Malawi - Fifth Power Project

Document of The World Bank FOR OFFICIAL USE ONLY MICROFIC1E COPY Report No. 10055-MA ~Report No. 10055-MAI Type (SAR) TELAWUN, A! X34056 / J111I1/ AF6JE STAFF APPRAISAL REPORT MA.LAMI POWER V PROJECT MAY 19, 1992 Southern Africa Department Industry and Energy Operations Division 'this document has a restricted distibution and May be used by reeipients only In the pertornance of their official duties. Its contents may not otherwise be disclosed without World Hank authorization.  CURRENCY EOUIVZLENTS Currency Unit = Malawi Kwacha (MK) USs 1.00 = MK 2.79 MK 1.00 = US$ 0.36 14K 1.00 = 100 tambalas WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet 1 square meter (m2) 10.75 square feet 1 kilometer (km) 0 0e621 miles 1 square kilometer (ki2) = 0.386 square miles 1 cubic meter (i3) - 35.3 cubic feet 1 kilovolt (kV) = 1000 volts 1 kcilowatt hour (kWh) = 1000 watt hours 1 megawatt (MW) = 1000 kilowatts 1 gigawatt hour (GWh) 1 million kilowatt hours 1 megavolt ampere (MVA) 1000 kilovolt ampere mtpy = million tons per year MVAr = megavolt ampere-reactive pf power factor toe = tonnes of oil equivalent tpd tonnes per day WEIGHTS, VOLUMES AND MEASURES 1 m3 (solid) wood 1.43 m3 (stacked) wood 1 m3 (stacked) wood - 0.70 m3 solid wood 1 in (solid) hard wood = 0.70 m3 ton of wood 1 in (stacked) hard wood = 0.49 ton of wood 1 ton of charcoal 7 giga calories 1 ton of hard wood = 3 giga calories 1 meter (m) 3.3 feet 1 cubic meter (i3) = 35.3 cubic feet 1 hectare (ha) = 2.47 acres 1 kilometer (km) = 0.62 &.iles 1 square kilometer (ki2) = 0.39 square miles GLOSSARY AND ABBREVIATIONS ADB (AfDB) - African Development Bank CDC - Commonwealth Development Corporation DSB - Department of Statutory Bodies EIB - European Investment Bank EPD - Economic Planning and Development ESCOM - Electricity Supply Commission of Malawi ESMAP - Energy Sector Management assistance Program GDP - Gross Domestic Product ICS - Interconnected System IPPS - Investment Program of the Power Subsector KfW - Kreditanstadt fur Wiederaufbau MFNR - Ministry of Forestry and Natural Resources MTIT - Ministry of Trade, Industry, and Tourism NORAD - Norwegian Aid Development OPC - Office of the President and Cabinet PCC - Petroleum Control Commission SADCC - Southern African Development Coordination Conference SCADA - System Control and Data Acquisition TAMS - Tippets - Abbet - McCarthy - Stratton UNDP - United Nations Development Program WLPU - Watermeyer, Legge, Pieshold & Uhlmann FISCAL YEAR Government of Malawi: April 1 - March 31 ESCOM: January 1 - December 31, until December 1988 April 1 - March 31 since December 1988  FOR OFFICIL USE ONLY M&LWX POWER V PROJECT TABLE OF CONTENTS PROJECT SUTlNARY . . . . . . . . . . . . . . . a . . . -i I. THE EERGY SECTOR Economic Background . . . . ..... .... . ....... 1 Energy Resources . . . . . . . . . . . . . . . . . . . . . 1 Biomass . . . . . Coal . . . . 2 Hydropower . . . . . . . . . . . . . . . . . . . . . . 2 Other Energy Resources . .... ....... .. . 2 Unergy Demand and Supply . *............ . . . . . 2 Wood Fuels . . . . . . * . . . . . * . . . . . . . . . 3 Petroleum Products . . . . . ........... 4 Electricity . . . . . . . . . . . . . . . . . . . . . . 5 Coal . . . . . 5 Organization and Planning of the Energy Sector . . . . . * . 5 Government's Energy Sector Objectives and Strategy . . . ... ............ 6 Experience with Past and Ongoing Lending . 7 . . . . . . . 7 Energy Pricing . . . . . . . . . . . . . . . . . . . . . . . 8 II. TBE BORROWER AND T.E IMPLEMENTING AGENCIES . . . . . . . 9 The Borrower . . . . . . . . . . . e . . . . * . * * * . * * 9 The Implementing Ageneies . . . ............... 9 Electricity Supply Comission of Malavi . . . . . . . . 9 Institutional Set Up . .. . . .. . . .... 9 Management and Staffing . . . . . . . . . . . . . 11 Planning and Engineering . . . . . . . . . . . 12 Operations and Maintenance . . . . . . . . . 12 Accounting a.J Audits . . . . . . .. . . . 12 Billing and Collection . ....... . . . . 13 Data Processing . ........ . 13 Training . . o . . . . . . . . . . . . . 13 Insuranoe and Taxes . . . .... . . . . ... 14 Non Power Components . . . . . . . ..e 14 The Energy Division . . . . . . e . . 14 The Petroleum Control Commission . . . . . . . . 14 The Tobacco Control Commission. . . . . . . . . 15. 15 Existing Power Facilities. ........ .a... 15 Generation System ............... 15 Load Dispatch Center . . . . . . . . . . . 16 Transmission and Distribution Systems . . . . . . 16 III. THE ELECTRICITY HAT . . . . . . . . . . . . . . . . . . 17 Recent Demand Trends . . . . . . . . . . . . . . . . .a. . . 17 DemandProjections ...... ............. .......... 18 Generation and Capacity Balances * * a a a * a 9 9 9 . 19 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  IV. POWRIMSTMENTPROGRAM DMPROjECT . . . . . . . . . . 20 The Inivestment Program of the Power Sector . . . . . . . . . 20 Source of financng .................. 21 Works in Progress . . . . . . . . . . . . . . . . . . , 21 The Project . . . . . . . . . . . . . . . . . . . . . . . . 22 Project Objectives . . ...... .. . . ......... 22 Rationale for IDA's Involvement . . . . . . . . . . . . 22 Project Preparation . . . . . . . . . . . . . . . . . . . . . 22 Project Description . . . .. .. . .* . . . . . . .. .. . . 23 Kapichira Hydro Scheme .. . .. ... .. .. . .. . 23 Generation Rehabilitation . . . . . . . . . . . . . . . 24 Transmission Reinforcement . . . . . . . . . . . . . 24 Distribution Reinforcement . . . . . . . . . . . . . . 24 Institutional Strengthening ESCOM . . . . . . . . . . . 25 Non-Power Components ................ * 25 Energy Planning and Policy a999 9 9 o o 25 Petroleum Supply ................ 25 Energy Efficiency. . . . . . . . . . . . . . . . 26 Project Cost Estimate .............. 26 Project Financing Plan .............. 27 Project Implementation ................ 28 Procurement . . . . . . . . . . . . . . . . . . . . . . 29 Project Preparation Facility. . . . . . . . . . . . . . 31 Disbursement . . . . . . * 31 Special Accounts ......... ..... . . . . . 31 Environmental Aspects................. 31 RiparianRig hte .................. 32 Project Risks . . . . . . . . ... .. ..... . 33 Project Monitoring and Supervision . . . . . . . . . . 33 V. IANCIALASPECTSANDCOSTECOVEY . . . . . . . . . . . 33 Financial Performance (ESCOM) ................. 33 AccountingandAuditing ............................... 35 Asset Revaluation and Depreciation . . . . . . . . . . . 36 Tariffs * . . a .* . . * . . a . . . . *0 * V * 36 Financial Projections ... .. . . . . . . . ... . . .a.a .. 37 Proposed Financing Plan .9. 9.99.... a a.......... 39 VI. ECONOMIC _JUSTIFICATION . . . a . . . . . . . . . . a 40 Least-Cost Power System Expansion . . . . . . . . . . . . . 40 Justification for Generation Rehabilitation . . . . . . . . . . 41 Justification for the Transmission Component . . . * . a . . 41 Justification for the Diabribution Component . . . . . . . . 41 EconomicRateofReturn ... a* ............... 9 42 VII. AGREEMENTS REAChED . . . . . . . . . . . . . . . . . . . 43 DuringNegotiation e..................... 43 Conditions of Effectivenesi .............. .... e 9 o o e 44 Conditions of Disbursement 9 9 ... ....... 44 Recommendation. . ... 9 . . . . . 9 9 9 . . . . * . . . . . 44  LIST OF ANNEXES 1.1 Hydroelectric Potential of Malawi 1.2 Energy Balance 1987 2.1 Proposed Organization at Government Level for Medium Term Planning Process (All Parastatals) 2.2 ESCOM Organization Chart 2.3 Selected Performance Indicators 2.4 Existing Facilities 1990: - ESCON's Generating Plant - ESCOM's Transmission and Dietribution Systems - Summary List of Private Generating Plant 3.1 ESCOM Interconnected System: - Sales and Generation Base Scenario (Actual and Projected) 3.2 ESCOM Interconnected System: - Sales and Generation High Scenario (Actual and Projected) 3.3 - Sales and Generation Low Scenario (Acutal and Projected) 3.4 ESCOM Interconnected System: - Capacity and Generating Balances 4.1 Detailed Project Description 4.2 Power Sector Investment Program 1991-1998 4.3 Power V Project Cost Estimates: - Contingencies Shown Separately - Contingencies included in each Subcomponent - Project cost Estimate 4.4 Summary of Project Implementation Schedule 4.5 Estimated Schedule of Disbursements 4.6 Monitoring Guidelines and Performance Indicators 4.7 Summary Environmental Assessment 4.8 Schedule of Supervision Mission 5.1 ESCOM Financial Indicators for Years Ending March 31 5.2 ESCOM Income Statements for Years Ending March 31, 1992-1996 5.3 ESCOM Balance Sheet for Years Ending December 31, 1987-1995 5.4 ESCOM Sources and Application of Funds Statement for Years ending March 31. 5-5 Definition and Working Example of the Self Financing Ratio 5.6 Notes and Assumptions for Financial Statements 5.7 ESCOM existing tariffs 5.8 ESCOM proposed tariffs 6.1 Least cost Generation Options 6.2 Economic Analysis of Transmission Lines 6.3 Economic Analysis of the Distribution Reinforcement 6.4 Economic Rate of Return of the Project MAP IBRD 23398 Malawi Power V Project Dated December 1991 This report is based en the findings of an appraisal mission which visited Malawi in August/September 1991. The appraisal mission was led by Mr. Assefa Telahun, Sr. Power Engineer (AP6IE). Mr. Robin Broadfield, Sr. Energy Economist (AP6IE) and Nr. Gulam Dhalla (Coneultant, Financial Analyst) were the additional mission members. Valuable advice was received from Messrs. John Besant-Jones, Edwin Moore (IENED), John Graves (APTEF) and Robert Tillman (AFTEN). Secretarial Gupport was provided by Mrs. Dotilda Sidibe. Messrs. David Cook (AF6TE) and Stephen Denning (AF6DR) are the managing Division Chief and Department Director.  NAIAWI POWER V PROJECT CREDIT AND PROJECT SUNMARY Borrower: Government of Malawi Amount: SDR39.2 million (US$51 million equivalent) Beneficiaries: Electricity Supply Commission of Malawi (ESCOM)I the Department of Economic Planning and Development (EPD); the Petroleum Control Commission (WCC); the Tobacco Control Commission (TCC). Terms: IDA standard terms, maturity of 40 years including 10 years grace. Onlending of US$53.75 million to ESCOM for the power component at 7.23% interest rate, repayment period of 20 years including 5 years grace, ESCOM bearing the foreign exchange risk. The balance will be passed on to EPD (US$600,000), PCC (US$250,000) and TCC (US$400,000). Pr'-ject Objectives: The objective of the proposed Project is to assist the Government to implement the priority components of the least cost power development program. The subsidiary objectives are to improve the quality of power supply and to strengthen energy sector institutions to plan and manage energy sector activities at sectoral and sub-sectoral levels. Project Description: The power component of the Project would comprise: (i) increasing the hydro generation capacity by 50MW through the construction of the f4rst phase of a hydroelectric power plant at Kapichira Falls, including related transmission system expansion, and engineering services for design and supervision; (ii) rehabilitation of the existing hydro, standby gas turbine and diesel power plants to improve their availability; (iii) reinforcing and expanding the transmission and distribution systems, to improve reliability, reduce losses and connect new consumers; (iv) strengthening ESCOM through the provision of couputer hardware and software, studies and training. The non-power component would: (i) assist the Government (EPD) in energy planning and policy formulation through provision of technical assistance; (ii) support the PCC in least cost petroleum product sourcing through technical assistance; and (iii) provide technical assistance to the TCC in improving barn design for smallholder tobacco curing, to reduce woodfuel consumption. Benefits and Risks: The Project would enhance the economic utilization of indigenous energy resources by increasing hydro generation capability and by reducing system losses  - ii - and improving system reliability. The Project also supports energy efficiency initiatives which will have marked influence in reducing woodfuel consumption (by an average of at least 30%) in the tobacco curing industry, second only to households in woodfuel consumption. Malawi's import of petroleum products is draining a substantial percentage (currently about 16X) of its foreign currency earnings. The Project supports efforts to reduce import and delivery prices of petroleum products. The estimated economic rate of return of the power component of the Project is 16.1Z, which is above the opportunity cost of capital in Malawi. The Project runs the risk of delay if the financing gap for the transmission and distribution reinforcement subcomponents cannot be closed as early as possible. The financing gap can be eliminated by trimming the Project to only the hydroelectric power plant. However, this would jeopardize some of the objectives and benefits of the Project. Trimming may also adversely affect the interest of possible cofinanciers. Dated covenants in the legal documents are included to help minimize this risk. ESCOM, with the assistance of the Government, will otherwise be able to finance the transmission and distribution reinforcement components. There is also the risk that new generation capacity may be commissioned too early or too late if demand forecasts prove inaccurate or are adversely affected by international economic situations or unforeseen political developments in the region. The power scheme as studied has no complex structures and will have no significant environmental impact; no technical risks are therefore anticipated. The financial risk of project costs exceeding the estimates is minimized through independent cost updates of the hydro component of the Project. The transmission and distribution components could be reduced in scope if costs increase, without substantially altering their specific objectives.  PROJECT COST ESTIMATE Loc,l Foreian Total (US$ Million) Power Component 1. Kapichira Civil Works 47.81 61.46 109.27 Electromechanical .95 27.73 28.68 Transmission 3.28 15.40 18.68 Engineering 2.74 14.60 17.34 54.78 119.19 173.97 2. Generation Rehabilitation 0.18 5.19 5.37 3. Transmission Reinforcement 2.55 16.28 18.83 4. Distribution reinforcement 5.95 23.11 29.06 5. Institutional Strengthening 0.09 2.64 2.73 Sub Total 63.55 166.41 229.96 6. Non-Power Components .09 1.25 1.34 Total Power V 63.64 167.66 231.30 Interest during construction 40.47 -40.47 Total 104.11 167.66 271.77 PROJECT FINANCING PLAN Local Foregig Total (US$ Million) Government 0.09 -- 0.09 ESCOM 104.02 0.40 104.42 IDA -- 55.00 55.00 CDC -- 25.00 25.00 EIB -- 18.00 18.00 AfDB -- 27.68 27.68 Other cofinanciers * 41.58 41.58 Total Financing Requirement 104.11 167.66 271.77 ESTIMATED DISBURSEMENT OF IDA CREDIT (US$ Million) IDA FY 1992 1993 1994 1995 1996 1997 1998 Annual 0.60** 7.90 13.58 15.39 11.76 4.42 1.35 Cumulative 0.60** 8.50 22.08 37.47 49.23 53.65 55.00 *7 Mainly for to transmissLou and distribution reinforcement components. While this gap is likely to be closed by cofinanciers, Government and ESCOM have committed to finance these components if financing does not become available. **/ PPF disbursements.  I. THE ENERGY SECTOR Economic Background 1.1 Malawi is a small, landlocked, predominantly rural country of about 8.5 million inhabitants, bordered by Mozambique to the south-west and south-east, Zambia to the north-west and Tanzania to the north-east. The bulk of the population is engaged in small-scale agriculture, and average per capita income is a low US$190 per year (1990). Major exports are tobacco, tea and sugar. 1.2 After a period of healthy economic expansion in the 1970s, declining export earnings and war in Mozambique slowed 3conomic growth in the 1980's below the population growth of 3.5%. Increases in smallholder output and increased balance of payments support helped stimulate economic recovery in 1988-91, when economic growth averaged close to 5% per annum. Given reasonably stable export earnings and sustained donor assistance, annual growth in the 4 - 4 1/2% range is projected for che first half of the 1990s; however, the ongoing draught will adversely effect the expected economic growth. Energy Resources 1.3 Malawi's major energy resource is biomass, which, in the form of wood and charcoal, meets the bulk of household and a large proportion of agricultural energy needs. Several rivers, notably the Shire, which drains from Lake Malawi into the Zambezi, have hydropower potential. The country also has modest reserves of generally low-quality coal. Despite active, no sources of oil or gas have been discovered. Detailed information on the country's energy resources is contained in the joint UNDP/World Bank Energy Assessment Report (Malawi: Issues and Options in the Energy Sector, April 1982). 1.4 Biomass. Trees and shrubs cover about 4 million hectares, 352 of Malawi's total land area. Indigenous vegetation on customary land accounts for about 75% of the 4 million hectares, forest reserves for about 20%, Government and private plantations, national parks and game reserves for the balance. Average annual sustainable wood yield is low, due to the slow-growing character of indigenous stock and generally poor ecological conditions. In aggregate, sustainable biomass supply is estimated to be greater than current national consumption. However, there is a serious regional imbalance between supply and demand. Roughly 50% of supply is located in the sparsely populated Northern Region. In the Central and Southern Regions in which nearly 90Z of the population live, land clearing for agriculture and wood use for fuel and construction is rapidly exhausting existing biomass resources, particularly on customary land. Recent estimates suggest that these resources are shrinking by about 3.52 per year and that supplies from customary land in the south and parts of the center could be nearing exhaustion in less than ten years. 1.5 Sugar cane molasses and juices produced by Malawi's two sugar estates are used to produce ethanol, which is blended with petrol to reduce petroleum imports. The ethanol plant, which was commissioned in 1982, currently produces an average of about 10 million liters of ethanol per year, sufficient to achieve an average ethanol/petrol blend of about 15:85. Consideration is being given to the establishment of a second ethanol plant. However, the maximum feasible ethanol/petrol blend that can be used without costly engine conversion is about 20:80, so full utilization of this additional supply would require the conversion  -2- of some vehicles to 1001 ethanol operation. The economics of this project should therefore be studied carefully before a decioion l.s made. 1.6 Coal. roal deposits occur in several different locations in Malawi. The most promising deposits in terms of quality and recoverability are near Ngana in the remote north of the country, where estimated reserves are in region of 16 million tons. However, high transport costs to the distant markets in the center and particularly the south have rendered exploitation of these reserves uneconomic. Other deposits are generally in geologically distarbed areas, where limited seam thickness and poor quality severely limit their economic potential. Mining began in 1985 at Kaziwiziwi, a small reserve in the north. About 11S,000 tonnes of coal has been produced from Kaziwiziwi, but accessible reserves are now virtually depleted. Production has recently switched to neighboring Mchenga, which is now meeting the bulk of demand. With support from the Government of France, exploratory drilling program has been completed at two sites in the south, Lengwe and Mwabvi. The reaults of the drilling program suggest that, on average, the coals have a relatively low calorific value and high ash content. However, some areas of the Mwab'i deposit are potentially promising, and further exploratory investigation has been recommended and is planned. 1.7 HydroDower. The hydropower potential of Malawi (Annex 1.1) is concentrated on the Shire river, which flows south from Lake Malawi and joins the Zambezi in Mozambique. The Shire's estimated hydro potential is about 600 MW and 3,500 GWh. To date, 144 MW has been developed. Several smaller rivers, such as the Songwe, South Rukura, Wovwe and Bua, have limited hydro potential at a number of small sites, estimated to total about 300-400 MW. The development of a 4 MW mini-hydro plant on the Wovwe river is planned as a first step towards exploitation of this resource. 1.8 Other Energy Resources. The average insolation level in Malawi is a relatively high 18MJme. However, the only significant use of solar energy is by the Department of Posts and Telecommunicat-Ions and the Malawi Broadcasting Corporation for communications, using solar photo-voltaLc panels. There is also very limited use of wind for water pumping in isolated areas. Energy Demand and Supply 1.9 Malawi's primary energy consumption totalled an estimated 2.43 million tonnes of oil equivalent (toe) in 1989. Woodfuels accounted for 93%, petroleum products for 4%, electricity for 2% and coal and ethanol for the remaining 1%. Average per capita energy consumption is a low 0.36 toe per year. Households consume about 85Z of total final energy, agriculture 8%, transport 4%, manufacturing 1.5% and assorted commercial activities the remainder. An energy balance for 1989 is shown in Annex 1.2 and the pattern of final energy consumption summarized in Table 1.1 below. 1.10 Woodfuels. An estimated 8.8 million tonnes of wood was used for energy purposes in 1989, about 94% of which was consumed by households, 5% in the processing of tobacco and tea and the balance in small rural and urban industries, such as brick making and fish smoking. Rural households gather wood free of charge for cooking and space heating purposes from neighboring trees, bushes and shrubs. They also use crop residues when these are available and/or wood is scarce. Most urban households use a combination of wood and charcoal.  -3- The charcoal and some of the wood io purchased, the remainder of the wood gathered. The tobacco and tea industries use wood either from their estates or neighboring customary land for curing and barn cor.struction. Table 1.11 Fi nal Ineag Consuenton b oConsumer Caterr7 and Fuel , 1989 (pearent) Puelwvood Charcoal Petroleum Electricity C6^1 Total- Households 75.0 8.6 0.1 0.3 85.0 Agriculture 7.0 0.6 0.4 8.0 Transport 4.0 4.0 Manufacturing 0.2 0.4 0.9 1.5 Other 0.9 0.6 1.5 BAR& .6 5.8 1.7 0.9 100.0 Rapid population growth., now over 3.5% per year, relatively high population densities, competition for land from agriculture and the influx of nearly one million refugees from ozasmbique have combined to cause rapid depletion of wood resources in many parts of the southern and central regions. 1.11 With IDA and other donors' support, the Government has taken a number of initiatives to expand woodfuel supply and slow demand growth. During the 19800, about 20,000 hectares of eucalyptus plantations were established by the Forestry Department. However, due to a combination of poor soils, inadequate maintenance and termite damage, their average annual yield has been under 5m3/ha, less than 50% of target, and costs per unit have consequently been much higher than forecast. Reflecting this experience, the major emphasis of wood supply policy has now shifted to improving the management of existing resources and encouraging private tree planting. Under the ongoing IDA Energy I project, the Vorestry department has expanded tree seedling production from its network of nurseries, introduced a tree planting incentive payment sastem for private farmers, and io expanding its extension, protection and wood revenue collection activities. 1.12 Demand-side initiatives have focussed on improving the efficiency of wood use in the tobacco industry, the largest commercial user of woodfuels, primarily through the introduction of an energy-saving furnace design. This has contributed to a dramatic reduction in wood consumption from 42m3 per tonne of tobacco cured in 1984 to 30-20m3 per tonne in 1989, with consequential environmental benefit. Tobacco curers are also being encouraged to use softwood charcoal produced from the thinnings of the large Viphya pine forest in place of traditional hardwood, with promising succees to date at larger estate farms. In line with IDA's policy to diversify away from tobacco production (OD 4.76', Malawi is pursuing a research-oriented approach, with which IDA agrees, to enhance the production of alternative crops (cotton, soya beans, macademia nuts, ground nuts, horticultural produce etc.). However, IDA also recognizes the need for flexibility in applying the tobacco policy to a country like Malawi, which is heavily dependent on tobacco for its foreign currency earnings. The proposed Project therefore complements the activities under Energy I by providing technical assistance for improved barn design for communal tobacco curing by smallholders (paras. 2.25 and 4.11H) and encouraging the use of softwood  .4 - charcoal. In an effort to reduce household wood consumption, the Energy I Project is introducing more efficienc charcoal cooking stoves, initially in Blantyre and later in Lilongwe and Mzuzu. They are based on a Kenyan design and qan produce fuel savings of 30-45%. Several thousand have been manufactured by local artisans and sold through hardware stores in Blantyre. 1.13 In an effort to discourage charcoal productior. from indigenous trees oA customary land and stimulate sale of charcoal from the Viphya Forest and other forest reserves, the Government has recently prohibited the sale of hardwood charcoal. However, the long transport distance to market and low density of softwood charcoal from the Viphya have resulted in deterioration during transport, high delivered cost and red'c. i combustion efficiency, v,hich have dampened consumer interest in the softw t alternative. Achievement of the Energy I Project's objecti-te of commercia.-.4zing the charcoal production and marketinp is being Impeded due to these difficulties. The Government hae, however, taken the positive step of legalizing the licensing of private charcoal production from the Viphya by the Forestry Department. The Viphya Wood Corporation, in collaboration with the Forestry Department, is also investigating the briquetting of softwood charcoal to reduce transport damage. 1.14 Petroleum Products. Con*numption of petroleum products, all of which are imported in refined form, totalled about 150 million liters in 1989. Prior to the outbreak of civil war in Mozambique, the products were imported through the Mozambique port of Beira, the nearest deep-water port to the main consumption centers in Malawi. During the 1980s, insecurity in Mozambique forced Malawi to diversify its source of supply. In 1989, just over half (54%) of supplies were procured from the Republic of South Africa via Zimbabwe, 20% from Dar-es-Salaam in Tanzania, 13% from the Ndola refinery in Zambia and 12% from Beira. The country has product stora&e capacity equivalent to three weeks consumption of diesel and petrol, two weeks of paraffin and tw