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

Policy and Institutional Reforms

Compact Project(s) Major Policy Reform Condition Precedent (CP) Rating Narrative
Power Sector Reform Project Funding of Turnaround Facility (TAF) to meet ESCOM’s working capital and investment capital needs by the Government of Malawi in Fiscal Year 2012 prior to Entry into Force (EIF) Met on Time. Government did provide TAF funds prior to EIF; however, the funds were not needed in full in 2013 or in 2014-2016 due to ESCOM’s improved financial position. However, in 2017-2018 as ESCOM’s financial position deteriorated, the Government did not provide additional funds through TAF.
Power Sector Reform Project The Government will ensure that ESCOM has employed a professionally qualified Chief Executive Officer for ESCOM Met on Time. The Government hired a new CEO prior to compact EIF.
Power Sector Reform Project/ Infrastructure Development Project The Government shall have completed a construction schedule for the Kapichira II hydropower plant that is agreed with MCC Met on Time. Kapichira II was completed prior to compact EIF.
Power Sector Reform Project Government to provide evidence that it has converted a substantial portion of the debt owed to it by ESCOM into equity. Any remaining debt owed to the Government by ESCOM will be cleared from ESCOM’s balance sheet by EIF and the Government will ensure that ESCOM restructures its third-party debt obligations in a manner that affords ESCOM a reasonable debt-service burden, consistent with the Financial Plan. Met Late, following consultations between ESCOM and MCC. This was met within 2 quarters of compact EIF. Restructuring ESCOM’s debt combined with the tariff increase ESCOM received in 2014 supported initial improvements in ESCOM’s financial position from 2014-2016.
Power Sector Reform Project Prior to EIF of the compact, the Government and MCC to identify semi-annual benchmarks for milestones for jointly developed Government power sector reform agenda in the following areas: ESCOM finances; ESCOM operations; ESCOM governance; tariff reform; Malawi Energy Regulatory Authority (MERA) governance; and regulatory enabling environment for public and private sector participation. Met on Time. Semi-Annual Reviews were held during the compact and provided an opportunity for all stakeholders to review progress on critical milestones.
Power Sector Reform Project Based on the results of the cost of service study supported by MCC, the Government agrees to a phased implementation of full-cost recovery tariffs and schedules according to a timeline to be determined by entry into force of the compact. The Government will adopt the policy, legal, and regulatory changes necessary to implement tariff reform. Partially Met The initial opportunity for achieving this in 2014 did not lead to completion of this covenant – a higher tariff was approved, but was not cost-reflective. Expected annual tariff adjustments have not occurred on time. On October 1, 2018 (after the end of the compact), MERA approved a tariff increase of 31% over four years, lower than the increase sought by ESCOM, but more cost reflective than in the past. The increase will provide important benefits to ESCOM even as risks to financial sustainability remain.  
Power Sector Reform Project With MCC assistance, the Government will develop a detailed Financial Plan designed to restore ESCOM to financial and operational sustainability. The Financial Plan will be updated on a quarterly basis. Typically Met on Time or Met Late. Throughout the Compact, ESCOM generally submitted the Financial Plan on time while in a few quarters it was late. In 2017, ESCOM experienced challenges completing the updates on time due to changes in the corporate structure and accounts following the unbundling process.
Power Sector Reform Project The Government will ensure that the ESCOM Board adheres to clear benchmarks for good corporate governance, including: (a) compliance with the requirements under Malawi’s Companies Act, Public Financial Management Act, Public Audit Act, and the Energy Laws; (b) adherence to Malawi Code II, including duties of care and loyalty to the corporation and restrictions on conflicts of interest and related party transactions; (c) following the Sector Guidelines for Parastatal Organizations (the most recent of the draft or final form); and (d) staggering of ESCOM Board terms. The Government will review the continued membership of ex officio directors and the appropriateness of cross-representation on power sector boards and potential conflicts of interest that may arise between the regulator and regulated entities through board membership. Various other Corporate Governance improvements were also targeted. Partially Met The GOM has improved corporate governance in some ways, including through change in membership of ESCOM and EGENCO Boards to eliminate overlap and potential conflict of interest. Some steps were taken to improve operations of the ESCOM Board, including adoption of a board charter.The GOM has not consistently implemented other principles such as staggering of Board member terms. A Corporate Governance Benchmarking Study was funded by the compact in 2017; however, at the end of the compact, the recommendations had not been acted on and were not being tracked. The ESCOM Board in 2016-2017 especially was characterized by a low degree of oversight and a high degree of improper influence in ESCOM’s affairs.
Power Sector Reform Project Based on the Market Restructuring Plan, the Government will create a single buyer, either ring-fenced within ESCOM, or a separate legal entity so that the single buyer’s financial and system operation activities are autonomous from other ESCOM business units or government entities. Also, the Government will provide support to improve the credit worthiness of this single buyer. Initial study Met on Time Follow-on actions Not Met The Government enacted an amendment to the Electricity Act in June 2016 and as of January 1, 2017, unbundled ESCOM into two companies in line with the Power Market Restructuring Study conducted under the compact. A System Operator was established at ESCOM. The Single Buyer was not established and the GOM as of the end of the compact indicates it will establish the Single Buyer as an independent agency. However, there is no timeframe for this to occur and MCC does not know how this would be organized in the absence of the framework agreed on through the roadmap.
  • 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.