Speech By Ambassador Marchel Gerrmann at the Signing Ceremony of the Construction of the Mozambique-Malawi Interconnector Agreement Between the EU and KFW

Good afternoon,

Today is an important day. We will be signing the Agreement between the European Union and KfW for the Construction of the Mozambique-Malawi Interconnector.

As we all know, Malawi suffers from an acute shortage of electrical power with long and persistent load shedding. Not only does this affect the way , Malawians need to manage their family lives at home, but it has a strong negative effect on Malawi's private business sector including manufacturing, agro-processing, the service sector and tourism. If we are to realise positive change in Malawi in terms of jobs and inclusive growth, then we have to really tackle this energy problem.

That is why the EU, as partner for growth and jobs in Malawi decided to join forces with other DPs to tackle this most pressing issue affecting Malawi's economy. This project, the Mozambique‑Malawi Interconnector, comprises the construction of a 218 km long 400 kV transmission line between Matambo (Tete Province, Mozambique) and Phombeya (Balaka District, Malawi) by which the Malawi and the Mozambique electricity grids will be interconnected.

The EU is contributing EUR 20 million from our African Investment Facility (AfIF), which will be managed by KfW (Germany) through a so‑called blending operation whereby EU grant funds are blended with loans from financial institutions. The EU grant will be complemented also with contributions from the Government of Malawi as well as a World Bank loan.  

Clearly, Malawi cannot continue to remain as a kind of electrical island in the region. This project will connect Malawi to the Southern African Power Pool (SAPP) and allow it to become a fully-fledged operating member of this important regional energy group. Of course, while ESCOM still needs to conclude negotiations of a Purchase Power Agreement (PPA), there is already a commitment from Mozambique to provide an initial 50 MW. Expectations are that South Africa can comfortably provide another 150 MW. This will have a substantial impact on meeting Malawi's energy needs in the future.

Fully interconnecting regional grids does not happen overnight. We have done the same in the EU and, while we have had our challenges, we can say that we have seen very positive results for our citizens. That is why, when we saw that all sides were in agreement on this interconnector, we were eager to provide the required financial support. 

We see this project as potentially making a critical contribution to growth and jobs in Malawi. What's more, this project could also set a model for similar growth-enhancing investments to be supported by the European Union in Malawi.

The Mozambique-Malawi Interconnector is the first of two projects already approved for support in Malawi under the European Union's flagship initiative for Africa, the External Investment Plan (EIP). The other project will be implemented by the European Investment Bank for the rehabilitation of the 'Malawi M1 Road', for a total amount of EUR 83 million of EU and EIB funds, of which EUR 43 million is in grants. We are currently exploring with the Government additional investment opportunities. We are considering for instance a financial lending facility to support the development of value chains in the agriculture sector through affordable financing.

As the New Year brings new challenges, it is good to reflect on our joint achievements of last year. I am pleased to announce that in 2017 the European Union has signed contracts for Malawi totalling in excess of EUR 262 million (USD 321 m), and this only in grants, without including the EIB lending. In parallel we have disbursed more that EUR 91 million (USD 112 m) in grants, also in 2017. We have done a lot in the area of agriculture, education and infrastructure. Our work is only made possible through our excellent cooperation with the Ministry of Finance and other line ministries, and I would like to particularly thank Mr Nations Msowoya and his team at the NAO Support Office for their valuable work and cooperation.   

While this Interconnector project is an important step forward, more needs to be done in the energy sector.  We welcome the Government's recent liberalisation of the generation side and hope that more will be done to attract the private sector, particularly in renewable energy. However, long-term financial sustainability and the ability to attract power sector investments will depend on ESCOM implementing cost-reflective tariffs. 

We welcome the Government's reform efforts aimed at encouraging independent power producers as well as the development of the Rural Electrification Strategy. But more has to be done to simplify the licensing procedures and reduce costs for micro-grid systems.

Allow me to raise a very important point. This project is challenging. Its successful completion will require the close cooperation of all involved, especially KfW and their counterparts at ESCOM. Progress on negotiating the Power Purchase Agreement between ESCOM and EdM (Mozambique) is critical to success and we urge ESCOM to take advantage of the assistance of a Transaction Advisor offered through the SAPP (by the WB). Land acquisition/resettlement and environmental safeguard costs will need to be addressed and we welcome the commitment of the Ministry of Finance in this regard.

While this interconnector offers great potential, it will be complementary to domestic generation. Continued maintenance and upgrading of existing generation capacity will be crucial to providing a long term reliable power supply.

I would like to thank KfW for taking the lead on this new energy project. KfW has extensive experience in the energy sector worldwide and is an important development partner for the EU. I have confidence that they together with the Ministry of Energy and ESCOM will deliver a successful project.

Thank you.