Malawi is set to finalise paperwork with potential financiers to facilitate purchase of power through interconnection with Mozambique and Zambia national grids in a bid to ease prolonged electricity supply that threatens to ground the economy to a standstill.
European Union (EU) head of delegation Marchel Gerrmann and Minister of Finance, Economic Planning and Development Goodall Gondwe separately indicated yesterday the financing agreement for the deal will be finalised early next year.
Gondwe said the EU will provide a 20 million euro grant while the World Bank will disburse $3 million for the project.
On costs, the Minister of Finance said the final cost agreement was yet to be signed, but preliminary assessments indicate that the project was much cheaper in comparison to the procurement and running of the fuel-powered generators recently procured in a desperate bid to add about 70MW to the national grid.
Said Gondwe: “The amount of power we will access is almost limitless and will quickly end the crisis. In terms of cost comparisons, the interconnector is a much cheaper venture than the generators which come with a huge fuel cost.”
Malawi is facing acute power supply challenges with hydro-electric generation capacity reduced to around 150MW from installed capacity of 351MW and peak demand of 350MW due to reduced water levels in Lake Malawi and its sole outlet, Shire River where over 90 percent of electricity is produced.
Gerrmann broke the news of the pending agreement on Tuesday during a ceremony in Lilongwe marking the EU-Africa Summit. He said the agreement was a response to the current crisis.
In October 2016, the Electricity Supply Corporation of Malawi (Escom) indicated that it was turning to Mozambique as an alternative source of energy through an interconnection project set to materialise in 2020.
Escom said the project would involve construction of a 210-kilometere (km) 400 kilovolts (kV) power transmission line from Matambo Substation in Tete, Mozambique, to Phombeya Substation in Balaka.
In an interview with The Nation at the time, Escom mentioned project financiers as including the Norwegian Trust Fund, a fund of the Government of Norway but managed by the World Bank; a pool of financiers comprising the World Bank, KfW—a development bank owned by the German Government—and the European Investment Bank (EIB).
The project was estimated to cost $140 million.
The revival of the power interconnection project comes after a similar deal was rejected by the Bingu administration reportedly due to cost implications.
In 2007, the World Bank approved a $93 million line of credit for the construction of a power link between Malawi and Mozambique. Mozambique’s share of the credit was $45 million.
Despite being initiated in 2007 by Bingu without Parliament approval, the agreement virtually collapsed after Parliament refused to approve the Loan Authorisation Bill in 2009, arguing the initial costs outweighed the benefits as it would require Malawi to pay $480 000 monthly to tap power from Mozambique.
In 2010, the World Bank cancelled the loan, citing delayed approval by the Malawi Parliament.
However, in 2012, the Joyce Banda administration made a U-turn, arguing the interconnection would assist Malawi resolve power supply problems. Thus, the project was resuscitated in 2013 by Malawi and Mozambique and financing was secured in 2014 from the Norwegian Trust Fund.