Star Report: Malawi Compact | Updated June 2021 | April 2020

Executive Summary

The Millennium Challenge Corporation (MCC) partnered with the Republic of Malawi—one of the world’s poorest countries—to implement a $350.7 million compact designed to reduce poverty through economic growth. During compact development, MCC and the Government of Malawi (GOM) determined power to be a key constraint to sustained economic growth in Malawi. At that time, only 9 percent of Malawians and less than 1 percent of the country’s rural population had access to electricity. The power sector’s failures resulted from inadequate policies and poor sector governance, which have historically stifled investment in the country’s power infrastructure.

The Malawi Compact took a systemic approach to strengthening the nation’s power sector, recognizing the need for infrastructure, policy reform, and environmental management to comprehensively drive the sector forward as no one of these investments alone would result in sustainable change.  The compact consisted of three projects aimed at addressing the country’s inadequate and unreliable power supply: the Infrastructure Development Project; the Power Sector Reform Project; and the Environmental and Natural Resource Management Project.  In addition, the compact included actions to mitigate social and gender risks related to the projects, including prevention of HIV/AIDS, Trafficking in Persons, and sexual harassment within the Infrastructure Development Project; the compact also included measures to optimize potential benefits to women and local communities, for example, by promoting women’s economic empowerment through job opportunities in the construction sites and through institutional policy reforms to incentivize women’s participation within the energy sector.

The overall investment was designed to establish the foundation for a modern power sector upon which the GOM, private investors, and regional partners will have an opportunity to build. The compact supported the most urgent rehabilitation, upgrades, and modernization needs of the power network in order to improve the availability, reliability, and quality of power supply in the country.  The compact sought to increase capacity for the power system, develop skills for workers, and through policy reforms to position the GOM to continue progress in the sector.  Importantly, the compact supported the creation of an enabling environment for private sector participation in the energy sector. Over time, compact investments are expected to stimulate growth by raising the productivity and profitability of enterprises in key growth sectors such as the agriculture, manufacturing, mining and service sectors; increasing investment and employment income; reducing energy costs to enterprises and households; and expanding access to electricity for Malawians.

In line with MCC’s commitment to accountability, learning, transparency, and evidence-based decision making, MCC has commissioned evaluations of each of the three projects under the compact, which are being conducted by independent experts. The significant infrastructure works were successfully completed on time, but the independent evaluation found that these investments fell short of improving the availability and reliability of power in the year following compact completion. The results of the compact’s difficult policy and institutional reforms were mixed: while the enabling environment for private investment in the sector improved, new sources of generation are lagging expectations, and power supply cuts remain widespread. At the end of compact implementation, MCC and the GOM estimated that the compact investment would generate $768.4 million worth of net benefits over the next 20 years.

Once completed, the evaluations will be published on MCC’s website, and this report will also be updated to include their findings.

Infrastructure Development Project

Available and reliable power is a necessity for businesses, homes, medical facilities, and schools, but it has not been available for most Malawians. Enabling the provision of and access to power is critical to economic growth and poverty reduction in Malawi.

The Infrastructure Development Project sought to improve the availability, reliability, and quality of the power supply in Malawi. The project investments in transmission and distribution infrastructure resulted in increased throughput capacity—the volume of electricity that can flow through the system with limited losses—and improved stability of the electricity grid. 1 The project also supported power availability with the refurbishment of the Nkula A hydropower station. 2

Power Sector Reform Project

Reliable, sustainable power for Malawi requires a stronger infrastructure base. However, these investments must be supported by well-managed utilities, an open and competitive market, and a strong regulatory framework that lead to investments in grid capacity and generation, particularly by the private sector. The Power Sector Reform Project aimed to both improve the capacity and financial viability of Malawi’s electric utility and create an enabling environment for future investment in and expansion of the power sector.

The Power Sector Reform Project complemented the Infrastructure Development Project by providing support for the Government’s policy reform agenda and building capacity in pivotal sector institutions, specifically: the Electricity Supply Corporation of Malawi (ESCOM)—Malawi’s public electricity utility, the Malawi Energy Regulatory Authority, and the Ministry of Natural Resources, Energy and Mining. The compact also supported the restructuring of Malawi’s energy market based on the Government’s preferred option, leading to amendment of the Electricity Act and unbundling of ESCOM to create two utilities—ESCOM (a transmission and distribution company) and EGENCO (a generation company)—and preparation of new regulatory rules and guidelines. The Power Sector Reform Project consisted of two activities: the ESCOM Turnaround Activity and the Regulatory Strengthening Activity.

Environment and Natural Resource Management (ENRM) Project

The three districts along the Shire River are home to the bulk of Malawi’s population and approximately 98 percent of the country’s energy is generated by the three hydroelectric power plants located on the river. Extremely poor and food insecure, most of Malawi’s population ekes out a living through hillside, small-scale agriculture, the cutting of firewood, and charcoal production. Consequently, the hydropower plants are threatened by soil erosion from the hillsides and the population of invasive aquatic weeds has exploded due to soil nutrients spurring growth. Poor land management practices and rapid deforestation have further contributed to a cycle of continued food insecurity and increased deforestation.

The objective of the ENRM Project was to help the GOM and other stakeholders mitigate the growing problems of aquatic weed infestation and excessive sedimentation in the Shire River and to reduce costly disruptions to Malawi’s downstream hydropower generation by investing in weed and sediment management and the implementation of better environmental and natural resource management in upstream areas. The project consisted of three activities: the Weed and Sediment Management Activity; the Environment and Natural Resource Management Activity; and the Social and Gender Enhancement Fund. While much of the Weed and Sediment Management Activity implementation was greatly delayed with no results, independent evaluation interim findings found the grants from the Environment and Natural Resource Management Activity and Social and Gender Enhancement Fund showed promising evidence of adoption of targeted land management practices.

  • 1. Transmission refers to the bulk movement of high-voltage electrical energy from where it is generated (such as a power plant) to an electrical substation. Distribution refers to the local wiring from substations to consumers.
  • 2. This activity was also supported by complementary funds from the GOM.
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  • 6. Taulo, John L; Gondwe, Kenneth Joseph; SEBITOSI, Adoniya Ben. Energy Supply In Malawi: Options And Issues. J. Energy South. Afr., Cape Town ,  V. 26, N. 2, P. 19-32,  May  2015
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  • 8. For more information on MCC’s Suspension and Termination Policy, please visit our website here:
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  • 11. Under MCC’s country ownership model, governments receiving MCC assistance are responsible for implementing the MCC-funded programs. Partner governments establish units known as accountable entities, referred to as MCAs, to manage implementation for compact projects.
  • 12. The unit cost of electricity from petrol/diesel generators is far higher than that of grid-supplied electricity in Malawi, a landlocked country whose fuel is imported from afar.
  • 13. According to the Integrated Household Survey (2004-2005), fewer than 6 percent of households nation-wide were supplied with electricity.
  • 14. While data on female employment in the construction industry is difficult to find in Malawi, the World Bank ILO reported that the percentage of female employment in industry (which includes mining and quarrying, manufacturing, construction, and public utilities) in Malawi was 6.1 percent in 2018.
  • 15. GSI Implementation Report Malawi Compact, November 2018
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  • 17. At the time of the trainings, ESCOM had a total of 2,036 employees (1,825 men and 211 women), and EGENCO had 509 employees (465 men and 44 women).
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  • 20. For details on how MCC is incorporating these lessons in current and future programming, see here:
  • 21. Percent deviation from the target is calculated for this indicator, as well as others noted in this table, instead of percent complete. Progress for this indicator is best tracked by percent deviation from the target, because the actual should be as close to the target as possible. A percent deviation of 0% implies the target has been reached, and percent deviation closer to 0% implies better achievement than a higher percent deviation. Percent deviation is calculated using the following formula: 100*|Actual-Target|/Target. Because this indicator is a ratio of Total Revenue / Total Costs, a deviation above or below the target may reflect either a stronger financial position (a positive result), or a failure to effectively meet their maintenance and capex (spending) targets.  A target close to 100% indicates that ESCOM is effectively balancing available revenue with effective execution of core functions to operate the grid.
  • 22. A baseline for this indicator is unavailable, due to the fact that ESCOM did not have a reliable estimate for its long-run costs at the start of the compact, a key input to this indicator. The Project provided support for a Cost of Service Study which informed the development of the 2018 tariff application, with projections of costs through 2022.
  • 23. The cost-recovery ratio is the ratio of a utility’s revenues to cover its costs, including operating expenditures, depreciation and capital costs.
  • 24. These two segments of the Shire River Basin are upstream from Malawi’s main hydropower plants.
  • 25. In coordination with the World Bank, MCC prioritized five of the 10 hotspots in the Middle Shire, and the World Bank program worked in the other five.
  • 26. REFLECT was developed by ActionAid in 1993 and first used in El Salvador (South America), Bangladesh (Asia) and Uganda. REFLECT is now used in over 60 countries to tackle problems in agriculture, HIV/AIDS, conflict resolution and peace building. It is based on the theory pioneered by the Brazilian educator Paulo Freire Link
  • 27. ENRM Grantees guidance questionnaire for the GSI Implementation Report Malawi Compact
  • 28. ENRM Grantees guidance questionnaire for the GSI Implementation Report Malawi Compact
  • 29. Payment for Ecosystem Services are programs where a beneficiary or user of an ecosystem service (such as hydropower use by electricity users) make a direct or indirect payment to the provider of that service, which is then used to maintain the natural resource. PES programs can also benefit the conservation of the ecosystem being used.
  • 30. Infrascope has several uses for various audiences. For project sponsors, it can assist in and lower the cost of market entry by providing country research. For donors and governments, it can assist in the policy dialogue around PPPs. Other donors may also be able to use the indicators from Infrascope for their own M&E purposes, while academic researchers may also find Infrascope to be a useful tool.