24 June 2019

Namibia: Lüderitz Electricity Under Siege

SENIOR Swapo politicians are pushing for a private company to replace the Lüderitz Town Council in distributing electricity in an estimated N$100 million deal, flying in the face of concerns it could destroy the council's financial position.

At present, the southern town council's electricity division consistently makes a profit.

Draft agreements seen by The Namibian show a secret plan to give Walvis Bay-based Conselect Engineering - owned by politically connected businessman Wiseman Molatzi - to act as a middleman in the electricity supply chain through a partnership with the town council.

Sources familiar with the transaction say urban and rural development minister Peya Mushelenga, attorney general Albert Kawana and several Swapo councillors at the town have given the project the green light.

While the deal will be lucrative for Conselect, it is set to saddle the council with debt, and residents with higher electricity bills.

Technocrats feel the council has sufficient financial, technical and human resources to efficiently distribute electricity to the town's consumers. The council's total income per year is N$150 million, of which N$100 million comes from the electricity department, a document revealed.

A draft agreement shows that Conselect Engineering says it plans to use a loan to invest N$10 million on upgrading Luderitz's electricity infrastructure, a proposal rejected by council executives.

The agreement states that the council will be expected to pay off this loan at N$100 000 a month for the duration of a 10-year contract, which is renewable.

This is on top of an annual N$3,6 million management fee the council will be expected to pay Conselect.

Sources privy to the planned deal say the electricity division will incur losses during at least the first three years of the agreement.

POWER POINTS

A submission by the council's strategic executive for finance, Thomas Shipepe, seen by The Namibian, cautions the council's management committee - a powerful political body consisting of councillors - against approving the deal.

It notes that the electricity division has consistently made a profit, and warns that the proposed outsourcing joint venture would kill the council's surplus, and cause severe financial losses in the division.

According to the submission, the loan would merely be used to fund operational expenditure.

It adds: "This makes no sense at all. The council's electricity (department) is a well-run, self-funding trading service, supporting and subsidising other divisions, and the other operations of council. Why would council want to take out a loan to fund its operations, if we are currently running our operations without the need for a loan?"

Another concern is that the council does not know Conselect's financial position, the assets it owns, or its shareholders.

The submission also claims that Conselect could not give an indication of the infrastructure upgrades planned in order to justify the proposed loan.

It says Conselect still needs to answer questions about how the venture will benefit the council.

"Why would the council hand over the running of [the] electrical division to an entity that immediately incurs losses and takes out a loan that would not be used for upgrades of the electrical infrastructure at all, but to cover the losses to be incurred?" Shipepe asked.

He, however, refused to comment on his submission when approached by The Namibian.

SHARE STRUCTURE

In terms of the proposed agreement, the Lüderitz Town Council will have to form a new company called Luderitz Electricity Pty to accommodate the interests of the council.

This company will then merge with Conselect to form Atlantic Electricity Pty.

Council will have 60% ownership in Atlantic Electricity, and Conselect will have 40%.

In terms of the agreement, council will lease all its electricity infrastructure to Luderitz Electricity Pty, the company to merge with Conselect to form Atlantic Electricity.

Excerpts from the shareholding agreement state that the new entity will be used "as a vehicle to engage in the supply and distribution of electricity, engineering services and all other activities related thereto in the Lüderitz Town Council, and thereafter rolling it out to the Oranjemund Town Council and other settlements in the !Nami ≠Nus constituency, namely Rosh Pinah and Aus."

Conselect will also be appointed as the management services entity of Atlantic Electricity, responsible for the day-to-day management of the company at an agreed management fee of 8% of the gross monthly electricity sales of the company.

POLITICAL PRESSURE

The Namibian understands that a group of politicians and some senior council staffers appear to have been part of a network bent on pushing through a transaction that will ultimately disadvantage the town and its residents.

An official with intimate knowledge of the joint venture said everything about the Conselect proposal is flawed.

"These councillors do not fully understand the operations of council, and how bad this deal is for us. Our residents will be the ones hardest hit because the electricity (price) will eventually be pushed up," stressed the official.

The Namibian understands that the majority of Swapo councillors are pushing to finalise the deal.

Lüderitz mayor Hilaria Mukapuli and chairperson of the management committee Calvin Mwiya did not respond to messages sent to them last week.

Efforts to get comment from Mushelenga and Kawana were not successful.

Conselect owner Molatzi declined to comment, referring questions to the town council. He has over the years earned a reputation of clinching deals at various towns countrywide in partnership with politicians.

Molatzi teamed up with Swapo leaders in the Erongo region to buy 19 plots at Walvis Bay for N$160 000 in 2015 through Proprietors Business Solutions CC, a transaction which was investigated by the Anti-Corruption Commission.

According to its website, Conselect also clinched deals at councils such as Otjiwarongo, Ondangwa, Oshakati, Aranos, Eenhana, Karibib, Omaruru and Usakos in tenders worth around N$300 million over the past few years.

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