Project: Cost-Benefit Analysis of Utility Reform

A significant barrier to business growth in Malawi is the poor performance of the electricity sector. As part of the Malawi Priorities Project with the Copenhagen Consensus Center, Limestone researched how utilities can be made more reliable. Key issues identified in Malawi’s power sector include:

• Poor performance in terms of high cost, unreliable supply, inadequate expansion of access, and low quality of service
• The inability to finance the needed expenditure on maintenance and expansion
• The burden on the government of holding tariffs below costs to avoid unpopular price increases 
• The use of costly generation technologies
• A potentially significant increase in demand that would result from the World Bank’s program to increase the number of households connected to the distribution network

Limestone conducted a Cost-Benefit Analysis of improvements in corporate governance and operations management within the Electricity Supply Corporation of Malawi. This analysis found that the power sector reform would have a benefit-cost ratio of 41. The sensitivity analysis considered multiple scenarios, including multiple power generation projections and the possibility of project failure. Even under scenarios with very low probabilities of success, the benefit-cost ratio remained above 1, suggesting that power sector reform in Malawi should be further examined.