Document Sample

                   LEWIS B. MHANGO
Energy Sector Legal Framework

                  ENERGY FRAMEWORK LAWS

Electricity              Coal                   Liquid           RETs             RE
   Act                    Act                 Fuels and           Act             Act
                                               Gas Act

Regulatory             Regulatory            Regulatory       Regulatory       Regulatory
 By-laws                By-laws               By-laws          By-laws          By-laws


 Economic Regulation         Technical Specifications                Legal
      (Pricing)                                           (Licensing, Environmental
                                                              Impact, Promotion)
   In the short term, the existing generation assets will be owned
    and operated by a publicly owned company, the National
    Electricity Generation Company (NEGEC). In the medium
    term, an Adviser will be engaged to review the operations and
    ownership of the NEGEC and offer advice on the next stages of
    the reform process;

   IPPs shall be allowed to develop and own generating capacity
    under build, own and operate (BOOs) and other arrangements,
    and operate the same as a private concern in a competitive but
    regulated market;

   The development of new capacity, including co-generation, by
    major industrial plants (especially in the Sugar Industry), will
    be encouraged and a tariff will be developed to encourage sales
    of energy and capacity to the transmission operator.
   New energy trading opportunities are now available under
    SAPP & EAPP through which countries in the region, like
    Malawi, can export their excess power and import in time of

   As a consequence governments in the region should consider
    their participation in the power pool markets a matter of
    strategic importance in exploiting import and export trading

   In the interests of national security, the extent of supply met
    through imports should be subject to prudent limits
    depending on the number of interconnections and the risks
    associated with each.
   Malawi has considered various options for its restructuring
    and ownership.

   Based on its review, Malawi is convinced that transmission
    (66kV and above) is a natural monopoly and should therefore
    be maintained as one entity with assets owned by the public
    and operated under a long-term concession by a
    Transmission/ Dispatch Company.

   The functions of the Transmission/Dispatch Company will
    among other things include managing Power Purchase
    Agreements (PPAs) with Generation and Distribution
   Reforms are expected to attract new Independent Power Producers (IPPs) and
    Independent Power Distributors (IPDs) who will participate in the ESI as
    competitors. In order to encourage competition and ensure that demand is met at
    least cost, the new energy laws permits third party access to the grid.

   A cost reflecting and non-discriminatory tariff will be developed to encourage
    IPPs, private generators including cogeneration, small hydro power generators
    and others to sell energy to the Transmission/Dispatch Company. This tariff will
    be subject to review and approval by the Energy Regulatory Authority in case of
    Malawi - MERA.

    According to the Reform Strategy in Malawi, in the short-term, direct sales by
    generators to specified large consumers will not be permitted but, in the medium-
    term, when the market has grown adequately, a Transaction Adviser will examine
    the possibility of such contracts.

   However it is envisaged that cogeneration and small hydro power generators near
    sugar factories and tea estates respectively, will be allowed to sale power to the
    factory for purposes of enhancing generation capacity in the country.
   Malawi has considered various options in reforming the distribution network such as service
    contracts, leasing, concessioning and asset transfer. Malawi is convinced that the private sector
    must play a major role in distributing and selling electricity if the objectives set for the new ESI are
    to be met. The following opportunities have arisen from the reforms:

   Due to the small size of the distribution network, and political sensitivities around the ESI, Malawi
    has decided to retain, in the short term, the existing distribution network as a single entity, but to
    transfer its management to a private operator under a long-term concession of no more than 20
    years. The concessionaire will operate under specific investment obligations and targets for new
    connections country wide.

   The Distribution Company will buy electricity from the Transmission/Dispatch Operator under a
    bulk supply tariff, which will be reviewed and approved by the regulator.

   IPDs will be allowed to develop and operate own distribution networks in specific geographical
    locations under exclusive geographical license from MERA and enter into PPAs with the
    Transmission/Dispatch Company.

   In the long run, the Transaction Adviser will advise on the horizontal separation of the existing
    concessioned distribution network to allow the participation of multiple distribution companies
    but in distinct geographical markets. However, common ownership of these distribution companies
    will be limited in order to spur effective competition by comparison.
    The small size of the power sector in many countries
    in the region like Malawi

   Political sensitivities around the ESI for most
    governments in the region.

   Regulatory issues regarding appropriate tariffs to
    attract private sector participation (especially during
    election years).

   The global financial crisis affecting private investors
    in the power sector - need for local investors
   Malawi was included on the AFREPREN study to look at
    cogeneration potential in the region.

   The results helped to inform the country about the large
    potential that exist in the two sugar mills.

   Malawi is now ready to participate in the regional
    cogeneration project and can generate more than 20MW from
    cogeneration & supply to the grid.

   Sugar mills have started refurbishing their boiler systems to
    improve their efficiency in readiness of the opportunities that
    the power sector reforms have brought.
   According to the Electricity Act No. 23 of 2004,
    gazetted in January 2008, Under Section 52 power
    sector operators are allowed to obtain a license as

   Section 4. and sub section (1) of the Electricity
    (Licensing) Regulations 2008 states that

   “An application for the issue, renewal, amendment
    or transfer of a licence shall be made in form EA1
    for generation, form EA2 for transmission, import
    or export and form EA3 for distribution and shall
    be accompanied by the appropriate application fee
    as per regulation 2 hereof”.
   Based on these approved new Energy Laws, GoM employed
    Price Water House Coopers as transaction advisers for
    Private Sector Participation in the ESI.

   According to the report by the transaction advisor on how to
    proceed with the power sector reforms, the proposal is to
    establish a holding company to be named ESCOM Holdings
    which should own three subsidiaries in form of

             ESCOM Generation
             ESCOM Transmission and
             ESCOM Distribution

   This arrangement would enable Malawi to implement the
    new Energy Laws without having to amend them.

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