By Emmanuel Muwamba – The US Millennium Challenge Corporation’s (MCC) board has unanimously approved a $350.7 million five-year Compact Program focused on the power sector in Malawi.
The MCC is a partnership between the United States and developing countries that awards large-scale grants to fund country-led solutions for reducing poverty through sustainable economic growth.
For a country to be selected as eligible for an MCC assistance program, it must demonstrate a commitment to just and democratic governance, investments in the people of a country, and economic freedom as measured by 17 different policy indicators.
Benjamin Canavan, the Public Affairs Officer in the US Embassy in Malawi said in a statement on Thursday: “MCC looks forward to continuing our work with Malawi as this compact program advances to implementation,” stated MCC CEO Daniel Yohannes. “Success of the program will depend on the Government of Malawi’s continued commitment to good governance, accountability, and transparency.”
MCC evaluates its partner countries’ policy performance throughout implementation of the Compact, and maintains a policy dialogue with them, in coordination with the State Department, USAID, and the U.S. Embassies.
A country can be warned, or its eligibility may be suspended or terminated for a significant policy decline or policy reversal.
The Compact Program will address the problem of inadequate and unreliable electric power in Malawi. With an installed capacity of only 286 MW and an electrification rate of approximately 9 percent (about 1-3 percent in rural areas), Malawi’s power sector falls behind most of its peers in Sub-Saharan Africa.
The $350.7 million five-year Power Sector Revitalization Project includes two main activities—infrastructure development and power sector reform. The Government of Malawi will form a trust, the Millennium Challenge Account of Malawi (MCA-M) as an accountable entity, to implement the Compact Program.
The Government of Malawi and MCC jointly agreed that approximately $283 million will be spent on modernizing and upgrading the power system (transmission and distribution infrastructure) and approximately $26 million will be spent on sector reform. A further $9 million will be spent on cross-cutting issues including: natural resource management in the catchment areas along the Shire River, gender integration, and monitoring and evaluation. The remaining budget will support the MCA-M’s program administration.
The MCC estimates that the Compact Program will result in an estimated present value of $3.1 billion of income benefits to Malawi over 25 years. MCC further estimates that 5.9 million Malawians will benefit from increased employment income and profits over 25 years.
Malawi’s population is about 14 million people.
The Compact will be signed during a ceremony in Washington, D.C., in February and will enter into force in the later part of 2011 for its five-year implementation from 2011-2016.
In December 2010, Energy Minister Mr. Grain Malunga announced that the Malawi Government would seek bidders for a planned 300 megawatt coal-fired power plant to help meet rising demand for electricity.
Malawi generates most of its electricity from hydro sources. Its current installed capacity is 282.5 MW, below a demand of 344 MW. Only seven percent of Malawians have access to electricity, while the remaining 93 percent depend on firewood and charcoal for energy requirements.
The Economists Association of Malawi said that lack of reliable power supply is costing Malawi $215.6 million per year in lost industrial production.
Last year alone, Malawi had 63 days of power outages, the most out of 24 sub-Saharan countries, the energy ministry said.