The Government of Malawi, through its Ministry of Natural Resources, Energy and Mining, is set to tender for a strategic investor for a 350 MW hydropower project to be developed at Mpatamanga Gorge on the river Shire.
“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,” said Sebastian Deschler, General Counsel at CrossBoundary.
The project, which was prioritized by the Government of Malawi (GoM) for development in Malawi’s Integrated Resource Plan (IRP) of 2017, has been designed principally as a peaking plant. It will be built about 40 km 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 309 MW daily peaking facility, and a regulating dam about 6 km downstream that will provide an additional 41 MW 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 minimize downstream impacts. 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 Fichtner and the development of a preliminary Environmental and Social Impact Assessment (ESIA), final design and further optimization will be left to the future project sponsor.
IFC InfraVentures has been co-developing the project with the GoM under a joint development agreement signed in April of this year. Government has been supported by CrossBoundary and Deloitte through the USAID PowerAfrica’s Southern Africa Energy Program and other advisors funded by the World Bank’s Global Infrastructure Facility. GoM and IFC agreed on applicable commercial principles and have since developed project agreements based on recent precedent. Key project documents, including the Power Purchase Agreement, the Implementation Agreement, the preliminary ESIA and Resettlement Action Plan (RAP), 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.
The advisors stressed that there would be no pre-qualification phase in the tender and that the strategic sponsor may be a consortium but cannot include a key project contractor as one of its members. The sponsor will subsequently be required to tender out certain key contracts in compliance with requirements set by the Government of Malawi. At present it is foreseen that a tender for one or more EPC contractors will be held in 2020 with financial close expected by the end of next year. Construction of the project is expected to take four to five years.
The Government has agreed to implement this project as a public private partnership (PPP), consistent with the World Bank’s ‘Maximizing 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. Given that private investors and certain lenders are likely to require political risk cover, the GoM is engaging in discussions with MIGA to include such insurance.
GoM, through the state power producer EGENCO, 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 SN Power, a specialist hydropower developer, owner and operator, which provided certain technical assistance to IFC during the development period.
Interested parties are invited to register at MpatHydro.com or to contact MpatHydro@CrossBoundary.com for further information.