Namibia: Nampower Requests 'Inflation Fuelling' Price Hike

17 April 2023

Namibians will soon find out if they are going to have to fork out more of their hard-earned dollars, just to keep the lights on. This is after Namibia Power Corporation requested a 16.87% increase in electricity tariffs for the 2023/24 year.

If approved, an increase in electricity prices could drain pockets, and according to a local stock brokerage, push up already high inflation.

NamPower's request for a tariff increase was confirmed on Friday by Electricity Control Board (ECB) spokesperson Ferdinand Molale.

Speaking to New Era, he explained that the ECB endeavours to announce their approved tariffs before the end of April 2023, and that the new bulk tariffs will take effect as from 1 July 2023.

A report on inflation for March 2023 by local stock brokerage Simonis Storm (SS) stated that it is notable that local demand for electricity is increasing, with a seasonal effect in winter and spring. This is when 2023 electricity demand increased notably due to the recovery of business and mining activity.

Namibia Statistics Agency (NSA) figures show that the composite mining production index, which tracks diamonds, gold bullion, uranium and zinc, grew by 32.2% year-on-year (y/y) in February 2023. This is indicative of the recovery of the economy, which substantiates why demand for electricity is on an increasing trend.

"Depending on what the ECB approves, we do see higher electricity tariffs, which would be effective July 2023, as a risk to inflation. This is due to the fact that the housing and utilities category has the largest weight in the consumer price basket (28.36%)," the SS report added.

If the ECB approves tariff increases, already financially stretched Namibian consumers will have to tighten their belts even further this winter. This will add significant pressure to already depressed pockets for consumers who have endured sharp increases in fuel and food prices in the recent past, which have been exacerbated by Covid-19 and supply-line constraints.

The ECB last year announced an increase in bulk electricity tariffs of 7.30% from N$1.6982 to N$1.8222 per kilowatt hour (kWh) for the 2022/23 period.

These increases mean regional electricity distributors (REDs), local authorities and large power users like mines which buy electricity directly from NamPower pay more for electricity, which indirectly affects local consumers.

The approved increase last year followed a tariff decrease in 2019/20. No tariff increases were effected for 2020/21, with an increase of 2.29% in 2021/22.

Meanwhile, SS noted that based on statistical models used by the International Research Institute for Climate and Society (IRICS), there is a 40% probability that Namibia will receive below-average rainfall, which could pose a further risk to the production of electricity from the Ruacana hydro-electric power station.

Inflation

Additionally, Namibia's annual inflation rose by 7.2% y/y in March 2023, the same as the prior month. SS observed that risks to the upside have increased such as food, fuel and electricity tariffs, as well as a weaker Rand exchange rate, while key drivers of inflation such as food and transport are likely to be stickier.

As a result, Simonis Storm revised its inflation forecast from 5.3% to 5.9% for 2023.

"Food and non-alcoholic beverages maintain the position of being the main drivers of inflation, recording an increase of 14.6% y/y in March 2023, compared to 14% in February 2023," reads the SS report.

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