortune and a dedicated technical crew consisting ofone mechanic and a few linesmen on each of the two islands. Giventhat EMAE's managing director is due to retire in the near future,the services of an experienced technical adviser is thereforerequired without delay.

8. Objectives:

- to launch a sound electricity sub-sector capacity inconjunction with EMAE's professional staff;

- to transfer technical and managerial skills to EMAEpersonnel.

Annex 20- 78- Page 12 of 24

9. Project Description: The technical adviser will be an experiencedpower engineer with at least five years experience in power utilitymanagement. He/she will possess a thorough working knowledge ofPortuguese. The adviser will carry out the following tasks:

- assist EMAE in the organization, rationalization andmanagement of its Technical Services;

- monitor progress on rehabilitation of existing powersystem and power loss reduction program;

- advise and provide on-the-job training to EMAE'sprofessional and technical level staff on methods ofaddressing local power-related problems (metering, powertheft, transmission/distribution).

Under guidance from the adviser, EMAE personnel will carryout:

- a statistical survey of total existing connections (paidand unpaid);

- a study of the islands' topography in relation to currenttransmission and distribution lines and preparation ofdesigns for future installation of lines;

- assist EMAE in the implementation of accounting andmetering procedures which are due to be introduced in thenear future.

Annez 20- 79- Page 13 of 24

Project No. 6

1. Sector: Electricity

2. Name of Project: Overseas Training in Power Engineering

3. STP Executing Agency: Empresa de Agua e Electricidade (ENAE)

4. Nature of Project: Provision of two overseas training scholarshipsfor STP nationals in power engineering.

5. Total Cost:

- Current Prices: US$105,000 (including travel, expenses,didactic materials, books, fees).

- Financing Requested: US$105,000

6. Timetable: September 1986 to September 1991 (5 academic years).

7. Background and Justification: Skilled manpower in EMAE is verylimited. Technical services are managed by two recently-qualifiedelectrical engineers who have little experience in power utilitymanagement. At the technical level, the utility manages to functionwith a generous measure of good fortune and a dedicated technicalcrew consisting of one mechanic and a few linesmen on each of thecountry's two islands. With the prospect of an expansion in powersystem capacity in 1988 and beyond, the training of additional powerengineers becomes a unquestionable necessity if future skilledmanpower needs are to be met.

8. Objectives: To boost EKAE's skilled manpower capacity wi;h a viewto ensuring adequate managerial and technical personnel in line withan expanded power system.

9. Project Description: Two STP graduates from second-level education(with majors in technical subjects) will be trained as powerengineers in a Portuguese-speaking country. Two years are foreseenin the country of study for the candidates to obtain universityentrance equivalence of diplomas. Candidates will then be trainedas power engineers during a three year degree program and willsubsequently be assigned to the technical services of EMAE.

Annex 20-80 - Page 14 of 24

Project No. 7

1. Sector: VoodfueLs and Forestry

2. game of Project: Preliinary Forest Inventory (Phase I) andlegisLation.

3. SIP Executing Agency: Ministry of Agriculture and Livestock

4. Nature of Project: Expert services for execution of preliminaryforest inventory and definition of Terms of Reference for detailedinventory of all zones for potential fuelwood and timberproduction. Professional services of a legal expert versed inforestry legislation to draft principal laws and regulations inconcert with the technical forestry experts.

5. Total Cost:

- Current Prices: US$60,000

- Financing Requested: US$60,000

6. Timetable: 6 man-months in 1986

7. Background and Justification: STP is fortunate to be endowed with adense and varied forest cover composed of both indigenous and exoticspecies. Combined forest and agro-forest cover on the two islandIis estimated to occupy about 80X of the total landmass of 1,000 Km'but no comprehensive forest inventory has yet been carried out.Based on aerial photographs, records dating from Portuguese colonialtimes and soil maps completed in 1971, present patterns of landoccupation are estimated to be as follows:

- humid broadleaved forest ..................42,000 ha

- secondary forest.........................15,OOO ha

- agro-forestry formation...................24 ,000 ha

Total: 81,000 ha

8. Objectives:

- to establish up-to-date inventory of STP's forest cover(including farm trees);

- to define Terms of Reference for detailed forest inventoryto be drawn up for all selected forest areas which haveproven to be promising for timber and/or fuelwoodproduction.

Annez 20-81 Page 15 of 24

9. Project Description: The project will require 4 mun-months of theprofessional services of one forestry expert/statistician. Theezpert will execute the following tasks:

- identify various formations (national parks for ecologicalprotection purposes, reserves, production forest for timberand fuelvood);

- plot major forest areas;

- retrieve all existing information on STP forests, includingmaps, field observations, statistical data from ministriesand agriculturaL enterprises.

- draw up Terms of Reference for detailed forest inventory(Phase It) described above under "Objectives".

The legal expert would need about two rn-months (includingdrafting which may not need to take place in the field) to completehis basic tasks which are:

- drafting of a primary forest law governing the categories,uses, access, exploitations and protection of forestedareas; and

- drafting the regulations governing the enforcement of thebasic legislation with respect to the main pointsennumerated above.

Annez 20- 82 - Page 16-of 24

Project No. 8

1. Sector: Forestry

2. Name of Project: Study of Woodfuels Supply and Demand Patterns inSTP housenolds.

3. STP Executing Agency: Ministry of Agriculture and Livestock.

4. Nature of Project: Study of woodfuels supply/demand patterns,pricing structures and carbonisation methods.

5. Total Cost:

- Current Prices: US$74,000 (including expert fees, travel,per diem, purchase of two 4-wheel drive vehicles).

- Financing Requested: US$74,000

6. Timetable: 5 man-months in 1986.

7. Background and Justification: Data on the pattern and level ofconsumption of woodfuels by households has never been collectedsystemAtically in STP. Activities of fuelwood dealers are notregistered. Charcoal is produced by an unknown number of dealerswhc a-e believed to use traditional earth kiln methods. Theprincipal source of fuelwood takes the form of free gathering ofwood for which no records are kept. The main estimable sources arefrom logging and sawmill wastes and woody biomass resulting fromagro-forestry clearing operations. Estimates of householdconsumption of woodfuels have been based upon parameters currentlyapplied to low-income developing countries in the tropics which havesimilar socio-economic characteristics. No firm data is availableon supply networks or pricing and no study of carbonisation methodshas been carried out. In view of the need to eliminate fluctuationsin woodfuel supply and in retail prices in the market place, a studyof the present supply/demand network is required. In order to makerecommendations on improvements in charcoal production methods, datais also needed on current carbonisation methods.

8. Objectives:

- to determine average consumption levels of woodfuels in STPhouseholds;

- to create a meaningful data base on supply/demand networkand pricing structure for use in future woodfuels supply andplanning;

- to collect data on charcoal production for use inrecommendations for improvements in current practices.

Annex 20-83 - Page 17 of 24

9. Project Description: The project will require the services of onesocial scientist for the household consumption and charcoal survey(three months) and one energy planner for supply/demand study (twomonths) in order to execute the following tasks:

- carry out a detailed longitudinal study of about 50households to analyse fuelvood and charcoal input;

- study production/supply network to determine reasons forfluctuations in supply and in retail prices;

- research current carbonisation methods and establishfeasibility of improved charcoal kilns;

- finance the purchase of two four-wheel drive vehicles foruse in study field work which will become the property ofthe Ministry of Agriculture and Livestock's Forestry Serviceafter completion of the study for use in forestry-relatedwork.

Annex 2084 - Pge 18 of 24

Project No. 9

1. Sector: Forestry

2. Name of Project: Technical Assistance to Forestry Section ofMinistry of Agriculture and Livestock (MAL)

3. STP Ezecuting Agency: Ministry of Agriculture and Livestock

4. Nature of Project: Provision of services of one technical adviserto SAL to assist in management cof its Forestry Section.

5. Total Cost:

- Current Prices: US$240,000 (including fees, per diem,travel, relocation, all expenses).

- Financing Requested: US$240,000

6. Timetable: 1986 - 1988 or 2 man-years to coincide with absence ofForestry Section's Chief Agronomist/Engineer.

7. Background and Justification: Decree No.5/79 from the OfficialJournal of March 10, 1979 established the present structure of theMAL, within which the Directorate of Agriculture and Forestry hasnominal responsibility for forestry and crop management. ThisDirectorate's Forestry Section is composed of dendrology,nursery/reforestation and cutting permits, fiscality, statisticssub-sections which are experiencing severe material and staffingconstraints, thereby imposing considerable limitations on theability of the Forestry Section to carry out its mandate. Theproblem is exemplified by the imminent departure for specializedforestry training overseas of the only agronomist/engineer, whichwill leave the Section devoid of a qualified manager. The servicesof a technical forestry adviser will be required as an integr.6l partof an assistance program to the Forestry Section.

8. Objectives:

- to contribute to the establishment of a sound ForestrySection in MAL;

- to transfer managerial and technical skills to ForestrySection personnel;

- to improve coordination of working relations between MAL andother energy institutions.

Annex 2085 - Page l9 of 24

9. Project Description: the project entails the provision of servicesof one ezpert specialized in technical and administrative aspects offorestry management. The technical adviser will:

- assist MIL in the enforcement of forestry legislation (eg.,cutting permits, marketing and taxation, replantingregulations);

- advise MAL on the effective msnagement of woodfuelssupply/deusnd;

- participate in drawing up a national plan for reforestationand in the introduction of fast-growing species for short-term increase in fuelvood supply.

Annex 20-86 - Page 20 of 24

Project No. 10

1. Sector: Forestry

2. Name of Project: Overseas Training in Forestry Engineering.

3. ST? Ezecuting ARencies:

- Ministry of Education and Culture;- Ministry of Agriculture and Livestock (MAL)

4. Nature of Project: Two overseas training scholarships for STPcandidates in forestry engineering.

5. Total Cost:

- Current Prices: US$72,000 (including tuition fees,expenses, travel, didactic materials).

- Financing Requested: US$72,000

6. Timetable: 3 academic years beginning in 1986.

7. Background and Justification: The Directorate of Agriculture andForestry of MAL has nominal responsibility for STP's forestry andcrop management but material and skilled personnel constraintsimpose considerable limitations on the ability of the Directorate'sForestry Section to function effectively. The Forestry Section hasonly one university-trained professional (an agronomistlengineer)and a core group of seven agricultural technicians at itsdisposal. Future needs for qualified manpower will expand and tomeet that demand, the initiation of training of forestry engineersis required without delay.

8. Objectives: To ensure a satisfactory expansion of qualifiedmanpower in line with future needs of the Forestry Section of MAL.

9. Project Description: Both candidates will receive third-levelscholarships for training in forestry engineering and managementover a three-year period. Each candidate will be encouraged tospecialize in different aspects of forestry engineering of interestto STP e.g., forest land use management and new plantations. APortuguese-speaking country would be a preferable place of study(e.g., ViVosa School in Brazil) but excellent opportunities are alsoavailable in other countries (Costa Rica, Cuba).

Annex 20-87 - Pge 21 of 24

Project No. 11

1. Sector: Forestry

2. Name of Project: Technical Assistance (Educator) to AgriculturalTechnical School (CATAPE)

3. STP Executing Agencies:

- Ministry of Education and Culture;- Ministry of Agriculture and Livestock (MAL).

4. Nature of Project: Provision of forestry/woodfuels educator fortechnical training at Agricultural Technical School.

5. Total Cost:

- Current Prices: US$200,000 (including salary, relocation,travel, all expenses)

- Financing Requested: US$200,000

6. Timetable: 2 man-years. 1986 - 1988 or two year period dating fromopening of CATAPE School. (Pending successful results of thisproject, educator position may be considered for renewal at the endof the two years vith additional external funding).

7. Background and Justification: No educational institution providestraining in forestry at middle-school level in STP. In view of theinsufficient manpower available to the MAL's Forestry Section atpresent, local training of agricultural technicians withspecialization in forestry and woodfuels is required.

8. Objectives: To provide MAL with a regular source of technical-levelmanpower to meet future needs of its Forestry Section.

9. Project Description: The educator will provide training in nurserymanagement, species trials, reforestation, sawmill operations andbasic phytosanitary techniques. Theoretical and practical trainingwill be combined between the classroom and the State Enterpriseforestry operatioas.

Annex 2088 - Page 22 of 24

Project No. 12

1. Sector: Forestry

2. Nae of Project: Fuelvood and Multipurpose Species Trials

3. STP Executing a4ency: Ministry of Agriculture and Livestock

4. Nature of Project: Establishment and analysis of species trials inorder to permit selection of suitable species for future fuelwoodplantations.

5. Total Cost:

- Current Prices: US$264,000 (including fees, per diem,travel, rental of four-wheel drive vehicle, local labor,materials).

- Financing Requested: US$264,000

6. Timetables 2 man-years over a 4-year period to begin in 1986.

7. aaclvgound and Justification: Although at present STP's biomassrrssources (wood, agricultural residues) appear sufficient to covert1m demmans on that resource for fuel, this may not always remain soas the ;n^slation increases, or if a wood-fueled power stationshould prove economically viable. In that case conventionalfuelwood plantations (producing poles, timber, etc., as byproductsin order to give a satisfactory rate of return) would be the mostlikely solution for the urban households, the rural industries and apossible denArothereal power plant, while the planting of singletrees (for fuelwood, poles, timber, shade, fruit, etc.) is morelikely to be attractive to the rural population. In either case,more needs to be known about what species do well under theecological conditions of STP. It is therefore necessary to carryout a series of species trials. It will be some years before thetrials can yield conclusive results and hence there is even morereason to establish them now, well ahead of likely futuretreeplanting projects.

8. Objectives:

- to establish a comprehensive data bank on suitable speciesfor use on future fuelvood plantations. The trials wouldcatagorize species according to STP's forest types;

- pending results of species trials, to make recommendationson specific species and areas of land to be chosen both forplantations for household fuelwood supply and for eventualdendrothermal power plants.

Annez 20- 89 - Page 23 of 24

9. Project Description: Two experts will be required to establish theproposed species trials:

- a tropical silviculturist with extensive experience offuelvood and multipurpose tree species, and of theirestablishment;

- a statistician with extensive experience of the design,measuring and analysis of forestry (preferably species)trials.

In addition, these two experts should have local counterparts ihocan continue their work, and the use of one four-wheel drivevehicle. Finally, labor and material will be required to establishand later to measure the species trials. The first year will beneeded to select sites and species, order seed, produce seedlings,and prepare the plots for planting. In the second year, planting,initial weeding, and the installation of a systm of protection willbe required. Finally, in the third and fourth years, furtherweedings will take place, and the system of protection will beconsolidated. Only at that point it is possible to ensure thesurvival of the plots. In the fourth year the first measurementsand statistical analysis of provisional results can take place.Although the full-time presence of the experts is not required,their input should thus stretch over about four years. In order toallow statistical analysis and firm conclusiwas, the species trialsshould be replicated. However, the design and scope of these trialsshould take due cognizance of the fact that STP is a small countrywith limited resources and that treeplanting for fuelvood is notlikely ever to be a high priority there. It would therefore beunreasonable to design a very large and ambitious species trialproject. Provisionally, the spread of the two ezperts' input overthe four years might be tentatively envisaged as follows (finaltime distribution to be discussed with the incumbents themselves):

Annex 20-90- Page 24 of 24

SI Iviculturist StatisticianYear Months a/ Duties Months a/ Duties

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2 ^ Planting, weeding, 2 Ensure that planting(during planting accords with design.season). Modify design If

necessary.

3 2 Weeding, protection.

4 2 Weeding, protection, 6 Measurements, analysis,plan of future work, report, recommendations.final work, fInalreport.

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0 TOWNS

- COUNTY BOUNDARIES

--- INTERNATIONAL BOUNDARIES

- 1OLAS ISBLAND

KILOMETERS0 1 2 3 4 5 7 Z

___*____ I s 2 | §~~~ I I I I

0 1 2 3 4 5630 MIUES 640

OCTOBER 1985