The Malawi Government says the Memorandum of Understanding it has signed with Africa Trade Insurance Agency (ATI) has come at the opportune time.
Secretary to the Treasury Ben Botolo, who signed the MoU on behalf of Government, says government has waited for Regional Liquidity Support Facility (RLSF) for a long time.
“We are signing the MoU at the right time when as a Ministry through Debt and Aid have received a number of Independent Power Producers (IPPs) that are seeking guarantees from the government.
“This new facility therefore provides yet another opportunity for Malawi to benefit from ATI’ product … this new facility has come at the opportune time when as a government we are encouraging the private sector to invest in energy generation using renewable sources to increase the generation capacity,” he said.
With the facility, Malawi is hoping to diversify its energy mix and to make a significant dent in its electrification rate which currently stands at about 10 percent.
The RLSF is a joint initiative of ATI, and KfW with funding from the German Federal Ministry for Economic Cooperation and Development (BMZ) with initial capacity of USD74 million. Under the programme, RLSF will offer insurance protection to new small and mid-sized renewable energy projects (from 50 to 100 MW) in Sub-Saharan Africa.
The RLSF will protect the IPPs in Malawi against the risk of delayed payments by the public off-taker, the Electricity Supply Corporation of Malawi (Escom). This type of guarantee is a common requirement from the lenders that fund the projects.
Many projects have failed to access funding and in turn reach financial close because this type of guarantee was not available. The RLSF hopes to change this by providing the required guarantee in cooperation with the Letter of Credit issuing bank, ABSA Bank Ltd.
The facility will provide immediate cash collateral supported by guarantees to a bank that will in turn open a stand-by Letter of Credit to the benefit of IPP. The amount provided will be equivalent of between 3 to 6 months of the IPP’s revenue generated from the power plant. This implies that the facility will help in removing the financial burden from the national utility that is often asked to provide such liquidity protection.
The Ministry of Finance, Economic Planning and Development acknowledged that “Malawi has an installed electricity-generating capacity of around 370 MW which is inadequate to meet the ever increasing demand”.
To improve this situation, the government is implementing a number of projects as well as negotiating with a number of potential investors in electricity generation. This facility will help the government in attracting more IPPs with a renewable energy focus because renewable energy projects can generally be cheaper, easier to be implemented, integrated into the national electricity grid and usually have a positive environmental impact once up and running.