Remarks by Ambassador Palmer on the MCC Compact

7th Semi-Annual Review Forum of the MCC Compact

October 4, 2017 8:30 am

 Sunbird Capital Hotel, Lilongwe

  • Honorable Aggrey Masi, Minister of Natural Resources, Energy and Mining
  • Patrick Mathanda, Principal Secretary, Ministry of Natural Resources, Energy and Mining
  • Evelyn Mwapasa, CEO, ESCOM
  • William Liabunya, CEO, EGENCO
  • Ishmael Chioko, Acting CEO for the Malawi Energy Regulatory Authority
  • Dye Mawindo, CEO, Millennium Challenge Account
  • Ladies and gentlemen from the Ministry, ESCOM, EGENCO, MERA, MCA Malawi and the donor community.

It’s an honor to join the Semi-Annual Review today with Honorable Minister Masi and you – the leaders from the Ministry of Natural Resources, Energy and Mining, ESCOM, EGENCO, MERA and MCA-Malawi – who are working tirelessly to transform the power sector and create economic opportunities for millions of Malawians. I cannot think of a more important catalyst to Malawi’s development than a well-functioning and growing power sector, and a more important time for its reform in Malawi, than now.

The Semi-Annual Review unites the most influential stakeholders in the power sector. Today we will take stock of progress on reforms, face challenges head on, and also celebrate the successes of the investments in power made by the Millennium Challenge Corporation Compact – a powerful symbol of our Malawi-American partnership. With just less than one year remaining in the MCC Compact your collaboration and planning are essential to assess the financial and operational preparedness of ESCOM and EGENCO to take over millions of dollars of modernized generation, transmission, and distribution infrastructure, currently being completed by MCA-Malawi. In addition, we will finalize the remaining steps in the unbundling of ESCOM and EGENCO and prepare for the upcoming tariff applications.

The U.S. Government investment of nearly $351 million under the MCC Compact, and that of Power Africa in Malawi, was ambitious from the outset; each project and activity was designed to fulfill our shared goal to reduce poverty through economic growth. These investments position Malawi to meet the country’s impressive goals to supply electricity to approximately 30% of the population by 2030 and more than quadruple current generation production levels to 1875 MW.

The compact investments are about more than multi-million dollar substations, power lines, and dredgers, or regulatory reform and policies, or thousands of megawatts –

they’re about real people. The compact is investing in the economic potential of Malawians – your families, your children, your grandchildren and future generations to come.  The modernization of the grid – coupled with strategic decisions and planning that you, the project partners, will make today and over the next year –directly affect whether women and girls in Rumphi will spend few hours fetching water, whether hospitals in Karonga will complete deliveries of newborn children in hospitals without power cuts, whether more Malawian children in Mponda can do homework at night, whether tailors in Mchinji have power to sew their goods, whether irrigated crops in Chikwawa have flowing water, and whether small and large enterprises across the country can run competitive businesses.

As you are aware, MCC partners with countries that take charge of their own development.  The Government of Malawi and the project partners have made a strong commitment to the institutional reforms necessary to transform the power sector, and we are proud to have partnered with you in these efforts. There are many recent achievements that you can take pride in – including an investment grade triple BBB credit rating for ESCOM, approval of ESCOM’s Social and Gender Inclusion policy, successful creation of the new generation company, EGENCO, ESCOM’s launch of its first open tender for solar generation through independent power producers (IPPs), and approval of the IPP Framework.

As I travel throughout this beautiful country, I see first-hand the physical successes of MCC Compact and MCA-Malawi’s work, through the construction of towers, stringing of power lines, and substations nearing completion. However, cutting-edge infrastructure alone cannot ensure the power network’s long-term effectiveness. Sustainability of these investments requires well-planned and financed maintenance, diversified sources of electrical power generation, and – importantly – a cost-reflective tariff process.

The Government of Malawi committed to a phased implementation toward a full-cost recovery tariff in the MCC Compact agreement. Why? Because we knew back in 2013 when the Compact started, as we know today, ESCOM’s financial stability is a prerequisite for private sector investment. Investors want assurance that the tariff structure allows for sufficient revenues for ESCOM and EGENCO but also for their investment to cover costs and future capital and maintenance in the power grid. Malawi has one of the lowest rates of installed capacity in Southern Africa at 362 megawatts. I know you want to catch up to your Zambian brothers who have almost 6 times Malawi’s installed capacity, close to 2,000 megawatts. This can only be achieved if electricity tariffs are attractive to investors, sustainable for ESCOM and diverse generation sources are solidified with private investors through IPPs.

The delays in implementing needed tariff adjustments over the past year jeopardize U.S. Government investments to modernize your power grid, threaten other energy sector reforms, and limit Malawi’s ability to expand access to electricity. It is no exception to say that it matters, that success of the compact and thus Malawi’s eligibility for a second compact.  I trust that you can put the cost-reflective tariff initiative on the correct path. In doing so, the achievements, reforms, and institutional improvements of ESCOM, EGENCO, MERA, and the Ministry will assure the sustainability of the U.S. Government’s investments and those of other donors in power and will ultimately benefit millions of Malawians for decades to come.

Modernizing Malawi’s power grid must be supported by a rational tariff structure, sustainable operations of ESCOM and EGENCO, and prompt integration of generation into the from IPPs, so that the people and businesses of this country can realize the benefits of improved and expanded electricity. You are here today to examine these very issues and challenges.  On behalf of the American people, who have invested in this great endeavor, I congratulate the Ministry, ESCOM, EGENCO, MERA, and MCA-Malawi, for your successes so far. I thank you, for your resolve to be good stewards of that investment, and I encourage you all to continue with your bold efforts to implement power sector reform. And take the necessary steps to achieve a cost reflective tariff now. The cost of darkness is so much greater than the price of reliable electricity.

Zikomo kwambiri.