Fitch Ratings has affirmed Namibia Power Corporation (NamPower) Long-Term Issuer Default Rating (IDR) at ‘BB’ with a Negative Outlook.
According to Fitch, NamPower’s rating is constrained by the country’s sovereign (BB/Negative) under Fitch’s Government-Related Entities (GRE) Rating Criteria and Parent and Subsidiary Linkage (PSL) Rating Criteria.
NamPower’s Standalone Credit Profile (SCP) is ‘bbb’-, reflecting the company’s monopolistic position in transmission and energy trading in Namibia and strong financial profile, the global ratings agency said.
“Fitch assesses the government’s ownership and control of the company as ‘Strong’ under its GRE Criteria. This is due to the government’s full ownership of the company through The Ministry of Mines and Energy and Ministry of Public Enterprises. The track record and expectations of support is ‘Strong’, with the most significant elements of support including government-guaranteed debt (about 5.1% of total debt at FY21 (ending June 2021)) and historical government grants for infrastructure and fuel.”
“NamPower has a strong capital structure, driven by over NAD9 billion of liquid investments (over 75% with short-term maturities) compared with NAD761 million debt at FY21 and Fitch expected negative free cash flow (FCF) of an average NAD1.7 billion over the next four years. This enables NamPower to maintain a net cash position throughout the rating horizon, which is consistent with the current SCP.”
The ratings agency said it expects NamPower to remain reliant on imported electricity, with a gradual reduction over the medium term and a more significant reduction from 2025, amid an expected increase from new generation capacity.
“The level of energy imports was about 66% in FY21, slightly higher than in FY20. About half of imports are from Eskom with the remaining from Zimbabwe Power Company, Zambia Electricity Supply Corporation (ZESCO) and Southern African Power Pool (SAPP).”
“Annual production from Ruacana can vary from a low of 900 GWh to around 1,500 GWh and we estimate that a 1 GWh variation in Ruacana production leads to on average NAD1 million variation in profits for NamPower. While NamPower is regulated under a cost-reflective framework, NamPower’s strategic intent is to keep tariff increases inflation linked, which can result in a lag in cost recovery and consequently variation in profitability.”
Fitch forecast NamPower’s capex to increase to about N$1.5 billion in FY22 and N$3 billion in FY23 and FY24, from less than N$500 million averaged over the last four years.
“NamPower is undertaking five power generation projects and 11 transmission projects aimed at reducing its reliance on imported electricity. The majority of this will be funded through NamPower’s substantial cash and liquid assets. The projects will also increase operating costs in the medium term by about N$300 million on average.”
The global ratings agency forecast capacity under modified single buyer (MSB) at around 100 MW and to come online by FY23.
“Fitch does not expect the MSB model to negatively affect NamPower’s Stand Alone Credit Profile (SCP). The modified single buyer (MSB) model allows independent power producers to generate and sell electricity output directly to regional electricity distributors, large industrial and mining companies, including municipalities, compared with the single buyer model where electricity output could only be sold to NamPower.”
“These agreements are initially limited to 30% of customers’ energy consumption. NamPower retains its monopolistic transmission position through the unbundling of the tariff structure, including reliability charge, and remains the supplier of last resort.”
