Reform strategies should be appropriately attuned to the country context and level of development of the sector, such that priorities and proposed solutions respond to the most essential challenges. As the final evaluation shows, the Power Sector Reform Project (PSRP) was successful in assisting the Government of Malawi (GOM) in establishing a new power market structure, primarily by unbundling the generation business from the Electrical Supply Corporation of Malawi (ESCOM), which had existed as a vertically integrated electric utility. Coupled with other regulatory improvements, this led to an improved enabling environment, allowing a substantial number of potential investments in generation by private firms to move forward for the first time in Malawi. Nevertheless, the compact efforts dedicated specifically to unbundling of ESCOM were extensive, and the evaluation also noted that key aspects of the re-structuring were incomplete after the compact ended. From MCC’s perspective, stakeholder attention directed at other critical challenges with the utility’s core operations was inevitably diluted as a result. In particular, reforms that sought to strengthen ESCOM’s role as a credible off-taker of power – such as tariff reforms, loss reduction, and accounting and financial management improvements – were not adequately implemented and the utility therefore continued to be perceived as a risk to investment by independent power producers. Moreover, ESCOM’s unbundling led to unintended effects on earlier activities supporting ESCOM’s overall turnaround, including inadvertent financial challenges as there were significant delays in the newly formed generation company coming to mutually acceptable power purchase arrangement with ESCOM (now focused solely on transmission and distribution), even after assuming some of its debts. In turn, this led to challenges with arrears in the sector and growing financial problems at ESCOM. All of these issues implied an ongoing need for financial backing from the Government for ESCOM in order to support investment, but this was slow to emerge.
Further, the administrative processes associated with unbundling ESCOM took up significant time and effort which led to a reduction in the time available to support the new activities introduced through the reform program related to expansion planning, robust generation procurement processes, and transparent operations of the power network. Once unbundled, the failure of the Government to rapidly create a single buyer, in particular, was an obstacle to moving forward in a robust manner with a program for investment in the power sector. These experiences of the project demonstrate that in selecting among a range of needs and challenges within Malawi’s power sector, the unbundling of ESCOM could potentially have been deferred in lieu of more targeted efforts to improve its accountability and financial/operational performance, issues that may arguably have been more central to achieving a sustainable and expanding power sector. Further, substantive outcomes such as improved expansion planning, better organization and transparency in procurement of new generation, and more robust operations of the power system which were targeted through the market restructuring process may have been possible to address without the friction created by the unbundling process.
MCC is applying this lesson by focusing more on implementing activities aimed at increasing private investment in the power sector without necessarily prioritizing the structural reorganization of the utility. In Benin, MCC is supporting the competitive procurement of independent power producers from project development to tendering to help address challenges in securing private sector participation in generation. This approach recognizes that a focus on the process of securing investment is a critical part of achieving intended outcomes. In Burkina Faso, planned work to support enabling environment reforms is bolstered by support for system operations personnel to ensure they can manage the changing operational environment without necessarily prioritizing the unbundling of the electric utility. In addition, MCC continues to support efforts to achieve cost-recovery and financial viability of the power sector through a focus on tariff reforms and government backing for critical investment.