The Government of Malawi and the African Trade Insurance Agency (ATI) on Tuesday signed an addendum to the existing Regional Liquidity Support Facility (RLSF) Memorandum of Understanding (MoU).
The Government of Malawi was represented by the Ministry of Finance and Economic Affairs, the Ministry of Energy, Electricity Supply Corporation of Malawi (ESCOM) and PML.
Minister of Finance & Economic Affairs Sosten Gwengwe said the government was pleased to extend the successful partnership with ATI to include PML.
“The support received from ATI via the RLSF has been helpful in supporting the government’s objectives of attracting additional investments in the energy sector with the view of ensuring that Malawi has sufficient electricity to meet growing domestic and commercial demand,” he said.
ATI’s Senior Underwriter Pizzaro Lukhanda said Malawihas been the greatest beneficiary of our RLSF initiative.
“Thanks to Malawi’s investor friendly policies, improved regulations and frameworks that have allowed increased private sector investments and growth in its power sector. Having already supported three solar projects within the country, we look forward to building on this early success and exploring additional areas of cooperation between ATI and the Government of Malawi,” he said.
The addendum will allow Independent Power Producers (IPPs) that enter into Power Purchase Agreements (PPAs) with PML to benefit from RLSF cover. Since signing the original RLSF MoU with the Government of Malawi on 30 November 2018, ATI has provided instrumental guarantees in support of three projects in Malawi: the Nkhotakota, Salima and Golomoti solar power plants, enabling these projects, with a combined installed capacity of 101 MW, to achieve financial close.
The signing of the addendum comes on the heels of improvements to the RLSF structure, which will take effect under Phase 2 of RLSF, recently announced by ATI and its partners. Under Phase 1, ATI and KfW provided collateral to Absa South Africa which in turn issued Standby Letters of Credit (SBLCs) for the benefit of IPPs – the SBLCs can be drawn by the IPPs following any delayed payments by the state-owned offtakers, serving as a key form of payment security. The new product structure, which will no longer involve an LC issuing bank, will allow IPPs to benefit from ATI’s positive credit rating of A/ A3 (S&P & Moody’s, respectively). In addition, the new RLSF contracts to be signed between ATI and the IPPs will be simpler – cutting the existing turnaround times, and in turn reducing the cost of RLSF cover as any fees currently charged by the LC issuing bank will no longer be applied.
RLSF, a joint initiative of the ATI, KfW Development Bank and the Norwegian Agency for Development Cooperation (NORAD), is a guarantee instrument designed to address the short-term liquidity risks faced by renewable energy IPPs that sell electricity to state owned power utilities across Sub-Saharan Africa.
Furthermore, the RLSF MoU allows ATI to collect information on the payment behavior of power utilities. The information collected is then recorded and can be accessed via the Transparency Tool, a digital platform launched by ATI in 2019, by participating IPPs. The first external report from the Transparency Tool was published in 2021, showing that ESCOM was meeting its payment obligations to the country’s sole IPP on time.
Currently, seven of ATI’s member countries have signed the MoU and can benefit from RLSF: Benin, Burundi, Côte d’Ivoire, Madagascar, Malawi, Uganda and Zambia, with the expectation that more of ATI’s twenty member countries will sign up.
ATI was founded in 2001 by African States to cover trade and investment risks of companies doing business in Africa. ATI predominantly provides Political Risk, Credit Insurance and, Surety Insurance. In 2020, ATI closed the year with a gross exposure of US$6.3 billion and a net profit of US$39.4 million, owing to a strong demand for ATI’s insurance solutions from the international financial sector and from African governments. Since inception, ATI has supported US$70 billion worth of investments and trade into Africa. For over a decade, ATI has maintained an ‘A/Stable’ rating for Financial Strength and Counterparty Credit by Standard & Poor’s, and in 2019, ATI obtained an A3/Stable rating from Moody’s.
ATI and the German Development Bank, KfW, with financing from the German Federal Ministry for Economic Cooperation and Development (BMZ), launched the RLSF in 2017. The Facility was created to help tackle climate change and attract investments by supporting renewable energy projects in ATI’s member countries. RLSF has an initial capacity of EUR 63.2 million and it supports small and mid-scale renewable energy projects with an installed capacity of up to 50 MW (and in exceptional cases up to 100 MW) by protecting the developers against the risk of delayed payments by public off-takers; in turn improving project bankability and ensuring that more projects reach financial close.