Malawi - Power Project

RESTRICTED FILE COPY Report No. P-77 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF MALAWI FOR A POWER PROJECT January 14, 1970  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMME.NDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMEINT CREDIT TO THE REPUBLIC OF MALAWI FOR A POWER PROJECT 1. I submit the following report and recommendation on a proposed credit in an amount in various currencies equivalent to US $5.25 million to the Republic of Malawi. PART I - HISTORICAL 2. The Government of Malawi has requested that the International Development Association (IDA) and the African Development Bank (A.DB) finance the foreign exchange requirements of a project comprising the 1970-72 development program of the Electricity Supply Commission of Malawi (ESCOM). The proposed project first came to the attention of the Association in June 1966, when the Government of Malawi asked for advice in drafting terms of reference for consultants to be engaged to prepare a feasibility study. The study examined several possibilities for hydro- electric development and a diesel project. The Tedzani hydroelectric project was found to be the most economic solution. In February, 1968, the Government requested financial assistance for its construction. An appraisal mission went to Malawi in May, 1968, but further consideration of the project awaited an improvement in the overall financial and economic situation. An economic mission to Malawi in Ju]y, 1969, found that the position had improved sufficiently to justify renewed consideration of lending to Malawi and a reappraisal mission, which was accompanied by representatives of ADB, went to Malawi in August 1969 to update the earlier appraisal of ESCOM's development program and provide a basis for parallel financing with the ADB. 3. Formal negotiations took place in Washington in December, 1969. The Borrower was represented by the Honorable Aleke K. Banda, Minister of Finance; Mr. C.W. Collins, Acting Secretary to the Treasury: Mr. H.W. Ord, Chief Economist; Mr. J.N.T. Mpambachulu, Ministry of Finance; Messrs. C. Barrow, D. Dalton and R. Stamp who are respectively Chairmani General Manager and Secretary of ESCOM. Mr. H. Khouadja, Assistant Director of Operations in the African Development Bank, attended the negotiations as observer and understandings were reached with ADB in matters of common interest in project administration. 4. Malawi has obtained five IDA credits totalling $27.5 million. There have been no Banl loans. The following is a summary statement of IDA credits as at December 31, 1969.  -2- Amount (US$ million) Credit No. Year Purpose IDA Undisbursed S-2 >AI 1967 Highway Engineering 0O5 - 102-MAI 1967 Education 6.3 5.6 112-MAI 1968 Highways 11.5 5.5 113-MAI 1968 Agriculture (Lilongwe) 6.o 5.5 ll-MAI 1968 Agriculture (Shire Valley) 3.7 3.6 Total 28.0 of wzhich has been refinanced 0.5 Total now outstanding - _ Total undisbursed 20.2 The undisbursed amounts are high for various reasons. Disbursement of the education credit has been slow because of delays in the selection and appointment of consultants by Government and subsequent changes in the sites of certain schools. Construction is now under way and the rate of disbursement should improve accordingly. Physical progress on the Agricultural Development Projects in Lilongwe and the Shire Valley is satisfactory; the slow rate of disbursements resulted from difficulties encountered by Malawi in furnishing the full information required for disbursement purposes. 5. There have been no IFC investments in Malawi. PART II - DESCRIPTION OF THE PROPOSED CREDIT 6, Borrower: The Republic of Malawi. Beneficiary: The Electricity Supply Commission of Malawi (ESCOM).  3 - Amount: US $ 5 25 million equivalent in various currencies. Purpose: To help finance the 1970-72 development program of ESCOM comprising the construc- tion of a 16 MW hydroelectric power station at Tedzani Falls on the Shire river and the addition of a 3 NW diesel unit at Lilongwe. Amortization: In 50 years including a 10-year period of grace, through semi-annual install- ments of 1