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

Lessons from the Compact

The lessons below come from MCC’s experience developing, implementing, and closing the Malawi Compact. Some lessons overlap and complement lessons derived from the independent evaluations of each project.

Pursue Realistic Goals During Project Development.The power sector in many  developing countries will often exhibit a wide variety of interrelated challenges. There may be a tendency to attempt overly ambitious projects that work across multiple areas in an attempt to be holistic. However, it is important to be realistic—it is not plausible to fix everything in a sector in five years. If a conscious decision to prioritize activities is not made during project design, it is likely that lack of bandwidth and absorptive capacity will create an “organic” process of prioritization during the compact.

Similarly, given short timeframes it is tempting to press forward on many fronts simultaneously during the implementation of a project. But this risks overloading stakeholders and institutions, which may already be overburdened and not capable of managing the various contracts, issues, and interdependencies stemming therefrom. Again, prioritization and pacing is critical. Look for quick wins early on and build on those.

Operational management is as important for utilities as financial management. MCC’s inclination to support work that will advance private sector development and involvement in the power sector leads to a heavy focus on financial management and sustainability. However, operational management should not be neglected— utilities need to expand their network, invest in maintenance, improve operational processes, tools, and procedures, etc. And these areas may be more difficult to achieve and sustain impact in compared with financial issues due to their decentralized nature and because of the need for change management. Financial health may be closely tied up with operational performance, and sufficient focus is needed for both. Pacing, again, is important. If the utility starts improving revenues (e.g., through tariff reform, loss reduction) but cannot spend the money effectively because of operational problems with procurement processes, a new negative cycle may begin. Moreover, if excess cash builds up on the balance sheet, regulators may feel less inclined to provide tariff increases that may be needed to achieve cost-reflectivity.

Ownership of reform activities by the relevant project partners is essential for compact support to have positive effects. Ownership is not static. It can rise and decline depending on a variety of factors, and MCC and MCAs can influence the level of ownership exhibited by stakeholders. However, influencing ownership requires a good strategy and a significant amount of effort, and it moves MCAs beyond basic project management tasks such as contract, budget, and work plan management.

The Power Sector Reform Project required extensive efforts from MCA and MCC to convene different stakeholders, push powerful actors to lead on difficult initiatives, develop information products for project partners and other stakeholders, coordinate with other donors, and consistently follow up on compact initiatives. The skills that are required for this type of work should be considered carefully during the process of staffing MCA. Communications on reform should not be underestimated. Reforms are not just “technical,” especially where it is necessary to achieve lasting organizational change. In many cases, the technical solution may be clear, but implementing it is hard, and MCA (and MCC) often have to help fill in the gaps.

Information Technology (IT) Investments require careful planning and integration with other parts of the program.IT investments may be heavily sought after by project partners and can be effective tools to improve performance at utilities. Timing of IT investments and linkages with technical assistance and capacity building work is an important consideration as new IT may require updated business processes. Due to a variety of factors, the Power Sector Reform Project investment in the ESCOM MIS was not concluded until the final year of the compact after most of the interventions for ESCOM turnaround work were concluded. The previous turnaround work included several efforts to update business processes linked to legacy IT systems or no IT at all, and at the end of the compact it was unclear what the impact of the MIS would be and how well ESCOM could adapt.

IT projects need to include substantial investments in change management and training, including plans for re-training where initial rounds are not effective (or well-attended) as well as sustainable training for new staff. The ESCOM MIS investment included training of trainers to have resources left behind for future training requirements. Change management may need to extend to external parties depending on the areas covered by the IT investments. For example, new billing systems or outage management systems will touch customers, and data management and analysis tools may be of interest to regulators and oversight line ministries. There should be sufficient time and effort dedicated to conducting outreach to these stakeholders, both to prepare them for changes they may encounter and to promote the impact of the IT on the utility’s business.

The ESCOM MIS was a massive undertaking that touched all aspects of ESCOM’s business. In the context of a weak project partner with limited absorptive capacity, it may have been preferable to limit investments to discrete priority areas such as billing and planning, loss management, and outage management, etc., while laying the groundwork for future growth. A sound project management structure is critical for major investments in IT, and MCA may need to play a role in pressing project partners to engage in these structures.

Establishing a complex mechanism such as a Trust requires time and stakeholder buy-in. The establishment of a Payment for Ecosystem Service (PES)-funded Trust requires sustained support from numerous stakeholders. As a new concept, considerable time and effort was needed to get stakeholders to understand how the mechanism would work in the Malawian context. In particular, MCA management was unsupportive of setting up the Trust initially and insisted on conducting a feasibility study. This took part of the first two years and confirmed a PES could be set up, but that setting up the institutional mechanism to implement it (in this case, the Trust) would require more time. This delay in launching the Trust establishment process cut into the time needed to effectively set up the institutions and funding mechanisms. Additionally, it was difficult to sustain support of private sector actors to help fund the PES as they wanted to see more immediate results than the Trust could deliver. The Trust also went through numerous management changes in the interim period, requiring new buy-in each time. Ultimately, more time was needed to effectively set up the Trust and test the grant-making model.

During project design and implementation, all factors required for project implementation—including engineering, environmental, social, and resettlement-related aspects—must be considered together, recognizing that all of these pieces are dependent on each other. Having a comprehensive understanding of the overall project timeline and how resettlement fits into the timeline is critical for project success. Poor resettlement planning can also lead to increased impacts on families, who can then suffer as a result of the projects. In Malawi, resettlement planning and budgeting for the transmission and distribution lines was based on early designs and not survey work on the ground, which meant that once contractors got to the site and defined the actual footprint of the project, there were a number of adjustments and redesigns to resettlement plans required. This led to duplication of effort, increased completion risk, costs, and claims from the contractors, which might have been avoided had there been better coordination and communication amongst the various project stakeholders.

Communication strategies can incentivize choice of in-kind over cash compensation for displaced families, leading to better outcomes. Resettlement experience has shown that physical displacement has particularly serious risks for displaced families, and particularly for women and children. When an MCC project forces households to relocate, families are provided the option of receiving a replacement house or cash compensation. Provision of houses, rather than cash, is typically associated with better outcomes for displaced families, as it helps ensure that they have a new place to live, whereas cash can often be spent on other priorities, with families subsequently left without a home because they no longer have sufficient money to rebuild. Recognizing these risks in Malawi, MCA developed detailed designs illustrating the type of houses that families would receive if they chose a replacement house and showed these designs to the families when they made their choice. In many cases, these houses were substantial improvements to their existing structures, and much nicer than what they would have been able to build with their cash compensation. This helped incentivize families to choose in-kind houses rather than cash, and led to over 200 families (67 percent of physically displaced families) choosing replacement houses. This is compared to other compacts, where substantially fewer families chose this option. In Mozambique, for instance, fewer than 30 families made this choice, and in Tanzania, not a single family chose the replacement house.

Significant effort should be made to mitigate trafficking in persons (TIP), exploitation, harassment, and abuse during large-scale construction projects. Despite the efforts to deter sexual harassment, abuse, exploitation, and trafficking in persons in MCC funded projects in Malawi, there were ongoing challenges in this area, most significantly with regard to underage prostitution. Underage prostitution—regardless of whether it is consensual —is a form of sexual exploitation and trafficking in persons. Although Malawian law prohibits and punishes underage prostitution, there is a certain level of cultural tolerance towards it, especially if it results in economic contributions to the household as a whole. In that sense, the presence of foreign workers in local communities where economic opportunities are limited may increase the risks of sexual exploitation of minors, even if it is illegal. Timely reporting and appropriate response to such incidents is also complicated by the common practice of perpetrators resolving issues directly with the family of the victim. This protects the practice of underage prostitution and makes monitoring and reporting of these issues difficult to track within the project. It also obstructs providing proper medical and other assistance to victims. One recommendation to address these challenges in the future is to require MCAs to hire an organization that has expertise in issues of sexual exploitation and other TIP risks. A local group would be better placed to conduct trainings and awareness raising with communities and workers, as well as taking on the responsibility to monitor and report any suspicious actions, criminal behaviors, or incidents where workers are detained or arrested for such crimes. It is also strongly recommended that contracts include provisions that specify that when a TIP incident occurs that is related to the project, it is the contractor’s responsibility to provide the relevant assistance to the victims.

  • 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.