Angola: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Publication Date:
10 Sep 2003
eISBN:
9781451800524
Language:
English
Keywords:
ISCR; CR; government; Angola; monetary aggregate; central bank; public utility company; water utility company; subsidy reform; state company; rate of return; Tariffs; Fuel prices; Electricity; Oil prices
Download PDF (709.3 KB)

Several years of high inflation rates have negatively affected economic conditions in Angola. Macroeconomic stabilization in Angola entails strict control over central bank credit to the government, an ending of the quasi-fiscal expenditures, and a reduction of the national bank of Angola’s deficit. Reserve adequacy is an important factor for stable economic development and management. This note reviews some of the main challenges faced by Angola's policymakers in launching a credible subsidy reform, and also reviews the sources and uses of state oil revenue in Angola.

Abstract

Several years of high inflation rates have negatively affected economic conditions in Angola. Macroeconomic stabilization in Angola entails strict control over central bank credit to the government, an ending of the quasi-fiscal expenditures, and a reduction of the national bank of Angola’s deficit. Reserve adequacy is an important factor for stable economic development and management. This note reviews some of the main challenges faced by Angola's policymakers in launching a credible subsidy reform, and also reviews the sources and uses of state oil revenue in Angola.

IV. fiscal subsidies in angola35

72. This note provides a first assessment of the nature of existing subsidies in Angola. It reviews some of the main challenges faced by Angola’s policymakers in launching a credible subsidy reform.

Executive Summary

The main conclusions that arise from the analysis are the following:

  • It is difficult to evaluate the fiscal impact of price subsidies policies in a context where a very large percentage of public spending is executed outside Angola’s integrated financial management information system.

  • However, given the magnitude of price subsidy arrears accumulated by the treasury, particularly to Sonangol (the national oil company), it seems evident that the Angolan fiscus cannot adequately support the government’s subsidy policy at its current level.

  • The financial health of public utility companies—especially in the electricity sector—has been compromised not only by inconsistent implementation of tariff adjustments, but also by delays in receiving subsidies or transfers due from the treasury. Lack of investment, as well as technical and commercial inefficiencies, have also negatively affected the public utility companies. For the electricity firms, Empresa de Electricidade de Luanda (EDEL) and Empresa Nacional de Electricidade (ENE), the poor state of the grids, illegal connections, and inefficient revenue collection systems have generated losses of up to 73 percent for EDEL and 55 percent for ENE of revenues received as a percentage of total electricity distributed in 2002. In the case of the water utility company, EPAL, it reports losses of up to 85 percent of total water produced and distributed in 2002.

  • Existing water and energy subsidies in Angola are likely to be regressive, benefiting non-poor more than poor households. A much larger proportion of extremely poor households consumes water from “traditional” sources, like unprotected wells and rain water, than their moderate poor and non-poor counterparts. Likewise, the extremely poor disproportionately rely on sources of lighting such as kerosene and firewood, while electricity is the prevalent energy source for non-poor households.

  • The establishment of transitory targeted social safety nets is a prerequisite to a successful reform effort, to help mitigate the financial impact generated by the subsidy reform on the poorest sections of the population. For example, in the case of electricity a particularly low tariff (tarifa social) targets consumption below 150 kilowatts per month. Nevertheless, the segments of the population most in need are not necessarily those who benefit the most from this scheme given that their consumption is usually way below the threshold.

  • An incipient governmental initiative to phase-out subsidies is underway. As the staff’s analysis suggests, the “cost-recovery target” may change with the level of production; and with the underlying price of inputs. In this sense, a “fixed” target (applicable at variable levels of production) might imply losses to the firms. The non-optimal setting of targets might produce: (i) firm losses, thereby affecting the companies’ financial viability; (ii) eventual pressures on the fiscal deficit if subsidies are granted; and, in turn, (iii) pressures on inflation stemming from large fiscal deficits.

73. The remainder of this paper is organized as follows. Section I provides an overview of the current policy on subsidies in place in Angola. Section II describes the main challenges faced by the government in implementing price subsidy reforms and also presents a number of general recommendations on how to achieve success in such reforms, including the introduction of social protection mechanisms. Annex I includes a technical discussion on the determination of cost-recovery public tariff targets for gasoline and electricity.

A. Subsidies in Angola: A Summary Description

74. In Angola, subsidies fall into two categories;

  • Operational subsidies, which are used to financially sustain chronically loss-making public companies whose social rate of return presumably exceeds their private rate of return. In 2002, operational subsidies totaled US$54 million, equivalent to 0.5 percent of GDP.

  • Price subsidies, which are generally granted to compensate public utilities providers for charging below-market prices on key utilities such as fuel, electricity, water supply, and public transportation. In 2002, price subsidies totaled US$300 million equivalent to 2.8 percent of GDP.36

75. In sum, subsidies totaled US$354 million in 2002, about 3.3 percent of GDP.

Operational subsidies

76. According to data provided to the staff by the National Treasury Directorate (DNT), the total amount paid out in operational subsidies during the 2002 fiscal exercise was Kz 2.4 billion. The greatest beneficiaries of operational subsidies were companies pertaining to the communications sector, with RNA, TPA, and Jornal de Angola being the largest recipients (Table IV.1).

Table IV.1.

Operational Subsidies, as Reported by DNT, Fiscal Year 2002

article image

77. It is worth noting, however, that some expenditures classified as re-capitalization payments in the state budget are close in nature to operational subsidies, and should in principle, be reclassified as such. This seems to be the case of transfers to TAAG Airlines, Empresa de Diamantes de Angola (ENDIAMA, the diamond concessionaire), and Sociedade Comercial e Industrial de Angola (SOCIANG, an industrial company)37. These payments are shown in Table IV.2 below:

Table IV.2.

Operational Subsidies, Classified as Re-Capitalization Payments, Fiscal Year 2002

(In kwanzas)

article image

78. Adding the recapitalization payments effected to ENDIAMA, SOCIANG, and TAAG to the amount of operational subsidies, the grand total becomes Kz 2.7 billion, or approximately US$62 million (equivalent to 0.6 percent of GDP).

Price subsidies

79. There are currently three categories of price subsidies in Angola: (i) subsidies on fuel prices; (ii) subsidies on electricity; and (iii) subsidies on water tariffs.38

80. Intermittent price adjustments over time have resulted in significant price differentials between domestic retail prices and world market prices for all main fuels consumed in Angola (Table IV.3). For example, as of December 2002, domestic fuel prices (expressed in dollars) were on average 70 percent lower than international prices. The price gap was particularly important for gasoline, light fuel, LPG gas, and gas oil.

Table IV.3.

Angola: Prices of Petroleum Products

(In kwanzas, as of January 2003)

article image
Source: Angolan authorities and Fund staff estimates.

81. Furthermore, in the case of gasoline, Angola’s retail prices are among the lowest in the sub-Saharan region (Figure IV.1). This intercountry price differential is likely to have led to important resource misallocation, informal trade, and smuggling into higher-price countries.

Figure IV.1.
Figure IV.1.

Gasoline Prices in Selected Sub-Saharan African Countries

(in US dollars per litre, as of December 2002)

Citation: IMF Staff Country Reports 2003, 292; 10.5089/9781451800524.002.A004

Source: GTZ Fuel Survey Africa, 2002

Subsidies on electricity tariffs

82. Angola has three separate electricity production and distribution systems in the north, the center and the south of the country, plus a few isolated local systems. The main systems are owned by a state company, the ENE, although distribution within Luanda is the responsibility of a separate state enterprise, the EDEL. Total installed generating capacity is about 600 mw, of which some 400 mw is hydroelectric, but available generating capacity is probably now less than 300 mw because of damage to power plants and the poor condition of transmission and distribution lines. Transmission and distribution losses have been high for decades because of the poor state of the grids and illegal connections. In addition to the difficulties created by the war, the electricity companies have suffered from shortages of skilled personnel, lack of commercial autonomy, uneconomic government-set electricity tariffs, illegal connections by consumers and inefficient revenue collection systems.39 Losses derived from current technical and commercialization schemes are significant. For instance, in 2002 EDEL reported losses of up to 73 percent of revenues received as percentage of total distribution of electricity, while ENE reported losses of up to 55 percent as well.

83. Fixed tariffs and increasing cost recovery levels produce a widening gap that generate large losses: state-owned enterprises depend precariously upon state subsidies and cannot generate adequate resources for maintenance and investment. As of May 2003, while the average cost for EDEL equals US$0,125 per kilowatt-hour, the current tariff equals US$0.05. For ENE the cost-recovery tariff equals Kz 3.0 per kilowatt-hour, the fixed tariff equals Kz 1.94 per kilowatt-hour.

Subsidies on water tariffs

84. As suggested by the results of the 2000-01 household budget survey, there are very low levels of expenditure on maintenance and investment for the extension of water main systems in the urban areas with rapid growth of the urban population, this has led to a situation where only about 56 percent of the population of Luanda and 32 percent of the population of other urban areas obtain piped water from the mains.

85. A main cause of this problem has been the low level of investment in water systems in Luanda, due to the low budgetary allocations and a level of official tariffs that has been so low that the public water company, EPAL, could neither assure adequate maintenance nor extend the water supply system to the expanding un-served peri-urban areas. The authorities informed the staff that the dollar-equivalent of the average tariff as of January 2003 was US$0.33/m3, compared to an estimated cost-recovery level of US$0.87/m3.

86. The poor state of connections, illegal commercialization of water, and ineffective and inefficient commercialization practices have generated large losses: according to the authorities, only the equivalent of only between 2 and 15 percent of total production and distribution of water is received as revenue.

B. Challenges of Price Subsidy Reform

87. This section describes a number of subsidy reform initiatives currently under review by the Angolan government. Further considerations and preconditions for a successful subsidy reform are presented.

Government initiatives under consideration

88. Policy initiatives have two basic components: (i) setting new target prices for fuel, electricity tariffs, and water tariffs which are currently under consideration by the authorities; and (ii) draft proposals handling payment of arrears. These are due to unpaid government transfers to public enterprises in lieu of goods supplied at subsidized prices, and interenterprise arrears between Sonangol and the main electricity companies operating in Angola.

New fuel prices

89. Draft legislation considering new target prices for petroleum products is under review. The types of fuel covered under the draft legislation are the same as those discussed between the staff and the authorities in the staff-monitored program (SMP) in 2001. These included LPG (gas), gasoline, kerosene, gas oil, light and heavy fuel, and asphalt. Under the SMP, the adjustment of fuel prices was a structural measure. The memorandum of economic and financial policies included a schedule for increasing fuel prices every two months between January 2001 and November 2001.

90. As shown in Table IV.4, the draft legislation under consideration proposes increases for all sales fuel prices, albeit to levels which are below those proposed under the 2001 SMP (columns 5-7 in Table IV.4). For example, the proposed price of gasoline is US$0.42 per liter compared to US$0.52 for November 2001 under the SMP. On the other hand, the proposed prices for LPG and light fuel are higher than those foreseen under the SMP. In the case of LPG and kerosene the draft legislation proposes a consumer subsidy on grounds of the widespread use of these fuels by low-income families.

Table IV.4.

Angola: Fuel Prices Under Government Proposal and SMP

(In dollars per liter)

article image
Source: Authorities’ information and staff’s estimates.

Precio de Venta al Publico under government’s proposal

Includes cost of crude oil and transformation costs.

Price of oil assumption under government’s proposal.

New electricity and water tariffs

91. A schedule to move towards the cost-recovery levels is under government consideration.40 For example, EDEL has suggested a chronogram that would drive the tariff to its cost-recovery level of US$0.125 per kilowatt-hour progressively until August of 2004 EPAL, the water supply company, has suggested December 2003 as the date to reach the cost-recovery level of US$0.87 per cubic meter of water.

92. The Ministries of Finance (MINFIN) and Energy and Water (MINEA) prepared a reform agenda (Proposta de Saneamento) for ENE and EDEL that was approved by the Standing Commission of the Council of Ministers on July 29, 2002. The reform agenda contained a diagnostic study of the current financial situation of the two companies and an action plan for the short- and medium-term. The MINFIN/MINEA memorandum points out the financial crises currently faced by ENE and EDEL. Four elements are reportedly at the root of the problem: (i) delayed price subsidy payments by the state to ENE and EDEL; (ii) non-adherence to the agreed policy of regular tariff adjustments; and (iii) companies’ technical and commercial losses.

93. Indeed, subsidy arrears from the Treasury to EDEL and ENE are significant, reducing the financial strength of the companies. Such subsidy arrears also help explain the recently observed build-up of cross-arrears between EDEL, ENE and Sonangol. As of June 2002, cross-arrears between EDEL and ENE and ENE and Sonangol were more than Kz 1bn, or US$24 million dollars.

94. The MINFIN/MINEA memorandum proposed the following actions to address the cross-arrears problems:

  • The total accumulated arrears from the state to ENE and EDEL up to October 2000 are to be canceled41.

  • The resulting balance up to December 2001 was to be paid by the state to the two companies within 45 days of the approval of the memorandum.

  • Subsidy payments due between January and June 2002 were to be regularized, and timely in payments would become the norm henceforward.

  • Accumulated debts by the state to Sonangol, ENE and EDEL up to October 2000 were to be cancelled.

  • All remaining cross debts (between the state, Sonangol, ENE, and EDEL) up to December 2001 were to be eliminated.

  • A calendar for the regularization of the remaining cross-arrears between Sonangol, EDEL, and ENE was to be negotiated between the three companies.

95. The exact status of implementation of these measures is unknown. However, subsidy payments by the state to ENE, EDEL and Sonangol had not been regularized by the second half of 2002. In fact, subsidy arrears to Sonangol accelerated from August 2002 onwards, reflecting deeper cash management and budget execution problems in the year.

Further considerations for a credible subsidy reform

96. In terms of the scope for future subsidy reforms, the received wisdom is that subsidies should not be provided on an across-the-board basis. Rather, they should be dealt with on a case-by-case situation, with the caveat that their aggregate amount should not be an element of pressure on the overall fiscal accounts.

97. Sound mechanisms for protecting the poor from possible deleterious effects of curtailing price subsidies are still absent. This has led to the adoption of ad hoc attempts at social protection initiatives, such as using higher gasoline prices to cross-subsidize LPG and kerosene, while reducing overall fuel price subsidies42. For instance, public utility companies usually apply a rate known as tarifa social in order to alleviate the cost for the poorest segments of the population. ENE applies this discounted tariff to all domestic consumption below 150 kilowatt-hour per month. While the basic normal tariff as of May 2003 equals Kz 2.36, the tarifa social equals Kz 1.00. Nevertheless, according to executives from public utility companies, the poorest segments of the population are not necessarily those who benefit the most, given that their consumption is well below the threshold.

98. Also, operational subsidies should be reviewed on a case-by-case basis. In the case of companies that are essentially inactive, such as SOCIANG and FERRANGOL, liquidation may be the most adequate option rather than further subsidization.

99. Price subsidies are more complex in nature as they have direct and indirect effects on households’ incomes and overall resource allocation. For example, they are likely to have second-order distributive and allocative effects by increasing the costs of other goods or services.

100. The existence of informal markets must also be recognized and taken into consideration. As suggested by the authorities, the limited access to utilities has generated informal markets in which prices are significantly higher, and which are usually used by the poorest segments of the population. For example, while in the formal market an average consumption of 150 kilowatt-hour of electricity costs US$7.5, in the informal market, it increases to US$25. In the case of water, while an average consumption of 8 m3 in the informal market cost Kz 6,000; in the formal market the same consumption costs Kz 125.

101. Finally, it must be noted that a fuller analysis of Angola’s subsidy policies requires a major overhaul of Angola’s public expenditure management system. Since about 40 percent of general government spending is executed outside the budgetary process (i.e., Angola’s integrated financial management information system)43, subsidy reform efforts could fail because of the lack of information and rigor in the budget execution process.

Temporary Social Protection Mechanisms

The international experience with energy subsidy reform, particularly in Eastern Europe and Central Asia, and in the former Soviet Union, highlights the use of four distinct compensatory mechanisms Subbarao, K. et at, 1997, “Safety Net Programs and Poverty Reduction. Lessons from Cross-Country Experience”, Washington, D.C., The World Bank.

  • a) Lifeline rates, or block pricing, in which a discounted rate is charged for a small block of energy consumed (as in the case of the tarifa social in Angola).

  • b) Vouchers, which are distributed to eligible beneficiaries, enabling them to purchase a given amount of energy at a fixed price.

  • c) Targeted cash compensations, which do not involve price manipulations and sets income thresholds that serve as milestones for the levels of benefit accrued to different households.

  • d) Targeted in-kind payments, or tied cash transfers, in which the targeted consumers’ bills are paid directly to the utility company by the social assistance office in charge of the benefit.

All of these mechanisms have their pros and cons. In general, targeted cash compensations have the advantage of being a non-distortionary instrument: they work like lump-sum negative taxes. Contrary to in-kind benefits, cash transfers foster consumer sovereignty. From a fiscal point of view, budgetary costs of cash transfers can be more easily known. The success of such an option, however, critically depends on the ability to perform means tests, i.e., setting “an income threshold above which benefits are phased out” (Gupta et al, op. cit., p. 7). On the down side, the real value of cash transfers can be harmed by inflation, and if the appropriate administrative structures are not in place, their distribution can be vulnerable to abuses and corruption.

Lifeline rates, vouchers, and tied cash transfers are distinct forms of price-subsidy targeting, which aims to benefit the most vulnerable groups. Although they still have a distortionary impact on consumer and producer choice, they may minimize political disruption, since the perception of a subsidy removal will be less marked.

In all cases, the temporary nature of the social protection mechanisms must be emphasized: such benefits should eventually be incorporated into existing or new “regular” social assistance programs. (Gupta et al note the difficulty in phasing out such schemes).

ANNEX: Determining the Target Tariff

1. This annex provides a first attempt to estimate cost curves (total, average and marginal) for Sonangol and ENE, in order to propose methodological steps for setting optimal cost-recovery public utilities tariffs.

2. As suggested by the literature, for the enterprises such as public utilities a condition of natural monopoly may exist. Given the fixed costs, the size of the plant necessary to achieve efficiency may be so large relative to the market that a competitive situation could not exist. Moreover, if production is in the range where marginal and average costs are decreasing, demand could be such that the public enterprise is providing the service but losing money. In order to avoid the decapitalization of the firm and/or negatively affect its financial viability some space for subsidies or cost-recovery pricing might exist.

3. As the analysis suggest, the “cost-recovery target” may change with the level of production; and with the underlying price of inputs. When average costs are decreasing, a higher production level, implies, a lower cost-recovery target. Whenever the price of inputs increases, the costs tend to increase (cost curves shift to the right), implying higher cost-recovery targets for any level of production. In this sense, a “fixed” tariff may cause losses to the firm whenever the actual level of production is lower than the specific production level the fixed tariff is consistent with, or whenever there is a change in input prices.

4. The non-optimal setting of targets might produce: (i) firm losses, and therefore affect its viability; (ii) eventual pressures on the fiscal deficit (if subsidies are granted) and; (iii) pressures on inflation because of (ii).

5. The next subsections present the cases of Sonangol (for gasoline) and ENE.

Sonangol - Gasoline: An Estimation of Costs Functions

6. Using monthly data on total acquisitions (in kilograms)44 and total costs (US$/kg) for Sonangol for the period January 2000 to December 2002, the following cost function, in US dollars was estimated.45

C=770,064+0.24.Y(1)

where, C represents total costs and Y acquisitions of gasoline. The following graph presents the estimated relationship.

Figure IV.2.
Figure IV.2.

Sonangol: Total Cost Curve

Citation: IMF Staff Country Reports 2003, 292; 10.5089/9781451800524.002.A004

7. Based on the estimated curve, average cost (AvC) and marginal cost (MgC) curves may be derived. The following are the corresponding curves:

AvC=770,064Y+0.24(2)
MgC=0.24(3)

8. The following table presents average cost on recovery target for different levels of gasoline acquisitions, assuming a price of oil of US$24 per barrel. Per liter price values are presented in parenthesis. Notably, the data suggest that the average cost on recovery target decreases from US$0.34 to US$28 on the level of production increases from 8 to 20 million kilograms of gasoline. Marginal costs of production remain unchanged at US$0.24 per kilogram of gasoline (or US$0.18 per liter) given the cost function assumed in the analysis.

Table IV.5.

Sonangol: Average and Marginal Costs1

article image

Assuming oil price at US$24 per barrel.

9. Given, these estimated curves, for a set level of quantity purchased by Sonangol, the “optimal” cost-recovery target price can be estimated. For example, for the December 2002 quantity of 14,599,917 kilograms, the average cost or cost recovery target would be US$0.30 per kilogram of gasoline (or US$0.22 per liter) while the marginal cost of production is US$ 0.24 per kilogram.46 This price is equivalent to US$0.24 per litter.

10. At the December 2002 price of oil of US$26 per barrel, the corresponding average and marginal cost curves will imply the following values for different levels of production.

Table IV.6.

Sonangol: Average and Marginal Costs for a Higher Oil Price1/

article image

Assuming oil price at US$26 per barrel.

11. As mentioned above, with a price of oil of US$26 per barrel, for the December 2002 level of production of 14.5 millions of kilograms, the “cost-recovery target” suggested would be US$ 0.32 per kilogram of gasoline or US$ 0.24 per liter. The cost recovery target changes with the level of production and the underlying price of oil. A “fixed” tariff may cause losses to the firm whenever the actual level of production is lower than the specific production level the fixed tariff is consistent with. For instance, a ex-refinery price of US$0.22, suggested by the authorities, would be consistent with a level of production close to 22 million kilograms which is higher than the December 2002 level of 14.5 million.

ENE: An Estimation of Costs Functions

12. Cost functions, in terms of real kwanza of December 2002, were estimated using monthly data on total production (kilowatt-hours) and total costs (kwanza per kilowatt-hour) for the period January 2001 to December 2002.

C=354,000,000+1.07.Y(1)

where, C represents total costs and Y production of electricity. The following chart plots the estimated relationship.

Figure IV.3.
Figure IV.3.

ENE: Total Cost Curve

Citation: IMF Staff Country Reports 2003, 292; 10.5089/9781451800524.002.A004

13. Based on the estimated curve, average cost (AvC) and marginal cost (MgC) curves may be derived as follows:47

AvC=354,000,000Y+1.07(2)
MgC=1.07(3)

14. Given, theses estimated curves, for a set level of quantity of electricity traded, the “optimal” cost-recovery target price can be estimated. For instance, for the December 2002 quantity of 164,893,000 kilowatt-hours, the cost recovery target would be Kz 3.13 per kilowatt-hour (compared to the Kz 3.00 per kilowatt-hour currently targeted by the authorities).

15. The following table presents average cost (recovery target) for different levels of electricity production.

16. As suggested by the cost curves and reflected in Table IV.7, the average cost (recovery target) would decrease with the level of production, while the marginal cost (for the estimated curve) would be constant at 1.07 Kz per kilowatt-hour.

Table IV.7.

ENE: Average and Marginal Costs

article image
35

Document prepared by Jorge Araujo (The World Bank), Jose Giancarlo Gasha, and Gonzalo Pastor (IMF).

36

Some privately owned public transportation companies are included amongst such providers.

37

These payments reportedly refer to: (i) in the case of TAAG, the costs of leasing one aircraft; (ii) in the case of ENDIAMA, the expenses associated with the hiring of a security company; and (iii) in the case of SOCIANG, which is said to be nearly bankrupt, the salaries and benefits due to its staff.

38

The extent to which poor households indeed benefit from such subsidies depend on their consumption patterns. In Angola, water, electricity, and fuel price subsidies are likely to be regressive, disproportionately benefiting the non-poor. Preliminary results from the 2000-01 Household Budget Survey (see APAP (2002)) indicate that kerosene and firewood account for 75 percent of energy consumption for extreme poor households, while electricity is the main source of lighting for 50 percent and 66 percent of moderately poor and non-poor households respectively. In addition, almost 35 percent of extreme poor households consume water from unprotected wells, rain and river water. These sources are insignificant to non-poor households, who consume water mostly from in-door and outside taps, and outside tanks. See Box 1 for a discussion of social safety nets to protect the poor in the event of a subsidy removal.

39

Differently from water tariffs, which are set by provincial governments, electricity tariffs are fixed by decrees by the Minister of Finance. Once a decree is issued by the Minister of Finance with the new tariff structure, tariffs will remain fixed in kwanza terms until a new decree is issued. EDEL and ENE cannot change tariff policy on their own.

40

It is worth mentioning that, so far, in the case of utilities, the cost-recovery targets do not include any investment needs. This might be an important issue given the quite limited access of the population to services, which raises the need for important investment.

41

In accordance with Resolution No. 22 (December 4, 2001) of the Standing Commission of the Council of Ministers.

42

As noted by Gupta et al, 2000, Equity and Efficiency in the Reform of Price Subsidies. A Guide for Policymakers, Washington, D.C., International Monetary Fund, “subsidies for kerosene have been defended because they tend to benefit the poor and they can reduce reliance on firewood and protect forests” (p. 17). The authors point out that this claim is not always supported by empirical evidence, as this kind of “commodity targeting” can lead to “errors of inclusion” proportional to the share of kerosene and LPG consumed by the nonpoor.

43

Known in Portuguese as the Sistema Integrado de Gestao Financeira, or SIGFE.

44

Data furnished by the authorities were provided in different units of account with their respective conversion factors into liters.

45

Sonangol acquires gasoline from two main sources: the domestic refinery and imports.

46

It is worth noting that in the estimation, it is assumed that the price of inputs are constant, which is not necessarily the case, in particular, for the oil price. Therefore, regular corrections for variations in the oil price are necessary for average and marginal cost estimates. An average price of US$24 per barrel was assumed in the estimation, while the price at December 2002 was US$26 per barrel.

47

It is important to note that average costs include billing and collection costs. Therefore, improvements in commercial practices may lower the cost curves and help smooth the tariff adjustment process, insofar as the cost-recovery level could be reached through lower target tariffs.

Same Series

Other IMF Content

Other Publishers

Cover IMF Staff Country Reports
Angola: Selected Issues and Statistical Appendix
Author: International Monetary Fund
Volume/Issue:
Volume 2003: Issue 292
Publisher:
International Monetary Fund
ISBN:
9781451800524
ISSN:
1934-7685
Pages:
122
DOI:
https://doi.org/10.5089/9781451800524.002

Gasoline Prices in Selected Sub-Saharan African Countries

(in US dollars per litre, as of December 2002)

Sonangol: Total Cost Curve

ENE: Total Cost Curve