Namibia July 2019

AFRICA RISK CONSULTING

Namibia Monthly Briefing July 2019

 

 

Namibia 16 July 2019

An independent candidate polls strongly against the ruling SWAPO party in the Ondangwa regional by-election. New solar power developments are underway. The Namibian Competition Commission (NCC) conditionally approves United Kingdom-based Rio Tinto’s sale of its majority interest in the Rössing uranium mine to China National Uranium Corp. (CNUC), but the Singapore stock exchange blocks Chinese-owned International Cement Group (ICG) from acquiring a majority stake in the Ohorongo cement plant.

 

Independent candidate polls strongly against SWAPO in Ondangwa

The emergence of independent candidates in local elections, and potentially in both the presidential and legislative polls, indicates a strong current of disaffection with both the ruling SWAPO Party of Namibia (SWAPO) and the main opposition parties. Although there has been no change to ARC's previous assessment that President Hage Geingob (2015-present) is on track to win another overwhelming victory in the presidential election at the end of November (see ARC Briefing Namibia June 2019), SWAPO won a slim majority in a mid-June by-election for the Ondangwa Urban seat in the Oshana regional council (northern Namibia), normally a reliable political bastion for the ruling party. The by-election was due to Geingob having appointed the previous SWAPO regional councillor for the seat, Elia Irimari, as Oshana region governor earlier this year.1

A young teacher, Angelina Immanuel, standing as an independent candidate, was backed by 1,400 voters (37% of the 3,800 votes cast), while SWAPO won with 1,900 votes, a bare majority of just 51%.2 Three other candidates representing established opposition parties – the All People’s Party (APP), Congress of Democrats (CoD) and Popular Democratic Movement (PDM) (formerly the DTA of Namibia) – won only 460 votes between them, just 12% of the votes cast. The margin between Immanuel and the SWAPO candidate, Leonard Negonga, of only 500 votes, was far smaller than the outcome of previous elections for the seat. In the 2015 regional council elections, Irimari had won 92% of the vote, while in the 2014 National Assembly (NA) election, SWAPO won with 86% of the vote. One political commentator hailed the by-election result “as a change in Namibian politics, after many years of predictable election results”.3

However, SWAPO is still likely to retain the seat in this year’s NA elections (and its current two-thirds majority in the NA). Despite Immanuel’s impressive score, it was secured on a very low voter turnout, with voter apathy the chief winner. Only 24% of the 16,000 registered electorate cast a vote.4 Turnout in national elections is normally much higher – in 2014 the number of votes cast, 15,600, was actually 400 more than the registered electorate, due to so-called ‘tendered ballots’ by voters from other constituencies with a claim to be local residents, a process that opposition parties have often criticised as open to electoral malpractice.5 It is not yet known if Immanuel intends to stand as an independent candidate again in November. If she does, it will be one of the more closely watched contests.

Germany provides more aid funding and solar projects take flight

A new €80 billion ($90 billion) bilateral financial agreement between Namibia and Germany will provide low-interest loans to help fund priority sectors such as water supply, transport and micro-finance. 6 The agreement was signed off by finance minister Calle Schlettwein and Germany’s outgoing ambassador to Namibia, Christian Schlaga, at the end of June. Some N$640m ($46m) is allocated for the expansion of Windhoek’s water supply infrastructure, including an additional water reclamation plant, where a new water saving target of 15% for consumers during 2019/20 came into effect on 1 May. National postal operator NamPost will receive a N$230m ($16m) long-term financing facility, for on-lending to small and micro businesses and low-income households. Despite a continued failure to reach a bilateral resolution of the historic genocide claims, Germany remains Namibia’s largest bilateral aid donor, having provided some N$15 billion ($1.1 billion) in development finance since independence.

In the renewable energy sector, mines and energy minister Tom Alweendo officially opened a new $70m, 37 MW solar plant near Marienthal in southern Namibia on 20 June.7 The plant started operating at the end of 2018 and comprises 140,000 crystalline silicon panels. It is set to supply 112 GWh of electricity per year to the national grid under an independent power producer (IPP) agreement with the state-owned Namibia Power Corp (NamPower). Alten Africa, a subsidiary of Netherlands-based Alten Renewable Energy, has a 51% controlling interest in the investment vehicle, Alten Solar Power (Hardap), with NamPower holding 19% and previously disadvantaged Namibian (PDN) shareholders a combined 30% via First Place Investment, Mangrove and Talyeni Investments. Standard Bank South Africa and France-based development finance institution Proparco provided some $50m in project funding.

A larger solar power development for 50 MW is moving ahead. Terasun Energy, a subsidiary of South Africa-based Natura Energy, is set to invest N$900m ($64m) in the Terasun Energy Solar PV Power Park at Arandis, where many Rössing uranium mine workers live. 8 In the middle of the Namib Desert, it has Namibia’s highest level of irradiation. Natura decided to go ahead after the cabinet approved a modified single buyer (MSV) model, due to be introduced by the Electricity Control Board (ECB) this September. This allows transmission customers and independent power producers (IPPs) to transact directly for the supply of electricity, with the former now able to buy up to 30% of their energy requirements directly from a privately owned generating company. Terasun is a special purpose company that plans to engage with large power users to conclude competitively priced electricity supply agreements from the end of 2020.

Competition commission conditionally approves Rössing mine sale to CNNC

The Namibian Competition Commission (NCC) provided the final outstanding regulatory consent for the sale of Anglo-Australian group Rio Tinto’s 68.6% majority interest in the Rössing uranium mine to China National Uranium Corp. (CNUC), a wholly-owned subsidiary of China National Nuclear Corp. (CNNC), at the end of June (see ARC Briefing Namibia May 2019, December 2018).9 Despite the sale meaning that Chinese nuclear power utilities will effectively control Namibia’s uranium mining sector – the Husab mine is 90%-owned by China General Nuclear (CGN) – NCC chief executive officer Vitalis Ndalikokule said the transaction was unlikely to result “in the prevention or substantial lessening of competition”.10 However, Ndalikokule acknowledged it would reinforce China’s dominance of the sector and raised “significant public interest concerns”, including employment and local procurements along with the bundling of tenders for outsourced services.11 There had seemed little prospect of the NCC blocking the transaction after Alweendo indicated in May that the government had no objection to the sale.

At an NCC stakeholders’ consultation in May also, the former Rössing managing director, Werner Duvenhage, said Rio would bring forward closure of the mine to next year, rather than in 2025 as provided under the current mining plan, should the sale not proceed. He maintained there was no alternative purchaser in prospect as no other company had met Rio’s (unspecified) sale criteria.12 Rio confirmed the sale completion in mid-July. As provided under the November 2018 binding agreement with CNUC, it is receiving an initial $6.5m cash payment, plus a contingency payment of up to $100m, linked to uranium spot prices and Rössing’s net income during the next seven calendar years. In addition, Rio would receive a further cash payment if CNUC sells the Zelda 20 (Z20) higher-grade uranium deposit during “a restricted period following completion”. Rio Tinto has declined to divulge how long CNUC has to make a sale. Since the deposit is located midway between Rössing and the Husab mine, the latter would appear to be the most likely buyer, a local industry source told ARC. Rio’s UK media relations spokesperson David Outhwaite commented:

“We have the money, and as of today, it is operated by CNUC... We cannot say more in terms of what the restricted period is. It is the period of the sale of the asset, but I am afraid I cannot say more.” 13

The NCC has, in fact, set quite tough conditions in approving the sale, although it is not clear how these would be enforced:

  • The Namibian proportion of the workforce is to be maintained until mine closure, with no retrenchments during the first two years after CNNC’s takeover.
  • Non-Namibians must not be employed in management posts for longer than two-year fixed term contracts.
  • No changes are allowed to the existing mine procurement policy that would disadvantage local suppliers until mine closure.
  • For procurements worth N$250,000 ($18,000) or less, 80% of the goods and services purchased have to be from majority Namibian-owned companies. 14

The supply chain business is crucial to the mine’s economic hub effect. In 2018, Rössing procurements were worth N$2.4 billion ($0.2 billion), of which almost 60%, $1.4 billion ($0.2 billion), was placed with local suppliers (see ARC Briefing Namibia May 2019). Meanwhile, the 12 July decision by US President Donald Trump (2017-present) not to impose quotas or tariffs on imports of uranium, as two small American uranium mining producers had sought in a Section 232 petition lodged with the US Department of Commerce (DoC) in January 2018, is good news for Rössing, which sold 45% of its production to North America last year, mainly to US nuclear power utilities. The DoC’s investigation report was not published (it was submitted directly to the White House) but reportedly advocated a progressive introduction of quota requiring 25% of utility nuclear fuel requirements to be obtained from domestic producers. Instead, Trump has initiated a 90-day review of the domestic nuclear supply chain under a previous (2017) initiative to revitalise and expand the US nuclear energy sector. The outcome is seen as broadly positive for the global nuclear power market and uranium prices. Brandon Monro, CEO of Bannerman Resources, which owns 95% of the large, low-grade Etango uranium project near to Rössing, noted that the various petition outcomes, including the potential to adversely affect term contracting arrangements (as opposed to spot market transactions) “had created uncertainty that has resulted in most utility procurement programmes being suspended or sharply curtailed":

“Bannerman regards this no trade action outcome as highly positive for the uranium sector, given that global uranium market activity is now expected to return towards more normalised levels [and] as it maintains open market access to the US uranium market."15

Singapore blocks a Chinese majority acquisition of Namibia’s only cement plant

The intervention of the Singapore Stock Exchange (SGX) at the end of June has halted the sale by Germany’s Ulm-based Schwenk Zement International of its 69.8% majority interest in Ohorongo Cement, Namibia’s only cement-producing plant, to a Chinese-linked firm.16 The Namibia Competition Commission is also reviewing the N$1.5 billion ($107m) deal. NCC spokesperson Dina Gowases said the commission was aware of the SGX decision but added:

“The proposed merger is currently under investigation and, therefore, we will not make any comments at this stage.”17

Ohorongo, located near Otavi in Otjozondjupa Region, started operation in 2011 for an initial N$2.5 billion ($179m) capital investment. The current production capacity is in excess of 1m tonnes of cement annually for domestic market requirements and ‘special projects’.18 Before the factory was opened, Namibia’s cement needs were met by imports, mainly from South Africa. Imported materials used in production are sourced locally and the entire value chain is within Namibia, making the current operation very important to the local economy of Otavi and its surrounding area. Schwenk, a private family-owned business, holds its interest in Ohorongo via Schwenk Namibia, and has not issued a statement on why it wants to sell up. Ohorongo managing director Hans-Wilhelm Schutte said it was the majority shareholder that was looking for a buyer, not the Namibian company. He said:

“It is difficult for me to comment, because I also do not have all the information. I am only responsible for Ohorongo Cement at the operational point of view.” 19

International Cement Group (ICG), a Chinese-owned company listed on the Singapore exchange, was told by the SGX’s securities trading unit (SGX-ST) that it could not proceed with the transaction, which had been proposed in April, as the Namibian company was not profitable and it did not have the funds to buy it. According to ICG chair Ma Zhaoyang, the SGX-ST had informed his company that the proposed acquisition did not meet the criteria for a ‘Very Substantial Acquisition’ (VSA) under the SGX’s Rule 1015 (2), to which the deal had been upgraded because of the transaction size, and because Ohorongo operates in a ‘developing jurisdiction’. The upgrade to a VSA transaction increased regulatory compliance, which the transaction did not meet. Citing the reasons for the SGX’s refusal to approve the deal, Zhaoyang said:

“SGX-ST noted that foreign exchange losses arising from the Schwenk loan claim remain in the pro forma financial statements after the acquisition.”20

These losses would continue to affect the accounts of the enlarged group afterwards. 21 On ICG’s post-acquisition financial position, SGX-ST found that the company did not have sufficient cash resources to fund the purchase consideration:

“It intends to possibly obtain significant external loans from financial institutions and shareholder loans. Such loans when considered with the potential losses of the target business will result in a material adverse impact on the enlarged group. There is no certainty that the target business will be able to generate sufficient profits to service the loans.” 22

In addition, the exchange authorities required ICG to commission a pre-deal anti-money laundering due diligence by an external auditor to comply with its listing rules, and put in place “adequate and effective” risk management and internal control procedures. It would appear that without the scrutiny of the SGX the deal might have sailed through, although, should it be revived, it remains subject to NCC approval also. The state-owned Development Bank of Namibia (DBN) owns an 11% equity stake in Ohorongo, but issued a statement confirming that it had not been told that the German company intended to sell its majority interest to ICG.23

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1. [The Namibian, 20 May 2019.]

2. [The Namibian, 20 Jun 2019.]

3. [The Namibian, 20 Jun 2019.]

4. [The Namibian, 20 Jun 2019.]

5. [The Namibian, 20 Jun 2019.]

6. [The Namibian, 26 Jun 2019.]

7. [NamPower advertorial, 20 Jun 2019.]

8. [The Namibian, 27 Jun 2019.]

9. [World Nuclear News, 1 Jul 2019.]

10. [The Namibian, 28 Jun 2019.]

11. [The Namibian, 28 Jun 2019.]

12. [The Namibian, 24 May 2019.]

13. [Rio Tinto Notice to ASX/LSE, Rio Tinto completes sale of its stake in Rössing Uranium Ltd, 16 Jul 2019: The Namibian, 17 Jul 2019.]

14. [The Namibian, 28 Jun 2019.]

15. [Brandon Monro quoted in Reuters 12 Jul 2019; Bannerman Resources, ASX announcement, 15 Jul 2019.]

16. [Namibia Economist, 25 Jun 2019.]

17. [The Namibian, 28 Jun 2019 .]

18. [Schwenk Zement website]

19. [The Namibian, 26 Jun 2019.]

20. [Namibian Economist, 25 Jun 2019.]

21. [Namibian Economist, 25 Jun 2019.]

22. [Namibian Economist, 25 Jun 2019.]

23. [The Namibian, 26 Jun 2019.]