US, Malawi discuss new MCC compact

Malawi and the United States of America (USA) are discussing the possibility of a second compact under the Millennium Challenge Corporation (MCC) following the expiry of the five-year $350 million (about K257 billion) energy sector compact on September 20.

In a report to the US Congress on countries eligible for compact projects dated September 5 2018, MCC said Malawi remains a eligible because it has the lowest per capita income as per the assessment of the World Bank.

Both US Ambassador Virginia Palmer and Minister of Finance, Economic Planning and Development Goodall Gondwe have confirmed that discussions are underway, but it remains unclear which sector could benefit from the second compact.

But the US government has emphasised that Malawi’s eligibility for the second compact is dependent on the country’s commitment to fight corruption and successful completion of the $350 million energy compact.

In an interview on Tuesday, Palmer said the government of Malawi together with hers needed to show eligibility for a second compact.

She said: “In order to be eligible for a second compact, you have to continue to pass the scorecard that Malawi passes. But one of the indices that is very important is the fighting corruption index. So, Malawi needs to continue to fight corruption and needs to win that fight.”

According to the MCC scorecard for 2018, Malawi passed by meeting the requirement of at least half of the 20 indicators, including indices on control of corruption and democratic rights.

However, since the compact started in 2013, Malawi has been sliding downwards on the control of corruption indicator from 87 percent five years ago to 59 percent in 2018.

Malawi could miss out on the compact if it scores below the 50 percent mark owing to poor reforms in the anti-corruption sector, including reviewing the appointment of the Anti-Corruption Bureau director general and failure by the government to give the bureau financial autonomy.

The K2.8 billion Malawi Police Service food rations scam is the latest Cashgate-like case to have resurfaced at Capital Hill and implicated the governing Democratic Progressive Party (DPP) which received K145 million from the supplier through a Standard Bank account whose sole signatory is President Peter Mutharika.

Initially, DPP said the K145 million was a donation towards construction of the party’s headquarters project, but later promised to return the money to the donor amid pressure.

Currently, investigations are underway into the theft of 4.2 million litres of diesel meant for the leased 78-megawatt capacity diesel generators in six months.

Besides scoring well on fighting corruption, eligibility for the next compact is also dependent on completion of the first compact particularly on infrastructure and power sector reforms such as implementation of a cost reflective tariff.

Palmer said there was a positive outlook on infrastructure development, but added that work needed to be done on reforms in particular improving the financial status of Electricity Supply Corporation of Malawi (Escom).

She said: “The Electricity Act which Malawi passed is part of that but Escom’s financial health is a very important part of that. Right now Escom is in the red and it is a big problem. If you don’t have enough money, you cannot convince private sector companies to come and build new power generation plants in Malawi.”

On his part, Gondwe confirmed in an interview that talks were underway over the possibility of a second compact and government was aware of the eligibility criteria.

However, the minister said the $5 million (about K3.6 billion) that the Malawi Government failed to utilise in the recently finalised compact would be returned to MCC and the government would shoulder the cost of the ‘bits and pieces’ remaining to be ironed out after the compact wound up on September 20.

President Peter Mutharika is expected to meet the MCC acting chief executive officer Brock Bierman on the sidelines of the 73rd United Nations General Assembly in New York to discuss the status of the current compact and the possibility of a new compact, according to Gondwe.

He said: “According to the present agreement, the balance [of funding] have to be returned to the US. I think it is about $5 million. There are still bits and pieces to be completed such as works on wirings and substations as well as handovers which might cost us as much as $5 million.”

The minister said Malawi, with assistance from development partners, has made efforts to improve the fight against corruption.

He said the government is in talks with several partners to introduce a system of tracing proceeds of crime that are hidden within the country and in offshore accounts.

“There are a lot of efforts on our part to curb corruption. The new Ifmis [Integrated Financial Management Information System] should substantially help us curb theft and corruption in the public service,” Gondwe said.

Millennium Challenge Account-Malawi (MCA-M), the compact’s implementing agency, told The Nation on Monday that over 95 percent of works had been completed under the current compact.

Some of the major works completed include Nkula A Hydro Power Station upgrading, Phombeya substation in Balaka, increasing transmission capacity from 132 kilovolts (kV) to 400 kV and completion of works on the Luwinga and Bwengu substations in the Northern Region as well as Nkhoma substation in Lilongwe.

The increased capacity for overhead transmission are expected to pave the way for interconnections to the Southern African Power Pool as well as facilitate investment by independent power producers. n