Electric Sector Transformation Program (PTSE) 18 th A.P.U.A. Congress

1. Electric Sector Transformation Program (PTSE) 18th A.P.U.A. Congress Luanda – September 11th 2014 João Saraiva PTSE Manager Coordinator

2. Agenda

3. Angola’s Power Sector2025 Goals The Presidential Decree 256/11 established a set of objectives for the electricity sector, reinforcing the importance of electricity to the country. i • Ensure and Increase Electricity Supply • Increase the electricity rate from 30% to 60% • Quadruple generation capacity from current ~2.0 GW para ~9.5 GW in 2025 • Extend more than 2.500 km of lines and substations in the transmission grid, and establish international interconnections • Rehabilitate distribution networks, adding more than 1.5 million consumers • Industry Competitiveness • Improve the efficiency of public companies • Implement a new market model that allows for cost reductions • Develop a new regulatory model encouraging efficiency System Sustainability • Reduce tariff subsidization • Develop an optimal generation mix, making better use of Angola’s natural resources • Develop the capabilities of the local workforce

4. Angola’s Power SectorSector challenges and progress To successfully achieve the proposed goals in the energy sector a large amount of investment is necessary in generation assets and grid infrastructure. Installed capacity (GW) Transmission grid (Kilometers) # Consumers (Millions) 9,5 GW 6,9 GW x3 x4 x1.5 2,0 GW 0,88 GW Source:2002 Data – Development of a Energy Strategy , IEA; 2013 Data – MINEA Expanded Council Board; Financial Reports ENE e EDEL; 2017 and 2025 estimated data - PSEA 2009

5. Angola’s Power SectorElectrification enhancers Angola is managing large, concurrent infrastructure developments, carefully planned to take advantage of Angola's national resources – natural gas, hydro, wind and solar. How to take advantage of Angolan natural resources SIMPLIFICATION CONGO CABINDA North System ZAIRE • Benefit from the hydro potential of Kwanza river – Laúca and Caculo-Cabaça UIGE L. NORTE East System K. NORTE MALANJE LUANDA • Install combined cycle gas turbines, partnering with Sonangol/ Angola LNG SE. Capandaelevadora SE. Cambambe* BENGO L. SUL K. SUL Center System • National integration of transmission systems MOXICO BENGUELA HUAMBO • International interconnection with Namibia and Congo HUILA South System K. KUBANGO • Rural electrification with distributed renewables sources NAMIBE CUNENE Grid connections until 2025 NAMIBIA

6. Agenda

7. Electric Sector Transformation Program Goals In addition to infrastructure investments, MINEA considered necessary to establish a package of initiatives to allow a progressive restructuration and a orderly development of the Power Sector, by creating PTSE. • Other Initiatives (non exhaustive) Expand the distribution network – rural (Solar Village) and urban Expand the pre-payment model Establish public-private partnerships Electric Sector Transformation Program (PTSE) • Restructure the current organizational model • Ensure economic and financial sustainability of the system • Promote the entry of private capital • Strengthen the regulator role in the new Market Model

8. Electric Sector Transformation ProgramInstitutional reform of public companies The Electricity Sector Transformation Program (PTSE) seeks to improve efficiency by unbundling activities and a new market regulation that allows private participation. Restructuring of Public Companies Value Chain Current status Future status Generation Private Investors Private Investors Generation National Company Transmission Transmission National Company Distribution and Customer Operations Munici-palities Regulation Private Concessions Distribution National Company Engineering Office (for strategic projects) Engineering

9. Electric Sector Transformation ProgramInstitutional reform of public companies PTSE Includes organizational and corporate restructuring, leading to the establishment of three new public companies, one per phase of electricity value chain. Generation Generation Engineering Office (for strategic projects) Distribution Distribution Transmission Generation National Company Distribution National Company Generation Distribution Transmission National Company Transmission

10. New Market ModelPrinciples and agents The design principles considered in the definition of the new model are listed below: Design Principles • Strengthen the regulator role (IRSE) • Competitive processes for both public and private generation • Independent Transmission Operation, also acting as Single Buyer forall electricity generated in Public Electric System (SEP) • Long-term Power Purchase Agreements (PPA) • “Merit order” for generation dispatch based on PPAs Wholesale seller Single Buyer Market Operator Wholesale buyer Public Generation Private Generation Transmission Distribution Expected Results • Market opening (ex.: generation and distribution) • Promote the entry of private capital • Greater transparency and competitiveness among companies • New tariff model to reduce system costs and subsidies

11. New Market ModelMarket economic model The new sector configuration is supported by the new market model defined in Regulation, increasing the control of the economic flows and energy supply. IRSE Generation and billing of energy supplied to Single Buyer Transmission and billing of energy supplied to Distribution Distribution and billing to AT, MT, BT customers ENERGY SUPPLY FLOW Public and Private Generation Transmission (Single Buyer) Distribution Customers BT Pre-payment BT Post-payment AT MT PPAs Prices Uniform Prices Regulated Tariff PAYMENT FLOW – AGENT RETRIBUTION Distributor pays Market Operator (MO) Market Operator pays Generators Customers pay Distributor MO operates the Compensation Fund and pays Distributor

12. New Market ModelTariff composition Tariffs are calculated by adding the real cost of the Agents. The Government is subsidizing the final tariff in order to not charge the customers with the high system costs. SIMPLIFIED DISTRIBUTION SECTOR COSTS Exploration Costs Investment Retribution Subsidy to customer Additive tariff TRANSMISSION Pays the distribution total costs Exploration Costs Investment Retribution TRANSMISSION TO DISTRIBUTION Billing Tariff-DISTRIBUTION TO CUSTOMER Billing Pays the transmission total costs GENERATION Pays the generation total costs Regulated* Tariffs Exploration Costs Investment Retribution GENERATION TO TRANSMISSION Billing Regulated Price PPAs* Prices Segment specific costs * PPA prices negotiated between Market Operator and each Generator, with IRSE supervision and Regulated Tariffs fixed by the Government, with IRSE supervision Energy cost of immediately preceding step of the value chain

13. Agenda

14. PTSE Phases and ProgressPTSE’s phased plan PTSE is structured in three phases. At the moment is about to finish the second one, by the establishment of the new public companies for the power sector. i CONCLUDING 2014-2016 CONCLUDED 1. Diagnostic, Mobilization and Change Management • Confirmation of the expected market model • Identification of open / pending issues • Communication to companies senior management • Release of restructuring and change 2. Electric Sector Restructuring (Unbundling) • Restructuring of IRSE, GAMEK and Public Companies • Market model & regulation and IRSE training • Capability development of the electric sector • Implementation plan of operational improvements • Program and change management 3. Operational and Functional Improvement of Public Companies • Detailed design of the new operating model • Pilots in reference areas • Effective implementation of operational improvements of the new companies : • Focus on the most critical areas • Progressive rollout along geographies and isolated systems

15. PTSE Phases and ProgressPhase III executive summary – Operational Improvements Locations until August 1st 2014 Generation • Actions over maintenance and operations plans of critical assets to increase their availability • Actions over supply chain to ensure the availability of the parts and to reduce storage costs • Province of Luanda • Cazenga Thermal Power Plant • Viana Transmission Substation • Viana (EDEL) technical and commercial area transmission • Permit to work coordination in the system operator (CONS) to increase the system availability • Maintenance management to reduce unavailability times and increase assets productivity and lifetime • Province of Malanje • Capanda Hydric Power Plant distribution • Technical operational improvements • The establishment of a Work Orders Programming Centre in order to reduce failures resolution time • Commercial operational improvements • On field identification of consumers and contract regularization to improve electricity readings and to increase income • Optimization of commercial functions to reduce service times and improve customer service • Definition of Pre-payment and Agent models • Province of Benguela • Benguela Area • Lobito Area • Catumbela Area • BaíaFarta Area Generation Transmission Distribution Irse - Regulation • Statistical information systematization and tariff analysis • Concession contracts development NOTE: During 2014 is foreseen the launch of new pilots in other provinces.

16. Agenda

17. Future PerspectivesLevers of efficiency Some levers are available to increase sector efficiency and to reduce costs: TO DISCUSS Stabilization 2014-2017 Transition to efficiency 2018-2021 Partial liberalization 2021-2025 Review and adjustment of Electric System Regulations (IRSE) • 1. Tariff Model • Increase tariffs • 2. Commercial cycle improvement • Pre-payment • Meters in all consumer points • 3. Reduction of acceptable system costs • Implementation of more demanding benchmarks • 4. Reduction of system costs • Reduction of energy losses transferable to the tariffs • 5. Adjusts of tariff models • Balance between the variable and fix terms • Price curves for qualified clients • 6. Change in the retributive model • Change for a retribution model by incentives • Include incentives for the losses reduction • 7. Sector restructuration • Public-private partnerships • Concessions of distributions areas to private companies • 8. Reduction of system costs • Cheaper energetic mix • Coexistence of PPAs and market pool 7 Sustainable companies, service quality and efficiency 4 6 8 5 To have all the supply points measured and tariffs more representative of the real costs Controlled costs and new retributive model defined. High control power from IRSE 2 3 1

18. Future PerspectivesSustainability In conclusion, PTSE is one of the building blocks to achieve maturity and sustainability in the Angolan Power Sector. • Establish new electricity market conditions • Reduce governmental tariff subsidization • Develop regulation capabilities to promote efficiency • Management professionalization Economic Sustainability • Expand rural electrification, boosting growth and development in these regions • Ensure long-term sustainability and independence of local capabilities (human and technological) • Deliver results to society in the short term Social Sustainability • Adopt a better installed capacity mix focused on Angola’s natural resources • Choose thermal power plant technologies with reduced CO2 emissions • Develop pilot projects to expand renewable energies • Promote electricity efficiency with mass installation of prepayment meters Environmental Sustainability

19. Empresa Pública de Produção de Electricidade Thank you João Saraiva Rede Nacional de Transporte de Electricidade Empresa Nacional de Distribuição de Electricidade

20. National Policy and Strategy for Energy Security Framework National Policy and Strategy for Energy Security define the main strategic guidelines for the sector, specially for Electricity, Oil and Natural Gas. • January 2009 • Establishment of the Interministerial Commission for Energy Security of Angola • Strategy and Energy Policy of Angola and Energy Security Plan of Angola • Institutional Model of the Energy Supply Industry and Oil Sector November 2011 Approved Presidential Decree n.º 256/11 -National Policy and Strategy for Energy Security • Organized in the following chapters: • Importance of transformation required in the Electric System • Strategic guidelines for electricity Subsector • Strategic guidelines oil and natural gas subsectors • Environmental sustainability • Institutional model recommended for energy system

21. National Policy and Strategy for Energy Security – Electricity Subsector Electric Subsector goals are focused on increasing the electrification rate, by ensuring electricity supply to large part of the population • Strategic Guidelines for Electricity Subsector • Strongly increase the power generation pool and enhance the role of renewable energy • Connect North, South and East Systems • Expand electrification (urban and rural) covering from 50% to 60% of population in 2025: • Ensure the economic - financial sustainability (Tariffs cover 20% of the costs) • Rearrange the current organizational model, through the creation of public entities , for generation, transmission and distribution/commercialization • Strengthen the Regulator role – IRSE (Electricity Sector Regulatory Institute) and the AREA (Atomic Energy Regulatory Agency) • Promote the entry of private capital and construction and operation capabilities (know-how) and define engaging compensatory systems for private investors • Establish partnership between National Generation Company and Sonangol to provide the Centrals with Natural Gas.

22. Electric Sector Transformation Program Planning by phases 2012 2013 2014 2015 2016 J F M A M J J A S O N D J F M A M J J A S O N D Phase II Phase I Transition Phase III Operational and Functional Improvement of Public Companies, GAMEK and IRSE Diagnostic Electric Sector Restructuring (Unbundling) Companies startup follow-up and transition Prioritized improvements in Distribution (quick – wins) Phase I and II Transition Quick-wins e Phase III (2014) • Current Capabilities Diagnostic • Public Companies Restructuring, IRSE e GAMEK • Market Model • Development of Power Sector Capabilities and IT roadmap • Change Management • Corporate Constitution, Feasibility study and Financial statement Support • Organization and Allocation Preparation • Company staffing and salaries equalization model • Market set-up • Operation Market Simulation • Tariffs study • CAE1 and CAR2 determination • Actual IT System Adaptation and Start Up Operative procedures definition • Operative improvement in Technical and Commercial Areas, with short-term results in commercial cycle and customer service • Pre-payment and Agent Models Definition • Focus on maintenance planning of transmission and distribution key assets, to increase the availability • Improvements in Support Corporative areas • Progressive rollout along geographies and isolated systems • SAP implementation to support HR, finance, procurement and logistics. 1) CAE – Contrato de Aquisição de Energia; 2) CAR – ContratoComercial de AcessoàsRedes