Malawi writes off K12bn Escom debt

Government has written off K12 billion (about $30m) public debt which its wholly owned power utility company, the Electricity Supply Corporation of Malawi (Escom), owed.

The Nation understands that the debt cancellation was one key step towards the Entry into Force of the United States of America (USA)-funded Millennium Challenge Corporation (MCC) compact agreement aimed at revitalising Malawi’s power sector.

Malawi and the US officially exchanged the letters for the $350.7 million (K129 billion) grant in Lilongwe on Friday.

Both the Malawi Ministry of Finance spokesperson Nations Msowoya and Escom chief executive officer John Kandulu confirmed that the debt has been written off in separate interviews.

Said Msowoya on Monday: “Effectively, this is a debt write-off, which means that Escom does not have to worry about repayment.”

He advised that Escom can then use the funds for other investments and improve its service delivery.

Added Msowoya: “Essentially, Escom balance sheet has been cleaned.”

On his part, Kandulu said as part of preparing for the start of compact implementation, among other accomplishments, a substantial portion of Escom debt owed to government has been converted into equity.

He confirmed the K12 billion debt amount at a news conference in the capital, Lilongwe when The Nation asked for clarity on how much government has converted Escom debt into equity.

In an interview yesterday, Economics Association of Malawi (Ecama) executive director Nelson Mkandawire welcomed the development, saying it will give Escom the much-needed capacity.

He said: “The move is fine. I think let’s look at it positively. But yes, government has written off such a debt. The big question is that does Escom have the capacity to find these funds for the purposes of MCC programme to improve the power challenges?”

Minister of Finance Ken Lipenga told The Nation in Lilongwe on Friday that government will continue to uphold the underlying principles of the compact agreement with the US government such as the rule of law, protection and safeguarding of human rights, good governance and economic freedom.

Apart from the converting of Escom debt into equity, Lipenga said other key achievements by government towards Entry into Force include the funding of a “turnaround” facility to meet gaps in Escom’s working and investment capital needs, the sharing of a construction schedule for Kapichira two, and the employment of a professionally qualified CEO for Escom.

In August 2010, Secretary to the Treasury Randson Mwadiwa, then secretary for the Ministry of Natural Resources, Energy and Environment, hinted during an energy conference organised by Standard Bank and MCC that government was contemplating writing off Escom loans.