As the largest donor in Malawi’s power sector, MCC, in collaboration with MCA-Malawi, guided all aspects of partner coordination within the power sector during the compact, including policy and legal reform, promoting private sector investment, and institutional capacity building, to assist the Government of Malawi (GOM) in developing the power sector. Through semi-annual forums and the stakeholder committee, MCA-Malawi managed public outreach efforts and power sector stakeholder coordination across the GOM’s partners, power sector institutions, donors, and civil society. MCC’s large-scale, comprehensive investments in infrastructure modernization, power sector reform, and natural resource management, coupled with MCC’s model of country ownership and implementation of the compact, led to significant acceleration of US Government (USG) and donor investments in the sector and private sector participation in potential power purchase agreements (PPAs). This helped lay the foundation of continued reform and investment in the sector.
USG Interagency Collaboration
MCC and MCA-Malawi pursued partnerships with a range of USG actors including the US Trade and Development Agency (USTDA), the US Agency for International Development (USAID), Department of Commerce, the State Department, US Department of Agriculture’s (USDA) Forest Service, and the Overseas Private Investment Corporation (OPIC) to enhance the implementation of the compact.
USAID: In 2015, Malawi became a Power Africa “Progressive Partnership Country,” and all USG initiatives in the energy sector in Malawi, including the MCC Compact, were considered part of the broader USG Power Africa effort to increase generation capacity through private sector investment. MCC became the lead on Power Africa activities in Malawi. In January 2016, Power Africa supported compact investments with an embedded transaction advisor to ESCOM for support on PPAs and other technical and legal assistance. This support—complementary to compact activities to develop a framework for Independent Power Producers—led to ESCOM’s and Malawi’s first competitive power procurement process in 2017, resulting in three companies selected to develop solar power plants in Malawi. PPAs for two solar projects were signed in September 2018 and one project commenced construction in December 2018. It is hoped that such solar power will start to come online by December 2019.
MCC also engaged in a new Power Africa initiative starting in 2017—the Southern Africa Energy Program (SAEP) —a multi-year project which began support in several areas related to financial sustainability, including utility strengthening and regulatory strengthening, that will build on the successes of the compact. The SAEP program aims to increase private sector participation in Malawi, provide technical assistance to cross-border trade and regional harmonization (specifically the Mozambique interconnector), better leverage renewable energy, and provide advisory support to MERA. Extensive coordination between MCC and SAEP took place in the final year of the compact to harmonize the programs so that continuity of capacity building and technical assistance to ESCOM, EGENCO, MERA, and other sector stakeholders take place post-compact and maintain the reform momentum. In addition, in conjunction with Power Africa, MCC coordinated with other donors in Malawi to develop a consolidated set of messages related to financial sustainability in the power sector that can be used in discussions with the Government and in developing new interventions.
USTDA: In October 2014, MCC coordinated with USTDA to organize a Reverse Trade Mission, which brought delegates representing MCA-Malawi and several compact partners to the US to discuss opportunities for investment in Malawi. Subsequently, MCC organized a panel discussion with Reverse Trade Mission participants in Washington. MCC also led a trade mission of representatives from US power companies to learn about opportunities in the Malawian power sector; this mission was organized in coordination with the US Department of Commerce. USTDA has funded several feasibility studies for American firms exploring PPAs with ESCOM for smaller generation projects.
USDA Forest Service: MCC had an interagency agreement with USDA Forest Service to provide consulting services to support the implementation of the Environment and Natural Resource Management and Power Sector Reform Projects. For example, the Forest Service provided technical guidance to EGENCO in accessing carbon credits for improved energy efficiency markets.
OPIC: MCC, in collaboration with Power Africa and US State Department, regularly worked with OPIC and exchanged power sector information since late 2017 in efforts to complete due diligence on possible project financing.
Prior to the entry-into-force of the compact, MCC actively worked with other donors to coordinate efforts, including selection of infrastructure projects that were coordinated with the World Bank. This coordination with the World Bank continued throughout the life of the compact, identifying and subsequently resolving various interdependencies between World Bank and MCC-funded infrastructure, as well as developing shared messages on reform efforts. For example, the World Bank funded a transaction advisor to the Ministry of Natural Resources, Energy & Mining early on in the compact, and MCC and MCA-Malawi reform consultants worked closely with the transaction advisor to ensure messages on encouraging private sector investment in the energy sector were harmonized.
MCC worked closely with the World Bank, International Finance Corporation (IFC), European Union (EU), German Development Bank (KfW), UN Development Programme (UNDP), African Development Bank (AfDB), and the Japanese International Cooperation Agency (JICA) to coordinate policy reform and infrastructure construction efforts in the power sector to avoid overlap, maximize impact, and jointly prioritize the reform agenda. MCC facilitated a $680,000 grant from the World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF) to provide technical assistance to ESCOM in the areas of tax administration strengthening, obtaining a credit rating, and developing a financing options analysis. This support complemented compact interventions to strengthen ESCOM’s financial position and potential access to capital.
In the later phases of the compact, MCC worked closely with USAID and continued to work with the World Bank to coordinate approaches on critical sector reforms such as the tariff process and IPP procurements. This coordination helped to ensure that the Government of Malawi was engaged with a common approach from all donors seeking the same goals of adding new generation and improving service delivery. With the inception of the Power Africa SAEP program, USAID took the lead on donor coordination within the power sector and a formal coordination group was established.
At the end of the compact, a multitude of donor investments—feasibility studies, infrastructure, and technical assistance—were underway in Malawi that will expand upon the foundation that the compact investments created. JICA is completing a generation investment expected in 2021 that will add 18 MW to the grid in addition to investing in several substations. The Mozambique interconnector, which will link to the Malawi power grid through the 400 kV substation at Phombeya, a compact activity, is a priority project for the Government of Malawi. The Malawi side of the Mozambique interconnector is funded and supported by the EU and the World Bank, with KfW implementing, and is expected to be completed in 2022. In April 2019, ESCOM signed Power Purchase Agreements with Mozambique and South Africa to purchase power, taking advantage of access to the Southern Africa Power Pool. The World Bank is also completing pre-feasibility studies on the Malawi–Zambia interconnector that will link to the power grid through the second MCC-funded 400 kV substation in Nkhoma. The IFC, AfDB, JICA, EU, World Bank, UNDP, and the Indian, German, and Scottish Embassies are all actively involved in providing assistance to the power sector in Malawi.
Under the ENRM Project, MCC engaged in donor coordination meetings with the World Bank, JICA, USAID and UNDP to coordinate natural resource activities and to garner support for the PES-funded Trust. More directly, ENRM worked with the World Bank to coordinate baseline methodologies in the Upper and Middle Shire Baseline Assessments and divided target watersheds between the World Bank and MCC interventions. MCC discussed potential follow-on support for the Trust as part of the World Bank’s second phase of the Shire River Basin Management Project.
Private Sector Investment
The MCC Compact played a pivotal and catalytic role in encouraging private sector investment in Malawi’s power sector. The large-scale modernization of the network that the compact brought, coupled with revitalized power sector management, created significant interest among power investors. MCC met regularly with interested private sector players to discuss the reform efforts, the local landscape, and the future vision of the power grid. These efforts, complemented by Power Africa’s transaction advisor to ESCOM on IPP procurements, contributed to Malawi’s first new hydropower PPA with HE Power and first solar PPA signed with JCM Power in September 2018, with construction on a 60 MW power plant initiated in December 2018. Additional PPAs are anticipated soon for the other three project sites included in the first competitive procurement by ESCOM for power. MCC and Power Africa efforts were confirmed by interested power investors as absolutely instrumental in creating the enabling environment in Malawi.
MCC supported various efforts to help promote private sector investment in Malawi. MCC produced an Investment Outlook in the spring of 2015 that provided an overview of the business opportunities in Malawi’s Power Sector. As mentioned above, in conjunction with the Department of Commerce, MCC supported a private sector trade and investment mission to Malawi in June 2015. MCC also supported the commissioning of an Infrascope assessment by the Economist Intelligence Unit covering the capacity and readiness of Malawi to transact public-private partnerships. 30