Lesson Learned

Address sector governance constraints head-on: Utility improvements in financial and operational performance must be paired with meaningful changes in sector governance in order for results to be achieved and sustained over time.

Address sector governance constraints head-on: Utility improvements in financial and operational performance must be paired with meaningful changes in sector governance in order for results to be achieved and sustained over time. During the development of the Malawi compact, recommended measures to reduce political influence in the affairs of the Electricity Supply Corporation of Malawi (ESCOM) and the Malawi Energy Regulatory Authority (MERA) were met with resistance by the Government of Malawi (GOM), which did not agree to a number of key changes in the governance of ESCOM and the power sector as a whole. Certain practices, many of which were commonplace in Malawi, can undermine effective management and decision-making within sector institutions – for instance, the appointment of ex-officio membership on the Boards of ESCOM and MERA, which often includes overlapping membership on each, can give rise to conflicts of interest. Similarly, GOM failure to respect the independence of ESCOM can lead to intervention in ESCOM’s operational affairs such budgeting and procurement processes, which can undermine ESCOM’s ability to allocate resources efficiently, or can create delays in the execution of core business functions. Proposals to confront such issues were raised during compact development and during implementation but ultimately not agreed to or fully implemented by the GOM. Although a new Board Charter was developed for ESCOM that requires greater independence and provided greater structure to Board operations, the Board continued to be viewed as politically influenced throughout implementation, and irregular procurements were still occurring, with likely negative effects on ESCOM’s finances and operations. These challenges reflect limitations on the extent to which the GOM was willing to actually press for more commercially-oriented operations of the power sector. While it is difficult to predict to what degree greater Board independence may have benefitted ESCOM’s overall performance, it is clear that the lack of independence from GOM intervention has undermined the sustainability of initial gains in ESCOM’s operational and financial performance, despite improvements from increased tariffs and revenue growth.