VZCZCXRO7690
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLG #0268/01 1390935
ZNR UUUUU ZZH
R 190935Z MAY 09
FM AMEMBASSY LILONGWE
TO RUEHC/SECSTATE WASHDC 0502
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHLO/AMEMBASSY LONDON 0354
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION WASHINGTON DC

UNCLAS SECTION 01 OF 02 LILONGWE 000268 
 
SIPDIS 
 
LONDON FOR AF WATCHER PETER LORD 
 
E.O. 12958: N/A 
TAGS: EAID ENRG ELTN MCC MI
SUBJECT: MALAWI MCC CONCEPT PAPERS GENERATE PRIVATE SECTOR 
INTEREST 
 
REF: A. 08 LILONGWE 551 
     ¶B. LILONGWE 122 
 
LILONGWE 00000268  001.2 OF 002 
 
 
¶1. Summary:  Malawi's recently submitted proposals for a 
potential Millennium Challenge Account (MCA) compact 
generated considerable private sector interest at a May 7 
forum.  The forum included a presentation on the concept 
papers recently submitted by the MCA-Malawi Core Team 
(MCA-M).  Malawi is requesting MCA investments of nearly USD 
500 million, focusing on the power, transport, and governance 
sectors.  With funding likely to be much lower than 
requested, Post faces a significant challenge in managing 
expectations and potential public diplomacy fallout.  End 
summary. 
 
¶2. On May 7, the Millennium Challenge Corporation (MCC) and 
the Corporate Council on Africa co-sponsored a private sector 
forum to discuss Malawi's potential MCA compact.  The event, 
linked by DVC to MCC headquarters, drew an audience in 
Lilongwe of over 50 senior private sector representatives. It 
included presentations by the MCA-M Core Team describing the 
sector-specific concept papers, and a lively question and 
answer session involving all participants. 
 
Focus on Power, Transport and Governance 
---------------------------------------- 
 
¶3. Since September, when a national stakeholders conference 
marked the end of the constraints analysis and initial 
consultations phase (Ref A), the MCA-M team has been working 
to develop concept papers for specific projects based on the 
key development constraints identified.  In view of the 
probable funding levels and the five-year time frame for MCA 
compact projects, MCA-M decided to focus on the power and 
transportation sectors.  Two concept papers for these sectors 
were formally submitted to MCC on April 17.  MCA-M will also 
develop a smaller concept paper on governance, which will 
build on the work done through Malawi's MCC Threshold Country 
Program (TCP). 
 
¶4. In the power sector, MCA-M proposes a broad range of 
activities addressing generation, transmission, distribution 
and off-grid electrification using renewable energy, as well 
as institutional capacity-building.  The program does not 
include investments in any new generation capacity, but 
rather targets efficient utilization of existing capacity and 
improved generation reliability.  Taken as a whole, the 
proposal seeks to make investment in power generation 
economically viable, whether investment is undertaken by 
ESCOM, the current monopoly supplier, or by new independent 
power producers.  Total funding requested is USD 247 million. 
 
¶5. In the transport sector, MCA-M proposes investments in 
rail and road transportation, as well as the strengthening of 
the administrative and regulatory regime.  The rail sector 
would receive the bulk of the funding, with projects 
addressing the rehabilitation of the rail infrastructure 
along the Nacala corridor (northern Mozambique's major port), 
as well as the acquisition of locomotives and rolling stock. 
The road projects would upgrade key feeder roads to improve 
market access for rural populations.  Total funding requested 
is USD 194 million. 
 
¶6. Following on the widely recognized success of Malawi's 
TCP, MCA-M is also developing a series of governance 
projects.  Much smaller than the infrastructure projects, the 
governance activities would fund capacity-building in fiscal 
management and oversight begun by the TCP.  Total funding 
requested is expected to be in the USD 25-35 million range. 
 
Private Sector Ready to Engage, Eager for More Information 
--------------------------------------------- ------------- 
 
¶7. Participation in the forum demonstrated that there is 
already wide interest from the private sector for involvement 
with Malawi's compact.  Participants included potential 
partners covering all phases of the compact, project design, 
feasibility studies, capacity building, project management, 
and construction.  The most engaged included representatives 
from General Electric, Lockheed-Martin, Portugal-based Mota 
Engil, Scottish Development International, Malawi's Standard 
Bank, and the U.S. Overseas Private Investment Corporation 
(OPIC).  Two speakers even expressed interest in working on 
power generation projects that will benefit from compact 
projects but are not slated to receive direct MCC funding. 
 
¶8. While there was genuine enthusiasm for Malawi's concept 
papers, there were also some concerns expressed.  Several 
 
LILONGWE 00000268  002.2 OF 002 
 
 
speakers commented on the importance of addressing the 
regulatory environment in order to increase private sector 
investment.  Others stressed the need for capacity-building. 
For example, one speaker noted the potential benefits of 
carbon financing, but added the Malawi Energy Regulatory 
Authority (MERA) lacks the capacity to take advantage of this 
resource.  For a number of potential partners, a key question 
was what will be the final size of the projects, and of the 
compact as a whole. 
 
¶9. In response to the last point, MCC officials noted that, 
although the budget for 2010 has not yet been approved, the 
average compact size for sub-Saharan African countries has 
been about USD 300 million, and that this amount would be a 
good estimate for what Malawi might get.  MCC has requested 
from Congress funding of USD 1,425 million for 2010, with 
Jordan, Malawi and the Philippines in line to sign compacts 
during the year.  MCC reps indicated that Malawi might hope 
to get as much as USD 400 million, but only if this budget is 
fully funded.  Malawi's requested funding totals roughly USD 
475 million, so significant cuts to the proposals are likely 
to be needed. 
 
Comment: Compact on Track, but Expectations are High 
--------------------------------------------- ------- 
 
¶10. MCA-M has done its homework and gained broad based 
support for the proposals.  MCA-M has made a persuasive 
argument that investment in the targeted projects will bring 
tangible improvements in the country's prospects for economic 
growth.  At the same time, the GOM has decided to submit an 
ambitious request, putting the onus of trimming programs on 
the MCC.  Given local enthusiasm for the projects, cuts will 
be painful.  Funding in the USD 300 million range will 
represent less than two thirds of Malawi's request and would 
require the removal of major elements of the proposals.  Post 
fully recognizes MCC funding constraints.  However, if final 
funding levels are substantially below Malawian expectations 
that MCC is unable to reign in, Post will face a serious 
public diplomacy challenge to avoid damage to USG credibility. 
BODDE