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NamPower costs increase

Mon, 23 February 2015 06:16
by Kudzai Chimhangwa

NamPower recorded an increase in costs owing to reliance on imports and a substantial increase in the direct cost of electricity generation and transmission in its trading period that ended on 30th June 2014.
Despite delivering a solid set of results with revenue increasing by 20% to N$4 billion driven by a July tariff increase of 13%, the high cost of electricity intake weighed down the exceptional performance.
NamPower Managing Director, Paulinus Shilamba, said that electricity sales volumes, which had grown during the preceding year, were essentially flat at 3831 GWh as compared to 3861 GWh in the previous period.
 “The lag is attributable to reduction in bulk water pumping, a focus on efficiency in domestic mining operations as a result of decreased commodity prices and increased customer use of renewable sources of energy such as solar water heating and installation of rooftop solar PV,” said Shilamba.
Despite the increases in revenue, gross margins fell from 50% in 2013 to 46%, indicative of the high cost of electricity intake, especially imports.
NamPower continues to rely on regional trading partners to meet the bulk of the country’s energy demand.
The cost of electricity increased by 30% from N$1.7 billion to N$2.2 billion, an improvement over the 48% increase during the previous financial year but a figure still far in excess of inflation.
Unit cost hikes and the depreciation of the Namibian dollar against the United States dollar accentuated this increase.
Other income for the group decreased by 35% from N$97 million to N$65 million attributable entirely to a lowering of accrued government grant income from N$71.8 million in 2013 to N$35.7 million this year.
He said that Van Eck power station is being rehabilitated and did not run during the year under review, hence the reduction in the Government grant figure.
Government grants are recognized as deferred income at fair value when there is reasonable assurance that they will be received.
NamPower is already planning on initiating an upgrade of transmission infrastructure which is expected to cost N$1 billion per year over the next four to five years.
This is being done in order to integrate new generation capacity, as well as overall demand growth.
Pending the commissioning of a new base load plant in 2018, NamPower thus seeks to extract more from its existing infrastructure and undertook a number of initiatives.
These include repair and maintenance of transmission networks, rehabilitation of the Van Eck Power station and upgrading of Ruacana units 1, 2 and 3.
“These activities while effective resulted in a 25% operating expense increase during the year under review, compared to the 13% increase experienced the previous financial year,” he said.
Changes in market conditions with regard to the depreciation of the Namibia dollar against major trading currencies impacted on profitability in a number of ways.
Net fair value loss on derivatives and foreign loans stood at N$95 million. Net fair value loss on firm commitments stood at N$10 million as compared to a gain of N$9 million in 2013.
However, interest loans and borrowings amounting to N$145 million were repaid.
NamPower Chairperson Maria Nakale said Namibia will require investment in generation and transmission infrastructure which is unprecedented in the country’s history.
“Considering that actual supply from domestic sources has been hovering around 41% for a number of years, with the balance of 59% having to be imported, security of supply is thus chief among NamPower’s challenges,” said Nakale.
Turnover stood at N$3.9 million for the year ended 30 June 2014, as compared to N$3.3 million during the comparative period.
Sales of electricity accounted for N$3.5 million of the total revenue figure, with extension charges accounting for N$62 000 of the amount.
Contributions by customers accounted for N$139 000 of the total figure as compared to N$4 526 recorded in 2013 over the same period.
The cost of primary energy, materials and services shot upwards to N$2.8 million from the previously recorded N$2.2 million.