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.