BRIEFING ON THE POWER SUPPLY SITUATION IN NAMIBIA AND UPDATE ON PROJECTS AIMED AT ADDRESSING THE SITUATION

30 March 2012

Members of the Media Ladies and Gentlemen

I would like to extend a warm welcome to you all to NamPower. The last time we came together in this room was last year December for the yearend briefing and already the first term of the New Year is almost over. Nonetheless, I would like to take this opportunity to wish you a productive and fruitful 2012.

We convened this briefing to update you on the power supply situation in the country and through you, the members of the public, on the progress of our projects and our plans to meet the power supply challenges in the country.

Since Eskom started communicating about its power supply situation to its customers and the RSA public at large, and mentioning the possible reduction of exports to neighbouring countries, some of you have been calling us to find out how this situation will affect Namibia, given the fact that Namibia imports a significant amount of its electricity from the region, particularly the RSA.
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It is a fact that Eskom is indispensable in the regional power supply equation. It is responsible for over 70 percent of generation in the region and it is understandable that supply challenges in RSA will spill over to the trading partners.

The shortage of power supply is a regional problem and the next three to four years will be critical for the region, as power utilities are working hard to put up new generation sources and refurbish and upgrade existing ones including its transmission networks. The utilities in the Southern African Power Pool (SAPP) have however resolved to take a collective approach to these challenges.

For the first time in the history of NamPower we will have a deficit of 80MW this coming winter. The deficit is expected to increase to 150 MW when the PPA with ZESA comes to an end by 2013 and to 300MW by 2015 mainly due to economic growth especially from the mining sector. I would therefore like to emphasise that the power supply deficit and associated challenges will continue to prevail until the commissioning of a base load power station by 2016.

NamPower and other utilities in the region have initiated a number of generation and transmission projects to try and meet the ever increasing demand for power supply in the country. However most of the large scale projects that we initiated in the region, including in Namibia, have been delayed due to various reasons and can only realise by 2016 and beyond.

Given the challenges of implementing the large scale projects, such as the time span for these, NamPower initiated the Short Term Critical
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Supply Project (STCS), under which a number of short and medium term initiatives will be implemented to address the immediate power supply shortages.

The following are projects that will be implemented as part of the STCSP as approved by our Board of Directors: Rehabilitation of Van Eck Power Station Replacing the turbine runners at Ruacana Replacing all machines at Paratus Power Station with new ones Implement Demand Side Management projects Negotiate new and extend existing Power Purchase Agreements Engage Independent Power Producers Investigate acquisition of emergency diesel generators

1. Rehabilitation of Van Eck Power Station:

Despite its age and perceived environmental concerns, Van Eck Power Station remains a critical component of NamPower generation capacity. NamPower received a grant of US$400 000 from the US Trade and Development Agency (USTDA) to undertake a study to determine the viability of rehabilitating the Station. The study is currently in the final stage and the full report is expected by the end of April 2012.

Three options were considered during the study for the rehabilitation of Van Eck Power Station and NamPower has accepted the option of extending the life time of the power station
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by 5 years. Work on the implementation of the project has started and will be expected to be completed within the next four months. The project will cost approximately N$85 million.

2. Replacement of turbine runners at Ruacana Power Station: In addition to the installation of the 4th Unit at Ruacana, with minimal investment of replacing the turbine runners, an additional 15MW will be added to the existing three units. Preparatory work on this project has started and the project will be expected to be completed within the next 18 to 24 months. This will bring the total generation capacity at Ruacana to 347MW.

3. Replacing all machines at Paratus Power Station Due to the aging infrastructure NamPower has also decided to replace all the four old machines at the Paratus Power Station with new ones. Preparatory works on this project has started and is expected to be completed within the next 12 to 18 months. The project is expected to cost approximately N$300 million.

4. Implementation of Demand Side Management programmes (DSM):

NamPower will continue with the effective implementation of the Demand Side Management (DSM) programme, particularly with the public awareness campaign (under the theme The Power of Knowing), advocating Time of Use Tariffs and Demand Market Participation projects.
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5. Power Purchase Agreements:

We have started negotiating new Power Purchase Agreements and re-negotiating existing PPAs with neighbouring power utilities. These agreements are important given the fact that we will continue to rely on imports still for the next four to five years, while we are working on the implementation of our own generation projects. Negotiations on these PPAs are currently ongoing specifically with Eskom, ZESCO, ZESA and BPC.

6. Negotiations of new PPAs with Independent Power Producers (IPPs) have commenced with a number of private companies regarding the off-take of power from wind and solar projects.

7. Investigate the acquisition of emergency diesel generators Large scale electricity diesel machines are readily available on the international markets for lease and can be acquired and installed relatively fast. However, they normally come at a very high cost. We are currently in the process of investigating the feasibility of procuring 20 MW capacity of rented diesel generators with the option of increasing it to 70 MW if some of the PPA negotiations with the neighbouring utilities do not materialise.

MEDIUM AND LONG TERM PROJECTS: Ruacana 4th Unit: Work on the installation of the 4th Unit generator at Namibias main source of power generation has been completed. The technical commissioning of the Unit has been completed and we took it over on 27 March 2012 for commercial operation. The 4th Unit will be officially inaugurated in June this year. The installed capacity of the 4th Unit generator is 92MW and the new combined installed capacity of the Ruacana Hydropower Station is now 332 MW.

Erongo Coal-Fired Power Station (150 450MW): The substantial increase in power demand in the Central Namib due to development growth has required the investigation into the feasibility of a Coal-fired power station (base load capacity in the Erongo Region). NamPower investigated a number of sites in the Erongo Region as a suitable location for the power station. The outcome of the final scoping report indicated a preference to a location east of Arandis. The capacity considered as part of the first phase is about 300MW, which can be upgraded in the future to 800MW. The detailed studies are underway. The Environmental Socio Economic Impact Assessment study (ESEIA) is nearing completion. The final scoping report (which incorporates the comments and inputs from the public) is available on NamPowers website. The final ESEIA report is expected to be available to the public by mid May this year. A second extensive public participation programme will take place between 29 May and 2 June 2012 in Windhoek, Swakopmund and Arandis to discuss the report. Details will be communicated in the media in due course.

NamPower launched the prequalification of potential contractors for the construction of the power station. NamPower is inviting documented responses from companies or joint ventures that can undertake and have suitable experience in the engineering, procurement and construction of similar projects. The documented responses will contain information on the basis of which respondents will be pre-qualified for further participation in the procurement of suitable contractors.

The responses received from respondents in response to this invitation will be evaluated by NamPower on the basis of companies meeting the necessary financial, legal, technical, management expertise, project references, insurability, compliance, quality assurance, time frame and other requirements as detailed in this questionnaire. The Pre-

qualification and Request for Information Document may be obtained free of charge from the Tender Administrator here at the head office or can be accessed from our website.

NamPower is ready to appoint a geo-technical consultant to execute field investigation to determine critical information that will be utilised in the design and specification of the power station.

Kudu Power Project: The project involves the implementation of an 800MW CCGT Power Station north of Oranjemund. Half of the power generated from the Kudu power station (400MW) will be consumed in Namibia with the balance to be exported to regional markets.

The first phase of re-packaging the Kudu Power Project started in January 2011. The process was completed by October 2011, with the submission of a Government Strategic Support Paper to the Ministry of
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Mines and Energy in November 2011. The phase entailed amongst others, firming up on the equity and funding strategies, determining the type of strategic support that will be required from Government to expedite the project, quantum of MW (surplus power) that will be on-sale to regional off-takers, as well as determining the technical and commercial design parameters of the Kudu Power Station and associated transmission infrastructure. Considerable progress has been made regarding the Power Export Agreement Term-sheet negotiations, which were concluded in February 2012 with a potential regional secondary off-taker.

The second phase will entail amongst others the issuance to the market of the respective tenders on the project; the conclusion of the Gas Sales Agreement (GSA) with the upstream developers; conclusion of the Power Export Agreement (PXA) with secondary off-takers as well as conclusion of all other commercial contractual undertakings.

It is equally important to point out that the Minister of Mines and Energy has recently re-confirmed Governments commitment to see to it that the much anticipated development of the Kudu Power Project is expedited, as it remains Namibias long-term strategic energy generation project. The Kudu Power Project remains therefore a corner-stone strategic investment for Namibia in ensuring security of supply for the country as well as its role as the catalyst for the commercialisation of Namibias unexploited oil & gas potential. Due to the inherent complexities of commercially developing this project, taking into account the huge capital investments required, and other financial risks associated with this project, discussions with Government on the strategic intervention

that the Kudu Power Project may require from the Government are ongoing.

Baynes Power Project: Significant progress has been made on this project. The consultants involved with the project are expected to complete their studies towards the end of May 2012. Their reports will be submitted to the Permanent Joint Technical Commission between Angola and Namibia who will study the outcome and is expected to make a final recommendation to both the Namibian and Angolan governments by June 2012.

Indications are that the project is financially and technically viable and is robust with regards to different sensitivities tested and thus a positive outcome is expected. The up stream water abstraction could play a critical role in the viability of the project and therefore the PJTC is simultaneously working on a possible draft country to country agreement should it be agreed to pursue the project. This document has to be ready and submitted simultaneously with the above reports to the two Governments by June 2012.

If the two governments agree for the Baynes Hydro Power project to go ahead, the appointment of responsible institutions to undertake the work and the search for appropriate funding would then be the next step.

The estimated project implementation cost will be USD 1,3 billion (including environmental mitigation costs, but excluding associated infrastructure such as transmission lines, roads, runways and

telecommunications).

ZIZABONA Project: Significant progress has also been made on this project. To this end the ZIZABONA Steering Committee decided on the following: -

To schedule a Zizabona investors conference in the near future.

To establish the head office of Zizabona in Namibia but maintain offices in the other three countries. To accommodate Zizabona operations, the transmission line between Gerus and Auas substations should be upgraded to 300MW.

To immediately, after the investors conference, establish the company by registering it in Namibia and to set up a temporary administrative structure. The structure will have the following five portfolios, namely; o o o o o Project Manager - Namibia Legal and Environment - Namibia Finance - Zambia Technical - Botswana Communication - Vacant

RENEWABLE ENERGY PROJECTS

There are a number of renewable projects in the form of wind, solar and biomass energy generations some of which could reach implementation phase before the end of this year. Some of them are purely IPPs while others are driven by NamPower. We shall
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keep the public informed on the progress being made in this regard.

Master of ceremonies, esteemed members of the media

The NamPower AGM took place yesterday and I would also like to make use of this opportunity to announce our financial highlights for the year ended 30 June 2011:

1. Revenue increased by 27.99% (2010 18.31%) to N$2.3 billion (2010 N$1.8 billion). The Group revenue from sales of electricity increased by 19.6% (2010 18.1%) to N$ 2.1 billion from N$ 1.7 billion. Increase in revenue was driven by a combination of increases in sales volumes, contributions by customers and the 18% annual tariff increase granted for the financial period ended June 2011.

2. Units sold increased by 3.26% (2010 2.17%) to 3,543 GWh compared to prior year (3,431 GWh).

3. Maximum demand increased by 2.84% (2010 9.1%) to 580 MW (including Skorpion Mine demand) achieved in June 2011 against the previous peak demand of 564 MW achieved in 2010. 4. The Group re-valued its property, plant and equipment during the year in line with its policies, resulting in the re-evaluation surplus of N$5,5 billion and impairment of N$120 million. The re-evaluation had an effect of significantly improving the Group depreciation and amortisation cost to N$666 million from N$239 million (2010), an increase of 178,6 percent (2010 - 4,8 percent).
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5. Group profit before tax, after accounting for interest, depreciation and amortisation, was however N$ 123 million, 66.9% lower than that achieved in the prior year of N$ 371 million. This is mainly attributable to the increase in depreciation expense of N$ 427 million, impairment loss on property, plant and equipment on revaluation charged to the income statement and the loss on fair value adjustments of firm commitments.

6. Capital expenditure for the Group amounted to N$ 909 million for the year under review (2010 N$ 1.8 billion).

7. Total assets increased from N$ 14.5 billion in 2010 to N$ 20.5 billion in 2011. The 39.3% of this increase is attributable to the revaluation of the core categories of property, plant and equipment discussed above. The Group also received a donation of transmission assets from a customer amounting to N$ 427 million (2010 N$ 12.6 million).

You can get more information on our financial performance for the year ended 30 June 2011 in the Annual Report which will be made available to you after the briefing.

To conclude: As I indicated at the beginning of the briefing, the next three to four years will remain critical for Namibia. NamPower would thus like to appeal to its customers and the public at large to reduce their electricity usage by the minimum of 10 percent to help minimise the possibility of load shedding. With such assistance from our big customers to the end-user, NamPower will ensure that there are no
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power interruptions, and if any, that they are kept to the minimum. In the same breath, we would like to assure and give comfort to our customers that the power supply situation is under control and that with their continued support, NamPower will be able to successfully ensure security of supply.

To you the media, continue informing your readers not to waste this precious product. It is time that we all change our attitude. Conservation of energy should become a way of life. I trust our partnership will grow from strength to strength as we are entering a critical stage in the regional and local electricity supply industry.

I thank you

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