Namibia Power Sector: How Can Private Sector Help Solve Their Power Crisis?

By Fatimata Gaba Ouedraogo

Namibia Country Background 1/3

• Low middle-income country in Sub Saharan Africa • Population : 2.3 million (2011) with 62% of rural population• GDP per capita: US$ 7300, (2011)• GDP Growth rate: 3.4% pa• Highly unequal wealth distribution: GINI Index 70.7 (2008)• Population below Poverty Datum Line: 55%

Namibia Country Background 2/3

Electricity Power supplier: Nampower, a vertically integrated public utility

Access to electricity:National average : 34%

• Rural: 25%• Urban: 90%

Major economic activities: – Mining (8%); Agriculture;

fisheries.

Namibia Country Background 3/3

Although endowed with significant renewable and fossil fuel energy resources, Namibia will face electricity shortages of about 250MW in 2016, 300MW in 2017 and 350MW in 2018.

Challenges of Namibia Energy Sector • Security of energy supply• Outdated and inadequate policies• Regulatory weaknesses• Limited human and technical capacity• Inadequate funding of electricity access programs • Limited private sector participation

Challenges with the Electricity Sector • Market structure and

reform still outstanding/incomplete.

• Inadequate monitoring and enforcement of compliance with technical regulation

• Poor security of supply • High network losses• High tariff levels but below

cost recovery• Harmonisation of tariffs• No Application of Lifeline

tariff?

Challenges with the current Power Supplier Nampower• Vertically integrated company• Monopolistic position• No incentive to improve power

services quality as there is no competition in or for the market

• Strong ties with government• NamPower acts as power supplier and

also as the entity that oversees the PPA (Power purchase agreement) with private entities entering the market.

• Nampower constitutes a barrier and prevents private sector entry in the market as there is no incentive for Nampower to lower the entry barriers.

How Can Namibia Solve its Electricity Demand and Supply Gap and Efficiency Issues?• Create an attractive power market with proper risks allocation that

will attract private sector funding and expertise for power generation under the build, own, operate and transfer (BOOT) model.

• Force the current supplier, NAMPOWER, to improve efficiencies because of the competition.

This approach will help increase the installed power generation capacity but some actions need to be taken to make the PPP framework less risky.

Market Risks Mitigation to Attract Private Sector • Develop dedicated sector policies,

strategies and laws as the current ones are outdated and time consuming

• Set up an independent sector wide power sector regulator that will oversee the regulations

• Have proper technical regulations enforcement mechanism that will help reduce the inefficiencies in the current power supplier, particularly the transmission losses.

• Unbundle the vertically integrated company (Nampower) to have a separate transmission company, which will help limit market manipulations and improve transactions transparence.

Once the proper legal, regulatory and technical framework is in place, the government can get deeper into project preparation. The followings should be considered.

Steps to Help Guide the Process:

• Conduct detailed feasibility study to first look at the options to be able to choose the one that is economically, financially and technically sound in term of power generation services provision. The risks associated with each option need to be identified.

• Conduct a market sounding: The most important way that the government can ensure it will only have credible bidders that are capable of delivering on their PPP procurement is to conduct market sounding to identify potentially interested companies, create a prequalification stage and set the technical and financial criteria to ensure a sufficient number of qualified bidders.

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Key Elements to Consider in the PPP Contract:• Focus on service delivery—PPP should focus

on the service to be delivered without having to consider other objectives or constraints typical in the public sector

• Innovation—specifying outputs in a contract, rather than prescribing inputs, provides wider opportunity for innovation. Power producer should be given the latitude to innovate in the power generation taking into account any adverse social impact like environment pollution etc.

• Asset utilization—private parties are motivated to use a single facility to support multiple revenue streams, reducing the cost of any particular service from the facility

• Accountability—government payments are conditional on the private party providing the specified output at the agreed quality, quantity and time frame. If performance is not met, payment to the private sector can be abated.

Additional measures to enhance likelihood of success:

• Communication — to ensure adequate information about project development, benefits, and costs

• Stakeholder consultations — to ensure that all potential parties involved in the project are consulted and their inputs taken into account while conducting the process, etc.

• Transparency and fairness—to provide bidders with assurances that procurement process is transparent and fair to ensure maximum participation.

• Put in place a guarantee instrument (through a multilateral financial institution such as the World Bank or AfDB) — to give comfort to investors and commercial banks that the government will fulfill its obligations under the contract and thus increase the bankability of project.

Bibliography

• ECB. 2012. “ Statistical Bulletin”, Windhoek, Namibia

• NamPower, 2012, “Update On Progress Of Nampower Projects And Initiatives Aimed At Addressing The Power Supply Situation In Namibia”, Windhoek, Namibia

• Ioannis N. Kessides, 2012, “The Impacts of Electricity Sector Reforms in Developing Countries”, Working Paper, World Bank, Washington DC

• KudakwasheNdhlukula, 2009, “Review Of Electricity Policy Planning In Namibia”, Namibia

• PPP course document• Various websites