Strategic Investor Sought for Mpatamanga Hydro

The Ministry of Natural Resources, Energy and Mining is set to tender for a strategic investor for a 350MW hydropower project to be developed at Mpatamanga Gorge on the Shire River in southern Malawi. A request for proposals is scheduled to be issued by year-end.  

The selected investor is expected to form a special purpose vehicle (SPV) to build, own and operate the power plant before transferring the asset to the government at the end of the concession period, the government’s transaction adviser, CrossBoundary Energy, told delegates at the Hydro 2019 conference in Porto on 14-16 October.

“The upcoming tender will be a unique opportunity for potential sponsors to build, own and operate a hydropower project that will bring much needed power to Malawi, while being environmentally and socially sustainable,” CrossBoundary general counsel Sebastian Deschler told the conference.

The project, which was prioritised by the government for development in Malawi’s Integrated Resource Plan of 2017, is designed principally as a peaking plant. It will be located about 40km west of Blantyre, downstream of Lake Malawi, between the existing Tedzani and Kapichira hydropower plants and will comprise a main dam, which will allow for a 309MW daily peaking facility, and a regulating dam about 6km downstream that will provide an additional 41MW of baseload capacity.

The addition of a regulating dam, which will temporarily store peak inflows from the main reservoir to be released as flat outflows, will be used to minimise downstream impacts, according to CrossBoundary.

While major progress has been made on the technical, environmental and social aspects of the project, including technical due diligence on a feasibility study carried out in 2018 by Germany’s Fichtner and the development of a preliminary environmental and social impact assessment (ESIA), final design and further optimisation will be left to the future project sponsor.

IFC InfraVentures has been co-developing the project with the government under a joint development agreement signed in April (AE 391/6). The government has been supported by CrossBoundary and Deloitte through the US Power Africa initiative’s Southern Africa Energy Program and other advisers funded by the World Bank’s Global Infrastructure Facility. The government and IFC agreed upfront on applicable commercial principles and have since developed project agreements based on recent precedent. Key project documents, including the power purchase agreement (PPA), the implementation agreement, the preliminary ESIA and resettlement action plan, the project feasibility study and technical due diligence reports as well as the baseline project design and due diligence reports covering accounting and tax, legal and insurance aspects, will be provided to bidders as part of the tender documents.  CrossBoundary stressed the tender would have no prequalification phase and that the strategic sponsor may be a consortium but cannot include a key project contractor as a member. The sponsor will subsequently be required to tender out certain key contracts in compliance with government requirements. A tender for one or more EPC contractors is expected in 2020 and financial close by the end of next year. Construction is expected to take four to five years, implying a commissioning date in 2025. The government has agreed to implement this project as a public-private partnership, consistent with the World Bank’s Maximising Finance for Development principles and expects to use credits and guarantees from the International Development Association (IDA) to raise commercial financing. Funding sources include a proposed significant IDA credit, and an IDA guarantee of payments under the PPA to leverage private finance for the balance. IDA resources are expected to partly fund the project’s capital costs including the government’s equity contribution, the transmission line, part of the civil works and equipment, a technical assistance component, and the guarantee, all with a view to lowering the tariff. IFC is expected to act as mandated lead arranger for the senior debt financing. The government is in talks with the World Bank’s Multilateral Investment Guarantee Agency on political risk insurance.  More details regarding the proposed funding structure and terms are expected to be included in the bidding documents.

The government, through Electricity Generation Company Malawi Limited, will hold a minority stake in the project SPV. In addition, IFC has an option to make a minority investment in the project company and may, according to CrossBoundary, transfer part of that option to third parties, including to Norway’s SN Power, which provided technical assistance to IFC during the development period. 

The project will significantly increase Malawi’s current installed capacity of less than 500MW, helping to eliminate load shedding and meet demand growth, facilitate the operation of additional power particularly from solar PV capacity, and support government plans to provide electricity access to 80% of the population by 2035. At present, only 11% of Malawians have access to electricity, according to the World Bank, ranging from 38% in urban areas to just 4% in rural areas.  

Interested parties can register at MpatHydro.com or contact MpatHydro@CrossBoundary.com for further information.