Light on the local development horizon
DBN CEO Martin Inkumbi talks about financing requirements for Namibia's electricity generation and transmission capacity
Scope of the opportunity
Current prospects for electricity in Namibia, and further afield in the SADC power pool, particularly Eskom in South Africa, indicate that new challenges and opportunities are emerging.
In addition to the estimated current 224 MW shortfall in local generation capacity, rising to an estimated 250 MW shortfall after August 2016, there is an obvious opportunity to contribute to the stability of the SADC region through development of excess generation capacity.
Light on the local development horizon
In April 2014 NamPower Managing Director Paulinus Shilamba announced an array of local generation initiatives. The opportunities will be harnessed with direct strategic intervention, through development of new infrastructure, rehabilitation of existing infrastructure and demand-side management (DSM).
Current media reporting focuses on the 250 MW Erongo power station to utilise Kudu gas. However, this generation capacity is by no means the only worthy initiative. Other initiatives include rehabilitation of the Van Eck power station at Windhoek, and Ruacana, development of the Baynes hydropower scheme in 2024, commissioning of 30 MW of solar generation capacity, and acquisition of 70 MW of electricity generated from renewable resources, by independent power producers (IPPs).
Parallel to this, DSM to create more economical usage for households, and expansion of transmission capacity, are also envisaged.
Materialising in the long-term, the additional capacity appears to be sufficient to power Namibia's industry needs. The excess capacity, and income that it generates from exports, will also be a valuable resource for further development and maintenance of Namibia's electricity generation and transmission capacity.
Poverty alleviation and the human side of electricity
The current plan for excess capacity has an additional dimension in provision for poverty alleviation. A stable supply of electricity is an absolute requirement for preservation of enterprise and infrastructure that create and support employment. However, electricity is also a key requirement for the requirements of the envisaged 185,000 mass houses, and associated social infrastructure.
In order for mass housing to be realised, the houses will have to be provided with sufficient energy, suitable transmission infrastructure and DSM which should include efficient deployment of renewable resources for household purposes.
Timely provision of bulk finance
Current confidence is based on known capacity to implement technology that is suitable, however financing also has to be provided, and in a timely manner so that projects are not delayed.
In a long-term financing window, the risks entailed in international and regional volatility of supply of capital can be mitigated by providing for spread of the requirement between various sources of bulk capital, including local sources.
In order to provide for the timeline leading to 2024, when Baynes will become operational, and 2030, for the envisaged 185,000 mass houses, three strategies should to be considered, and applied in combination, by all stakeholders and sources of bulk finance.
Master financing plan: The multi-billion Namibian dollar financial requirement of the plans will require funding from state coffers, and likely international sources of finance, however a master plan which includes local sources of commercial finance will strengthen the Namibian pool of finance, and mitigate against capital outflows. A finance master plan should identify Namibian sources of finance, and prepare those sources for inclusion.
Syndicate financing: The massive investment precludes finance from one single source. Commercial sources of finance have the ability to provide bulk financing by syndicating. This will however require clear and transparent coordination of potential sources of finance, as well as clear disclosure on milestones and any delays.
Provision for liquidity of capital: Disclosure on timing of requirements and attainment of milestones will mitigate against lost opportunity costs on capital, by enabling local sources of finance to deploy their capital in a manner which yields the best returns in short- to medium-term windows.
Timely provision of secondary financial requirements
The scope of the requirement indicates that numerous additional projects may require finance. These include local authorities, IPPs as well as enterprises engaged in establishment, rehabilitation of infrastructure before and after implementation of the plan. In order for their requirements to be met, a similar planning strategy should mirror that of bulk capital.
Development Bank of Namibia (DBN) experience
The Development Bank of Namibia has developed a body of experience that includes large capital amounts for projects and entities such as the Caprivi Link Interconnector transmission line, Cenored and Erongo RED.
In addition, DBN has experience with finance for projects in the field of renewable energy, including Omburu Sun Energy and Omuriro Biomass. Other related financing experience includes finance for local authorities and contractors.
Provision for finance is made under facilities for large entities, PPPs and the Enterprise Finance Facility. Finance can also be made available for large scale private sector enterprises seeking to develop their own electricity generation capacity.
In order to make best possible use of its financial capability, DBN encourages project promoters in the field of electricity generation to contact the Bank. It also encourages potential syndicate finance partners to make contact.
The field of finance for electricity generation and transmission is relatively new to the Namibian financial sector, however based on its experience, the Bank is confident that financing in the sector can yield acceptable returns to finance while fulfilling the requirements of Namibian development.