‘RED Alert’ Concerns on Electricity Supply

I HAVE unfortunately not seen the City of Windhoek’s press release on the transfer of its electricity service to the regional electricity distributor (CentralRED) on July 1, 2006 but I am quite concerned about the financial impact this will have on the residents of Windhoek.

The attached summary was made from the City of Windhoek’s budget for the 2005/2006 financial year. From this summary it can be seen that the City needs to realise a surplus of N$96 million (31%) on its electricity service [after shouldering N$27.9 million (25%) as its allocated share of the City’s Main Administration cost of N$123.9 million] to finance the City’s deficits on its non-remunerative services.The City, like most other local authorities, has a financial policy of rendering its indispensable services like water, sewerage and refuse removal more or less at cost.Since electricity, however, is regarded as a “luxury” which is used in larger quantities by the more affluent residents and a service one can do without or only use very little if need be, a certain surplus (profit) margin is added to the actual cost of this service.This surplus is employed to help finance the deficits on its non-remunerative services shown in the summary, which cannot be financed from assessment rates alone.In many cases properties are exempt from rates, which means that the owners contribute nothing towards the financing of the deficits on the non-remunerative services.Only by “loading” the electricity tariffs, at least some indirect contribution is made by the electricity consumers residing on these properties.Whether the City has relied too heavily on the electricity surpluses in the past remains debatable.In the past the local authority councils of Windhoek, Swakopmund and Walvis Bay were allowed to gazette their tariffs on their own whereas all other local authorities first had to get the approval of the Minister of Local Government and Housing before gazetting theirs.The policy of realising electricity surpluses unfortunately probably created the impression that this service cannot be rendered cost-effectively by local authorities and thus led to the introduction of an electricity tariff controlling body like the Electricity Control Board (ECB).The ECB with its own (beautiful) offices, cars, directors and staff unfortunately brought about additional costs to the electricity consumer.These costs have to be financed by way of a levy which the local authorities are obliged to charge on all electricity sales on the ECB’s behalf (estimated at N$3,3 million for Windhoek for the 2005/2006 financial year).Then the regional electricity distributors (REDs) were introduced by Government primarily to supply the outlying towns and hamlets with sustained electricity.This is a noble gesture, but it unfortunately only further will inflate the cost of electricity since the REDs eventually will have to duplicate the existing available local authority administration services like human resources management, legal advice, meter reading, billing, etc.I also am afraid that the City eventually will subsidise the electricity supplied to the poorer outlying consumers.The CentralRED should be able to drastically decrease Windhoek’s existing electricity tariffs on its introduction in July 2006 since it does not have to finance any deficits on non-remunerative services.By doing so, however, the dividends or surcharge which the City of Windhoek, then stands to receive from CentralRED will by far not be enough to cover the City’s deficits on its non-remunerative services and make up for the previous electricity service’s contribution towards the Main Administration cost.The only option left to the City of Windhoek would be to drastically increase its other services’ tariffs, introduce new tariffs like City Police security fees, downscale its present services or even to stop rendering some non-essential services.For a city which already is in dire straits for having to provide land and services to the influx of about three hundred squatters per month for the past fifteen years, this will be quite a challenge.Perhaps some knowledgeable person or persons can allay my fears or at least inform us what to budget for in time.D Alert Via e-mailFrom this summary it can be seen that the City needs to realise a surplus of N$96 million (31%) on its electricity service [after shouldering N$27.9 million (25%) as its allocated share of the City’s Main Administration cost of N$123.9 million] to finance the City’s deficits on its non-remunerative services.The City, like most other local authorities, has a financial policy of rendering its indispensable services like water, sewerage and refuse removal more or less at cost.Since electricity, however, is regarded as a “luxury” which is used in larger quantities by the more affluent residents and a service one can do without or only use very little if need be, a certain surplus (profit) margin is added to the actual cost of this service.This surplus is employed to help finance the deficits on its non-remunerative services shown in the summary, which cannot be financed from assessment rates alone.In many cases properties are exempt from rates, which means that the owners contribute nothing towards the financing of the deficits on the non-remunerative services.Only by “loading” the electricity tariffs, at least some indirect contribution is made by the electricity consumers residing on these properties.Whether the City has relied too heavily on the electricity surpluses in the past remains debatable.In the past the local authority councils of Windhoek, Swakopmund and Walvis Bay were allowed to gazette their tariffs on their own whereas all other local authorities first had to get the approval of the Minister of Local Government and Housing before gazetting theirs.The policy of realising electricity surpluses unfortunately probably created the impression that this service cannot be rendered cost-effectively by local authorities and thus led to the introduction of an electricity tariff controlling body like the Electricity Control Board (ECB).The ECB with its own (beautiful) offices, cars, directors and staff unfortunately brought about additional costs to the electricity consumer.These costs have to be financed by way of a levy which the local authorities are obliged to charge on all electricity sales on the ECB’s behalf (estimated at N$3,3 million for Windhoek for the 2005/2006 financial year).Then the regional electricity distributors (REDs) were introduced by Government primarily to supply the outlying towns and hamlets with sustained electricity.This is a noble gesture, but it unfortunately only further will inflate the cost of electricity since the REDs eventually will have to duplicate the existing available local authority administration services like human resources management, legal advice, meter reading, billing, etc.I also am afraid that the City eventually will subsidise the electricity supplied to the poorer outlying consumers.The CentralRED should be able to drastically decrease Windhoek’s existing electricity tariffs on its introduction in July 2006 since it does not have to finance any deficits on non-remunerative services.By doing so, however, the dividends or surcharge which the City of Windhoek, then stands to receive from CentralRED will by far not be enough to cover the City’s deficits on its non-remunerative services and make up for the previous electricity service’s contribution towards the Main Administration cost.The only option left to the City of Windhoek would be to drastically increase its other services’ tariffs, introduce new tariffs like City Police security fees, downscale its present services or even to stop rendering some non-essential services.For a city which already is in dire straits for having to provide land and services to the influx of about three hundred squatters per month for the past fifteen years, this will be quite a challenge.Perhaps some knowledgeable person or persons can allay my fears or at least inform us what to budget for in time.D Alert Via e-mail