São Tomé and Príncipe's

EMAE—the Water and Electricity Company

EMAE: The Utility Blocking São Tomé and Príncipe's Development

What Is EMAE?

Empresa de Água e Eletricidade (EMAE)—the Water and Electricity Company—is São Tomé and Príncipe's state-owned monopoly utility.

What it does:

Generates all electricity (vertically integrated monopoly)
Operates transmission and distribution networks
Provides water supply nationwide
Serves 27,000 customers

Legal status: 100% state-owned public enterprise with administrative and financial autonomy

The problem: EMAE is technically insolvent, operationally incompetent, and the single largest bottleneck to São Tomé and Príncipe's economic development.

The Financial Catastrophe

Massive Debt Burden

EMAE owes fuel supplier (ENCO): $178.3 million as of 2022

As percentage of GDP: 23-35% depending on measurement year

As percentage of total public debt: 35.3%

Translation: One bankrupt utility company owes debt equivalent to roughly one-third of the entire country's GDP.

Structural Loss-Making

The impossible economics:

Production cost: $0.34 per kWh (among highest in sub-Saharan Africa)
Tariff charged: $0.22 per kWh
Loss per kWh sold: $0.12

Annual operational loss (2017): 226.6 million Dobras

Why tariffs don't cover costs:

Last updated 2007 (unchanged for 17+ years until 2025)
"Social tariffs" keep prices artificially low
Political resistance to increases
Residential customers pay only 46% of production cost (2016)

Result: EMAE loses money on every kilowatt-hour it sells. The more electricity it provides, the more money it loses.

How Debt Accumulated

The vicious cycle:

EMAE generates electricity using expensive imported diesel
Charges tariffs too low to cover costs
Cannot pay fuel supplier (ENCO)
Government guarantees fuel payments to keep lights on
Debt accumulates as public liability
EMAE has no money for maintenance or investment
Infrastructure deteriorates
Service becomes worse
Repeat

Government exposure: Contingent liabilities from EMAE could add 23% of GDP to public debt if fully materialized.

IMF assessment: EMAE is the main source of debt vulnerability for São Tomé and Príncipe.

Operational Challenges

Inadequate Capacity

Installed capacity: 26-31 MW (varies by source, showing poor record-keeping)

Actually available: Only 17-20 MW due to poor maintenance and breakdowns

Peak demand: 20.8 MW

Gap: Cannot meet basic demand even at current low consumption levels

Result: Daily blackouts, forced rationing, unreliable service

System Losses

Total losses: 33-34% of electricity generated never gets paid for

Breakdown:

Technical losses: Aging infrastructure, poor maintenance, transmission inefficiencies (~13%)
Commercial losses: Theft, fraud, illegal connections, non-payment (~21%)

Specific problems:

30% of customers have no contract with EMAE (illegal connections)
10% of metered customers don't pay
32.4% of domestic clients didn't pay bills (2017)
31% of government agencies didn't pay bills (2017)
Widespread electricity theft
Inconsistent billing
Limited metering (many customers estimated, not metered)

Context: Well-run utilities have total losses of 8-12%. EMAE's 33-34% is catastrophic.

Diesel Dependency

Current generation mix: 92-96% diesel thermal plants

Why this is terrible:

Diesel is expensive ($36.3 million/year fuel import bill)
Prices are volatile (international oil markets)
Polluting
Requires constant fuel imports (foreign exchange drain)
High maintenance costs

Alternative available: Small hydroelectric plants provided 80% of electricity in the 1980s but were allowed to degrade without maintenance

Impact on Investors

EMAE's dysfunction creates severe constraints for any investor in São Tomé and Príncipe:

For Energy Investors (Independent Power Producers)

The off-taker problem: You build a solar or hydro plant to sell electricity to EMAE. But:

EMAE cannot pay: Already $178 million in debt to fuel supplier
EMAE lacks creditworthiness: No bank would finance based on EMAE purchase agreements
Power Purchase Agreements (PPAs) are worthless: EMAE signature means nothing without sovereign guarantee
Payment delays inevitable: Even with guarantees, expect long delays

Example scenario:

You invest $15 million in 10 MW solar plant
Sign 20-year PPA with EMAE at $0.18/kWh
EMAE stops paying after 6 months (no cash)
You're stuck—no alternative buyers (EMAE monopoly)
Even with government guarantee, collecting payments requires arbitration
Your project financing defaults

Bottom line: Cannot invest in grid-connected generation without fundamental EMAE reform and bulletproof guarantees.

For All Other Investors (Tourism, Agro-Processing, Manufacturing)

You cannot rely on EMAE for power, so you must:

Install diesel generators:

Capital cost: $1,000-1,500 per kW
Fuel cost: $0.40-0.50 per kWh (more than EMAE tariff)
Maintenance: High
Noise/pollution: Destroys guest experience (tourism)
Reliability: Your responsibility

Or install solar + batteries:

Capital cost: $1,200-2,000 per kW installed
Fuel cost: $0 (but battery replacement every 8-10 years)
Requires upfront capital
Technical expertise needed

Impact on project economics:

50-room hotel example:

Peak load: ~150 kW
Diesel generator cost: $150,000-225,000
Annual fuel: ~$100,000 (at $0.45/kWh, 250,000 kWh/year)
10-year cost: ~$1.2-1.4 million

vs. Grid electricity (if reliable):

Connection cost: ~$10,000
Annual cost: ~$55,000 (at $0.22/kWh)
10-year cost: ~$560,000

Extra burden from EMAE dysfunction: $600,000-800,000 over 10 years for one 50-room hotel

Multiply across tourism sector, processing facilities, manufacturing—EMAE's failure adds millions in unnecessary costs annually.

For Service Quality

Even captive generation doesn't solve everything:

Datacenters need stable grid backup (diesel won't work)
Cold chain operations need 24/7 reliability
Manufacturing needs consistent power quality
Digital services require uninterrupted connectivity

EMAE cannot provide any of these, making many service businesses unviable.

Why EMAE Matters for Energy Transition

The government's 50% renewable by 2030 target requires $190-300 million private investment.

But private investors face:

1. No credible off-taker: EMAE cannot sign bankable PPAs

2. Grid inadequacy: Adding 55 MW renewable capacity to grid designed for 20 MW requires massive infrastructure investment

3. Uncertain tariff reform: Even if you generate cheaply, EMAE may not pay cost-reflective tariffs

4. Monopoly lock-in: Law requires independent producers sell to EMAE (cannot bypass to sell directly to customers)

5. Reform uncertainty: Government promises EMAE restructuring but track record is poor

Result: The energy transition cannot proceed at scale until EMAE is fixed.

Reform Plans: Promises and Progress

The government and international partners (IMF, World Bank, EIB) recognize EMAE as the critical bottleneck and have outlined reforms:

Planned Reforms (2024-2026)

1. Private sector participation: Grant commercial operations to private operator by 2026

Structure: Management contract or concession Goal: Bring professional operations, reduce losses, improve collections Status: Seeking consulting services to structure deal

2. Tariff adjustment: 20% increase by 2030 (IMF/World Bank requirement)

First step: New tariff methodology approved, first adjustment January 2025 Goal: Move toward cost-recovery ($0.22 → $0.26-0.28/kWh) Challenge: Political resistance, public opposition

3. Loss reduction: Target 18% total losses (from 33-34%)

Actions:

Install smart meters for high-consumption customers
Crack down on illegal connections
Improve billing systems
Enhanced collection enforcement

4. Infrastructure upgrades (World Bank/EIB funding):

Low/medium voltage distribution network improvements
Meter installation (currently many customers unmetered)
Management Information System (MIS) implementation
Grid reinforcement for renewable integration

5. Financial transparency: Publish audited financial statements starting 2026

6. Management improvement: Training programs, operational efficiency measures, accountability systems

7. Hydropower rehabilitation: Shift from diesel to rehabilitated small hydro plants

IMF Structural Benchmarks

EMAE restructuring is a structural benchmark in the Extended Credit Facility (ECF) program.

Conditions:

Must demonstrate progress on reforms
Tariff adjustments required
Loss reduction targets
Private sector participation roadmap

Leverage: IMF can suspend program if EMAE reforms stall, creating strong pressure for action.

Past Track Record

The skeptical view: EMAE has been "reforming" for decades with minimal results.

Evidence of failure:

Tariffs unchanged 2007-2024 (17 years of paralysis)
System losses still 33% despite decades of "improvement plans"
Debt accumulated to 35% of GDP
Infrastructure deteriorated despite World Bank projects
Energy crises in 2018, 2021 from failed implementation

The optimistic view: IMF conditionality creates unprecedented pressure; private sector participation by 2026 would be genuinely transformative if executed.

What Investors Should Watch

Green Lights (Reform Succeeding)

1. Tariff increases actually implemented (January 2025 was first test—watch for follow-through)

2. Private operator announced (credible international utility company takes over management)

3. Loss reduction results (quarterly data showing 30% → 25% → 20% → 18% trajectory)

4. EMAE pays ENCO debt (arrears declining, not growing)

5. Independent audit published (transparent financials by 2026)

6. Smart meter rollout (thousands of meters installed monthly)

Red Lights (Reform Failing)

1. Tariff increases postponed (political resistance wins, January 2025 adjustment reversed)

2. No private operator by 2027 (government cannot execute tender)

3. Losses stay above 30% (enforcement failures, theft continues)

4. EMAE debt to ENCO grows (fiscal situation worsens)

5. IMF program suspended (conditionality violations due to EMAE)

6. Energy crisis repeats (blackouts intensify in 2025-2026)

Investment Strategies Given EMAE Reality

Strategy 1: Wait for Reform (2025-2026)

Approach: Monitor EMAE restructuring closely; invest only if reforms succeed

Advantages:

Avoid betting on uncertain reform
Let others take first-mover risk
Enter once operating environment proven

Disadvantages:

Miss first-mover advantages
Best terms may go to early investors
2-3 year delay in projects

Best for: Risk-averse investors, those with alternative markets

Strategy 2: Captive Generation Only

Approach: Invest in projects with own solar/battery systems, zero reliance on EMAE

Advantages:

Complete independence from EMAE dysfunction
Benefit from import duty exemptions on equipment
Control your own reliability
Immediate implementation (no waiting for reform)

Disadvantages:

Higher upfront capital
Cannot monetize excess generation (EMAE won't pay)
Limited to consumption-matched projects

Best for: Tourism, resorts, processing facilities with significant stable loads

Strategy 3: Require Bulletproof Guarantees

Approach: Invest in grid-connected generation ONLY with sovereign guarantees + MIGA insurance + escrow accounts

Structure:

Sovereign guarantee on EMAE payments
MIGA political risk insurance
World Bank partial risk guarantee
Escrow account funded from tax revenues
ICSID arbitration for disputes
Termination rights if payments delayed >90 days

Advantages:

Pursue grid-scale opportunities
Multilateral backing reduces risk
Government desperate enough to accept terms

Disadvantages:

Complex structuring
Long negotiations
Requires $10+ million projects to justify structure
Still carries execution risk

Best for: Large renewable IPPs, developers with blended finance experience

Strategy 4: Partner with Private Operator (Post-2026)

Approach: Wait for private operator to take over EMAE operations, then invest

Rationale:

Credible private utility can sign bankable PPAs
Professional operator improves collections, reduces losses
Grid becomes more reliable
Off-taker risk substantially reduced

Timing: Only viable if private participation succeeds (2026-2027)

Best for: Medium-term investors willing to wait for fundamental reform

The Brutal Reality

EMAE is

Financially: Insolvent with debt equal to 35% of GDP

Operationally: 33% system losses, cannot meet demand, constant blackouts

Institutionally: Unchanged tariffs for 17 years, no audits, poor management

Impact: Blocks energy transition, forces expensive self-generation, constrains entire economy

For investors: EMAE is the single biggest risk to any project requiring grid electricity.

Reform timeline: 2025-2026 is critical—either fundamental restructuring succeeds or energy crisis persists indefinitely.

Bottom line investment implications:

✓ Plan for self-generation (solar + batteries, not diesel) for any project

✓ Do NOT invest in grid-connected generation until EMAE demonstrates radical improvement

✓ Watch 2025-2026 closely: Tariff increases, private operator selection, loss reduction, IMF program compliance

✓ If reform succeeds: Massive opportunities open up for grid-scale renewables, energy services, efficiency projects

✓ If reform fails: Energy sector remains uninvestable except for captive consumption; broader economy stays constrained

The energy crisis is São Tomé and Príncipe's make-or-break issue. EMAE is the bottleneck. Everything—tourism growth, agro-processing, blue economy, debt sustainability, middle-income aspirations—depends on fixing this one bankrupt, incompetent utility in the next 24 months.

For investors: EMAE's dysfunction is why 20 MW solar projects remain unbuilt despite clear need. It's why hotels run diesel generators 24/7. It's why the 2030 renewable target looks increasingly fictional.

Watch the reform. If it happens, opportunities are transformative. If it doesn't, the energy investment case collapses.