Investment into the energy sector by the Independent Power Producers (IPPs) is set to increase following a memorandum of understanding (MoU) signed on Friday between government and the African Trade Insurance (ATI) for Regional Liquidity Facility (RLF).
RLF guarantees energy companies’ access to finance to maximise returns on investments.
RLF is a joint initiative of the ATI and KfW with funding from the German Federal Ministry for Economic Cooperation and Development (BMZ). It has an initial capacity of $74 million (about K54 billion) for insurance protection offered to new small and mid-sized renewable energy projects from 50 to 100 megawatts in Sub-Saharan Africa.
The facility intends to protect the IPPs in Malawi once they supply electricity to the national grid against the risk of delayed payments by the Electricity Supply Corporation of Malawi (Escom) and the type of the guarantee is a common
requirement from the lenders that fund the projects.
Speaking after signing the agreement, Secretary to the Treasury Ben Botolo admitted that Treasury was under pressure from IPPs to provide such a guarantee for projects to commence, adding that many projects failed to access funding because such a facility was not available and government was not committing to take a risk to pay on behalf of Escom.
He said: “This facility will significantly improve the power generation because we are looking at a situation where IPPs are coming into the country and sometimes what they do is to demand government guarantees.
“What they do is to go to various banks outside Malawi to borrow money and the banks need assurance of the loan repayment, hence, the guarantee issue. So, by signing this agreement, ATI has taken off that burden from us as government and this will help us to facilitate the implementation of the energy sector projects for the power producers”.
Botolo said there is huge interest both locally and internationally to invest in the country’s energy sector a development he described as good for Malawi to bring electricity tariffs down for the consumer considering that investment risks that companies charge and passes on to the consumer will have been covered by the insurance guarantee in the signed agreement.
ATI regional underwriter for Southern Africa, Pizzaro Lukhanda, said the partnership with Malawi through the Risk Liquidity Facility is in line with their mandate to help member countries create a healthy environment for business and investments by creating a risk mitigating tool that brings the public and private sectors together to oversee successful completion of more renewable energy sector projects.
“We wish to inform all IPPs that Malawi is open for investment. We are saying if they invest and face any risk from Escom not paying up when they supply power to the grid, we are going to pay, if they face government actions that make the investment lose-out then we are going to pay out. So, what we are saying is that we are guaranteeing the IPPs that any risk that you are going to face, will be taken up by ourselves.
“We are ready to pay out even now and as we speak we have already issued few non-binding indications to some of the IPPs that have already approached us. So far we are talking to all IPPs and we have given a quotation to one of them the other three will be issued in weeks to come, so we are open and ready to guarantee.”
Lukhanda, a Malawian, said the guarantee to pay will be effective after 14 days in the event that Escom fails to pay with the view to sustain the IPPs’ operations while waiting for Escom payment.
As of 2017, the ATI supported $35 billion in trade and investments across Africa.