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São Tomé and Príncipe - online guide 

Sao Tome e Principe - fixing EMAE, the national electricity company

São Tomé and Príncipe 2025: Why Everything Depends on Fixing a Broken Electricity Company

When investors evaluate emerging markets, they typically analyze GDP growth projections, inflation rates, and debt-to-GDP ratios. For São Tomé and Príncipe in 2025, these conventional metrics tell an incomplete story. The country's entire macroeconomic outlook—growth prospects, fiscal stability, and investment climate—hinges almost entirely on one specific challenge: fixing EMAE, the national electricity company.

This isn't hyperbole. Understanding why a small utility company in a tiny island nation represents the difference between economic recovery and continued crisis is essential for any serious investment consideration.

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The Numbers That Tell the Story

São Tomé and Príncipe projects real GDP growth of 2.9% in 2025, accelerating to an average of 4.3% in 2026-2027. These forecasts appear modestly encouraging for a small island developing state recovering from years of economic stagnation.

But these growth projections carry a critical footnote: they are "heavily conditional on addressing the crippling liabilities and inefficiencies of key SOEs"—primarily EMAE.

Here's why this matters:

EMAE's debt to ENCO (the fuel supplier):

  • $178.3 million (2022)
  • 35.3% of total public debt (2022)
  • 23% of GDP (2024)

State-owned enterprises collectively:

  • Assets equal 94% of GDP (2023)
  • Two-thirds operating at a loss (2023)
  • Contingent liabilities: 31.7% of GDP (end-2024)

To put this in perspective: in a country where optimistic scenarios project total public debt at 43.6% of GDP, EMAE's debt alone accounts for 23% of GDP. A single utility company's unpaid bills represent more than half the country's entire debt burden.

The Core Problem: A Utility Company That Destroys Value

EMAE doesn't just fail to generate profits—it actively destroys economic value on a scale that threatens national solvency. Here's how:

Operational Inefficiency

EMAE relies on diesel-fired thermal generation for 92.4% of its electricity capacity. This is among the most expensive methods of power generation, particularly for a small island that imports 100% of its fuel.

  • Production cost: $0.34 per kWh (third highest in Sub-Saharan Africa, 2023)
  • Average tariff: $0.22 per kWh
  • Loss per unit: $0.12 per kWh

EMAE loses 12 cents on every kilowatt-hour it sells. This isn't a narrow margin problem—it's structurally insolvent pricing.

Staggering System Losses

Even worse, EMAE doesn't actually sell most of the electricity it generates:

  • Total technical and commercial losses: 30-37% of all generated power
  • Commercial losses alone: 20-23% (theft, fraud, non-payment, unbilled consumption)

For context, transmission and distribution losses in developed countries average about 5%. EMAE loses more than six times this rate.

This means that for every dollar of fuel EMAE imports to generate electricity, roughly one-third of that energy disappears before anyone pays for it, and what does get sold is priced 35% below production cost.

Chronic Supply Shortfalls

EMAE's available capacity in 2023 was only 17 MW against maximum demand of 21 MW—an 80% capacity utilization rate at peak. This inadequate capacity and frequent breakdowns caused severe energy crises in 2018, 2021, and 2023, with electricity supply reduced by up to 75% during crisis periods.

The Cascade Effect: How EMAE Breaks Everything Else

EMAE's dysfunction doesn't remain contained within the electricity sector—it cascades through the entire economy:

1. The Fiscal Black Hole

EMAE cannot pay for the fuel it needs to generate electricity. This creates the massive arrears to ENCO (23% of GDP). But the problem compounds:

Since EMAE cannot pay ENCO, the government has begun making direct fuel purchases on EMAE's behalf, creating new government obligations:

  • Government obligations for EMAE fuel purchases:
    • 1.7% of GDP (2023)
    • 6.3% of GDP (2024)

In just one year, these obligations increased nearly fourfold. At this trajectory, they double the existing EMAE-to-ENCO arrears within two years.

In 2023 alone, government support directed to EMAE and ENCO amounted to 87% of total SOE obligations to the state (approximately 6% of GDP).

2. The Imported Fuel Drain

The annual fuel import bill for power generation averages $36.3 million—representing 8% of GDP. For a small island economy with limited foreign exchange, this creates continuous pressure on reserves and the balance of payments.

When ENCO lost its preferential credit arrangement with Sonangol (due to non-payment), it forced more expensive payment terms, increasing fuel import costs by $13 million (1.9% of GDP) in 2023 alone.

3. The Private Sector Stranglehold

Unreliable, expensive electricity doesn't just inconvenience businesses—it makes entire sectors unviable:

Tourism: Hotels cannot rely on grid electricity and must operate their own diesel generators, dramatically increasing operating costs. This forces them to either charge higher prices (reducing competitiveness) or accept lower margins.

Agro-processing: Without reliable electricity, cold storage is impossible. This prevents value-added agricultural processing and forces the country to export raw products at lower prices rather than processed goods.

Manufacturing: No industrial operation can function with power supply that can be reduced by 75% during crisis periods.

Consequently, large customers increasingly install their own generators, depriving EMAE of its most profitable customer base and further worsening its financial position—a death spiral dynamic.

4. The Contingent Liability Time Bomb

EMAE's inability to pay ENCO means ENCO cannot pay its own supplier—Sonangol, the Angolan state oil company. ENCO's debt to Sonangol was estimated at $256.7 million (31.4% of GDP) in 2023, or approximately 51% of GDP in 2019.

While technically a private company debt, this represents a massive contingent liability. In a crisis scenario where ENCO collapses or Sonangol demands payment, the government would face enormous pressure to assume this obligation to maintain fuel supply. This would instantly add another 30-50% of GDP to public debt, triggering a sovereign debt crisis.

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Why This is So Hard to Fix

If the problem is so obvious, why hasn't it been solved? Because every solution requires overcoming severe political, financial, and technical constraints:

Political Constraints:

  • Raising tariffs from $0.22 to $0.34 per kWh (cost recovery) represents a 55% price increase
  • Even the gradual approach—20% increase in January 2025, with annual increases through 2029—faces political resistance
  • Electricity is a highly visible cost affecting every household and business
  • Enforcing payment against theft and fraud risks social unrest

Financial Constraints:

  • EMAE cannot access credit due to insolvency
  • The government lacks resources for the required investment
  • Transitioning from diesel to renewable energy requires an estimated $223.3 million (approximately 55% of GDP) by 2035
  • The target of mobilizing $190 million in private investment requires sovereign guarantees the government cannot credibly provide

Technical Constraints:

  • Reducing losses from 34% to 18% requires massive infrastructure upgrades
  • Installing pre-paid meters across the country requires capital and technical capacity EMAE lacks
  • Improving maintenance and operational efficiency requires institutional transformation in an organization with limited human capital

Structural Constraints:

  • As long as EMAE remains insolvent and unreliable, private investors won't participate without sovereign guarantees
  • The government cannot provide credible guarantees while carrying EMAE's liabilities
  • This creates a chicken-and-egg problem: reform requires private investment, but private investment requires successful reform

The 2025 Critical Deadline

The IMF's Extended Credit Facility (ECF) program, approved in December 2024, makes EMAE reform central to macroeconomic stabilization. The authorities have committed to:

December 2025: Comprehensive EMAE Restructuring Plan

  • Financial restructuring (addressing the debt burden)
  • Operational restructuring (reducing losses, improving efficiency)
  • Organizational restructuring (governance improvements)
  • Personnel restructuring (addressing overstaffing and capacity gaps)

2025-2030: Tariff Pathway to Cost Recovery

  • 20% increase implemented January 2025
  • Annual increases through 2029
  • Full cost recovery by 2030

2025: Approve Concession Framework

  • Legal/regulatory framework for private sector participation
  • 2026 target: Grant commercial operations to private sector

2025-2030: Loss Reduction Program

  • Reduce total losses from 34% to 18%
  • European Investment Bank funding for transmission/distribution upgrades
  • Enforcement against electricity theft
  • Pre-paid meter installation program

These milestones are not aspirational goals—they are structural benchmarks required to maintain the IMF program. Failure to deliver would likely trigger program suspension, undermining the entire macroeconomic stabilization effort.

What December 2025 Will Tell Us

The December 2025 restructuring plan deadline represents the single most important near-term indicator for investors. The plan will reveal whether authorities are capable of:

Genuine Structural Reform:

  • Realistic timelines for tariff adjustments reaching cost recovery
  • Credible mechanisms for loss reduction with measurable targets
  • Concrete plans for transitioning to renewable energy with identified financing
  • Institutional reforms addressing governance and operational efficiency

Or Continued Crisis Management:

  • Debt rescheduling without operational reforms
  • Cosmetic governance changes without real accountability
  • Deferred decisions on difficult tariff adjustments
  • Vague commitments to private sector participation without credible frameworks

The difference will largely determine whether São Tomé and Príncipe can achieve the projected 2025-2027 growth trajectory or whether the EMAE crisis continues undermining all other reform efforts.

Investment Implications for 2025

For investors evaluating opportunities in São Tomé and Príncipe:

Macroeconomic Projections Are Conditional

GDP growth forecasts of 2.9% (2025) and 4.3% average (2026-2027) explicitly depend on successful energy sector reform. These projections should be treated as best-case scenarios contingent on EMAE restructuring, not baseline expectations.

Debt Sustainability Depends on Accounting Treatment

Public debt projections showing improvement to 28-43% of GDP by 2025-2027 require "discounting EMAE debt and arrears owed to ENCO." This is accounting treatment, not problem resolution. True fiscal risk includes the full 23% of GDP in EMAE arrears plus contingent liabilities.

Energy-Dependent Sectors Face Elevated Risk

Any investment requiring reliable electricity—tourism infrastructure, agro-processing, cold storage, manufacturing—faces operational risk until EMAE stabilizes. Plan for:

  • Self-generation capacity (increasing capital requirements by 15-25%)
  • Supply disruption contingencies
  • Higher operating costs than pro forma models suggest

The December 2025 Milestone Is Make-or-Break

This deadline will provide the clearest signal of:

  • Government capacity to implement difficult structural reforms
  • Political will to impose necessary tariff adjustments
  • Institutional capability to execute complex restructuring
  • Credibility of private sector participation frameworks

Investors should defer major commitments until evaluating the December 2025 plan's substance and initial implementation progress.

Renewable Energy Opportunities Require Patience

The $223 million investment need for energy transition by 2035 represents genuine opportunity, but faces severe near-term constraints:

  • Government cannot provide sovereign guarantees while carrying EMAE liabilities
  • Private investors require guarantees for Power Purchase Agreements
  • Until EMAE's financial position improves, bankable PPAs are impossible
  • Realistic timeline: 2026-2027 at earliest, contingent on successful 2025 restructuring

Contingent Liability Risk Is Real

In stress scenarios (political instability, external shocks, reform failure), add ENCO's debt to Sonangol ($256 million, 31% of GDP) to government obligations. This would push debt-to-GDP above 70-90%, triggering sovereign debt crisis.

summary

One Company, One Year, Everything

São Tomé and Príncipe's 2025 macroeconomic outlook presents an unusual investment proposition: virtually everything depends on successfully restructuring a single utility company within a specific twelve-month window.

This creates binary outcomes:

Success Scenario: EMAE restructuring succeeds → tariffs rise toward cost recovery → losses decline → fuel import bill decreases → fiscal pressure eases → contingent liabilities stabilize → private investment becomes viable → growth accelerates → debt trajectory improves

Failure Scenario: EMAE restructuring fails → arrears continue accumulating → government bailouts increase → fiscal crisis deepens → contingent liabilities materialize → IMF program suspended → economic stagnation continues → debt crisis emerges

The December 2025 deadline will tell us which scenario is more likely.

For investors, this clarity is actually valuable. Rather than facing opaque, diffuse risks across multiple sectors and institutions, the critical variable is singular and identifiable: can São Tomé and Príncipe fix EMAE?

Everything else—growth projections, debt sustainability, private sector development, infrastructure investment, sectoral opportunities—flows from the answer to this one question.

The next twelve months will provide it.

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