Electricity in Namibia – Quo Vadis?

RECENT developments at NamPower as well as MME have prompted me to report on this matter.

I am extremely concerned, as I am convinced that things are going in the wrong direction. Before Independence Swawek was established in December 1964 as a company under the Companies Act, fully owned by the Industrial Development Corporation of South Africa, mandated to establish an electricity transmission grid and to develop the Ruacana power station.It had no Electricity Act or Ordinance mandating and/or directing it.Delays to Ruacana, related to the then Portuguese government, necessitated the construction of Van Eck coal-fired power station.Swawek operated under a competent and fully accountable board of directors.It became operational on July 1 1972.Initially it was a loss-making company, but, despite frequent sabotage to its transmission system from 1977, became profitable in 1980.In 1986, realising that independence for Namibia was inevitable at some stage in the future, it negotiated a buy-out from its owner, the IDC, through a down payment of 50 per cent of its value and a 10-year loan and payment of the rest.The last payment was in 1996, long after Independence.A fully Namibian board was also appointed in 1986.The shares of the company were given (in 1986) to the Administrator General, one day to be handed over to a new government.This duly happened on March 22 1990.The point that is relevant here is that the consumers of electricity paid in full for NamPower, without assistance from any government.Whilst keeping an eye on the profitability of the company, loss-making (and still loss-making today) rural electrification commenced, albeit very slowly initially, in 1982.The grid was also extended to the more densely populated north during this time.After Independence During the first hectic years after Independence, whilst the new Government was establishing itself, Swawek was largely left alone, although there was always close consultation with the Ministry of Mines and Energy (MME).Rural electrification became more important, but with the profitability of the company kept in mind.In 1996, Swawek, once again voluntarily, changed its name to the more appropriate NamPower.In 1990, NamPower, strongly supported by the MME, initiated the Kunene study with the purpose of developing Epupa power station.However, when the study was at last complete and Angola refused Epupa and supported Baynes development, the MME did not support Baynes despite presentations and motivations by NamPower supporting what was considered to be a compromise solution.At least the Angolan government was prepared to support the construction of a power plant at Baynes, which would by now have ensured some base load capacity for Namibia.In 1995, it was realised within NamPower that a power shortage was looming in 1999 if timely action was not taken, given the then rate of growth.After convincing its board and its MD convincing the MME, NamPower immediately entered into negotiations with Eskom (of South Africa), the green light was given in late 1996 and construction commenced soon thereafter on a 400 kV interconnecting power line between Eskom and NamPower.The first section of the line was duly completed in time in May 1999, before the winter peak, and the looming power crisis was averted.The position was also helped by the closure of TCL (now Ongopolo), not foreseen in 1995.Even so, NamPower then already realised that this 400 kV line would not suffice forever, and commence negotiations with Eskom and Shell for the development of Kudu gas power station.Kudu is too large and expensive for NamPower to go it alone.The above illustrates briefly the NamPower of the past whilst what follows will discuss what is happening right now concerning the supply of electricity to Namibia and what I expect will result from actions after 2000, when the Electricity Act came into effect, as well as present developments.Ministry Of Mines And Energy During the ’90s, and even up to beginning of 2003, there was, generally speaking, good co-operation between the MME and NamPower.Although there were differences from time to time, they were healthy.The MME stated the broad objectives and policies, gave the necessary vital support internationally whilst NamPower was left to execute them to the best of its ability.The MME never entered NamPower’s engine room and meddled.It must be stated that, although the Government of Namibia is the owner of NamPower and the MME is entrusted as the executive Ministry for NamPower, an owner’s rights and obligations are spelled out very clearly under the Companies Act.The one aspect where they transgress, but (probably inevitably) tolerated by NamPower, is the appointment of directors, including the Managing Director.In line with the Companies Act, this is not the right or prerogative of the owner and/or Minister.This has led to the appointment of directors with political agendas without experience of electricity and/or business.the ECB The Electricity Control Board (ECB) was established through legislation in 2000 (Act 2 of 2000).I am not going to discuss what the effect of the ECB has been on local (municipal) and RED level.On the transmission and generation level there has been a marked, negative, effect.Although the above-mentioned 400 kV line was then virtually completed, the ECB conducted a study concerning the above project (within their rights) and concluded that NamPower had wasted its money and that the 400 kV line was not necessary.I hardly need to mention that this line “saved” the country and made the development of Skorpion mine possible as well as the reopening of Ongopolo.The general economic growth of Namibia could also not have been possible.The ECB strongly promoted wind power, thermal chimneys and photo-voltaic technology as better alternatives.Leaving wind power aside for the moment, the other two have to date not yet been successful on a macro scale anywhere in the world.Only experimental projects have been completed and, mostly, dismantled.They are also horrifically expensive and need various innovations to be able to deliver a measure of firm power.(Firm power is a characteristic of electricity that there is every moment of the day and night, a perfect balance between generation of electricity and consumption.When you walk to the wall and switch on the lights, generation has to be increase at the same moment to provide the necessary energy.The human being has become used to this and therefore demands that this additional electricity is available when he/she wants it.Needless to say, without a means of storage, wind power, thermal chimneys, in fact, all generation projects associated with the sun, do not meet the qualifications for firm power unless the problems with storage are cost-effectively solved.) NamPower at that stage agreed to develop a small (6 MW) experimental wind farm at Grosse Bucht in Luederitz to assess wind’s possibilities and cost.The ECB at that stage was not supportive of an experimental wind farm and NamPower had to shelve the project.The main reason was that the energy generated was too expensive and that the electricity customers should not ‘subsidise’ this project.NamPower’s present Managing Director, at that time with the ECB, was probably the strongest promoter of wind power.Recent Announcements 102 Windmills These windmills were proposed to be erected in the Luederitz area.Apparently they will be each capable of generating 900 kW, a theoretical combined total of 91,8 MW.I understand that Aeolus Green Power is now considering other sites.Wind generation is tried and tested throughout the world.It works, however: It is subsidised throughout the world by governments.In other words, whilst I have seen no indication from the MME that electricity generated from them will be subsidised by the taxpayer, the consumer of electricity will pay more than from a conventional source.If the windmills were geographically spread out, for instance one third at Kunene mouth, one third at Walvis Bay and one third at Luederitz, there could be an element of firm power.(Wind is blowing at one location and not at the other).Located only at one site, another source of equal combined size will have to be available when there is little or no wind at the selected site, in order to generate the shortfall.No mention is made as to where this stand-by electricity will be sourced from.One-hundred-and-two windmills will cover a very large area in the area adjacent to Luederitz.Main access roads, associated with at least 102 small roads, will need to be constructed.In addition, collection power lines and/or cables will be required to collect all the electricity generated from the 102 sources.In addition a large collection substation will have to be constructed.And still in addition, no matter what site is selected, transmission lines and substation extensions will have to be constructed by NamPower to be able to feed the electricity into the main grid.These costs will have to be paid for by someone (the developer?) and eventually by the Namibian electricity users.I see no mention made of an Environmental Impact Assessment Study.If it exists, I have no knowledge of public and expert consultation.Yet, I understand that the ECB has already issued Aeolus with a generation licence.If this is true, all international norms have been ignored! After more than 100 years, damage done to the environment by diamond mining is still clearly visible.Covering a much larger area than a diamond mine, in my non-expert opinion, the environmental damage will be considerable, if not disastrous.Before any developer would think of financing and constructing 102 windmills, he would require a power-purchase agreement for an assured off-take (NamPower) as well as a guaranteed price.NamPower is obligated to disclose the general financial effect on its business by paying non-subsidised electricity from a very expensive source to its customers.I know of no such disclosure.It is most probable that NamPower and the GRN will be required to even give further guarantees.No such disclosures have been forthcoming.In terms of NamPower’s financing agreements with the European Investment Bank, it must also inform the EIB fully of such developments and guarantees.No mention has been made of who will be responsible for the operation and maintenance of the wind generators.No mention is made of technology transfer to Namibians in this regard.As mentioned above, NamPower agreed in the past to build experimental wind generators to gain experience and also assess costs, as the locations are subject to sand blasting from windstorms, subject to shifting sand dunes and a very harsh environment for electrical and mechanical equipment.Energy from Zimbabwe NamPower recently made a press release explaining the deal struck between ZESA and NamPower.It appears to be a fair deal for both parties and I sincerely hope that it will work.There are, however, some severe risks in the deal, notably: Zimbabwe is desperate for foreign currency.The deal must therefore of necessity be in a stable currency, probably US$.The first risk is: Will the government of Zimbabwe not seize this foreign currency and utilise it for other purposes? It has done so before.The coalmines in Zimbabwe are struggling with the same problem in order to keep their machinery operational.Will they be able to supply the increased amounts of coal and will they be paid? Management Changes Often when a politician takes control of a party or government, he takes steps to ensure his position.The more experienced and stronger persons are moved to positions where their influence is limited and their expertise is lost.It is my distinct impression that this is what has happened in NamPower with the recent changes to its management.This does not bode well for NamPower nor Namibia.A management which says “yes boss” or “yes ECB” or “yes MME” will lead to the type of decisions we are now experiencing.General Observations and Consequences It is my very strong opinion that the decisions taken on wind generation are disastrous and can bring NamPower to its knees with dire consequences to Namibia.The changes to its management are equally disastrous and, in the long run, will have the same effect as above.The agreement with ZESA of Zimbabwe for 150 MW for 5 years is fair.Intervention by Zimbabwean authorities could affect it badly, but the loss then sustained by NamPower can be borne.If the agreement bears fruit, it must be seen as a bonus.It must be understood that an electricity utility requires long-term vision, long-term planning and timely action.For these very same reasons, disastrous decisions today do not have immediate consequences.They manifest only after a period of time.A power company has considerable momentum.However, for the very same reasons, when drastic corrective action is taken, the effects are also not immediately visible.It takes at least five to seven years to build a power station.Rock-solid feasibility studies need to be undertaken, rock-solid contracts negotiated, rock-solid environmental studies concluded before there is even a thought of securing funding.To do so after the above prerequisites are complete could take two years.Virtually the same goes for major transmission lines, although the period could be one to two years shorter.A further major stumbling block will emerge if NamPower, at such a stage, is financially in a weak position or, conceivably, is technically bankrupt.The power generation and transmission business is extremely capital intensive.If NamPower were to be allowed to descend into the precarious position as depicted above, the amount of cash required would make what GRN spends on Air Namibia pale into insignificance.There is just no comparison.Electricity consumers would suffer for many years due to the long lead times indicated above.If your electricity company is in trouble, goodbye economic growth and job creation! It was in 2001 that I tried to promote the idea with the ECB, who would be required to accept and approve the execution of such action, of starting a fund for a future power station by introducing a very small levy on the price at which electricity was sold.It is now 2007 and such a fund, wisely invested, could now have been of significant proportions.In the absence of an ECB and the Electricity Act, NamPower would have done just that.Of course, today it is spilt milk.In addition, NamPower’s tariff applications during many years were not approved to the amount requested.If these approvals had been granted, NamPower would have been in a position to fund the projects without having to receive an additional equity injection from the GRN.In well-functioning electricity environments and jurisdictions it is the regulator that has to send the right pricing signals encouraging new generators and/or transmitters to build new infrastructure.It is well documented that the regulator in other developed countries was responsible for the catastrophe resultantly experienced.California and the UK are just two examples.Therefore I have advocated it for two years, that an audit be done on the activities of the ECB.I am not for one moment saying that there is corruption or wrongdoings at the ECB.The fact is, however, that the GRN promulgated an Act by which the intention was that the electricity-supply business should become more efficient.The electricity consumers pay the costs of the ECB directly through the imposition of a levy.These self-same consumers are surely entitled to an audit to find out if the objectives of the GRN and ECB have been achieved .Conclusions It is my specific perception that MME is starting to take decisions that are beyond electricity policy and guidelines.To my knowledge there are no persons in the Ministry with operational experience and disastrous consequences are expected in the long term.Exactly the same goes for the ECB.To my knowledge there is only one person with very limited experience, and that in a specialised area, of an operational electricity utility.Note: The captain of a high-tech jumbo jet needs much experience and much training before being allowed to fly.An electricity utility company needs very much the same.It is a technical business company.Whilst an aircraft will lose height and crash in a relatively short while, as stated before, it takes time with a power company.Corrective action takes even longer before having an effect.Qualification: Nobody has requested me to write this report.I have no axes to grind.Nobody is paying for this report.I am only trying to satisfy my own conscience.P I HoogenhoutBefore Independence Swawek was established in December 1964 as a company under the Companies Act, fully owned by the Industrial Development Corporation of South Africa, mandated to establish an electricity transmission grid and to develop the Ruacana power station.It had no Electricity Act or Ordinance mandating and/or directing it.Delays to Ruacana, related to the then Portuguese government, necessitated the construction of Van Eck coal-fired power station.Swawek operated under a competent and fully accountable board of directors.It became operational on July 1 1972.Initially it was a loss-making company, but, despite frequent sabotage to its transmission system from 1977, became profitable in 1980. In 1986, realising that independence for Namibia was inevitable at some stage in the future, it negotiated a buy-out from its owner, the IDC, through a down payment of 50 per cent of its value and a 10-year loan and payment of the rest.The last payment was in 1996, long after Independence.A fully Namibian board was also appointed in 1986.The shares of the company were given (in 1986) to the Administrator General, one day to be handed over to a new government.This duly happened on March 22 1990.The point that is relevant here is that the consumers of electricity paid in full for NamPower, without assistance from any government.Whilst keeping an eye on the profitability of the company, loss-making (and still loss-making today) rural electrification commenced, albeit very slowly initially, in 1982.The grid was also extended to the more densely populated north during this time.After Independence During the first hectic years after Independence, whilst the new Government was establishing itself, Swawek was largely left alone, although there was always close consultation with the Ministry of Mines and Energy (MME).Rural electrification became more important, but with the profitability of the company kept in mind.In 1996, Swawek, once again voluntarily, changed its name to the more appropriate NamPower.In 1990, NamPower, strongly supported by the MME, initiated the Kunene study with the purpose of developing Epupa power station.However, when the study was at last complete and Angola refused Epupa and supported Baynes development, the MME did not support Baynes despite presentations and motivations by NamPower supporting what was considered to be a compromise solution.At least the Angolan government was prepared to support the construction of a power plant at Baynes, which would by now have ensured some base load capacity for Namibia.In 1995, it was realised within NamPower that a power shortage was looming in 1999 if timely action was not taken, given the then rate of growth.After convincing its board and its MD convincing the MME, NamPower immediately entered into negotiations with Eskom (of South Africa), the green light was given in late 1996 and construction commenced soon thereafter on a 400 kV interconnecting power line between Eskom and NamPower.The first section of the line was duly completed in time in May 1999, before the winter peak, and the looming power crisis was averted.The position was also helped by the closure of TCL (now Ongopolo), not foreseen in 1995.Even so, NamPower then already realised that this 400 kV line would not suffice forever, and commence negotiations with Eskom and Shell for the development of Kudu gas power station.Kudu is too large and expensive for NamPower to go it alone.The above illustrates briefly the NamPower of the past whilst what follows will discuss what is happening right now concerning the supply of electricity to Namibia and what I expect will result from actions after 2000, when the Electricity Act came into effect, as well as present developments.Ministry Of Mines And Energy During the ’90s, and even up to beginning of 2003, there was, generally speaking, good co-operation between the MME and NamPower.Although there were differences from time to time, they were healthy.The MME stated the broad objectives and policies, gave the necessary vital support internationally whilst NamPower was left to execute them to the best of its ability. The MME never entered NamPower’s engine room and meddled. It must be stated that, although the Government of Namibia is the owner of NamPower and the MME is entrusted as the executive Ministry for NamPower, an owner’s rights and obligations are spelled out very clearly under the Companies Act.The one aspect where they transgress, but (probably inevitably) tolerated by NamPower, is the appointment of directors, including the Managing Director.In line with the Companies Act, this is not the right or prerogative of the owner and/or Minister. This has led to the appointment of directors with political agendas without experience of electricity and/or business.the ECB The Electricity Control Board (ECB) was established through legislation in 2000 (Act 2 of 2000).I am not going to discuss what the effect of the ECB has been on local (municipal) and RED level.On the transmission and generation level there has been a marked, negative, effect.Although the above-mentioned 400 kV line was then virtually completed, the ECB conducted a study concerning the above project (within their rights) and concluded that NamPower had wasted its money and that the 400 kV line was not necessary.I hardly need to mention that this line “saved” the country and made the development of Skorpion mine possible as well as the reopening of Ongopolo.The general economic growth of Namibia could also not have been possible.The ECB strongly promoted wind power, thermal chimneys and photo-voltaic technology as better alternatives.Leaving wind power aside for the moment, the other two have to date not yet been successful on a macro scale anywhere in the world.Only experimental projects have been completed and, mostly, dismantled.They are also horrifically expensive and need various innovations to be able to deliver a measure of firm power.(Firm power is a characteristic of electricity that there is every moment of the day and night, a perfect balance between generation of electricity and consumption.When you walk to the wall and switch on the lights, generation has to be increase at the same moment to provide the necessary energy.The human being has become used to this and therefore demands that this additional electricity is available when he/she wants it.Needless to say, without a means of storage, wind power, thermal chimneys, in fact, all generation projects associated with the sun, do not meet the qualifications for firm power unless the problems with storage are cost-effectively solved.) NamPower at that stage agreed to develop a small (6 MW) experimental wind farm at Grosse Bucht in Luederitz to assess wind’s possibilities and cost.The ECB at that stage was not supportive of an experimental wind farm and NamPower had to shelve the project.The main reason was that the energy generated was too expensive and that the electricity customers should not ‘subsidise’ this project.NamPower’s present Managing Director, at that time with the ECB, was probably the strongest promoter of wind power.Recent Announcements 102 Windmills These windmills were proposed to be erected in the Luederitz area.Apparently they will be each capable of generating 900 kW, a theoretical combined total of 91,8 MW.I understand that Aeolus Green Power is now considering other sites. Wind generation is tried and tested throughout the world.It works, however: It is subsidised throughout the world by governments.In other words, whilst I have seen no indication from the MME that electricity generated from them will be subsidised by the taxpayer, the consumer of electricity will pay more than from a conventional source.If the windmills were geographically spread out, for instance one third at Kunene mouth, one third at Walvis Bay and one third at Luederitz, there could be an element of firm power.(Wind is blowing at one location and not at the other).Located only at one site, another source of equal combined size will have to be available when there is little or no wind at the selected site, in order to generate the shortfall.No mention is made as to where this stand-by electricity will be sourced from.One-hundred-and-two windmills will cover a very large area in the area adjacent to Luederitz.Main access roads, associated with at least 102 small roads, will need to be constructed.In addition, collection power lines and/or cables will be required to collect all the electricity generated from the 102 sources.In addition a large collection substation will have to be constructed.And still in addition, no matter what site is selected, transmission lines and substation extensions will have to be constructed by NamPower to be able to feed the electricity into the main grid.These costs will have to be paid for by someone (the developer?) and eventually by the Namibian electricity users. I see no mention made of an Environmental Impact Assessment Study.If it exists, I have no knowledge of public and expert consultation.Yet, I understand that the ECB has already issued Aeolus with a generation licence.If this is true, all international norms have been ignored! After more than 100 years, damage done to the environment by diamond mining is still clearly visible.Covering a much larger area than a diamond mine, in my non-expert opinion, the environmental damage will be considerable, if not disastrous.Before any developer would think of financing and constructing 102 windmills, he would require a power-purchase agreement for an assured off-take (NamPower) as well as a guaranteed price.NamPower is obligated to disclose the general financial effect on its business by paying non-subsidised electricity from a very expensive source to its customers.I know of no such disclosure.It is most probable that NamPower and the GRN will be required to even give further guarantees.No such disclosures have been forthcoming.In terms of NamPower’s financing agreements with the European Investment Bank, it must also inform the EIB fully of such developments and guarantees.No mention has been made of who will be responsible for the operation and maintenance of the wind generators.No mention is made of technology transfer to Namibians in this regard.As mentioned above, NamPower agreed in the past to build experimental wind generators to gain experience and also assess costs, as the locations are subject to sand blasting from windstorms, subject to shifting sand dunes and a very harsh environment for electrical and mechanical equipment.Energy from Zimbabwe NamPower recently made a press release explaining the deal struck between ZESA and NamPower.It appears to be a fair deal for both parties and I sincerely hope that it will work.There are, however, some severe risks in the deal, notably: Zimbabwe is desperate for foreign currency.The deal must therefore of necessity be in a stable currency, probably US$.The first risk is: Will the government of Zimbabwe not seize this foreign currency and utilise it for other purposes? It has done so before.The coalmines in Zimbabwe are struggling with the same problem in order to keep their machinery operational.Will they be able to supply the increased amounts of coal and will they be paid? Management Changes Often when a politician takes control of a party or government, he takes steps to ensure his position.The more experienced and stronger persons are moved to positions where their influence is limited and their expertise is lost.It is my distinct impression that this is what has happened in NamPower with the recent changes to its management.This does not bode well for NamPower nor Namibia. A management which says “yes boss” or “yes ECB” or “yes MME” will lead to the type of decisions we are now experiencing.General Observations and Consequences It is my very strong opinion that the decisions taken on wind generation are disastrous and can bring NamPower to its knees with dire consequences to Namibia.The changes to its management are equally disastrous and, in the long run, will have the same effect as above.The agreement with ZESA of Zimbabwe for 150 MW for 5 years is fair.Intervention by Zimbabwean authorities could affect it badly, but the loss then sustained by NamPower can be borne.If the agreement bears fruit, it must be seen as a bonus.It must be understood that an electricity utility requires long-term vision, long-term planning and timely action.For these very same reasons, disastrous decisions today do not have immediate consequences.They manifest only after a period of time.A power company has considerable momentum.However, for the very same reasons, when drastic corrective action is taken, the effects are also not immediately visible.It takes at least five to seven years to build a power station.Rock-solid feasibility studies need to be undertaken, rock-solid contracts negotiated, rock-solid environmental studies concluded before there is even a thought of securing funding.To do so after the above prerequisites are complete could take two years.Virtually the same goes for major transmission lines, although the period could be one to two years shorter.A further major stumbling block will emerge if NamPower, at such a stage, is financially in a weak position or, conceivably, is technically bankrupt.The power generation and transmission business is extremely capital intensive.If NamPower were to be allowed to descend into the precarious position as depicted above, the amount of cash required would make what GRN spends on Air Namibia pale into insignificance.There is just no comparison.Electricity consumers would suffer for many years due to the long lead times indicated above.If your electricity company is in trouble, goodbye economic growth and job creation! It was in 2001 that I tried to promote the idea with the ECB, who would be required to accept and approve the execution of such action, of starting a fund for a future power station by introducing a very small levy on the price at which electricity was sold.It is now 2007 and such a fund, wisely invested, could now have been of significant proportions.In the absence of an ECB and the Electricity Act, NamPower would have done just that.Of course, today it is spilt milk.In addition, NamPower’s tariff applications during many years were not approved to the amount requested.If these approvals had been granted, NamPower would have been in a position to fund the projects without having to receive an additional equity injection from the GRN.In well-functioning electricity environments and jurisdictions it is the regulator that has to send the right pricing signals encouraging new generators and/or transmitters to build new infrastructure.It is well documented that the regulator in other developed countries was responsible for the catastrophe resultantly experienced.California and the UK are just two examples.Therefore I have advocated it for two years, that an audit be done on the activities of the ECB.I am not for one moment saying that there is corruption or wrongdoings at the ECB.The fact is, however, that the GRN promulgated an Act by which the intention was that the electricity-supply business should become more efficient.The electricity consumers pay the costs of the ECB directly through the imposition of a levy.These self-same consumers are surely entitled to an audit to find out if the objectives of the GRN and ECB have been achieved .Conclusions It is my specific perception that MME is starting to take decisions that are beyond electricity policy and guidelines.To my knowledge there are no persons in the Ministry with operational experience and disastrous consequences are expected in the long term.Exactly the same goes for the ECB.To my knowledge there is only one person with very limited experience, and that in a specialised area, of an operational electricity utility.Note: The captain of a high-tech jumbo jet needs much experience and much training before being allowed to fly.An electricity utility company needs very much the same.It is a technical business company.Whilst an aircraft will lose height and crash in a relatively short while, as stated before, it takes time with a power company.Corrective action takes even longer before having an effect.Qualification: Nobody has requested me to write this report.I have no axes to grind.Nobody is paying for this report.I am only trying to satisfy my own conscience.P I Hoogenhout