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Compact l
Millennium Challenge Corporation (MCC) partnered up with the Government of Malawi to implement a $350.7 million compact designed to reduce poverty through economic growth.Inadequate energy was identified as a key binding constraint to sustained economic growth in Malawi. At that time, only 9 percent of Malawians and less than 1 percent of the country's rural population had access to electricity.
MCC's large-scale investment, focused on refurbishing power generation assets that were in a state of disrepair . Further, the investment sought to create a stronger foundation for future expansion through the infrastructure development; reforming the electricity industry in Malawi with the view to creating an enabling environment that would attract private sector investment in the industry; and conserving the environment along the Shire River Catchment Area where power generation activities are highly concentrated.
The $257.4 million Infrastructure Development Project supported economic development by rehabilitating, upgrading, and modernizing critical elements of Malawi's power system across the whole country, from the northern border district of Karonga to Thyolo in the south of the country.
The objective of the Infrastructure Development Project was to improve the availability, reliability, and quality of the power supply by increasing the throughput capacity of the national electricity grid, increasing generation capacity, and increasing distribution capacity.
These investments were designed to allow businesses to benefit from more consistent power, thereby enhancing their competitiveness by reducing investments in auxiliary power sources.
The Infrastructure Development Project included three activities: the refurbishment and upgrading of Nkula A hydropower plant (HPP), upgrade of the transmission backbone network, and rehabilitation and upgrading of key parts of the distribution network, including the extension of the Supervisory Control and Data Acquisition (SCADA) system for additional network coverage.
The Power Sector Reform Project was designed to complement the infrastructure modernization funded through the Infrastructure Development Project and support the Government's reform agenda by improving the capacity and financial viability of Malawi's public electricity utility and creating an enabling environment for future investment in the power sector.
Prior to the compact, Malawi's power sector had experienced several years of decline stemming from the factors below:
Underperformance of the utility was driven by the lack of modern management practices and confusing governance and reporting lines by ESCOM that led to operations driven more by political considerations than commercial factors
Poor financial conditions in the power sector due to an electricity tariff that did not provide sufficient revenue to cover all operating costs, high levels of accounts receivable, and utility mismanagement. The lack of adequate financing contributed to limited investments and inadequate service delivery.
An outdated and inadequate legal and regulatory framework, which did not provide private investors with sufficient clarity or incentives to take interest in the Malawian energy market, particularly in light of the high country and commercial risk.
The objective of the Environmental and Natural Resource Management (ENRM) Project was to mitigate the growing problems of aquatic weed infestation and excessive sedimentation in the Shire River Basin to reduce the costly disruptions to Malawi's hydropower generation.
The compact was designed to reduce blackouts caused by invasive weeds entering the turbines and sediment that reduces the water retention capacity at the dams, by investing in the mechanical removal of weed and sediment in the river basin and implementing better environmental and natural resource management in upstream areas, tackling the source of the sedimentation.
Over the long-term, the project was designed to reverse the degradation of the Shire River Basin and improve the sustainability of hydropower generation in Malawi by maintaining the quantity and quality of water in the Shire River. This approach aimed to enable a long-term, sustainable, and institutional foundation to Malawi's power sector, supporting the compact's infrastructure and policy investments.
The ENRM Project included three main activities, reflecting a strategy that addressed both the causes as well as the symptoms of poor land-use management. The Weed and Sediment Management Activity addressed the cause, the ENRM Activity addressed the symptoms, and the Social and Gender Enhancement Fund (SGEF) Activity ensured equitable participation of all stakeholders to maximize results.
Weed and Sediment Management Activity
To mitigate the impact of the weeds and sedimentation, this activity supported the purchase and use of large-scale equipment, including a dredger, weed-harvesting equipment, conveyers, and disposal trucks. The activity also constructed environmentally-appropriate disposal sites for the weeds and sediment and designed an associated Sediment Management Strategy, in line with international best practices, for EGENCO to manage as part of their operations and maintenance. In order to financially sustain the operation and maintenance of such activities, costs were built into the electricity tariff to fund EGENCO's long-term strategy.
While the dredgers and weed harvesters tackled the consequences of poor land management, the ENRM Activity was aimed at addressing the root causes of this problem by reducing environmental and natural resource degradation, promoting more sustainable land use practices, and enhancing rural incomes. Critical to addressing these root causes, the Social and Gender Enhancement Fund (SGEF) Activity also addressed gender barriers that limit decision-making authority from women at the household level.
The Malawi Compact funded grants to eleven NGOs that had proven experience in administering activities that improved natural resource management and gender equality. These grants were designed to serve as a pilot program, providing proof of concept that a grant mechanism could mobilize and target resources to arrest soil erosion and improve land management in Malawi.
MCA-Malawi anticipated the pilot would be continued by the Environmental Trust, sustainably funded through a Payment for Ecosystem Services mechanism described below. MCC would evaluate the impact of the grants to gather lessons learned and best practices in changing environmental and social behaviors in natural resource management.
