Lilongwe, 29 March, 2022 – The Government of Malawi, represented by the Ministry of Finance and Economic Affairs, the Ministry of Energy, Electricity Supply Corporation of Malawi (ESCOM) and Power Market Limited (PML) has today signed an addendum to the existing Regional Liquidity Support Facility (RLSF) Memorandum of Understanding (MoU). RLSF, a joint initiative of the African Trade Insurance Agency (ATI), KfW Development Bank and the Norwegian Agency for Development Cooperation (NORAD), is a guarantee instrument designed to address the short-term liquidity risks faced by renewable energy Independent Power Producers (IPPs) that sell electricity to state owned power utilities across Sub-Saharan Africa.
The signing of the addendum will allow IPPs that enter into Power Purchase Agreements (PPAs) with PML to benefit from RLSF cover. Since signing the original RLSF MoU with the Government of Malawi on 30 November 2018, ATI has provided instrumental guarantees in support of three projects in Malawi: the Nkhotakota, Salima and Golomoti solar power plants, enabling these projects, with a combined installed capacity of 101 MW, to achieve financial close.
The signing of the addendum comes on the heels of improvements to the RLSF structure, which will take effect under Phase 2 of RLSF, recently announced by ATI and its partners. Under Phase 1, ATI and KfW provided collateral to Absa South Africa which in turn issued Standby Letters of Credit (SBLCs) for the benefit of IPPs – the SBLCs can be drawn by the IPPs following any delayed payments by the state-owned offtakers, serving as a key form of payment security. The new product structure, which will no longer involve an LC issuing bank, will allow IPPs to benefit from ATI’s positive credit rating of A/ A3 (S&P & Moody’s, respectively). In addition, the new RLSF contracts to be signed between ATI and the IPPs will be simpler – cutting the existing turnaround times, and in turn reducing the cost of RLSF cover as any fees currently charged by the LC issuing bank will no longer be applied.
Furthermore, the RLSF MoU allows ATI to collect information on the payment behavior of power utilities. The information collected is then recorded and can be accessed via the Transparency Tool, a digital platform launched by ATI in 2019, by participating IPPs. The first external report from the Transparency Tool was published in 2021, showing that ESCOM was meeting its payment obligations to the country’s sole IPP on time. Going forward, similar reports will be available on ESCOM and/ or PML’s payment record to operational IPPs in Malawi.
Currently, seven of ATI’s member countries have signed the MoU and can benefit from RLSF: Benin, Burundi, Côte d’Ivoire, Madagascar, Malawi, Uganda and Zambia, with the expectation that more of ATI’s twenty member countries will sign up.
Quote from Hon. Sosten Gwengwe, Minister of Finance & Economic Affairs, Malawi
“On behalf of the Government of Malawi, we are pleased to be extending this successful partnership with ATI to include Power Market Limited (PML). The support received from ATI via the Regional Liquidity Support Facility (RLSF) has been helpful in supporting the government’s objectives of attracting additional investments in the energy sector with the view of ensuring that Malawi has sufficient electricity to meet growing domestic and commercial demand.”
Quote from Pizzaro Lukhanda, Senior Underwriter, ATI
“Malawi has been the greatest beneficiary of our RLSF initiative thus far, thanks to its investor friendly policies, improved regulations and frameworks that have allowed increased private sector investments and growth in its power sector. Having already supported three solar projects within the country, we look forward to building on this early success and exploring additional areas of cooperation between ATI and the Government of Malawi.”
