(Lisa Friedman, E&E reporter)  The United States has flipped the switch on a $350 million power project to light up one of Africa’s poorest countries.The aid to Malawi from the Millennium Challenge Corp. (MCC), a congressionally funded development institution, was reinstated this month after a suspension sparked by concerns over human rights violations and violent government response to citizen protests.

With a new president now in office repealing many of the country’s repressive laws, imposing democratic reforms and traveling around the world to woo back big international donors, Malawi is on the right track, experts say. Optimism is high that the moment is right to fix the country’s crumbling power sector and usher in sorely needed economic growth.

“The biggest thing hindering economic productivity in Malawi is that they really don’t have a functioning electricity grid,” said Catherine Weaver, an associate professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas, Austin.

Weaver, who along with a team of graduate students has spent the past year and a half gathering, examining and coding 10 years’ worth of aid to Malawi for a major mapping project on climate change assistance, said energy access is the key to progress there.

“It will probably blow open the door to a lot of other areas of development,” she said.

One of the United Nations’ top goals, embraced by the United States and others at the recent U.N. Conference on Sustainable Development in Rio de Janeiro, is ending global energy poverty by 2030. Nowhere is the strain of living without access to electricity more acute than in Malawi, a landlocked East African country where less than 8 percent of the population has power. Even in urban areas, rolling brownouts are so routine that the schedules are published in the daily newspapers.

Ending a crippling situation

According to the World Bank, Malawi has about 284 megawatts of installed capacity — almost all from hydropower — though not all of it is available at any given time. Peak demand, meanwhile, now exceeds 320 MW. Whatever power does exist is confined to urban areas, while those in rural regions and even on the city borders burn firewood and charcoal, lighting the night with candles or kerosene. Colonial-era hydro plants have never been refurbished, and the country has just two power lines.

Rob Mills, an economist on the World Bank’s Africa Energy team, said that over the years, Malawi became caught in a tangle of not charging much for power distribution, which meant not enough money was being generated by the utility company. Without money to upgrade or even maintain the systems, the utility could hardly make a case to raise rates. Over time, as the economy suffered, investment sputtered.

“They got stuck in a low-investment, low-cost bad equilibrium,” Mills said, noting that the past few years of economic growth have seen a surge in demand for power that Malawi, despite ongoing government efforts, has not met. “The process of connecting new customers to the grid has more or less ground to a halt,” he said.

Himesh Dhungel, the MCC’s Malawi infrastructure specialist, said the electricity constraints are crippling opportunities for the country’s economic development. “In a country with 13 million people, it’s a very challenging situation both for businesses as well as the population,” he said.

MCC officials have been working on the Malawi compact since 2008, trying to tease out some of the biggest stumbling blocks to unlocking the country’s distribution bottleneck and improving the overall system.

“As we started drilling down on the problem in the power sector, what became clear to us is that on the one hand, there was the need to fix the current infrastructure and to at least make it sustainable for the next 20 years,” Dhungel said. “Then there was another big problem — the sector itself, and making sure it’s governed better.”

Under the compact, the MCC will help Malawi on both fronts. The technical work includes constructing parallel transmission lines to the north and south that can absorb new capacity — like a 64 MW hydroelectric project the Malawian government has planned, as well as modernizing an existing but crumbling hydro plant.

Power follows an abuse of it

Meanwhile, the political reforms, which Dhungel called “as challenging if not more than the engineering piece,” include a vast, $25 million agenda of setting tariffs, strengthening fiscal management, improving billing, oversight and other governance changes.

All those initiatives and others came to a halt last year when former President Bingu wa Mutharika threatened to jail human rights activists who “insulted” him. In July 2011, Mutharika’s police forces fired upon protesters calling for his removal, killing 19. The MCC, which funds big-ticket aid projects only to countries that meet a high bar of good governance and respect for human rights, suspended the compact.

Mutharika died in April, and his successor, President Joyce Banda, has taken what the MCC calls “clear steps” to enact democratic reforms, including repealing laws criminalizing homosexuality, restoring free speech laws, launching investigations into human rights abuses under her predecessor and releasing reports about the findings of those inquiries.

Last month, Banda traveled to Washington, where she met with U.S. State Department officials as well as the MCC, and she has been doing similar outreach with Britain and other major donor countries. Just this week, the International Monetary Fund — which Mutharika thumbed his nose at by subsidizing maize farmers — announced that it will once again back Malawi.

“It was actually very impressive,” Alicia Mandaville, a director in MCC’s department of policy and evaluation, said of Malawi’s reforms over the course of Banda’s three-month tenure. “I’ve never seen a country move that fast.”

Some development experts are still urging caution. Sarah Jane Staats, director of the Center for Global Development’s Rethinking U.S. Foreign Assistance Initiative, said she has great hopes for the MCC compact but remains concerned about the country’s efforts at reform.

Hopes where there were few

“You have a new and vibrant leader who comes in and is saying and doing all the right things and took concrete actions in all of the areas outlined by the MCC. There’s a lot of hope again,” Staats said. Still, she added, “The MCC should be patient and make sure reforms have really happened.”

But those who have been working to help develop Malawi’s electricity capacity say it’s important to seize this moment of political reform to push through the changes that could once and for all deliver power to the country. Also moving forward is an $85 million World Bank project to finance a new transmission substation and new distribution substations, rehabilitate underground distribution cables and install about 200 new distribution transformers.

Meanwhile, Banda has signaled that an energy agreement with Mozambique to provide interim power until new power generation is online — a project her predecessor had abandoned — will come back to life. Experts cautioned that entrenched problems still remain, and the government is simultaneously trying to address health, education, sanitation and other problems.

“There is no quick fix for the next two, three, four years, but the larger pieces of the jigsaw are coming into place,” Mills said.

When the MCC compact is complete, officials say, the power sector reform should yield $2 billion in benefits for about 5 million people. Dhungel said he is optimistic that major changes are on the horizon for Malawi.

“I think that toward the end of the compact, we are going to see very good progress. With the current political climate and openness for dialogue and reform, we have very high hopes that the sector will look upward and new generation and expansion of the network will happen over time,” he said.

Republished with permission. Copyright 2012, E&E Publishing, LLC.