Shades of green hydrogen: EU demand set to transform Namibia

Backed by the EU, Namibia has a US$20 billion plan to export green hydrogen. But a secretive tender process raises concerns for nature and citizens.

For Namibia, green hydrogen could be transformative.

With vast sunbaked, windswept deserts and 2,5 million people, the southern African nation has plenty of renewable resources to go around.

Meanwhile rich, densely populated Europe, South Korea and Japan are crying out for clean fuel to decarbonise hard-to-electrify sectors like fertilisers, steel and shipping. Their net zero plans depend on it.

Keen to secure pole position in the global race for green hydrogen, last year the European Union began reaching agreements with prospective producers. One of the most trumpeted deals was signed with Namibia on the sidelines of Cop27 in Sharm el-Sheikh, Egypt.

“We want to fight climate change. We want to have clean energy. And as I said, you have all the resources in abundance. So let us team up,” European Commission president Ursula von der Leyen said in the direction of her Namibian counterpart, hailing the partnership as a “big win-win situation for all of us”.

Tapping into solar and wind energy for export is central to president Hage Geingob’s economic strategy. Namibia is seeking US$20 billion of investment in green hydrogen – more than its entire GDP of US$12 billion in 2022. Government authorities are negotiating funding options with the EU.

As with any heavy industry, though, the hoped-for boom will come at a cost to local communities and ecosystems. The benefits to ordinary Namibians are less certain.

In a months-long investigation, Climate Home News and Oxpeckers visited the site of the flagship project, a US$10 billion complex near the southern coastal town of Lüderitz.

The reporter on the ground found a community largely in the dark about the development and nervous about the impact on fishing and tourism. Experts shared frustration about a secretive tender process, scepticism about job prospects for Namibians and concerns for the area’s unique wildlife.

                  GREEN HYDROGEN COMPLEX

Perched between the Namib Desert and the Atlantic Ocean, Lüderitz is named after a German colonist. It was the centre of a diamond rush in 20th century and of a colonial history that repressed indigenous Africans. Germany officially apologised in 2021 for colonial-era atrocities, recognising them as “genocide”.

Today, Lüderitz’s architecture, fresh seafood and wildlife draw a modest number of tourists, who can visit ghost towns abandoned after the diamond rush. The town is surrounded by the Tsau //Khaeb National Park, which is home to wildlife including seals, penguins, flamingos and ostriches. The park and surrounding lands are off-limits to residents to prevent illegal diamond mining.

Green hydrogen is set to to transform the character of this small enclave once again.

The project development company Hyphen Hydrogen Energy’s plans show an initial five gigawatts of wind turbines and solar panels to supply power, according to the project’s fact sheet published by the Namibian government.

In this arid region, a desalination plant is needed to supply fresh water. An electrolysis plant will split the water into hydrogen and oxygen, before the hydrogen gas is converted into liquid ammonia. A new deepwater port will accommodate tankers to ship the end product around the world. The company aims to produce 300 000 tonnes of ammonia a year, commissioning the first phase by 2026, Hyphen’s website says.

To build all this, Hyphen expects to bring in 15 000 workers, roughly doubling Lüderitz’s population. The Lüderitz Town Council is planning a new town in the desert to house the influx, immediately south of the historic Kolmanskuppe ghost town.

OPAQUE TENDER PROCESS

“We were a little surprised at the government’s choice of a partner,” said Phil Balhao, an opposition party member of the Lüderitz Town Council.

Other bidders like South Africa’s Sasol and Australian Fortescue Future Industries had an “established track record” that “seemingly just got ignored”, he said.

The tender process was overseen by the Namibia Investment Promotion and Development Board (NIPDB), which is part of the president’s office. It launched the first call for proposals in early 2021.

In September 2020, James Mnyupe was appointed as green hydrogen commissioner.

In a televised speech, Mnyupe said the green hydrogen project tender was exempt from public procurement rules. Instead, he cited tourism and conservation laws as the basis to hold a closed selection process.

Graham Hopwood, director of the Institute for Public Policy Research, a public-interest think tank based in Windhoek, was not impressed.

“With such a major and strategic project, there needs to be transparency and accountability from the outset. The fact that this project is mired in secrecy is raising red flags,” he said.

The Namibian government published a list of six bidders, who submitted nine bids between them. However, the content of the bids was not made public, nor the reasoning for Hyphen’s selection.

Hyphen said this was standard practice, given the commercially sensitive data contained in the bids. They added the process was “competitive”.

“It would be irresponsible and to the detriment to the development of the Hyphen project and Namibia’s broader green hydrogen industry for it to publish commercially sensitive agreements in the public domain that competitor projects/countries could use to compete against Namibia,” Hyphen said in a statement.

The Namibian government said the tender was “conducted with the utmost transparency and fairness”.

The government said a three-person bid evaluation committee did a “detailed and comprehensive evaluation” of the proposals, supported by independent experts from the United States government’s national renewable energy laboratory and the EU’s technical assistance facility on sustainable energy.

WHO IS HYPHEN?

Hyphen is a joint venture between two companies – Enertrag and Nicholas Holdings Limited.

Enertrag, owned by a 59-year-old East German nuclear physicist, Jörg Müller, has a long track record of building renewables. It is pursuing green hydrogen projects across the world in Uruguay, Vietnam and South Africa.

Nicholas Holdings Limited is a company registered in the British Virgin Islands which owns its stake in Hyphen through a special purpose vehicle based in Mauritius. The ultimate owner of the company is a South African investor, Brian Myerson.

The CEO of Hyphen is South African businessman Marco Raffinetti.

Myerson is a South African who spent decades as an investor in the United Kingdom, where he made headlines for battling the business establishment.

In 2010, Myerson was found by a panel of top UK lawyers to have behaved dishonestly in averting a takeover of Principle Capital, the investment firm he co-founded.

The Takeover Appeal Board found that Myerson and co-conspirators made a “deliberate attempt to circumvent” rules around taking over companies and then attempted to cover up their rule-breaking when the authorities began to investigate. He was banned from getting involved in mergers for three years.

Dishing out the punishment, the panel said it was only the second time it had done so, which it said, “is some indication of the extreme nature of the sanction”.

A spokesperson for Hyphen, Enertrag and Nicholas Holdings Limited described this incident as a “historic matter” over “an alleged technical infringement” which “remains contested”. It should not be used to draw conclusions about Myerson’s character, they argued.

They added that the Takeover Appeal Board had no formal regulatory powers and UK financial regulators took no action in respect of the alleged breach of the rules.

A spokesperson for the Namibian government said these were “historical legal matters, that to best of our knowledge have since been resolved”.

Myerson’s previous ventures on the African continent include a failed bid to scale up bioethanol production in Mozambique. Like today’s green hydrogen push, this was driven by EU demand: in 2007, the bloc set out to blend a percentage of biofuels into petrol. Investors piled into Mozambique, touting it as a “biofuels superpower”.

Myerson set up Principle Energy, based on the Isle of Man. It made bold promises to plant sugarcane over 20 000 hectares of land, build one of the top production facilities in the world and employ 1 600 people. Then the global bioethanol market collapsed and by 2013 the company closed, having planted just 136 hectares, according to a report by GRAIN.

His involvement in Hyphen is likely to be of concern, said IPPR’s Hopwood, adding that Hyphen’s leadership was “questionable”.

TAX HAVENS

Myerson’s investment in Hyphen is structured through the British Virgin Islands and Mauritius. Both rank poorly in the Tax Justice Network’s financial secrecy and corporate tax haven indexes.

Raffinetti said Mauritius and the British Virgin Islands were “tax-neutral jurisdictions with efficient financial markets”. A lot of infrastructure investment in Africa goes through Mauritius, he said, and investors are subject to tax in the countries where they are registered.

Tax Justice Network analyst Bob Michel said investment into Africa goes through Mauritius because of its tax rules. “Mauritius is a corporate tax haven,” he said.

“[Mauritius’] domestic tax regime combined with its vast tax treaty network allows third country investors to use it to siphon profits from operations in Africa with the least of taxes paid in the countries where the operations take place,” Michel said by email.

Michel said Hyphen’s strategy of setting up a vehicle to channel investments is valid, but the jurisdiction where it is set up is important.

Namibia is one of many African nations to have signed a tax treaty with Mauritius, which seeks to stop investors based in Mauritius being taxed both there and in Namibia.

Michel said that, with this treaty in place, routing investment through Mauritius “restricts Namibia’s rights to levy tax on the profits derived from the new project”.

A spokesperson for the Namibian government said it was “aware of the jurisdictions through which certain Hyphen shareholders hold their equity in Hyphen”.

The spokesperson added: “Should [the Namibian government] come across any conduct that is unbecoming of its laws and global best practice, rest assured [we] will take the necessary swift corrective action.”

GREAT EXPECTATIONS

Raffinetti, Hyphen’s CEO, previously developed gas power and rooftop solar bids in South Africa. The Richards Bay gas project he co-led is facing legal challenge by environmental activists due to its climate impact.

Raffinetti joined a video call with Climate Home in late October.

The interview was granted, through a PR agency, on condition Hyphen could vet the quotes used. Some of the more colloquial soundbites reporters transcribed came back replaced with cautious jargon, and an admonition to put everything in its full context. Hyphen separately responded in writing to detailed concerns raised by sources.

“There’s an enormous amount of expectation in Namibia around this project. So there’s a huge amount of media attention,” Raffinetti said in one approved quote. “As the first large-scale project in Namibia’s green industrialisation strategy, we have an enormous obligation to get it right.”

BIODIVERSITY CONCERNS

Jean-Paul Roux, a retired marine biologist working in the area for decades, pointed to where the Lüderitz peninsula ends at Angra Point. It is the northernmost tip of the Karoo ecosystem, he explained, unique to southern Africa.

In the dry summer season, the desert landscape looks drab and lifeless. But winter rains bring a green explosion of rare plants such as the endemic Lithops optica, a tiny succulent that gets as old as 90 years.

“Here you can find up to 1 000 different plant species in just one square kilometre, some so small no bulldozer operator will even notice them,” he said. He spots signs of hyenas and porcupines.

This is the area earmarked for a deepwater port and desalination and ammonia plants.

Roux said the development would have a massive impact on Shearwater Bay and the adjacent Sturmvogelbucht, a lagoon teeming with flamingos and a Heaviside’s dolphin population that he has been studying for years and visits every day.

“This is the only place along the southern African coast where you can watch them from your car,” he said as this smallest of all dolphin species approached to within a few meters of the beach. He fears that once developers start blasting rock for the port construction, dolphins will leave and never return.

Antje Burke, a veteran botanist, is working as a consultant to Hyphen. She said at a talk of the Namibian Scientific Society in July that Hyphen was trying to avoid the most sensitive areas, but “one big problem” is that a species of parsley “overlaps almost completely with the concession area”.

She added that “even more concerning” was the future development plans. “The Hyphen project is developing the service infrastructure really keeping the future developments in mind. […] That means the entire area will be developed.”

Burke indicated some adjustments that could mitigate the environmental impact.

“No green energy project can be implemented without some environmental impact and Hyphen’s objective is to minimise environmental impacts to the largest extent possible,” Raffinetti said in an interview with Climate Home.

The company has hired consultancy SLR to prepare an environmental and social impact report and lead a “comprehensive stakeholder engagement process”, Hyphen added in a written statement.

Consultants are currently gathering meteorological data and reporting a baseline of wildlife and plants in the area, SLR reports say. The formal environmental impact study is expected to start next year, the official documents add.

LOSS OF ACCESS

Aside from the northern end of the bay, the peninsula is the only publicly accessible area of the Lüderitz area. The rest is Sperrgebiet or “forbidden area” – a legacy of the diamond rush.

Some of Hyphen’s infrastructure will reduce public access to the peninsula. Raffinetti said this was “unavoidable” as it was “the only location feasible for a deepwater port”.

The other access to the sea is the four-kilometre Agate Beach to the north of the enclave, downwind from the last few local fishing factories and a municipal sewage plant.

Residents fear this would impact rock lobster fishing and rock angling. Crayfish fisheries would also be affected, locals said.

“The people in the township’s poorest areas [have] got nowhere else to go. They are going to strip this bay [Agate Beach] clean of everything,” said Gerd Kessler, a fourth-generation Buchter as locals call themselves, referring to a potential concentration of fisheries in the area.

As owner of Five Roses Aquaculture and three smaller oyster-breeding operations, Kessler employs 100 people.

A massive new seawall and harbour at Angra Point could have unpredictable impacts on currents in the bay, he cautioned. When the existing shallow port was expanded in the late 1960s by filling in the channel between the town and Shark Island, the sea quickly stripped away the town’s little beach inside Robert Harbour.

Kessler’s biggest concern was how Hyphen planned to dispose of the brine from its desalination plant. “You can’t just dump that anywhere, you have to make sure you use the currents to disperse it,” Kessler said.

QUESTIONABLE JOB PROSPECTS

Hyphen expects to create 15 000 jobs in the construction phase and 3 000 to operate the finished complex. It is aiming for 90% of these jobs to go to Namibians, and 30% to youth.

There is a huge skills gap, Namibian business groups warn.

“We do not even have a category for petrochemical or petroleum engineers at the moment,” said Sophia Tekie, president of the Engineering Council of Namibia (ECN). “If we have any, they are registered as [one of 40] chemical engineers.”

“Although the ECN has 2 015 registered engineers in eight disciplines at present, about 30 to 40% of them were already retired and only did part-time consultancy work,” said her predecessor, Markus von Jeney.

Local construction capacity did not look much better: according to Bärbel Kircher, general manager of the Construction Industries Federation of Namibia (CIF), their membership had declined from 480 companies in 2015 to 240 member companies, operating at only 50% capacity.

“Currently, our local contractors are largely displaced by foreign contractors, excluding them from opportunities. This is often due to conditions set by external financiers,” said Kircher.

Namibian construction companies were not likely to benefit from the green hydrogen projects, the CIF said. “The current procurement methods and trends do not provide a promising outlook for the future,” said Kirchner.

Hyphen said the company would implement “targeted training interventions at various levels” including “specialised master’s programmes, internships and apprenticeships”.

EUROPEAN SUPPORT

Under the memorandum of understanding signed in Sharm el-Sheikh, the EU will provide technical expertise, trade incentives and, crucially, help to secure infrastructure finance.

Moments after Von der Leyen and Geingob inked their deal, the European Investment Bank promised loans of up to 500 million euro (about N$9,8 billion) for renewable hydrogen investments in Namibia. “Let’s bring flesh to the bone,” the bank’s chief, Werner Hoyer, told the audience.

Shortly after the event, Hyphen announced that it had “signed a €35 million agreement with the European Investment Bank to finance the early development of our project”. This was somewhat premature. The bank had supplied a letter of intent, not a firm commitment of funding.

Since the initial announcement, European institutions, Namibian government officials and private actors have been working out the details of the partnership.

Hyphen is looking for €100 million (about N$1,9 billion) to start work on the project.

“We have been very grateful to the EIB and the European Commission for making available the initial funding to share the early development risk,” said Raffinetti in late September, suggesting a firm commitment from the European backers.

The Hyphen CEO went on to outline what the deal with the EIB should look like: a €10 million (about N$198 million) grant – “still to be finalised,” he added – and a €25 million (about N$495 million) “soft loan”, meaning it would come with favourable terms for the company.

An EIB spokesperson said no agreement has been signed yet. “We are in the process of completing our due diligence, after which the project will be presented to the EIB’s governing bodies for approval,” they said.

“Potential financial support at this early stage would be for site studies and feasibility studies. Any support for implementation will be conditional to the project complying with the bank’s environmental and social (E&S), procurement, compliance and other standards,” they added.

On top of the cash injection, the EU’s international partnership division could provide a first-loss guarantee. If the project does not go to plan and the borrower cannot pay back its debt, the EU will pick up the tab – or at least part of it.

Without the “bedrock” of public money it would be impossible to lure in commercial lenders and leave a huge funding gap, Raffinetti said.

A European Commission spokesperson told Climate Home that “at present, there is not yet any financial assistance under the EU budget mobilised in favour of the Hyphen project”.

The Netherlands is also supporting the project. Dutch companies like the Port of Rotterdam and gas pipeline operator Gasunie see a business opportunity to offload the green ammonia from ships and pipe it to industry inland.

In June, green hydrogen commissioner Mnyupe told a national newspaper that the Dutch government had given Namibia a 40 million euro grant to develop green hydrogen. He said the government would use 23 million euro of this to buy a stake in Hyphen.

The Dutch said the money was not Namibia’s to spend. The €40 million grant comes from Invest International, a public fund set up in 2019 to advance Dutch interests abroad and promote economic growth in the developing world.

Invest International’s lead on hydrogen, Bart De Smet, told Climate Home that the €40m grant will be distributed by a fund manager independent of the Namibian government and won’t necessarily go to Hyphen.

WHO BENEFITS?

The big question for Namibians is whether the inevitable disturbance of a unique ecosystem and small-town culture will be worth it.

The Namibian government is taking a 24% stake in Hyphen through its sovereign wealth fund. It is expected to raise further revenues through taxes, royalties, land rental and environmental levies on the project, Hyphen said.

“The benefit for the country in terms of economic upliftment is enormous. Because Namibia is only 2,5 million people. So if you’re successful, your impact on each human being’s life can be enormous,” Raffinetti said.

Patrick Neib, an unemployed resident of the Nautilus township at Lüderitz, could certainly use some upliftment. He moved to the area in 2015 in search of a better job that has yet to materialise.

Like many residents, he found out about Hyphen from social media. Most of Hyphen’s public meetings took place at Keetmanshoop, the regional capital 330 kilometres away.

The secrecy and technical jargon used by Hyphen and its consultants made it impossible for the ordinary layman to understand or access any opportunities, Neib said.

“There is just no public discussion about the benefits for ordinary people like me, or what price we are to pay for green hydrogen development,” he said. “My question is, who or what is really behind all of this?”

* This article was reported in collaboration with Oxpeckers Investigative Journalism Centre and was supported by a grant from JournalismFund.