ANNUAL REPORT 2019 3 CONTENTS CHAPTER 01 ABOUT ERONGO RED 04 CHAPTER 02 OVERVIEW OF THE ELECTRICITY INDUSTRY 07 CHAPTER 03 BOARD OF DIRECTORS 08 CHAPTER 04 EXECUTIVE MANAGEMENT TEAM 10 CHAPTER 05 CHAIRPERSON’S REPORT 12 CHAPTER 06 CHIEF EXECUTIVE OFFICER’S REPORT 14 CHAPTER 07 OUR BUSINESS UNITS 16 CHAPTER 08 CORPORATE GOVERNANCE 36 CHAPTER 09 ANNUAL FINANCIAL STATEMENTS 40 4 5 ABOUT ERONGO The company was formed by merging electricity services Electricity Sales per Customer Segment from various Municipalities and Town Councils in the region, namely the Arandis Town Council, Henties Bay RED Municipality, Karibib Municipality, Municipality of Walvis Bay, Omaruru Municipality, Swakopmund Municipality, Usakos Town Council, Uis Village Council as well as the Erongo Regional Electricity Distributor Company (Pty) Ltd, known by its abridged name Erongo Regional Council and Namibia Power Corporation 01 (Pty) Ltd (NamPower), as the regional and national Erongo RED, was established in 2005 with a mandate to distribute and supply electricity distributor of electricity. The aforesaid institutions are the to consumers throughout the Erongo region, as well as connect as many new users to the shareholders of Erongo RED. network as possible, in accordance with the Government of Namibia’s 2030 Development Since becoming operational in 2005, Erongo RED has Goals. concentrated on the development of the company towards self-sufficiency, and on streamlining operating functions and processes. Erongo RED now sells electricity at a price which reflects the actual cost of distribution and has widely established itself in the region. The company is focused on the refinement of the business, extending access to electricity, improving customer service and further developing sustainable operations. What We Do Erongo RED supplies electricity to the Erongo Region, enabling residents in both urban and rural areas to enjoy 50% Bulk Customers improved quality of life. Additionally, businesses are able 17% Pre-paid Customers to expand and create employment, and bulk consumers gain access to the electricity infrastructure necessary 16% Domestic Coventional to thrive. Together, these factors create an environment conducive to attracting investment to the region. 14% Business 1 & 3 Phase Our Main Activities 3% Institutional Our main activities include the following: • The distribution and supply of electricity to customers Revenue per Service (residents, government institutions and businesses) in the Erongo Region • The maintenance of the electrical grid in the Erongo Region • The expansion of the electrical grid through investment to accommodate future electrical demand • The exploration of cost effective and efficient new sources of energy, such as renewable energy solutions Overview of Our Customer Base Erongo RED has about 41,850 active customers. The residential customer segment constitutes 91% of the total customer base, while 9% comprises of commercial customers ranging from single phase to large power users, with less than 1% made up of institutional single and three phase users. During the period under review, 66% of the residential customers’ energy consumption was measured by pre-paid meters, while 34% was measured using post-paid meters. 96% Electricity Sales 1% Donated Assets 2% Network Contribution 1% Other Regulated Income 0% Amortisation of Deferred Revenue - Government Grant 6 7 • 61% of our customers are on pre-paid electricity and contribute • Business single/three phase users make up 7% of our customer about 17% towards our total regulated revenue. base and contribute 14% towards revenue. • Bulk customers constitute 1% of our customer base, however, • Domestic post-paid users constitute 31% of our customer base contribute half of our revenue (50%). and contribute 16% towards revenue. • Institutional (government) customers, which constitute less than 1% of our customer base, contribute 3% towards revenue. Number of Active Customers Pre-Paid vs Conventional Meters % OVERVIEW OF THE 02 ELECTRICITY INDUSTRY NamPower, the state-owned electricity utility, owns and operates the country’s transmission networks, which connect various regional markets to Namibia, and facilitates the active trade of electricity. 0% Institutional 46% Conventional Meters As of December 2019, the total capacity of NamPower’s installed During this period, NamPower purposefully sought to explore 9% Commercial/Business 54% Pre-paid Meters generating assets amounted to 489.5 MW, with an interconnection renewable sources of energy in keeping with international trends, capacity to regional suppliers of 300 MW. in a bid to diversify the source of electricity, thereby allowing for 32% Domestic Coventional an increase in supply across the country. To this end, Erongo RED Since 2015, several Independent Power Producers (IPPs) have entered into an agreement with OLC Arandis Solar Energy, with more 59% Domestic Pre-paid commenced operations, and more are to enter the electricity sector resources being directed towards adding power generated from the in the future. In addition to the three Regional Electricity Distribution plant to the grid. companies (REDs), of which Erongo RED is one, various local and Revenue vs Customer Segments regional authorities and other entities distribute and supply electricity The industry regulator, the Electricity Control Board (ECB), pegged to customers, with this number growing steadily. the overall power transmission system availability at 99.86%. 17% Pre-paid 61% Source: NamPower Annual Report, 2019 Electricity Control Board Annual Report, 2019 Bulk Customers 50% 1% Institutional 3% 0% 14% Business 1 & 3 Phase 7% Revenue 16% Domestic Post-paid 31% Customer Base As the majority of our bulk customers are located in Walvis Bay and Swakopmund, their combined revenue contributions amount to 57% and 25% respectively, with both accounting for 82% of overall revenue. The remaining 18% is derived from other towns, settlements and villages. Our Shareholders Erongo RED’s Shareholders are the municipalities of Walvis Bay, Swakopmund, Henties Bay, Omaruru, and Karibib, the town councils of Usakos and Arandis, the village council of Uis as well as the Erongo Regional Council and NamPower. SHAREHOLDERS % Share Municipality of Walvis Bay 49.87% Swakopmund Municipality 28.49% Namibia Power Corporation (Pty) Ltd 10.14% Henties Bay Municipality 4.63% Omaruru Municipality 1.84% Arandis Town Council 1.66% Karibib Municipality 1.44% Usakos Town Council 1.26% Uis Village Council 0.35% Erongo Regional Council 0.32% 8 9 BOARD OF DIRECTORS 03 In compliance with the Shareholders Agreement, Erongo RED is guided and governed by a Board of Directors. Currently, the Erongo RED Board has eight (8) directors, with an alternate director for each. During the period under review, three (3) directors resigned between the 31st of March 2019 and the 11th of April 2019. The CEO serves as an Ex-officio member on the Board. The Board and Erongo RED endorse and accept the implementation of good corporate Ms. HM Gebhardt Ms. NA Johannes governance principles, as enunciated in the NamCode, King Director Director 3, Board Charter and all related policies currently applicable to the company. Led by Ms. YZN Nambahu, the Erongo RED Board, in collaboration with its sub-committees, strives to act as a conscientious custodian of corporate governance at Erongo RED, ensuring that the company is a responsible corporate citizen. Ms. YZN Nambahu Board Chaiperson Ms. N /Goagoses Mr. M Skini Director Director Mr. EM Wetha Mr. J Shimbilinga Mr. EM Petrus Mr. Fessor Mbango Director Director Director Ex-officio Member 10 11 EXECUTIVE MANAGEMENT TEAM The Executive Management team includes a dedicated group of industry professionals devoted to getting the best out for the company. Led by Chief Executive Officer, Mr. Fessor Mbango, the 04 management team’s expertise spans across various specialties. The team oversees the running of five (5) business units. Its dedication and passion set it apart as a leading management team, driven by the desire to achieve objectives as outlined in the strategic plan of the company. Mr. F Vries Mr. N Niemand Executive Manager: Executive Manager: Network Finance and Administration Operations and Maintenance Mr. F Mbango Chief Executive Officer Mr. C Tjizo Mr. R Ouseb Executive Manager: Executive Manager: Supply Business Network Engineering 12 13 CHAIRPERSON’S REPORT 05The Namibian economic climate, much like the global business The Board remains aware that advanced technology provides environment we find ourselves in, has had its fair share of ups and opportunities for digitisation and automation of business processes downs, and this year is no exception. The central bank revised the that improve efficiency, a recurrent theme in this year’s report. economic outlook of the country to -6.9%. With the economy already However, the extension of ICT infrastructure creates additional risks having seen slower growth, and especially in times of uncertainty, it related to cybersecurity and potential data leaks. Therefore, the is clear that entities such as Erongo RED must redefine themselves Board notes that the organisational strategy of the company going and implement innovative business models and practices to ensure forward should consider that any investments in technology must sustainability. be secure and relevant to the organisation. During the period under review, Erongo RED set out on a path to The future of the company lies in the efforts we continuously place implement its