## tarea2024040

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---

### Preface and Executive Summary — mission, scope, and key findings
- Mission dates: August 21 to September 13, 2023.
- Mission leadership and composition:
  - Led by Katja Funke.
  - Team members: Alberto Garcia Huitron (FAD) and Didier Tabaro (AFR).
  - Principal authority requestor: Mr. Olavo Correia, Deputy Prime Minister and Minister of Finance and Business Development of Cabo Verde.
- Meetings with central government ministries, agencies, private banks, and The World Bank; report contains the mission’s preliminary findings to be reviewed at IMF headquarters.
- Key structural challenges and exposures:
  - Insularity, territorial discontinuity, fragile ecosystems, scarcity of natural resources (notably water and arable land).
  - Reliance on external provision of food and energy; imports increase exposure to global market fluctuations and disproportionately affect the vulnerable and poor.
- Climate hazards and exposure:
  - Experienced droughts and floods; coastal concentration of activity exposes population and economy to tropical storms and sea level rise.
  - 80 percent of the population resides in coastal communities vulnerable to sea level rise and extreme events.
- Energy–water–climate nexus:
  - Desalination is primary method for freshwater in urban/tourist areas; desalination is energy intensive.
  - Electricity for desalination largely produced by thermal power plants dependent entirely on imported fossil fuels.
  - Cabo Verde has substantial solar and wind potential that could provide cheaper energy.
- Planning and commitments:
  - PEDS II 2022-2026 informs NDC and NAP.
  - Emissions reduction commitment: 18 percent in comparison to business-as-usual (BAU) by 2030.
  - Renewable energy objective: 54 percent by 2030; estimated achievable renewables without further investment: about 35 percent.
- Water sector overview:
  - Operators lose up to 60 percent of generated water in distribution in some cases (Águas de Santiago reported losses over 60 percent).
  - Current tariff structures do not recover full cost-of-service provision; operators financially unsustainable.
- Fiscal and social implications:
  - Operators should be compensated for cost-of-service either via tariffs or via tariffs plus government transfers (quasi-fiscal activity).
  - Introducing a moderate carbon tax could raise revenue but would negatively impact GDP growth unless revenues are recycled into productive investment.
  - Any adverse impacts from tariff adjustments should be compensated through targeted transfers using the Unique Social Registry (USR).
- Governance and information needs:
  - Coordination challenges across sectors and DRM; recommendation for high-level coordination council.
  - Need for dissemination of climate scenarios and hazard vulnerability maps.

### Observed climate trends and future projections relevant to planning
- Historical and projected climate metrics:
  - Since 1990, temperature increased by 0.04 percent per year.
  - Annual average precipitation declined by about 2 percent and variability increased.
  - Under SSP2-4.5, average temperature is expected to increase by 1°C by mid-century; within the 10-90 percentile outcomes could vary between zero change and +2°C.
  - Under SSP2-4.5, average annual precipitation projected to increase by less than 5 percent by mid-century and revert to historical levels by 2100; rainy season precipitation could be four to five times higher than historical levels in some scenarios.

### Emissions profile, NDC commitments, and alignment
- Emissions and sectoral shares (2019):
  - Cabo Verde contributes "less than 0.01 percent to total global emissions."
  - GHG emissions grew by 150 percent compared to 1995.
  - Sector shares: Energy sector 82 percent; Agriculture about 9 percent; Waste about 9 percent.
  - Within energy: power generation 37 percent; transport 27 percent; industrial 14 percent.
  - GHG composition: approximately 78 percent CO2; methane around 17 percent.
- NDC (2021) targets and sectoral ambitions:
  - Economy-wide: "18% below BAU." Conditional: "Up to 24% below BAU."
  - Electricity: "30% renewable energy share in the electricity supply in 2025 and up to 50% in 2030." "100% renewable energy share in the electricity supply in 2040."
  - Wind: increase capacity by installing 10 MW for Santiago by 2022 and 60 MW by 2030.
  - Solar PV: install an additional 150 MW by 2030.
  - Waste-to-energy/biogas: landfill biogas in Santiago by 2025; eight biogas plants across islands by 2030.
  - Transport electrification targets (selected): electrify at least 25% of land-borne transport (new vehicles) by 2030; fully replace residual thermal vehicles by 2050; public recharge infrastructure fully implemented by 2030.
- Alignment assessment:
  - Using CPAT, emissions in 2030 "are expected to surpass the NDC unconditional target by 53 percent."
  - "Emissions in 2030 are poised to be 1.5 times the target level of emissions as defined in the NDC."

### Climate investment needs and financing presented to partners (April 2023)
- NDC financing needs:
  - Incremental financial resources for NDC implementation: minimum of Euros 2 billion for 10 years of climate action (half mitigation, half adaptation).
  - Equivalent to about 8 percent of GDP per year between 2020 and 2030 for adaptation and mitigation together.
- Investment needs presented:
  - Energy sector: Euro 518 million for wind and solar IPPs, energy storage, grid reinforcement, e-mobility, energy efficiency.
  - Water and sanitation: Euro 132 million broken down as:
    - Euro 44 million for sustainable energy for mobilization and distribution of desalinated water for human consumption.
    - Euro 30 million for desalinated water for irrigation.
    - Euro 36 million for municipal wastewater treatment and recovery capacity.
    - Euro 8 million for urban waste management.
    - Euro 14 million to implement the Health Plan.

### Box 2 — Effect of Increased Investment in Renewable Energy on the Balance of Payments
- Historical dependence and imports:
  - From 2008 to 2020, Cabo Verde spent around 7.5 percent of its GDP importing fuels.
  - Investments in low carbon technologies accounted for approximately 1.6 percent of GDP during the same period.
- Quantitative assumptions and estimates:
  - Approximately 55 percent of diesel consumption attributed to the transport sector (third National Communication).
  - Achieving a 50 percent penetration of renewable energy would reduce oil imports by roughly 1.3 percent of GDP annually.
  - Increasing the share of renewable energy to 45 percent would require average imports of about 3.8 percent of GDP (assumption based on extraordinary imports in 2010 and 2011).
  - Implied breakeven in about three years between low-carbon technology imports and avoided oil imports under these assumptions.
- Policy recommendation:
  - Undertake comprehensive BOP assessments under different assumptions (increased energy demand from desalination; electric mobility) to inform reserve accumulation and BOP stability strategies.

### Electricity sector — generation, losses, unbundling, tariffs, and carbon tax modeling
- Electricity generation mix and macro effects:
  - Renewable energy contributes "only 17 percent of the power generation."
  - Thermal generation accounts for 83 percent of electricity generation and is fuelled entirely by imported diesel and oil derivatives.
  - In 2021, refined petroleum imports accounted for "11 percent of the nation’s total imports, adding up to USD 93.5 million."
  - Thermal generation reliance places strain on the balance of payments and fiscal risk as government subsidizes household consumption.
- ELECTRA losses (2022, kWh and percentages; source: ELECTRA’s Relatorio e Contas 2022):
  - Santo Antao — Production: 18,467,264; Consumed during production: 313,561; Sales: 15,472,814; 2022 losses: 2,680,889; losses %: 14.5%
  - Sao Vicente — Production: 85,837,491; Consumed during production: 10,660,874; Sales: 63,602,142; 2022 losses: 11,574,475; losses %: 13.5%
  - Sao Nicolau — Production: 7,486,179; Consumed during production: 91,162; Sales: 6,473,748; 2022 losses: 921,269; losses %: 12.3%
  - Sal — Production: 73,698,009; Consumed during production: 7,755,438; Sales: 59,781,696; 2022 losses: 6,160,875; losses %: 8.4%
  - Maio — Production: 4,053,301; Consumed during production: 12,504; Sales: 3,459,605; 2022 losses: 581,192; losses %: 14.3%
  - Santiago — Production: 260,174,917; Consumed during production: 26,768,110; Sales: 143,539,125; 2022 losses: 89,867,682; losses %: 34.5%
  - Fogo — Production: 16,104,638; Consumed during production: 270,485; Sales: 13,586,395; 2022 losses: 2,247,758; losses %: 14.0%
  - Brava — Production: 3,114,844; Consumed during production: 13,739; Sales: 2,588,091; 2022 losses: 513,014; losses %: 16.5%
  - Total — Production: 468,936,643; Consumed during production: 45,885,873; Sales: 308,503,616; 2022 losses: 114,547,154; losses %: 24.4%
- Unbundling and institutional status:
  - Objective: achieve full operational and legal unbundling by March 2024.
  - Operational unbundling advanced; legal unbundling (new companies and workforce redistribution) lags.
  - Vertical integration hinders transparency and targeted investment assessment.
- Cost structure, retail prices, and subsidies:
  - Q2 2023 retail electricity price comparable to Jamaica and Guatemala, 10 percent more expensive than France, and about 20 percent more expensive than Luxembourg.
  - Social tariff covers 100 percent of consumption for households registered in the first and second tiers of the Unique Social Registry (USR).
  - Exceptional 60 percent subsidy applied to all consumers in response to fuel price increases related to the war in Ukraine; government expects to cancel the additional subsidy in the next tariff revision.
  - Government estimate: transfers to ELECTRA accounted for 0.8 percent of GDP in 2022.
- Grid integration, storage, and investment needs:
  - Government estimates grid and storage strategic investment at 106 million euros (4.8 percent of GDP).
  - MITE estimates grid ready to incorporate up to 30 percent of renewable energy capacity; increasing beyond requires major investment including storage.
  - Inter-island grid connection unlikely in short and medium term due to distances and ocean depths; pre-feasibility study being drafted.
- CPAT carbon tax design and modeling (CPAT assumptions and outcomes):
  - Carbon tax scenario: USD 10 per ton of CO2e in 2024, increasing linearly to USD 35 per ton of CO2e in 2035.
  - Emissions impact: carbon tax reduces GHG emissions 6.02 percent in 2030 relative to BAU.
  - Cumulative reduction over 2024-2035: 0.87 million tons of CO2e.
  - Sectoral contribution to emission reductions: power sector over 60 percent; industry 20 percent; transport 16 percent.
  - Fiscal and macro implications:
    - By 2035, carbon tax could raise as much as 1 percent of GDP in additional revenue compared to baseline.
    - Cumulative additional revenue 2023–2035: up to USD 280 million.
    - First year of implementation: provides 0.31 percent of GDP in additional income to the government, a 1.7 percent increase in government revenues.
    - GDP impact in 2030 without revenue recycling: -0.25 percentage points.
  - Revenue recycling scenario in model:
    - 50 percent of additional revenue used in targeted cash transfers to first 6 deciles (assumes 25 percent leakage across higher-income deciles and 75 percent coverage rate).
    - 50 percent allocated to public investment (higher fiscal multipliers); public investment geared to renewable deployment would raise emission reductions.
  - Price impacts for a USD 25/tCO2 in 2030 (weighted by consumption):
    - Gasoline: Baseline 1.28; Baseline + Carbon tax 1.35; % change: 5%
    - Diesel: Baseline 0.94; Baseline + Carbon tax 1.02; % change: 8%
    - Natural gas (US$ per GJ): Baseline 16.30; Baseline + Carbon tax 17.67; % change: 8%
    - Electricity (US$ per kwh): Baseline 0.27; Baseline + Carbon tax 0.29; % change: 7%
  - Distributional outcomes (with revenue recycling):
    - Most vulnerable households: 6.2 percent increase in their relative income, approximately an increase of about 2 thousand escudos.
    - High income households: net consumption loss about 1,000 escudos, equivalent to 0.1 percent of their relative consumption.
    - Only the top 20 percent wealthiest households would have negative absolute consumption losses after recycling.
  - Aggregate costs and co-benefits:
    - Efficiency costs: -0.12 percent of GDP.
    - Domestic co-benefits (transport, air pollution): 0.64 percent of GDP.
    - Net: co-benefits more than offset efficiency costs.
  - Selected summary entries:
    - Energy-related CO2 emissions reduction in 2030, % to a BAU: 8.20%
    - Cumulative CO2 emissions reductions in 2024-2030, MtCO2: 0.87
    - Additional fiscal revenues raised in 2030, % of GDP: 0.70%
    - Cumulative additional fiscal revenues raised in 2024-2035, million USD: 280
    - Impact on GDP growth in 2030, percentage points deviation from the BAU growth: -0.25%
    - Residential electricity price increase in 2030, percent from the BAU price: 5%
    - Relative mean consumption effect on the poorest before revenue recycling, % of BAU consumption: -0.2
    - Relative mean consumption effect on the poorest after revenue recycling, % of BAU consumption: 6.2

### Energy demand projections, drivers, and sector-specific projections
- Overall projection:
  - Energy demand is set to nearly double over the next seventeen years.
- Main drivers:
  - Population and economic growth, full grid connection, increased desalination, tourism growth, and e-mobility.
- Tourism:
  - Tourism energy demand expected to account for about 18 percent of total energy demand by 2040.
  - Tourism represented 16.9 percent of GDP in 2020.
  - Assuming 10 percent yearly increase in tourist flows: 1.64 million tourists in 2025; 3.12 million tourists in 2030; expected increase of 60,000 rooms by 2030.
- Water desalination:
  - Water from desalination expected to add 90 Gwh of electricity demand by 2040, a 200 percent increase from desalination demand in 2020.
  - In 2021, about 66 percent of fresh water supply stemmed from desalination.
  - Inefficiencies cause technical and commercial losses averaging about 50 percent of total fresh water entering the system.
  - If technical losses are not addressed, for every m3 demanded public utilities will need to produce about 2 m3.
- Transport and e-mobility:
  - Vehicle stock approximately 87,500 cars.
  - In 2013, cars and air transport accounted for about 55 percent of total diesel demand, and 50 percent of total energy demand.
  - Government Incentive Program supports acquisition of 600 electric vehicles by providing Euro $6,000 support on top of import duty exemptions.
  - Government objective: 100 percent EV fleet by 2050 conditional on international support.
  - Public road transport decarbonization target: replace 80 percent of public road transport vehicles by 2030 with electric vehicles.
- Smart meters:
  - About 10 percent of total electricity consumers have smart meters (according to MITE); scale-up planned to enable TOU tariffs.

### Water sector — access, losses, operator finances, pricing, and reform options
- Access and service targets:
  - In 2019, above 85 percent of the population had access to safe drinking water.
  - Daily average per resident: 44 liters.
  - By 2026 government intends to provide 100 percent population access to safe water from public networks and increase average per capita freshwater consumption from 43 to 90 liters per day.
  - By 2026: provide 90 percent of the population with access to sanitation services.
- Water supply statistics (2021, Table 8a):
  - Water collected in underground catchments: 5,362,081 m3 (36%).
  - Water produced by desalination: 9,892,783 m3 (66%).
  - Water supplied: 15,100,903 m3 (100%).
  - Billed water: 7,325,890 m3 (49%).
  - Loss: 7,775,013 m3 (51%).
- Fresh water source by island (Table 8b) — percentage from underground vs desalinated (selected):
  - Santiago: 54 / 46
  - São Vicente: 0 / 100
  - Santo Antão: 80 / 20
  - Fogo: 100 / 0
  - Sal: 0 / 100
- Key business indicators for water operators (selected figures from Table 9):
  - Aggregated water supplied: 15,638,229 m3; billed water: 7,825,433 m3; water lost: 50.0%.
  - Águas de Santiago (ADS): Water supplied 7,578,968 m3 (48.5% of total); billed water 2,792,525 m3 (35.7%); water lost 63.2%; Equity CVE -1,489,796,234; Operational result CVE -190,126,784.
  - Electra Norte: Water supplied 3,824,221 m3 (24.5%); billed water 2,263,943 m3 (28.9%); water lost 40.8%; Equity CVE 1,565,759,563; Operational result CVE -364,564,384.
  - Electra Sul (desalination): Water supplied 4,809,425 m3; billed water 4,708,049 m3; water lost 2.1%; Equity CVE -7,955,300,489; Operational result CVE -1,359,242,987.
  - Águas e Energia do Maio: Water supplied 178,031 m3 (1.1%); billed water 83,573 m3 (1.1%); water lost 53.1%; Equity CVE 105,275,508; Operational result CVE -13,502,098.
- ADS operational profitability example (Box 5):
  - ADS reported household tariffs: USD2.30, USD3.50, and USD5 per m3 for three blocks.
  - ADS buys desalinated water for between USD1.40 and USD1.80 per m3 depending on provider.
  - With losses over 60 percent, the effective price per m3 sold ranges between USD3.50 (1.4/0.4) and USD4.50 (1.8/0.4).
  - Under the two lower volume tariffs (which account for 60 percent of billed consumption nationally), ADS is making a loss on every m3 sold before operation and maintenance costs.
- Tariff rules and social constraints:
  - Legislative Decree No. 26/2016 sets tariff policy objectives: equitable access, encourage efficient consumption, allow cost recovery covering operation, maintenance, replacement.
  - Tariff political constraint: government does not want households to pay more than 5 percent of their income for water consumption.
  - Social tariff: households in tiers 1 and 2 of the USR eligible for 100 percent subsidy; operators compensated from budget.
  - Quasi-fiscal activity: tariffs set below cost recovery (especially given desalination costs) require budget compensation and transparent costing.
- Reform options and recommendations (Recommendations 4–7 summarized):
  - Address losses: identify and implement measures to reduce commercial losses; assess investment needed to address technical losses; allocate investment responsibility to ANAS.
  - Ensure economic sustainability: determine cost recovery tariff including amortization; quantify tariff gap; compensate quasi-fiscal activities transparently from budget; recapitalize entities with negative equity and enforce SOE oversight.
  - Consider tariff revision: undertake distributional impact assessment; design tariff structure to close gap to cost recovery; mitigate impact on poor via targeted cash transfers using fully implemented URS; develop communication strategy.
  - Improve coordination and planning: update forecasts for underground and surface water availability and demand by sector and region; determine desalination and pumping needs and energy timing; update PLENAS and agriculture/irrigation plans and share information with energy sector.

### Social protection, exclusion, and USR
- Social spending and coverage:
  - Cabo Verde allocated 6.5 percent of GDP for social programs in 2022, reaching 55 percent of the total population.
  - Social insurance reached approximately 33 percent of the total population (primarily health assistance).
  - Social assistance reached around 22 percent of the total population.
  - Social Protection System coverage extended to 55 percent of the total population since 2017.
  - Social Protection System had around 40 percent of poor households not covered by social programs as of 2017.
  - Poverty fell from 56.8 percent in 2001 to 35.2 percent in 2015; around 35 percent of the population continues to face poverty.
  - 85 percent of the poor population resides in three islands: Santiago, Sao Vicente, and Santo Antao.
- USR progress:
  - With World Bank support, Cabo Verde has registered 65 percent of households within the USR, encompassing 80 percent of the total population.
  - As of 2023, 16 social programs designed using USR information.
  - RSI pilot reached 2,157 households.
- Recommendation (linked to water and energy reforms):
  - Strengthen SSN (Recommendation 8): complete USR to 100 percent household coverage; reduce overlaps between national and municipal SSN programs; use RSI structure to design stable cash transfer program financed from additional revenues generated from energy or water price reforms.

### Disaster Risk Management (DRM), climate governance, and institutional recommendations
- DRM framework and commitments:
  - 2021 NDC update commits to implementing ENRRD 2018-2030.
  - ENRRD references Sendai Framework and emphasizes coordination and decentralization of DRM.
  - Ministry of Finance included disaster risks in the Fiscal Risks Statement; National Emergency Fund (FNE) established with defined annual budget allocation.
  - Operational lead: SNPCB under Ministry of Internal Affairs.
- DRM and climate governance gaps:
  - DRM system focuses on preparedness and response; full DRM cycle not fully integrated.
  - Early warning systems and climate information activities exist but are fragmented and not consistently tied to applicable climate scenarios.
  - Cross-sector coordination remains limited despite interlinkages (energy–water–desalination).
  - No overarching climate law yet; government drafting climate change law.
- Institutional roles and proposals:
  - Existing: National Directorate of Environment (DNA) @ MAE; National Directorate of Planning (DNP) @ MOF; INMG; SNPCB; ANAS; ARME.
  - New/proposed: National Council for the Environment and Climate Action (NCECA) introduced under MAE (2023); 2021 NDC suggested a National Climate Council chaired by MAE and co-chaired by MOF.
  - Suggestion: vest strategic leadership at Council of Ministers or Prime Minister level for DRM and climate coordination.
- Recommendations (10–11) summarized:
  - Recommendation 9: Strengthen leadership for DRM and integrate full DRM cycle; assign high-level entity (Council of Ministers/PM) to lead coordination.
  - Recommendation 10: Strengthen institutional framework for climate policy coordination; introduce procedures for cross-sector confirmation of interlinkages and hold entities accountable.
  - Recommendation 11: Create common understanding and awareness: produce and disseminate climate scenarios and hazard vulnerability maps; align risk assessment horizons with decision timeframes; promote forward-looking risk management across government.

### Annex I — Draft Action Plan (selected short-term responsibilities and TA needs)
- Energy (Recommendations 1–3) — responsible agency: MITE; TA needs variably identified (IRENA?, WB, IMF).
  - Short-term actions include island-by-island demand assessment, assess feasibility of 54 percent RE by 2030 island-by-island, phased RE onboarding, phase RE procurement through PPAs, plan grid/storage investment, plan phased decommissioning of thermal capacity, and stove replacement programs.
  - Complete legal and operational unbundling of ELECTRA (TA provider suggested: WB).
  - Compensate quasi-fiscal activities through transparent budget allocations (TA provider suggested: IMF).
  - Consider modest carbon tax (Medium term; MOF; TA: IMF).
- Water (Recommendations 4–7) — responsible agency: ANAS / MAE; TA needs indicated (LuxDev?, IMF, WB).
  - Short-term: identify commercial loss reductions, assess investments for technical loss reduction, determine cost-recovery tariff, quantify tariff gap, ensure transparent budget compensation for quasi-fiscal activities, recapitalize operators, improve service quality, and update PLENAS and irrigation plans.
  - Medium-term: execute investment programs to rehabilitate or expand distribution networks and strengthen metering.
- Social Safety Net (Recommendation 8) — MFSI; TA provider: WB
  - Complete USR to 100 percent coverage; reduce overlaps; design RSI-based stable cash transfer program financed by reform revenues.
- DRM and Climate Coordination (Recommendations 9–11) — Government/CC leader; TA needs: WB, LuxDev?
  - Assign high-level leadership for DRM and climate policy coordination; introduce procedures for cross-sector coordination; disseminate climate scenarios and hazard vulnerability maps.
- Communication and implementation guidance (Annex II–IV):
  - Emphasize communication strategy to explain reforms, stakeholder assessment, repeated messaging, monitoring of communication effects.
  - Example integration points for mainstreaming climate tasks into project cycles and reporting templates to confirm cross-sector coordination.

*Italic: Source — IMF Technical Assistance Report (tarea2024040) — Preface, Executive Summary, selected chapters, boxes and Annex I as provided in the source PDF.*

### Preface ____________________________________________________________________________ 7

### Preface

### Mission and scope
- IMF Fiscal Affairs Department (FAD) team conducted a comprehensive assessment of climate fiscal policies in Cabo Verde during the period from August 21 to September 13, 2023.
- Mission team leadership and composition:
  - Led by Katja Funke.
  - Team members: Alberto Garcia Huitron (FAD) and Didier Tabaro (African Department (AFR)).
- Principal authority requestor: Mr. Olavo Correia, Deputy Prime Minister and Minister of Finance and Business Development of Cabo Verde.
- Meetings held with:
  - Vice Prime Minister and Minister of Finance Dr. Olavo Avelino Garcia Correia.
  - Minister of Transport and Tourism Dr. Carlos Jorge Duarte Santos.
  - Senior officials from: Ministry of Finance and Business, Ministry of Agriculture and Environment, Ministry of Industry, Trade, and Energy, Ministry of Tourism and Transport, Ministry of State, Family, Inclusion and Social Development, Direção Geral dos Transportes Rodoviários (DGTR), Agência Reguladora Multissectorial da Economia (ARME), Agência Nacional de Água e Saneamento (ANAS), Instituto Nacional de Meteorologia e Geofísica (INMG), National Social Registry Management Commission, Instituto Nacional de Gestão do Território (INGT), Empresa de Electricidade e Água (Electra), Águas de Santiago (ADS).
  - Private stakeholders from Caixa Económica de Cabo Verde and Banco Comercial do Atlântico.
  - The World Bank.
- Acknowledged mission support and coordination from named IMF Resident Representative and mission support staff, including translation/interpretation services.
- Report status: contains the mission’s preliminary findings; will be reviewed at IMF headquarters and updated to reflect authorities’ feedback.

### Executive Summary — Key findings
- Structural development challenges:
  - Cabo Verde faces insularity, territorial discontinuity, fragile ecosystems, scarcity of natural resources (notably water and arable land).
  - Reliance on external provision of key resources (food and energy) increases exposure to global market fluctuations, disproportionately affecting the vulnerable and poor.
- Climate hazards and exposure:
  - Experienced climate hazards including droughts and floods.
  - Geography and coastal concentration of activity expose the economy and population to tropical storms and sea level rise.
- Energy–water–climate nexus:
  - Water scarcity increasingly addressed through energy-intensive desalination.
  - Electricity used for desalination is largely produced by thermal power plants dependent entirely on imported fossil fuels.
  - High energy prices directly increase the cost of water production.
  - Cabo Verde has ample solar and wind potential that could provide cheaper energy sources.
- Climate commitments and planning:
  - National development strategy PEDS II informs policy priorities reflected in the Nationally Determined Contribution (NDC) and National Adaptation Plan (NAP).
  - Cabo Verde committed to reduce emissions by 18 percent in comparison to business-as-usual (BAU) by 2030.
  - Sectoral plans (energy and water) are being updated to reflect new demand and supply developments; coordination across sectoral plans remains a challenge.
- Energy sector status and constraints:
  - ELECTRA separated electricity and water business and began unbundling electricity services.
  - Publicly owned transmission and distribution companies need financial soundness and efficient management to be reliable partners for private investment.
  - Grid infrastructure constraints limit renewable energy (RE) uptake; without further investment Cabo Verde can move to about 35 percent renewable energy, below the 2030 objective of 54 percent.
  - Achieving beyond 35 percent RE will require important public infrastructure investment, including storage.
  - Island-by-island grid segregation complicates coordination for grid strengthening and RE expansion.
- Water sector status and constraints:
  - Operations consolidated from municipality-by-municipality to a multimunicipality island-by-island setup.
  - Several operators, including the largest on Santiago Island, run considerable technical and commercial losses, losing up to 60 percent of generated water in distribution.
  - Current tariff structures do not recover full cost-of-service provision, leaving operators financially unsustainable.
  - Addressing technical losses will require substantial investment in distribution infrastructure and transparent identification of loss sources and costs.
- Fiscal and pricing policy implications:
  - Operators in energy and water should be compensated for cost-of-service either through tariffs, or through a combination of tariffs and government transfers if services are regulated (quasi-fiscal activity).
  - Introducing a moderate carbon tax could incentivize emissions reductions and provide extra revenues, but would negatively impact economic growth unless revenues are recycled into productive investment.
- Social protection and distributional considerations:
  - Any adverse impacts of tariff adjustments on the vulnerable or poor should be compensated through targeted transfers from the social safety net (SSN).
  - SSN design could be strengthened by expanding coverage of the unified social register.
  - The overall fiscal cost of raising tariffs while compensating vulnerable groups can be neutral and can improve outcomes for compensated households if designed carefully.
  - Communication strategy and careful reform design are critical to avoid social and political opposition.
- Climate governance and information needs:
  - Challenges exist in coordinating and managing climate change–related policies and disaster risk management (DRM).
  - Strong leadership and cross-government coordination are required, ideally via a coordination council at the level of the Council of Ministers or under the Prime Minister’s office.
  - Effective preparation requires dissemination of climate scenarios and hazard vulnerability maps consistent with those scenarios.
- Overall assessment:
  - Government has advanced sector-by-sector planning and incorporated some climate considerations.
  - Additional effort is needed to fully integrate climate implications across sectors and ensure policy consistency for long-term climate resilience.

### Executive Summary — Selected exact numeric values and targets
- Mission dates: August 21 to September 13, 2023.
- Emissions reduction commitment: 18 percent in comparison to business-as-usual (BAU) by 2030.
- Renewable energy objective: 54 percent by 2030.
- Estimated achievable renewables without further investment: about 35 percent.
- Water distribution losses reported up to 60 percent.

### Recommendations (summary provided in the report)
- Recommendations are designed as a feasible progression of current policies given capacity constraints; Annex I provides a draft action plan.
- The report’s Recommendations section begins with "Energy" (detailed recommendations follow in the full report beyond the Preface and Executive Summary).

*IMF Technical Assistance Report — Preface and Executive Summary (tarea2024040)*

### 1.1 As part of the update of the Electricity Master Plan, define the electricity sector transition

### 1.1 As part of the update of the Electricity Master Plan, define the electricity sector transition

### Priority actions and sequencing
- 1.1 As part of the update of the Electricity Master Plan, define the electricity sector transition consistent with (i) projected energy needs from across the economy and (ii) commitments under the NDC — High priority.
- 1.2 Enhance financial stability, transparency, competition, and efficiency of the electricity sector, creating conditions conducive to private investment and promoting the energy transition — High priority.
- 1.3 Consider revising the electricity pricing structure to incentivize energy efficiency and achieve full cost recovery while protecting the poor and vulnerable — Medium priority.

### Context: energy, water, and economic vulnerability
- Cabo Verde’s geography: 9 inhabited islands and several islets about 550 kilometers off the coast of Senegal; insularity and territorial discontinuity affect infrastructure and service provision, including electricity.
- The economy relies heavily on thermal power generation with imported petroleum products constituting about 80 percent of total energy supply, resulting in high energy costs.
- Desalination is already the primary method of producing freshwater in urban areas and tourist destinations; desalination is energy intensive and subjects water supply to high energy prices.
- Agriculture contributes less than 5 percent to GDP and the country imports 80 percent of food.
- Tourism: in pre-COVID times (2018) tourism accounted for 45 percent to GDP and 65 percent of employment; the sector is still recovering.

### Climate‑water‑energy nexus implications for the electricity transition
- Climate change amplifies energy and water challenges, creating an energy-water-climate nexus that links changing precipitation patterns, increased need for desalination, growing energy demand, and threats to tourism infrastructure.
- Energy transition, replacing costly and emission intensive thermal energy with lower cost renewable energy (RE) sources, will improve availability and affordability of energy and water while reducing emissions.
- The inseparability of energy and water (mitigation and adaptation) requires strong government leadership and coordination across sectors.

### Observed climate trends and future projections relevant to energy planning
- Since 1990, temperature increased by 0.04 percent per year.
- Annual average precipitation declined by about 2 percent and variability increased.
- Under SSP2-4.5 (the “middle of the road scenario”), average temperature is expected to increase by 1°C by mid-century; within the 10-90 percentile, outcomes could vary between zero change and +2°C.
- Under SSP2-4.5, average annual precipitation is projected to remain relatively stable (increasing by less than 5 percent by mid-century and reverting to historical levels by 2100), but seasonal precipitation patterns are more uncertain, with possibilities of precipitation levels during the rainy season four to five times higher than historical levels.
- Sea level rise and coastal loss are ongoing concerns: 80 percent of the population resides in coastal communities vulnerable to sea level rise and extreme events.

### Institutional and planning context for making the transition actionable
- The government’s national five-year development strategy Plano Estrategico Desenvolvimento Sustentavel II (PEDS II) 2022-2026 incorporates climate considerations and aspires to build resilience through energy transition, diversification, and strengthening social protection.
- The 2021 updated Nationally Determined Contribution (NDC):
  - Commits to reducing emissions by 18 percent in comparison to business-as-usual (BAU) by 2030.
  - Aspires to achieve net-zero emissions by 2050.
  - Focuses on resilient infrastructure and identifies adaptation contributions in water, agriculture, oceans and coastal zones, spatial planning, disaster risk reduction, and health.
  - Does not identify projects or provide sectoral costings.
- The National Climate Change Adaptation Plan (NAP) 2022-2030 aligns with the NDC and the national development strategy but remains relatively general and does not specify adaptation measures or costs.
- The government is developing a Climate Action Program (2022-2025) intended to make the NDC actionable; the process is ongoing with LuxDev support to the Ministry of Agriculture and Environment (MAE).

### Key policy implications for the Electricity Master Plan update
- Align electricity sector transition planning with projected cross-economy energy needs and NDC commitments (High priority).
- Strengthen sector financial stability, transparency, competition, and efficiency to attract private investment and facilitate the energy transition (High priority).
- Review tariff structures to:
  - Incentivize energy efficiency.
  - Achieve full cost recovery.
  - Protect poor and vulnerable households (Medium priority).
- Coordinate electricity planning with water sector needs, given desalination’s energy intensity and the interdependence of energy and water systems.
- Integrate climate projections (temperature, precipitation variability, sea level rise) into infrastructure siting, resilience measures, and investment prioritization.
- Ensure the Electricity Master Plan links with PEDS II, the NDC, the NAP, and the forthcoming Climate Action Program to move from high-level targets to concrete, costed projects and implementation timelines.

*IMF Technical Assistance Report — Extract*

### 11.        The identification of concrete policy measures and their implementation relies on sectors

### 11.        The identification of concrete policy measures and their implementation relies on sectors

### Sectoral plans, coordination, and climate considerations
- Energy sector:
  - Energy sector strategic plans, including the plan for electricity, energy efficiency, and e-mobility, "are still valid."
  - An important update of the Electricity Sector Master Plan, "which is key to the energy transition," is still being prepared and "is expected that this plan will reflect important updates."
  - The original master plan "lacked coordination with key sectors, including the water sector," with implications for electricity demand depending on desalination capacity expansion.
- Water sector:
  - Rights and responsibilities are defined by the Water Sanitation Code (CAS) and should be implemented through the National Strategic Plan for Water and Sanitation (PLENAS).
  - The PLENAS "includes projections for water demand and plans for how to address these demands" and "is currently being updated" with "important changes to the plans for water sourcing envisaged."
- Inter-sectoral coordination:
  - Both energy and water sector plans "refer to the impact of climate change in general terms but the implications of climate change on the sectors are not specified in detail."
  - The water and energy sectors "are highly interdependent," but coordination "is not formalized" and the two sectoral plans "are not necessarily consistent."
- Agriculture and tourism:
  - The agriculture sector plan "takes into account climate change implications, aiming to introduce climate smart agriculture practices and increased irrigation," but "plans for the expansion of the irrigation system are yet to be formulated and quantified" and "coordination with the water and energy sector would be essential."
  - The tourism sector plan "considers the environmental impact of tourism, but does not reflect climate change implications for the sector."

### Inventory of laws, regulations, and strategies (selected objectives preserved exactly as stated)
- International Climate Strategies:
  - 2021 Nationally Determined Contributions (NDC) 2020-2030: "presents Cabo Verde's concrete contributions to Mitigation and Adaptation and the perspective of climate governance."
  - National Adaptation Plan (NAP) 2020-2030: "Outline Cabo Verde’s National Climate Change Adaptation Plan for the period 2022-2030."
- National Development Strategies:
  - Ambition 2030: "resulted in the Cabo Verde 2030 Strategic Sustainable Development Agenda" and "creates a long-term reference."
  - Sustainable Development Strategic Plan (PEDS II) 2022-2026: "defines the government's policy priorities and development program."
- National DRM:
  - National Strategy for Disaster Risk Reduction (ENRRD) 2018-2030: "puts into effect ... policies relevant to the implementation ... of disaster risk reduction."
  - 2019 Drought Resilience and Mitigation Program: "defines the necessary measures to mitigate its effects" and to "increase the resilience of families and communities, as well as the agricultural sector."
- Energy:
  - Decree Law 35/2021; National Program for Energy Sustainability (PNSE) 2021-2026: PNSE "aims at interventions of promotion of Energy Efficiency (EE)."
  - Regulation 39/2019; Electricity Sector Master Plan 2018-2040: "structural document for the development of the Electricity System."
  - Regulation No. 100/2015; National Renewable Energy Action Plan (PNAER) 2015-2020/2030: integrates PNAEE and AA SE4ALL "with an objective of a safe, efficient, sustainable energy sector without dependence on fossil fuel in Cabo Verde."
  - Joint Ordinance No. 24/2020; The Code of Energy Efficiency in Buildings (CEEE): details energy efficiency principles for buildings.
- Transport:
  - 2018 Policy Charter for Electric Mobility (CPME): vision to "replace the current fleet ... by clean electric vehicles (EV) ... by 2050" with main goals including (i) replace all internal combustion engine vehicles by EV by 2050, (ii) national recharge infrastructure in place by 2030, and (iii) public administration fleet 100 percent electric by 2030.
- Water:
  - Legislative Decree No. 26/2016; Tariff policy of the Water and Sanitation Sector: "sets the rules and guidelines for how tariffs ... are determined and applied."
  - Resolution No. 10/2015; National Strategic Plan for Water and Sanitation (PLENAS): "establishes the definition and likely regulations for public systems of water supply and sanitation" and "regulates the planning and execution of hydraulic works."
- Agriculture:
  - Strategic Plan of the National Agricultural Research System (PE-SNIA) 2017-2024: "takes climate change into consideration" and "aims to promote climate resilience and food security through climate smart agriculture."
- Tourism:
  - Resolution No 31/2022 - Tourism Operational Program (POT) 2022-2026: "considers the environmental impact of tourism, it does not take climate change implications into account."
- Social safety net:
  - Law No. 131/V/2001 on the Basic law of Social Protection: defines social protection at three levels including safety net.
  - Law No. 41/2020 Creating the Social Inclusion Income: "creates and determines the eligibility criteria to access the social inclusion income."

### Emissions, mitigation commitments, and alignment with NDC
- Emissions profile and historical change:
  - Cabo Verde ranks as the 189th largest emitter, contributing "less than 0.01   percent to total global emissions."
  - Emissions per capita are "at par with Small Island Developing States (SIDS) of similar income level."
  - Cabo Verde’s GHG emissions "grew by 150 percent compared to 1995."
  - Emissions from agriculture rose by "about 120 percent" and waste by "about 60 percent" over the same period.
- Sectoral shares (2019):
  - Energy sector: "82 percent of the nation’s total emissions."
  - Agriculture: "about 9 percent."
  - Waste: "about 9 percent."
  - Within the energy sector: power generation "37 percent," transport "27 percent," industrial "14 percent."
  - GHG composition: "approximately 78 percent of GHG emissions in 2019 were directly attributable to CO2 emissions, while methane emissions constituted around 17 percent."
- NDC commitments (updated in 2021):
  - Economy-wide: "18% below BAU." Conditional: "Up to 24% below BAU."
  - Electricity:
    - "30% renewable energy share in the electricity supply in 2025 and up to 50% in 2030."
    - "100% renewable energy share in the electricity supply in 2040."
    - "Increase wind energy capacity by installing 10 MW wind farm for Santiago by 2022 and 60 MW by 2030."
    - "Increase solar PV energy by installing an additional 150 MW by 2030."
    - "Install a waste-to-energy biogas landfill in Santiago by 2025 and construction of eight biogas plants across islands by 2030."
  - Transport:
    - "Electrify at least 25% of Cabo Verde's land-borne transport fleet (new vehicles) by 2030 by resorting to renewable energy sources."
    - By 2050, "fully replace all residual thermal vehicles (gasoline/diesel) with electric vehicles (EV)."
    - By 2025, "establish the procurement rules for the acquisition of 100% EVs by institutional entities and have at least 50% of EVs in the new acquisition of urban collective transport."
    - By 2030, "the national public recharge infrastructure is fully implemented."
    - By 2030, "the public administration’s vehicle fleet is fully electrified."
  - Gender: "Operationalize the Action Plan for Gender and Energy by 2030" and promote women to represent "at least 20% of the workforce in 2030" in renewable energy.
- Alignment with NDC:
  - Using the Climate Policy Assessment Tool (CPAT), emissions in 2030 "are expected to surpass the NDC unconditional target by 53 percent."
  - "Emissions in 2030 are poised to be 1.5 times the target level of emissions as defined in the NDC."

### Climate investment needs and financing
- NDC financing needs:
  - The updated NDC states "the incremental financial resources for implementing the policies envisaged by the NDC amount to a minimum of Euros 2 billion for 10 years of climate action, half of the amount being earmarked for mitigation, and half for adaptation."
  - This "would be equivalent to about 8 percent of GDP per year between 2020 and 2030, for adaptation and mitigation together."
- Assessment and planning:
  - A "detailed assessment of domestic contributions and international needs is still pending."
  - The 2021 NDC Implementation Roadmap noted "only a few measures and policies have been costed" and "the authorities are in the process of developing the Climate Action Plan and a Climate Finance Strategy and Work Plan."
- Investment needs presented to partners (April 2023 conference):
  - Energy sector: mobilize "Euro 518 million" and technical cooperation for wind and solar IPPs, energy storage, grid reinforcement, e-mobility, and energy efficiency measures.
  - Water and sanitation sector identified financing needs of "Euro 132 million" broken down as:
    - "Euro 44 million" to provide access to sustainable energy for mobilization and distribution of desalinated water intended for human consumption.
    - "Euro 30 million" for desalinated water intended for irrigation.
    - "Euro 36 million" to implement municipal projects to install capacity for treatment and recovery of wastewater.
    - "Euro 8 million" to provide urban waste management.
    - "Euro 14 million" to implement the Health Plan.

### Energy sector specifics and macro implications
- Emissions concentration:
  - "The majority of Cabo Verde’s GHG emissions are closely tied to the energy sector, constituting 82 percent of the nation’s total emissions."
- Electricity generation mix:
  - Renewable energy sources contribute "only 17 percent of the power generation."
  - "A substantial 83 percent of electricity generation relies on thermal power plants fuelled entirely by imported diesel and other oil derivatives."
  - Renewable generation is "primarily wind with a minor contribution from solar energy."
- Balance of payments and fiscal implications:
  - Thermal generation "relies 100 percent on imported fossil fuels."
  - In 2021, refined petroleum imports accounted for "11 percent of the nation’s total imports, adding up to USD 93.5 million."
  - The dependence on fuel imports places a "substantial strain on Cabo Verde’s BOP" and represents a fiscal risk as the government "shields households from pass-through by increasing subsidies to household consumption."
  - Transition implications: in the short run, higher imports of low carbon technology "would create a negative impact" on the trade balance; in the medium to long run, replacing thermal production with RE would reduce fossil fuel imports and could eventually obsolete them if the net-zero objective is achieved.

*Source: IMF Technical Assistance Report (chapter content provided).*

### Box 2. Effect of Increased Investment in Renewable Energy Over Cabo Verde’s Balance of

### Box 2. Effect of Increased Investment in Renewable Energy Over Cabo Verde’s Balance of Payments

### Current dependence and historical imports
- Cabo Verde’s heavy reliance on fossil fuels exposes its trade balance to external supply shocks and price volatility.
- From 2008 to 2020, Cabo Verde spent around 7.5 percent of its GDP importing fuels.
- Investments in low carbon technologies accounted for approximately 1.6 percent of GDP during the same period.
- There was a substantial increase in imports of low carbon technologies in 2010 and 2011, coinciding with the expansion of wind plants (currently the largest share of renewables in the country).

### Short-term vs. medium- to long-term trade balance effects
- Short term: Transitioning to higher renewable energy penetration is anticipated to have a temporary negative impact on the trade balance because various equipment and technologies will need to be imported.
- Medium to long term: As Cabo Verde progressively reduces reliance on fossil fuel imports, the transition is expected to yield a lasting and positive effect on the trade balance.
- The strategic shift would enable the government to accumulate reserves and enhance the stability of its BOP.
- In the absence of the energy transition, Cabo Verde’s BOP would remain vulnerable and the probability of a BOP crisis would be higher.

### Quantitative assumptions and estimates
- According to the third National Communication for the UNFCCC, approximately 55 percent of diesel consumption is attributed to the transport sector, with the remainder consumed by households, primarily in the form of electricity.
- Achieving a 50 percent penetration of renewable energy would diminish the necessity for oil imports by roughly 1.3 percent of GDP annually.
- Assuming a similar surge in low carbon technology imports as in 2010 and 2011 accompanies a proportional increase in renewable energy capacity (a conservative assumption given declining costs of renewable technologies), it would require an average of 3.8 percent of GDP to increase the share of renewable energy to 45 percent.
- This implies that in approximately three years, the trade balance would attain a breakeven point between imports of low-carbon technologies and avoided oil imports, and would subsequently accrue benefits.

Methodological note (as presented in the source)
- "45% of diesel imports are used to produce electricity. Therefore, increasing RE share to 50% would imply a reduction of 1.3% of GDP in fuel imports, calculated as the difference in yearly imports considering that 45% of diesel is currently used to produce electricity and that 18% of electricity is already produced by renewable technologies. On the other hand, based on the extraordinary imports on 2010 and 2011 to deploy renewables (distance from the average to account for imports of other low-carbon technologies), increasing the share of RE to 50% would require imports of about 3.8% of GDP."

### Policy implications and recommendations
- The IMF encourages country authorities to undertake a more comprehensive assessment of BOP needs/benefits, including in-depth exercises to estimate BOP outcomes under different assumptions related to:
  - increased energy demand due to desalination, and
  - electric mobility (which would also decrease diesel imports).
- A comprehensive assessment should incorporate the temporary import needs for low-carbon technologies and the medium- to long-term reductions in fuel imports to inform reserve accumulation and BOP stability strategies.

*Source: IMF Staff using the IMF’s database on low carbon technology trade and OEC Economic Complexity Observatory.*

### 31.        ELECTRA faces high technical and non-technical losses, which call for attention to

### 31.        ELECTRA faces high technical and non-technical losses, which call for attention to 

### Electricity losses and distributional detail
- Transmission and distribution losses refer to energy dissipated before it gets to end-users; non-technical losses include electricity theft, non-payment by consumers, and issues related to billing and revenue collection.
- Losses are uneven across islands; Santiago accounts for 35 percent of the island’s electricity production lost.
- Table of Electricity Losses as a Percentage of Total Production per Island, 2022 (kWh):
  - Santo Antao — Production: 18,467,264; Consumed during production: 313,561; Sales: 15,472,814; 2022 losses: 2,680,889; losses %: 14.5%
  - Sao Vicente — Production: 85,837,491; Consumed during production: 10,660,874; Sales: 63,602,142; 2022 losses: 11,574,475; losses %: 13.5%
  - Sao Nicolau — Production: 7,486,179; Consumed during production: 91,162; Sales: 6,473,748; 2022 losses: 921,269; losses %: 12.3%
  - Sal — Production: 73,698,009; Consumed during production: 7,755,438; Sales: 59,781,696; 2022 losses: 6,160,875; losses %: 8.4%
  - Maio — Production: 4,053,301; Consumed during production: 12,504; Sales: 3,459,605; 2022 losses: 581,192; losses %: 14.3%
  - Santiago — Production: 260,174,917; Consumed during production: 26,768,110; Sales: 143,539,125; 2022 losses: 89,867,682; losses %: 34.5%
  - Fogo — Production: 16,104,638; Consumed during production: 270,485; Sales: 13,586,395; 2022 losses: 2,247,758; losses %: 14.0%
  - Brava — Production: 3,114,844; Consumed during production: 13,739; Sales: 2,588,091; 2022 losses: 513,014; losses %: 16.5%
  - Total — Production: 468,936,643; Consumed during production: 45,885,873; Sales: 308,503,616; 2022 losses: 114,547,154; losses %: 24.4%
- Source of loss data: ELECTRA’s Relatorio e Contas 2022.

### Unbundling status and legal framework
- Objective: achieve full operational and legal unbundling by March 2024.
- Progress: operational unbundling has advanced; legal unbundling (creation of new companies and workforce redistribution) lags.
- Current vertical integration hinders assessment of targeted investments and transparency.
- Note from sector discussions: operational units’ accounting systems have not been separated and companies’ assets have not been allocated between the three companies.

### Cost structure, retail prices, and subsidies
- High electricity prices constrain investment in energy-intensive industries, economic growth, and pose a fiscal burden due to consumer subsidies for vulnerable households.
- Q2 2023: Cabo Verde’s retail electricity price comparable to Jamaica and Guatemala, 10 percent more expensive than France, and about 20 percent more expensive than Luxembourg.
- Social tariff: covers 100 percent of consumption for households registered in the first and second tiers of the Unique Social Registry (USR).
- Exceptional subsidy: government subsidized electricity tariffs by 60 percent to all consumers in response to fuel price increases related to the war in Ukraine; government expects to cancel the additional subsidy in the next tariff revision.
- Government estimate: transfers to ELECTRA accounted for 0.8 percent of GDP in 2022.
- ELECTRA usually fully compensated by the MOF for the social tariff but was not compensated for the exceptional 60 percent subsidy applied during the latest extraordinary tariff revision.

### Grid integration, storage, and investment needs
- Grid and storage strategic investment estimated by the government at 106 million euros (4.8 percent of GDP).
- MITE estimates grid relatively ready to incorporate up to 30 percent of renewable energy capacity; increasing beyond that requires major investments.
- Lack of storage capacity and current transmission and distribution configuration will constrain renewable integration, mitigation efforts, and the energy transition absent additional investment.
- Integrated approach recommended: private investment in renewable generation coupled with public investment in grid enhancement and storage capacity.
- Without synchronized grid and storage investment, ELECTRA faces difficulties managing renewable variability, maintaining system stability, and phasing out costly thermal plants.
- Medium-term benefit: meeting night demand with stored solar energy reduces reliance on conventional production.

### Inter-island grid connection outlook
- Inter-island grid connection unlikely in short and medium term due to geographic distances and ocean depths; technically and financially challenging.
- MITE drafting terms of reference for a pre-feasibility study to evaluate interconnection options for islands with higher electricity demand.

### CPAT analysis — carbon tax design and modeling
- Evaluated reform: carbon tax of USD 10 per ton of CO2e in 2024, increasing linearly to USD 35 per ton of CO2e in 2035.
- Model: CPAT (spreadsheet-based, developed jointly by IMF and World Bank), covering over 200 countries; fuel and electricity price elasticities over the longer term generally between -0.5 and -0.8.
- Pass-through assumption noted in summary table: 80% of electricity produced using PPAs, gradually phased-out until 2035.

### Emissions impact
- Carbon tax reduces GHG emissions 6.02 percent in 2030 relative to BAU.
- Cumulative reduction over 2024-2035: 0.87 million tons of CO2e.
- Sectoral contribution to emission reductions:
  - Power sector: over 60 percent of emission reduction.
  - Industry: 20 percent.
  - Transport: 16 percent.
- Conclusion: modest carbon tax is positive but insufficient to meet NDC targets; additional renewable deployment and energy efficiency measures required.

### Fiscal and macroeconomic implications
- Revenue potential:
  - By 2035, carbon tax could raise as much as 1 percent of GDP in additional revenue compared to baseline.
  - Cumulative additional revenue from 2023 to 2035: up to USD 280 million.
  - First year of implementation: provides 0.31 percent of GDP in additional income to the government, a 1.7 percent increase in government revenues.
- GDP impact:
  - Potential negative impact on GDP growth in 2030, absent revenue recycling: -0.25 percentage points.
- Revenue recycling in modeling exercise:
  - 50 percent of additional fiscal revenue used in targeted cash transfers to the first 6 deciles, assuming 25 percent leakage across the 4 higher-income deciles and 75 percent coverage rate.
  - 50 percent allocated to public investment (higher fiscal multipliers).
  - If public investment is geared to renewable deployment, emission reductions would be higher.
- Balance of Payments benefit: reduced imports from lower fossil fuel demand.

### Price impacts
- CPAT price impacts for a USD 25/tCO2 in 2030 (weighted by consumption):
  - Gasoline (US$ per liter): Baseline 1.28; Baseline + Carbon tax 1.35; % change: 5%
  - Diesel (US$ per liter): Baseline 0.94; Baseline + Carbon tax 1.02; % change: 8%
  - Natural gas (US$ per gigajoule (GJ)): Baseline 16.30; Baseline + Carbon tax 17.67; % change: 8%
  - Electricity (US$ per kwh): Baseline 0.27; Baseline + Carbon tax 0.29; % change: 7%
- Diesel: 8 percent increase in 2030 relative to baseline; pass-through to electricity: 7 percent increase relative to baseline.
- Efficient pricing: carbon taxation would almost close the gap between expected and efficient price for residential electricity consumption and reduce gaps for diesel, LPG, and natural gas. Gasoline is taxed beyond the efficient level.
- Output prices (2030 increases):
  - Air transport: 19.7 percent
  - Water transport (shipping): 12.7 percent
  - Service sector: 2.1 percent
  - Food sector: 1.4 percent
  - Industrial sectors most impacted: iron/steel 13.7 percent; cement 11.8 percent

### Distributional impact and co-benefits
- Distributional assessment methodology: two-step (input-output tables to map price effects to consumption categories; map price increases to household budget shares using household expenditure surveys).
- Modeling results with revenue recycling (50% targeted cash transfers to first 6 deciles; 25% leakage across higher deciles; 75% coverage):
  - Only the top 20 percent wealthiest households would have negative absolute consumption losses after recycling.
  - Most vulnerable households: 6.2 percent increase in their relative income, approximately an increase of about 2 thousand escudos.
  - High income households: net consumption loss about 1,000 escudos, equivalent to 0.1 percent of their relative consumption.
- Caveat: distributional analysis uses data from the 2001 Household Budget Survey and is illustrative; updated assessment recommended.

### Aggregate costs and co-benefits
- Efficiency costs of implementing carbon tax: 0.12 percent of GDP (pure abatement costs: -0.12% of GDP).
- Domestic co-benefits (transport, air pollution): 0.64 percent of GDP.
- Net: measured climate, air pollution, and transport co-benefits more than offset efficiency costs.
- Summary table (selected entries):
  - Energy-related CO2 emissions reduction in 2030, % to a BAU: 8.20%
  - Cumulative CO2 emissions reductions in 2024-2030, MtCO2: 0.87
  - Additional fiscal revenues raised in 2030, % of GDP: 0.70%
  - Cumulative additional fiscal revenues raised in 2024-2035, million USD: 280
  - Impact on GDP growth in 2030, percentage points deviation from the BAU growth: -0.25%
  - Residential electricity price increase in 2030, percent from the BAU price: 5%
  - Relative mean consumption effect on the poorest before revenue recycling, % of BAU consumption: -0.2
  - Relative mean consumption effect on the poorest after revenue recycling, % of BAU consumption: 6.2

### Revenue recycling options and policy design
- Government should develop a communication strategy explaining revenue use; options assessed against income distribution, economic efficiency, and administrative burden.
- Recycling instruments and considerations (high-level):
  - Climate-related investment in mitigation or adaptation: may disproportionately benefit low-income households; may be less efficient than broader revenue uses; high administrative burden but high political feasibility.
  - General investment (education, healthcare, infrastructure): may disproportionately benefit low-income households; potentially significant efficiency gains; modest administrative burden; high political feasibility if social sector investments.
  - Universal transfers: highly progressive; forgoes efficiency benefits; modest administrative burden; high political feasibility but inclusion errors.
  - Compensate reduction in payroll tax: benefits proportional in formal sector; improves incentives for formal work; minimal administrative burden; low political feasibility barrier.
  - Compensate reduction in personal income tax: benefits skewed to higher-income groups; improves incentives; minimal administrative burden.
  - Compensate reduction in consumption tax: largely proportional to consumption; may reduce distortions if exemptions; minimal administrative burden.
  - Compensate reduction in corporate income tax: benefits skewed to higher-income groups; improves incentives for investment; minimal administrative burden.
  - Deficit reduction: benefits future generations; significant efficiency gains; minimal administrative burden.
  - Targeted assistance (means-tested cash, in-kind transfers): effective for low-income groups if safety nets comprehensive; high administrative burden.
  - Assistance for household energy bills: provides partial relief for all households; modest reduction in environmental effectiveness; administrative burden low to high depending on targeting.
- Political economy: carbon tax likely to face voter and interest-group resistance given high existing energy prices; building broad coalition required, including awareness campaigns, progressive tax design, transparent revenue use, stakeholder engagement, and emphasis on international climate commitments.

*Source: IMF Technical Assistance Report — extracted content unit.*

### 49.        Energy demand from transport, water desalination, irrigation, households and buildings,  is

### 49.        Energy demand from transport, water desalination, irrigation, households and buildings,  is 

### Energy demand projections and drivers
- Energy demand is set to nearly double over the next seventeen years (Figure 26).
- Main drivers: population and economic growth, achieving full grid connection, and heightened energy requirements for water desalination.
- Tourism, industry and services are poised for growth; current government plans have not incorporated additional electricity demand from an increase in e-mobility.
- The interplay between energy, water and the energy transition will exert additional demand-side pressure, particularly with the rise of e-mobility, requiring increased coordination across government agencies.

### Sectoral findings and specific projections
- Tourism
  - Tourism energy demand is expected to account for about 18 percent of total energy demand by 2040.
  - Tourism represented 16.9 percent of Cabo Verde’s GDP in 2020.
  - Assuming a 10 percent yearly increase in tourist flows:
    - Cabo Verde could receive 1.64 million tourists in 2025.
    - Cabo Verde could receive 3.12 million tourists in 2030.
    - An expected increase of 60,000 rooms to accommodate them by 2030.
- Water desalination
  - Water from desalination is expected to add 90 Gwh of electricity demand by 2040, a 200 percent increase from the electricity demand stemming from desalination in 2020.
  - In 2021, about 66 percent of fresh water supply stemmed from desalination (Table 8a).
  - Inefficiencies in water distribution and management cause technical and commercial losses averaging about 50 percent of total fresh water entering the system.
  - If technical losses are not addressed, for every m3 of water demanded, public utilities will need to produce about 2 m3, thereby increasing electricity demand.
  - Government desalination projects using renewable energy include the Porto Novo desalination plant in Santo Antao and the Furna Brava desalination plant.
  - Government expects to modernize 3,473 ha of agriculture irrigated by drip irrigation to increase hydric efficiency.
- Transport and e-mobility
  - Cabo Verde has a vehicle stock of approximately 87,500 cars.
  - In 2013, cars and air transport accounted for about 55 percent of total diesel demand, and 50 percent of total energy demand.
  - Government Incentive Program for acquisition of an EV and private Charging Station (PC): supports acquisition of 600 electric vehicles by providing a Euro $6,000 support on top of import duty exemptions.
  - Government objective: 100 percent EV fleet by 2050 conditional on international support.
  - The Electricity Master Plan does not consider the expected increase in electricity demand from electromobility.
  - Public road transport decarbonization target: replace 80 percent of public road transport vehicles by 2030 with electric vehicles.
- Households and buildings
  - Government target: Decrease household energy consumption by 7% in 2030 compared to BAU, focusing on lighting and efficient air conditioning.
  - Target for public lighting and buildings: 50% of public lighting with LED lamps, 100% of public buildings with LED lamps.
  - Increase energy efficiency of touristic stays: Establish 10,000 key cards in tourist accommodation by 2030.
- Smart meters and intra-day management
  - About 10 percent of total electricity consumers have smart meters (according to MITE).
  - Smart meter scale-up is in national plan for smart grids and should be accelerated to enable TOU tariffs and better manage intraday variations; deployment implies additional short-term investment for ELECTRA.

### Policies, strategies and implemented measures (from NDC implementation and national programs)
- MAE led creation of an NDC implementation strategy through a participatory approach with energy efficiency projects.
- Government measures (summarized from Table 7):
  - SNEREE (National System of Labeling and Requirements for Electrical Equipment) created in 2019: established labeling obligations and minimum energy efficiency requirements applicable to import and commercialization.
  - 16.5 million USD allocated to implement Renewable Energy and Improved Efficiency in Public Buildings project.
  - Comprehensive mapping of all public buildings is being finalized.
  - Energy Efficiency in Buildings Code approved by Inter-ministerial Committee (MITE, Ministry of Infrastructure, Spatial Planning and Housing, and MAE).
  - PESER (Strategic Sector Plan for Renewable Energy) approved, establishing Renewable Energy Development Zones (ZDER), including water desalination plants.
  - Target: At least 50 percent of water used in Furna Brava will be desalinated by photovoltaic solar energy; desalinate 50 percent of water using wind and photovoltaic energy by 2030.
  - Programs to encourage energy-efficient appliances and reduced energy consumption in households, public buildings and tourism sector.
  - Stated stove replacement programs to decrease number of households using biomass as cooking fuel (to be worked on with development partners).
- Regulations and plans created in last five years:
  - National Action Plan for Energy Efficiency (PNAEE).
  - National Action Plan for Renewable Energy (PANER).
  - Action Agenda for Sustainable Energy for All (AA SE4ALL).
  - Code of Energy Efficiency in Buildings (CEEE).
  - Energy Efficiency Project in Buildings and Equipment (PEEE).
  - National Energy Sustainability Program (PNSE).
  - Impact of these regulations on energy demand and efficiency is yet to be measured.

### Water sector data and operator financials (key statistics)
- National water supply, 2021 (Table 8a):
  - Water collected in underground catchments: 5,362,081 m3 (36% of total water supplied).
  - Water produced by desalination (+): 9,892,783 m3 (66% of total water supplied).
  - Water supplied (=): 15,100,903 m3 (100%).
  - Billed water (-): 7,325,890 m3 (49%).
  - Loss (=): 7,775,013 m3 (51%).
- Fresh water source by island (Table 8b) — percentage from underground vs desalinated:
  - Santiago: 54 / 46
  - São Vicente: 0 / 100
  - Santo Antão: 80 / 20
  - São Nicolau: 80 / 20
  - Maio: 0 / 100
  - Fogo: 100 / 0
  - Brava: 100 / 0
  - Boavista: 0 / 100
  - Sal: 0 / 100
- Key business indicators for water sector operators (selected figures from Table 9):
  - Aggregated water supplied: 15,638,229 m3; billed water: 7,825,433 m3; water lost: 50.0%.
  - Águas de Santiago (ADS): Water supplied 7,578,968 m3 (48.5% of total); billed water 2,792,525 m3 (35.7%); water lost 63.2%; Equity CVE -1,489,796,234; Operational result CVE -190,126,784.
  - Electra Norte: Water supplied 3,824,221 m3 (24.5%); billed water 2,263,943 m3 (28.9%); water lost 40.8%; Equity CVE 1,565,759,563; Operational result CVE -364,564,384.
  - Electra Sul (desalination): Water supplied 4,809,425 m3; billed water 4,708,049 m3; water lost 2.1%; Equity CVE -7,955,300,489; Operational result CVE -1,359,242,987.
  - Águas e Energia do Maio: Water supplied 178,031 m3 (1.1%); billed water 83,573 m3 (1.1%); water lost 53.1%; Equity CVE 105,275,508; Operational result CVE -13,502,098.
  - Several municipal operators show negative operational results or lack of available equity data, indicating unsustainable operations.

### Challenges and policy gaps
- Coordination, information sharing, and monitoring & evaluation gaps persist despite progress; critical to forecast demand increases and plan accordingly.
- Need to measure impact of current policies, plans, and codes; Key Performance Indicators were defined in the NDC Implementation Plan but efforts must be ramped up.
- High non-technical losses, especially on Santiago; smart meters could reduce non-technical losses but require short-term investment by ELECTRA.
- Current Electricity Master Plan omits expected electricity demand from electromobility and lacks island-by-island demand incorporation for water desalination and tourism.
- Any increase in energy demand under current conditions will place additional pressure on electricity prices and increase the government’s fiscal burden.

### Reform options and recommendations
Recommendation 1: Update the Electricity Master Plan to align the electricity sector transition with projected energy needs and NDC commitments.
- Coordinate across ministries to assess expected energy demand across the economy (including water desalination, e-mobility, growing tourism) on an island-by-island basis through 2030 and beyond, taking into consideration intraday fluctuations – update the estimate regularly.
- Assess how the demand will be met with 54 percent RE in 2030 on an island-by-island basis, taking into account intraday fluctuations in demand and in RE generation.
- Develop and implement a phased plan for onboarding RE sources on an island-by-island basis, defining access points for RE sources and taking into account required investment in grid infrastructure including storage, to manage increased demand during peak hours, without forcing the system to ramp up expensive thermal capacity.
- Phase procurement of RE capacity, e.g., though PPAs, in line with network absorption capacity for variable RE.
- Implement investment in grid infrastructure to allow onboarding of RE in line with the phased plan, increasing private participation in RE generation.
- Plan and implement the phased decommissioning of thermal power generation capacity to reduce overall electricity production cost.
- Work with development partners on stove replacement programs to decrease households using biomass as cooking fuel.

Recommendation 2: Enhance financial stability, transparency, competition, and efficiency of the electricity sector to attract private investment and promote the energy transition.
- Complete full legal and operational unbundling of ELECTRA.
- Ensure financial viability of the network operator and the distribution company by addressing accumulated losses and promoting efficient operations.
- Compensate for quasi-fiscal activities through budgetary allocations, covering the gap between costs and regulated prices.
- Assign responsibility for and ensure execution of needed grid infrastructure investment.

Recommendation 3: Consider revising the electricity pricing structure to incentivize energy efficiency and achieve full cost recovery while protecting poor and vulnerable households.
- Undertake a distributional impact assessment to determine the impact of various policy options.
- Assess impact of different electricity pricing structures on overall cost recovery.
- Consider implementing a modest carbon tax to disincentivize energy consumption and increase fiscal revenues.
- Mitigate impact of any price increase for vulnerable and poor households by providing a targeted cash transfer through the social safety net, based on a fully implemented Unique Social Registry (USR).
- Develop and implement a communication strategy to explain the need for reforms in electricity pricing and how additional revenues will be used, including to protect the vulnerable and poor.

_Italic: Source — IMF Staff using the Relatorio preliminar do Inventario Nacional de GEE, 2023; IMF Technical Assistance Report content provided in the source PDF._

### 59.        Despite these water sector challenges, Cabo Verde made considerable progress towards

### tarea2024040 - 59.        Despite these water sector challenges, Cabo Verde made considerable progress towards

### Progress in access to water and sanitation
- In 2019, above 85 percent of the population had access to safe drinking water.
- Each resident had a daily average of 44 liters.
- Almost 70 percent of the population and around 72 percent of households had the public network as their main source of water supply.
- The urban/rural gap in 2019 stood at about 10 percent.
- Access disparities illustrated: on the island of Santiago access ranged from 19 percent in São Salvador do Mundo and 41 percent in São Domingos, to 77 percent in Tarrafal; between islands from 50 percent in Boa Vista and 94 percent in Brava.
- About 85 percent of households have access to sanitation systems.
- Despite investments in sewerage networks and wastewater treatment plants, in many areas wastewater is not treated, including industrial waste, and is discharged into the environment.

### Government targets and service objectives
- By 2026 the government intends to:
  - provide 100 percent of the population with access to safe water from public networks;
  - increase average per capita freshwater consumption from 43 to 90 liters per day;
  - provide 90 percent of the population with access to sanitation services (sewage network and septic tanks);
  - promote gender equality and improve accessibility and quality of services, especially in rural areas.

### Legal framework and standards
- The 2015 National Strategic Plan for Water and Sanitation (PLENAS) defines the government’s strategy through 2030 and emphasizes holistic, integrated water management to:
  - improve prioritization of investments;
  - prevent construction of infrastructure unconnected to the network or underutilized;
  - avoid over-extraction from aquifers and prevent depletion and declined quality through salinity;
  - ensure water supply and resilience considering climate change.
- The 2015 Water and Sanitation Code (CAS) provides for the government’s right and obligation regarding management of all water resources in Cabo Verde and defines broad water management principles including tariff setting.
- The 2018 Law on Public Water Supply and Urban Wastewater Sanitation assigns municipalities ownership of public water supply and wastewater sanitation services and defines options for managing these services (direct management, delegation, concession).
- The 2016 Tariff Policy of the Water and Sanitation Sector regulates water tariffs and fees, stipulating tariffs should:
  - ensure equitable access;
  - encourage efficient consumption;
  - allow operators to recover their cost, including administration, operation, maintenance and replacement of equipment.
- Minimum quality standards legislated:
  - Regulatory Decree No. 5/2017 establishes essential requirements for the quality of water intended for human consumption.
  - Regulatory Decree No. 4/2020 establishes criteria and parameters for controlling the quality of water for irrigation.

### Legal instruments and objectives (as described in Figure 27)
- Resolution No. 10/2015; Approves the National Strategic Plan Water and Sanitation (PLENAS):
  - Provide strategic guidance on water policies to the Government and Local Authorities.
  - Guides detailed planning on each island to ensure universal access to water and promote integrated improvement of water supply conditions, sanitation, and hygiene.
  - Safeguards sustainable use of natural resources and the environment, equity and gender equality, and the most disadvantaged social classes.
- Legislative Decree No. 3/2015; Approves the Water and Sanitation Code (CAS):
  - Defines fundamental principles for water resource use, public systems, economic/financial sustainability, institutional framework, planning and use, water quality standards, hydraulic works, economic and financial regime including taxes, fees and charges, offences and penalties.
  - Applicable to inland surface and ground water and water produced by desalination, public systems, and reuse of wastewater and treated sludge.
- Legislative Decree No. 5/2018; Legal Framework for Public Water Supply and Urban Wastewater Sanitation Services:
  - Assigns responsibility for water supply and sanitation services to municipalities.
  - Defines management models: direct management, delegation (public entity/SOE), concession (private entity).
  - Delegation and concessions may include operation, maintenance, conservation, construction, renovation, and replacement of infrastructure.
- Legislative Decree No. 26/2016; Tariff Policy of the Water and Sanitation Sector:
  - Sets tariff policy, guidelines and strategies; applies universally to providers.
  - Tariff objectives: encourage rational use; socio-economic equity; social considerations to guarantee access for low income; cost recovery for operators covering operation, maintenance, and replacement.
- Regulatory Decree No. 5/2017; Fresh Water Quality Control:
  - Establishes criteria and norms for water quality for human consumption; control systems, sanctions, and protection measures; covers entire water cycle from collection to distribution.
- Regulatory Decree No. 4/2020; Irrigation Water Quality Control:
  - Establishes criteria and parameters for irrigation water quality for surface/underground, desalinated, recovered rainwater or treated wastewater; aims to satisfy water needs for agricultural and green spaces.

### Institutional framework and governance
- Governance roles:
  - Government: defines water sector related policies for integrated water resource management.
  - National Water and Sanitation Council (CNAS): advises the Government; includes government and non-government stakeholders; provides oversight to align sector policies with government direction and implementation oversight of ANAS.
  - National Water and Sanitation Agency (ANAS):
    - Created by Law No. 46/VIII/2013.
    - Responsible for managing the water sector from source to disposal, including water resources, domestic water supply, wastewater, and sanitation.
    - Acts as grantor and manager of concession contracts for production, transport and distribution of water and collection and treatment of wastewater at national level.
    - Manages water abstractions and utility performance metrics; responsible for strategic planning, project assessment and implementation, and ensuring compliance with sectoral laws and regulations.
  - Multisectoral Economic Regulatory Agency (ARME):
    - Created in 2018 by Law No. 50/2018.
    - Administratively and financially independent regulatory authority.
    - Responsible for economic regulation, tariff regulation, and regulation of quality of services provided across communications, energy, water and public urban and interurban passenger transport sectors.
  - Municipalities: own public water and sanitation infrastructure; contract service operators individually or through multi-municipal systems.
  - Water and Sanitation Service Company (Operator): contracted by municipalities to operate distribution and sanitation; can be public entities, SOE, or private entities.
  - Água de Rega (AdR) SA:
    - Concessionaire assigned by Legislative Decree No. 49/2021.
    - Manages, explores, and distributes water for irrigation across the national territory.
    - Holds concession for ten years and can use underground and surface water sources as assigned under the law.

### Operational structure and ongoing reforms
- Reforms aim to create water companies operating on commercial principles and consolidate operators to one per island through:
  - mandating multi-municipality owned entities (direct management),
  - delegating operations to SOEs,
  - awarding concessions to private entities.
- The 22 municipalities on the nine inhabited islands are currently being served by 11 operating entities:
  - four operate water distribution services;
  - two desalinate water and are not involved in distribution;
  - remaining companies operate desalination and distribution services.
- Two companies are fully, or majority privately owned.
- ANAS and the Ministry of Health monitor adherence to legislated water quality standards for freshwater.

### Irrigation water management
- In 2021, Água de Rega (AdR) SA granted a ten-year concession for managing, exploring, and distributing water for irrigation.
- AdR has access to dedicated underground and surface water reservoirs with rights for extracting volumes specified by law.
- ANAS controls whether irrigation water quality standards are respected.
- AdR is running a pilot exploring new technologies for lower-cost desalination for producing water suitable for irrigation but not necessarily for human consumption.
- Government expects structuring of the water desalination project for irrigation in full operation by 2030, guaranteeing water balance for the boreholes and sustainability for groundwater.
- If successful, the technology could become a viable option to provide water volumes needed to work towards introducing irrigation to all agricultural areas.

### Efficiency, losses, and operator financial viability
- The water efficiency program being prepared by ANAS and operators aims to reduce losses.
- Example: Águas de Santiago (ADS) reports:
  - losses can be attributed half to technical losses and half to commercial losses.
  - eradication of commercial losses would require investing in meters; technical losses largely related to distribution network quality.
  - operation contracts typically cover operation and maintenance only, limiting impact on network quality.
- Distribution (not production) is indicated as where losses mostly occur.

### Water pricing, subsidies, and quasi-fiscal considerations (Box 5)
- Tariff formula: WT = Dist + (1+d)Prod
  - WT is the average tariff to provide water.
  - Dist is the distribution cost per unit.
  - Prod is the production or acquisition cost per unit.
  - –d is an efficient loss.
- Tariff political constraint: government does not want households to pay more than 5 percent of their income for water consumption.
- Social tariff: households registered in tiers 1 and 2 of the Unique Social Registry are eligible for 100 percent subsidy; operators are compensated from the budget for providing the subsidy.
- Other households and commercial customers are subject to an Increasing Block Pricing (IBP); single customer specific tariffs defined for industry, tourism, and public entities.
- Quasi-fiscal activity: when tariffs set below cost recovery (particularly given high-cost desalination), selling water becomes a quasi-fiscal activity and operators should be compensated from the budget; costing requires detailed analysis of service cost and operator efficiency.

### ADS operational profitability details (Box 5)
- ADS reported household tariffs currently set at USD2.30, USD3.50, and USD5 per m3 for the three volume blocks.
- About half of all the water delivered to customers was charged at the lowest tariff.
- ADS reported it is buying desalinated water for between USD1.40 and USD1.80 per m3, depending on the provider.
- Given ADS is losing over 60 percent of the water it sources, the price of every m3 sold amounts to between USD3.50 (1.4/0.4) and USD4.50 (1.8/0.4).
- Based purely on cost of water and the tariff charged, and leaving aside operation and maintenance costs, the company is making a loss on every m3 sold under the two lower volume tariffs, which stand for 60 percent of billed consumption for the national average.
- Given the demographic of Santiago the portion of consumption falling in these tariff groups could be higher than average.

_Italic: Source: IMF staff_

### 67.        Additional water sector related reform measures are being contemplated but have yet to

### Additional water sector related reform measures are being contemplated but have yet to be fully formulated to be implemented

### Planned reforms and initiatives
- The government is looking into expanding irrigation systems across the country to:
  - establish agriculture as a profitable business option; and
  - adapt to climate change related implications of precipitation patterns, which could lead to longer dry periods and droughts.
- Expanding irrigation water distribution systems into rural areas and creating low-cost desalination options will be key and would require public investment in the distribution network.
- In the tourism sector, where the availability and quality of water and sanitation is above the national average, the government is looking into developing circular water systems where sewage is treated to reuse the water instead of discharging it into the ocean.
  - The law defining the legal requirements for the quality of recycled water is in place.
  - In the medium term, sewage systems in urban areas could also be developed in this direction.
  - Important albeit not yet quantified investment in sewage and sewage treatment capacity will be needed.
- The government is also looking into improving infiltration and replenishment of water resources through nature-based-solutions, such as soil cover for humidity, altitude moisture and rain vegetative harvesting, slope stabilization, and agroforestry.
- To avoid damaging or depleting natural water resources (e.g., underground water reservoirs), it will be important to:
  - fully understand how much natural water resources are and will be available going forward; and
  - determine how big the water gap is that needs to be filled from other resources, i.e., either from saving water or from desalination.

### Challenges and policy gaps
- While restructuring creates opportunities for private sector investment, public sector resources are required to:
  - strengthen the sector's financial sustainability;
  - reduce risk; and
  - create an environment conducive for investment.
- Roles:
  - The distribution network is best managed by the public sector.
  - Production and treatment of water can offer opportunities for private investment under water purchase agreement like arrangements.
- Financial viability of operators is a major deterrent for potential private investors:
  - solvency and liquidity issues can make operators unreliable business partners.
- Specific operational and financial challenges identified:
  - Reducing water losses:
    - Operational losses must be addressed for financial sustainability.
    - Efficiency measures addressing commercial losses are an important first step.
    - Need to assess upgrading/expanding metering devices to avoid theft and enforce bill collection.
    - To reduce technical losses, the network quality needs assessment and potentially important investment in upgrading or rehabilitating the network.
  - Recovering full cost:
    - Operators need compensation for the full cost of activities, including amortization of infrastructure investments (e.g., metering and/or network).
    - If technical loss cannot be reduced, the cost related to this loss needs to be part of the cost-of-service provision.
    - If regulated tariff is set below cost recovery, the service constitutes a quasi-fiscal activity and should be compensated by the government from the budget.
  - Recapitalization:
    - Address negative equity of some operating companies by recapitalizing entities while ensuring operational viability to avoid accumulation of new losses and debt.
  - SOE oversight:
    - Operators should be closely monitored to prevent financial slippages and to ensure efficient management once financially sound footing is restored.
- Desalination and energy coordination:
  - Expansion of water supply for human consumption and for irrigation is expected to rely on desalination, which will require considerable energy supply, calling for close coordination between the sectors.
  - Reliable water demand projections were not obtained by the mission; numbers presented in the 2015 PLENAS suggest that demand for water could be five times higher in 2030 than in 2022.
  - Expected demand increase linked to growing tourist numbers and the ambitious irrigation program are considerable.
  - Most desalination plants (not the largest) are planned with their own solar-based energy supply, but to be profitable they must operate during daytime as well as during the night:
    - Plants therefore either need to invest in their own battery storage capacity or turn to the electricity grid to cover nighttime electricity needs.
    - To ensure continued stability of the electricity network, the electricity grid must be fit for the highly volatile energy demand pattern created by this setup.
- Tariff design and social considerations:
  - The block tariff structure encourages efficient use of water but removes some revenue collection opportunities.
  - The bottom block could be seen as a social tariff; giving high volume users part of their consumption at the social tariff might not be necessary.
  - Pricing structure could be revised to achieve full cost recovery at least from those users who can afford this.
  - Where social or low volume tariffs are kept below cost recovery, the government is subsidizing water consumption.
  - Social mitigation measures are more efficient when provided through cash transfers than by subsidizing consumption of specific products and services.
  - Substituting the consumption subsidy by a cash transfer provides incentives for efficient allocation of resources and for saving resources where possible.
  - Such a reform needs to be prepared and accompanied by an efficient communication strategy demonstrating benefits to minimize political and social opposition.
- Implementation challenges:
  - The national authority equivalent to the state and technical regulators in matters of water, sanitation, and waste responsible for improvement of service quality need to be operationalized; water quality monitoring and control should be strengthened.
  - To move towards a circular water sector, households need to be encouraged to connect to sewage as soon as connections are offered and as long as the sewage treatment capacity is available.
    - This is already a legal requirement but is not being enforced; households might have economic disincentives for moving from septic tanks to using the public sewage system.

### Projections and key statistics
- 2015 PLENAS: demand for water could be five times higher in 2030 than in 2022.
- Social spending and social protection context:
  - Cabo Verde allocated 6.5 percent of GDP for social programs in 2022, reaching 55 percent of the total population.
  - Approximately 33 percent of the total population benefited from the social insurance system primarily through health assistance.
  - Social assistance reached around 22 percent of the total population.
  - The Social Protection System extended its coverage to 55 percent of the total population since 2017.
- Exclusion and poverty indicators:
  - The Social Protection System had around 40 percent of poor households not covered by social programs as of 2017.
  - Poverty fell from 56.8 percent in 2001 to 35.2 percent in 2015; subsequently, income stagnated and around 35 percent of the population continues to face poverty.
  - 85 percent of the poor population resides in three islands: Santiago, Sao Vicente, and Santo Antao.
  - More than half of the rural population lives under poverty conditions.
- Unique Social Registry (USR) progress:
  - With World Bank support, Cabo Verde has registered 65 percent of households within the USR, encompassing 80 percent of the total population.
  - As of 2023, 16 social programs have been designed based on the USR information.
  - The Rendimento Social de Inclusão Program (RSI) pilot reached 2,157 households.

### Reform options and concrete recommendations
- Recommendation 4: Address losses in the water sector to move towards an economically and ecologically efficient water management
  - Identify and implement water efficiency measures to reduce commercial losses.
  - Identify and assess the benefits and the affordability of infrastructure investment needed to address technical losses.
  - Allocate the responsibility for undertaking investments in the network and provide required resources.
- Recommendation 5: Ensure economic sustainability of water sector and address service quality issues, ensuring room for tariff adjustments
  - Determine cost recovery tariff taking into account the full cost of service provision, i.e., including cost of maintenance and amortization of infrastructure required for service provision (among others, this would cover the cost of restoring, updating, and/or expanding the distribution network).
  - Determine the difference between the tariff charged and the cost-recovery tariff.
  - Ensure the operational viability of the operators by compensating them – transparently from the budget – for any difference between actual cost of efficient service provision and cost recovery tariff (i.e., for quasi-fiscal activities), including where due to social or subsidized tariff.
  - Ensure the financial viability of the operators (i) by addressing debt accumulated due to past losses, and (ii) by ensuring the efficient management of the operation with the given infrastructure.
  - Improve the service quality to break the circle of low price for bad quality service.
- Recommendation 6: Consider revising water tariff structure to achieve full cost recovery from all or part of the users while compensating poor and vulnerable households with social transfers
  - Undertake a distributional impact assessment to determine the impact of various tariff options.
  - Design and implement a tariff structure that closes as much as possible to gap towards cost recovery.
  - Mitigate the impact of any price increase for vulnerable and poor households by providing a targeted cash transfer through the social safety net, based on a fully implemented URS.
  - Develop and implement a communication strategy to effectively communicate the need for reforms in water pricing and how additional revenues are needed to cover the cost of water provision and how they will be used, including to protect the vulnerable and poor.
- Recommendation 7: Improve coordination of planning within the sector and with other sectors
  - Update the forecast for availability from underground and surface water and for water demand for from various sectors and by region for human consumption as well as for agriculture.
  - Determine need for desalination and pumping and assess energy needs (volume and timing).
  - Update sectoral plans, i.e., the PLENAS and plan for agriculture and irrigation, (i) to provide a basis for sectoral investment planning and (ii) to share information across sectors, e.g., with the energy sector to ensure availability of needed energy.
- Recommendation 8 (linked to Social Safety Net): Strengthen the social safety net to enable the efficient support of poor and vulnerable in the context of energy and water sector reforms, and to prepare for potential support needs due to climate change related challenges
  - Complete the implementation of the Unique Social Registry, to achieve 100 percent coverage of households registered, especially to include rural households.
  - Ensure the efficient use of public resources in the SSN by reducing the overlaps between the national and municipal level.
  - Use the current structure of the RSI program to design and implement a suitable and stable cash transfer program, financed from additional revenues generated from energy or water price reforms.

*IMF Technical Assistance Report — extracted content*

### 80.        Cabo Verde has planned for a comprehensive DRM framework. The 2021 NDC update

### tarea2024040 - 80.        Cabo Verde has planned for a comprehensive DRM framework. The 2021 NDC update

### Disaster Risk Management (DRM) framework and recent commitments
- 2021 NDC update commits the government to implementing the 2018 National Strategy for Disaster Risk Reduction (ENRRD) 2018-2030.
- ENRRD aims to provide an effective policy plan for managing risks, minimizing damage and associated losses through preventive measures, and covers key aspects and good practice frameworks in DRM.
- ENRRD references:
  - Need for coordination and decentralization of DRM.
  - Sendai Framework for Action on Disaster Risk Reduction 2015-2030.
  - Special challenges facing small island developing states (SIDS).
  - Exposure of various economic sectors and roles of public and private stakeholders.
- Disaster risk reduction also addressed in regulations for spatial and urban planning and the National Policy for Territorial Planning and Urbanism from 2018 and 2020.
- Ministry of Finance (MOF) included disaster risks in the Fiscal Risks Statement (Declaração dos Riscos Orçamentais) with estimates of economic impact.
- Government created the National Emergency Fund (Fundo Nacional de Emergência (FNE)) funded through a defined annual budget allocation to cover recurrent emergency and recovery expenditures.
- Operational lead: National Civil Protection and Fire Service (SNPCB) under the Ministry of Internal Affairs; SNPCB assigned responsibility for implementing the ENRRD.

### DRM challenges and policy gaps
- Current DRM system focuses largely on preparedness and response under SNPCB responsibility.
- Limited strategic DRM approach: full DRM management cycle (prevention, mitigation, preparedness, response, recovery) not fully defined or implemented in an integrated manner.
- Early warning systems: some work under SNPCB and MAE (agriculture sector), but broader strategic integration lacking.
- Coordination and leadership gaps: other SIDS have placed DRM and climate change responsibilities with high-level councils at Cabinet or Prime Minister level; Cabo Verde lacks comparable high-level assignment.

### Reform option (Recommendation 9)
- Strengthen leadership for DRM to cover and effectively manage the entire DRM cycle.
  - Assign the role for leading and coordinating DRM efforts to a high-level entity (e.g., at Council of Minister level or under the Prime Minister’s Office), potentially together with responsibility for climate change adaptation policy coordination.
  - Develop and integrate risk prevention, risk mitigation, and disaster recovery in the DRM framework.

### Climate change management — legal, institutional, and planning context
- Cabo Verde is party to the UNFCCC and signed the Paris agreement in 2016; National Directorate of Environment under MAE is Designated National Authority to the UNFCCC.
- Timeline of climate commitments:
  - Initial nationally determined contribution submitted in 2015.
  - First NDC in 2017.
  - NDCs updated in 2021 (commitments to reduce GHG emissions compared to BAU by 2030 and to reach net-zero; cover adaptation across all key sectors).
  - National Adaptation Plan submitted in 2022.
- NDC mainstreaming approach:
  - NDC based on PEDS II, refers to sectoral plans and strategies.
  - Responsibility for sectoral measures assigned to respective sectoral ministries, agencies, and 22 municipalities.
  - PEDS II guides and coordinates policies across sectors; NDC summarizes climate ambitions and activities across sectors and can serve as a communication tool.
- Capacity and information gaps:
  - Sectoral and subnational capacity for assessing and reacting to climate change varies; assessing climate implications not yet perceived as a priority.
  - Information activities (climate scenarios, hazard vulnerability mapping) are being initiated in isolation:
    - INGT launching a pilot for mapping climate hazard vulnerabilities in five communities but lacks awareness of applicable climate scenarios.
    - Meteorological services working on climate scenarios, largely driven by international partners without internal administrative demand.
  - Private-sector sectors (e.g., tourism) did not appear concerned about long-term climate implications; lack of information not raised as a problem by public or private sectors.
- Cross-sector coordination gaps:
  - Strategies and plans for key sectors (including energy and water) being updated but coordination remains limited despite interlinkages (e.g., desalination increases energy demand and affects water production/distribution costs).

### Climate governance arrangements and institutional roles
- Existing and recent institutional elements:
  - National Directorate of Environment (DNA) @ MAE: Designated National Authority to the UNFCCC; responsible for climate accountability and communication under the UNFCCC; with DNP coordinates technical and sectoral implementation of the NDC and NAP; leader of the Climate Change Committee (established 2008).
  - National Directorate of Planning (DNP) @ Ministry of Finance and Business Development: supports national strategy for development planning; with DNA coordinates planning and financial implementation of NDC and NAP; responsible for coordinating and mobilizing International Climate Finance (ICF); National Designated Authority to the GCF; transposes national climate planning to municipal level.
  - Resource Mobilization Service @ DNP: monitors and coordinates disbursement and follow-up of international funds; enables monitoring and evaluation; monitors implementation of commitments.
  - National Institute of Meteorology and Geophysics (INMG) @ MAE: responsible for climate services framework; collects, compiles, treats and monitors meteorological, climatic, and geophysical variables; focal point of the UNFCCC.
  - National Civil Protection and Fire Service (SNPCB): responsible for early warning at national and local levels; responsible for local Disaster Risk Reduction (DRR) platforms.
- New and proposed governance bodies:
  - 2023: National Council for the Environment and Climate Action (NCECA) introduced under MAE with representatives from across ministries, government entities, and civil society (Resolution No. 35 from 2023 lists members).
  - 2021 NDC update suggested a higher level National Climate Council (NCC) chaired by MAE and co-chaired by MOF.
  - Structures for municipal and civil society engagement are envisaged under the 2021 NDC update but not yet established.
  - Suggestion: vest strategic leadership in a committee at Council of Minister or Prime Minister level to engage all sectors.

### Climate governance challenges and procedural gaps
- Legal framework: international commitments legislated, but an overarching climate law has not been legislated; government drafting a climate change law to allocate roles, responsibilities, and institutional arrangements for adaptation and mitigation.
- Coordination requires procedures, not just assigned responsibilities:
  - DNP and DNA need processes to ensure sectors submit updated plans in time and consider cross-sector linkages.
  - Proposal: require sectors to confirm they informed affected sectors and have taken into account impacts from other sectors (e.g., water sector must inform energy sector about energy demand implications from desalination expansion).
  - Annexes III and IV of the source provide examples to ensure coordination and formalize reporting on cross-sectoral coordination.

### Reform options (Recommendations 10 and 11)
- Recommendation 10. Strengthen the institutional framework for managing climate change and design and implement efficient procedures for coordination.
  - Assign leadership for driving climate change policy coordination to a Council of Minister level body (potentially together with DRM).
  - Introduce procedures ensuring each stakeholder can play his/her role in climate-related policy planning and implementation effectively (e.g., through a coordination mechanism like the one proposed in Annex IV).
  - Hold entities accountable for undertaking coordination by requesting confirmation that sectoral interlinkages are reflected in their sectoral plans.
- Recommendation 11. Create a common understanding of and awareness for climate change and climate change risks within government.
  - Create and disseminate information on expected climate impacts, i.e., by providing climate scenarios and hazard vulnerability maps.
  - Encourage a long-term forward-looking view by aligning risk assessment horizons with the timeframe affected by the decision to be taken.
  - Create appreciation for the need to protect against climate change, e.g., by disseminating hazard vulnerability maps to support climate vulnerability assessments for projects and policies.

*IMF Technical Assistance Report | content unit tarea2024040 - 80.*

### Annex I. Draft Action Plan

### Annex I. Draft Action Plan

### Energy (Recommendations 1–3)
- Recommendation 1. As part of the update of the Electricity Master Plan, define the electricity sector transition consistent with (i) projected energy needs from across the economy and (ii) commitments under the NDC
  - Coordinate across ministries, to assess the expected energy demand across the economy (including for water desalination, e-mobility, growing tourism) on an island-by-island basis through 2030 and beyond, taking into consideration intraday fluctuations – update the estimate regularly
    - Short term: 
    - Responsible Agency: MITE
    - TA need / provider: No
  - Assess how the demand will be met with 54 percent RE in 2030 on an island-by-island basis, taking into account intraday fluctuations in demand and in RE generation
    - Short term: 
    - Responsible Agency: MITE
    - TA need / provider: No
  - Develop and implement a phased plan for onboarding RE sources on an island-by-island basis, defining access points for RE sources and taking into account required investment in grid infrastructure including storage, to manage increased demand during peak hours, without forcing the system to ramp up, expensive thermal capacity
    - Short term: 
    - Responsible Agency: MITE
    - TA need / provider: IRENA?
  - Phase procurement of RE capacity, e.g., though PPAs, through in line with network absorption capacity for variable RE
    - Short term: 
    - Responsible Agency: MITE
    - TA need / provider: No
  - Implement investment in grid infrastructure (e.g., storage) to allow onboarding of RE in line with the phased plan, increasing private participation in RE generation
    - Short term / Medium term:  
    - Responsible Agency: MITE
    - TA need / provider: No
  - Plan and implement the phased decommissioning of thermal power generation capacity to reduce overall electricity production cost, reaping the economic benefits from the transition
    - Short term: 
    - Responsible Agency: MITE
    - TA need / provider: Yes; tbd
  - Work with development partners on stove replacement programs to decrease the number of households that use biomass as their cooking fuel
    - Short term: 
    - Responsible Agency: MITE / MFSI
    - TA need / provider: Yes; tbd

- Recommendation 2. Enhance financial stability, transparency, competition, and efficiency of the electricity sector, creating conditions conducive to private investment and promoting the energy transition
  - Complete the full legal and operational unbundling of ELECTRA
    - Short term: 
    - Responsible Agency: MITE
    - TA need / provider: WB
  - Ensure financial viability of the network operator and the distribution company by addressing accumulated losses and promoting efficient operations
    - Short term / Medium term:  
    - Responsible Agency: MITE
    - TA need / provider: WB?
  - Compensate for any quasi-fiscal activities through budgetary allocations, covering the gap between costs and regulated prices
    - Short term / Medium term:  
    - Responsible Agency: MITE
    - TA need / provider: Yes; e.g., IMF
  - Assign the responsibility for and ensure the execution of needed grid infrastructure investment
    - Short term / Medium term:  
    - Responsible Agency: MITE
    - TA need / provider: No

- Recommendation 3. Consider revising the electricity pricing structure to incentivize energy efficiency and achieve full cost recovery while protecting the poor and vulnerable
  - Undertake a distributional impact assessment to determine the impact of various policy options
    - Short term: 
    - Responsible Agency: MITE / MFSI
    - TA need / provider: Yes; e.g., IMF, WB
  - Assess the impact of different electricity pricing structures on overall cost recovery
    - Short term: 
    - Responsible Agency: MITE / ARME
    - TA need / provider: No
  - Consider implementing a modest carbon tax to disincentivize energy consumption and increase fiscal revenues
    - Medium term: 
    - Responsible Agency: MOF
    - TA need / provider: Yes; e.g., IMF
  - Mitigate the impact of any price increase for vulnerable and poor households by providing a targeted cash transfer through the social safety net, based on a fully implemented URS
    - Short term / Medium term: 
    - Responsible Agency: MFSI
    - TA need / provider: WB
  - Develop and implement a communication strategy to effectively communicate the need for reforms in electricity pricing and how additional revenues will be used, including to protect the vulnerable and poor, demonstrating the benefit of the reform to minimize political and social opposition
    - Short term / Medium term:  
    - Responsible Agency: MITE
    - TA need / provider: Yes; tbd

### Water (Recommendations 4–7)
- Recommendation 4. Address losses in the water sector to move towards an economically and ecologically efficient water management
  - Identify and implement water efficiency measures to reduce commercial loss
    - Short term: 
    - Responsible Agency: ANAS
    - TA need / provider: No
  - Identify and assess the benefits and the affordability of infrastructure investment needed to address technical losses
    - Short term / Medium term:  
    - Responsible Agency: ANAS
    - TA need / provider: Yes; tbd
  - Allocate the responsibility for undertaking investments in the network and provide required resources
    - Short term / Medium term:  
    - Responsible Agency: ANAS
    - TA need / provider: No

- Recommendation 5. Ensure economic sustainability of water sector and address service quality issues, ensuring room for tariff adjustments
  - Determine cost recovery tariff taking into account the full cost of service provision, i.e., including cost of maintenance and amortization of infrastructure required for service provision (among others, this would cover the cost of restoring, updating, and/or expanding the distribution network)
    - Short term: 
    - Responsible Agency: ANAS
    - TA need / provider: Yes; e.g., IMF
  - Determine the difference between the tariff charged and the cost-recovery tariff
    - Short term: 
    - Responsible Agency: ANAS
    - TA need / provider: No
  - Ensure the operational viability of the operators by compensating them – transparently from the budget – for any difference between actual cost of efficient service provision and cost recovery tariff (i.e., for quasi-fiscal activities), including where due to social or subsidized tariff
    - Short term / Medium term:  
    - Responsible Agency: ANAS
    - TA need / provider: Yes; e.g., IMF
  - Ensure the financial viability of the operators (i) by addressing debt accumulated due to past losses, and (ii) by ensuring the efficient management of the operation with the given infrastructure
    - Short term / Medium term:  
    - Responsible Agency: ANAS
    - TA need / provider: Yes; tbd
  - Improve the service quality to break the circle of low price for bad quality service
    - Short term: 
    - Responsible Agency: ANAS
    - TA need / provider: Yes; tbd

- Recommendation 6. Consider revising water tariff structure to achieve full cost recovery from all or part of the users while compensating poor and vulnerable households with social transfers
  - Undertake a distributional impact assessment to determine the impact of various tariff options
    - Short term: 
    - Responsible Agency: ANAS / MFSI
    - TA need / provider: Yes; e.g., IMF, WB
  - Design and implement a tariff structure that closes as much as possible to gap towards cost recovery
    - Short term: 
    - Responsible Agency: ANAS / ARME
    - TA need / provider: Yes; tbd
  - Mitigate the impact of any price increase for vulnerable and poor households by providing a targeted cash transfer through the social safety net, based on a fully implemented URS
    - Short term: 
    - Responsible Agency: MFSI
    - TA need / provider: Yes; tbd
  - Develop and implement a communication strategy to effectively communicate the need for reforms in water pricing and how additional revenues are needed to cover the cost of water provision and how they will be used, including to protect the vulnerable and poor
    - Short term / Medium term:  
    - Responsible Agency: ANAS
    - TA need / provider: Yes; tbd

- Recommendation 7. Improve coordination of planning within the sector and with other sectors
  - Update the forecast for availability from underground and surface water and for water demand for from various sectors and by region for human consumption as well as for agriculture
    - Short term: 
    - Responsible Agency: MAE
    - TA need / provider: Yes; LuxDev?
  - Determine need for desalination and pumping and assess energy needs (volume and timing)
    - Short term: 
    - Responsible Agency: MAE
    - TA need / provider: Yes; LuxDev?
  - Update sectoral plans, i.e., the PLENAS and plan for agriculture and irrigation, (i) to provide a basis for sectoral investment planning and (ii) to share information across sectors, e.g., with the energy sector to ensure availability of needed energy
    - Short term / Medium term:  
    - Responsible Agency: ANAS / MAE
    - TA need / provider: Yes; LuxDev?

### Social Safety Net (Recommendation 8)
- Recommendation 8. Strengthen the social safety net to enable the efficient support of poor and vulnerable in the context of energy and water sector reforms, and to prepare for potential support needs due to climate change related challenges
  - Complete the implementation of the Unique Social Registry, to achieve 100 percent coverage of households registered, especially to include rural households, which are often poor and vulnerable to climate change implications
    - Short term: 
    - Responsible Agency: MFSI
    - TA need / provider: WB
  - Ensure the efficient use of public resources in the SSN by reducing the overlaps between the national and municipal level
    - Short term: 
    - Responsible Agency: MFSI
    - TA need / provider: WB?
  - Use the current structure of the RSI program to design and implement a suitable and stable cash transfer program, financed from additional revenues generated from energy or water price reforms
    - Short term: 
    - Responsible Agency: MFSI
    - TA need / provider: WB?

### Disaster Risk Management (Recommendation 9)
- Recommendation 9. Strengthen leadership for DRM to cover and effectively manage the entire DRM cycle
  - Assign the role for leading and coordination the DRM efforts to a high-level entity (e.g., at Council of Minister level or under the Prime Minister’s Office), potentially together with the responsibility for climate change adaptation policy coordination
    - Short term: 
    - Responsible Agency: Gov
    - TA need / provider: No
  - Develop and integrate risk prevention, risk mitigation, and disaster recovery in the DRM framework
    - Short term: 
    - Responsible Agency: DRM leader
    - TA need / provider: WB?

### Climate change management coordination, information, and governance (Recommendations 10–11)
- Recommendation 10. Strengthen the institutional framework for managing climate change and design and implement efficient procedures for coordination
  - Assign the leadership for driving climate change related policy coordination to a Council of Minister level body (potentially together with DRM)
    - Short term: 
    - Responsible Agency: Gov
    - TA need / provider: No
  - Introduce procedures that ensure that each stokehold can play his/her role in climate change related policy planning and implementation effectively (e.g., through a coordination mechanism like the one proposed in Annex IV)
    - Short term / Medium term:  
    - Responsible Agency: CC leader
    - TA need / provider: Yes; LuxDev?
  - Hold government entities accountable for undertaking the coordination effort by requesting them to confirm that sectoral interlinkages are reflected in their respective sectoral plans
    - Short term / Medium term:  
    - Responsible Agency: CC leader
    - TA need / provider: Yes; LuxDev?

- Recommendation 11. Create a common understanding of and awareness for climate change and climate change risks within government
  - Create and disseminate information on what impact to expect from climate change to enhance appreciation for need to protect against climate change, i.e., by providing climate scenarios and hazard vulnerability maps
    - Short term: 
    - Responsible Agency: CC leader
    - TA need / provider: Yes; LuxDev?
  - Encourage taking a long-term forward-looking view by aligning risk assessment horizon with the timeframe affected by the decision to be taken (e.g., lifetime of asset)
    - Short term: 
    - Responsible Agency: CC leader
    - TA need / provider: Yes; LuxDev?

### Annex II. Key Considerations for Communication Throughout a Reform Process
- Communication objectives and approach
  - Communication is an essential instrument for creating awareness, understanding, acceptance and commitment for the change.
  - A communication strategy defines the communication means, content and timing based on a needs assessment on a stakeholder-by-stakeholder basis.
- Stakeholder needs assessment factors
  - Determine (i) the relationship of each stakeholder group towards the reform, (ii) the current attitude of each stakeholder group towards the reform, and (iii) the level of influence of each stakeholder group on the reform and thus the risk the failure to take the stakeholder group on board has for the reform.
- Principles for communication in a reform process
  - Clearly communicate the reform vision and do it early.
  - Outline the benefits and the impact of the reform.
  - Ensure the leaders actively communicate throughout the reform process.
  - Use multiple channels to communicate the reform and underlying message.
  - Provide opportunities for dialogue.
  - Repeat the reform messages often.
  - Monitor and measure the effect of communications.

### Annex III. Example for How to Mainstream Climate-Related Tasks into Processes and Decision Making
- Integration points across project cycle
  - Project proposal: prepare and submit project proposal to MoF and MAA; include preliminary view on climate impact and climate vulnerability of project; MAA provides opinion on climate sustainability; Finance Minister provides opinion on project based on review.
  - Project preparation period: prepare feasibility study and project appraisal to MoF; prepare climate impact and climate vulnerability assessment as part of project appraisal and send for approval to MAA; MAA provides recommendation/objection on climate sustainability; Minister approves/rejects project for inclusion in pipeline.
  - Allocating funding for project: include projects from pipeline in budget proposal based on sectoral priorities and sectoral climate commitments/intentions; review sectoral budgets for climate sustainability; MAA provides recommendation/objection of sectoral budget proposals for consistency with climate sustainability; Minister and Council of Ministers approve/reject inclusion in budget proposal.
- Roles highlighted
  - Project / Activity Manager (line ministry / supervising ministry)
  - Ministry of Agriculture and Environment (could be NCC)
  - MoF

### Annex IV. Example for Reporting on Cross Sectoral Coordination as Part of Climate-Related Planning Processes
- Reporting framework concept
  - Each sector confirms that they reported on linkages to other sectors and took into account implications from other sectors by filling a two-sided table: "Impact other sectors reported on the activity (needs to be reflected in sectoral activity)" and "Impact of the activity reported to other sectors (needs to be reflected in the activity of other sectors)".
  - The coordinating entity ensures consistency by checking that entries reported by other sectors on the right-hand side are considered on the left-hand side by respective sectors, revealing coordination gaps.

*Source: Annex I. Draft Action Plan (from the provided IMF technical assistance report content).*

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_Source: https://www.imf.org/-/media/files/publications/tar/2024/english/tarea2024040.pdf_