Joint UNDP/World BankEnergy 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 ProgramThis document has a restricted distribution. Its contents may not be disclosedwithout authorization from the Government, the UNDP or the Worid Bank.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Energy Sector Management Program

The Joint UNDP/World Bank Energy Sector Management Program isdesigned to provide a rapid and flexible response to governments whorequest assistance in implementing the policy, planning and institutionalrecommendations of the Energy Assessment Reports produced under anotherJoint UNDP/World Bank Program, or in carrying out prefeasibility studiesfor energy investments identified in these reports.

The Energy Sector Management Program can provide the followingtypes of assistance for countries which have had assessments:

o assistance to improve a government's ability to manage itsenergy sector, for example by defining staffing and workprograms, 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 ofenergy use, bring about economic fuel substitution, orprovide enough affordable energy to rural areas;

o specific short-term assistance in institutional andmanpower development, both at the sectoral and agencylevels.

The Program aims t. supplement, advance and strengthen theimpact of bilateral or multilateral resources already available fortechnical assistance in the energy sector.

Funding of the Program

The P.ogram is a major international effort and, while the corefinance has 'seen provided jointly by the UNDP and the World Bank,important financial contributions to the Prozram have been made by theGovernments 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 ANDCONSUMPTION PATTERNS ............................... 2

III. STATUS OF ENERGY ASSESSMENT RECOMMENDATIONS .......... 3~~~~~~~~~ ~~~~~~~~ 3* P~~~~~~Fetrlwood.. ...... ...... ............... ... .................. 4

* P~~~~Eectricity ............. ****.**. *..... 4Power Supy;**6Electricity Prcn ...... 6

NnovnlnlEegSore ............... ... ... ..................... ........... 6Nonconveutional 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 ahigh degree of dependence on fuelwood, which accounts for 90% of primaryenergy supply. The rate of fuelwood consumption exceeds the sustainableyield and this, coupled with population growth, could seriously endangerMalawi's extensive forest resources in the future. The second problemfacing Malawi is the rising cost of petroleum imports which is aggravatedby supply interruptions caused by disruptions in transport routes. TheUNDP/World Bank Energy Assessment report 2/ addressed these two problemsand made recommendations for improvements in fuelwood efficiency andpricing, reforestation, strategic fuel storage reserves, overall energypricing policy, conservation, efficiency -nd institutional strengtheningof the energy sector. Institutional strengthening of the energy sectorwould be an essential prerequisite for implementing the otherrecommendations.

1.2 Over the last year, progress has been made in a number of areasin the energy sector. In the fuelwood subsector, the Ministry ofForestry has initiated studies and projects emphasizing the need forenergy efficiency for wood-fired curing in the tobacco industry. Acomprehensive inventory of various technical packages to improve theefficiency of fuelwood use in the tobacco industry has been completed.This inventory enables a comparison of alternatives in terms ofinvestment costs and benefits. The Government also has initiated effortsin reforestation and fuelwood conservation. In the power subsector, aconsultant has been selected to study the country's hydropower potentialand recommend a ranking of project sites. The contract for this under-taking is expected to be signed shortly. Construction of a 20 MWgeneration project is expected to start this year and be completeAd in1986-87. The petroleum supply system within the country has beenstreamlined and alternative supply routes from the neighboring stateshave been developed; efforts have been made to maintain an adequatecontingency reserve stock. A uniform gasoline price has been establishedthroughout the country.

1.3 It is now necessary to define an overall medium-term strategyfor energy supply and utlization and to prepare a least-cost powerdevelopment plan. For this purpose, the Government's institutionalcapability in the area of energy planning would need to be strengthened.The institutional issue was examined by a Bank/UNDP misison which visitedMalawi in August, 1983, and is being addressed under the Bank's TechnicalAssistance 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 fuelwoodefficiency 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 ofpetroleum products has decreased moderately. There has been a smalldecrease in gasoline and kerosene consumption; diesel oil demand hasdeclined by about 3%. Electricity demand has remained constant over theyear, mainly because of high tariffs, economic slowdown, and supplyconstraints in some parts of the country. Tariffs were ir-nreased inApril, 1983 (by about 10%), and new tariffs were to be proposed forGovernment appreval in January, 1984.

2.2 On the supply side, there has not been any appreciable changesince last year. The transportation of imported petroleum productsthrough Mozambique (the shortest route) experienced continued diffi-culties. Hence, alternative transit routes from South Africa viaZimbabwe and Zambia have had to be developed although these routes aremore expensive. The Dwangwa ethanol plant which had supplied 6.5 millionliters during the previous year went on full production, with a target tosupply 10 million liters by the end of 1983. The ethanol is used astransport 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 thethe tobacco induetry should be ESMP has been carried out toimproved. The work performed by determine costs and benefitsthe Tobacco Research Authority associated with various tech-(TRA) should be strengthened and nologies for pilot testing ofexpanded. flue-cured tobacco barns. The

Ministry of Forestry has coor-dinated the work through TRA, theEnergy Study Unit (ESU) and theNatural Resources Department. Inline with the recommendations ofthe study, the Government hasdecided to implement a pilotproject aimed at identifyingmeasures to reduce fuelwoodconsumption in the tobaccoindustry by improving the thermalefficiency of tobacco curingbarns. The pilot program,financed under the Bank's ongoingTechnical Assistance Credit, willstart in April, 1984 and isscheduled to be completed by mid-1986. This would then befollowed by a large scale projectto improve the efficiencr of thetobacco industry.

Seedlings should be sold in areas The location of nurseries and thewhere there already is an work of extension service teamsapparent fuelwood shortage. have been redirected towards wood

deficient areas. Governmentplantations are also being estab-lished near urban centers wherethere is a marked deficiency offuelwood.

1.1 Technical Assistance for Improving the Efficiency of Fuelvood Use inthe Tobacco Industry, ESMP Report 009/83; November, 1983.

-4-

Efforts should be made to promote The Ministry of Forestry hasthe cultivation of species drawn up plans to carry out asuitable for building poles as survey which will identify thewell as fuelwood, and those which areas best suited for introducingwould grow on marginal land. different wood species. The

Ministries of Forestry and Agri-culture have also established anextension service to disseminateinformation on these species.

The managed plantation component Manpower constraints in theof the reforestation program Ministry of Forestry are limitingshould be emphasized. further progress.

An extension service on the care Some extension service is beingand maintenance of seedlings provided but prevailing manpowershould be provided, shortages do not allow for a

country-wide effort.

Fuelwood pricing policy should So far, little work has been donetake into account the effects of on adopting a fuelwood pricinghigher prices from Government policy. The Government feelsplantations on the rate of that any move to. raise plantationwithdrawal from customary land. wood prices would create anEfforts 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 thisof 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 smallbe provided for by entering into supply contract with the Ndolaa small supply contract with the refinery.refinery at Ndola.

A small reserve fleet of road Government has acquired fourtankers should be acquired for vehicles and hired a fleet foremergency use. that purpose.

-5-

A formal 'alert' mechanism should A standing committee has beenbe devised which would be formed and it meets once a month;activated when product stocks it has been effective during thefall below a specified level. crisis situation. However, noOILCOM could be responsible for formal 'alert" mechanism has beenthia. A standing committee on drawn up.petroleum supply should beestablished to act on supplyproblems and 'alert' situa-tions. Members would include oilcompanies, Malawi Railways andGovernment representatives.

'A detailed allocation program The standing committee alsoshould be drawn up for distri- allocates petroleum products tobuting petroleum products to priority users during a crisis.priority users in the event of a However, no formal allocationshortage. It should be u9dated program has been drawn up. Theperiodically and adjusted for committee handles allocation onseasonal changes in demand. an individual basis.

Petroleum Pricina

The Government should -examine This investigation has beenwith the oil companies the postponed until the Centralfinancial disincentives in the Government's newly institutedcurrent procedure for holding energy unit becomes operational.inland stocks.

The 'kerosene subsidy' should be 'No action has been taken on thisabolished and the regular taxes matter.on kerosene and other productsadjusted to provide the same neteffect at a lower administrativecost.

The Government should begin to Action on this area has beenobtain independent information on defered until the energy unitinternational price trends and becomes operational.monitor the CIU costs of thevarious oil companies so thatfuture anomalies in these costsare addressed without delay.

6

Power Supply

To ensure the optimal selection ESCOM has prepared the terms ofof future power projects, all reference for a consultant whopotential ma ~r hydro projects was to begin to carrying out thisshould be syttematically work in late 1983.identified and ranked, andconsideration should be given todiversifying away from the middleShire River.

The Government and ESCOM should ESCOM selected a consultant whobegin to survey and identify the has experience in Malawi and thecountry's small hydro potential survey was to commence in lateas a replacement for isolated 1983 with the use of Britishdiesel 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 carriedresults of an updated marginal out in 1984 with World Bankcost of supply study. The study assistance. ESCOM has investi-should be carried out with tech- gated the use of load limitersnical assistance, if required. and has decided against intro-ZSCOM also should examine whether ducing them. To reduce thealternative connection and burden of the high connection feemetering procedures could help on consumers, ESCOM is planningincrease household access to to spread the fee over severalelectricity by reducing the cost years by including it in theof supply. tariff.

Coal

The Coal Users Committee should The Committee was asked to stopcontinue its operation as long as its operation in early 1983. Dueall the users are satisfied with to another coal crisis in March,this arrangement. 1983, the committee was urged to

resume its work. Although theGovernment now intends to dis-solve the Committee again in thenear future, this question mayneed to be reexamined in theevent 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 explorationencouraging because of its high activities of Ngana coalcost and remote location. Thus, deposits, completing explorationfurther work on this deposit drilling in 1983. It estimatesshould not be given priority at proven reserves at about 20 mil-this time. lion tons, of which 40X, or eight

million tons, are mineable. Theinvestigation will continue aspart of the proposed USAIDassistance program describedbelow.

The Geological Survey should The Go-ernzint,is finalizing ancontinue to collect and analyze agreement with USAID to finance ainformation on other coal project with the followingdeposits as a part of its ongoing components:work, and a laboratory should beestablished to analyze the (a) a country-wide geologicalsamples collected. investigation of coal

occurrences;

(b) a feasibility study formining and marketing coal;and

(c) the creation and equiping ofa coal laboratory foranlayzing co*l samples.

Nonconventional Energy Sources

Develop clear guidelines on The newly established energy unitresearch and development work in is expected to prepare thenew and renewable energy guidelines for these activitiestechnologies to guide the as soon as it becomes opera-isolated efforts of various tional. This should also lead toagencies. The institutional a clarification of institutionalframework for nonconventional responsibilities.energy souJ-ces also needs to beclarified.

The feasibility of expanding Given the output from the Dwangwaethanol production by using ethanol plant, there is nocssava as a feedstock should be immediate need for investments tocarefully examined before expand ethanol production.investment decisions are made.

-8-

The contribution of solar energy No action has been taken in thisin water heating and crop dryir. direction either in terms ofshould be explored. direct Government involvement or

in providing adequate financialincentives to potential privateinvestors who could play animportant part in promoting solarenergy as a replacement forconventional energy sources.

The cost of generating power from As ESCOM does not consider powerbagasse at Sucoma should be generation from bagasse at Sucomacompared with the cost of to be a viable alternative, ansupplying this power from ESCOM's evaluation of this option has notsystem. been given priority,

The potential for expanding the The Economic Planning Divisionuse of cotton seed husks as does not believe the quantity ofboiler fuel in the Blantyre areas cotton produced in that area isshould be examined. sufficient to justify this

proposal.

Conservation

The pattern of energy consumption In the Government's view, theand the potential for increasing potential for energy savingsthe efficiency of energy use in through efficiency improvementsindustry should be examined is small and, therefore, not afurther. high priority. However, a

systematic evaluation of thepotential needs to be carried outbefore this option is foreclosed.

Institutions

The TOR of the Contingency The unit is now a member of thePlanning Unit. should be revised tripartite committee and as suct.kto allow it to focus on ensuring participates in the allocation ofan uninterrupted supply of fuel. the supply of products duringThis unit should also be respon- shortages.sible for allocating fuels in theevent cf a shortage.

The Contingency Planning Unit in This recommendation has beenOPC should represent the implemented.Government on the tripartitepetroleum supply commettee.

-9-

The responsibility for overall With ESMP assistance, theenergy policy formulation and the Government has carried out acoordination of subsectoral review of the organization,energy agencies should be carried staffing, technical assistanceout by the newly established and training requirements for theenergy unit in the Energy Energy Unit. This review hasPlanning Division (EPD). EPD identified the follow-up requiredwill require technical assistance in these areas. The necessaryin the initial 18-24 month period first step is for the Governmentto effectively discharge these to recruit a minimum cors, staffresponsibilities. to enable the unit to bec.me

operational. The necessarytechnical assistance is co be

-' provided under the bank-assistedTA Credit described below.

IV. ONGOING AND PLANNED TECHNICAL ASSITANCE

4.1 In addition to the pilot fuelwood savings program for theTobacco Research Authority, the ongoing Bank-financed TechnicalAssistance Credit includes an Energy Planning and Coordination projectaimed at strengthening the institutional capability of EPD's energyunit. To staff the unit, the Government has decided to institute a teamof five professionals who are currently either under training or in theprocess of being recruited. To assist the unit head and his staff intackling the priority medium-term policy issues, the project will financethe services of an experienced energy economist/planner for about 18months. The project also includes 12 man-months of fellowship supportfor short-term overseas training of EPD staff to enhance professionalskills; funds for office supplies and administrative expenses; andsupport for a number of essential special studies. Detailed in-servicetraining needs will be diagnosed once the head of the unit and his teamhave been appointed by mid-1984. The total cost of the project isestimated 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 anumber of areas for which technical assistance would need to be sought inthe short term. These areas include energy conservation, petroleumpricing and de'-elopment of nonconventional energy resources. The missionrecommends that the preparation of a detailed technical assistancepackage be deferred till the energy unit becomes operational. Therefore,the first priorities are to induct the proposed local staff and initiatethe implementation of the Energy Planning and Coordination project. Oncerecruited, the Bank financed energy specialist together with the localstaff would determine the priorities for short-term technical assistancewithin the framework of overall energy plans and prepare a technicalassistance package which would be financed from the Bank's EnergyPlanning and Coordination project and/or other multilateral or bilateralsources.