11 July 2012

Namibia: ECB Proposes Electricity Subsidy

Windhoek — The Electricity Control Board (ECB) suggests that government should allocate N$213 million of the Local Authority Surcharges per annum as a subsidy to relieve consumers from paying higher electricity tariffs.

Currently all Regional Electricity Distributors entities also known as REDs pay surcharges to local and regional authorities who are the shareholders of the REDs.

Siseho Simasiku, the Chief Executive Officer (CEO) of the ECB, who was speaking at a consultative meeting with members of the Parliamentary Standing Committee on Economics, Natural Resources and Public Accounts, yesterday said such an option would benefit consumers because they will get on average 13.12 cents kilowatts per hour (c/kWh) tariff relief.

The standing committee is responsible for reviewing and making recommendations to Parliament on bills relating to economic development, natural resources management and financial accountability.

Simasiku suggested that if government does not accept the recommended N$213 million subsidy, then the prevailing surcharge be fixed at 15c/kWh for all local authorities and regional councils in Namibia.The LA surcharge should be fixed at 15c/kWh and then reviewed every 2-3 years if need be and it should also allow for inflationary increases.

"These levels should be phased-in over a period of 3-5 years and government should subsidise the difference of those LA surcharges above 15c/kWh and the current levels," he noted.

In the long run, according to Simasiku this will be in the best interest of the Local Authorities (LAs) and Regional Councils (RCs), since the LA surcharge will keep up with inflationary pressures.

"But it will be at regulated levels and can be reviewed in terms of affordability to ensure that all parties are protected," he reasoned.

"Local authorities are imposing surcharges on consumers. REDs are not benefiting from surcharges. These are costs to consumers and when you talk of cost reflection, these are not supposed to be there. We recommend that government should subsidise the N$213 million for LA surcharges that will bring relief to consumers," Simasiku motivated the proposal.

Currently the City of Windhoek is getting N$90 million per year from the sales of electricity although it is not part of the REDs regime. This means the municipality adds surcharges on top of the electricity costs making the power expensive for consumers.

Simasiku also pleaded with government to exempt REDs from paying taxes, saying this will make the REDs more financially viable. Traditionally LAs/RCs have been using electricity to subsidise other municipal services.

"Local Authorities (LAs) and Regional Councils (RCs) need to carry out activities such as road infrastructure development. They come up with their budget and if there is a shortfall, then they get it from electricity by increasing tariffs and consumers have to pay more. Instead of consumers paying more let that money come from government,' explained Rojas Manyame, ECB General Manager for Regulation.

In 2004/5, the ECB undertook a study to determine the impact of and its methodology was developed to ensure LAs/RCs were not worse off after the creation of the REDs.

Established and operationalised REDs include NORED (northern Namibia) in 2002, CENORED (central-northern Namibia) in 2003 and Erongo RED (coastal Namibia) in 2005. CENORED and Erongo RED pay fixed amounts monthly to LAs/RCs in their areas.

Another study was carried out in 2008/9 to revise the methodology and it recommended a shift to c/kWh. The remaining REDs to be established and operationalised are SORED (southern Namibian and Central RED (central Namibia).

Simasiku told Members of Parliament that surcharges were created to protect the financial position of local authorities after joining the REDs regime, as well as to ensure that the financial impact of the LA surcharges are sufficiently managed (income neutral).

At the creation of the REDs between 2003/4, Gobabis LA surcharge stood at 43 c/kWh, followed by Grootfontein with 42 c/kWh and Luderitz stood at 31 c/kWh.

If government subsidise LA surcharges fully, it will mean customers both at Gobabis and Grootfontein will pay 42 cents less per unit.

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