Private Sector Strategic Investment Options in the Energy Sector

1. Private Sector Strategic Investment Options in the Energy Sector Clement Kumbemba Malawi Investment and Trade Centre

2. Outline • Sectoral Contribution • The Energy Sector • Environment for Private Sector Participation • Options for Private Sector Investment • The Challenges

3. SECTORAL CONTRIBUTION IN GDP

4. Energy Sector In Malawi • Energy is a crucial input into industrial processing and serves as the life-blood for any economy. • Malawi is relatively well endowed with a wide variety of energy resources but a full potential of the energy sub-sector remains far from being realized owing to a number of structural, operational and institutional challenges. • Currently the provision of energy in Malawi is inadequate, unreliable and inaccessible to all who need it, largely on account of lack of competition in the sector, non-functioning power plants and inability to generate sufficient amounts of energy.

5. Energy Sector In Malawi • Hydro-electricity is the main source of energy for industry and domestic power requirements in Malawi • Until recently there were challenges in both generation and transmission capacity in Malawi. • While the transmission and distribution infrastructure has been improved courtesy of the Millennium Challenge Account intervention, the generation capacity remains a challenge. Installed capacity was at 351 Megawatts as at 2017 while the generation capacity by Electricity Generation Company (Egenco) oscillates between 230MW and 250MW of which 71MW is produced from diesel-powered generators. The growth of the industrial sector in Malawi is constrained by power supply capacity. Demand for energy is growing at 4 per cent per annum . Maximum demand projected at 4,620MW by 2040

6. Energy Sector Evolution 90% of the population is not connected to electricity signalling a huge demand Other developments since 2013 Legislation was reviewed to allow IPP actors ESCOM was unbundled into ESCOM and EGENCO IPP framework has been developed 3 IPPs are on the ground Kamwamba project with planned capacity of 300 MW to commence construction in 2019 Power Purchase Agreement Framework in place

7. Policy and Strategy • The objective of the MGDS in the energy sector is to reduce the number and duration of blackouts, increase access to reliable, affordable electricity in rural areas and other targeted areas, improve coordination and the balance between the needs for energy and those of other high growth sectors such as tourism and mining.

8. Environment for Private Sector Participation in Malawi • Energy Integrated Resource Plan (2017-2037)- is the blue print for energy sector • Independent Power Producers Agreement was launched in 2016 to enable private sector participation in power generation • Public Private Sector Partnerships • Malawi Energy Regulatory Authority • The Millennium Challenge Account- MCC Compact (infrastructure development, power sector reform, environmental management)

9. Options for Private Sector investment

10. Energy Related Investments Opportunities From challenge To Opportunity • In view of climate change, sedimentation, and management of power supply challenges these are possible business areas that the private sector can consider:- • Afforestation and plantation opportunities in catchment areas • Debt collection • ESCOM billing • Outsourced procurement

11. The Malawi Investment Forum (MIFs) MIFs are prime investment promotion events . • The role of MITC is to market investment opportunities • MIFs were held in 2015, 2016 and 2018 and the events attracted investors in the energy sector

12. The Malawi Investment Forum (MIFs)- Results Energy Related The energy sectors always attract attention at MIFs • MIF 2015 (investment leads worth $1.1 billion recorded; Atlas EnergyUS$80 million to develop a 40 megawatts solar project; • MIF 2016 - Lweya Hydro Power Plant in Nkhata-Bay by Water Wheels 20MW • MIF 2018- Voltalia Solar energy $50,000,000; RukuruPower Company Hydro-energy Malawi $7,500,000; Pacific Electric company Production of electrical support facilities China $8,500,000

13. Challenges • Prior to 2016, the IPPAs were not clear and lacked transparency (in 2016, twenty-seven IPPs signed a Memorandum of Understanding with government and were awaiting PPAs with ESCOM to roll out their projects). • Limited financing for feasibility studies

14. The Role of Stakeholders • Government • Prepare feasibility studies for energy projects • Offer incentives to investors • Private Sector • Prepare feasibility studies • Mobilize financing – consortiums, joint-ventures The Private Sector can play a lead role in the supply of power

15. Current Incentives for Energy Sector Investments Design deficiencies and pervasive constraints on monitoring and enforcement impede the effectiveness of economic instruments • The Energy sector enjoys general and specific incentives • General Customs & Excise Tax Incentives Malawi’s General Customs & Excise Tax Incentives are in the form of duty exemptions on machinery targeting different sectors of the economy. These exemptions are offered in four (4) exemption approaches

16. General Customs & Excise Tax Incentives • 1. Import duty and import VAT exemption on importation of most Machinery. • 2. Import duty exemption while VAT remains payable at 16.5% on importation of specific type of Machinery. • 3. Import duty and import VAT exemption on importation of special purpose motor vehicles other than those principally designed for transport of persons or goods. Examples of special purpose vehicles are concrete mixer lorry, mobile drilling vehicles, etc. • 4. Solar products are import duty free while VAT remains payable at 16.5%. Examples of such solar products include solar batteries and solar energy lamps. Note

17. Incentives- Electricity Generation and Distribution Sector • Duty free importation but VAT payable at 16.5% on Electricity Generation equipment such as fuses, transformers, sling, ring main unit, insulators, galle chain equipment, conductors, surge arrestors, column duplex, AAC/PVC and electricity supply meters. • Duty free importation but VAT payable at 16.5% on energy saver bulbs, solar batteries, solar battery chargers, energy lamps, generators and inverters.

18. Energy Verdict • Government and its agencies alone can not meet national energy requirements • Demand for power will always outstrip supply Climate change threatens the reliability of hydro-electricity

19. Way forward • Private sector should think outside the box – case of Nigeria • Encourage use of efficient and affordable technology • Invest in solar equipment • Energy smart premises • Define clear policy for off-grid power supply in Malawi- More of Mulanje case study • Need for innovative financing in the energy sector

20. Thank you the end