Malawi - Energy assessment status report

Joint UNDP/World Bank Energy Sector Management Program Activity Completion Report No. 013/84 Country: MALAWI Activity: ME= ASSES SERT STATUS REPORT January 1984 Report of the joint UNDP/~bdd Bank Eneu Sector Management Program This document has a restricted distribution. Its contents may not be disclosed without authorization from the Government, the UNDP or the Worid Bank.  Energy Sector Management Program The Joint UNDP/World Bank Energy Sector Management Program is designed to provide a rapid and flexible response to governments who request assistance in implementing the policy, planning and institutional recommendations of the Energy Assessment Reports produced under another Joint UNDP/World Bank Program, or in carrying out prefeasibility studies for energy investments identified in these reports. The Energy Sector Management Program can provide the following types of assistance for countries which have had assessments: o assistance to improve a government's ability to manage its energy sector, for example by defining staffing and work programs, evaluating management information needs, identifying sources of public and private finance, developing a me'Aum-term investment plan; o prefeasibility work on priority investment plans, especially those which will improve the efficiency of energy use, bring about economic fuel substitution, or provide enough affordable energy to rural areas; o specific short-term assistance in institutional and manpower development, both at the sectoral and agency levels. The Program aims t. supplement, advance and strengthen the impact of bilateral or multilateral resources already available for technical assistance in the energy sector. Funding of the Program The P.ogram is a major international effort and, while the core finance has 'seen provided jointly by the UNDP and the World Bank, important financial contributions to the Prozram have been made by the Governments of the United Kingdom, the Netherlands, Denmark, Finland, Norway, Sweden, Australia and New Zealand.  ! )~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I MALAWI ENERGY ASSESSMENT STATUS REPORT January 1984 1 S  Table of Contents Page No. I* BACKGROUND AND SUMMARY, **.... **********I******e 1 II. DEVELOPMENTS IN ENERGY SUPPLY AND CONSUMPTION PATTERNS ............................... 2 III. STATUS OF ENERGY ASSESSMENT RECOMMENDATIONS .......... 3 ~~~~~~~~~ ~~~~~~~~ 3 * P~~~~~~Fetrlwood.. ...... ...... ............... ... .................. 4 * P~~~~Eectricity ............. ****.**. *..... 4 Power Supy;**6 Electricity Prcn ......6 NnovnlnlEegSore ............... ... ... ..................... ........... 6 Nonconveutional Energy Sources.................... 7 Institutionse............o.......................... 8 IV. ONGOING AND PLANIF7 TECHNICAL ASSISTANCE ............. 10 .  I. BACKGROUND AND SUMMARY 1/ 1.1 Malawi faces two major energy problems. The first one is a high degree of dependence on fuelwood, which accounts for 90% of primary energy supply. The rate of fuelwood consumption exceeds the sustainable yield and this, coupled with population growth, could seriously endanger Malawi's extensive forest resources in the future. The second problem facing Malawi is the rising cost of petroleum imports which is aggravated by supply interruptions caused by disruptions in transport routes. The UNDP/World Bank Energy Assessment report 2/ addressed these two problems and made recommendations for improvements in fuelwood efficiency and pricing, reforestation, strategic fuel storage reserves, overall energy pricing policy, conservation, efficiency -nd institutional strengthening of the energy sector. Institutional strengthening of the energy sector would be an essential prerequisite for implementing the other recommendations. 1.2 Over the last year, progress has been made in a number of areas in the energy sector. In the fuelwood subsector, the Ministry of Forestry has initiated studies and projects emphasizing the need for energy efficiency for wood-fired curing in the tobacco industry. A comprehensive inventory of various technical packages to improve the efficiency of fuelwood use in the tobacco industry has been completed. This inventory enables a comparison of alternatives in terms of investment costs and benefits. The Government also has initiated efforts in reforestation and fuelwood conservation. In the power subsector, a consultant has been selected to study the country's hydropower potential and recommend a ranking of project sites. The contract for this under- taking is expected to be signed shortly. Construction of a 20 MW generation project is expected to start this year and be completeAd in 1986-87. The petroleum supply system within the country has been streamlined and alternative supply routes from the neighboring states have been developed; efforts have been made to maintain an adequate contingency reserve stock. A uniform gasoline price has been established throughout the country. 1.3 It is now necessary to define an overall medium-term strategy for energy supply and utlization and to prepare a least-cost power development plan. For this purpose, the Government's institutional capability in the area of energy planning would need to be strengthened. The institutional issue was examined by a Bank/UNDP misison which visited Malawi in August, 1983, and is being addressed under the Bank's Technical Assistance project currently under i;plementation in conjunction with the 1/ This report was prepared by H. Ansari, who visited Malawi in August, 1983. 2/ Malawi: Issues and Options in the Energy Sector, Report No. 3903- MAI, August 1982.  -2- second Structural Adjustment Credit (Tara. 4.1). Under this project, assistance is also being provided for 4. pilot project to improve fuelwood efficiency in tobacco curing. II. DEVELOPMENTS IN ENERGY SUPPLY AND CONSUMPTION PATTERNS 2.1 There have been a number of developments in the energy consump- tion pattern since the Assessment in August, 1982. The consumption of petroleum products has decreased moderately. There has been a small decrease in gasoline and kerosene consumption; diesel oil demand has declined by about 3%. Electricity demand has remained constant over the year, mainly because of high tariffs, economic slowdown, and supply constraints in some parts of the country. Tariffs were ir-nreased in April, 1983 (by about 10%), and new tariffs were to be proposed for Government appreval in January, 1984. 2.2 On the supply side, there has not been any appreciable change since last year. The transportation of imported petroleum products through Mozambique (the shortest route) experienced continued diffi- culties. Hence, alternative transit routes from South Africa via Zimbabwe and Zambia have had to be developed although these routes are more expensive. The Dwangwa ethanol plant which had supplied 6.5 million liters during the previous year went on full production, with a target to supply 10 million liters by the end of 1983. The ethanol is used as transport fuel in a 20% blend with imported gasoline.  -3 1 III. STATUS 3F ENERGY ASSESSMENT RECOMMEDNATIONS Recomaenddations Status Fuelvood The efficiency of fuelwood use in A study 1/ financed through the the tobacco induetry should be ESMP has been carried out to improved. The work performed by determine costs and benefits the Tobacco Research Authority associated with various tech- (TRA) should be strengthened and nologies for pilot testing of expanded. flue-cured tobacco barns. The Ministry of Forestry has coor- dinated the work through TRA, the Energy Study Unit (ESU) and the Natural Resources Department. In line with the recommendations of the study, the Government has decided to implement a pilot project aimed at identifying measures to reduce fuelwood consumption in the tobacco industry by improving the thermal efficiency of tobacco curing barns. The pilot program, financed under the Bank's ongoing Technical Assistance Credit, will start in April, 1984 and is scheduled to be completed by mid- 1986. This would then be followed by a large scale project to improve the efficiencr of the tobacco industry. Seedlings should be sold in areas The location of nurseries and the where there already is an work of extension service teams apparent fuelwood shortage. have been redirected towards wood deficient areas. Government plantations are also being estab- lished near urban centers where there is a marked deficiency of fuelwood. 1.1 Technical Assistance for Improving the Efficiency of Fuelvood Use in the Tobacco Industry, ESMP Report 009/83; November, 1983.  -4- Efforts should be made to promote The Ministry of Forestry has the cultivation of species drawn up plans to carry out a suitable for building poles as survey which will identify the well as fuelwood, and those which areas best suited for introducing would grow on marginal land. different wood species. The Ministries of Forestry and Agri- culture have also established an extension service to disseminate information on these species. The managed plantation component Manpower constraints in the of the reforestation program Ministry of Forestry are limiting should be emphasized. further progress. An extension service on the care Some extension service is being and maintenance of seedlings provided but prevailing manpower should be provided, shortages do not allow for a country-wide effort. Fuelwood pricing policy should So far, little work has been done take into account the effects of on adopting a fuelwood pricing higher prices from Government policy. The Government feels plantations on the rate of that any move to. raise plantation withdrawal from customary land. wood prices would create an Efforts to raise the price of incentive for unauthorized indi- wood therefore ohould focus on viduals to cut trees illegally. the industrial and urban segments However, the significance of this of the market which purchase a impact needs to be evaluated. large portion of their require- ments. Petroleum Supply Strategic storage reserves should OILCOM has negotiated a small be provided for by entering into supply contract with the Ndola a small supply contract with the refinery. refinery at Ndola. A small reserve fleet of road Government has acquired four tankers should be acquired for vehicles and hired a fleet for emergency use. that purpose.  -5- A formal 'alert' mechanism should A standing committee has been be devised which would be formed and it meets once a month; activated when product stocks it has been effective during the fall below a specified level. crisis situation. However, no OILCOM could be responsible for formal 'alert" mechanism has been thia. A standing committee on drawn up. petroleum supply should be established to act on supply problems and 'alert' situa- tions. Members would include oil companies, Malawi Railways and Government representatives. 'A detailed allocation program The standing committee also should be drawn up for distri- allocates petroleum products to buting petroleum products to priority users during a crisis. priority users in the event of a However, no formal allocation shortage. It should be u9dated program has been drawn up. The periodically and adjusted for committee handles allocation on seasonal changes in demand. an individual basis. Petroleum Pricina The Government should -examine This investigation has been with the oil companies the postponed until the Central financial disincentives in the Government's newly instituted current procedure for holding energy unit becomes operational. inland stocks. The 'kerosene subsidy' should be 'No action has been taken on this abolished and the regular taxes matter. on kerosene and other products adjusted to provide the same net effect at a lower administrative cost. The Government should begin to Action on this area has been obtain independent information on defered until the energy unit international price trends and becomes operational. monitor the CIU costs of the various oil companies so that future anomalies in these costs are addressed without delay.  6 Power Supply To ensure the optimal selection ESCOM has prepared the terms of of future power projects, all reference for a consultant who potential ma ~r hydro projects was to begin to carrying out this should be syttematically work in late 1983. identified and ranked, and consideration should be given to diversifying away from the middle Shire River. The Government and ESCOM should ESCOM selected a consultant who begin to survey and identify the has experience in Malawi and the country's small hydro potential survey was to commence in late as a replacement for isolated 1983 with the use of British diesel generation. bilateral funds. Electricity Pricing The next round of Tariff To implement this recommendation, revisions should be based on the a tariff study is to be carried results of an updated marginal out in 1984 with World Bank cost of supply study. The study assistance. ESCOM has investi- should be carried out with tech- gated the use of load limiters nical assistance, if required. and has decided against intro- ZSCOM also should examine whether ducing them. To reduce the alternative connection and burden of the high connection fee metering procedures could help on consumers, ESCOM is planning increase household access to to spread the fee over several electricity by reducing the cost years by including it in the of supply. tariff. Coal The Coal Users Committee should The Committee was asked to stop continue its operation as long as its operation in early 1983. Due all the users are satisfied with to another coal crisis in March, this arrangement. 1983, the committee was urged to resume its work. Although the Government now intends to dis- solve the Committee again in the near future, this question may need to be reexamined in the event of another supply interrup- tion.  -7 The prospects for developing the The Geological Survey has con- Ngana coal deposit do not appear tinued to pursue exploration encouraging because of its high activities of Ngana coal cost and remote location. Thus, deposits, completing exploration further work on this deposit drilling in 1983. It estimates should not be given priority at proven reserves at about 20 mil- this time. lion tons, of which 40X, or eight million tons, are mineable. The investigation will continue as part of the proposed USAID assistance program described below. The Geological Survey should The Go-ernzint,is finalizing an continue to collect and analyze agreement with USAID to finance a information on other coal project with the following deposits as a part of its ongoing components: work, and a laboratory should be established to analyze the (a) a country-wide geological samples collected. investigation of coal occurrences; (b) a feasibility study for mining and marketing coal; and (c) the creation and equiping of a coal laboratory for anlayzing co*l samples. Nonconventional Energy Sources Develop clear guidelines on The newly established energy unit research and development work in is expected to prepare the new and renewable energy guidelines for these activities technologies to guide the as soon as it becomes opera- isolated efforts of various tional. This should also lead to agencies. The institutional a clarification of institutional framework for nonconventional responsibilities. energy souJ-ces also needs to be clarified. The feasibility of expanding Given the output from the Dwangwa ethanol production by using ethanol plant, there is no cssava as a feedstock should be immediate need for investments to carefully examined before expand ethanol production. investment decisions are made.  -8- The contribution of solar energy No action has been taken in this in water heating and crop dryir. direction either in terms of should be explored. direct Government involvement or in providing adequate financial incentives to potential private investors who could play an important part in promoting solar energy as a replacement for conventional energy sources. The cost of generating power from As ESCOM does not consider power bagasse at Sucoma should be generation from bagasse at Sucoma compared with the cost of to be a viable alternative, an supplying this power from ESCOM's evaluation of this option has not system. been given priority, The potential for expanding the The Economic Planning Division use of cotton seed husks as does not believe the quantity of boiler fuel in the Blantyre areas cotton produced in that area is should be examined. sufficient to justify this proposal. Conservation The pattern of energy consumption In the Government's view, the and the potential for increasing potential for energy savings the efficiency of energy use in through efficiency improvements industry should be examined is small and, therefore, not a further. high priority. However, a systematic evaluation of the potential needs to be carried out before this option is foreclosed. Institutions The TOR of the Contingency The unit is now a member of the Planning Unit. should be revised tripartite committee and as suct.k to allow it to focus on ensuring participates in the allocation of an uninterrupted supply of fuel. the supply of products during This unit should also be respon- shortages. sible for allocating fuels in the event cf a shortage. The Contingency Planning Unit in This recommendation has been OPC should represent the implemented. Government on the tripartite petroleum supply commettee.  -9- The responsibility for overall With ESMP assistance, the energy policy formulation and the Government has carried out a coordination of subsectoral review of the organization, energy agencies should be carried staffing, technical assistance out by the newly established and training requirements for the energy unit in the Energy Energy Unit. This review has Planning Division (EPD). EPD identified the follow-up required will require technical assistance in these areas. The necessary in the initial 18-24 month period first step is for the Government to effectively discharge these to recruit a minimum cors, staff responsibilities. to enable the unit to bec.me operational. The necessary technical assistance is co be -' provided under the bank-assisted TA Credit described below. IV. ONGOING AND PLANNED TECHNICAL ASSITANCE 4.1 In addition to the pilot fuelwood savings program for the Tobacco Research Authority, the ongoing Bank-financed Technical Assistance Credit includes an Energy Planning and Coordination project aimed at strengthening the institutional capability of EPD's energy unit. To staff the unit, the Government has decided to institute a team of five professionals who are currently either under training or in the process of being recruited. To assist the unit head and his staff in tackling the priority medium-term policy issues, the project will finance the services of an experienced energy economist/planner for about 18 months. The project also includes 12 man-months of fellowship support for short-term overseas training of EPD staff to enhance professional skills; funds for office supplies and administrative expenses; and support for a number of essential special studies. Detailed in-service training needs will be diagnosed once the head of the unit and his team have been appointed by mid-1984. The total cost of the project is estimated at US$520,000, of which US$435,000 is in foreign exchange. 4.2 As is evident from Section III of this report, there are a number of areas for which technical assistance would need to be sought in the short term. These areas include energy conservation, petroleum pricing and de'-elopment of nonconventional energy resources. The mission recommends that the preparation of a detailed technical assistance package be deferred till the energy unit becomes operational. Therefore, the first priorities are to induct the proposed local staff and initiate the implementation of the Energy Planning and Coordination project. Once recruited, the Bank financed energy specialist together with the local staff would determine the priorities for short-term technical assistance within the framework of overall energy plans and prepare a technical assistance package which would be financed from the Bank's Energy Planning and Coordination project and/or other multilateral or bilateral sources.