NamPower haunted by N$900 million under recovery

The Electricity Control Board (ECB) announced that it has approved 8% new bulk electricity tariff increase for NamPower for the financial year 2017/18. During the announcement this week, ECB indicated that NamPower submitted three bulk tariff increase options of 6.38%, 10.8% and 22.40% for this financial year.

This will be an increase from N$1.49 to N$1.59, N41.64 and N$1.83 per KWh. At this cost, NamPower will be able to meet service delivery costs and the tariff will remain cost reflective.

The options consider the under recovery of N$1.3 billion that NamPower incurred during the financial period 2015/16 due to challenges experienced in the Southern African power pool.

“The three above mentioned options relates to the different strategies for recovering the under recovery amount. When 100% of the under recovery amount of N$ 1.3 billion is included it implies that the entire amount will be recovered in the 2017/2018 financial period, if 35% is included there will be another 65% that will be recovered in the period 2018/2019,” ECB chief executive officer, Foibe Namene said. NamPower annual earns revenue based on the revenue requirement, comprising budgeted costs and approved tariffs.

“The current tariff methodology makes provision for revenue reconciliations, to ensure that the utility and the customer are protected when the forecast and actual cost and revenue of NamPower is reconciled.

“Through a detailed review and approval process by the Regulator, in both events of over and under recovery the benefit is passed to the respective party. Therefore, in line with the reconciliation methodology, the three increase options will recover 35%, 50% or 100% of under recovery amount,” Namene added.

NamPower based its reasons for the increase in tariffs so not to breach NamPower’s Debt Service Cover Ratio and Net Debt to Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) minimum thresholds and ultimately avoiding defaulting on its loan covenants “Application of cost reflective tariffs now and the future, to sustain a going concern for NamPower amidst the challenges of ensuring a least cost supply portfolio as well as the capital expansion required to ensure the realisation of Vision 2030 and the Harambee Prosperity Plan supported by the Electricity Supply Industry. Provision of the under-recovery from 2015/2016 as the main driver of the proposed increase”, Namene said.

The ECB also said the tariff application review process included ensuring Cabinet decision on cost reflective tariffs for NamPower, In terms of this Cabinet decision the ECB has been granting NamPower real tariff increases from 2005 onwards to ensure that cost reflective tariff levels were reached by 2011/2012 and subsequently sustained beyond that period and also by analysing NamPower’s submission in accordance with the approved ECB Cost - Plus Tariff Methodology, Revenue Reconciliation Methodology, Regulations, Rules and Government Policies.

The ECB also conducted information sharing sessions of which these were to share information and solicit stakeholders’ input on the NamPower application. Namene also said that ECB considered the implication of the 2015/2016 under recovery on NamPower’s ability to continue supplying electricity in the short, medium and long term and the possible future impact on the tariff.

“The said under recovery was recorded on the generation part of NamPower’s business, however during the same period NamPower recorded an over recovery of N$ 410 million on the transmission part of the business, the full benefit of the over recovery is passed on to the customer in the tariff review for 2017/2018.

The net balance of the under recovery is therefore reduced from N$ 1.3 billion to N$ 900 million”, Namene said. The ECB also considered NamPower’s application based on the challenge posed by the prevailing slowing down especially of some of the major industries such as mining and agriculture in the local economy.

“The increase would suffice for NamPower to cover its allowed operating costs, cover part of the under recovery of 2015/2016, fulfil its financial obligations including payment to the local Independent Power Producers and ensure a continued supply of electricity. The approved tariff adjustment is effective 01 July 2017”, Namene said.