Increased electricity cost bites NamPower profits…as utility posts N$2.3 billion loss before interest and tax

Home National Increased electricity cost bites NamPower profits…as utility posts N$2.3 billion loss before interest and tax
Increased electricity cost bites NamPower profits…as utility posts N$2.3 billion loss before interest and tax

National electric power utility company, the Namibia Power Corporation (NamPower) financial performance was impacted by the economic downturn over the past five years, exacerbated by the Covid-19 pandemic.

 Revenue for the year remained static at N$6.5 billion due to a decrease of 5% in overall sales volumes (from 3,903 GWh to 3,701 GWh). 

These figures were shared by the company’s managing director Kahenge Haulofu in NamPower’s 2022 integrated annual report.  

“Cash generated from operations decreased from N$992.4 million during the previous year to a negative cash generated of N$350.2 million as of 30 June 2022, attributed primarily to the increased cost of electricity and slow collection of revenue from customers,” he added. 

Haulofu stated there was a slight increase in demand of 3.4% (58 GWh) from 617 MW last year, to 638 MW recorded at year-end. These factors combined resulted in the group posting a loss before interest and tax for the first time in five years amounting to N$2.3 billion, compared to a profit of N$1.1 billion in the previous year. 

“Several measures to remedy the situation include the implementation of cost-cutting and containment initiatives and a proactive drive to source capital from Development Funding Institutions (DFIs) to support our expansive capital development programme,” stated the MD.

Among other challenges, low rainfall in the Kunene region catchment area led to the Ruacana Power Station recording the lowest energy generated for the past 10years, at 780.15 GWh. This resulted in NamPower having to import electricity at a high cost to ensure constant supply. 

In addition to its locally generated electricity, NamPower imports electricity through the Southern African Power Pool (SAPP) via its Energy Trading System to complement supply and meet demand. On average, NamPower presently imports between 60% and 70% of its energy requirement.

Going forward, Haulofu said the corporation anticipates challenges along the way, mainly depending on the global recovery from the protracted Covid-19 pandemic. 

“These include fluctuating currencies, monetary policies, market demand, and commodity pricing. These factors influence the inflation rate and our suppliers’ capacity to deliver on their commitments. Therefore, we need to factor a least cost and sustainable energy supply mix into critical decision-making and garner support from our custodian ministry, regulator, and entire electricity supply industry to ensure that we meaningfully address local energy demand while delivering shared value with positive socio-economic impact,” added Haulofu.

Furthermore, NamPower board chairperson Daniel Motinga said there is a strong negative correlation between NamPower cost of sales and local generation. The cost of electricity supply increased by nearly 14% from N$4.5 billion to N$5.1 billion.

He said Ruacana produces electricity at comparatively low cents per kilowatt hour and thus impacts profitability positively when all turbines are operating optimally.

Top line financial performance, he said, came under severe pressure for this reporting cycle, with turnover dropping by 5%. One of the key cost drivers is employee related costs, which reduced from N$996.6 million in the previous year, to N$992.5 million for the 2021/2022 financial year. 

“The decreased expenditure was primarily due to no salary increases granted to employees as well as a decrease of 2.7% in the head count (from 1165 to 1134). Operational profitability also worsened compared to the previous financial year, with NamPower posting a loss in excess of N$2 billion at both group and company levels. For the first time in many years, even Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) came out negative, a serious blemish on the group’s performance scorecard,” explained Motinga. 

The chairperson confirmed that NamPower recorded an operating loss before its net finance income of N$2.3 billion. Regarding the distribution of value created, 61% went to employees and 2.9% to creditors. Meanwhile, he said no taxes are due as a result of the losses and no dividends were declared.