MINISTRY OF ENERGY MALAWI ELECTRICITY ACCESS PROJECT PROJECT NUMBER: P 164331 CREDIT NUMBER: IDA 6461-MW and Grant D501-MW FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH, 2022 I National Audit Office P.O. Box 30045 Lilongwe 3. November 2022 L1 Li MINISTRY OF ENERGY MALAWI LECTRICITYACCESS PROJECT (MEAP), MALAWI - IDA LOAN NUMBER: 64610-MWAND GRANT NUMBER D501-MW. PROJECT IDENTITY NUMBER: P164331 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH 2022 Table of Contents CONTENT PAGE CONTROLLING OFFICER'S REPORT 3 STATEMENT OF MANAGEMENT RESPONSIBILITIES 7 STATEM ENT OF FINANCIAL POSITION............................................................................. 1 STATEMENT OF SOURCES AND USES OF FUNDS DESIGNATED ACCOUNT ACTIVITY STATEMENT 13 NOTES TO THE FINANCIAL STATEMENTS 14 MINISTRY OF ENERGY MALA WI LECTRICITY ACCESS PROJECT (MEAP), MALA WI - IDA LOAN NUMBER: 64610-MWAND GRANT NUMBER D501-MW. PROJECT IDENTITY NUMBER: P164331 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MARCH, 2022 CONTROLLING OFFICER'S REPORT 1.0 Project Background and Description Government of Malawi prioritised the Energy Sector and included it in its priority within priorities as contained in the Malawi Growth and Development Strategy (MDGS). According to the MGDS, a well-developed Energy Sector can improve service delivery and increase outputs in Industries such as manufacturing, trade tourism and other services. Therefore, access to reliable, reasonably priced and sustainable energy supply remains key in maintaining and improving the standard of living of people in Malawi. The Malawi Electricity Access project was designed by the Malawi Government (GoM), the Ministry of Energy in particular, in order to increase the access to electricity to Malawians through both grid and off grid electricity solutions. The national electricity access is currently at 11% and this Project intends to increase electricity access to 30% by the year 2024.The Project became effective on 18th January 2020. The Project is being financed by a loan in the amount of US$144.00 million from International Development Agency (IDA) and a grant of SDR4.4 million equivalent to US$6.Om making a total of US$150.0 million. The Project is being implemented by Ministry of Energy and the Electricity Supply Corporation of Malawi (ESCOM). The Project is in three components; Component one is Grid electrification and is being implemented by ESCOM and is allocated an amount of US$105.0 million. Component two is Off grid market development and is being implemented by the Ministry of Energy and is allocated an amount US$30.0 million. Component three is Technical Assistance and capacity building and is being implemented by both the Ministry of Energy and ESCOM I with the Ministry of Energy allocated US$10.0 million and ESCOM allocated US$5.0 million. MINISTRY OF ENERGY MALAWI LECTRICITYACCESS PROJECT (MEAP), MALAWI - IDA LOAN NUMBER: 64610-MWAND GRANT NUMBER D501-MW. PROJECT IDENTITY NUMBER: P164331 FINANCIAL STA TEMENTS FOR THE YEAR ENDED 31sr M4RCH, 2022 The Project Development Objective (PDO) The PDO is to increase the access to electricity in Malawi. Project Components The above objective will be achieved through the following four components: Component 1: Grid Electrification This component will finance cost-effective, priority investments in grid electrification by providing electricity supply to households living in close proximity to an existing distribution infrastructure leveraging on the geospatial analysis to maximize the number of connections under the financing. Specifically, the component will finance LV extensions, service drops, and prepayment meters. Some of the new connections may also require reinforcing hardware elements of the supplying MV feeder for ensuring quality and reliability of supply for new connections. The project will also support the elimination of connection barriers due to unaffordable internal wiring costs by providing ready boards to low-income households that cannot afford internal wiring costs. This project will also support the GoM's efforts in introducing energy-efficient appliances, and include the targeted distribution of free energy-efficient light emitting diode (LED) bulbs to enhance the affordability and reduce household electricity consumption. This will save consumers the cost of procuring compact fluorescent lamps or incandescent bulbs of wattage ranging between 20 W and 100 W. Each household will receive 2-3 LED bulbs of 7 W each, and through this initiative, household electricity consumption (particularly for low-income households) will be reduced by about 20 percent. Component 2: Off-Grid market development fund The component will address the challenges to scaling up the off-grid market. This is expected to counter the high interest rates offered currently in Malawi to end consumers and small and medium enterprises (SMEs) due to high perceived risk, poor financial literacy resulting in high 4 MINISTRY OF ENERGY MALAWI LECTRICITYACCESS PROJECT (MEAP), MALAWI - IDA LOAN NUMBER: 64610-MWAND GRANT NUMBER D501-MW. PROJECT IDENTITY NUMBER: Pl64331 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST MA4RCH, 2022 default rates as well as macroeconomic factors have restricted the off-grid market. At the same time, limited access to financing (mostly in the form of equity or grants) has restricted upscaling the off-grid market. The Off-Grid Market Development Fund will provide financing through three windows - a working capital window, a results-based financing (RBF) window, and a mini- zrid window. The first two windows will be available to Off Grid Supplier companies and the :hird window will be available to mini-grid developers. Component 3: Technical Assistance and capacity building This component will finance various TA and capacity-building activities related to institutional :ulture and performance to ensure ESCOM, Ministry of Energy, and other sector stakeholders _ave adequate technical, planning, and operational capacity to implement the electrification aollout activities and effectively undertake activities under Components 1 and 2 of the project. his will entail two subcomponents, one supporting ESCOM and the other supporting Ministry f Energy 1.1 Key Achievements 1.1.1 PIU Constituted The Ministry constituted the PIU with counterpart government staff who have been assigned 'ifferent roles in the Project. 1.1.2 Motor Vehicles purchased he Project completed the procurement of two motor vehicles that commenced earlier with a view to ease mobility problems for the Project. 1.1.3 Fund Manager Procurement process completed During the year, the Ministry completed the procurement process for the Fund Manager (Firm selection) who is expected to lead the establishment of the Off-Grid Electricity Market by rolling out the Result based financing and the debt windows for the Solar participating companies yet to be identified. ] 5