Notice of Entering Into a Compact With the Republic of Malawi, 21044-21072 [2011-8983]

Agencies

• Millennium Challenge Corporation

[Federal Register Volume 76, Number 72 (Thursday, April 14, 2011)]
[Notices]
[Pages 21044-21072]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8983]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 11-04]


Notice of Entering Into a Compact With the Republic of Malawi

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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SUMMARY: In accordance with Section 610(b)(2) of the Millennium 
Challenge Act of 2003 (Pub. L. 108-199, Division D), the Millennium 
Challenge Corporation (MCC) is publishing a summary and the complete 
text of the Millennium Challenge Compact between the United States of 
America, acting through the Millennium Challenge Corporation, and the 
Republic of Malawi. Representatives of the United States Government and 
the Republic of Malawi executed the Compact documents on April 7, 2011.

    Dated: April 8, 2011.
Henry Pitney,
Deputy General Counsel, Millennium Challenge Corporation.

Summary of Millennium Challenge Compact With the Republic of Malawi

    The five-year Millennium Challenge Compact with the Republic of 
Malawi will provide up to $350.7 million to reduce poverty through 
economic growth (the ``Compact''). The Compact focuses on 
revitalization of the Malawi power sector, and is intended to: (i) 
Increase investment and employment income by raising the profitability 
and productivity of enterprises; (ii) expand access to electricity for 
the Malawian people and businesses; and (iii) improve delivery of 
social services.

1. Project Overview and Activity Descriptions

    To advance the Compact goal of reducing poverty through economic 
growth, the Compact will fund a Power Sector Revitalization Project 
(the ``Project'') that aims to improve the availability, reliability, 
and quality of the power supply by: (i) Increasing the throughput 
capacity and stability of the national electricity grid; (ii) increase 
efficiency of hydropower generation; and (iii) create an enabling 
environment for future expansion by strengthening sector institutions 
and enhancing regulation and governance of the sector. The Project 
consists of two activities (i) the Infrastructure Development Activity 
and (ii) the Power Sector Reform Activity (the ``Activities'').
A. Infrastructure Development Activity ($283 Million)
    The Infrastructure Development Activity focuses on the 
rehabilitation, upgrade and modernization of those generation, 
transmission and distribution assets of the Electricity Supply 
Corporation of Malawi (``ESCOM'') in most urgent need of repair, in 
order to improve the capability of the transmission system and increase 
the efficiency and sustainability of hydropower generation. Because 
maintaining the current generation assets and expanding generation 
capacity are necessary to ensure realization of the full benefits of 
the Infrastructure Development Activity, the Government of Malawi 
(``GOM'') is committing to maintain current generation assets, and to 
invest in new generation by completing the construction of the 64 MW 
Kapichira II hydropower plant during the term of the Compact. By the 
end of the Compact term, MCC expects that the Infrastructure 
Development Activity will result in increases in generation capacity 
(from 286 MW to 356 MW), network throughput (from 260 MW to 410 MW) and 
distribution capability (from 868 megavolt amperes (MVA) to 1,118 MVA), 
as well as a reduction of technical losses of the power system (from 
20-25% to 18%).
    The Infrastructure Development Activity consists of the following 
four sub-activities:
    (a) Nkula A Rehabilitation Sub-Activity. This sub-activity will 
provide funding to rehabilitate and modernize Malawi's oldest major 
hydropower plant Nkula A--at the Nkula Falls Hydroelectric plant. The 
objective of this proposed investment is to improve the availability of 
power in Malawi by reducing outages caused by the condition of assets, 
and maximizing the power output of generators. The rehabilitation is 
necessary to assist ESCOM avoid the good probability that at least a 
portion, if not all, of the plant could fail by the end of the Compact 
without MCC's investment. Such a loss in generation output would have a 
significant adverse affect on the Malawi economy, and severely 
compromise the potential utilization and returns on MCC's investment in 
the transmission and distribution upgrade and rehabilitation.
    (b) Transmission Network Upgrade Sub-Activity. This sub-activity 
will upgrade the backbone of the transmission network in order to: (i) 
Improve the quality and reliability of supply in the northern, central 
and southern regions of the country; (ii) increase the capacity to move 
power from the south, where 98 percent of Malawi's power is generated, 
to the central and northern regions; (iii) reduce technical losses on 
transmission lines; and (iv) provide a secure transmission link between 
the southern and central regions.
    (c) Transmission and Distribution Upgrade, Expansion, and 
Rehabilitation Sub-Activity. This sub-activity includes investments in 
the southern, central, and northern power systems of the Malawi power 
network in order to: (i) Upgrade existing network connections (33-
kilovolt (kV), 11kV); (ii) extend existing substations; (iii) upgrade 
transformers in existing substations; (iv) develop new substations; (v) 
install and/or repair improved protection systems; (vi) provide new 
network extensions and connections; and (vii) install a new system 
control and data acquisition system.
    (d) Environment and Natural Resource Management (ENRM) Sub-
Activity. The objective of the ENRM sub-activity is to help the GOM and 
other relevant stakeholders address the growing problems of aquatic 
weed infestation and excessive sedimentation in the Shire River, which 
cause costly disruptions to downstream power plant operations. The ENRM 
sub-activity intends to address these issues by: (i) Mitigating the 
impact of the weeds and sedimentation by providing dredgers and weed-
harvesting equipment for use at existing hydropower plants and the 
Liwonde Barrage, and expanding use of upstream biological control 
measures; and (ii) developing and implementing an Environmental and 
Natural Resource Management Action Plan (ENRMAP) that sets the course 
for an improved understanding and action on environmental, social 
(including

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gender), and economic factors that cause or contribute to weed 
infestation and sedimentation in the Shire River.
B. Power Sector Reform Activity ($25.7 million)
    The Power Sector Reform Activity complements the Infrastructure 
Development Activity by providing support for the GOM's policy reform 
agenda, and aims to build capacity in pivotal sector institutions: 
ESCOM, the Malawi Energy Regulatory Authority (MERA), and the Ministry 
of Natural Resources Energy and Environment (MNREE). Currently, ESCOM 
suffers from significant financial, governance and operational 
challenges. In addition, inadequate GOM policies and sector governance 
continue to hinder development of the power sector. To address these 
challenges, MCC and the GOM have developed two sub-activities under the 
Power Sector Reform Activity: the ESCOM Turnaround sub-activity and the 
Regulatory Strengthening sub-activity.
    (a) ESCOM Turnaround Sub-Activity. The objectives of this sub-
activity are to restore ESCOM's financial health and rebuild ESCOM into 
a strong, well-managed company. MCC funding will support three main 
areas of the turnaround: finances, corporate governance and operations.
    (i) Finances: MCC funding will support the provision of technical 
assistance and equipment to ESCOM, including: (1) Development of a 
detailed financial plan for 2011-2016; (2) deployment of a ``financial 
turnaround team''; (3) development of a loss reduction study; (4) 
assistance in rapid billings and collections improvements; (5) 
strengthening of internal controls; (6) rebuilding of the customer 
database; (7) pursuit of debt collection; (8) development of a new 
automated financial management system; and (9) assistance with tariff 
applications.
    (ii) Operations: MCC funding will support change management 
efforts, designing human resources strategies, strengthen ESCOM's 
procurement division, and other operational assistance.
    (iii) Corporate Governance: MCC funding will seek to improve 
corporate governance and support ESCOM's turnaround, including: (1) 
Recruitment services; (2) twinning/mentoring arrangements or management 
contract support; (3) a performance management system; and (4) board 
strategic planning. MCC funding will provide technical assistance on 
corporate performance standards, including a study on best practices 
and benchmarks for corporate governance of electric utilities with 
regional, continental and international benchmarks and recommendations 
for ESCOM by the end of the second year of the Compact term.
    (b) Regulatory Strengthening Sub-Activity. The objective of this 
sub-activity is to provide support for the GOM's policy reform agenda 
by building capacity in pivotal sector institutions such as MERA and 
MNREE, and to develop a regulatory environment, consistent with best 
practices in independent power utility regulation, which will promote 
potential private sector investment in generation and grid capacity at 
an affordable cost.
    (i) Tariff Reform: MCC funding will support a cost of service study 
to determine appropriate tariff levels and schedules to achieve full 
cost recovery, more efficient utilization of electricity, and 
achievement of social objectives. Based on the results of this study, 
the GOM commits to a phased implementation of full-cost recovery 
tariffs and schedules to be completed by the end of year three of the 
Compact.
    (ii) MERA Capacity Building: MCC funding will support capacity 
building at MERA to improve its regulatory oversight activities and 
operations including training and mentoring and development of peer 
relationships with other regulatory bodies.
    Enabling Environment for Public and Private Sector Investment: MCC 
funding will support the GOM's efforts to implement a suitable market 
model which will include efforts to: (a) Study and design a single 
buyer model to be implemented during the Compact; and (b) develop the 
building blocks of a bilateral power trade market.

2. Administration

    The Compact also includes program administration costs estimated at 
$33 million over a five-year timeframe, including the costs of 
administration, management, auditing, and fiscal and procurement 
services. In addition, the cost of monitoring and evaluation of the 
Compact and integration of MCC's gender policy is budgeted at 
approximately $9 million.

3. Economic and Beneficiary Analysis

    By reducing power outages and technical losses, enhancing the 
sustainability and efficiency of hydropower generation, and increasing 
the potential kilowatt hours (``kWh'') of throughput to electricity 
consumers, the Program will reduce energy costs to enterprises and 
households, improve productivity in agriculture, manufacturing, and 
service sectors, and support the preservation and creation of 
employment opportunities in the economy. MCC and the GOM expect the 
Program to result in the following benefits and distribution thereof:
     An estimated 5 million individuals will benefit by year 20 
after the Compact term through reduced domestic and enterprise energy 
costs, increased employment income, and profits;
     An estimated US$2.4 billion of income benefits to Malawi 
at the present discounted rate of 10 percent;
     An estimated 40 percent of beneficiaries are currently 
extremely poor, and 60 percent are poor \1\; and
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    \1\ ``Extremely poor'' is defined as living on the equivalent 
amount in 2010 of less than US$1.25 per day 2005 PPP adjusted 
dollars, and ``poor'' is defined as living on less than US$2.00 per 
day 2005 PPP adjusted dollars.
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     Extremely poor individuals will gain approximately US$221 
of benefits in PPP terms, and poor individuals will gain an average of 
US$291 (estimates based on recent employment and electricity connection 
patterns, and incorporate effects of a modest rise in tariffs, to 
partly finance expanded access).

Millennium Challenge Compact Between the United States of America 
Acting Through the Millennium Challenge Corporation and the Republic of 
Malawi

Millennium Challenge Compact

Table of Contents

Article 1. Goal and Objectives
    Section 1.1 Compact Goal
    Section 1.2 Program Objective
    Section 1.3 Project Objectives
Article 2. Funding and Resources
    Section 2.1 Program Funding
    Section 2.2 Compact Implementation Funding
    Section 2.3 MCC Funding
    Section 2.4 Disbursement
    Section 2.5 Interest
    Section 2.6 Government Resources; Budget
    Section 2.7 Limitations of the Use of MCC Funding
    Section 2.8 Taxes
Article 3. Implementation
    Section 3.1 Program Implementation Agreement
    Section 3.2 Government Responsibilities
    Section 3.3 Policy Performance
    Section 3.4 Accuracy of Information
    Section 3.5 Implementation Letters
    Section 3.6 Procurement
    Section 3.7 Records; Accounting; Covered Providers; Access
    Section 3.8 Audits; Reviews
Article 4. Communications
    Section 4.1 Communications
    Section 4.2 Representatives
    Section 4.3 Signatures
Article 5. Termination; Suspension; Expiration
    Section 5.1 Termination; Suspension

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    Section 5.2 Consequences of Termination, Suspension or 
Expiration
    Section 5.3 Refunds; Violation
    Section 5.4 Survival
Article 6. Compact Annexes; Amendments; Governing Law
    Section 6.1 Annexes
    Section 6.2 Amendments
    Section 6.3 Inconsistencies
    Section 6.4 Governing Law
    Section 6.5 Additional Instruments
    Section 6.6 References to MCC Web Site
    Section 6.7 References to Laws, Regulations, Policies, and 
Guidelines
    Section 6.8 MCC Status
Article 7. Entry Into Force
    Section 7.1 International Agreements
    Section 7.2 Conditions Precedent to Entry Into Force
    Section 7.3 Date of Entry Into Force
    Section 7.4 Compact Term
    Section 7.5 Provisional Application
Annex I: Program Description
Annex II: Multi-Year Financial Plan Summary
Annex III: Description of the Monitoring and Evaluation Plan
Annex IV: Conditions to Disbursement of Compact Implementation 
Funding
Annex V: Definitions

Millennium Challenge Compact

Preamble

    This Millennium Challenge Compact (this ``Compact'') is between the 
United States of America, acting through the Millennium Challenge 
Corporation, a United States Government corporation (``MCC''), and the 
Republic of Malawi (``Malawi''), acting through its government (the 
``Government'') (individually a ``Party'' and collectively, the 
``Parties''). Capitalized terms used in this Compact will have the 
meanings provided in Annex V.
    Recognizing that the Parties are committed to the shared goals of 
promoting economic growth and the elimination of extreme poverty in 
Malawi and that MCC assistance under this Compact supports Malawi's 
demonstrated commitment to strengthening good governance, economic 
freedom and investments in people;
    Recalling that the Government consulted with the private sector and 
civil society of Malawi to determine the priorities for the use of 
Millennium Challenge Corporation assistance and developed and submitted 
to MCC a proposal for such assistance to achieve lasting economic 
growth and poverty reduction;
    Understanding that MCC wishes to help Malawi implement the program 
described herein (as such description may be amended from time to time 
in accordance with the terms hereof, the ``Program'') to counter a key 
binding constraint to sustained growth and diversification in the 
Malawi economy; and
    Acknowledging that to implement the Program, MCC wishes to make 
available to the Government an amount not to exceed Three Hundred and 
Fifty Million Seven Hundred Thousand United States Dollars 
(US$350,700,000), subject to the terms and conditions of this Compact;
    The Parties hereby agree as follows:

Article 1. Goal and Objectives

Section 1.1 Compact Goal

    The goal of this Compact is to reduce poverty through economic 
growth in Malawi (the ``Compact Goal'').

Section 1.2 Program Objective

    The collective objective of the Program (the ``Program Objective'') 
is to (i) increase investment and employment income by raising the 
profitability and productivity of enterprises, (ii) expand access to 
electricity for the Malawian people and businesses, and (iii) improve 
delivery of social services.

Section 1.3 Project Objective

    To achieve the Program Objective, the Government will implement the 
Power Sector Revitalization Project described in Annex I (the 
``Project'') with the assistance of MCC. The objective of the Project 
is to improve the availability, reliability, and quality of the power 
supply by increasing the throughput capacity and stability of the 
national electricity grid, increase efficiency of hydropower 
generation, and create an enabling environment for future expansion by 
strengthening sector institutions and enhancing regulation and 
governance of the sector (the ``Project Objective'').

Article 2. Funding and Resources

Section 2.1 Program Funding

    Upon entry into force of this Compact in accordance with Section 
7.3, MCC will grant to the Government, under the terms of this Compact, 
an amount not to exceed Three Hundred and Forty One Million Five 
Hundred and Eighty Thousand United States Dollars (US$341,580,000) 
(``Program Funding'') for use by the Government to implement the 
Program. The allocation of Program Funding is generally described in 
Annex II.

Section 2.2 Compact Implementation Funding

    (a) Upon signing of this Compact, MCC will grant to the Government, 
under the terms of this Compact and in addition to the Program Funding 
described in Section 2.1, an amount not to exceed Nine Million One 
Hundred and Twenty Thousand United States Dollars (US$9,120,000) 
(``Compact Implementation Funding'') under Section 609(g) of the 
Millennium Challenge Act of 2003, as amended (the ``MCA Act''), for use 
by the Government to facilitate implementation of the Compact, 
including for the following purposes:
    (i) financial management and procurement activities;
    (ii) administrative activities (including start-up costs such as 
staff salaries) and administrative support expenses such as rent, 
computers and other information technology or capital equipment;
    (iii) monitoring and evaluation activities;
    (iv) feasibility and any remaining project preparatory studies; and
    (v) other activities to facilitate Compact implementation as 
approved by MCC.
    The allocation of Compact Implementation Funding is generally 
described in Annex II.
    (b) Each Disbursement (as defined below) of Compact Implementation 
Funding is subject to satisfaction of the conditions precedent to such 
Disbursement as set forth in Annex IV.
    (c) If MCC determines that the full amount of Compact 
Implementation Funding available under Section 2.2(a) exceeds the 
amount that reasonably can be utilized for the purposes set forth in 
Section 2.2(a), MCC, by written notice to the Government, may withdraw 
the excess amount, thereby reducing the amount of the Compact 
Implementation Funding available under Section 2.2(a) (such excess, the 
``Excess CIF Amount''). In such event, the amount of Compact 
Implementation Funding granted to the Government under Section 2.2(a) 
will be reduced by the Excess CIF Amount, and MCC will have no further 
obligations with respect to such Excess CIF Amount.
    (d) Upon the written request of the Government, MCC may grant to 
the Government an amount equal to all or a portion of such Excess CIF 
Amount as an increase in the Program Funding. Such grant of additional 
Program Funding will be in writing and subject to the terms and 
conditions of this Compact applicable to Program Funding.

Section 2.3 MCC Funding

    Program Funding and Compact Implementation Funding are collectively 
referred to in this Compact as ``MCC Funding'', and includes any 
refunds or reimbursements of Program Funding or Compact Implementation

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Funding paid by the Government in accordance with this Compact.

Section 2.4 Disbursement

    In accordance with this Compact and the Program Implementation 
Agreement, MCC will disburse MCC Funding for expenditures incurred in 
furtherance of the Program (each instance, a ``Disbursement''). Subject 
to the satisfaction of all applicable conditions precedent, the 
proceeds of Disbursements will be made available to the Government, at 
MCC's sole election, by (a) deposit to one or more bank accounts 
established by the Government and acceptable to MCC (each, a 
``Permitted Account'') or (b) direct payment to the relevant provider 
of goods, works or services for the implementation of the Program. MCC 
Funding may be expended only for Program expenditures.

Section 2.5 Interest

    Unless MCC agrees otherwise in writing, the Government will pay or 
transfer to MCC, in accordance with the Program Implementation 
Agreement, any interest or other earnings that accrue on MCC Funding 
prior to such funding being used for a Program purpose.

Section 2.6 Government Resources; Budget

    (a) The Government will provide all funds and other resources, and 
will take all actions, that are necessary to carry out the Government's 
responsibilities under this Compact.
    (b) The Government will use its best efforts to ensure that all MCC 
Funding it receives or is projected to receive in each of its fiscal 
years is fully accounted for in its annual budget on a multi-year 
basis.
    (c) The Government will not reduce the normal and expected 
resources that it would otherwise receive or budget from sources other 
than MCC for the activities contemplated under this Compact and the 
Program.
    (d) Unless the Government discloses otherwise to MCC in writing, 
MCC Funding will be in addition to the resources that the Government 
would otherwise receive or budget for the activities contemplated under 
this Compact and the Program.

Section 2.7 Limitations on the Use of MCC Funding

    The Government will ensure that MCC Funding is not used for any 
purpose that would violate United States law or policy, as specified in 
this Compact or as further notified to the Government in writing or by 
posting from time to time on the MCC Web site at https://www.mcc.gov 
(the ``MCC Web site''), including but not limited to the following 
purposes:
    (a) For assistance to, or training of, the military, police, 
militia, national guard or other quasi-military organization or unit;
    (b) For any activity that is likely to cause a substantial loss of 
United States jobs or a substantial displacement of United States 
production;
    (c) To undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard, 
as further described in MCC's environmental and social assessment 
guidelines and any guidance documents issued in connection with the 
guidelines posted from time to time on the MCC Web site or otherwise 
made available to the Government (collectively, the ``MCC Environmental 
Guidelines''); or
    (d) To pay for the performance of abortions as a method of family 
planning or to motivate or coerce any person to practice abortions, to 
pay for the performance of involuntary sterilizations as a method of 
family planning or to coerce or provide any financial incentive to any 
person to undergo sterilizations or to pay for any biomedical research 
which relates, in whole or in part, to methods of, or the performance 
of, abortions or involuntary sterilization as a means of family 
planning.

Section 2.8 Taxes

    (a) Unless the Parties specifically agree otherwise in writing, the 
Government will ensure that all MCC Funding is free from the payment or 
imposition of any existing or future taxes, duties, levies, 
contributions or other similar charges (but not fees or charges for 
services that are generally applicable in Malawi, reasonable in amount 
and imposed on a non-discriminatory basis) (``Taxes'') of or in Malawi 
(including any such Taxes imposed by a national, regional, local or 
other governmental or taxing authority of or in Malawi). Specifically, 
and without limiting the generality of the foregoing, MCC Funding will 
be free from the payment of (i) any tariffs, customs duties, import 
taxes, export taxes, and other similar charges on any goods, works or 
services introduced into Malawi in connection with the Program, (ii) 
sales tax, value added tax, excise tax, property transfer tax or stamp 
duty tax, and other similar charges on any transactions involving 
goods, works or services in connection with the Program, (iii) taxes 
and other similar charges on ownership, possession or use of any 
property in connection with the Program, and (iv) taxes and other 
similar charges on income, profits or gross receipts attributable to 
work performed in connection with the Program and related social 
security taxes and other similar charges on all natural or legal 
persons performing work in connection with the Program except (1) 
natural persons who are citizens or residents of Malawi and (2) legal 
persons formed under the laws of Malawi (but excluding MCA-Malawi and 
any other entity formed for the purpose of implementing the 
Government's obligations hereunder).
    (b) The mechanisms that the Government will use to implement the 
tax exemption required by Section 2.8(a) will be set forth in the 
Program Implementation Agreement (the ``Tax Schedules''). Such 
mechanisms may include exemptions from the payment of Taxes that have 
been granted in accordance with applicable law, refund or reimbursement 
of Taxes by the Government to MCC, MCA-Malawi or to the taxpayer, or 
payment by the Government to MCA-Malawi or MCC, for the benefit of the 
Program, of an agreed amount representing any collectible Taxes on the 
items described in Section 2.8(a).
    (c) If a Tax has been paid contrary to the requirements of Section 
2.8(a) or the Tax Schedules, the Government will refund promptly to 
MCA-Malawi (or to another party as designated by MCC) the amount of 
such Tax in Malawi Kwacha and MCA-Malawi will refund that amount in 
U.S. Dollars to MCC, unless otherwise provided by MCC, within sixty 
(60) days (or such other period as may be agreed in writing by the 
Parties) after the Government is notified in writing (whether by MCC or 
MCA-Malawi) that such Tax has been paid. If the amount of such Tax is 
converted to U.S. Dollars from Malawi Kwacha, the rate of exchange 
applicable to such conversion shall be the U.S. Dollar-Malawi Kwacha 
rate of exchange as published by the Reserve Bank of Malawi on the date 
of transfer.
    (d) In the event the Government fails to make a payment, including 
any refund, reimbursement, or other payment that falls hereunder in 
full when due (including VAT or other refund or reimbursement), 
interest shall be paid on such past due amount at a rate of the then 
current U.S. Treasury Prompt Pay Interest Rate, calculated on a daily 
basis and a 360-day year from the due date of such payment until such 
amount is paid.
    (e) No MCC Funding, proceeds thereof or Program Assets may be 
applied by

[[Page 21048]]

the Government in satisfaction of its obligations under Section 2.8(c).

Article 3. Implementation

Section 3.1 Program Implementation Agreement

    The Parties will enter into an agreement providing further detail 
on the implementation arrangements, fiscal accountability and 
disbursement and use of MCC Funding, among other matters (the ``Program 
Implementation Agreement'' or ``PIA''); and the Government will 
implement the Program in accordance with this Compact, the PIA, any 
other Supplemental Agreement and any Implementation Letter.

Section 3.2 Government Responsibilities

    (a) The Government has principal responsibility for overseeing and 
managing the implementation of the Program.
    (b) The Government will create and designate MCA-Malawi, a public 
trust to be created under the laws of Malawi, as the accountable entity 
to implement the Program and to exercise and perform the Government's 
right and obligation to oversee, manage and implement the Program, 
including without limitation, managing the implementation of the 
Project and its Activities, allocating resources and managing 
procurements. MCA-Malawi will have the authority to bind the Government 
with regard to all Program activities. The designation contemplated by 
this Section 3.2(b) will not relieve the Government of any obligations 
or responsibilities hereunder or under any related agreement, for which 
the Government remains fully responsible. MCC hereby acknowledges and 
consents to the designation in this Section 3.2(b).
    (c) The Government will ensure that any Program Assets or services 
funded in whole or in part (directly or indirectly) by MCC Funding are 
used solely in furtherance of this Compact and the Program unless MCC 
agrees otherwise in writing.
    (d) The Government will take all necessary or appropriate steps to 
achieve the Program Objective and the Project Objective during the 
Compact Term (including, without limiting Section 2.6(a), funding all 
costs that exceed MCC Funding and are required to carry out the terms 
hereof and achieve such objectives, unless MCC agrees otherwise in 
writing).
    (e) The Government will fully comply with the Program Guidelines, 
as applicable, in its implementation of the Program.

Section 3.3 Policy Performance

    In addition to undertaking the specific policy, legal and 
regulatory reform commitments identified in Annex I, the Government 
will seek to maintain and to improve its level of performance under the 
policy criteria identified in Section 607 of the MCA Act, and the 
selection criteria and methodology used by MCC.

Section 3.4 Accuracy of Information

    The Government assures MCC that, as of the date this Compact is 
signed by the Government, the information provided to MCC by or on 
behalf of the Government in the course of reaching agreement with MCC 
on this Compact is true, correct and complete in all material respects.

Section 3.5 Implementation Letters

    From time to time, MCC may provide guidance to the Government in 
writing on any matters relating to this Compact, MCC Funding or 
implementation of the Program (each, an ``Implementation Letter''). The 
Government will apply such guidance in implementing the Program. The 
Parties may also issue jointly agreed-upon Implementation Letters to 
confirm and record their mutual understanding on aspects related to the 
implementation of this Compact, the PIA or other related agreements.

Section 3.6 Procurement

    The Government will ensure that the procurement of all goods, works 
and services by the Government or any Provider to implement the Program 
will be consistent with the ``MCC Program Procurement Guidelines'' 
posted from time to time on the MCC Web site (the ``MCC Program 
Procurement Guidelines''). The MCC Program Procurement Guidelines 
include the following requirements, among others:
    (a) Open, fair, and competitive procedures must be used in a 
transparent manner to solicit, award and administer contracts and to 
procure goods, works and services;
    (b) Solicitations for goods, works, and services must be based upon 
a clear and accurate description of the goods, works and services to be 
acquired;
    (c) Contracts must be awarded only to qualified contractors that 
have the capability and willingness to perform the contracts in 
accordance with their terms on a cost effective and timely basis; and
    (d) No more than a commercially reasonable price, as determined, 
for example, by a comparison of price quotations and market prices, 
will be paid to procure goods, works and services.

Section 3.7 Records; Accounting; Covered Providers; Access

    (a) Government Books and Records. The Government will maintain, and 
will use its best efforts to ensure that all Covered Providers 
maintain, accounting books, records, documents and other evidence 
relating to the Program adequate to show, to MCC's satisfaction, the 
use of all MCC Funding and the implementation and results of the 
Program (``Compact Records''). In addition, the Government will furnish 
or cause to be furnished to MCC, upon its request, originals or copies 
of such Compact Records.
    (b) Accounting. The Government will maintain and will use its best 
efforts to ensure that all Covered Providers maintain Compact Records 
in accordance with generally accepted accounting principles prevailing 
in the United States, or at the Government's option and with MCC's 
prior written approval, other accounting principles, such as those (i) 
prescribed by the International Accounting Standards Board, or (ii) 
then prevailing in Malawi. Compact Records must be maintained for at 
least five (5) years after the end of the Compact Term or for such 
longer period, if any, required to resolve any litigation, claims or 
audit findings or any applicable legal requirements.
    (c) Providers and Covered Providers. Unless the Parties agree 
otherwise in writing, a ``Provider'' is (i) any entity of the 
Government that receives or uses MCC Funding or any other Program Asset 
in carrying out activities in furtherance of this Compact or (ii) any 
third party that receives at least U.S.$50,000 in the aggregate of MCC 
Funding (other than as salary or compensation as an employee of an 
entity of the Government) during the Compact Term. A ``Covered 
Provider'' is (i) a non-United States Provider that receives (other 
than pursuant to a direct contract or agreement with MCC) U.S.$300,000 
or more of MCC Funding in any Government fiscal year or any other non-
United States person or entity that receives, directly or indirectly, 
U.S.$300,000 or more of MCC Funding from any Provider in such fiscal 
year, or (ii) any United States Provider that receives (other than 
pursuant to a direct contract or agreement with MCC) U.S.$500,000 or 
more of MCC Funding in any Government fiscal year or any other United 
States person or entity that receives, directly or indirectly, 
U.S.$500,000 or more of MCC Funding from any Provider in such fiscal 
year.

[[Page 21049]]

    (d) Access. Upon MCC's request, the Government, at all reasonable 
times, will permit, or cause to be permitted, authorized 
representatives of MCC, an authorized Inspector General of MCC 
(``Inspector General''), the United States Government Accountability 
Office, any auditor responsible for an audit contemplated herein or 
otherwise conducted in furtherance of this Compact, and any agents or 
representatives engaged by MCC or the Government to conduct any 
assessment, review or evaluation of the Program, the opportunity to 
audit, review, evaluate or inspect facilities, assets and activities 
funded in whole or in part by MCC Funding.

Section 3.8 Audits; Reviews

    (a) Government Audits. Except as the Parties may agree otherwise in 
writing, the Government will, on at least a semi-annual basis, conduct, 
or cause to be conducted, financial audits of all disbursements of MCC 
Funding covering the period from signing of this Compact until the 
earlier of the following December 31 or June 30 and covering each six-
month period thereafter ending December 31 and June 30, through the end 
of the Compact Term. In addition, upon MCC's request, the Government 
will ensure that such audits are conducted by an independent auditor 
approved by MCC and named on the list of local auditors approved by the 
Inspector General or a United States-based certified public accounting 
firm selected in accordance with the ``Guidelines for Financial Audits 
Contracted by MCA'' (the ``Audit Guidelines'') issued and revised from 
time to time by the Inspector General, which are posted on the MCC Web 
site. Audits will be performed in accordance with the Audit Guidelines 
and be subject to quality assurance oversight by the Inspector General. 
Each audit must be completed and the audit report delivered to MCC no 
later than 90 days after the first period to be audited and no later 
than 90 days after each June 30 and December 31 thereafter, or such 
other period as the Parties may otherwise agree in writing.
    (b) Audits of Other Entities. The Government will ensure that MCC 
financed agreements between the Government or any Provider, on the one 
hand, and (i) a United States nonprofit organization, on the other 
hand, state that the United States nonprofit organization is subject to 
the applicable audit requirements contained in OMB Circular A-133, 
``Audits of States, Local Governments, and Non-Profit Organizations,'' 
issued by the United States Office of Management and Budget; (ii) a 
United States for-profit Covered Provider, on the other hand, state 
that the United States for-profit organization is subject to audit by 
the applicable United States Government agency, unless the Government 
and MCC agree otherwise in writing; and (iii) a non-U.S. Covered 
Provider, on the other hand, state that the non-U.S. Covered Provider 
is subject to audit in accordance with the Audit Guidelines.
    (c) Corrective Actions. The Government will use its best efforts to 
ensure that each Covered Provider (i) takes, where necessary, 
appropriate and timely corrective actions in response to audits, (ii) 
considers whether the results of the Covered Provider's audit 
necessitates adjustment of the Government's records, and (iii) permits 
independent auditors to have access to its records and financial 
statements as necessary.
    (d) Audit by MCC. MCC will have the right to arrange for audits of 
the Government's use of MCC Funding.
    (e) Cost of Audits, Reviews or Evaluations. MCC Funding may be used 
to fund the costs of any audits, reviews or evaluations required under 
this Compact.

Article 4. Communications

Section 4.1 Communications

    Any document or communication required or submitted by either Party 
to the other under this Compact must be in writing and in English. For 
this purpose, the address of each Party is set forth below.
To MCC
    Millennium Challenge Corporation, Attention: Vice President, 
Compact Operations, (with a copy to the Vice President and General 
Counsel), 875 Fifteenth Street, NW., Washington, DC 20005, United 
States of America, Facsimile: (202) 521-3700, Telephone: (202) 521-
3600, E-mail: VPOperations@mcc.gov (Vice President, Compact 
Operations), VPGeneralCounsel@mcc.gov (Vice President and General 
Counsel)
To the Government
    Ministry of Finance, Attention: Minister of Finance, (with copies 
to the (a) Secretary to the Treasury and (b) Chief Secretary to the 
Government), Capital Hill, Lilongwe, Malawi, Tel: +265-1788030, Fax: 
+265-1788384, E-mail: secmof@finance.gov.mw.
To MCA-Malaw:
    Upon establishment of MCA-Malawi, MCA-Malawi will notify the 
Parties of its contact details.

Section 4.2 Representatives

    For all purposes of this Compact, the Government will be 
represented by the individual holding the position of, or acting as, 
Minister of Finance of the Republic of Malawi, and MCC will be 
represented by the individual holding the position of, or acting as, 
Vice President, Compact Operations (each of the foregoing, a 
``Principal Representative''). Each Party, by written notice to the 
other Party, may designate one or more additional representatives 
(each, an ``Additional Representative''). A Party may change its 
Principal Representative to a new representative that holds a position 
of equal or higher authority upon written notice to the other Party.

Section 4.3 Signatures

    Signatures to this Compact and to any amendment to this Compact 
will be original signatures appearing on the same page or in an 
exchange of letters or diplomatic notes. With respect to all documents 
arising out of this Compact (other than the Program Implementation 
Agreement) and amendments thereto, signatures may, as appropriate, be 
delivered by facsimile or electronic mail and in counterparts and will 
be binding on the Party delivering such signature to the same extent as 
an original signature would be.

Article 5. Termination; Suspension; Expiration

Section 5.1 Termination; Suspension

    (a) Either Party may terminate this Compact in its entirety by 
giving the other Party thirty (30) days' prior written notice.
    (b) MCC may, immediately, upon written notice to the Government, 
suspend or terminate this Compact or MCC Funding, in whole or in part, 
and any obligation related thereto, if MCC determines that any 
circumstance identified by MCC, as a basis for suspension or 
termination (whether in writing to the Government or by posting on the 
MCC Web site) has occurred, which circumstances include but are not 
limited to the following:
    (i) The Government fails to comply with its obligations under this 
Compact or any other agreement or arrangement entered into by the 
Government in connection with this Compact or the Program;
    (ii) An event or series of events has occurred that makes it 
probable that the Program Objective or the Project Objective will not 
be achieved during the Compact Term or that the Government will not be 
able to perform its obligations under this Compact;

[[Page 21050]]

    (iii) A use of MCC Funding or continued implementation of this 
Compact or the Program violates applicable law or United States 
Government policy, whether now or hereafter in effect;
    (iv) The Government or any other person or entity receiving MCC 
Funding or using Program Assets is engaged in activities that are 
contrary to the national security interests of the United States;
    (v) An act has been committed or an omission or an event has 
occurred that would render Malawi ineligible to receive United States 
economic assistance under Part I of the Foreign Assistance Act of 1961, 
as amended (22 U.S.C. 2151 et seq.), by reason of the application of 
any provision of such act or any other provision of law;
    (vi) The Government has engaged in a pattern of actions 
inconsistent with the criteria used to determine the eligibility of 
Malawi for assistance under the MCA Act; and
    (vii) The Government or another person or entity receiving MCC 
Funding or using Program Assets is found to have been convicted of a 
narcotics offense or to have been engaged in drug trafficking.

Section 5.2 Consequences of Termination, Suspension or Expiration

    (a) Upon the suspension or termination, in whole or in part, of 
this Compact or any MCC Funding, or upon the expiration of this 
Compact, the provisions of Section 4.2 of the Program Implementation 
Agreement will govern the post-suspension, post-termination or post-
expiration treatment of MCC Funding, any related Disbursements and 
Program Assets. Any portion of this Compact, MCC Funding, the Program 
Implementation Agreement or any other Supplemental Agreement that is 
not suspended or terminated will remain in full force and effect.
    (b) MCC may reinstate any suspended or terminated MCC Funding under 
this Compact if MCC determines that the Government or other relevant 
person or entity has committed to correct each condition for which MCC 
Funding was suspended or terminated.

Section 5.3 Refunds; Violation

    (a) If any MCC Funding, any interest or earnings thereon, or any 
Program Asset is used for any purpose in violation of the terms of this 
Compact, then MCC may require the Government to repay to MCC in United 
States Dollars the value of the misused MCC Funding, interest, 
earnings, or asset, plus interest within thirty (30) days after the 
Government's receipt of MCC's request for repayment. Interest will 
accrue from the date of the violation and will be calculated at the 10-
year U.S. Treasury Note rate prevailing as of the close of business in 
Washington, DC as of the date of MCC's request for payment. The 
Government will not use MCC Funding, proceeds thereof or Program Assets 
to make such payment.
    (b) Notwithstanding any other provision in this Compact or any 
other existing agreement to the contrary, MCC's right under Section 
5.3(a) for a refund will continue during the Compact Term and for a 
period of (i) five (5) years thereafter or (ii) one (1) year after MCC 
receives actual knowledge of such violation, whichever is later.

Section 5.4 Survival

    This Section 5.4 and the Government's responsibilities under 
Sections 2.7, 3.7, 3.8, 5.2, 5.3, and 6.4 will survive the expiration, 
suspension or termination of this Compact.

Article 6. Compact Annexes; Amendments; Governing Law

Section 6.1 Annexes

    Each annex to this Compact constitutes an integral part hereof, and 
references to ``Annex'' mean an annex to this Compact unless otherwise 
expressly stated.

Section 6.2 Amendments

    (a) The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives (or such other government 
official designated by the relevant Principal Representative).
    (b) Notwithstanding Section 6.2(a), the Parties may agree in 
writing, signed by the Principal Representatives (or such other 
government official designated by the relevant Principal 
Representative) or any Additional Representative, to modify any Annex 
to (i) Suspend, terminate or modify any Project or Activity, or to 
create a new project, (ii) change the allocations of funds as set forth 
in Annex II as of the date hereof (including to allocate funds to a new 
project), (iii) modify the Implementation Framework described in Annex 
I, or (iv) add, delete or waive any condition precedent described in 
Annex IV; provided that, in each case, any such modification (1) is 
consistent in all material respects with the Program Objective and 
Project Objective, (2) does not cause the amount of Program Funding to 
exceed the aggregate amount specified in Section 2.1 (as may be 
modified by operation of Section 2.2(d)), (3) does not cause the amount 
of Compact Implementation Funding to exceed the aggregate amount 
specified in Section 2.2(a), and (4) does not extend the Compact Term.

Section 6.3 Inconsistencies

    In the event of any conflict or inconsistency between:
    (a) any Annex and any of Articles 1 through 7, such Articles 1 
through 7, as applicable, will prevail; or
    (b) this Compact and any other agreement between the Parties 
regarding the Program, this Compact will prevail.

Section 6.4 Governing Law

    This Compact is an international agreement and will be governed by 
the principles of international law.

Section 6.5 Additional Instruments

    Any reference to activities, obligations or rights undertaken or 
existing under or in furtherance of this Compact or similar language 
will include activities, obligations and rights undertaken by, or 
existing under or in furtherance of any agreement, document or 
instrument related to this Compact and the Program.

Section 6.6 References to MCC Web Site

    Any reference in this Compact, the PIA or any other agreement 
entered into in connection with this Compact, to a document or 
information available on, or notified by posting on the MCC Web site 
will be deemed a reference to such document or information as updated 
or substituted on the MCC Web site from time to time.

Section 6.7 References to Laws, Regulations, Policies and Guidelines

    Each reference in this Compact, the PIA or any other agreement 
entered into in connection with this Compact, to a law, regulation, 
policy, guideline or similar document will be construed as a reference 
to such law, regulation, policy, guideline or similar document as it 
may, from time to time, be amended, revised, replaced, or extended and 
will include any law, regulation, policy, guideline or similar document 
issued under or otherwise applicable or related to such law, 
regulation, policy, guideline or similar document.

Section 6.8 MCC Status

    MCC is a United States government corporation acting on behalf of 
the United States Government in the implementation of this Compact. MCC 
and the United States Government assume no liability for any claims or 
loss arising out of activities or omissions under this Compact. The 
Government

[[Page 21051]]

waives any and all claims against MCC or the United States Government 
or any current or former officer or employee of MCC or the United 
States Government for all loss, damage, injury, or death arising out of 
activities or omissions under this Compact, and agrees that it will not 
bring any claim or legal proceeding of any kind against any of the 
above entities or persons for any such loss, damage, injury, or death. 
The Government agrees that MCC and the United States Government or any 
current or former officer or employee of MCC or the United States 
Government will be immune from the jurisdiction of all courts and 
tribunals of Malawi for any claim or loss arising out of activities or 
omissions under this Compact.

Article 7. Entry Into Force

Section 7.1 International Agreement

    Before this Compact enters into force, the Government will proceed 
in a timely manner to complete all of its domestic requirements for 
each of the Compact and the Program Implementation Agreement to enter 
into force as an international agreement.

Section 7.2 Conditions Precedent to Entry Into Force

    Before this Compact enters into force:
    (a) The Program Implementation Agreement must have been signed by 
the parties thereto;
    (b) The Government must have delivered to MCC:
    (i) A letter signed and dated by the Principal Representative of 
the Government, or such other duly authorized representative of the 
Government acceptable to MCC, confirming that the Government has 
completed its domestic requirements for this Compact to enter into 
force and that the other conditions precedent to entry into force in 
this Section 7.2 have been met.
    (ii) A signed legal opinion from the Attorney General of Malawi (or 
such other legal representative of the Government acceptable to MCC), 
in form and substance satisfactory to MCC; and
    (iii) Complete, certified copies of all decrees, legislation, 
regulations or other governmental documents relating to the 
Government's domestic requirements for this Compact to enter into force 
and the satisfaction of Section 7.1, if any, which MCC may post on its 
Web site or otherwise make publicly available;
    (c) MCC shall not have determined that after signature of this 
Compact, the Government has engaged in a pattern of actions 
inconsistent with the eligibility criteria for MCC Funding;
    (d) The Government has delivered to MCC evidence, satisfactory to 
MCC, that it has fully funded a turnaround facility for Electricity 
Supply Corporation of Malawi (``ESCOM'') to meet ESCOM's working 
capital and investment capital needs for the Government's Fiscal Year 
2012, as further described in Annex I to this Compact (the ``Turnaround 
Facility'');
    (e) The Government will ensure that ESCOM has employed a 
professionally qualified Chief Executive Officer for ESCOM; and
    (f) The Government will have delivered a schedule for the 
construction of the Kapichira II hydropower plant that is acceptable to 
MCC.

Section 7.3 Date of Entry Into Force

    This Compact will enter into force on the date of the letter from 
MCC to the Government in an exchange of letters confirming that MCC has 
completed its domestic requirements for entry into force of this 
Compact and that the conditions precedent to entry into force in 
Section 7.2 have been met.

Section 7.4 Compact Term

    This Compact will remain in force for five (5) years after its 
entry into force, unless terminated earlier under Section 5.1 (the 
``Compact Term'').

Section 7.5 Provisional Application

    Upon signature of this Compact, and until this Compact has entered 
into force in accordance with Section 7.3, the Parties will 
provisionally apply the terms of this Compact; provided that, no MCC 
Funding, other than Compact Implementation Funding, will be made 
available or disbursed before this Compact enters into force.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact.
    Done at Lilongwe, Malawi, this 7th day of April, 2011, in the 
English language only.
    The United States of America, acting through the Millennium 
Challenge Corporation, Name: Patrick Fine, Title: Vice President, 
Department of Compact Operations.
    The Republic of Malawi, acting through the Ministry of Finance, 
Name: Kenny Edward Kandodo, Title: Minister of Finance.

Annex I Program Description

    This Annex I describes the Program that MCC Funding will support in 
Malawi during the Compact Term.

A. Program Overview

1. Background and Consultative Process
(a) Background
    Malawi is a landlocked country in southeast Africa that gained 
independence in 1964 and has a population of approximately 13.8 million 
people. Although Malawi has seen economic growth average seven percent 
over the last six years, an estimated 51 percent of the population 
lives on less than US$1.25 a day, and gross national income per capita 
stands at approximately US$880 (purchasing power parity (``PPP'') 
adjusted). The economy remains heavily dependent on rain-fed 
agriculture and primary commodity exports, and sustained economic 
growth and development require increasing productivity of industry, 
agriculture, and services, as well as diversification of the economy.
    Malawi's economy faces numerous challenges, including a power 
sector that is one of the most severely constrained in sub-Saharan 
Africa. The economic costs of an unreliable and inadequate power 
supply, as well as the costs of inappropriate pricing and high 
technical and non-technical losses, are estimated at seven to nine 
percent of GDP. In order to improve the prospects for sustained growth, 
poverty reduction, and improved delivery of health and education 
services, the power sector must be stabilized and expanded. Building on 
its current efforts to reform the power sector, the Government seeks to 
invest in infrastructure, turn around its electricity utility--
Electricity Supply Corporation of Malawi (``ESCOM'')--and develop an 
enabling legal and regulatory environment for investment in the sector. 
The Program is designed to support these efforts and assist Malawi with 
the sector's transformation.
(b) Consultative Process
    Malawi was deemed eligible for Compact assistance in 2007. To 
coordinate the Compact development process, the Government formed a 
core team (the ``MCA-Malawi Core Team'') in March 2008 to work with MCC 
to develop the Program. In May 2008, the MCA-Malawi Core Team initiated 
an analysis of constraints to economic growth in Malawi, in 
collaboration with the World Bank, the U.K. Department for 
International Development and the African Development Bank. Pursuant to 
this analysis and an extensive consultative process with key 
stakeholders, the power sector was identified as a key constraint to 
economic growth in Malawi.

[[Page 21052]]

2. Goal and Objectives
    The Compact Goal is to reduce poverty through economic growth. The 
Program Objective is to increase investment and employment income by 
raising the profitability and productivity of enterprises, expand 
access to electricity for the Malawian people and businesses, and 
improve delivery of social services. The Project Objective is to 
improve the availability, reliability, and quality of the power supply 
by increasing the throughput capacity and stability of the national 
electricity grid, increase efficiency of hydropower generation, and 
create an enabling environment for future expansion by strengthening 
sector institutions and enhancing regulation and governance of the 
sector.
3. Beneficiaries
    By reducing power outages and technical losses, enhancing the 
sustainability and efficiency of hydropower generation, and increasing 
the potential kilowatt hours (``kWh'') of throughput to electricity 
consumers, the Program will reduce energy costs to enterprises and 
households, improve productivity in agriculture, manufacturing, and 
service sectors, and support the preservation and creation of 
employment opportunities in the economy. The Parties expect the Program 
to result in the following benefits and distribution thereof:
     An estimated 5 million individuals will benefit by year 20 
after the Compact Term through reduced domestic and enterprise energy 
costs, increased employment income, and profits;
     An estimated US$2.4 billion of income benefits to Malawi 
at the present discounted rate of 10 percent;
     An estimated 40 percent of beneficiaries are currently 
extremely poor, and 60 percent are poor \2\; and
---------------------------------------------------------------------------

    \2\ ``Extremely poor'' is defined as living on the equivalent 
amount in 2010 of less than US$1.25 per day 2005 PPP adjusted 
dollars, and ``poor'' is defined as living on less than US$2.00 per 
day 2005 PPP adjusted dollars.
---------------------------------------------------------------------------

     Extremely poor individuals will gain approximately US$221 
of benefits in PPP terms, and poor individuals will gain an average of 
US$291 (estimates based on recent employment and electricity connection 
patterns, and incorporate effects of a modest rise in tariffs, to 
partly finance expanded access).
    These estimated income benefits do not include the full value of 
improvements to the delivery of health and education services of 
improved power supply, but these are likely to be important both 
economically and socially. All projected results depend upon 
complementary investments in generation capacity, as well as the 
successful implementation of the infrastructure investments, the 
sustained turnaround of ESCOM, and the realization of power sector 
reforms.

B. Power Sector Revitalization Project

    To advance the Program Objective, the Parties have designed a 
project to achieve a better-performing power sector with improved 
availability, reliability and quality of the power supply, increased 
efficiency of hydropower generation, and strengthened sector capacity 
and governance (the ``Power Sector Revitalization Project''). Set forth 
below is a description of the Power Sector Revitalization Project that 
the Government will implement, or cause to be implemented, with support 
from MCC Funding.
    The Power Sector Revitalization Project consists of the following 
activities (each an ``Activity''):
     Investing in infrastructure development, including 
investment by the Government in new generation, and MCC Funding for 
generation and increased transmission and distribution capacity 
(``Infrastructure Development Activity''); and
     Rebuilding ESCOM into a financially strong, well-managed 
utility and developing a regulatory environment that supports public 
and private investment in new generation capacity and expanded access 
(``Power Sector Reform Activity'').
1. Infrastructure Development Activity
    The Infrastructure Development Activity will rehabilitate, upgrade 
and modernize ESCOM's generation, transmission and distribution assets 
in most urgent need of repair, in order to preserve existing 
generation, improve the capability of the transmission system, and 
increase the efficiency and sustainability of hydropower generation. To 
facilitate the development and implementation of the Program, MCC is 
providing support for the Government's ability to identify and 
prioritize investments in the sector by developing an integrated 
resource plan. MCC Funding will support significant investments in the 
power system infrastructure to preserve generation and stabilize and 
modernize the transmission and distribution network.
    The Infrastructure Development Activity is only viable, technically 
and economically, if the Government and ESCOM maintain current 
generation assets and expand the generation capacity of the power 
system. Under the Infrastructure Development Activity, the Government 
will invest in new generation by completing the construction of the 
Kapichira II hydropower plant. Additionally, the Government will 
continue to seek to attract sustainable investment from the private 
sector and other donors to add significant amounts of new generation to 
the system.
    The Parties expect that by the end of the Compact Term, the 
Infrastructure Development Activity, together with the Government's 
commitment to complete construction of Kapichira II, will result in 
increases in generation capacity (from 286 MW to approximately 356 MW), 
network throughput capacity (from 260 MW to approximately 410 MW) and 
distribution capacity (from 868 MVA to approximately 1,078 MVA), and a 
reduction of total system losses from 20-25 percent to 18 percent.
(a) Integrated Resource Plan
    To facilitate the development and implementation of the Program, 
MCC is supporting the development of the Malawi 2020 Integrated 
Resource Plan (``IRP'') to enhance the Government's efforts to add 
generation. The objective of the IRP is to identify a prioritized list 
of generation resources that can help the Government and ESCOM meet the 
increasing demands for power in a manner that balances the objective of 
least or low cost power to users and diversification of energy sources, 
and to increase the impact of the Project. The expected outcome of the 
IRP is an executed plan to target and secure increased investments in 
the power system.
(b) Nkula A Refurbishment Sub-Activity
    MCC Funding will support the refurbishment of the Nkula A 
hydropower plant, with the objective to improve the availability of 
power in Malawi by reducing outages caused by the condition of the 
assets, and maximizing power output from Nkula A. The refurbishment 
will improve the reliability of the plant, extend its useful life, and 
thereby avoid a partial or total failure of the plant.
(c) Transmission Network Upgrade Sub-Activity
    This sub-activity is designed to upgrade the backbone of the 
transmission network to: (1) improve the quality and reliability of 
supply in the northern, central, and southern regions of the country; 
(2) increase the capacity to move power from the south where 98 percent 
of Malawi's power is generated to the central and northern regions; (3) 
reduce technical losses on

[[Page 21053]]

transmission lines; and (4) provide a secure transmission link between 
the southern and central regions.
    MCC Funding will support the following investments:
    (i) 220kV high voltage power line (the transmission ``backbone'' of 
the Malawi power system as currently configured) from the Nkula B 
hydropower plant to Lilongwe, which covers the southern and central 
regions of Malawi; the section of the backbone from Bawi or Golomoti, 
as the case may be, to Lilongwe--subject to completion and results of a 
full feasibility study and environmental and social impact assessments; 
and
    (ii) 132kV line parallel to existing 66kV and 33kV lines from 
Chintheche to Luwinga and from Luwinga to Bwengu in the northern 
region.
    (d) Transmission and Distribution Upgrade, Expansion, and 
Rehabilitation Sub-Activity.
    This sub-activity includes investments in the southern, central, 
and northern power systems of the Malawi power network. MCC Funding 
will support the following measures:
    (i) Upgrading (up-rating) of existing network connections (33kV, 
11kV);
    (ii) Extension of existing substations (including 66kV);
    (iii) Up-rating of transformers in existing substations;
    (iv) Development of new substations;
    (v) Installation of improved protection systems;
    (vi) Provision of new network extensions and connections; and
    (vii) Installation of new controls and communication systems 
(SCADA).
(e) Environment and Natural Resource Management (``ENRM'') Sub-Activity
    The objective of the ENRM sub-activity is to help the Government 
and other relevant stakeholders address the growing problems of aquatic 
weed infestation and excessive sedimentation in the Shire River which 
cause costly disruptions to downstream power plant operations. MCC 
Funding will support