Namibia - Issues and options in the energy sector

Maagement Assistance Pmgramme Namibi*a Issues and Options in the Energy Sector Report No. 11320-NAM JOINT UNDP / WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) was launched in 1983 to complement the Energy Assessment Programme, established three years earlier. ESMAP's original purpose was to implement key recommendations of the Energy Assessment reports and ensure that proposed investments in the energy sector represented the most efficient use of scarce domestic and external resources. In 1990, an international Commission addressed ESMAP's role for the 1990s and, noting the vital role of adequate and affordable energy in economic growth, concluded that the Programme should intensify its efforts to assist developing countries to manage their energy sectors more effectively. The Commission also recommended that ESMAP concentrate on making long-term efforts in a smaller number of countries. The Commission's report was endorsed at ESMAP's November 1990 Annual Meeting and prompted an extensive reorganization and reorientation of the Programme. Today, ESMAP is conducting Energy Assessments, performing preinvestment and prefeasibility work, and providing institutional and policy advice in selected developing countries. Through these efforts, ESMAP aims to assist governments, donors, and potential investors in identifying, funding, and implementing economically and environmentally sound energy strategies. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative Group (ESMAP CG), composed of representatives of the UNDP and World Bank, the governments and institutions providing financial support, and representatives of the recipients of ESMAP's assistance. The ESMAP CG is chaired by the World Bank's Vice President, Finance and Private Sector Development, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work program, and other issues. ESMAP is staffed by a cadre of engineers, energy planners and economists from the Industry and Energy Department of the World Bank. The Director of this Department is also the Manager of ESMAP, responsible for administering the Programme. FUNDING ESMAP is a cooperative effort supported by the World Bank, UNDP and other United Nations agencies, the European Community, Organization of American States (OAS), Latin American Energy Organization (OLADE), and countries including Australia, Belgium, Canada, Denmark, Germany, Finland, France, Iceland, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland, the United Kingdom, and the United States. FURTHER INFORMATION For further information or copies of completed ESMAP reports, contact: ESMAP clo Industry and Energy Department The World Bank 1818 H Street N.W. Washington, D.C. 20433 U.S.A. For Official Use Report No. 11320-NAM NAMIBIA Issues and Options in the Energy Sector March 1993 ESMAP c/o Industry and Energy Department The World Bank 1818 H Street NW Washington D.C. 20433 USA . ABSTRACT Namibia is fortunate in that the energy sector is not a constraint on growth, as it is in so many developing countries. Indeed, through the exploitation of Namibia!s hydroelectric and/or hydrocarbon resources for export, die sector may well become a major engine of growth. At present, industry, commerce and the country's population centers are adequately supplied with commercial energy (electricity and petroleum products) at realistic prices. However, many households lack access to modem energy supplies and, especially in rural areas, still rely on wood and other traditional fuels. While fuelwood is increasingly difficult to come by in some areas, there are few signs of resulting hardship, or that fuelwood cutting is contributing significantly to deforestation. While the present strengths and resource potential of the energy sector give good grounds for optimism about its future development, much will depend on how effectively the policy, investment and institutional issues that are. the focus of this report are addressed. Critical decisions will soon have to be made concerning the Epupa hydroelectric project and the Kudu offshore gas field, as well as such issues as rural electrification and the least cost means of meeting future domestic power needs. In addition, the growing size and complexity of the sector will inevitably call for a more systematic and sophisticated approach to regulation. On the petroleum side there is a need to consider the possible dismantling of the present system of domestic price regulation while, in the virtually unregulaed power sector, a whole new regulatory system needs to be devised and put in place. High priority also should be given to the restructuring of the institutionally fragmented and inefficient electricity distribution system.  Currency Equivalents June, 1992 1 Rand = 0.36 US$ 1 US$ = 2.75 Rand Abbreviations MLGH Ministry of Local Government and Housing MME Ministry of Mines and Energy NISER Namibian Institute for Social and Economic Research NAMCOR National Petroleum Corporation of Namibia R/Rc Rand/Rand cents RSA Republic of South Africa SWAWEK South West Africa Water and Electricity Corporation Measurements GWh gigawatt hour kg kilogram km kilometer kW kilowatt kWh kilowatt hours MCF thousand cubic feet MJ megajoule MMBTU million British thermal units MMCFD million cubic feet per day MW megawatt TCF trillion cubic feet toe tons of oil equivalent  CONTENTS EXECUTIVE SUMMARY I. INTRODUCTION 1 II. ENERGY AND THE ECONOMY 2 The Economic Setting 2 Energy Consumption 3 Ill. HOUSEHOLD ENERGY 5 Fuelwood 5 Household Use of Conventional Fuels 9 Small Scale Renewable Energy Sources 10 Wood and Charcoal from Brush Clearing 13 Rural Electrification 13 IV. MEETING NAMIBIA'S ENERGY NEEDS 17 Power 17 Petroleum Supply 28 V. EXPORT OPPORTUNITIES 34 Epupa Hydropower Project 34 Kudu Offshore Gas Field Development 36 The Way Ahead 39 Oil Exploration 40 VI. INSTITUTIONAL ISSUES 42 Strengthening the MME 42 Regulating the Power Sector 43 Rationalizing Power Distribution 44 Petroleum Product Pricing 45 ANNEX A 47 Energy Balances, 1989-91 ANNEX B 50 Cost Comparison Of Short And Medium Term Power Supply Options ANNEX C 54 Epupa Hydropower Project  1 EXECUTIVE SUMMARY 1. Namibia is fortunate in that the energy sector is not a constraint on growth, as it is in so many developing countries. Indeed, through the exploitation of Namibia's hydro-electric and/or hydrocarbon resources for export, the sector may well become a major engine of growth. At present, industry, commerce and the country's population centers are adequately supplied with commercial energy (electricity and petroleum products) at economic prices. However, many households sLill lack access to modem energy supplies and, especially in rural areas, still rely on wood and other traditional fuels, particularly for cooking. 2. Per capita energy use in 1991 amounted to 0.51 toe, which is well above that of most Sub-Saharan Africa. However, traditional fuelwood (non-commercial energy) plays a much more limited role in energy consumption (around 14%) in Namibia than in most other countries on the continent. The predominance of commercial energy in the Namibian energy balance reflects the importance of the energy-intensive mining industry in the country's economic structure as well as the relatively high incomes enjoyed in the modem, urban areas and the ready availability there of commercial energy at reasonable prices. The increase of energy consumption in the next few years is likely to parallel the modest growth rate foreseen for the economy and, thus, to average some 3.0-3.5% per annum. 3. While the energy sector today serves Namibia well, and much has been accomplished since independence, its future will depend in good measure on effectively addressing the policy, investment and institutional issues that are the focus of this report. Household Energy Household Fuels 4. Fuelwood is the main energy source in rural areas, where it is frequently supplemented by dung and agricultural residues. Electricity is the main cooking fuel in the urban areas, where bottled gas and paraffin are also used to a limited extent. A household energy survey conducted in preparation for the assessment indicates that, while fuelwood is increasingly difficult to come by in some areas, there are few signs of resulting hardship and that energy in general does not take a disproportionate share of household budgets. 5. Widespread deforestation is clearly taking place in the north, where the bulk of the rural population lives. However, the amounts of wood used in homestead construction are many times greater than those used for fuelwood. Clearing for agriculture can also destroy considerably more forest than fuelwood cutting. Indeed, even if fuelwood consumption were to cease completely, deforestation would continue rapidly as a result of cutting trees for homesteads and agricultural clearing. Any resolution of the deforestation problem will thus require a coordinated approach involving a wide variety of non-energy inputs and initiatives. 6. The fact that the majority of families appear able to manage satisfactorily with the energy resources freely available to them greatly limits the potential and the need for intervention in the rural fuelwood sector. Promoting tree growing for fuelwood is unlikely to be successful. Investing time and effort in a woodlot is not an attractive option to a family which can readily obtain brush wood, agricultural residues and animal dung as substitutes if traditional supplies of fuelwood become scarce. Where fuelwood is purchased, there may, however, be some scope for the introduction of improved cooking stoves in order to help families reduce the amount they spend on fuelwood. The mission recommends that n a preliminary assessment be made of the potential for introducing improved stoves in the non-electrified urban areas as well as in the north. 7. Electricity is more or less universally available in the urban areas. It is the main cooking fuel for the great majority of families even in the lower income areas because it is markedly cheaper than fuelwood, paraffin, or bottled gas. The provision of electricity can therefore bring significant savings to families who purchase their fuelwood. Renewable Energy 8. The Namibian renewable energy sector appears to be in an unusually strong position. Photovoltaics and wind are well developed and filling the niches for which they are presently suited both effectively and competitively. The private sector is active and competent; it should continue to play the major role in renewable energy development. This should be facilitated by increased government support focused on data gathering and dissemination, the commissioning of studies and pilot projects and the establishment of performance and design standards. Rural Electr(ficadon 9. Rural electrification is an important element in the government's policy of redressing the long neglect of the communal lands under the previous administration and directly assisting Namibia's rural poor. As presently carried out, it mainly involves the provision of grid extensions to government facilities and other selected rural centers, most of which were previously supplied by isolated diesel generators. The largest rural electrification program at presently underway is in the northern province of Owambo and is funded by NORAD. The transmission component of the program consisted of 530 km of high voltage line and associated transformers and was completed in early 1992, almost a year ahead of schedule and with a saving of more than 25% of the project budget Progress on the local distribution system has, however, been slow. 10. It is unlikely that the Owambo project, and others like it, can be justified on strict economic grounds. Their primary justification must be social and political, which is entirely legitimate but does not obviate the need to carefully evaluate such benefits. The direct social benefits may well be limited. Most of the government facilities already have electricity and their functioning will not be substantially altered although they will benefit from more reliable power supply and there will be substantial fuel cost savings. International experience generally indicates that the provision of grid electricity is unlikely, in itself, to bring about economic development which would otherwise not occur. Furthermore, the number of domestic connections is also likely to be low. Even if there is a high connection rate in the electrified centers themselves, the number of households supplied will inevitably be a small proportion of the total population of the region, which outside the few towns is widely dispersed. 11. The undoubted need to address the needs of long-neglected rural people should be weighed against these uncertainties about the actual economic and social impact of present rural electrification programs. The mission believes that sound decisions about further major investments in Owambo-like rural electrification programs will only be possible when improved institutional arrangements for distribution are in place and when the economic viability and social benefits of the Owambo program can be better evaluated. As discussed below, Namibia's electricity distribution system needs to be restructured institutionally; in this context, special attention should be paid to arrangements for rural electrification including, perhaps, the creation of a special distribution agency for the north. While the administrative and population centers will remain a natural priority for grid connections, consideration of future rural electrification investments should address the question of how the more dispersed rural population can also be provided with at least some of the benefits of electrification. A study should be made of such options as small photovoltaic systems for lighting and radio; commercial battery charging systems using photovoltaics or small diesel generators; and local community management of small supply systems. Meeting Namibia's Energy Needs Power 12. The power sector today presents a picture of good health. An extensive national grid supplies urban and industrial consumers with ample supplies of power at tariffs which, while low by international standards, are more than adequate to keep the national power company financially flush. However, Namibia is heavily dependent on power imports from the RSA and, with demand beginning to press on capacity, it will soon have to face important decisions, involving major investments, concerning how best to meet future needs. Other pending questions include revision of the tariff structure; the finances of the power company and their relationship to investment needs; whether to press ahead with large scale hydropower development for export to the RSA; and institutional reform . 13. The operating institutions in the power sub-sector consist of a national generating and transmission company and 46 municipal and local distribution agencies. The normative institution is the Ministry of Mines and Energy (MME), which has broad regulatory and policy-making responsibility. The national power company, the South West African Water and Electricity Company (SWAWEK), is responsible for generation and transmission of power in areas covered by the national grid. SWAWEK supplies the national grid principally from its Ruacana hydropower plant and with imports from the RSA. It can be reasonably assumed that the system's guaranteed capacity is effectively reduced to 260-300 MW during the dry season, including the imports contribution but excluding the high cost thermal reserve. Peak demand would tend to exceed this capacity by 1995/96, when Namibia's dependency on energy imports would reach around 40% of total electricity consumed. Even with demand growing more slowly than in the past, at about 3.5% per annum, additional generating and/or import capability would be required at that time. 14. SWAWEK's plans for meeting Namibia's power needs in the short-medium term have been focused mainly on an increase of imports. It has been planning to build an additional 400kV line as soon as additional import capacity becomes necessary, assuming that this line will be required in the early years of the next century to carry exports from the proposed Epupa hydropower project to the RSA. The mission's analysis indicates that other options, although limited in scope, may be more attractive. They may make it possible to defer major investments in transmission, which could be a great advantage so long as the fate of Epupa remains uncertain, as may well be the case for some time. It is therefore recommended that these options be investigated further in the following order of priority: --A peak/off-peak tariff for large consumers. This demand side option should be given the highest priority because it could bring benefits equivalent to adding 10-20 MW of capacity at very low cost. --Adding a Fourth Unit at Ruacana. Investigating the technical feasibility of this option should be accorded first priority on the supply side. iv --Gas turbines for peaking capacity. Although a relatively high cost solution, this could become a viable option if a time-of-use tariff is adopted. 15. These three options, as well as the plans for transmission for increasing imports from the RSA, should be the objects of a study aimed at defining a least-cost generation- transmission plan for meeting Namibia's power needs in the short and medium term. Indeed, such a study could mark the initiation of a much needed more systematic approach to power planning for optimizing sector investment decisions on the basis of a full range of supply and demand side options. 16. SWAWEK's costs are very low (0.053 R./kWh in 1991, i.e. less than 2 US cents/kWh), so that even with tariffs that are modest by international standards, income from operations substantially exceed operating expenditure. However, the tariff structure for bulk sales and final consumers leaves much to be desired economically. It does not reflect the structure of Namibia's hydro-thermal power supply costs which are strongly affected by peak and off-peak hours and, probably more important, by the period of the year (i.e. wet and dry seasons). Since capital expenditures have been relatively low, SWAWEK has been generating a sizable cash surplus in recent years. The continued piling up of surpluses in SWAWEK's coffers would not be in the best interest either of the government, which faces serious budgetary problems, or of SWAWEK, which could discover that a cash cow's life is not necessarily a happy one. Much will depend on the decisions to be taken about the power sector investment program. If major new investments are to be made in the near future, SWAWEK will need all the resources it can generate; if investment remains limited, SWAWEK's resources might be regarded as surplus to its requirements and a case could be made for having it fund rural electrification programs, and pay increased taxes and/or dividends to the government. Petroleum Supply 17. There is as yet no indigenous source of petroleum in Namibia, and no refinery; hence, all products must be imported. The present system which relies on private firms to import products and distribute them, but with the government closely controlling prices , profits and other aspects of their operation, has evolved from that used in the RSA. It works well in meeting the needs of the Namibian market; products of appropriate quality are readily available throughout the country (except in some remote areas) at economically realistic prices. Since independence, one of the government's major objectives has been the diversification of product supply away from complete dependence on the RSA, and in 1991 the portion of Namibia's supplies coming from the RSA was reduced to about 65%. The government has, at least informally, decided not to press for further diversification of supply at the present time. This decision seems wise since experience to date appears to indicate that a significant increase in purchases from non-RSA sources might come only at appreciably higher cost in terms of price, security of supply and product quality. 18. While small in absolute size, Namibia's petroleum consumption per capita is high by African standards. Given the already high consumption level, and the modest prospects for economic growth in the near term, gasoline demand is forecast to grow at only 4% per year, and diesel at 2% per year. Six private companies are now active in the Namibian market Since the prices of the major products are controlled, competition must be based on service in lieu of price. This has put a premium on the expansion and modernization of the companies' network of service stations. As a result, the country is well served, but "overpumped" - -i.e., there has been over-investment in an excessive number of overly elaborate service stations. V 19. In June 1991, it was announced that the government had agreed to the construction of a refinery proposed by private parties. Little is known about the proposal but the economic and financial viability of the project appears highly questionable because of its small size (15,000 b/d), a likely product mix that would not match the needs of the Namibian market and inland location. The risk to Namibia from the project appears to have been minimized by the requirement that it be constructed without public funds and operated without public subsidy. Moreover, no implementation activity has been evident since the project was announced and there is no indication of when, if ever, the sponsors intend to proceed with the project Export Opportunities Epupa Hydropower Project 20. The hydropower potential of the Kunene river, shared with Angola, constitutes one of the main energy resources of Namibia. SWAWEK has identified a promising site for the development of a major hydro plant in the vicinity of the Epupa falls. Given Namibia's present generating and import capability, the capacity and energy to be supplied by the project, particularly for its larger and costwise more attractive size (i.e. 450-500 MW) would not be absorbed by Namibia's power market before the year 2010. Therefore, the project's economic viability in the medium term has been considered to rest heavily on its potential for exports to the RSA. However, the RSA currently has excess capacity of around 7,000 MW and so will most probably not need additional capacity until early in the next century. ESKOM has indicated that it is interested, in principle, in purchasing power from Epupa when it needs additional capacity but that Epupa would have to be competitive with low cost coal-fired generation in the RSA and with other potential sources in the region such as the Kudu gas field and the Cahora Bassa plant in Mozambique. 21. Until the results of the pre-feasibility study SWAWEK commissioned in 1992 become available, there will be no basis for assessing the project other than SWAWEK's own preliminary studies, which appear optimistic. Using capital costs based on Bank experience indicates that energy from Epupa would cost 4.0-6.0 US cents/kWh, compared to the 3.5 US cents/kWh resulting from SWAWEK's preliminary estimates. Although even the higher costs may appear attractive by international standards, they suggest that Epupa would have serious difficulty in competing in the RSA market. ESKOM estimates that coal fired generation there presently costs only about 2.0 US cents/kWh; the mission estimates the cost of new coal-fired plants to be about 3.0 US cents/kWh. Kudu Offshore Gas Field Development 22. The evidence to hand suggests that this is a world-scale gas field, with characteristics indicating that few problems should be encountered in its development and exploitation. The most recent and thorough examination of the prospects for developing Kudu concludes that gas can be delivered to shore at after tax prices in the range of $1.34 to $1.14 MCF (MMBTU) at flow rates of 275 and 1,000 MMCFD respectively. Prices in this range would compare favorably with those of other, similar gas fields and indicate that it should be possible to develop Kudu commercially if a market can be found. The Namibian market is far too small to absorb a meaningful quantity of gas and the likely economic returns on using it to produce products for sale on world markets (i.e., as feedstock to produce urea or methanol, or as a fuel for use in aluminum or iron refining) appear low. The government has reportedly received a proposal from a major international oil company for the development of Kudu based on using the gas in a 1300MW combined cycle generating plant on the Namibian coast that would produce for the RSA grid. On the basis of international Vi experience, a combined cycle plant burning gas priced in the range indicated in the study would have costs of about $0.03-0.035/kWh (excluding transmission). This appears to be marginally competitive with coal fired generation in the RSA. However, ESKOM is reportedly interested in purchasing gas, not power, and it is believed that negotiations have focused on whether Kudu gas can be provided in the Cape at a price that would make it possible for ESKOM to build a gas fired plant that would compete with coal. 23. Kudu may also have the potential economically to serve a large industrial market in the Cape that should be ripe for conversion to gas delivered at the price it can offer. Also, since gas field development and production is a type of project eminently suitable for private sector development and financing, Namibia could reap the very handsome benefits of Kudu's development without having to put public funds at risk or encumber its international credit. To bring the prospects for Kudu into sharper focus, high priority should be given to exploring the feasibility of alternate development plans to include low cost field development options, and to more detailed market studies for gas supply to Cape industrial users. If the results are positive, it should be possible to develop a project that is attractive to private investors. A crucial component of such a project is likely to be a marketing strategy that focuses on getting Kudu's foot in the door by bringing gas to the Cape and offering it at the lowest possible price in order to quickly develop the market. Such a strategy would entail both risk and the deferral of returns. Namibia's petroleum legislation contains important elements of flexibility and the government may, given its interest in seeing the commencement of development of its natural resources, wish to consider deferring its tax take from the project to make it more attractive to investors. Oil Exploration 24. The discovery of oil would, needless to say, change the entire energy picture, and much else. One of the government's primary objectives in the sector has been to promote petroleum exploration and, to this end, it moved rapidly after independence to strengthen the geologic data base, enact an attractive contractual and fiscal framework and organize international bidding for licenses. Results to date suggest that the promotion program is going extraordinarily well. Licenses for offshore exploration have been negotiated with four consortia of international oil companies, and NAMCOR, the state petroleum company, appears to have succeeded in obtaining minimum work commitments totaling some $110million, including the drilling of 8 wells. Based on international experience, efforts on this scale should be sufficient to define the commercial potential of Namibia's hydrocarbon endowment. NAMCOR is presently planning to open a second promotion round in late 1993-early 1994. Institutional Issues 25. While the present strengths and resource potential of the energy sector give good grounds for optimism about its future development, much will depend on the effectiveness of policy-making and administration in the sector. As is inevitable in so new a nation, a great deal needs to be done to strengthen policy analysis and decision making capabilities, to build an appropriate the legal and regulatory framework, to rationalize the institutional structure, and to enhance the professional and technical capacities of those working in the sector. The outstanding institutional issues that appear most pressing to the mission are discussed below. The MME is well aware of the importance of these issues and intends to 26. give high priority to addressing them in 1993 and later years. vii Strengthening the MME 26. While still a fledgling institution, the MME has done much to strengthen its organizational structure and to bolster its staff. To date, it has played L much more important role in petroleum than in power, where practical and historical considerations have limited its role as regards both policy and regulation. Legal and institutional changes, such as those discussed below, can contribute much to strengthening the ministry's hand in power regulation. To enhance its role in policy-making, the MME will need to equip itself with more comprehensive, current and systematic data on all aspects of the sector and increase its analytical capabilities, especially on the economic and financial side. For both purposes, it will need to further upgrade its staff, not so much quantitatively as qualitatively. The MME is working closely with NORAD and other donor agencies on training programs and other technical assistance that will help it meet these needs. Regulating the Power sector 27. A number of factors have limited the MME's effectiveness in the power sector. As a well established, technically proficient and financially strong institution with forceful leadership, SWAWEK has naturally tended to have a major, even dominant, voice in policy- making. In addition, the lack of a regulatory framework for generation and transmission, and the fact that other government agencies have primary responsibility for distribution, have limited the MME's role in power regulation. The MME reviews tariff changes proposed by SWAWEK, but since there are no publicly established criteria, and the MME's analytical resources are limited, it is not surprising that SWAWEK's proposals seem invariably to be approved. The challenge facing the government is to establish a framework under which it can provide policy direction and regulatory oversight in a meaningful fashion while enabling SWAWEK to continue functioning efficiently and on a financially sound, commercial basis. As regards tariffs, the government might be well advised to give first consideration to a simple rate of return based approach to the overall level of tariffs, and to establishing a time of day tariff structure that differentiates between peak and off-peak supply costs. Rationalizing Power Distribution 28. The involvement of three sets of institutions --the municipalities, the Ministry of Local Government and Housing (MLGH), and the Peri-Urban Development Board-- in electricity distribution in a country with as small a population as Namibia's has resulted in an atomization of responsibility and a variety of diseconomies and inequities. Even the best equipped of the three, the municipalities, vary widely in competence and the service they can offer and none of the distributing institutions runs its system as a financially responsible commercial enterprise. The MLGH, which is responsible for distribution in rural areas, incurs a significant loss on its operations as a result of the very high level of unpaid bills (arrears) owed by its customers and high technical losses in its distribution systems. Distribution is, therefore, a major weak point in Namibia's power system and one that urgently requires attention, particularly in view of the growing importance of household consumption in the system. The objective should be to restructure the system with a view to (i) putting the operation of the system on a commercial, preferably private basis insofar as possible (ii) centralizing operations so as to obtain greater economies of scale and to equalize service while (iii) maintaining and enhancing local responsibility. A thorough study of the distribution system and the options for its rationalization is recommended. vii Petroleum Product Pricing 29. The prices of the major petroleum products (petrol, diesel and kerosene) are controlled by the government under a system essentially similar to that in the RSA. Prices are reasonable and the system works smoothly; it is quite transparent and there appear to be no inherent conflicts of interest. Nevertheless, prices are almost certainly higher than they would be if the market were competitive, and price control seems a hangover from pre- independence times with little or no economic benefits today. In the absence of price controls, with margins no longer assured, it is likely that one or more of the less efficient distribution companies will withdraw from the market. It is generally agreed that six companies are too many for Namibia's small market and that only three or four would remain after deregulation. This should be sufficient to maintain competition. It is therefore recommended that the government move to phase out price controls I. INTRODUCTION 1.1 Namibia is fortunate in that the energy sector is not a constraint on growth, as it is in so many developing countries. Indeed, through the exploitation of Namibia's hydro-electric and/or hydrocarbon resources for export, the sector may well become a major engine of growth. At present, industry, commerce and the country's population centers are adequately supplied with commercial energy (electricity and petroleum products) at economic prices. However, many households still lack access to modern energy supplies and, especially in rural areas, still rely on wood and other traditional fuels, particularly for cooking. A household energy survey conducted in preparation for the assessment indicates that, while fuelwood is increasingly difficult to come by in some areas, there are few signs of resulting hardship and that energy in general does not take a disproportionate share of household budgets. 1.2 That Namibia's energy sector works so well owes much to the fact that the sector's major public and private institutions operate on commercial principles and that energy prices are sufficient to ensure the financial soundness of the operating agencies, to provide funds for investment and, in most cases, to send the "right" economic signals to producers and consumers. While maintaining this essential framework, Namibia needs to pursue four key objectives in further developing its energy sector. * increasing access to modem energy supplies for households, * ensuring that commercial energy supplies expand to meet the growing needs of the economy, * developing its export potential, and * strengthening the institutional structure of the sector in order to facilitate more effective policy-making and implementation. 1.3 This report presents the findings and recommendations concerning issues in these areas of a mission that visited Namibia in June-July, 1992. The mission was led by Mr. Richard S. Dosik (consultant) and included Mr. Thomas O'Connor, Oil and Gas Specialist; Mr. Enrique Crousillat, Power Specialist, Mr. Gerald Foley (consultant), Household Energy Specialist; and Mr. Amadou Cisse, Energy Economist. While the energy sector today serves Namibia well, and much has been accomplished since independence, its future will depend in good measure on effectively addressing the policy, investment and institutional issues that are the focus of this report. The mission's recommendations are generally limited in scope and quite tentative in nature, reflecting both the limited information available to it in some areas, as well as the mission's feeling that, in the case of the Namibian energy sector, it would best to be guided by the adage "If it ain't broke, don't fix it". 2 Issues and Options in the Energy Sector, Namibia II. ENERGY AND THE ECONOMY The Economic Setting 2.1 Namibia's energy sector reflects the sharp (even for Africa) contrast between the modem/commercial and rural/traditional sectors of the economy. Looking at just the modem sector, Namibia appears much like a prosperous middle income country; it has an estimated GNP per capita of nearly $1200 and much physical infrastructure (in transport and telecommunications, as well as energy) of which an industrial country would be proud. However, the majority of Namibia's approximately 1.5 million people has an income per head of about $85 per year and lives under primitive conditions without adequate housing, water or health or education services. Mining (chiefly for diamonds, uranium and copper) is the mainstay of the modem economy, accounting for some three-quarters of export earnings, four-tenths of public revenue, and nearly one-third of GDP. Agriculture is, however, the major source of employment, supporting some 70% of the population. Its contribution to GDP and exports (about 12% in both cases) comes mainly from the large commercial cattle and sheep ranches that occupy the arid southern two-thirds of the country, whereas the bulk of the rural population is engaged in subsistence farming in the somewhat less arid north. 2.2 Namibia's dependence on primary production, which all told accounts for nearly 45% of GDP, makes its economy subject to significant fluctuations resulting from international market conditions, the weather and other external forces. The mining industry generally calls the tune and the depressed state of the minerals markets had much to do with the sluggish growth of the Namibian economy during most of the 1980s. Stabilizing influences on Namibia's economy come from the secondary (21% of GDP) and tertiary sectors (35% of GDP). Government expenditures on goods and services, including the growing civil service (19% of GDP) are particularly important in smoothing the otherwise erratic impact of the primary sector. The role played by government expenditures can be expected to grow, in part because Namibia's membership in the Common Monetary Area (CMA) with the RSA effectively takes monetary policy out of the government's hands and makes fiscal policy the default policy tool. In addition, the government's concern with reducing the inequality in income distribution seems bound to increase its role in the economy. 2.3 Since the 1960s, when the GDP growth rate was some 9.0%, there has been little forward momentum in the economy. Growth was weak in the 1970s and the 1980s was a period of fluctuation between boomlets and busts, with net growth of only about 1% over decade. However, a modest revival of growth appears to have taken place in 1990 and 1991, when GDP rose by 3.1% and 5.1%, respectively. In 1991, diamond production jumped by almost 56% and gold extraction increased by around 16%, although the rest of the country's mining output (uranium, copper, lead, zinc, silver) declined by 20%. The fishing industry, which is expected to become a significant growth pole in the primary sector, also had a good year in 1991, when the catch grew by no less than 84%! However, one or even two good years do not a growth trend make, especially since one-time factors in the form of the opening of a new diamond mine and the extension of Namibia's territorial waters had much Issues and Options in the Energy Sector, Namibia 3 to do with the economy's improved performance in 1991. All told, the growth rate will probably average 3-4% over the next few years. 2.4 Namibia's balance of payments appears quite strong. The boost to exports resulting from the aforementioned windfall gains in the diamond and fishing industries helped to cut the trade deficit by more than 50% in 1991 and this, together with higher transfer payments and service earnings, resulted in a substantial surplus on current account. Inflation in 1991 was held to the 1990 level of about 12%, but there were disquieting developments in the latter part of the year when the monthly rate of increase in the price indices, which had been declining, reportedly began to move up. This turn-around was attributed mainly to rising consumer demand resulting from an expansion of consumer credit coupled with inflationary wage settlements. Energy Consumption 2.5 Per capita energy use in 1991 amounted to 0.51 toe, which is well above that of most Sub-Saharan Africa. However, traditional fuelwood (non-commercial energy) plays a much more limited role in energy consumption (around 14%) in Namibia than in most other countries on the continent. 1 The predominance of commercial energy in the Namibian energy balance reflects the importance of the energy-intensive mining industry in the country's economic structure as well as the relatively high incomes enjoyed in the modern, urban areas and the ready availability there of commercial energy at reasonable prices. 2.6 As the summary balance below shows, petroleum products account for the largest share of energy use (over 65%), followed by electricity (around 17%). Annex A contains detailed energy balances for 1989-91. Final Energy Consumption, 1989-91 (TOE) 1989 1992 1991 Oil Products 563,132 463,919 466,190 Electricity 111,091 116,573 122,168 Fuelwood 70,013 80,404 81,831 Coal 43,160 43,160 43,160 Total 796,396 704,056 713,349 Per Capita 0.603 0.517 0.509 Consumption per Sector Industry 34,752 32,770 34,130 Transport 71,617 59,385 45,306 Household/Public 394,316 342,232 349,135 Agriculture 50,947 50,26 52,457 Mining 199,098 180,662 176,435 45,666 38,916 55,887 1 Data on fuelwood consumption are sparse and must be regarded with caution. 4 Issues and Options in the Energy Sector, Namibia 2.7 After dropping off sharply in 1990, in the wake of the departure of the RSA and UN forces at the time of independence, energy consumption recovered modestly last year when it grew by some 1.55%2 The increase of energy consumption in the next few years is likely to parallel the modest growth rate foreseen for the economy and, thus, to average some 3.0-3.5% per annum. With a continuing decline in Uranium production at the Rossing mine and the impending closure of the Tsumeb copper mine offsetting the impact of the planned new operations, the demand for electricity in the mining sector is, at best, likely to remain flat. However, demand from the municipalities, the government and for rural electrification can be expected to continue to expand rapidly and to largely account for an overall growth in electricity consumption of around 3.5% per annum. The demand for petroleum products is projected to grow somewhat more slowly, at about 3.0% per annum, with new requirements coming only from the fishing industry. In the fuelwood sector, demand is likely to grow only modestly, if at all, since the impact of population growth is likely to be mostly offset by a continuing switch to electricity and other modern fuels for cooking. 2 The continued sharp decline in consumption in the transport sector in 1991 was mainly the result of a further sharp reduction in jet fuel sales as the last of the major UN operations wound down. Issues and Options in the Energy Sector, Namibia 5 IHI. HOUSEHOLD ENERGY 3.1 Fuelwood is the main rural energy source in Namibia and is frequently supplemented by dung and agricultural residues. Electricity is the main cooking fuel in the urban areas. Bottled gas and paraffin are also used to a limited extent. 3.2 A survey of household energy consumption was carried out for ESMAP by the Namibian Institute for Social and Economic Research (NISER)3. The study focused on Owambo, which accounts for about 70% of the rural population, and on the large township of Katutura outside Windhoek4. Table 1 shows the breakdown of household cooking energy consumption for Owambo and Katutura. Table 1 FUEL OWAMBO KATUTURA Fuelwood 90 11.7 Ag. residues, dung 7.5 - Electricity 1 84.5 Bottled gas 1.5 2.8 Paraffin - 1 Fuelwood The Owambo region 3.3 Fuelwood consumption is concentrated in the Owambo region of northern Namibia which, with a population of about 600,000, is the most densely inhabited region of the country. The density is nevertheless low in absolute terms. In Owambo as a whole it is only about 12 persons per square kilometer though it is higher towards the center where the water supplies are most plentiful. 3.4 Owambo is crossed by a large number of seasonal rivers draining in a delta formation, known as the Cuvelai system, towards the Etosha Pan. Rainfall increases towards the north east but over most of Owambo is 400-500 mm per year. The natural vegetation varies from grassland to tree savanna depending on rainfall. 3.5 Central Owambo is the main area of crop cultivation in the country. Farms are small, with a typical cultivated area of two to three hectares. Drought is common and the main subsistence crop is millet (muhango). Fruit trees are grown but there is no significant tree planting for other purposes. 3.6 The ground water in most of the area is highly saline but people are able to obtain fresh water from shallow hand dug wells. These tap into an aquifer fed by the Cuvelai 3 "Household Energy Consumption, Distribution and Marketing Survey of the Owambo Region of Northern Namibia and Katutura, Windhoek" , 1992 . 4 Further information on family fuel consumption is available in the NISER report: "Socio- economic study of the OndangwalOshakati nexus area." Research Report No 8, Feb 1992. 6 Issues and Options in the Energy Sector, Namibia system but isolated from the lower saline ground water by a hard calcareous layer. Pipelines from the Kunene river provide supplies to the main population centers as well as stock watering points. 3.7 Land is held under traditional tenure rules administered by local chiefs. Individuals are allocated a holding for life but are not allowed to pass it on within the family. Outside the cultivated fields the land is open to everyone for grazing and tree cutting. The household energy study 3.8 The NISER study divided Owambo into four ecological zones: grassland, palm-tree, savanna, and woodland; and the peri-urban Oshakati/Ondangwa area. The sample consisted of 200 families, all within a 100 km radius of Oshakati. The average household size was 8.13 persons. The average annual family expenditure was estimated to be R3,514. 3.9 The survey showed that fuelwood was the main cooking fuel of 90% of families. Dung and agricultural residues were widely used as supplementary fuels but were the principal fuels of 7.5% of families. Fuelwood use varied in accordance with its availability; in the grassland area, 75% of families used other fuels occasionally or all the time whereas in the woodland areas only fuelwood was used. The great majority of families (94%) using fuelwood collected it from their surroundings. On average, collection was every four days and took about 90 minutes. A small number of families (6%) were found to purchase some or all of their fuelwood. 3.10 The quantities of fuelwood used were calculated by asking households how long sample bundles would last. This gave an average daily consumption per head of 0.50 kg for the rural areas, varying from 0.31 kg in the grassland area up to 0.56 kg for the woodland areas. These figures appear low in comparison with other African countries5 though the fact that they show a plausible pattern of variation between ecological zones adds to their credibility. But depending, as they do, on subjective estimations, they must be subject to considerable reservation. 3.11 The survey of the Ondangwa/Oshakati nexus found that fuelwood consumption falls off within the peri-urban area with 56% of households relying on it as their main cooking fuel. About 70% of these purchased their supplies. The mean annual household expenditure was R9,754 and the mean annual expenditure on fuelwood was R750, or about 7.7% of total expenditure. Fuelwood consumption in Katutura 3.12 Katutura is a township established in 1968 on the edge of Windhoek. It has a population of around 90,000. Dwelling plots are officially designated and the majority have water, electricity and sanitation. About 90% of the houses are of brick or block with iron roofs and about 50% are privately owned. In the past few years an increasing number of squatter settlements have been established around Katutura. The dwellings are of makeshift construction and do not have electricity. 5 Figures of over 2 kg/head/day have been found in Tanzania, south Sudan, Kenya and the Gambia, though 0.8-1.0 kg/head per day is more typical of the drier areas in these countries. Figures from Mali give 0.7-0.9 kg/head/day for the arid areas and 1.7-2.4 kg/head/day for the higher rainfall areas. Issues and Options in the Energy Sector, Namibia 7 3.13 In the NISER survey, a total of 103 families were interviewed. The average family size was 6.37. The average annual family expenditure was estimated to be R10,699. Just under 15% of families use fuelwood most or all of the time. The estimated consumption was 0.64 kg per head per day. The average annual expenditure on fuelwood per family was R740, about 7% of total expenditure. 3.14 Large amounts of wood are available within the open lands and commercial farms immediately around and within a few tens of kilometers of Windhoek. A proportion of the supplies to Katutura are collected, or stolen, from these areas. There are also sales from commercial farms to fuelwood dealers. Reports that fuelwood is transported to Windhoek from Owambo are almost certainly exaggerated. Wood prices are based on the bundle size rather than the weight and unit prices vary greatly, ranging from RO.40 cents per kg to R1.20 per kg. Fuelwood consumption in other rural areas 3.15 Fuelwood is also used in the communal areas to the south, east and northeast of the country. In general, population densities are extremely low - less than one person per square kilometer in Kaokaland, Keetmanshoop, and Hereroland East and about five persons per square kilometer in East Caprivi. In such areas, the available wood, or other burnable biomass, is generally likely to be adequate for local people's needs. 3.16 The mission was, however, informed by the MME that there are some fuelwood shortages in parts of Keetmanshoop and Marienthal though no details were available. It is recommended that a rapid appraisal be made of the position in these areas to establish whether a more detailed investigation of the problems and available options should be made. Overall household consumption offuelwood 3.17 Bearing the reservations about the consumption figures in mind, and assuming a total of 1.1 million consumers, total household consumption of fuelwood is around 230,000 tons per year. This is equivalent to about 80,000 tons of oil equivalent. Fuelwood consumption and the natural environment 3.18 Widespread deforestation is clearly taking place in Owambo. Records from the 1950s show that many communities were separated from each other by tracts of forest. In the more heavily populated areas, this forest has now vanished. Around the towns and along the livestock routes by the main roads, not only trees but the whole vegetation cover has disappeared. 3.19 One of the largest uses of wood is construction of traditional homesteads. These consist of a series of huts and compounds, separated by fences and surrounded by a high stockade. The total length of stockade may be 300 meters or more, made up of logs 2-3 meters long and 6-9 cm in diameter. In addition, there may be up to 1.5 km of fencing made of smaller poles and sticks around the cultivated fields and stock pens. Measurements made in 1990 of a typical homestead near Oshigambo found about 100 cubic meters of wood had been used. Traditionally, homesteads have tended to be moved every five or six years, with most of the poles being replaced in the process. 8 Issues and Options in the Energy Sector, Namibia 3.20 The wood for homesteads is taken from the nearby forests if suitable trees still exist. In areas where the larger trees have been cut, families use a cart or hire or borrow a pick-up truck to obtain the wood from further away. Otherwise, alternative construction methods are used, with fences being made of thorn brush or bound bundles of millet stalks. 3.21 The amounts of wood used in homestead construction are many times greater than those used for fuelwood. Using the NISER survey figure of 0.5 kg per head per day, a typical family uses about 1500 kg per year or about 2 cubic meters. The construction of the Oshigambo homestead above is equivalent to 50 years supply of fuelwood for such a family. 3.22 Clearing for agriculture can also destroy considerably more forest than fuelwood cutting. The wood "consumption" of a family clearing 3 hectares of intact woodland every five years is about 15 tons or 21 cubic meters per year, ten times its fuelwood consumption. 3.23 Attempts to slow deforestation through energy initiatives are thus unlikely to have any significant effect. Indeed, even if fuelwood consumption were to cease completely, deforestation would continue rapidly as a result of cutting trees for homesteads and agricultural clearing. Any resolution of the deforestation problem will require a coordinated approach involving a wide variety of non-energy inputs and initiatives. Recommendadons 3.24 The fact that the majority of families appear able to manage satisfactorily with the energy resources freely available to them greatly limits the potential and the need for intervention in the rural fuelwood sector. 3.25 Promoting tree growing for fuelwood is unlikely to be successful. There is no tradition of cultivating indigenous trees for fuel and exotic species such as eucalyptus, leucaena or others tend to require watering and considerable care over at least the first two years6. Investing time and effort in a woodlot is not an attractive option to a family which can readily obtain brush wood, agricultural residues and animal dung as substitutes if traditional supplies of fuelwood become scarce. 3.26 Where fuelwood is purchased, there may, however, be some scope for the introduction of improved cooking stoves. These, it should be noted, will not have any significant effect on deforestation but can help families reduce the amount they spend on fuelwood. A number of attempts have already been made to introduce such stoves but the effect has been slight The mission recommends that a preliminary assessment be made of the potential for introducing improved stoves in the non-electrified parts of Katutura as well as Oshakati and Ondangwa. This assessment should be carried out, in collaboration with the MME, by one of the well-established international stove organizations with a proven record of field success. 6 A total of about 100 hectares of eucalyptus plantations have been established at various times over the past 20-30 years. Growth and survival have been relatively poor. There is, for example, a poorly growing 45 ha plantation established in the 1970s beside the main road at Onankali to the north of Tsumeb. Issues and Options in the Energy Sector, Namibia 9 Household Use of Conventional Fuels 3.27 Electricity is more or less universally available in the urban areas. It is the main cooking fuel for the great majority of families even in the lower income areas. In Katutura, the NISER survey found it was the main cooking fuel of 84.5% of households. It is also used for lighting, TV and other household uses. 3.28 Appliances are readily available and relatively affordable in relation to average household incomes. A two plate cooker, for example, is about R13. The NISER survey found that average annual consumption per household was 3,841 kWh. The average outlay on electricity was R944, about 9% of family expenditure. 3.29 In the Oshakati/Ondangwa nexus, where electricity is confined to a small proportion of households, bottled gas is the most popular cooking fuel next to fuelwood. It is used as the main cooking fuel by almost 30% of families. In Katutura, it is used by about 10% of families. 3.30 The NISER survey found that paraffin was used by 52.5% of Owambo families for lighting. A small proportion of households (6%) also used it for cooking. The average annual consumption was 67.5 liters per family. The price was in the range R1.67 - 1.94 per liter and average family expenditure was R 113 per year. 3.31 Candles are the other main lighting source in the rural areas. Dry cell batteries are widely used for radios and torches. Car batteries are used for lights, radios and other low voltage appliances and are recharged in vehicles or service stations where a fee is charged. Prices and supplies 3.32 Domestic fuel prices, except for electricity, tend to vary widely even within the same locality. Fuelwood, however, even at the low end of the retail price range, is considerably more expensive than conventional fuels, especially electricity, for cooking as can be seen in Table 2. Table 2 Fuel Unit price Price/MJ Efficiency Price/end- Rcents % use MJ Fuelwood 3.33 Rc/kg 3.34 3.35 3.36 Paraffin 3.37 R/ltr 3.38 3.39 3.40 Electricity 3.41 Rc/kWh 3.42 3.43 3.44 Bottled gas 3.45 R/kg 3.46 3.47 3.48 3.33 Electricity's marked price advantage goes far to account for its popularity as a cooking fuel wherever it is available. The provision of electricity can therefore bring significant savings to families who purchase their fuelwood. The impact on the poorest urban families, however, is generally less since they tend to collect rather than purchase their fuelwood. This is also true of the great majority of families in the rural areas. 10 Issues and Options in the Energy Sector, Namibia 3.34 There do not appear to be any significant problems in the supply of conventional fuels. In areas where a demand exists, there is every indication that the distribution and market systems already in place are able to meet it satisfactorily as well as supply any likely future increases. Small Scale Renewable Energy Sources Solar energy 3.35 Namibia has around 3300 hours of sunshine per year, one of the highest figures in the world. Insolation levels reach 8 kWh per square meter per day and even in the rainy season there are normally 4-5 hours of bright sunlight. 3.36 The main user of photovoltaic systems is the Department of Posts and Telegraphs which has installed a total of about 180kW for use in relay stations and other remote applications. The Department calculates that the savings in comparison with diesel enable the capital costs of a typical installation to be amortized in 14-26 months. 3.37 The Ministry of Wildlife, Conservation and Tourism has installed a total of 18 photovoltaic pump systems for game water holes in Etosha National Park with a total capacity of about 25 kW. A further 33 installations are planned. The Namibian Broadcasting Company is also a major user. 3.38 A number of photovoltaic systems have been installed for lighting and pumping at schools, clinics and other government facilities and such applications are under increasingly active consideration. Sales in the commercial farming areas for farm and household applications are also rising. Studies by NISER and the Department of Water Affairs into the potential for wider application of photovoltaics are to be carried out later in 1992. 3.39 Despite the abundance of solar energy, solar water heaters are little used. The main reason is that the majority of potential consumers are connected to the SWAWEK electricity supply system. The low level of tariffs makes solar water heating at around R4000 per installation an unattractive option. There would appear, however, to be opportunities for the installation of heaters in government facilities not served by grid electricity. In some cases diesel generated electricity is apparently being used for water heating. This deserves to be investigated. 3.40 The private sector is active in the supply and installation of photovoltaic systems. Most of the components are imported but the design, assembly and testing of systems is well within the capacity of local companies. 3.41 The market appears to be competitive, with at least three active local companies and others based in South Africa willing to tender for work. Government projects are generally based on performance specifications and are subject to competitive bidding. There is a high level of awareness of the need for testing of designs and vulnerable components and of the importance of adequate repair and maintenance. 3.42 The following are sample retail prices for a number of systems. They do not include installation or Government sales tax. Issues and Options in the Energy Sector, Namibia 11 Siemens (Namibia) 20 Wp lighting kit for 2 lights R835.00 55 Wp 3 light kit 2,225.00 55 Wp 6 light kit 2,743.00 Solar Age (Namibia) 11 Wp lighting kit for 1 light 900.00 3 Wp rechargeable portable lamp 550.00 60 Wp panel, 4 lights, 12V B+W TV 3,200.00 2x60 Wp panels + inverter 7,000.00 3.43 These prices appear rather high by international standards, but are comparable with Zimbabwe, for example, where a significant local photovoltaic supply industry already exists. Wind power 3.44 Wind power is well established and is the main source of energy for water pumping in the commercial farm area. It is estimated that there may be 30,000 or more functioning windmills in the country, many of which have been working for decades. 3.45 The potential use of wind pumps in the communal lands has yet to be explored in depth though it is likely to be less than in the commercial farm areas because of the less favorable wind regimes. The possibility that combined wind and photovoltaic installations might be able to replace some of the smaller diesel generators presently being maintained by the Department of Works has been suggested by the Research Section of the MME. Under this scheme, pumping would be provided by the windmill and electricity by the photovoltaic system. The possibility deserves more detailed investigation. 3.46 Apart from the use of a small number of wind chargers for batteries, wind power is not used for electricity generation. This is likely to remain the case as wind speeds are generally below the figure of 4 meters per second at which electric power generation becomes a potentially attractive option. 3.47 The exception is the coastal area where wind speeds are high and relatively constant. A proposal has been made to investigate the possibility of establishing a wind farm to supply the grid at Luderitz and is reported to be under sympathetic consideration by a number of donor agencies. Although the technical potential for such a project may exist, there is no reason to suppose it would be able to compete with SWAWEK's very low costs. Biogas 3.48 Although biogas has attracted some interest in Namibia, its potential role is minor. The shortage of water is a key limitation. The free range grazing of cattle also makes it difficult and time consuming to collect the dung required for the digester. In general, the expense and complexity of constructing and managing digesters coupled with their relatively low and unpredictable energy yields make them unattractive options in most rural Namibian applications. 12 Issues and Options in the Energy Sector, Namibia Renewable energy recommendations 3.49 The Namibian renewable energy sector appears to be in an unusually strong position. Photovoltaics and wind are well developed and filling the niches for which they are presently suited both effectively and competitively. The private sector is active and competent; it should continue to play the major role in renewable energy development 3.50 This should be facilitated by increased government support. Within the MME, renewable energy sources are handled by the Research Section in the Electricity Division of the Directorate of Energy. The Section presently has a staff of two with the position of head unfilled. The mission feels that its present role could usefully be extended to include the following: 3.51 Assembly and publication of meteorological data on wind and insolation. There are gaps in the available information, especially in the communal lands. It would be useful for renewable energy designers to have comprehensive and reliable data. This task would require liaison with the Meteorological Office and renewable energy suppliers and designers. 3.52 Assembly of data on renewable energy experience. This would primarily be based on experience within the government sector but would incorporate available data from the private sector. It would provide a publicly accessible data bank, helping researchers avoid duplication and enabling them to build upon the results of previous work. The Section could also act as a clearing house for small scale donor-funded projects in the renewables area 3.53 Commissioning studies and pilot projects. The Section could identify gaps in the existing knowledge and commission studies or pilot projects to obtain the necessary information. 3.54 Raising awareness of renewable energy sources among government decision makers. Awareness of the potential and limitations of renewable energy sources is still limited among many government decision makers. The Section could help raise the level of awareness by providing general information and carrying out case studies of particular applications. 3.55 Setting performance and design standards for renewable energy equipment. Performance and design standards are necessary to protect consumers. The standards should be based upon those already accepted elsewhere, adapted where necessary for Namibian conditions. The standards should be set in conjunction with private sector suppliers, the Department of Trade and Industry and relevant professional and academic organizations. Issues and Options in the Energy Sector, Namibia 13 Wood and Charcoal from Brush Clearing Charcoal making 3.56 Farmers also use brush wood for charcoal making. The charcoal is made in mild steel vertical retorts 10-15 meters high built by farmers themselves to a local design. They operate on a semi-continuous process and have a production of about 35-40 tons per month of good quality charcoal. The yield is about one ton of charcoal per five tons of wood. The bulk of the charcoal is sold to the TCL mine at Tsumeb for ore smelting. Consumption is about 500 tons per month and the mine pays R180 per ton. 3.57 A South African company is at present exploring the possibility of investing in a sophisticated Lambiotte-type retort at a reputed cost of R36 million. This would have an annual output of about 16,000 tons of charcoal of sufficiently high quality to meet European Community import standards and would require a guaranteed supply of 80,000 tons of wood per year. The resource availability and possible contractual arrangements for obtaining supplies from farmers are being examined. 3.58 Such a project, if it can be established, would bring a variety of benefits: increased local employment, encouragement to farmers in their brush clearing, and export earnings. The investment decis3.54 Some 8-10 million hectares of grazing land are seriously affected by brush encroachment in the center and north of the commercial farm areas. As a result, the grazing area is reduced by up to 50%, with some places becoming completely impassable for livestock. 3.59 Clearing the brush from the encroached land is an extremely labor-intensive and difficult operation but yields about 6 tons of wood per hectare. Wood production costs are in the range R45-65 per ton. The TCL mine at Tsumeb has provided a market of about 3000 tons per month at a price of R65 per ton, though there have been serious problems in loading the fuel into the existing coal-fired boilers. While scarcely profitable in its own right, the opportunity to sell the wood helps offset the heavy costs of brush clearing for farmers. 3.60 The run down of Tsumeb mine has considerably reduced the market for boiler fuel but similar quantities will be required when the new Kombat mine about 90 km from Tsumeb comes into production. Management of the mine is determined to resolve the loading problem so that local wood supplies can be used. ions must be left to the private sector, but the many potential benefits from the project make it important that its implementation be encouraged and facilitated as much as possible. Rural Electrification 3.61 Rural electrification is an important element in the government's social and political policies aimed at redressing the long neglect of the communal lands under the previous administration and directly assisting Namibia's rural poor. As presently carried out, it mainly involves the provision of grid extensions to selected rural centers, most of which were previously supplied by isolated diesel generators. 14 Issues and Options in the Energy Sector, Namibia Rural elecificadon poicy 3.62 SWAWEK, according to its annual report, carries out rural electrification "wherever it is possible to do so and whenever funds are available". In practice, this appears to mean providing rural electricity supplies wherever this meets normal commercial criteria. When non-commercial projects are carried out at the government's request, SWAWEK expects the capital costs to be covered by a grant. 3.63 Priority is given to centers with existing government facilities such as schools, hospitals, police stations, clinics or administrative offices. The majority of these already have an electricity supply from isolated diesel sets provided and maintained by the Department of Works. These vary in capacity from units of 10-20 kW used to supply small schools and clinics through to 250 kW units for larger schools and hospitals. The Department is responsible for a total of 450 units many of which are in poor condition. The average estimated cost of the electricity supplied is RO.66 per kWh. 3.64 In carrying out rural electrification programs, SWAWEK acts only as a bulk electricity supplier. The construction and management of the local distribution system is the responsibility of the Ministry of Local Government and Housing (MLGH) and is generally carried out with technical support from a consulting firm. The MLGH purchases electricity from SWAWEK at RO.048/kWh and is responsible for setting its own retail tariffs. These are generally in the range RO.15-0.20/kWh and are heavily subsidized in the case of supplies from isolated diesel sets. 3.65 As rural electrification proceeds in the northern part of the country, the burden on the MLGH is increasing. One of the options being considered as an alternative to strengthening the MLGH capacities in the construction and management of local distribution systems is the establishment of an autonomous electricity distribution authority for northern Namibia. 3.66 The largest rural electrification program at present under way is in Owambo and is funded by NORAD. Preliminary designs have been drawn up for further programs in Kavango and Caprivi but no commitment of donor funds has yet been made for either program. In Kavango, certain distribution lines are already being built to supply centers along the Okavango river west of Rundu. This work is funded by the government and is being undertaken without foreign assistance. Owambo rural electrificaton program 3.67 An outline program for the electrification of 29 centers in Owambo was drawn up by the government in 1990. This was presented to NORAD which, following a study by consultants, agreed to provide NK48.5 (about $8.Omillion) to fund the transmission facilities to be constructed by SWAWEK. 3.68 The SWAWEK component of the program consisted of 530 km of high voltage line and associated transformers and was completed in early 1992, almost a year ahead of schedule and with a saving of more than 25% of the project budget. Progress on the local distribution system has, however, been slow with five centers completed by mid-May 1992 and a further three half-completed. Arrangements are being made to transfer some of the savings from the SWAWEK component to the MLGH to speed up the work on the distribution systems. Issues and Options in the Energy Sector, Namibia 15 3.69 As part of the program, two important innovations are being introduced. The first is a "Redi-board" incorporating a light and three socket outlets, from which extension cords can be safely run to appliances and other rooms, making it unnecessary to hard-wire a home. Domestic consumers are given an electronic pre-payment meter with which they pay in advance for the electricity they use. They do this by purchasing from machines, located in local shops or other facilities, electronically coded cards available in sums ranging from a few Rand to a hundred or more. When inserted in their home meter these cards enable the consumer to use the amount of electricity purchased. A display on the meter shows the amount of electricity available and indicates the rate of consumption. 3.70 No connection fees are charged, the cost of the connection and the meter being built into the retail tariff of R.0.20/kWh. The pre-payment meter also prevents consumers from using more electricity than they can afford at any time, while helping them to economize on electricity costs by showing them visually how quickly they are using what they paid for. For the distributor, these meters have the advantage of eliminating meter reading, billing and collection costs, and the problem of unpaid bills. They are being successfully used in the RSA, from which they are imported. Rural electrifcation overview 3.71 The NORAD economic analysis of the Owambo program assumed a high growth in electricity demand in all the centers. The benefits were calculated on the basis that, in the absence of the program, the projected energy demand would be met 60% by diesel generated electricity at RO.70/kWh and 40% by bottled gas at RO.05/MJ (Ri 10/kg). Under these conditions and a 5% discount rate the project had a positive NPV over 20 years but not with an 8% and 10% discount rate. 3.72 SWAWEK, however, is of the view that the NORAD demand forecasts are unrealistically high. But it also observes "..if a grant is received, the returns should be able to cover the maintenance and direct operating costs as well as the generating and distribution cost of electricity. There should also be some money left over for a contribution towards depreciation and replacement." 3.73 The mission inclines towards the SWAWEK view of the demand forecast and feels it is unlikely that the project, and others like it, can be justified on strict economic grounds. The primary justification for such projects will therefore tend to be social and political. This is entirely legitimate, particularly in view of the fact that the capital costs are clearly identified and separately funded (largely by foreign grants), but it leaves questions about whether the expected social benefits are being realized. 3.74 The direct social benefits are, in fact, likely to be limited. The government facilities, in general, already have electricity and their functioning will not be substantially altered. However, they will benefit from more reliable power supply and the government will reap substantial fuel cost savings. International experience generally indicates that the provision of grid electricity is unlikely, in itself, to bring about economic development which would otherwise not occur. Furthermore, the number of domestic connections is also likely to be low. Even if there is a high connection rate in the electrified centers themselves, the number of households supplied will inevitably be a small proportion of the total population of the region, which outside the few towns is widely dispersed. 16 Issues and Options in the Energy Sector, Namibia Looking to the future 3.75 The future course of rural electrification is dependent in good measure on (i) the development of improved institutional arrangements to ensure that the construction and subsequent management and expansion of rural distribution systems are effectively handled and (ii) whether the benefits of electrical service actually come to reach a substantial portion of the rural population. At present, there is considerable uncertainty on both scores. To speed completion of the Owambo project, the MME has taken over responsibility for connecting consumers from the MLGH as a temporary measure. A more permanent fix of the institutional arrangements for power distribution is being planned but will depend, inter alia, on the direction taken by the presently planned reform of local and municipal government, which is still unclear. It is also still far too early to assess the rate at which consumers will be connected and the load will actually grow in Owambo. 3.76 The undoubted need to address the needs of long-neglected rural people should be weighed against these uncertainties about the actual economic and social impact of present rural electrification programs. The mission believes that sound decisions about further major investments in Owambo-like rural electrification programs will only be possible when improved institutional arrangements for distribution are in place and when the economic viability and social benefits of the Owambo program can be better evaluated. 3.77 While the administrative and population centers will remain a natural priority for grid connections, to extend the social impact of rural electrification consideration of future investments should address the question of how the more dispersed rural population that is not within reach of the grid can also be provided with at least some of the benefits of electrification. It is unlikely that there is any uniform "solution" and that a multiple approach will be the most effective. Among the initiatives which could usefully be considered are the promotion of: * small photovoltaic systems for household lighting and radio; * commercial battery charging systems using photovoltaics or small diesel generators; * local community management of small supply systems. 3.78 Photovoltaic systems, despite their high initial price, may be cost effective in providing small amounts of power to meet household needs in areas that are too thinly settled to make grid connections feasible. Any study of the potential for such systems should be based upon collaboration between the MME, other relevant ministries, local organizations and NGOs, as well as private sector interests. In all cases, the institutional dimension - the means by which programs are initiated, coordinated, paid for, and managed in a sustainable manner - needs to be given prime attention. In any discussion of a new rural electrification agency for northern Namibia, its potential for acting as a coordinator of such programs should be seriously considered. Issues and Options in the Energy Sector, Namibia 17 IV. MEETING NAMIBIA'S ENERGY NEEDS Power 4.1 The power sector today presents a picture of good health. An extensive national grid supplies urban and industrial consumers with ample supplies of power at tariffs which, while low by international standards, are more than adequate to keep the national power company financially flush. However, Namibia is heavily dependent on power imports from the RSA and, with demand beginning to press on capacity, it will soon have to face important decisions, involving major investments, concerning how best to meet future needs. Other pending questions include revision of the tariff structure; the finances of the power company and their relationship to investment needs; whether to press ahead with large scale hydropower development for export to the RSA (discussed in Chapter V); and institutional reform (discussed in Chapter VI). Institutional Framework 4.2 The operating institutions in the power sub-sector consist of a national generating and transmission company and 46 municipal and local distribution agencies. The normative institution is the Ministry of Mines and Energy (MME), which has broad regulatory and policy-making responsibility. The national power company, the South West African Water and Electricity Company (SWAWEK), is responsible for generation and transmission of power in areas covered by the national grid. SWAWEK supplies bulk energy to local distribution authorities, mines and larger industries, as well as commercial farmers. It is a state owned utility but one that enjoys a high degree of autonomy and operates according to commercial principles. SWAWEK's organization has remained virtually the same as under the ownership of the Industrial Development Corporation of South Africa Ltd., before Namibia's independence. 4.3 Municipal authorities are responsible for distribution in 15 large and medium size towns. Power distribution in communal areas is the responsibility of the Ministry of Local Government and Housing, through 21 local authorities. In addition, the Peri-Urban Development Board is responsible for power distribution in 10 small towns (non-communal areas). With the exemption of a few large distributors, most notably the municipality of Windhoek, most of the distributors are small, supplying only few hundred consumers. Demand and Supply 4.4 In 1991, electricity consumption totaled 1550 GWh per year, with a peak demand of 250 MW. As the Table 1 below shows, the mining sector is the major consumer, accounting for nearly 50% of SWAWEK's sales. The municipalities, which distribute power to households, industries and commercial consumers in their jurisdictions, are its second largest customer. Among the municipalities, the city of Windhoek accounts for 70% of total consumption, followed by Swakopmund (9%). These two are also the fastest growing cities in the country. The Windhoek municipality serves 32,200 customers, of which 3,700 are industrial and commercial. 18 Issues and Options in the Energy Sector, Namibia Table 1 Energy Consumption by Consumer Groups (in GWh/year) 1987 1988 1989 1990 1991 Growth rate (%) Municipalities 505 561 591 619 659 6.9 Mines 684 699 716 736 757 2.6 Rural areas 1 79 89 85 91 102 6.6 Total Consump. 1268 1349 1392 1446 1518 4.6 Sales to Eskom 173 233 267 166 201 3.8 Total Sales 1441 1582 1659 1612 1719 4.5 1 Includes small localities served by Local Government and the Peri-Urban Board. 4.5 Although electricity demand rose at an average annual rate of 5% over the past 10 years, growth is expected to be slower in the near future. The mining sector is not expected to experience any significant growth in the short and medium term in view of the almost stagnant world market demand for many mineral products. Accordingly, there are no expansion plans in Namibia's mining sector which would result in an important increase in power demand. Future power load growth may be expected to come mainly from the municipalities and, to a lesser extent, the other public distribution agencies, including rural electrification. Assuming that the municipalities' demand will continue growing at historical rates, i.e. the city of Windhoek at 8% and the rest at an average of 5%, the overall power load would likely grow at around 3.5% per year. Accordingly, the mission's estimate is that domestic power demand, including 10% energy losses, would reach a maximum demand of 278 MW and energy demand of 1925 GWh in 1995, and 330 MW and 2295 GWh during the year 2000. 4.6 Installed capacity in the main grid is 384 MW. A breakdown of this capacity and existing transmission facilities is shown in Table 2. In addition, SWAWEK's transmission system is connected to the RSA grid through a double circuit 220kV transmission line that adds an import capability of 150-200 MW. There is also captive generating capacity composed of a large number of small diesel-fueled units. This capacity is estimated to be in the order of 45 MW, almost 90% belonging to the Department of Works, Ministry of Works Transport and Communication, which operates about 450 generators for public buildings (schools, hospitals and other government buildings). Issues and Options in the Energy Sector, Namibia 19 Table 2 Main Grid Generation and Transmission Generating Plants Plant Type Installed Capacity Ruacana hydro 240 MW Van Eck thermal; coal-fired 120 MW Walvis Bay thermal; diesel - gas 24 MW Total 384 MW Transmission Lines 330 kV 512 Km 220 kV 1495 Km 132 kV 1099 Km 66 kV and below 5453 Km 4.7 The Ruacana plant is a run-of-river hydropower plant located in the Kunene river. The plant is operated at full capacity, subject to its natural hydrological constraint. The Gove dam, a seasonal regulating reservoir located in the upper Kunene, in Angola, was damaged during the Angolan civil war and is being operated at low water levels. This constraint reduces Gove's regulating capability thus affecting all downstream water users, including the Ruacana plant. 4.8 The demand remaining after Ruacana's energy is dispatched is supplied through imports from the RSA generating company (ESKOM), which amounted to an average of about one-third of SWAWEK's total production during 1988-91(see Table 3). Generally speaking, the power system is planned and operated in an efficient manner. Overall transmission losses are around 10%, which is considered a technically acceptable level for a system characterized by long distances and relative small loads. Good quality service is offered to most consumers, but there are indications that reliability may be rather uneven. While the central and southern regions benefits from a highly reliable power supply, the northern region consumers, including major mining operators in Tsumeb and distributors in the Owambo region, report a relatively high number of power interruptions. These outages are apparently caused by the low operating reliability of the Ruacana - Windhoek transmission line, and related stability problems. Although the economic and financial costs of these outages are not well known, they may be considerable and thus justify further attention. 20 Issues and Options in the Energy Sector, Namibia Table 3 Energy Production (GWh) 1988 1989 1990 1991 Total Production 1763 1835 1790 1919 Ruacana 1086 1308 1053 1322 Van Eck 124 90 96 46 Walvis Bay 0 0 1 2 Imports-Eskom 533 437 640 549 Total Sales 1582 1659 1612 1719 In Namibia 1349 1392 1446 1518 Exports-Eskom 233 267 166 201 Losses (%) 10.3 9.6 9.9 10.4 4.9 The extremely high operating costs of the existing thermal plants reduce their use to that of reserve capacity for emergency conditions. In addition, during average hydrological years Ruacana's average generating capability is reduced to almost half of its rated capacity (130 MW) and during the driest quarter falls to 65 MW. Although Ruacana's hydraulic operation provides for an hourly regulation to cover limited peaks, it can be reasonably assumed that the system's guaranteed capacity could be reduced to 260-300 MW during the dry season, including the imports contribution but excluding the high cost thermal reserve. Peak demand would tend to exceed this capacity by 1995/96, when Nanibia's dependency on energy imports would reach around 40% of total electricity consumed. By that time, additional generating and/or import capability should be required. Supply Options 4.10 Thus, even with demand growing more slowly than in the past, additional generating capacity and/or import capability would be required by 1995/96 in order to satisfy with reasonable reliability Namibia's growing power needs. This section discusses three short and medium term power supply options, as well as demand side solutions. Two larger and hence long-term export-oriented supply options, namely the Epupa hydropower project and Kudu gas field development, are discussed in a Chapter V, which addresses export opportunities. The three power supply options for the period 1995/96 are: * Increased imports from the RSA * Adding capacity at the Ruacana hydropower plant * Gas turbines for peaking capacity and medium load. 4.11 These options are analyzed below, and their likely costs compared. It should be noted, however, that due to limited access to technical and economic data on SWAWEK's system, the analysis could only be conducted at a very preliminary level and serves mainly to identify the options meriting further study. Assumptions and more detailed results of this analysis are included in Annex B. Issues and Options in the Energy Sector, Namibia 21 4.12 Increased imports from the RSA. It is most likely that the RSA power system will continue having excess capacity and an energy surplus at least until the beginning of the next century. However, to permit expanded imports the strengthening of the interconnection (currently a double circuit 220 kV transmission line) will be required. This could cost in excess of US$ 100million, depending on its capacity and construction sequence. This would be a major investment for Namibia and it is important that the design of the new transmission line be carefully optimized taking into account the system's peak and energy needs, as well as the possible timing of future export projects (i.e. Epupa and/or Kudu). In addition, Namibia will have to carefully consider the fact that choosing this option will mean a further increase in dependence on power imports, which could account for 50% of national consumption by the end of the decade. Few, if any, other countries depend on imports for so large a portion of their electricity supply. 4.13 SWAWEK currently purchases bulk energy from ESKOM at an average price of 2.9 US. cents/kWh. Under the terms of SWAWEK's current purchase agreement with ESKOM, this price is adjusted according to movements in RSA price indexes, so that there has presumably been no major increase in real terms in recent years. However, the real cost of imports would be significantly increased by the new investments required to strengthen the interconnection . How much costs would increase will depend on two main factors: (i) whether and when the Epupa hydro project is implemented, since Epupa would require new transmission lines to export power to the RSA and (ii) the technical characteristics of these lines, i.e. whether the voltage chosen is 220 kV or 400 kV. The main findings are as follows:7 * If there are no firm plans for Epupa, or if it is deferred until after 2006, a 220kV double circuit transmission line, constructed in phases, could prove to be the least cost solution since the second circuit would not be needed before 2006. * If the Epupa hydroplant is to be in operation by 2002-2006, the best solution appears to be the installation of a 400 kV line. This would imply a saving in present value of US$ 6.3million vis-a-vis the 220kV double circuit, in addition to energy savings achieved through reduced losses. * Strengthening the interconnection would increase the cost of imported energy by 1.1 to 1.4 US. cents/kWh, depending on whether the 220 or 400kV option is chosen, bringing the total cost of additional imports to 4.0 to 4.3 US cents/kWh. Should the tariffs structure of the agreement with ESKOM, which is presently being re- negotiated, be revised to introduce a time-of-use system, it is likely that peak hour tariffs would range between 9 and 10 cents/kWh and off-peak tariffs would be around 3 cents/kWh. 4.14 Adding Capacity at Ruacana. A fourth 80 MW unit can be installed in the Ruacana hydro plant at a relatively low cost since all required civil works were completed during initial construction. Judging from the Kunene river flows of the last 7 years, the fourth unit could operate at an annual utilization factor of 22%. This factor would increase if the Gove Dam in Angola is repaired and operated normally. Under current conditions this unit would be able to operate at full capacity during 2 to 3 months per year generating about 155 GWh. 7 Unless otherwise indicated, the following cost estimates are in constant 1992 dollars. 22 Issues and Options in the Energy Sector, Namibia However, the most important contribution of the fourth unit would be the increased peaking capability of Ruacana during the rest of the year. 4.15 The hydraulic structures of the Ruacana plant include a reservoir volume at the intake dam which enable the plant with an hourly regulation to cover peaks. This regulating capability should be carefully examined in order to confirm its potential for undertaking larger peaks if a fourth unit is installed. In addition, an apparent hydraulic operation problem in the tailrace tunnel, which may indicate a need for additional civil works for the installation of a fourth unit, should be investigated in evaluating this option. 4.16 Taking into account recent experience of developing countries in the implementation of similar hydroelectric installations, the unit cost of energy supplied by the fourth unit could vary between 1.4 and 2.3 US cents/kWh. If additional civil works are required in the tailrace tunnel, unit costs could reach 2.8 US cents/kWh. 4.17 Gas turbines for peaking capacity. The installation of open-cycle gas turbines could prove to be an attractive solution for peak loads and to provide a cheaper and more efficient reserve capacity. A set of diesel-fueled turbines, to be located on the coast, would offer the following advantages: (i) low investment cost in the order of US$300/kW, (ii) short lead-time that allows the phasing of relatively small units (around 25 to 38 MW) according to actual load growth, and (iii) the possibility of switching to low cost natural gas should this resource become available, or to convert them to base load gas-fueled combined cycle plants. 4.18 Costs of generation of gas turbine plants are a function of fuel costs, utilization factor and country conditions. For diesel-fueled turbines, unit energy costs would vary from 7.2 to 6.1 US cents/kWh for plant factors of 25% and 50%, respectively. If natural gas is available at low cost (US$ 1.2/thousand cubic feet) these costs would be reduced to 3.7 and 2.5 US cents/kWh, respectively. 4.19 Cost Comparison The following table compares preliminary energy cost estimates for the above mentioned options. Issues and Options in the Energy Sector, Namibia 23 Table 4 Costs of Alternative Supply Option Option Energy cost Capital cost (US cents/kWh) (US$ million) Imports from ESKOM - Excluding transmission 2.9 average cost none expansion costs - Including transmission 4.0 - 4.3 average cost 92 to 116 expansion costs 9.0 - 10.0 peak hours purchases 1 3.0 off-peak hours purchases Ruacana 4th unit - equipment 1.4 - 2.3 mostly peak energy 15 to 24 - equipment + civil works 2.8 t " " 29 Gas turbines - diesel fueled 7.2 peak energy 12.5 for unit 6.1 medium load energy of 38 MW - gas fueled 3.7 peak energy 2.5 medium load energy 1 Assuming that new agreement with ESKOM will adopt time-of-use option 72 tariff 4.20 These values indicate clearly that, if technically viable, a fourth unit at Ruacana may be the least cost peak supply option. At this stage, the import costs estimates for a time-of- use tariff shown above are rather speculative. However, they may be an indication that, if such a tariff structure is agreed, peak options like the fourth unit at Ruacana unit, and even diesel-fueled gas turbines, would become specially attractive for supplying Namibia's medium term energy needs. Demand-side options 4.21 Future requirements could also be met partially through demand side solutions. Although Namibia's power system has a relatively high load factor (78%), there is room for peak shaving benefits. The winter peak reaches 50 MW during evening hours, when the maximum demand of residential and several major mining consumers coincide. There is evidence that major mining consumers may have the flexibility for adjusting their maximum demand to off-peak hours. However, this is not being done because the current tariff structure does not include any provisions for peak, off-peak or time-of-use tariffs. Consequently, although major consumers may have an incentive for reducing their maximum demand, they have no incentives for moving off peak hours. 4.22 The main mechanism for achieving peak shaving benefits at low cost appears to be a peak/off-peak tariff policy, since the response of a few major mines could quickly reduce maximum demand by a considerable amount. Such a response is likely, since in its present difficult circumstances, the mining industry is seeking every opportunity to cut costs. In addition, residential consumption, another main contributor to peak demand, may also have 24 Issues and Options in the Energy Sector, Namibia potential for peak reduction if consumers are offered suitable savings on their electricity bills. Recommendations for meeting Namibia's power needs 4.23 SWAWEK's plans for meeting Namibia's power needs in the short-medium term have been focused mainly on increasing imports until the Epupa project can be built. It has been planning to build an additional 400kV line as soon as additional import capacity becomes necessary, assuming that this will be required in the early years of the next century to carry exports from Epupa to the RSA. The foregoing analysis indicates that other options although limited in scope, may be more attractive. They may make it possible to defer major investments in transmission, which could be a great advantage so long as the fate of Epupa remains uncertain, as may well be the case for some time. It is therefore recommended that the following options be investigated further: * A peak/off-peak tariff for large consumers. This demand side option should be given the highest priority because it could bring benefits equivalent to adding 10-20 MW of capacity at very low cost. * Ruacana Fourth Unit. Investigating the technical feasibility of this option should be accorded first priority on the supply side. * Gas turbines for peaking capacity. Although a relatively high cost solution, this could become a viable option if a time-of-use tariff is adopted. In addition, gas turbines may be specially attractive in an uncertain environment (about the growth of demand as well as Epupa) since they offer a low capital cost way of plugging-in additional capacity, as needed, and at short notice. 4.24 These three options, as well as the plans for transmission for increasing imports from the RSA, should be the objects of a study aimed at defining a least-cost generation- transmission plan for meeting Namibia's power needs in the short and medium term. Indeed, such a study could mark the initiation of a much needed more systematic approach to power planning for optimizing sector investment decisions on the basis of a full range of supply and demand side options. Tariffs and Finances 4.25 SWAWEK's tariff system is simple, consisting only of two categories: large power users, including mines and large industries, municipalities and other public distribution authorities; and small power users, which include individual commercial farms and a few small localities. In 1991 SWAWEK earned approximately US cents 3.0/kWh (0.08 Rand/kWh), based on the following tariff structure: Issues and Options in the Energy Sector, Namibia 25 Table 5 SWAWEK's Tariff Structure Large power users: Basic charge (monthly) R. 50.0 (US$ 18) Demand charge (monthly) R. 21.5/kW (US$ 7.7/kW) Unit charge R. 0.048/kWh (US cents 1.71/kW) Small power users: Basic charge (monthly) R. 15.0 (US$ 5.4) Unit charge R. 0.09/kWh (US cents 3.2/kWh) 4.26 While the level of these tariffs is, compared to most Southern African countries, quite low, it is also more than adequate financially. Changes in bulk energy tariffs are proposed by SWAWEK and approved by the Ministry of Mines and Energy. However, there are no publicly established criteria for determining the level or the structure of the tariff. Insofar as could be learned, SWAWEK's tariffs are neither related to a criteria of long run marginal costs nor a return on revalued assets. In practice, since 1987, tariffs appear to have been increased pari passu with the rate of inflation. 4.27 Power tariffs to final consumers are considerably higher. They usually include a basic monthly charge and a unit charge per kWh. Some distributors also charge a demand charge for their larger consumers. In Windhoek, the average energy price for 1991 was 0.125 Rand/kWh (5 US cents/kWh, comprising energy and demand charges). Smaller locations tend to have higher tariffs ranging from 0.14 R/kWh to some cases exceeding 0.20 R./kWh. These end consumer tariffs exceed bulk prices by a considerable margin (from 56 to 150%) being an indication of two factors: (i) technical and managerial inefficiencies in the power distribution service, and (ii) the fact that some distributors regard electricity as a revenue source for supporting other activities of their responsibility. 4.28 The tariff structure for bulk sales and final consumers leaves much to be desired economically. These tariffs do not reflect the structure of Namibia's hydro-thermal power supply costs which are strongly affected by peak and off-peak hours and, probably more important, by the period of the year (i.e. wet and dry seasons). Consequently both suppliers and consumers do not accommodate their supply (investment choices) and consumption decisions to real economic costs, thus incurring a sub-optimal use of resources. As already noted, revision of the current tariff structure to reflect peak/off-peak criteria and hydrological conditions has the potential of providing peak shaving benefits as well as allowing a more rational design of supply expansion options. It is understood that SWAWEK intends to introduce such a tariff revision when it completes negotiations presently underway with ESKOM for the restructuring of its own import tariff along similar lines. 4.29 SWAWEK's annual reports reveal that its financial condition might well be the envy of almost any power company, public or private, anywhere in the world. SWAWEK's costs are very low (0.053 R./kWh in 1991, i.e. less than 2 US cents/kWh), so that even with tariffs that are modest by international standards, income from operations substantially 26 Issues and Options in the Energy Sector, Namibia exceed operating expenditure (see Table 6). And, since capital expenditures have been relatively low, SWAWEK has been generating a sizable cash surplus in recent years. Thus, while SWAWEK pays a small annual dividend to the government, it has been able to build up large cash reserves and financial assets which reached 285 million Rand by 1991 (100 US$ million). Actually, SWAWEK now earns more than 26% of its revenue from sources other than electricity sales. 4.30 While SWAWEK benefits financially from its exemption from income tax and from the fact that its major financial obligations carry very low interest ratesg, its financial performance mainly reflects its tight management and the ability it has had to swiftly adjust tariffs to keep abreast of inflation. However, the continued piling up of surpluses in SWAWEK's coffers would not be in the best interest either of the government, which faces serious budgetary problems, or of SWAWEK, which could discover that a cash cow's life is not necessarily a happy one. Much will depend on the decisions to be taken about the power sector investment program. If Epupa and/or a major new transmission interconnection are to be built in the near future, SWAWEK will need all the resources it can generate if there is to be sufficient element of self-financing. However, if investment is to be limited to the lower capital cost options, SWAWEK's resources might be regarded as surplus to its requirements and a case could be made for having it fund rural electrification programs, and pay increased taxes and/or dividends to the government 8 These debts stem from the arrangements made with the RSA for Namibia to take over SWAWEK at the time of independence; they are either interest free or bear interest at 4-5%. Issues and Options in the Energy Sector, Namibia 27 Table 6 SWAWEK's Operating Results (current R. '000) 1988 1989 1990 1991 Operating Income 89421 105481 122145 138234 Sales of electricity 88534 104309 117072 135775 Other income 887 1172 5073 2459 Operating Expenditure 66887 65667 89111 91307 Generation & distribution 49764 47340 69103 69402 Management & administration 5940 6651 7640 8368 Interest paid 846 767 684 600 Depreciation 10337 10909 11684 12937 Net Operating Income 22534 39814 33034 46927 Interest earned by funds 21402 30462 40267 40135 Net Income 43936 70276 73301 960662 Available for investment 54273 8115 84985 108999 Capital Expenditure 11900 30259 31289 42063 Available for distribution 42373 50926 53696 66936 Dividend 6500 Increase in funds 35873 44426 47196 60436 Fixed Assets 252903 271702 291113 319982 Financial assets 172957 195865 231575 285341 Fixed deposits and money on call 30038 28341 45604 104585 Return on fixed assets (%) Total 17A 25.9 25.2 30.0 Power operations 8.9 14.7 11.3 14.7 Return on financial assets (%) 12.4 15.6 17.4 17.2 Energy Sales (Gwh) 1582 1659 1612 1719 Generation cost (R/kWh) 0.042 0.040 0.055 0.053 Average tariff (R/kWh) 0.056 0.056 0.073 0.079 28 Issues and Options in the Energy Sector, Namibia Petroleum Supply 4.31 There is as yet no indigenous source of petroleum in Namibia, and no refinery; hence, all products must be imported. The present system, which relies on private firms to import products and distribute them, but with the government closely controlling prices, profits and other aspects of their operation, has evolved from that used in the RSA. It works well in meeting the needs of the Namibian market; products of appropriate quality are readily available throughout the country (except in some remote areas) at economically realistic prices. Since independence, one of the government's major objectives has been the diversification of product supply away from complete dependence on the RSA, and in 1991 the portion of Namibia's supplies coming from the RSA was reduced to about 65%. To the same end, the government has also authorized the construction of a small refinery by private parties. Sources of Supply 432 Supply from the RSA. The RSA remains Namibia's major source of petroleum products. At present, Shell, BP, and Mobil import from refineries in Durban; Caltex's source of supply is the refinery in Cape Town; Total's supply source is Johannesburg. All operators have long term supply contracts with their refinery sources which assure timely resupply and the necessary product quality. 4.33 The RSA should continue to be able easily to supply a substantial portion of Namibia's needs, which amount to only about 7,500 b/d compared with the RSA's present refinery throughput of approximately 425,000 b/d . Present refinery capacity is 433,000 b/d, with planned expansions bringing this capacity up to 548,000 b/d, and possibly 615,000 if Engen undertakes its plans for additional expansion, as shown in the table below. As a result there will be a future excess refining capacity of more than 100,000 b/d which will be available for export to neighboring countries. Table 7 Refinery Capacity (BID) current Planned expansion Caltex (Cape Town) 90,000 185,000 Engen (Durban) 65,000 85,000 Engen - additional 65,000 expansion Shell/BP (Durban) 200,000 200,000 Sasol (Sasolburg) 78,500 78,500 TOTALS 433,500 615,000 4.34 The mechanics of importation from the RSA are efficient; depot managers at Walvis Bay send resupply orders for the required product slate to the appropriate refinery in RSA as required. Through the existence of their long-term contracts, supplies are in stock, coastal tankers are loaded, and deliveries arrive at Walvis Bay on schedule. Each operator receives two tanker-loads a year, which are shared with the other operators in the Issues and Options in the Energy Sector, Namibia 29 communally owned and managed supply depot at Walvis Bay. The cargo size and frequency of shipment closely match the harbor and depot size at Walvis Bay, and are closely attuned to the country's supply requirements. 4.35 Divers ication of Supply While recognizing the efficiency of supply from the RSA, the government has been concerned about over-dependence on a single source of supply and has been seeking to diversify petroleum product imports. Towards this end, it requested the operating companies to purchase at least 30% of their supplies from new sources. This request was honored and in 1991 35% of petroleum products imported into Namibia came from sources other than the RSA. While the shift to new import sources (mainly Angola, Bahrain and Curacao) has been accomplished swiftly and without disrupting the market, there were some difficulties in obtaining supplies of adequate quality at competitive prices. As reported by the companies, these included problems with respect to: Shipping. The size of Namibia's product market lends itself to supply through the use of coastal tankers which are commonly 30,000 tons or less in size. For reasons of seaworthiness, the use of these tankers is restricted to the West African coast, from the refineries at Abidjan to those at Durban. Supply points further afield, such as Trinidad, Rotterdam, the Mediterranean or the Gulf, normally use larger tankers, commonly above 70,000 tons. Not only are shipments of this size inappropriate for the Namibian market, but the harbor at Walvis Bay cannot accommodate vessels of this size. * Currency fluctuations. When bidding for products on the international spot market, rather than through long term contracts which specify terms and currency of payment, prices are agreed, usually in US dollars, at time of purchase, with payment made at time of delivery. Income is earned, in Rand, at the point of retail sale, weeks or months later. Fluctuations in the value of the Rand expose the companies to possible exchange rate losses, or gains, to which they are not exposed when purchasing from the RSA in Rand. They report that protection against such exposure is not readily available and involves significant additional cost. * Transport Costs. Purchases made from farther afield than Abidjan or Durban incur a higher transportation cost both because of the greater distances involved and because the tanker size restriction at Walvis Bay requires some form of transshipment to smaller draft vessels. In a market in which retail prices are controlled, these costs must be born at least initially by the operator. * Cabinda. Geographically, the Cabinda refinery in Angola is the most logical alternative to the RSA refineries. However, it poses problems as regard the security of supply and product quality. The refinery produces largely for domestic use and product stocks available for export are generally low. Moreover, experience with the purchase of Cabinda products has been that they do not meet Namibian specifications for RON ratings and other quality factors. This has led to shipments being refused on delivery at Walvis Bay with resulting delays and costs while substitute stocks were obtained from the RSA. 4.36 As a result, the government has, at least informally, decided not to press for further diversification of supply at the present time. This decision seems wise since experience to date appears to indicate that a significant increase in purchases from non-RSA sources 30 Issues and Options in the Energy Sector, Namibia might come only at appreciably higher cost in terms of price, security of supply and product quality. The Import and Distribution System 4.37 Walvis Bay, the only commercial harbor on the Namibian coast, is the key link in the petroleum products supply chain. The harbor's capacity is well matched to the existing tank depot and inland rail distribution requirements. These in turn are matched to the country's product requirements, which include a de facto strategic reserve of at least 30 days of product supply, which should be sufficient The port's capacity restriction to 30,000 ton tankers does not constrain Namibia's product importation requirements. Should demand increase significantly, capacity may be easily met by bringing in additional 30,000 ton cargo loads. Should storage capacity need to be increased, the existing depots may be expanded through the addition of more tanks. 4.38 There is no commercial reason to either deepen Walvis Bay, or to construct a new petroleum harbor, with its costly ancillary facilities and supporting infrastructure. The difficulty with Walvis Bay is political, not physical. As an enclave retained by the RSA, it is still officially regarded by most sub-Saharan governments as part of the RSA, rather than the entry port for Namibia. Although economic sanctions are largely a thing of the past, the relevant laws still remain in force, and the operating companies are reluctant to put their interests in some countries at risk by purchasing products from refineries there for export to Namibia through Walvis Bay. 4.39 The development of alternatives to shipping through Walvis Bay, such as enlarging the harbor at Swakopmund, have been proposed as a solution to the political problem. However, any such solution would be costly, indeed, owing to the strong offshore currents and other physical difficulties in constructing a new petroleum harbor, and to the need for expensive ancillary facilities and costly infrastructure. 4.40 The Market. The Namibian petroleum product market, which was artificially inflated by the needs of the RSA and UN forces during the war years, has contracted by some 20% since independence to its present size of some 450 million liters/year. While small in absolute size, Namibia's consumption per capita is high by African standards. At about 432kg/pa in 1990, per capita consumption was well in excess of that in such other higher income countries in the region as Botswana and Swaziland, and several times higher then in Angola and Zimbabwe. Given the already high consumption level, and the modest prospects for economic growth in the near term, gasoline demand is forecast to grow at only 4% per year, and diesel at 2% per year. It is, thus, unlikely that the levels of petroleum consumption which occurred during the war will be seen again in the near future. Issues and Options in the Energy Sector, Namibia 31 4.41 The composition of products marketed in Namibia during the first quarter of 1992 is shown in the following table. Table 8 Sales Volumes Petroleum product Volume ercentage (kltrs) of market LPG 1,787.5 1.3 Aviation gasoline 9,043.9 6.9 Motor gasoline 52,867.8 40.3 Kerosene 1,098.7 0.8 Diesel fuel 55,883.7 42.6 Fuel oil 7,098.4 5.4 Lubricants 2,419.4 1.8 Bitumen 750.4 0.6 Other 95.7 0.0 TOTAL 131,045.5 100.0 4.42 Six companies are now active in Namibia; BP, Shell, Caltex, Engen/Mobil, Trek and Total, and a seventh, Lenoil, is attempting to enter the market The first four represent the majors, and are active in most markets in the world. Of these, BP and Shell are operated as independent Namibian companies, as a protective measure against the economic sanctions against the RSA. Mobil in contrast divested itself of its South African assets, selling its marketing operations to a subsidiary of Consolidated Gold Mines; the company name is in the process of being changed in RSA to that of its energy subsidiary, Engen, known in Namibia by its trade name, Noble. The other companies function as district offices, with administrative support from their headquarters offices outside of Namibia. Trek and Afrox are South African companies which mostly market specialized lubricants and industrial gases, including LPG, in Namibia. The companies, and their market share during first quarter 1992 are as follows: Table 9 Market Shares Company volume of all market share products (%) (kiloliter) BRP 28,182.0 21.5 Shell 31,726.0 24.2 Caltex 29,666.0 22.6 Noble 24,309.8 18.6 Total 13,043.4 10.0 Trek 3,468.3 2.6 TOTAL 131,045.5 100.0 32 Issues and Options in the Energy Sector, Namibia 4.43 Since the prices of the major products are controlled, as described in Chapter VI, competition must be based on service in lieu of price. This has put a premium on the expansion and modernization of the companies' network of service stations, as well as on promotional campaigns featuring "free" gifts, and other offers. As a result, the country is well served, but "overpumped" - -i.e.,there has been over-investment in an excessive number of excessively elaborate service stations. Recognizing this, the MME has agreed with the companies on a five year rationalization plan aimed at preventing the proliferation of retail outlets by requiring that more old service stations be closed than new ones are opened. The Refinery 4.44 As part of its concern with reducing Namibia's dependence on imported oil products, particularly from the RSA, the government has been interested in the construction of a refinery in the country. In June 1991, it was announced that the government had agreed to the construction of a refinery proposed by private parties. The agreement between the government and the project sponsors reportedly provides, inter alia, that the funding be totally private; that there be no government guarantee concerning the refinery throughput; that product prices be equal to or lower than import parity, with no subsidies; that Namibian crude (if discovered) be utilized as feedstock; that quality match existing Namibian standards, and that pollution will be kept in line with World Health Organization guidelines. 4.45 The refinery would be built on the outskirts of Usakos, a small town located some 140km from the coast. It would have a throughput capacity of 15,000 b/d and be of modular design. The project is sponsored by a firm known as Enerkor (Namibia) Pty. Enerkor announced that the plant is to be designed by the German engineering firm Montan, and built in South Korea by Sunkyong. Construction would, it said, take two years and cost approximately US$ 130 million. However, no activity was evident at the site during the mission's visit in June, 1992 and there is no indication of when, if ever, the sponsors intend to proceed with the project 4.46 This summarizes about all that is known about the refinery. Given the lack of information on the technical characteristics of the refinery, the feedstock to be used, the product mix, the financial plan and the identity and capabilities of the sponsors, even a preliminary quantitative assessment of the project would be foolhardy. However, the economic and financial viability of the project appears highly questionable for a number of reasons: Size: The refinery is too small to achieve the economies of scale necessary to produce at competitive cost Product mix: As the Table below shows, the usual yield of a "simple" refinery (which Usakos would presumably be) does not match the needs of the Namibian market. It would produce less of the major fuels (petrol and diesel) required in Namibia and much more fuel oil and other products than Namibia can consume. The latter would presumably have to be exported to neighboring countries in competition with their present sources of supply. Inland location: The need to transship crude at Walvis Bay and the costs of inland transportation (presumably by rail) to Usakos appear to further handicap the economics of the refinery. Issues and Options in the Energy Sector, Namibia 33 Table 10 Market vs. Refinery Mix Namibian Market Typical Refinery Demand as a Output as a Percentage Percentage Simple Complex Motor gasoline 35 15 27 Kerosene/jet fuel 10 5 6 Diesel 50 20 20 Fuel Oil 5 54 37 Other 0 6 10 TOTAL 100 100 100 4.47 It is, thus, not surprising that preliminary analyses by objective third parties have reportedly concluded that the refinery is unlikely to be viable. The risk to Namibia from the project appears to have been minimized by the requirement that it be constructed without public funds and operated without public subsidy. However, risk remains in that experience in a number of developing countries shows that uneconomic refineries, once built, can easily be transmuted through pressure from the sponsors, the workers and the surrounding community into valuable national assets requiring government assistance. In a number of developing countries, governments have in similar circumstances felt impelled to take over or subsidize uneconomic refineries at great public cost. 34 Issues and Options in the Energy Sector, Namibia V. EXPORT OPPORTUNITIES Epupa Hydropower Project 5.1 The hydropower potential of the Kunene river, shared with Angola, constitutes one of the main energy resources of Namibia. SWAWEK has identified a promising site for the development of a major hydro plant in the vicinity of the Epupa falls. Although the studies are still at a very early stage, morphological and hydrological conditions seem to be favorable for the construction of a hydro plant of 250-500 MW installed capacity that could supply 1200-1800 GWh per year. The pre-feasibility study currently being undertaken with NORAD's support should: * Confirm the technical viability of the project, particularly regarding geological conditions and their impact on costs. * Identify two or three alternative schemes for further study during the feasibility phase. Given the existing uncertainty regarding the project's market and the non- intensive geological investigations to be undertaken during the pre-feasibility study, it is not advisable to select a single alternative at this stage. * Analyze the potential environmental and social impact of the prejecL * Clearly identify the Namibia-Angola agreements required for the development of the project. Issues to be addressed are land use, water rights and operation, plant ownership and financing. * Examine the financial implications of the Epupa project for both countries. 5.2 Given Namibia's current generating and import capability, the capacity and energy supplied by the project, particularly for its larger and costwise more attractive size (i.e. 450- 500 MW) would not be required by the domestic power market before the year 2010. Therefore, the project's economic viability in the medium term has been considered to rest mainly on its export potential.9 The RSA power market. 5.3 The RSA currently has excess capacity of around 7,000 MW and so will most probably not need additional capacity until early in the next century. It is estimated that, under a medium growth scenario, the RSA would not need additional power until the year 2002, a date which coincides with a realistic lead time for the commissioning of Epupa if construction is begun in the near future. However, this scenario implies a revival of growth in the RSA economy that is unlikely to materialize unless the economic and political uncertainties which currently cloud the country's future are quickly dissipated. A recent study of the power market indicates that, under a continued low-growth scenario, the RSA would not need additional power before the year 2010. A decision to invest in an export oriented Epupa project would necessarily be contingent on SWAWEK's ability to reach agreement with ESKOM on a suitable long term arrangement for energy sales. The 9 A smaller but more costly (in unit terms) Epupa to serve only the Namibian market would probably not be justified unless the real cost of imports from the RSA were to rise sharply. Issues and Options in the Energy Sector, Namibia 35 prospects for such an agreement have been discussed with ESKOM, which has indicated that it is interested, in principle, in purchasing power from Epupa when it needs additional capacity. However, ESKOM reportedly has also made clear that Epupa would have to be competitive with low cost coal-fired generation in the RSA and with other potential sources in the region such as the Kudu gas field and the Cahora Bassa plant in Mozambique. Project costs 5.4 Until the results of the pre-feasibility study become available, SWAWEK's own preliminary studies provide the only basis for assessing the project. SWAWEK's preliminary cost estimate, presumably for the large size scheme of 450 MW, is that the capital cost would be around $450million. This estimate of approximately $1,000 /kW appears unduly optimistic. In fact, it falls outside the lower end of a wide range of costs that appears realistic on the basis of international and Bank supported experience in projects of this type. 5.5 Based on the Bank's general experience in supporting hydropower projects during the last 20 years, and on recent experience in projects of similar characteristics, the mission estimates that the capital cost for a large 450 MW plant could range between $525 and $800 million ($1160-1777/kW), where the lower value would correspond to an efficiently managed project in better than average site conditions. As shown in Table 1 below, these capital costs imply energy costs between 4.0 to 6.0 US cents/kWh, which compare to the 3.5 US cents/kWh resulting from SWAWEK's preliminary estimates. Table I Epupa Project - Energy Cost Estimates (in US cents/kWh) SWAWEK Mission estimate estimate low high Large Epupa (450 MW) 3.5 4.0 6.2 Small Epupa (240 MW) -- 5.0 6.8 5.6 Although even the higher set of costs may appear attractive by international standards, they suggest that Epupa would have serious difficulty in competing in the RSA market. ESKOM estimates that coal fired generation there presently costs less than 2.0 US cents/kWh and, while a number of factors may drive up this cost in the long term (e.g., the possible opening up of international markets to RSA coal; the imposition of more stringent pollution control requirements), it seems unlikely to exceed the realistic cost of power from Epupa.10 10 The ESKOM estimate appears to be on the low side since it is reportedly assumes an 8% discount rate, 50 year project life and lower than average capital costs. LRMC is estimated by ESKOM to be in the order of 2.7 US cents/kWh. The mission estimates the cost of energy from new coal-fired plant at 3.1 US cents/kWh using prevailing coal costs, heat content and thermal eficiency, a capital cost of $1000/kW and a 10% discount rate. 36 Issues and Options in the Energy Sector, Namibia Environmental considerations 5.7 The Epupa Project would be located on the Angola-Namibia border, in a wilderness area sparsely populated by nomadic groups and characterized by vast non-productive lands. In spite of these factors the magnitude of the project, particularly its gigantic 5,000 million cubic meters reservoir, and its international character justify a serious and early approach in assessing its potential environmental and social impact. 5.8 An international project of this magnitude will certainly attract the attention of the environmental community due to its possible impact on the area's wildlife and human population . The ongoing pre-feasibility study places special emphasis on these issues in calling for a well designed analysis addressing environmental and socio-economic impacts. In fact, the study is expected to thoroughly examine important environmental issues such as the alteration of flow regimes, potential erosion and sedimentation, transport of nutrients, flora and fauna, as well social and economic issues related to land flooded and required population resettlements, health, agriculture and livestock, pollution during construction and cultural values. It is the mission's view that the high priority given to environmental issues by the pre-feasibility study is clearly justified. The successful completion of this study is essential to identifying and designing mitigating measures as well as for dealing with pressures from the domestic and international environmental community, which are sure to come. Kudu Offshore Gas Field Development 5.9 The evidence to hand suggests that this is a world-scale gas field, with characteristics indicating that few problems should be encountered in its development and exploitation. The Kudu field was discovered in 1973 by Chevron which, largely due to the political situation in the country, did not pursue its development. Appraisal drilling was undertaken by the government in 1985-88 during which time two wells (Kudu 9A-2 and 3) were drilled. The latter encountered good quality aeonian sandstones within the volcanic sequence, and tested dry gas at rates up to 38 MMCFG/D. The gas bearing sandstones are in an upper marine unit and a lower volcanic/aeonian sand unit. The field is located in approximately 170 meters of water, 180 km from the coast at Orangemund, on the Namibian/South African border. Reservoir conditions and reserve determinations 5.10 The upper reservoirs are poor quality, but the lower reservoir is extremely good, although apparently subdivided into three separate reservoir pressure units. Water saturation is low, and the reservoir pressure is approximately 7,800 psi. The gas/water contact in the 9A-2 well is at -4458 meters; and gas saturations of 40% are present in the non-producible reservoirs of 9A-2 to a depth of -4464.3 meters. A gas column of some 268 meters is present, but engineering and geological data suggest that the gas is not a single accumulation in pressure communication. The gas is nearly pure methane, with a small quantity of ethane and traces of propane and butane, with no heavier hydrocarbons nor sulfur. There is therefore no scope for Liquid Petroleum Gas (LPG) recovery, or the recovery of associated natural gas liquids. The absence of condensate, water or sulfur will likely allow the gas to be delivered to shore without expensive offshore treatment. The high reservoir pressure obviates the need for offshore compression; the resulting simplicity of production makes it likely that the offshore production facilities need not be manned, thereby further reducing their complexity and cost. Issues and Options in the Energy Sector, Namibia 37 Detailed seismic study of the reservoir section in the area of the Kudu field indicate that the sandstones are sealed to the east by an onlap onto an underlying unconformity; with their northern and southern extent as yet undefined. The field thus is represented as a very large stratigraphic trap, rather than the more conventional structural entrapping situation. As such, the reserves of the field are difficult to determine with any degree of engineering precision. Initial studies indicated producible reserves of dry gas would be in the range of 2.5 to 8 Trillion cubic feet of gas (TCF). Subsequent, more sophisticated seismic sequence studies have raised this range to 5.0 to 55.0 TCF. Although no long term production tests have been conducted, and the capability of the field to deliver on a sustained basis is unknown, Kudu appears to represent a major resource but one whose exact dimensions and reserves still need to be accurately defined. This will require the drilling of several field delineation wells. Field Development 5.11 The most recent and thorough examination of the prospects for developing Kudu are contained in the Kudu Gas Utilization Study prepared for NAMCOR in 1991 by Pencol Engineering Consultants (London). In order to evaluate the economics of producing the field, two reserve cases were taken, 2 TCF and 10 TCF. On the basis of these choices, daily gas deliverability, production plateau duration, and decline rates were determined by reference to PetroConsultants' global data base from analogous fields elsewhere in the world. On this basis, the smaller case will produce at a plateau rate of 275 MMCFD, and the 10 TCF case's plateau production rate will be 1 Billion cubic feet per day. Both cases have a plateau duration of 14 years, followed by declining rates. Should the field reserves prove larger than this, the plateau would be extended by the appropriate amount of time, or held steady, with the rate of production increased. With the exception of the pipeline to shore, the development of the field can be accomplished largely in modular fashion, one platform cluster of wells at a time. In this fashion, the rate of production will follow market growth. 5.12 The Study concludes that, based on the development costs of similar fields elsewhere, exploration and development costs would amount to some $353million for the smaller reserve case, and more than $1.1billion for the larger one. Given these costs, Kudu gas can be delivered to shore at after tax prices in the range of $1.34 to $1.14 MCF (MMBTU) at flow rates of 275 and 1,000 MMCFD respectively. Prices in this range would compare favorably with those of other, similar gas fields and indicate that it should be possible to develop Kudu commercially if a market can be found. 5.13 It is important to note, moreover, that the study's conclusions do not necessarily reflect optimization of development for the conditions which exist in the Kudu field. Rather, they represent conventional development programs, and average costs associated with these programs based on world-wide experience. The essence of these programs is the use of fixed platforms, each of which contain a cluster of deviated wells which drain a roughly circular portion of the reservoir, the radius of which is defined by the maximum deviation of the wells out from the platform. 5.14 It is possible that recent developments in field exploitation, which utilize the concepts of floating production facilities, wells drilled horizontally along the reservoir, subsea completions coupled to the floating vessels by seabed gathering lines and flexible risers may significantly increase the radius of drainage for each cluster, and materially lower the unit cost of gas production, delivered to the shore. These technologies are starting to be 38 Issues and Options in the Energy Sector, Namibia employed in the development of marginal oil fields in the North Sea. They have never been used in the commercial production of offshore gas fields however, and hence their applicability, and the associated risks involved, are unknown. Nevertheless there is reason to believe that the use of low cost development programs for the field is being intensively considered by the international oil company most interested in Kudu. Market Prospects 5.15 Given the promising outlook for producing gas and pipelining it to the mainland at an attractive price, the major questions surrounding the development of Kudu concern the market. The Namibian market is far too small to absorb a meaningful quantity of gas and the likely economic returns on using it to produce products for sale on world markets (i.e., as feedstock to produce urea or methanol, or as a fuel for use in aluminum or iron refining) appear low. Thus, the most promising markets appear to be in the RSA, where the potential for using Kudu gas to supply electricity to the Cape and/or as an industrial fuel there have been the focus of most recent interest. 5.16 The government has reportedly received a proposal from a major international oil company for the development of Kudu based on using the gas in a 1300MW combined cycle generating plant on the Namibian coast that would produce for the RSA grid. While such interest on the part of an international "major" is certainly a positive sign, the RSA is not, as already noted, likely to need additional capacity until, at least, the early years of the next century. Moreover, on the basis of international experience, a combined cycle plant burning gas priced in the range indicated in the Gas Utilization Study would generate power at a cost of about $0.03-0.035/kWh (excluding transmission costs). This could be marginally competitive with coal fired generation in the RSA. However, ESKOM is reportedly interested in purchasing gas, not power, and it is understood that negotiations have focused on whether Kudu gas can be provided in the Cape at a price that would make it possible for ESKOM to build a gas fired plant that would compete with coal. 5.17 While the base case analyzed in the Gas Utilization Study also incorporates power generation in Namibia (on a smaller scale, 500MW), it also finds an attractive market for Kudu gas in the Cape. It concludes that, with the construction of a 780 km onshore 30" pipeline requiring an initial investment of some $500 million, gas could be delivered to the Cape at $1.80-2.00/MCF and that, at this price, it would be competitive as a fuel in a wide range of industries (e.g., baking, cement, brick, fertilizer) and for existing power plants. However, the total Cape gas demand foreseen in this scenario would amount to 155MMCFD in 1996 and 178MMCFD in 2002 and it seems questionable whether this would be a market of sufficient size to justify the development of the field and construction of the pipeline at the cost and on the terms assumed." Moreover, it should be noted that some 65MMCFD of the projected market would come from the conversion of two coal- fired power plants that are presently used for stand-by purposes, not base load generation. The Gas Utilization Study unfortunately makes no effort directly to analyze the economic or financial returns from the development of Kudu. Issues and Options in the Energy Sector, Namibia 39 Environmental Considerations 5.18 A considerable number of gas fields of similar magnitude to Kudu have been developed in the UK, Netherlands and Norwegian sectors of the North Sea, under varying conditions of habitual sea state and weather. There have been collisions, fires and explosions in this development area, which also lies across one of the world's most heavily traveled shipping routes. Through the planning and preparations that have been undertaken by the industry in its own interest, the environmental impact of these disasters has been minimized. The role of the governments has been to set environmental standards, and to review individual company plans for compliance. 5.19 Similar government/company efforts can be put into place in the development of the Kudu field, and the exploration of the remainder of the Namibian continental shelf. Evidence to date suggest that the government is proceeding in this direction. Contracts for the exploration and development of hydrocarbons offshore (see below) contain environmental protection clauses which require that each company identify the environmental risks which its proposed activities entail, and formulate plans to avoid them. Compliance with these plans will be overseen jointly by the MME and the Ministry and Wildlife and Conservation, Namibia's principal environmental regulatory agency. 5.20 The North Sea fields are located within the rich fishing beds of this area. In the nearly thirty years that have elapsed since the first gas development well was drilled, the impact on the fishing industry has, if anything, been favorable. An active working relationship between the gas industry and the fishermen has developed to their mutual benefit. In particular, the fishermen have noted that the production platforms tend to serve as artificial reefs on which grow a number of organisms to which the fish are attracted, resulting in a marked improvement in fishing in the development area. The Way Ahead 5.21 Prospects for the development of Epupa and Kudu, as generally conceived, depend heavily on the RSA market. While Kudu would appear to have the competitive edge, as already noted, the difference between their generating costs seems to be well within the likely margin of error of the guesstimates that can be made at this time. They both, therefore, seem to falter in the face of the problem of meeting low-cost competition in a glutted market. There is likely to be a market for gas-fired power generation in the RSA early in the next century, as new capacity is required and environmental imperatives become stronger, but not within the economic life of projects started in this decade. 5.22 However, as the Utilization Study indicates, Kudu may also have the potential economically to serve a large industrial market that should be ripe for conversion to gas at the price it can offer. Kudu also differs from Epupa in that it could be developed much more quickly, perhaps within 3-5 years, whereas it would probably require 10 years or so to bring Epupa on line. Environmentally, it may be easier, as indicated above, to contain the risks posed by the development of Kudu and the substitution of gas for coal in the generation of power would be a long run environmental plus. Finally, since gas field development and production is a type of project eminently suitable for private sector 40 Issues and Options in the Energy Sector, Namibia development and financing, Namibia could reap the very handsome benefits of Kudu's development without having to put public funds at risk or encumber its international credit 5.23 To bring the prospects for Kudu into sharper focus, priority should be given to investigating the feasibility of alternate development plans to include low cost field development options which do not require the large initial capital outlays for production platforms and which may make it possible to develop the field in a more modular fashion, bringing on capacity as additional market develops. At the same time, more detailed market studies for gas supply to Cape industrial users need to be undertaken in order to more closely define not only the price at which delivered gas can be sold in this market, but the volumes of gas which this market can be reasonably expected to absorb. With a clearer view of optimized costs of production and the volume of industrial demand, the project's economic and financial returns need to be carefully evaluated. 5.24 If the results are positive, it should be possible to develop a project that is attractive to private investors. A crucial component of such a project is likely to be a marketing strategy that focuses on getting Kudu's foot in the door by bringing gas to the Cape and offering it at the lowest possible price in order to quickly develop the market. Such a strategy would entail both risk and the deferral of returns. Namibia's petroleum taxation legislation contains elements of flexibility and the government may, given its interest in seeing the commencement of development of its natural resource base, wish to consider deferring its take from the project. In this fashion, the initial costs of bringing the gas to market will indirectly be shared by the government through deferred receipt of its taxes and royalties as a means of initiating the development As market penetration develops, and the unit costs of production decrease, the government take would, by previous agreement, progressively increase, ultimately recovering what had initially been deferred. Oil Exploration 5.25 The discovery of oil would, needless to say, change the entire energy picture, and much else. One of the government's primary objectives in the sector has been to promote petroleum exploration and, to this end, it moved rapidly after independence to strengthen the geologic data base, enact an attractive contractual and fiscal framework and organize international bidding for licenses. The state-owned Namibia Petroleum Company (NAMCOR), also contracted in 1989-90 for the acquisition of some 10,000km of seismic, gravity and magnetic data offshore, together with an integrated field evaluation, by British consultants (ECL). This resulted in the identification of three additional geologic basins which were deemed to offer a variety of attractive oil and gas plays although, like Kudu, most of the prospects appear to lie in deep water. 5.26 Complementing the geologic program was the passage early in 1991 of new legislation governing petroleum exploration and production and taxation drafted with the assistance of international consultants. The exploration/production law provides for the granting of reconnaissance, exploration and production licenses under terms established in a model agreement that generally follows accepted industry practice. The fiscal framework, which follows the profit-sharing rather than production-sharing model, provides for: Issues and Options in the Energy Sector, Namibia 41 * 12.5% royalty * 42% income tax * additional profits tax: 25% when rate of return reaches 15%, negotiably higher at higher rates of return * immediate expensing of exploration costs; three-year depreciation of development expenses; unlimited carry forward of losses. These terms were well received by the industry as providing investment incentives that compare favorably with those offered elsewhere. 5.27 Armed with its new geologic information and new legislation, the government in March, 1991 announced the opening of a first licensing round. The response was enthusiastic. Representatives of more than 70 companies attended promotional sessions held in London and in Houston, and NAMCOR received sixteen license applications (including one for Kudu) by the time the bidding ended in November. Negotiations were begun with the exploration block that had proved most attractive to bidders and in March,1992 a license was granted to a consortium of firms led by Norsk Hydro. Shortly thereafter, a second block was licensed to a group led by Ranger Oil. Both licenses involve substantial commitments by the companies; together, they include agreements to do some 10,000km of seismic work and to drill at least 5 deep wells over a four year period. In September, the MME announced the award of two additional licenses, to a joint venture led by Chevron and to Sasol of the RSA. 5.28 Results to date, therefore, suggest that the promotion program is going extraordinarily well. During the first round NAMCOR appears to have succeeded in obtaining minimum work commitments totaling some $1 10millon, including the drilling of 8 wells. Based on international experience, efforts on this scale should be sufficient to define the commercial potential of Namibia's hydrocarbon endowment. NAMCOR is presently planning to announce a second promotion round in late 1993-early 1994. The timing midway in the first round work period seems apt, since any initial successes in the first round will serve to increase industry interest while making it possible effectively to spread both negotiations and ensuing evaluation work. 42 Issues and Options in the Energy Sector, Namibia VI. INSTITUTIONAL ISSUES 6.1 While the present strengths and resource potential of the energy sector give good grounds for optimism about its future development, much will depend on the effectiveness of policy-making and administration in the sector. As is inevitable in so new a nation, a great deal needs to be done to strengthen policy analysis and decision making capabilities, to build an appropriate the legal and regulatory framework, to rationalize the institutional structure, and to enhance the professional and technical capacities of those working in the sector. The outstanding institutional issues that appear most pressing to the mission are discussed below. The MME is well aware of the importance of these issues and intends to give high priority to addressing them in 1993 and later years. Strengthening the MME 6.2 While still a fledgling institution, the MME has done much to strengthen its organizational structure and to bolster its staff. Energy policy and regulation are the responsibility of the Directorate of Energy which contains Power and Petroleum Divisions that are each, in turn, divided into units responsible for resource development and for supply and distribution. At the time of the mission's visit, the Directorate had eighteen positions, of which thirteen were filled; staff were generally well qualified academically but many, not surprisingly, lacked experience. In addition, NAMCOR, although structured as a state- owned company, functions de facto as part of the ministry. It has been responsible for the planning and implementation of the petroleum exploration promotion program, including the negotiation of contracts with the international oil companies. With a staff of only five well qualified professionals, it has done a great deal with very little. 6.3 While the MME's responsibilities for petroleum and power are similar, in principle, its role in the two sub-sectors has so far been very different in practice. In petroleum, the ministry has played an effective policy-making role beginning with its early decisions to give exploration high priority, to quickly take the measures necessary to create an attractive legal and financial framework, and to undertake a vigorous promotion program. It also effectively and efficiently regulates the private sector in supply and distribution. By contrast, the MME's role in the power sector has been much more limited, for a number of reasons. As a well established, technically proficient and financially strong institution with forceful leadership, SWAWEK has naturally tended to have a major, even dominant, voice in policy-making. In addition, the fact that other government agencies (i.e., the municipalities and the MLGH) have primary responsibility for distribution, have limited the MME's role in the power sector. 6.4 Legal and institutional changes, such as those discussed below, can contribute much to strengthening the ministry's hand in power regulation. Enhancing its policy making role is likely to be a slower process heavily dependent on the development internally of high professional standards and the capacity to exercise them. The MME has so far been moving in the right direction by basing its decision-making, for the most part, on commercial and professional criteria, by insisting on thorough study of the issues, by obtaining technical assistance from a variety of sources, and by accepting and acting on the best advice available. Nevertheless, to provide better support for policy-making the MME Issues and Options in the Energy Sector, Namibia 43 will need to equip itself with more comprehensive, current and systematic data on all aspects of the sector and increase its analytical capabilities, especially on the economic and financial side. For both purposes, it will need to further upgrade its staff, not so much quantitatively as qualitatively. The emphasis should be on training, both in-house by having staff work closely with consultants and technical advisers, and in the form of in-service and academic training abroad. 6.5 The MME is working closely with NORAD and other donor agencies to direct future technical assistance along these lines. To strengthen its role in the sector, the ministry is also working to bring about the establishment of the National Energy Council, an advisory and coordinating body called for in existing law. The Council would be chaired by the MME and would be composed of representatives of other ministries concerned with the sector and of various sector institutions. Regulating the Power Sector 6.6 SWAWEK presently functions largely as a self-regulated public utility. There is no discernible legal framework governing the way in which tariff, investment and other critical decisions are reached and the relationship between SWAWEK and its nominal regulator, the MME, seems to be mainly one of informal consultation concerning particular issues as they arise. Tariff changes are proposed by SWAWEK to meet its perceived financial requirements. The MME reviews the proposed changes but, since there appear to be no publicly accepted tariff criteria, and the MME's technical capabilities are limited, it is not surprising that SWAWEK's proposals seem invariably to have been approved with little or no alteration. While tariff increases have been relatively infrequent and generally quite modest, SWAWEK's major customers see themselves as on the receiving end of a unilateral process and express little confidence that they are getting a fair deal. 6.7 While there is, thus, a clear need to establish an effective regulatory framework for power, it is important that this be approached in full recognition of the fact that over- regulation can be, and most often is, more harmful than under-regulation. The challenge facing the government is to establish a framework under which it can provide policy direction and regulatory oversight in a meaningful fashion while enabling SWAWEK to continue functioning efficiently and on a financially sound, commercial basis. This will not be easy, and there are no tried and tested models readily adaptable to Namibian conditions, but experience in the developing and developed countries suggests that effective regulation usually is based on the following: * Legislation --The roles and responsibilities of the government, the operating agencies in the sector, and consumers need to be clearly spelled out in a law or other measure with firm legal standing. * Policy and Autonomy --The law should establish both the government's right to control sector strategy and policy and the operating agencies' right to control their day-to-day operations and internal administration without political interference. * Accountability --While free to conduct daily operations, the operating agencies should be held accountable for their technical and financial performance in accordance with agreed standards and targets. 44 Issues and Options in the Energy Sector, Namibia * Regulation --Should be limited to the principal matters of public concern such as tariffs, expenditure budgets, investment programs and financial plans, and include "full-disclosure" reporting requirements necessary for the exercise of such regulation. * Entry --Since competition can be the best form of regulation, entry to the sector should be open to private firms, cooperatives and other non-governmental entities willing to provide generation, transmission or distribution and able to meet established service standards. 6.8 As regards tariffs, the principal components of effective regulation are economically and financially sound tariff-setting criteria; a systematic and transparent mechanism for periodic tariff adjustment; and a regulatory body capable of obtaining, and critically analyzing, all relevant information. The tariff criteria in use around the world vary widely in theory and practice and there are options ranging from the more economically sophisticated approaches based on marginal cost pricing to the more traditional financial ones using rates of return or cash generation targets. While much can be said (and generally is said) in favor of the more sophisticated approaches, given the relatively straightforward structure of the sector and its finances in Namibia, the government might be well advised to give first consideration to a simple rate of return based approach. As normally employed, this would mean establishing as the primary criterion that tariffs be set at a level that enables the operating companies to earn a return on fixed assets sufficient to enable them to operate soundly and to obtain capital for investment on market terms. It is also important that tariffs be structured on a time-of-day basis to reflect the difference between peak and off-peak supply costs. The adjustment mechanism should provide that requests for tariff revision from the operating companies be fully justified in terms of the established criteria; that consumers and the public be given notice of requested changes and adequate opportunity to register their views; and that tariff decisions be handed down within a reasonable time frame. 6.9 It is generally considered good practice to try to insulate the regulatory process from political influence by placing it in the hands of a separate agency, board or commission. However, given the small size of the sector and the limited administrative resources available, it seems clear that the most sensible and practical option in Namibia today is to keep the regulatory function in the MME. Rationalizing Power Distribution 6.10 The involvement of three sets of institutions --the municipalities, the Ministry of Local government and Housing, and the Peri-Urban Development Board-- in electricity distribution in a country with as small a population as Namibia's has resulted in an atomization of responsibility and a variety of diseconomies and inequities. Even the best equipped of the three, the municipalities, vary widely in competence and the service they can offer. While Windhoek's service apparently leaves little to be desired, some of the smaller municipalities cannot employ full-time professional staff and must rely on consultants and contractors from whom they frequently cannot afford to secure adequate support. The general inefficiency of the distribution system is reflected in the overall high level of losses, ranging up to 20% according to information obtained by the mission. 6.11 None of the distributing institutions runs its electricity service as a financially responsible commercial enterprise. The municipalities regard electricity primarily as a Issues and Options in the Energy Sector, Namibia 45 revenue source and generally seek to maximize tariffs so as to generate a "profit" to support other activities. While the municipalities seem to make money on their electricity sales, the net revenue available for other purposes after the electricity departments' investment needs are met is probably a good deal less than they think it is. The Peri-Urban Development Board also seems to have some net earnings from electricity sales, but the Local Government and Housing Ministry's situation is very different It advised the mission that in 1991, when it paid SWAWEK some R 9 million for its bulk purchases, it collected only R 3 million from sales. This reflects both the very high level of unpaid bills (arrears) owed to the Ministry and the very high technical losses in its distribution systems. It implies a large and growing burden on the national budget 6.12 Distribution is a major weak point in Namibia's power system and one that urgently requires attention, particularly in view of the growing importance of household consumption in the system. The objective should be to restructure the system with a view to (i) putting the operation of the system on a commercial, preferably private basis insofar as possible (ii) centralizing operations so as to obtain greater economies of scale and to equalize service while (iii) maintaining and enhancing local responsibility. This is a tall order and one that can only filled by considering a wide range of options. 6.13 One option, for example, might be to establish a power distribution company to operate the systems in areas not served by the municipalities. It might use its own staff and/or contractors whose services would be procured by competitive bidding. The company might also contract to operate the distribution systems of at least the smaller municipalities. It should be structured as a commercial venture to attract private investors and established as either a wholly private company or a joint venture. Northern Namibia would be the principal focus of the company's operations and it might be established either as a regional one, as suggested in Chapter III, or with a national franchise. 6.14 There are a number of variations on this theme, as well as other attractive approaches, that merit consideration. None should be chosen without careful consideration of the political, social and institutional issues involved, as well as of the technical, economic and financial ones. To this end it is recommended that the government commission a thorough study of the distribution system and the options for its rationalization. Petroleum Product Pricing 6.15 The prices of the major petroleum products (petrol, diesel and kerosene) are controlled by the government under a system essentially similar to that in the RSA. Retail selling prices are fixed for each locality on the basis of (i) a basic list price for each product, known as IBLC, equivalent to an estimated landed cost, set on the basis of Singapore and Bahrain refinery prices, (ii) a fuel tax, (iii) duties and special levies, (iv) wholesale and retail margins intended to provide a 15% rate of return and (v) transport costs and other geographic differentials. Prices are readjusted periodically and a "slate" is used to compensate for over or under-recovery in previous periods as a result of differences between the list price and actual import costs. Although all petroleum product prices were initially included in this system, prices for lower volume products (jet fuel, LPG and lubricating oils) are no longer controlled. 6.16 In January, 1993 petrol cost R 1.43 and diesel R 1. 35 per liter (equivalent to about $ 1.80 per gallon) in the Swakopmund area near Walvis Bay. Regional price differences mainly reflect transport costs, with fuel in the most remote localities costing 15-20% more 46 Issues and Options in the Energy Sector, Namibia than it does near Walvis Bay. The overall price level, not surprisingly, closely reflects that in the RSA and in similarly situated countries (i.e., Botswana, Lesotho), although prices seem to be a bit lower in Namibia. Prices in Namibia are about 20-25% higher than in the USA but substantially lower, especially for petrol, than in Europe. 6.17 This system works smoothly, and both the companies and their customers are well protected and well served. There is a clear, well understood mechanism through which the private sector distributors can document and propose required price changes to the MME. The latter acts on well defined lines of authority, negotiates with the industry from a well informed position, and a mutually agreed pricing pattern is usually quickly and amicably agreed. The system is quite transparent and there appear to be no inherent conflicts of interest. 6.18 In other respects, however, price control is costly to both consumers and the companies. While prices are not unreasonable, they are almost certainly higher than they would be if there was price competition. And, as noted in Chapter IV, with price competition ruled out, competitive pressures have led the companies to over-invest in retail outlets and over-spend on marketing schemes. More fundamentally, price control seems a hangover from pre-Independence times with little or no economic benefits today. Its major ostensible purpose is to ensure that prices are reasonable and supplies adequate throughout the country, even in the more remote areas that the companies might serve only at very high prices. However, available evidence indicates that the price differentials in remote areas for uncontrolled products are no greater than for the controlled ones, and that supplies are equally adequate. 6.19 There appear, then, to be good reasons for believing that commercial forces will effectively control the market behavior of the companies under competitive conditions. The likely initial impact of deregulation would be lower retail prices. However, with margins no longer assured, it is equally likely that one or more of the less efficient distribution companies will withdraw from the market. The MME and the companies agree that six companies are too many for Namibia's small market and that only three or four would remain under competitive conditions. This should be sufficient to maintain competition. It is therefore recommended that the government move to phase out price controls ANNEX 49 NAMIBlA ENERGY BALANCE 91 (TOE) Primary Energy Petroleum Products Fuetwood Hydro Cosd Charcoal Electrick Gasolne Kerosene DtesetO Fuel 06 LPG OilsLubric. Other Line Totals Production 98.249 123,578 0 0 0 0 0 0 0 0 221,827 Import 51,187 47,386 208,268 36,235 193,357 7,688 10,245 8,008 2,389 564,763 Exports 0 Stock Changes 0 Gross Supply 98,249 123,578 51.187 0 47,386 208,268 36.235 193.357 7,688 10,245 8,008 2,389 786,590 Conversion Petroleum Refinery 0 Non-Energy Use 0 Charcoal Production -5.418 5,418 0 Electrichy Power Generation -113.692 -3,956 117,648 0 Conversion Losses .11.000 -9.886 -9.231 -30,117 Transp.10isir. Losses -25,580 -25.580 Net Available Supply 81.831 0 38,000 5,418 139,454 208.268 36,235 193,357 7,688 10.245 8,008 2,389 730,893 Secondary Exports 258 17,286 17,544 Burer Sales Net Domestic Consumption 81,831 38.000 5,160 122,168 208,268 36,235 193.357 7.688 10.245 8,008 2.389 713.349 Consumption by Sector Industry 20,377 504 114 10.780 259 16 393 1,686 34,130 Transport 1,491 6.180 37,375 0 20 228 11 45,306 Household/Public 66,081 27,917 188,886 1,236 56,174 4,405 2,095 2,029 312 349.135 Agriculture 8,772 7,944 1,959 32.034 0 1,014 719 15 52,457 Mining 15.750 38,000 5,160 65,102 6,096 1,031 40.721 1,396 31 3.144 4 176.435 Other 3,347 25,715 16,274 1,628 7,068 1,495 360 55,887 Notes: - Figures based on MME petroleum data and Mission estimates. - Fuelwood consumption is based on a per cpita daily consumpion of 0.5 kg. The wood-consuming population Is equl to total rural population + peri-uban populaliam (estimated at 15% of the urban population). The 1991 Population and Housing Census (Economic Review '92) gives a total rural population in '91 of 942,541 with a 1.97% growth rate (1981 to 1991), and a total urban population of 459,137 with growth rate 5.55% tor the same period. Estimates for population prior to 1991, are obtained using the formula: P., = PI(1+x)i, where P4 is the lagged population of interest, P is the '91 relevant population (urban or rural), x is the relevant population growth rate (urban or rural), and il. 2,... the number of lag years. - Other petroleum products refer to industrial Solvents and Chemicals - Electricity transportalton losses 15%: 10% SWAWEK (transm. & disir.), and due to lack of reliable data, a conservative 5% distribution losses has been estimated for Municipalkies. - Hydro conversion losses 8%. X. cD ANNEXd NAIIA ENEROY BALANCE 30 (TOE) Primary Energy Petroleum Products Fuetwood Hydro Cae Chatcoal Electriciy Gasoline Kerosene Diesel Oll Fuel Oil LFG Oils/Lubric. Oiher Une Totals Produclion 96.822 98,433 0 0 0 0 0 0 0 0 195,255 Import 65,520 55,126 208.747 31.996 193.706 7.676 12.259 6,428 3.107 584.565 Exports 0 Stock Changes 0 Gross Supply 96.822 98,433 65,520 0 55,126 208.747 31,996 193.706 7,676 12.259 6,428 3.107 779,820 Conversion PeIoleut elinery 0 NowEnergy Use 0 Charcoal Production -5,418 5.418 0 Electrichy Power Generation -90,558 -8.256 98.814 0 Conversion Losses -11.000 -7,875 -19,264 -38,139 Transp.Disr. Losses -23,091 .23,091 Net Available Supply 80,404 0 38.000 5.418 130.849 208.747 31.996 193,706 7.676 12.259 6.428 3.107 718.590 Secondary Exports 258 14.276 14.534 Bunter Sales 0 Net Dornestic Consumption 80.404 38,000 5.160 116.573 208.747 31.996 193.706 7,676 12.259 6.428 3.107 704,056 Consumption by Sector Industry 19.143 549 242 9.466 569 10 320 2.470 32.770 Transport 1,634 19.580 37,903 0 17 246 5 59.385 Houeholi1publc 64.654 26,308 185,009 1,989 55.136 4.415 2.786 1,812 125 342,232 Agikufture 7,826 9.220 2,143 29.075 0 1,113 737 12 50,126 )Wk*V 15,750 38.000 5,160 63.296 4.937 1.168 48.320 1.246 21 2.762 2 180.662 Other 7,433 6.874 13.807 1,447 8,312 551 493 38.916 Notes: - Figures based on MME petroleum data and Mission estimates. - Fuetwood consumption Is based on a per caplta daily consumption of 0.5 kg. The wood-consuming population Is equal to total rural population + perl-uFban populaloe (estimated at 15% of the urban population). The 1991 Population and Housing Census (Economic Review '92) gives a total rural population In 291 of 942.541 with a 1.97% growth rate (1981 to 1991), and a total urban population of 459,137 with growth rate 5.55% for the same period. Estimates for population prior to 1991, are obtained using the lormula: P, -- P/(1+x). where P Is the lagged population of Interest, P Is the '91 relevant population (urban or rural), x Is the relevant population growth rate (urban or rural). and 1.1, 2,... the number of lag years. - Other petroleum products rater to industrial Solvents and Chemicals - Electricity transportation losses 15%: 10% SWAWEK (transm. & disir.), and due to lack of reliable data, a conservative 5% distribution losses has been estimated lor Municipalties. - Hydro conversion loases 8%. NAMIA ENERGY BALANCE 89 (TOE) Primary Energy Petueleurn Products Fuelwood Hydro Cod Chamoal Electricty Gasoline Kerosene iesel Oil Fuel 01 LPG Ofts/Lubrlc. Other Line Totals Production 95,431 122,270 0 0 0 0 0 0 0 0 217,701 Import 63,227 37,754 229.928 47.181 251.731 10,183 12,304 7,395 4,410 664.113 Exports 0 Stock Changes 0 Gross Supply 95.431 122.270 63.227 0 37,754 229.928 47.181 251,731 10,183 12,304 7.395 4,410 881.814 Conversion Petroleum Reiry 0 Non-Energy Use 0 Charcoal Productlon -5.418 5.418 0 Electricky Power Generation -112,488 -7,468 119.956 0 Conversion Losses -11.000 -9.782 -17,659 -38.441 TranspiDistr. Losses -23.657 -23,657 Net Available Supply 79,013 0 38,000 5.418 134.053 229.928 47.181 251.731 10.183 12.304 7,395 4,410 819,616 Secondary Exports 258 22.962 23.220 Bun*er Sales 0 Net Domestic Consumption 79.013 38.000 5,160 111.091 229.928 47.181 251.731 10,183 12.304 7,395 4.410 796.396 Consumption by Sector Industry 17,304 795 439 9,638 2.836 31 414 3,295 34,752 Transport 1,634 19.529 50.169 18 45 204 18 71,617 HousehoklIPublic 63,263 24,901 199,126 16.176 81,073 4,340 2.411 2,569 457 394.316 Agriculture 7,310 9.369 2,514 29,664 0 1,264 815 11 50,947 Mng 15,750 38,000 5,160 61,576 9.015 1.007 65,011 793 21 2.763 3 199,098 Other 9.989 7,517 16,177 2,196 8.532 629 626 45.666 Notes: - Figures based on MME petroleum data and Mission estimates. - Fuelwood consumption Is based on a per capha daily consumption of 0.5 kg. The wood-consuming population Is equal to total rural population + pod-urban populatlol (estimated at 15% of the urban population). The 1991 Population and Housing Census (Economic Review '92) gives a total rural population In '91 of 942.541 with a 1.97% growth rate (1961 to 1991). and a total urban population of 459.137 wth growth rate 5.55% for the same period. Estimates tor population prior to 1991, are obtained using the lormula Pi . P/(1+x?, where P4 is the lagged population of Interest. P is the '91 relevant population (urban or rural), x Is the relevant population growth rate (urban or rural), and 1.1, 2,... the number of lag years. - Other petroleum products reter to Industrial Solvents and Chemicals - Electricity transportation lossee 15%: 10% SWAWEK (transm. & distr.), and due to lad of relable data, a conservative 5% distriilon losses has been estimated for Municipalkles. . Hydro conversion loases 8%. 0 50 Issues and Options in the Energy Sector, Namibia ANNEX B COST COMPARISON OF SHORT AND MEDIUM TERM POWER SUPPLY OPTIONS Increased Imports from THE RSA SWAWEK currently purchases bulk energy from ESKOM at an average price of 2.9 US cents/kWh, based on ESKOM's tariff "E" for large customers consisting of a demand charge of 9.22 $/kW-month, and an energy charge of 1.78 cents/kWh. In addition, large customers pay a basic charge of 95 $/month. To permit expanded imports the strengthening of the interconnection will be required by 1995/96. This implies a new transmission line of 850 Km, to be built by SWAWEK and ESKOM. It is considered that 80% of the costs will be covered by SWAWEK. Two basic scenarios are examined. These are: - The implementation of the Epupa hydro project by 2002. - The development of the power system without Epupa. Accordingly, the costs of 3 alternatives were estimated for comparison purposes. - Alternative 1. A 220 kV single circuit implemented by 1996, with no further expansion. Capital cost: US.$ 92.5 million. - Alternative 2. A 400 kV single circuit implemented by 1996. Capital cost: US.$ 115.6 million. The cost of an early implementation of this alternative, advanced from the year 2002 (date probably required for Epupa) to 1996 was also estimated. - Alternative 3. A phased 220 kV double circuit, first circuit in 1996 and second circuit in 2002. Capital cost: US$ 148.2 million. Comparisons refer only to present value of capital costs. No estimates are made for the economic impact of different energy losses, since no information is available at this stage and an appropriate estimate would be difficult to do without sufficient data and proper analytical models. It should be noted however, that alternatives adopting a higher voltage (400 kV) would tend to reduce energy losses. Alternatives 2 and 3 provide information for the comparison of 220 kV vs. 400 kV, assuming that Epupa would be implemented by 2002, and that the alternatives are technically appropriate. The comparison of alternatives 1 and 2 provides information on the additional cost incurred in a 400 kV transmission line, instead of 220 kV, if Epupa is not built. Finally, the costs of an early implementation of alternative 2 are useful for estimating transmission costs to be charged to energy imports during the period 1996-2001. Issues and Options in the Energy Sector, Namibia 51 The present value costs of the 3 alternatives, plus the early implementation of alternative 2 (named alt. 2.1) are: Discount Alternative Cost (US$ million) Rate (%) 1 2 2.1 3 8 73.7 91.9 34.0 101.5 10 69.8 87.1 37.9 93.4 12 66.2 86.2 40.8 86.3 - If Epupa is built by 2002, the installation of a 400 kV single circuit (Alt. 2) would be the least cost solution. Compared to a phased 220 kV double circuit (Alt. 3), Alt. 2 would cost 6.3 US$ million less. - If Epupa is not implemented, the construction of a 400 kV transmission line (Alt. 2) would imply an additional cost of 17.3 US$ million compared to a 220 kV single circuit (Alt. 1). Transmission costs per kWh The incremental energy to be transmitted through the new transmission lines is estimated as follows: 1996 908 GWh 1997 990 1998 1075 1999 1163 2000 1254 2001-10 14011 1 Limited to a 80% utilization factor for a 200MW capacity. Costs per kWh: - If Epupa is built by 2002. Cost of early implementation of 400 kV transmission line. discount US cents/kWh rate (%) 10 1.15 12 1.42 52 Issues and Options in the Energy Sector, Namibia - If Epupa is not built. Cost of 220 kV (lower) and 400 kV (higher) charged through 15 years. discount US cents/kWh rate (%) 10 1.10-1.36 12 1.25 - 1.56 Ruacana 4th unit. Installed capacity: 80 MW Energy generation at current hydrological conditions: 155 GWh/year utilization factor. 22% Unit investment; 185 to 300 US$/kW installed Unit cost for electrical and mechanical equipment; range based on recent experience in similar hydroelectric projects. O & M cost: 1.5% of investment cost per year. Hydraulic operation problem: When operating at full capacity (i.e. 240 MW, with a flow of 200 m3/sec.), the tailrace tunnel originally designed to operate in free flow appears to operate in pressure and creates excessive turbulence at the outlet of the generating groups. According to the plant engineer, these hydraulic conditions are the cause for the higher than normal cavitation problems faced in the existing (3) Francis turbines. As Francis turbines are designed to operate under downstream pressure conditions, the current problem may be solved by increasing the flow of water turbined, i.e. by increasing the downstream pressure through the installation of a fourth unit. This technical problem should be further investigated. However, if it is concluded that the tailrace tunnel is under-dimensioned, additional civil works would be required. Preliminary cost estimates for favorable and less than favorable construction conditions were made for the following assumptions: - Excavation volume: 10,000 m3 - Concrete volume: 700 m3 For these volumes the total cost of civil works could range between 2.25 to 4.5 US$ million. Accordingly, the unit costs for energy supplied by the fourth unit would be as follows: Discount Unit Costs in US cents/kWh rate (%) Equipment Equip.+ civil works 10 1.4-2.3 2.6-2.8 12 1.7-2.7 3.0-3.2 Gas turbines for peaking capacity. Assumptions and cost estimates. Capacity: 38 MW Plant factor. 20 to 50 % Issues and Options in the Energy Sector, Namibia 53 Unit investment cost: US$ 300/kW Cost contingency: 10% of investment cost Annual O&M cost: 3% of investment cost Fuel: diesel oil, at US$ 25/barrel natural gas, at US$ 1.2/thou.CF Thermal efficiency: 30% Implementation period: 2 years Economic life: 20years - Gas turbine generation costs (US cents/kWh) Plant Factor Diesel-fueled Gas-fueled (%) discount rate discount rate 10% 12% 10% 12% 20 7.8 8.1 4.3 4.6 25 7.2 7.5 3.7 4.0 30 6.8 7.1 3.3 3.5 35 6.6 6.8 3.0 3.2 40 6.3 6.5 2.8 3.0 45 6.2 6.3 2.6 2.8 50 6.1 6.2 2.5 2.7 54 Issues and Options in the Energy Sector, Namibia ANNEX C EPUPA HYDROPOWER PROJECT The Epupa hydropower project is located in the Kunene river, in the vicinity of the Epupa falls. SWAWEK has identified a promising site for a hydropower development where a arch dam could be built creating a large reservoir for multi-annual regulation. A pre- feasibility study is underway with NORAD's support. In a preliminary report, SWAWEK formulated three alternative schemes for the same site, and a common dam. The characteristics of these dam are: Storage capacity: 5,000 million m3 Dam wall; Type: double curvature arch Height: 130 m Concrete volume: 800,000 m3 Crest length: 650 m The three alternatives have the following technical characteristics: Alternative I II III Installed capacity (MW) 240 350 450 Head (in) 120 165 180 Pressure tunnel (Km) -- 2.7 7.35 Power output (GWh/yr.) 1200 1650 1800 Plant factor (%) 57.1 53.8 45.7 Capital Cost R. billion 1.25 US$ million 450 Construction period (years) 5 to 7 - Cost Estimates SWAWEK's cost estimates appear to be, though not impossible, very optimistic. Compared to international experience this estimate of approximately 1,000 US$/kW would be in the lower level of a wide range of costs. The cost estimates provided below are based on following two approaches: - Higher cost: on the basis of actual capital costs of more than 40 hydropower projects financed by the World Bank. This approach uses factor analysis for estimating costs for a project of average conditions, in terms of site potential as well as implementation performance. It does not address specific technical characteristics. - Lower cost: based on a comparison of Epupa with a project of similar characteristics (Berke project in Turkey), particularly in its main structure: a double curvature arch dam. Issues and Options in the Energy Sector, Namibia 55 Preliminary cost estimates are shown in the following table: Alternative I II i Installed capacity (MW) 240 350 450 Capital cost (US$ million) Low value 455 500 525 High value 615 715 800 Energy cost (US cents/kWh) Low value; r10% 5.0 4.2 4.0 r. 12% 6.1 5.2 5.0 High value; r:10% 6.8 6.0 6.2 r. 12% 8.3 7.4 7.6 9 - 56 - Joint UNDP/World Bank ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) LIST OF REPORTS ON COMPLETED ACTIVITIES Region/Country Activity/Report 7Ttl Date Number SUB-SAHARAN AFRICA (AFR) Africa Regional Anglophone Africa Household Energy Workshop (English) 07/88 085/88 Regional Power Seminar on Reducing Electric Power System Losses in Africa (English) 08/88 087/88 Institutional Evaluation of EGL (English) 02/89 098/89 Biomass Mapping Regional Workshops (English - Out of Print) 05/89 - Francophone Household Energy Workshop (French) 08/89 103/89 Interafrican Electrical Engineering College: Proposals for Short- and Long-Term Development (English) 03/90 112/90 Biomass Assessment and Mapping (English - Out of Print) 03/90 - Angola Energy Assessment (English and Portuguese) 05/89 4708-ANG Power Rehabilitation and Technical Assistance (English) 10/91 142/91 Benin Energy Assessment (English and French) 06/85 5222-BEN Botswana Energy Assessment (English) 09/84 4998-BT Pump Electrification Prefeasibility Study (English) 01/86 047/86 Review of Electricity Service Connection Policy (English) 07/87 071/87 Tuli Block Farms Electrification Study (English) 07/87 072/87 Household Energy Issues Study (English - Out of Print) 02/88 - Urban Household Energy Strategy Study (English) 05/91 132/91 Burkina Faso Energy Assessment (English and French) 01/86 5730-BUR Technical Assistance Program (English) 03/86 052/86 Urban Household Energy Strategy Study (English and French) 06/91 134/91 Burundi Energy Assessment (English) 06/82 3778-BU Petroleum Supply Management (English) 01/84 012/84 Status Report (English and French) 02/84 011/84 Presentation of Energy Projects for the Fourth Five-Year Plan (1983-1987) (English and French) 05/85 036/85 Improved Charcoal Cookstove Strategy (English and French) 09/85 042/85 Peat Utilization Project (English) 11/85 046/85 Energy Assessment (English and French) 01/92 9215-BU Cape Verde Energy Assessment (English and Portuguese) 08/84 5073-CV Household Energy Strategy Study (English) 02/90 110/90 Central African Republic Energy Assessement (French) 08/92 9898-CAR Comoros Energy Assessment (English and French) 01/88 7104-COM Congo Energy Assessment (English) 01/88 6420-COB Power Development Plan (English and French) 03/90 106/90 C6te d'Ivoire Energy Assessment (English and French) 04/85 5250-IVC Improved Biomass Utilization (English and French) 04/87 069/87 Power System Efficiency Study (Out of Print) 12/87 - Power Sector Efficiency Study (French) 02/92 140/91 Ethiopia Energy Assessment (English) 07/84 4741-ET Power System Efficiency Study (English) 10/85 045/85 - 57 - Region/Counny Aciity/Report Ttle Date Number Ethiopia Agricultural Residue Briquetting Pilot Project (English) 12/86 062/86 Bagasse Study (English) 12/86 063/86 Cooking Efficiency Project (English) 12/87 - Gabon Energy Assessment (English) 07/88 6915-GA The Gambia Energy Assessment (English) 11/83 4743-GM Solar Water Heating Retrofit Project (English) 02/85 030/85 Solar Photovoltaic Applications (English) 03/85 032/85 Petroleum Supply Management Assistance (English) 04/85 035/85 Ghana Energy Assessment (English) 11/86 6234-GH Energy Rationalization in the Industrial Sector (English) 06/88 084/88 Sawmill Residues Utilization Study (English) 11/88 074/87 Guinea Energy Assessment (Out of Print) 11/86 6137-GUI Guinea-Bissau Energy Assessment (English and Portuguese) 08/84 5083-GUB Recommended Technical Assistance Projects (English & Portuguese) 04/85 033/85 Management Options for the Electric Power and Water Supply Subsectors (English) 02/90 100/90 Power and Water Institutional Restructuring (French) 04/91 118/91 Kenya Energy Assessment (English) 05/82 3800-KE Power System Efficiency Study (English) 03/84 014/84 Status Report (English) 05/84 016/84 Coal Conversion Action Plan (English - Out of Print) 02/87 - Solar Water Heating Study (English) 02/87 066/87 Peri-Urban Woodfuel Development (English) 10/87 076/87 Power Master Plan (English - Out of Print) 11/87 - Lesotho Energy Assessment (English) 01/84 4676-LSO Liberia Energy Assessment (English) 12/84 5279-LBR Recommended Technical Assistance Projects (English) 06/85 038/85 Power System Efficiency Study (English) 12/87 081/87 Madagascar Energy Assessment (English) 01/87 5700-MAG Power System Efficiency Study (English and French) 12/87 075/87 Malawi Energy Assessment (English) 08/82 3903-MAL Technical Assistance to Improve the Efficiency of Fuelwood Use in the Tobacco Industry (English) 11/83 009/83 Status Report (English) 01/84 013/84 Mali Energy Assessment (English and French) 11/91 8423-ML Household Energy Strategy (English and French) 03/92 147/92 Islamic Republic of Mauritania Energy Assessment (English and French) 04/85 5224-MAU Household Energy Strategy Study (English and French) 07/90 123/90 Mauritius Energy Assessment (English) 12/81 3510-MAS Status Report (English) 10/83 008/83 Power System Efficiency Audit (English) 05/87 070/87 Bagasse Power Potential (English) 10/87 077/87 Mozambique Energy Assessment (English) 01/87 6128-MOZ Household Electricity Utilization Study (English) 03/90 113/90 Namibia Energy Assessment (English) 03/93 11320-NAM - 58 - Region/Country Actviy/Report 17tl Date Number Niger Energy Assessment (French) 05/84 4642-NIR Status Report (English and French) 02/86 051/86 Improved Stoves Project (English and French) 12/87 080/87 Household Energy Conservation and Substitution (English and French) 01/88 082/88 Nigeria Energy Assessment (English) 08/83 4440-UNI Rwanda Energy Assessment (English) 06/82 3779-RW Energy Assessment (English and French) 07/91 8017-RW Status Report (English and French) 05/84 017/84 Improved Charcoal Cookstove Strategy (English and French) 08/86 059/86 Improved Charcoal Production Techniques (English and French) 02/87 065/87 Commercialization of Improved Charcoal Stoves and Carbonization Techniques Mid-Term Progress Report (English and French) 12/91 141/91 SADCC SADCC Regional Sector: Regional Capacity-Building Program for Energy Surveys and Policy Analysis (English) 11/91 - Sao Tome and Principe Energy Assessment (English) 10/85 5803-STP Senegal Energy Assessment (English) 07/83 4182-SE Status Report (English and French) 10/84 025/84 Industrial Energy Conservation Study (English) 05/85 037/85 Preparatory Assistance for Donor Meeting (English and French) 04/86 056/86 Urban Household Energy Strategy (English) 02/89 096/89 Seychelles Energy Assessment (English) 01/84 4693-SEY Electric Power System Efficiency Study (English) 08/84 021/84 Sierra Leone Energy Assessment (English) 10/87 6597-SL Somalia Energy Assessment (English) 12/85 5796-SO Sudan Management Assistance to the Ministry of Energy and Mining 05/83 003/83 Energy Assessment (English) 07/83 4511-SU Power System Efficiency Study (English) 06/84 018/84 Status Report (English) 11/84 026/84 Wood Energy/Forestry Feasibility (English - Out of Print) 07/87 073/87 Swaziland Energy Assessment (English) 02/87 6262-SW Tanzania Energy Assessment (English) 11/84 4969-TA Peri-Urban Woodfuels Feasibility Study (English) 08/88 086/88 Tobacco Curing Efficiency Study (English) 05/89 102/89 Remote Sensing and Mapping of Woodlands (English) 06/90 - Industrial Energy Efficiency Technical Assistance (English - Out of Print) 08/90 122/90 Togo Energy Assessment (English) 06/85 5221-TO Wood Recovery in the Nangbeto Lake (English and French) 04/86 055/86 Power Efficiency Improvement (English and French) 12/87 078/87 Uganda Energy Assessment (English) 07/83 4453-UG Status Report (English) 08/84 020/84 Institutional Review of the Energy Sector (English) 01/85 029/85 Energy Efficiency in Tobacco Curing Industry (English) 02/86 049/86 Fuelwood/Forestry Feasibility Study (English) 03/86 053/86 - 59 - Region/Country Acdvity/Reporl 7tl Date Number Uganda Power System Efficiency Study (English) 12/88 092/88 Energy Efficiency Improvement in the Brick and Tile Industry (English) 02/89 097/89 Tobacco Curing Pilot Project (English - Out of Print) 03/89 UNDP Terminal Report Zaire Energy Assessment (English) 05/86 5837-ZR Zambia Energy Assessment (English) 01/83 4110-ZA Status Report (English) 08/85 039/85 Energy Sector Institutional Review (English) 11/86 060/86 Power Subsector Efficiency Study (English) 02/89 093/88 Energy Strategy Study (English) 02/89 094/88 Urban Household Energy Strategy Study (English) 08/90 121/90 Zimbabwe Energy Assessment (English) 06/82 3765-ZIM Power System Efficiency Study (English) 06/83 005/83 Status Report (English) 08/84 019/84 Power Sector Management Assistance Project (English) 04/85 034/85 Petroleum Management Assistance (English) 12/89 109/89 Power Sector Management Institution Building (English - Out of Print) 09/89 - Charcoal Utilization Prefeasibility Study (English) 06/90 119/90 Integrated Energy Strategy Evaluation (English) 01/92 8768-ZIM EAST ASIA AND PACIFIC (EAP) Asia Regional Pacific Household and Rural Energy Seminar (English) 11/90 - China County-Level Rural Energy Assessments (English) 05/89 101/89 Fuelwood Forestry Preinvestment Study (English) 12/89 105/89 Fiji Energy Assessment (English) 06/83 4462-FIJ Indonesia Energy Assessment (English) 11/81 3543-IND Status Report (English) 09/84 022/84 Power Generation Efficiency Study (English) 02/86 050/86 Energy Efficiency in the Brick, Tile and Lime Industries (English) 04/87 067/87 Diesel Generating Plant Efficiency Study (English) 12/88 095/88 Urban Household Energy Strategy Study (English) 02/90 107/90 Biomass Gasifier Preinvestment Study Vols. I & II (English) 12/90 124/90 Lao PDR Urban Electricity Demand Assessment Study (English) 03/93 154/93 Malaysia Sabah Power System Efficiency Study (English) 03/87 068/87 Gas Utilization Study (English) 09/91 9645-MA Myanmar Energy Assessment (English) 06/85 5416-BA Papua New Guinea Energy Assessment (English) 06/82 3882-PNG Status Report (English) 07/83 006/83 Energy Strategy Paper (English - Out of Print) - - Institutional Review in the Energy Sector (English) 10/84 023/84 Power Tariff Study (English) 10/84 024/84 - 60 - Region/Counhy Activty/Repon 7Ti Date Number Solomon Islands Energy Assessment (English) 06/83 4404-SOL Energy Assessment (English) 01/92 979/SOL South Pacific Petroleum Transport in the South Pacific (English-Out of Print) 05/86 - Thailand Energy Assessment (English) 09/85 5793-TH Rural Energy Issues and Options (English - Out of Print) 09/85 044/85 Accelerated Dissemination of Improved Stoves and Charcoal Kilns (English - Out of Print) 09/87 079/87 Northeast Region Village Forestry and Woodfuels Preinvestment Study (English) 02/88 083/88 Impact of Lower Oil Prices (English) 08/88 - Coal Development and Utilization Study (English) 10/89 - Tonga Energy Assessment (English) 06/85 5498-TON Vanuatu Energy Assessment (English) 06/85 5577-VA Western Samoa Energy Assessment (English) 06/85 5497-WSO SOUTH ASIA (SAS) Bangladesh Energy Assessment (English) 10/82 3873-BD Priority Investment Program 05/83 002/83 Status Report (English) 04/84 015/84 Power System Efficiency Study (English) 02/85 031/85 Small Scale Uses of Gas Prefeasibility Study (English - (Out of Print) 12/88 - India Opportunities for Commercialization of Nonconventional Energy Systems (English) 11/88 091/88 Maharashtra Bagasse Energy Efficiency Project (English) 05/91 120/91 Mini-Hydro Development on Irrigation Dams and Canal Drops Vols. I, II and III (English) 07/91 139/91 WindFarm Pre-Investment Study (English) 12/92 150/92 Nepal Energy Assessment (English) 08/83 4474-NEP Status Report (English) 01/85 028/84 Pakistan Household Energy Assessment (English - Out of Print) 05/88 - Assessment of Photovoltaic Programs, Applications, and Markets (English) 10/89 103/89 Sri Lanka Energy Assessment (English) 05/82 3792-CE Power System Loss Reduction Study (English) 07/83 007/83 Status Report (English) 01/84 010/84 Industrial Energy Conservation Study (English) 03/86 054/86 - 61 - Region/Country Activity/Repot 7tle Date Number EUROPE AND CENTRAL ASIA (ECA) Eastern Europe The Future of Natural Gas in Eastern Europe (English) 08/92 149/92 Poland Energy Sector Restructuring Program Vols. I-V (English) 01/93 153/93 Portugal Energy Assessment (English) 04/84 4824-PO Turkey Energy Assessment (English) 03/83 3877-TU MIDDLE EAST AND NORTH AFRICA (MNA) Morocco Energy Assessment (English and French) 03/84 4157-MOR Status Report (English and French) 01/86 048/86 Syria Energy Assessment (English) 05/86 5822-SYR Electric Power Efficiency Study (English) 09/88 089/88 Energy Efficiency Improvement in the Cement Sector (English) 04/89 099/89 Energy Efficiency Improvement in the Fertilizer Sector(English) 06/90 115/90 Tunisia Fuel Substitution (English and French) 03/90 - Power Efficiency Study (English and French) 02/92 136/91 Energy Management Strategy in the Residential and Tertiary Sectors (English) 04/92 146/92 Yemen Energy Assessment (English) 12/84 4892-YAR Energy Investment Priorities (English - Out of Print) 02/87 6376-YAR Household Energy Strategy Study Phase I (English) 03/91 126/91 LATIN AMERICA AND THE CARIBBEAN (LAC) LAC Regional Regional Seminar on Electric Power System Loss Reduction in the Caribbean (English) 07/89 - Bolivia Energy Assessment (English) 04/83 4213-BO National Energy Plan (English) 12/87 - National Energy Plan (Spanish) 08/91 131/91 La Paz Private Power Technical Assistance (English) 11/90 111/90 Natural Gas Distribution: Economics and Regulation (English) 03/92 125/92 Prefeasibility Evaluation Rural Electrification and Demand Assessment (English and Spanish) 04/91 129/91 Private Power Generation and Transmission (English) 01/92 137/91 Chile Energy Sector Review (English - Out of Print) 08/88 7129-CH Colombia Energy Strategy Paper (English) 12/86 - Costa Rica Energy Assessment (English and Spanish) 01/84 4655-CR Recommended Technical Assistance Projects (English) 11/84 027/84 Forest Residues Utilization Study (English and Spanish) 02/90 108/90 Dominican Republic Energy Assessment (English) 05/91 8234-DO Ecuador Energy Assessment (Spanish) 12/85 5865-EC Energy Strategy Phase I (Spanish) 07/88 -- Energy Strategy (English) 04/91 - Private Minihydropower Development Study (English) 11/92 -- - 62 - Region/Country Actiity/Report 7te Date Number Haiti Energy Assessment (English and French) 06/82 3672-HA Status Report (English and French) 08/85 041/85 Household Energy Strategy (English and French) 12/91 143/91 Honduras Energy Assessment (English) 08/87 6476-HO Petroleum Supply Management (English) 03/91 128/91 Jamaica Energy Assessment (English) 04/85 5466-JM Petroleum Procurement, Refining, and Distribution Study (English) 11/86 061/86 Energy Efficiency Building Code Phase I (English-Out of Print) 03/88 - Energy Efficiency Standards and Labels Phase I (English - Out of Print) 03/88 - Management Information System Phase I (English - Out of PRint) 03/88 - Charcoal Production Project (English) 09/88 090/88 FIDCO Sawmill Residues Utilization Study (English) 09/88 088/88 Energy Sector Strategy and Investment Planning Study (English) 07/92 135/92 Mexico Improved Charcoal Production Within Forest Management for the State of Veracruz (English and Spanish) 08/91 138/91 Panama Power System Efficiency Study (English - Out of Print) 06/83 004/83 Paraguay Energy Assessment (English) 10/84 5145-PA Recommended Technical Assistance Projects (English- (Out of Print) 09/85 - Status Report (English and Spanish) 09/85 043/85 Peru Energy Assessment (English) 01/84 4677-PE Status Report (English - Out of Print) 08/85 040/85 Proposal for a Stove Dissemination Program in the Sierra (English and Spanish) 02/87 064/87 Energy Strategy (Spanish) 12/90 - Saint Lucia Energy Assessment (English) 09/84 5111-SLU St. Vincent and the Grenadines Energy Assessment (English) 09/84 5103-STV Trinidad and Tobago Energy Assessment (English - Out of Print) 12/85 5930-TR GLOBAL Energy End Use Efficiency: Research and Strategy (English - Out of Print) 11/89 - Guidelines for Utility Customer Management and Metering (English and Spanish) 07/91 - Women and Energy-A Resource Guide The International Network: Policies and Experience (English) 04/90 - Assessment of Personal Computer Models for Energy Planning in Developing Countries (English) 10/91 - Long-Term Gas Contracts Principles and Applications (English) 02/93 152/93 032593  IBRD 22898 Kunene R. Pu ANGOLA o~II ZAMBIA 4ý, o r..&~..I Okov ah COpiv KAOKOLAND o RUNf OS~ bk~u~ OWAMBO ,o KAVANGO "J " 8 Etosh TSUMIEB' •EB - OUTJO i TFONTES CIESMIANLAND \G OTFONTEIN EREROLAND DAMARALAN Til RONG HEREROLAND- BOTSWANA A UR 0"" 't KA Hm OANA A. T°^GOBABIS NAMIBIA KARIBM.. ADMINISTRATION AND TRANSPORTATION Kolchari MAJOR ROADS - - %0- - SECONDARY ROADS RAIROADS D I SELECTED VILLAGES o CITIES OGAN ENTA ®D MAGISTERIAL DISTRICT CAPITALS ® NATIONAL CAPTAL MAGISTERIAL DISTRICT BOUNDARIES - )- INTERNATIONAL BOUNDARIES Dk a ' N. n ster ial districs. -a D r ~ BET AE -XEETMA45tiOOP - ~ODE-.- SOOP . AAN- - -SOUTH AFR9CA MARCH 1991