Malawi: En route for energy independence

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Malawi government, saddled with heavy debt has been handed a boost after France canceled off over a €10 million debt. Meanwhile, the U.S. government has approved a $350.7 million compact for the Government of Malawi through the Millennium Challenge Corporation (MCC) for electricity development, whilst the World Bank has also agreed to issue a loan involving tens of millions of dollars to boost the country’s energy sector.

A French cancellation of over €10 million owed by Malawi has come with conditions. The money, according to the conditions, should be channeled for geological mapping of the country. The exercise is expected to act as a bait to generate more revenue.

The geological mapping project, set to take place between January 2011 and 2016, will help Malawi, which is highly dependent on foreign aid with donors underwriting as much as 40 percent of its budget, identify possible areas with mineral deposits.

“We decided to cancel the debt and finance the geo-mapping for the country in order to know their mining potential for the economic development of the country,” Jacques Gascuel, acting French ambassador to the Southern African country told the media indicating that the debt cancellation is a “turning point” for Malawi mining industry.

Malawi Minister of Finance Ken Kandodo said the cancellation of debt by France, for the second time after doing the same in 2008, in order to encourage the geo-mapping which was last conducted about 20 years ago will give the country much-needed development resources.

U.S. funding

On the United States funding, Kandodo is quoted saying that the money is set to “transform Malawi beyond recognition as it will give the country (…) a faster pace of development; the much needed power muscle”.

Reports say, Malawi had initially requested a $300 million grant but after a series of meetings with the Millennium Challenge Corporation (MCC), one of the US government’s main development aid agencies, a sum of $350.7 was agreed upon.

Additionally, the funds are “contingent on successful completion of first compacts, continued good policy performance, development of proposals that have significant potential to promote economic growth and reduce poverty, and availability of funding” MCC said in a statement.

The US warned that the funds which are set to overhaul the country’s energy sector, and issued by its development aid agency, will be accessed for the next five years depending on government performance in areas of governance, transparency and accountability.

MCC Chief Executive Officer Daniel W. Yohannes said that “MCC’s approach to development, which focuses on economic growth, country ownership, sustainability, and accountability, directly aligns with President (Obama’s) strategy” announced last September.

World Bank

The World Bank, according to the Finance Minister, will also give Malawi US $70 million to invest in the energy sector by replacing aging power substation distribution lines with reliable electricity.

Malawi, according to reports, has the potential of becoming the most favorable investment destination in Southern Africa due to its political stability and economic boom.

With Malawi’s current installed electricity capacity standing at 282.5MW against a demand of 344 MW, several mining investment have been running on generators propelled by diesel on full time basis due to unreliable power supply.

And with only 7 percent of the population of 13 million having access to electricity, with the rest relying on firewood and charcoal for energy, Malawi expects nearly 6 million individuals to benefit from the energy development project.

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