UK-Malawi Trade & Investment ForumMarch 20, 2013

Energy Sector Perspectives

Rob MillsWorld Bank

Energy in Malawi: into the light?

• Challenges– System under strain– Financial challenges

• Responses– Government-led reforms– Extensive external concessional financing– Regional interconnection

• Opportunities– Contracting– Investing: energy & economy-wide

Years of under-investment has resulted in a difficult energy situation…

2008

2009

2010

2011

2012

2013

2014

2015

0

100

200

300

400

500

System Capacity (MW)Modelled Net Peak Load (MW)

MW

Kapichira II

Note: Sytstem capacity excludes any reserve margin

0

10

20

30

40

50

Con

go D

RC

Ken

ya

Zam

bia

Mal

awi

Leso

tho

Moz

ambi

que

Gha

na

Tanz

ania

Mad

agas

car

Nig

er

Rw

anda

Uga

nda

Cha

d

Sout

h A

fric

a

Bur

kina

Fas

o

US cents/KWh

…Not least due to tariffs among the lowest in Africa…

• Malawi tariffs remain below economic costs

• Insufficient funds to:- Maintain existing

infrastructure- Build new generation

& transmission- Connect customers

• Undermines financial position of power utility (ESCOM).

…But like much of Africa, extensive energy resources are available

Hydro

Wind Geothermal ?

Biomass

The Government has ambitious plans, starting with a reform agenda…

• Tariff reforms – A new round of tariff increases & monthly review of Automatic Tariff

Adjustment Formula– Implementation of a feed-in tariff & associated regulations

• Reform of the electricity legal framework– Addressing legal uncertainty around licensing– Review de facto single-buyer model– Improved framework for unsolicited IPP bids

• Turnaround of ESCOM– New management– ‘Turnaround facility’

.. Backed by extensive external financing commitments...

• ‘Energy Sector Support Project’– Backed by US$85 million of WB financing (of which US$65 million grant)– Priorities:

• Upgrading & expanding the distribution system• Feasibility studies for a new generation of hydropower• Demand side-management and energy efficiency• Institutional strengthening & sector studies

• Millennium Challenge Corporation (MCC) Compact– US $350 million grant (including set-up & administration costs)– Now back on track– Priorities:

• Transmission system upgrades• Hydropower rehabilitation (including dredging)• Support for ESCOM & policy reform process

“Phase 1”

“Phase 2”(possible route)Phombeya

Matambo

.. And a renewed commitment to interconnect with the Southern African Power Pool

Assuming good progress on the reform agenda, this represents a significant opportunity-set for investors

• Significant T&D contracts

Investing in IPPs

• Development via IPP ‘default’ approach

• Significant interest already expressed

Investing in Off-Grid

• Grid access at ~7% plenty of customers…

• Good potential for solar PV, mini-hydro, biomass

• Reduced load-shedding• Fewer unscheduled

outages• Improved energy quality• Faster connection times

Contracting

• Significant T&D contracts to be bid out

• WB, MCC & GoM

Improved Investment Climate

“Chakachino

ndichaka

chamayankho”

Final thought on 2013…