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ELECTRICITY AND FUEL PUSH UP PRODUCTION COST

By: Nghiinomenwa Erastus

The constant increase in electricity and fuel in the domestic economy can contribute to the high cost of doing business in Namibia and burden consumers further.

According to the latest analysis of Simonis Storms Securities, the cost of electricity could be increased beyond the inflation level to cater for NamPower’s increasing expenditure.

Moreover, the country has increased the fuel cost for both diesel and petrol five times this year.

“Due to increased Capital Expenditure (CAPEX) by NamPower, electricity price changes might have to exceed the annual rate of inflation in the medium-term,” Simonis Storm’s analysis projects.

CAPEX includes any spending to improve, expand or maintain a company’s fixed assets- this includes Nampower planned projects include biomass, wind, and solar generation projects.

These projects will be rolled out over the next five years, costing a total of N$13,9 billion.

Simonis Storm explained that while NamPower strives to maintain electricity price changes in line with annual rates of inflation, “CAPEX projects will increase costs and might necessitate above-inflation hikes”.

As a result of the cost, outlay to enable local generation, the research team project that more electricity tariffs burden comes from consumers’ disposable income.

“Consumers can therefore expect higher electricity prices charged by respective Municipalities,” the analysis read.

Even though the Electricity Control Board approves electricity hikes in Namibia, actual generation and cost are done and incurred by Nampower and Independent Power Producers.

Even though different factors are at play, consumers in Europe also face higher electricity bills, where gas prices have surged 272,8% between March 2021 and September 2021.

With housing and gas, electricity takes up the most significant chunk (28,36%) of consumers’ income in the consumer basket.

Moreover, it is the main inputs in the production, with various firms installing solar to generate their power, to lower their long term cost of energy.

In addition to this, Namibian consumers and businesses also face higher fuel prices, given the latest 30 cents per litre increase (effective 6 October 2021).

This is the fifth fuel price increase for 2021.

Simonis Storm’s analysis highlighted that although Rising petrol prices disgruntle Namibian consumers, there is always someone else worse off.

Within the transport category, fuel (diesel and petrol) has experienced the highest inflationary pressure ( price growth) from April to September this year.

NSA stats show that fuel price has increased between 10% and 21% from April this year to September.

In other words, for the six months, consumers and businesses had to increase their expenditure on fuel.

Compared to neighbouring and other African countries, Namibia fares moderately better in terms of petrol prices, being in the lower half of the fuel price spectrum.

Overall, Simonis Storm highlighted that inflation remains below its long-run average of 5,4% (since 2003).

Moderating inflation since last year is reflective of subdued consumer spending, coupled with lower government spending (fiscal consolidation) in certain industries.

Phenomena such as global supply chain bottlenecks and climate change effects provide support for cost-push inflationary pressures.

The research, investing, and broker company added that demand-pull inflationary pressures remain weak because consumers remain cautious in their spending decisions. Email: erastus@thevillager.com.na

Julia Heita

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