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Jul 06, 2012

Malawi adjusts power pricing thinking in bid to attract private developers

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The Malawi government says it has put in place measures to attract independent power producers in its electricity sector, which is dominated by the State-owned Elec-tricity Supply Corporation of Malawi (Escom).

Finance Minister Ken Lipenga said when he presented the country’s 2012 Budget to Parliament last month that the measures included gradually removing subsidies on electricity supplied by Escom to ensure the tariffs were at full cost-recovery levels.

“There has been limited private-sector investment in the power sector in Malawi because electricity tariffs have been set too low. The adjustment of electricity tariffs to full cost-recovery levels will create incentives for private-sector investment in power generation and distribution.”

Lipenga added: “Because energy is the lifeblood of industry, immediate reforms are needed to create a conducive environment for scaling up capacity. In pursuit of this goal, we have increased electricity tariffs by 63.52% so that revenues in the sector are closer to cover- ing the costs of production. This measure is a move towards a more market-determined tariff structure in the electricity sector.

“It is our intention to have a pricing structure that reflects the long-run average cost of producing electricity in order to allow the private sector to invest in further generation capacity.”

Lipenga said the upward adjustment of the country’s electricity tariffs would also assist Escom in raising funds to meet the cost of importing electricity from Mozambique under the planned World Bank-financed Mozam-bique–Malawi power interconnector project.

Malawi, which generates 98% of its electricity from hydropower plants on the Shire river, has an installed generation capacity of less than 300 MW, while demand is around 400 MW and is projected to increase to 700 MW by 2020.

Meanwhile, the Malawi government says it is optimistic about its negotiations with the US’s Millennium Challenge Corporation (MCC), from which it is seeking $350-million for the power sector. The deal was suspended over concerns about poor governance and lack of respect for the rule of law during the previous administration of the late President Bingu wa Mutharika.

Lipenga said, thanks to positive reforms initiated by the administration of the country’s new President, Joyce Banda, MCC had reopened its country office in Malawi and there were high hopes that the US federal agency would resuscitate the grant.

Proceeds from the MCC grant would be used mainly to rehabilitate Malawi’s power plants, which frequently break down, contributing enormously to the country’s electricity woes.

In a related development, the Malawi government says its Kapichira 2 hydroelectric power station will come on stream in August 2013.

The station will add 64 MW to Malawi’s power grid.

Ministry of Energy and Mines principal secretary Ben Botolo says: “We expect to have the machines at the site between August and December this year. The contractor has already worked on the designs and the specifications have been taken to China.”

In other efforts to increase power production capacity, Malawi is implementing the $70-million World Bank-financed Malawi Energy Sector Support Project, which involves a number of surveys to identify and develop potential for electricity generation on a number of rivers in the country, and is also pursuing a project to quantify its coal resources for electricity generation.

Edited by: Martin Zhuwakinyu
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