[Federal Register Volume 76, Number 72 (Thursday, April 14, 2011)]
[Notices]
[Pages 21044-21072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8983]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 11-04]


Notice of Entering Into a Compact With the Republic of Malawi

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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SUMMARY: In accordance with Section 610(b)(2) of the Millennium 
Challenge Act of 2003 (Pub. L. 108-199, Division D), the Millennium 
Challenge Corporation (MCC) is publishing a summary and the complete 
text of the Millennium Challenge Compact between the United States of 
America, acting through the Millennium Challenge Corporation, and the 
Republic of Malawi. Representatives of the United States Government and 
the Republic of Malawi executed the Compact documents on April 7, 2011.

    Dated: April 8, 2011.
Henry Pitney,
Deputy General Counsel, Millennium Challenge Corporation.

Summary of Millennium Challenge Compact With the Republic of Malawi

    The five-year Millennium Challenge Compact with the Republic of 
Malawi will provide up to $350.7 million to reduce poverty through 
economic growth (the ``Compact''). The Compact focuses on 
revitalization of the Malawi power sector, and is intended to: (i) 
Increase investment and employment income by raising the profitability 
and productivity of enterprises; (ii) expand access to electricity for 
the Malawian people and businesses; and (iii) improve delivery of 
social services.

1. Project Overview and Activity Descriptions

    To advance the Compact goal of reducing poverty through economic 
growth, the Compact will fund a Power Sector Revitalization Project 
(the ``Project'') that aims to improve the availability, reliability, 
and quality of the power supply by: (i) Increasing the throughput 
capacity and stability of the national electricity grid; (ii) increase 
efficiency of hydropower generation; and (iii) create an enabling 
environment for future expansion by strengthening sector institutions 
and enhancing regulation and governance of the sector. The Project 
consists of two activities (i) the Infrastructure Development Activity 
and (ii) the Power Sector Reform Activity (the ``Activities'').
A. Infrastructure Development Activity ($283 Million)
    The Infrastructure Development Activity focuses on the 
rehabilitation, upgrade and modernization of those generation, 
transmission and distribution assets of the Electricity Supply 
Corporation of Malawi (``ESCOM'') in most urgent need of repair, in 
order to improve the capability of the transmission system and increase 
the efficiency and sustainability of hydropower generation. Because 
maintaining the current generation assets and expanding generation 
capacity are necessary to ensure realization of the full benefits of 
the Infrastructure Development Activity, the Government of Malawi 
(``GOM'') is committing to maintain current generation assets, and to 
invest in new generation by completing the construction of the 64 MW 
Kapichira II hydropower plant during the term of the Compact. By the 
end of the Compact term, MCC expects that the Infrastructure 
Development Activity will result in increases in generation capacity 
(from 286 MW to 356 MW), network throughput (from 260 MW to 410 MW) and 
distribution capability (from 868 megavolt amperes (MVA) to 1,118 MVA), 
as well as a reduction of technical losses of the power system (from 
20-25% to 18%).
    The Infrastructure Development Activity consists of the following 
four sub-activities:
    (a) Nkula A Rehabilitation Sub-Activity. This sub-activity will 
provide funding to rehabilitate and modernize Malawi's oldest major 
hydropower plant Nkula A--at the Nkula Falls Hydroelectric plant. The 
objective of this proposed investment is to improve the availability of 
power in Malawi by reducing outages caused by the condition of assets, 
and maximizing the power output of generators. The rehabilitation is 
necessary to assist ESCOM avoid the good probability that at least a 
portion, if not all, of the plant could fail by the end of the Compact 
without MCC's investment. Such a loss in generation output would have a 
significant adverse affect on the Malawi economy, and severely 
compromise the potential utilization and returns on MCC's investment in 
the transmission and distribution upgrade and rehabilitation.
    (b) Transmission Network Upgrade Sub-Activity. This sub-activity 
will upgrade the backbone of the transmission network in order to: (i) 
Improve the quality and reliability of supply in the northern, central 
and southern regions of the country; (ii) increase the capacity to move 
power from the south, where 98 percent of Malawi's power is generated, 
to the central and northern regions; (iii) reduce technical losses on 
transmission lines; and (iv) provide a secure transmission link between 
the southern and central regions.
    (c) Transmission and Distribution Upgrade, Expansion, and 
Rehabilitation Sub-Activity. This sub-activity includes investments in 
the southern, central, and northern power systems of the Malawi power 
network in order to: (i) Upgrade existing network connections (33-
kilovolt (kV), 11kV); (ii) extend existing substations; (iii) upgrade 
transformers in existing substations; (iv) develop new substations; (v) 
install and/or repair improved protection systems; (vi) provide new 
network extensions and connections; and (vii) install a new system 
control and data acquisition system.
    (d) Environment and Natural Resource Management (ENRM) Sub-
Activity. The objective of the ENRM sub-activity is to help the GOM and 
other relevant stakeholders address the growing problems of aquatic 
weed infestation and excessive sedimentation in the Shire River, which 
cause costly disruptions to downstream power plant operations. The ENRM 
sub-activity intends to address these issues by: (i) Mitigating the 
impact of the weeds and sedimentation by providing dredgers and weed-
harvesting equipment for use at existing hydropower plants and the 
Liwonde Barrage, and expanding use of upstream biological control 
measures; and (ii) developing and implementing an Environmental and 
Natural Resource Management Action Plan (ENRMAP) that sets the course 
for an improved understanding and action on environmental, social 
(including

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gender), and economic factors that cause or contribute to weed 
infestation and sedimentation in the Shire River.
B. Power Sector Reform Activity ($25.7 million)
    The Power Sector Reform Activity complements the Infrastructure 
Development Activity by providing support for the GOM's policy reform 
agenda, and aims to build capacity in pivotal sector institutions: 
ESCOM, the Malawi Energy Regulatory Authority (MERA), and the Ministry 
of Natural Resources Energy and Environment (MNREE). Currently, ESCOM 
suffers from significant financial, governance and operational 
challenges. In addition, inadequate GOM policies and sector governance 
continue to hinder development of the power sector. To address these 
challenges, MCC and the GOM have developed two sub-activities under the 
Power Sector Reform Activity: the ESCOM Turnaround sub-activity and the 
Regulatory Strengthening sub-activity.
    (a) ESCOM Turnaround Sub-Activity. The objectives of this sub-
activity are to restore ESCOM's financial health and rebuild ESCOM into 
a strong, well-managed company. MCC funding will support three main 
areas of the turnaround: finances, corporate governance and operations.
    (i) Finances: MCC funding will support the provision of technical 
assistance and equipment to ESCOM, including: (1) Development of a 
detailed financial plan for 2011-2016; (2) deployment of a ``financial 
turnaround team''; (3) development of a loss reduction study; (4) 
assistance in rapid billings and collections improvements; (5) 
strengthening of internal controls; (6) rebuilding of the customer 
database; (7) pursuit of debt collection; (8) development of a new 
automated financial management system; and (9) assistance with tariff 
applications.
    (ii) Operations: MCC funding will support change management 
efforts, designing human resources strategies, strengthen ESCOM's 
procurement division, and other operational assistance.
    (iii) Corporate Governance: MCC funding will seek to improve 
corporate governance and support ESCOM's turnaround, including: (1) 
Recruitment services; (2) twinning/mentoring arrangements or management 
contract support; (3) a performance management system; and (4) board 
strategic planning. MCC funding will provide technical assistance on 
corporate performance standards, including a study on best practices 
and benchmarks for corporate governance of electric utilities with 
regional, continental and international benchmarks and recommendations 
for ESCOM by the end of the second year of the Compact term.
    (b) Regulatory Strengthening Sub-Activity. The objective of this 
sub-activity is to provide support for the GOM's policy reform agenda 
by building capacity in pivotal sector institutions such as MERA and 
MNREE, and to develop a regulatory environment, consistent with best 
practices in independent power utility regulation, which will promote 
potential private sector investment in generation and grid capacity at 
an affordable cost.
    (i) Tariff Reform: MCC funding will support a cost of service study 
to determine appropriate tariff levels and schedules to achieve full 
cost recovery, more efficient utilization of electricity, and 
achievement of social objectives. Based on the results of this study, 
the GOM commits to a phased implementation of full-cost recovery 
tariffs and schedules to be completed by the end of year three of the 
Compact.
    (ii) MERA Capacity Building: MCC funding will support capacity 
building at MERA to improve its regulatory oversight activities and 
operations including training and mentoring and development of peer 
relationships with other regulatory bodies.
    Enabling Environment for Public and Private Sector Investment: MCC 
funding will support the GOM's efforts to implement a suitable market 
model which will include efforts to: (a) Study and design a single 
buyer model to be implemented during the Compact; and (b) develop the 
building blocks of a bilateral power trade market.

2. Administration

    The Compact also includes program administration costs estimated at 
$33 million over a five-year timeframe, including the costs of 
administration, management, auditing, and fiscal and procurement 
services. In addition, the cost of monitoring and evaluation of the 
Compact and integration of MCC's gender policy is budgeted at 
approximately $9 million.

3. Economic and Beneficiary Analysis

    By reducing power outages and technical losses, enhancing the 
sustainability and efficiency of hydropower generation, and increasing 
the potential kilowatt hours (``kWh'') of throughput to electricity 
consumers, the Program will reduce energy costs to enterprises and 
households, improve productivity in agriculture, manufacturing, and 
service sectors, and support the preservation and creation of 
employment opportunities in the economy. MCC and the GOM expect the 
Program to result in the following benefits and distribution thereof:
    <bullet> An estimated 5 million individuals will benefit by year 20 
after the Compact term through reduced domestic and enterprise energy 
costs, increased employment income, and profits;
    <bullet> An estimated US$2.4 billion of income benefits to Malawi 
at the present discounted rate of 10 percent;
    <bullet> An estimated 40 percent of beneficiaries are currently 
extremely poor, and 60 percent are poor \1\; and
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    \1\ ``Extremely poor'' is defined as living on the equivalent 
amount in 2010 of less than US$1.25 per day 2005 PPP adjusted 
dollars, and ``poor'' is defined as living on less than US$2.00 per 
day 2005 PPP adjusted dollars.
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    <bullet> Extremely poor individuals will gain approximately US$221 
of benefits in PPP terms, and poor individuals will gain an average of 
US$291 (estimates based on recent employment and electricity connection 
patterns, and incorporate effects of a modest rise in tariffs, to 
partly finance expanded access).

Millennium Challenge Compact Between the United States of America 
Acting Through the Millennium Challenge Corporation and the Republic of 
Malawi

Millennium Challenge Compact

Table of Contents

Article 1. Goal and Objectives
    Section 1.1 Compact Goal
    Section 1.2 Program Objective
    Section 1.3 Project Objectives
Article 2. Funding and Resources
    Section 2.1 Program Funding
    Section 2.2 Compact Implementation Funding
    Section 2.3 MCC Funding
    Section 2.4 Disbursement
    Section 2.5 Interest
    Section 2.6 Government Resources; Budget
    Section 2.7 Limitations of the Use of MCC Funding
    Section 2.8 Taxes
Article 3. Implementation
    Section 3.1 Program Implementation Agreement
    Section 3.2 Government Responsibilities
    Section 3.3 Policy Performance
    Section 3.4 Accuracy of Information
    Section 3.5 Implementation Letters
    Section 3.6 Procurement
    Section 3.7 Records; Accounting; Covered Providers; Access
    Section 3.8 Audits; Reviews
Article 4. Communications
    Section 4.1 Communications
    Section 4.2 Representatives
    Section 4.3 Signatures
Article 5. Termination; Suspension; Expiration
    Section 5.1 Termination; Suspension

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    Section 5.2 Consequences of Termination, Suspension or 
Expiration
    Section 5.3 Refunds; Violation
    Section 5.4 Survival
Article 6. Compact Annexes; Amendments; Governing Law
    Section 6.1 Annexes
    Section 6.2 Amendments
    Section 6.3 Inconsistencies
    Section 6.4 Governing Law
    Section 6.5 Additional Instruments
    Section 6.6 References to MCC Web Site
    Section 6.7 References to Laws, Regulations, Policies, and 
Guidelines
    Section 6.8 MCC Status
Article 7. Entry Into Force
    Section 7.1 International Agreements
    Section 7.2 Conditions Precedent to Entry Into Force
    Section 7.3 Date of Entry Into Force
    Section 7.4 Compact Term
    Section 7.5 Provisional Application
Annex I: Program Description
Annex II: Multi-Year Financial Plan Summary
Annex III: Description of the Monitoring and Evaluation Plan
Annex IV: Conditions to Disbursement of Compact Implementation 
Funding
Annex V: Definitions

Millennium Challenge Compact

Preamble

    This Millennium Challenge Compact (this ``Compact'') is between the 
United States of America, acting through the Millennium Challenge 
Corporation, a United States Government corporation (``MCC''), and the 
Republic of Malawi (``Malawi''), acting through its government (the 
``Government'') (individually a ``Party'' and collectively, the 
``Parties''). Capitalized terms used in this Compact will have the 
meanings provided in Annex V.
    Recognizing that the Parties are committed to the shared goals of 
promoting economic growth and the elimination of extreme poverty in 
Malawi and that MCC assistance under this Compact supports Malawi's 
demonstrated commitment to strengthening good governance, economic 
freedom and investments in people;
    Recalling that the Government consulted with the private sector and 
civil society of Malawi to determine the priorities for the use of 
Millennium Challenge Corporation assistance and developed and submitted 
to MCC a proposal for such assistance to achieve lasting economic 
growth and poverty reduction;
    Understanding that MCC wishes to help Malawi implement the program 
described herein (as such description may be amended from time to time 
in accordance with the terms hereof, the ``Program'') to counter a key 
binding constraint to sustained growth and diversification in the 
Malawi economy; and
    Acknowledging that to implement the Program, MCC wishes to make 
available to the Government an amount not to exceed Three Hundred and 
Fifty Million Seven Hundred Thousand United States Dollars 
(US$350,700,000), subject to the terms and conditions of this Compact;
    The Parties hereby agree as follows:

Article 1. Goal and Objectives

Section 1.1 Compact Goal

    The goal of this Compact is to reduce poverty through economic 
growth in Malawi (the ``Compact Goal'').

Section 1.2 Program Objective

    The collective objective of the Program (the ``Program Objective'') 
is to (i) increase investment and employment income by raising the 
profitability and productivity of enterprises, (ii) expand access to 
electricity for the Malawian people and businesses, and (iii) improve 
delivery of social services.

Section 1.3 Project Objective

    To achieve the Program Objective, the Government will implement the 
Power Sector Revitalization Project described in Annex I (the 
``Project'') with the assistance of MCC. The objective of the Project 
is to improve the availability, reliability, and quality of the power 
supply by increasing the throughput capacity and stability of the 
national electricity grid, increase efficiency of hydropower 
generation, and create an enabling environment for future expansion by 
strengthening sector institutions and enhancing regulation and 
governance of the sector (the ``Project Objective'').

Article 2. Funding and Resources

Section 2.1 Program Funding

    Upon entry into force of this Compact in accordance with Section 
7.3, MCC will grant to the Government, under the terms of this Compact, 
an amount not to exceed Three Hundred and Forty One Million Five 
Hundred and Eighty Thousand United States Dollars (US$341,580,000) 
(``Program Funding'') for use by the Government to implement the 
Program. The allocation of Program Funding is generally described in 
Annex II.

Section 2.2 Compact Implementation Funding

    (a) Upon signing of this Compact, MCC will grant to the Government, 
under the terms of this Compact and in addition to the Program Funding 
described in Section 2.1, an amount not to exceed Nine Million One 
Hundred and Twenty Thousand United States Dollars (US$9,120,000) 
(``Compact Implementation Funding'') under Section 609(g) of the 
Millennium Challenge Act of 2003, as amended (the ``MCA Act''), for use 
by the Government to facilitate implementation of the Compact, 
including for the following purposes:
    (i) financial management and procurement activities;
    (ii) administrative activities (including start-up costs such as 
staff salaries) and administrative support expenses such as rent, 
computers and other information technology or capital equipment;
    (iii) monitoring and evaluation activities;
    (iv) feasibility and any remaining project preparatory studies; and
    (v) other activities to facilitate Compact implementation as 
approved by MCC.
    The allocation of Compact Implementation Funding is generally 
described in Annex II.
    (b) Each Disbursement (as defined below) of Compact Implementation 
Funding is subject to satisfaction of the conditions precedent to such 
Disbursement as set forth in Annex IV.
    (c) If MCC determines that the full amount of Compact 
Implementation Funding available under Section 2.2(a) exceeds the 
amount that reasonably can be utilized for the purposes set forth in 
Section 2.2(a), MCC, by written notice to the Government, may withdraw 
the excess amount, thereby reducing the amount of the Compact 
Implementation Funding available under Section 2.2(a) (such excess, the 
``Excess CIF Amount''). In such event, the amount of Compact 
Implementation Funding granted to the Government under Section 2.2(a) 
will be reduced by the Excess CIF Amount, and MCC will have no further 
obligations with respect to such Excess CIF Amount.
    (d) Upon the written request of the Government, MCC may grant to 
the Government an amount equal to all or a portion of such Excess CIF 
Amount as an increase in the Program Funding. Such grant of additional 
Program Funding will be in writing and subject to the terms and 
conditions of this Compact applicable to Program Funding.

Section 2.3 MCC Funding

    Program Funding and Compact Implementation Funding are collectively 
referred to in this Compact as ``MCC Funding'', and includes any 
refunds or reimbursements of Program Funding or Compact Implementation

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Funding paid by the Government in accordance with this Compact.

Section 2.4 Disbursement

    In accordance with this Compact and the Program Implementation 
Agreement, MCC will disburse MCC Funding for expenditures incurred in 
furtherance of the Program (each instance, a ``Disbursement''). Subject 
to the satisfaction of all applicable conditions precedent, the 
proceeds of Disbursements will be made available to the Government, at 
MCC's sole election, by (a) deposit to one or more bank accounts 
established by the Government and acceptable to MCC (each, a 
``Permitted Account'') or (b) direct payment to the relevant provider 
of goods, works or services for the implementation of the Program. MCC 
Funding may be expended only for Program expenditures.

Section 2.5 Interest

    Unless MCC agrees otherwise in writing, the Government will pay or 
transfer to MCC, in accordance with the Program Implementation 
Agreement, any interest or other earnings that accrue on MCC Funding 
prior to such funding being used for a Program purpose.

Section 2.6 Government Resources; Budget

    (a) The Government will provide all funds and other resources, and 
will take all actions, that are necessary to carry out the Government's 
responsibilities under this Compact.
    (b) The Government will use its best efforts to ensure that all MCC 
Funding it receives or is projected to receive in each of its fiscal 
years is fully accounted for in its annual budget on a multi-year 
basis.
    (c) The Government will not reduce the normal and expected 
resources that it would otherwise receive or budget from sources other 
than MCC for the activities contemplated under this Compact and the 
Program.
    (d) Unless the Government discloses otherwise to MCC in writing, 
MCC Funding will be in addition to the resources that the Government 
would otherwise receive or budget for the activities contemplated under 
this Compact and the Program.

Section 2.7 Limitations on the Use of MCC Funding

    The Government will ensure that MCC Funding is not used for any 
purpose that would violate United States law or policy, as specified in 
this Compact or as further notified to the Government in writing or by 
posting from time to time on the MCC Web site at http://www.mcc.gov 
(the ``MCC Web site''), including but not limited to the following 
purposes:
    (a) For assistance to, or training of, the military, police, 
militia, national guard or other quasi-military organization or unit;
    (b) For any activity that is likely to cause a substantial loss of 
United States jobs or a substantial displacement of United States 
production;
    (c) To undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard, 
as further described in MCC's environmental and social assessment 
guidelines and any guidance documents issued in connection with the 
guidelines posted from time to time on the MCC Web site or otherwise 
made available to the Government (collectively, the ``MCC Environmental 
Guidelines''); or
    (d) To pay for the performance of abortions as a method of family 
planning or to motivate or coerce any person to practice abortions, to 
pay for the performance of involuntary sterilizations as a method of 
family planning or to coerce or provide any financial incentive to any 
person to undergo sterilizations or to pay for any biomedical research 
which relates, in whole or in part, to methods of, or the performance 
of, abortions or involuntary sterilization as a means of family 
planning.

Section 2.8 Taxes

    (a) Unless the Parties specifically agree otherwise in writing, the 
Government will ensure that all MCC Funding is free from the payment or 
imposition of any existing or future taxes, duties, levies, 
contributions or other similar charges (but not fees or charges for 
services that are generally applicable in Malawi, reasonable in amount 
and imposed on a non-discriminatory basis) (``Taxes'') of or in Malawi 
(including any such Taxes imposed by a national, regional, local or 
other governmental or taxing authority of or in Malawi). Specifically, 
and without limiting the generality of the foregoing, MCC Funding will 
be free from the payment of (i) any tariffs, customs duties, import 
taxes, export taxes, and other similar charges on any goods, works or 
services introduced into Malawi in connection with the Program, (ii) 
sales tax, value added tax, excise tax, property transfer tax or stamp 
duty tax, and other similar charges on any transactions involving 
goods, works or services in connection with the Program, (iii) taxes 
and other similar charges on ownership, possession or use of any 
property in connection with the Program, and (iv) taxes and other 
similar charges on income, profits or gross receipts attributable to 
work performed in connection with the Program and related social 
security taxes and other similar charges on all natural or legal 
persons performing work in connection with the Program except (1) 
natural persons who are citizens or residents of Malawi and (2) legal 
persons formed under the laws of Malawi (but excluding MCA-Malawi and 
any other entity formed for the purpose of implementing the 
Government's obligations hereunder).
    (b) The mechanisms that the Government will use to implement the 
tax exemption required by Section 2.8(a) will be set forth in the 
Program Implementation Agreement (the ``Tax Schedules''). Such 
mechanisms may include exemptions from the payment of Taxes that have 
been granted in accordance with applicable law, refund or reimbursement 
of Taxes by the Government to MCC, MCA-Malawi or to the taxpayer, or 
payment by the Government to MCA-Malawi or MCC, for the benefit of the 
Program, of an agreed amount representing any collectible Taxes on the 
items described in Section 2.8(a).
    (c) If a Tax has been paid contrary to the requirements of Section 
2.8(a) or the Tax Schedules, the Government will refund promptly to 
MCA-Malawi (or to another party as designated by MCC) the amount of 
such Tax in Malawi Kwacha and MCA-Malawi will refund that amount in 
U.S. Dollars to MCC, unless otherwise provided by MCC, within sixty 
(60) days (or such other period as may be agreed in writing by the 
Parties) after the Government is notified in writing (whether by MCC or 
MCA-Malawi) that such Tax has been paid. If the amount of such Tax is 
converted to U.S. Dollars from Malawi Kwacha, the rate of exchange 
applicable to such conversion shall be the U.S. Dollar-Malawi Kwacha 
rate of exchange as published by the Reserve Bank of Malawi on the date 
of transfer.
    (d) In the event the Government fails to make a payment, including 
any refund, reimbursement, or other payment that falls hereunder in 
full when due (including VAT or other refund or reimbursement), 
interest shall be paid on such past due amount at a rate of the then 
current U.S. Treasury Prompt Pay Interest Rate, calculated on a daily 
basis and a 360-day year from the due date of such payment until such 
amount is paid.
    (e) No MCC Funding, proceeds thereof or Program Assets may be 
applied by

[[Page 21048]]

the Government in satisfaction of its obligations under Section 2.8(c).

Article 3. Implementation

Section 3.1 Program Implementation Agreement

    The Parties will enter into an agreement providing further detail 
on the implementation arrangements, fiscal accountability and 
disbursement and use of MCC Funding, among other matters (the ``Program 
Implementation Agreement'' or ``PIA''); and the Government will 
implement the Program in accordance with this Compact, the PIA, any 
other Supplemental Agreement and any Implementation Letter.

Section 3.2 Government Responsibilities

    (a) The Government has principal responsibility for overseeing and 
managing the implementation of the Program.
    (b) The Government will create and designate MCA-Malawi, a public 
trust to be created under the laws of Malawi, as the accountable entity 
to implement the Program and to exercise and perform the Government's 
right and obligation to oversee, manage and implement the Program, 
including without limitation, managing the implementation of the 
Project and its Activities, allocating resources and managing 
procurements. MCA-Malawi will have the authority to bind the Government 
with regard to all Program activities. The designation contemplated by 
this Section 3.2(b) will not relieve the Government of any obligations 
or responsibilities hereunder or under any related agreement, for which 
the Government remains fully responsible. MCC hereby acknowledges and 
consents to the designation in this Section 3.2(b).
    (c) The Government will ensure that any Program Assets or services 
funded in whole or in part (directly or indirectly) by MCC Funding are 
used solely in furtherance of this Compact and the Program unless MCC 
agrees otherwise in writing.
    (d) The Government will take all necessary or appropriate steps to 
achieve the Program Objective and the Project Objective during the 
Compact Term (including, without limiting Section 2.6(a), funding all 
costs that exceed MCC Funding and are required to carry out the terms 
hereof and achieve such objectives, unless MCC agrees otherwise in 
writing).
    (e) The Government will fully comply with the Program Guidelines, 
as applicable, in its implementation of the Program.

Section 3.3 Policy Performance

    In addition to undertaking the specific policy, legal and 
regulatory reform commitments identified in Annex I, the Government 
will seek to maintain and to improve its level of performance under the 
policy criteria identified in Section 607 of the MCA Act, and the 
selection criteria and methodology used by MCC.

Section 3.4 Accuracy of Information

    The Government assures MCC that, as of the date this Compact is 
signed by the Government, the information provided to MCC by or on 
behalf of the Government in the course of reaching agreement with MCC 
on this Compact is true, correct and complete in all material respects.

Section 3.5 Implementation Letters

    From time to time, MCC may provide guidance to the Government in 
writing on any matters relating to this Compact, MCC Funding or 
implementation of the Program (each, an ``Implementation Letter''). The 
Government will apply such guidance in implementing the Program. The 
Parties may also issue jointly agreed-upon Implementation Letters to 
confirm and record their mutual understanding on aspects related to the 
implementation of this Compact, the PIA or other related agreements.

Section 3.6 Procurement

    The Government will ensure that the procurement of all goods, works 
and services by the Government or any Provider to implement the Program 
will be consistent with the ``MCC Program Procurement Guidelines'' 
posted from time to time on the MCC Web site (the ``MCC Program 
Procurement Guidelines''). The MCC Program Procurement Guidelines 
include the following requirements, among others:
    (a) Open, fair, and competitive procedures must be used in a 
transparent manner to solicit, award and administer contracts and to 
procure goods, works and services;
    (b) Solicitations for goods, works, and services must be based upon 
a clear and accurate description of the goods, works and services to be 
acquired;
    (c) Contracts must be awarded only to qualified contractors that 
have the capability and willingness to perform the contracts in 
accordance with their terms on a cost effective and timely basis; and
    (d) No more than a commercially reasonable price, as determined, 
for example, by a comparison of price quotations and market prices, 
will be paid to procure goods, works and services.

Section 3.7 Records; Accounting; Covered Providers; Access

    (a) Government Books and Records. The Government will maintain, and 
will use its best efforts to ensure that all Covered Providers 
maintain, accounting books, records, documents and other evidence 
relating to the Program adequate to show, to MCC's satisfaction, the 
use of all MCC Funding and the implementation and results of the 
Program (``Compact Records''). In addition, the Government will furnish 
or cause to be furnished to MCC, upon its request, originals or copies 
of such Compact Records.
    (b) Accounting. The Government will maintain and will use its best 
efforts to ensure that all Covered Providers maintain Compact Records 
in accordance with generally accepted accounting principles prevailing 
in the United States, or at the Government's option and with MCC's 
prior written approval, other accounting principles, such as those (i) 
prescribed by the International Accounting Standards Board, or (ii) 
then prevailing in Malawi. Compact Records must be maintained for at 
least five (5) years after the end of the Compact Term or for such 
longer period, if any, required to resolve any litigation, claims or 
audit findings or any applicable legal requirements.
    (c) Providers and Covered Providers. Unless the Parties agree 
otherwise in writing, a ``Provider'' is (i) any entity of the 
Government that receives or uses MCC Funding or any other Program Asset 
in carrying out activities in furtherance of this Compact or (ii) any 
third party that receives at least U.S.$50,000 in the aggregate of MCC 
Funding (other than as salary or compensation as an employee of an 
entity of the Government) during the Compact Term. A ``Covered 
Provider'' is (i) a non-United States Provider that receives (other 
than pursuant to a direct contract or agreement with MCC) U.S.$300,000 
or more of MCC Funding in any Government fiscal year or any other non-
United States person or entity that receives, directly or indirectly, 
U.S.$300,000 or more of MCC Funding from any Provider in such fiscal 
year, or (ii) any United States Provider that receives (other than 
pursuant to a direct contract or agreement with MCC) U.S.$500,000 or 
more of MCC Funding in any Government fiscal year or any other United 
States person or entity that receives, directly or indirectly, 
U.S.$500,000 or more of MCC Funding from any Provider in such fiscal 
year.

[[Page 21049]]

    (d) Access. Upon MCC's request, the Government, at all reasonable 
times, will permit, or cause to be permitted, authorized 
representatives of MCC, an authorized Inspector General of MCC 
(``Inspector General''), the United States Government Accountability 
Office, any auditor responsible for an audit contemplated herein or 
otherwise conducted in furtherance of this Compact, and any agents or 
representatives engaged by MCC or the Government to conduct any 
assessment, review or evaluation of the Program, the opportunity to 
audit, review, evaluate or inspect facilities, assets and activities 
funded in whole or in part by MCC Funding.

Section 3.8 Audits; Reviews

    (a) Government Audits. Except as the Parties may agree otherwise in 
writing, the Government will, on at least a semi-annual basis, conduct, 
or cause to be conducted, financial audits of all disbursements of MCC 
Funding covering the period from signing of this Compact until the 
earlier of the following December 31 or June 30 and covering each six-
month period thereafter ending December 31 and June 30, through the end 
of the Compact Term. In addition, upon MCC's request, the Government 
will ensure that such audits are conducted by an independent auditor 
approved by MCC and named on the list of local auditors approved by the 
Inspector General or a United States-based certified public accounting 
firm selected in accordance with the ``Guidelines for Financial Audits 
Contracted by MCA'' (the ``Audit Guidelines'') issued and revised from 
time to time by the Inspector General, which are posted on the MCC Web 
site. Audits will be performed in accordance with the Audit Guidelines 
and be subject to quality assurance oversight by the Inspector General. 
Each audit must be completed and the audit report delivered to MCC no 
later than 90 days after the first period to be audited and no later 
than 90 days after each June 30 and December 31 thereafter, or such 
other period as the Parties may otherwise agree in writing.
    (b) Audits of Other Entities. The Government will ensure that MCC 
financed agreements between the Government or any Provider, on the one 
hand, and (i) a United States nonprofit organization, on the other 
hand, state that the United States nonprofit organization is subject to 
the applicable audit requirements contained in OMB Circular A-133, 
``Audits of States, Local Governments, and Non-Profit Organizations,'' 
issued by the United States Office of Management and Budget; (ii) a 
United States for-profit Covered Provider, on the other hand, state 
that the United States for-profit organization is subject to audit by 
the applicable United States Government agency, unless the Government 
and MCC agree otherwise in writing; and (iii) a non-U.S. Covered 
Provider, on the other hand, state that the non-U.S. Covered Provider 
is subject to audit in accordance with the Audit Guidelines.
    (c) Corrective Actions. The Government will use its best efforts to 
ensure that each Covered Provider (i) takes, where necessary, 
appropriate and timely corrective actions in response to audits, (ii) 
considers whether the results of the Covered Provider's audit 
necessitates adjustment of the Government's records, and (iii) permits 
independent auditors to have access to its records and financial 
statements as necessary.
    (d) Audit by MCC. MCC will have the right to arrange for audits of 
the Government's use of MCC Funding.
    (e) Cost of Audits, Reviews or Evaluations. MCC Funding may be used 
to fund the costs of any audits, reviews or evaluations required under 
this Compact.

Article 4. Communications

Section 4.1 Communications

    Any document or communication required or submitted by either Party 
to the other under this Compact must be in writing and in English. For 
this purpose, the address of each Party is set forth below.
To MCC
    Millennium Challenge Corporation, Attention: Vice President, 
Compact Operations, (with a copy to the Vice President and General 
Counsel), 875 Fifteenth Street, NW., Washington, DC 20005, United 
States of America, Facsimile: (202) 521-3700, Telephone: (202) 521-
3600, E-mail: <a href="/cdn-cgi/l/email-protection#6d3b3d221d081f0c190402031e2d000e0e430a021b"><span class="__cf_email__" data-cfemail="acfafce3dcc9decdd8c5c3c2dfecc1cfcf82cbc3da">[email protected]</span></a> (Vice President, Compact 
Operations), <a href="/cdn-cgi/l/email-protection#83d5d3c4e6ede6f1e2efc0ecf6edf0e6efc3eee0e0ade4ecf5"><span class="__cf_email__" data-cfemail="1b4d4b5c7e757e697a7758746e75687e775b767878357c746d">[email protected]</span></a> (Vice President and General 
Counsel)
To the Government
    Ministry of Finance, Attention: Minister of Finance, (with copies 
to the (a) Secretary to the Treasury and (b) Chief Secretary to the 
Government), Capital Hill, Lilongwe, Malawi, Tel: +265-1788030, Fax: 
+265-1788384, E-mail: <a href="/cdn-cgi/l/email-protection#c3b0a6a0aeaca583a5aaada2ada0a6eda4acb5edaeb4"><span class="__cf_email__" data-cfemail="2f5c4a4c4240496f4946414e414c4a01484059014258">[email protected]</span></a>.
To MCA-Malaw:
    Upon establishment of MCA-Malawi, MCA-Malawi will notify the 
Parties of its contact details.

Section 4.2 Representatives

    For all purposes of this Compact, the Government will be 
represented by the individual holding the position of, or acting as, 
Minister of Finance of the Republic of Malawi, and MCC will be 
represented by the individual holding the position of, or acting as, 
Vice President, Compact Operations (each of the foregoing, a 
``Principal Representative''). Each Party, by written notice to the 
other Party, may designate one or more additional representatives 
(each, an ``Additional Representative''). A Party may change its 
Principal Representative to a new representative that holds a position 
of equal or higher authority upon written notice to the other Party.

Section 4.3 Signatures

    Signatures to this Compact and to any amendment to this Compact 
will be original signatures appearing on the same page or in an 
exchange of letters or diplomatic notes. With respect to all documents 
arising out of this Compact (other than the Program Implementation 
Agreement) and amendments thereto, signatures may, as appropriate, be 
delivered by facsimile or electronic mail and in counterparts and will 
be binding on the Party delivering such signature to the same extent as 
an original signature would be.

Article 5. Termination; Suspension; Expiration

Section 5.1 Termination; Suspension

    (a) Either Party may terminate this Compact in its entirety by 
giving the other Party thirty (30) days' prior written notice.
    (b) MCC may, immediately, upon written notice to the Government, 
suspend or terminate this Compact or MCC Funding, in whole or in part, 
and any obligation related thereto, if MCC determines that any 
circumstance identified by MCC, as a basis for suspension or 
termination (whether in writing to the Government or by posting on the 
MCC Web site) has occurred, which circumstances include but are not 
limited to the following:
    (i) The Government fails to comply with its obligations under this 
Compact or any other agreement or arrangement entered into by the 
Government in connection with this Compact or the Program;
    (ii) An event or series of events has occurred that makes it 
probable that the Program Objective or the Project Objective will not 
be achieved during the Compact Term or that the Government will not be 
able to perform its obligations under this Compact;

[[Page 21050]]

    (iii) A use of MCC Funding or continued implementation of this 
Compact or the Program violates applicable law or United States 
Government policy, whether now or hereafter in effect;
    (iv) The Government or any other person or entity receiving MCC 
Funding or using Program Assets is engaged in activities that are 
contrary to the national security interests of the United States;
    (v) An act has been committed or an omission or an event has 
occurred that would render Malawi ineligible to receive United States 
economic assistance under Part I of the Foreign Assistance Act of 1961, 
as amended (22 U.S.C. 2151 et seq.), by reason of the application of 
any provision of such act or any other provision of law;
    (vi) The Government has engaged in a pattern of actions 
inconsistent with the criteria used to determine the eligibility of 
Malawi for assistance under the MCA Act; and
    (vii) The Government or another person or entity receiving MCC 
Funding or using Program Assets is found to have been convicted of a 
narcotics offense or to have been engaged in drug trafficking.

Section 5.2 Consequences of Termination, Suspension or Expiration

    (a) Upon the suspension or termination, in whole or in part, of 
this Compact or any MCC Funding, or upon the expiration of this 
Compact, the provisions of Section 4.2 of the Program Implementation 
Agreement will govern the post-suspension, post-termination or post-
expiration treatment of MCC Funding, any related Disbursements and 
Program Assets. Any portion of this Compact, MCC Funding, the Program 
Implementation Agreement or any other Supplemental Agreement that is 
not suspended or terminated will remain in full force and effect.
    (b) MCC may reinstate any suspended or terminated MCC Funding under 
this Compact if MCC determines that the Government or other relevant 
person or entity has committed to correct each condition for which MCC 
Funding was suspended or terminated.

Section 5.3 Refunds; Violation

    (a) If any MCC Funding, any interest or earnings thereon, or any 
Program Asset is used for any purpose in violation of the terms of this 
Compact, then MCC may require the Government to repay to MCC in United 
States Dollars the value of the misused MCC Funding, interest, 
earnings, or asset, plus interest within thirty (30) days after the 
Government's receipt of MCC's request for repayment. Interest will 
accrue from the date of the violation and will be calculated at the 10-
year U.S. Treasury Note rate prevailing as of the close of business in 
Washington, DC as of the date of MCC's request for payment. The 
Government will not use MCC Funding, proceeds thereof or Program Assets 
to make such payment.
    (b) Notwithstanding any other provision in this Compact or any 
other existing agreement to the contrary, MCC's right under Section 
5.3(a) for a refund will continue during the Compact Term and for a 
period of (i) five (5) years thereafter or (ii) one (1) year after MCC 
receives actual knowledge of such violation, whichever is later.

Section 5.4 Survival

    This Section 5.4 and the Government's responsibilities under 
Sections 2.7, 3.7, 3.8, 5.2, 5.3, and 6.4 will survive the expiration, 
suspension or termination of this Compact.

Article 6. Compact Annexes; Amendments; Governing Law

Section 6.1 Annexes

    Each annex to this Compact constitutes an integral part hereof, and 
references to ``Annex'' mean an annex to this Compact unless otherwise 
expressly stated.

Section 6.2 Amendments

    (a) The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives (or such other government 
official designated by the relevant Principal Representative).
    (b) Notwithstanding Section 6.2(a), the Parties may agree in 
writing, signed by the Principal Representatives (or such other 
government official designated by the relevant Principal 
Representative) or any Additional Representative, to modify any Annex 
to (i) Suspend, terminate or modify any Project or Activity, or to 
create a new project, (ii) change the allocations of funds as set forth 
in Annex II as of the date hereof (including to allocate funds to a new 
project), (iii) modify the Implementation Framework described in Annex 
I, or (iv) add, delete or waive any condition precedent described in 
Annex IV; provided that, in each case, any such modification (1) is 
consistent in all material respects with the Program Objective and 
Project Objective, (2) does not cause the amount of Program Funding to 
exceed the aggregate amount specified in Section 2.1 (as may be 
modified by operation of Section 2.2(d)), (3) does not cause the amount 
of Compact Implementation Funding to exceed the aggregate amount 
specified in Section 2.2(a), and (4) does not extend the Compact Term.

Section 6.3 Inconsistencies

    In the event of any conflict or inconsistency between:
    (a) any Annex and any of Articles 1 through 7, such Articles 1 
through 7, as applicable, will prevail; or
    (b) this Compact and any other agreement between the Parties 
regarding the Program, this Compact will prevail.

Section 6.4 Governing Law

    This Compact is an international agreement and will be governed by 
the principles of international law.

Section 6.5 Additional Instruments

    Any reference to activities, obligations or rights undertaken or 
existing under or in furtherance of this Compact or similar language 
will include activities, obligations and rights undertaken by, or 
existing under or in furtherance of any agreement, document or 
instrument related to this Compact and the Program.

Section 6.6 References to MCC Web Site

    Any reference in this Compact, the PIA or any other agreement 
entered into in connection with this Compact, to a document or 
information available on, or notified by posting on the MCC Web site 
will be deemed a reference to such document or information as updated 
or substituted on the MCC Web site from time to time.

Section 6.7 References to Laws, Regulations, Policies and Guidelines

    Each reference in this Compact, the PIA or any other agreement 
entered into in connection with this Compact, to a law, regulation, 
policy, guideline or similar document will be construed as a reference 
to such law, regulation, policy, guideline or similar document as it 
may, from time to time, be amended, revised, replaced, or extended and 
will include any law, regulation, policy, guideline or similar document 
issued under or otherwise applicable or related to such law, 
regulation, policy, guideline or similar document.

Section 6.8 MCC Status

    MCC is a United States government corporation acting on behalf of 
the United States Government in the implementation of this Compact. MCC 
and the United States Government assume no liability for any claims or 
loss arising out of activities or omissions under this Compact. The 
Government

[[Page 21051]]

waives any and all claims against MCC or the United States Government 
or any current or former officer or employee of MCC or the United 
States Government for all loss, damage, injury, or death arising out of 
activities or omissions under this Compact, and agrees that it will not 
bring any claim or legal proceeding of any kind against any of the 
above entities or persons for any such loss, damage, injury, or death. 
The Government agrees that MCC and the United States Government or any 
current or former officer or employee of MCC or the United States 
Government will be immune from the jurisdiction of all courts and 
tribunals of Malawi for any claim or loss arising out of activities or 
omissions under this Compact.

Article 7. Entry Into Force

Section 7.1 International Agreement

    Before this Compact enters into force, the Government will proceed 
in a timely manner to complete all of its domestic requirements for 
each of the Compact and the Program Implementation Agreement to enter 
into force as an international agreement.

Section 7.2 Conditions Precedent to Entry Into Force

    Before this Compact enters into force:
    (a) The Program Implementation Agreement must have been signed by 
the parties thereto;
    (b) The Government must have delivered to MCC:
    (i) A letter signed and dated by the Principal Representative of 
the Government, or such other duly authorized representative of the 
Government acceptable to MCC, confirming that the Government has 
completed its domestic requirements for this Compact to enter into 
force and that the other conditions precedent to entry into force in 
this Section 7.2 have been met.
    (ii) A signed legal opinion from the Attorney General of Malawi (or 
such other legal representative of the Government acceptable to MCC), 
in form and substance satisfactory to MCC; and
    (iii) Complete, certified copies of all decrees, legislation, 
regulations or other governmental documents relating to the 
Government's domestic requirements for this Compact to enter into force 
and the satisfaction of Section 7.1, if any, which MCC may post on its 
Web site or otherwise make publicly available;
    (c) MCC shall not have determined that after signature of this 
Compact, the Government has engaged in a pattern of actions 
inconsistent with the eligibility criteria for MCC Funding;
    (d) The Government has delivered to MCC evidence, satisfactory to 
MCC, that it has fully funded a turnaround facility for Electricity 
Supply Corporation of Malawi (``ESCOM'') to meet ESCOM's working 
capital and investment capital needs for the Government's Fiscal Year 
2012, as further described in Annex I to this Compact (the ``Turnaround 
Facility'');
    (e) The Government will ensure that ESCOM has employed a 
professionally qualified Chief Executive Officer for ESCOM; and
    (f) The Government will have delivered a schedule for the 
construction of the Kapichira II hydropower plant that is acceptable to 
MCC.

Section 7.3 Date of Entry Into Force

    This Compact will enter into force on the date of the letter from 
MCC to the Government in an exchange of letters confirming that MCC has 
completed its domestic requirements for entry into force of this 
Compact and that the conditions precedent to entry into force in 
Section 7.2 have been met.

Section 7.4 Compact Term

    This Compact will remain in force for five (5) years after its 
entry into force, unless terminated earlier under Section 5.1 (the 
``Compact Term'').

Section 7.5 Provisional Application

    Upon signature of this Compact, and until this Compact has entered 
into force in accordance with Section 7.3, the Parties will 
provisionally apply the terms of this Compact; provided that, no MCC 
Funding, other than Compact Implementation Funding, will be made 
available or disbursed before this Compact enters into force.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact.
    Done at Lilongwe, Malawi, this 7th day of April, 2011, in the 
English language only.
    The United States of America, acting through the Millennium 
Challenge Corporation, Name: Patrick Fine, Title: Vice President, 
Department of Compact Operations.
    The Republic of Malawi, acting through the Ministry of Finance, 
Name: Kenny Edward Kandodo, Title: Minister of Finance.

Annex I Program Description

    This Annex I describes the Program that MCC Funding will support in 
Malawi during the Compact Term.

A. Program Overview

1. Background and Consultative Process
(a) Background
    Malawi is a landlocked country in southeast Africa that gained 
independence in 1964 and has a population of approximately 13.8 million 
people. Although Malawi has seen economic growth average seven percent 
over the last six years, an estimated 51 percent of the population 
lives on less than US$1.25 a day, and gross national income per capita 
stands at approximately US$880 (purchasing power parity (``PPP'') 
adjusted). The economy remains heavily dependent on rain-fed 
agriculture and primary commodity exports, and sustained economic 
growth and development require increasing productivity of industry, 
agriculture, and services, as well as diversification of the economy.
    Malawi's economy faces numerous challenges, including a power 
sector that is one of the most severely constrained in sub-Saharan 
Africa. The economic costs of an unreliable and inadequate power 
supply, as well as the costs of inappropriate pricing and high 
technical and non-technical losses, are estimated at seven to nine 
percent of GDP. In order to improve the prospects for sustained growth, 
poverty reduction, and improved delivery of health and education 
services, the power sector must be stabilized and expanded. Building on 
its current efforts to reform the power sector, the Government seeks to 
invest in infrastructure, turn around its electricity utility--
Electricity Supply Corporation of Malawi (``ESCOM'')--and develop an 
enabling legal and regulatory environment for investment in the sector. 
The Program is designed to support these efforts and assist Malawi with 
the sector's transformation.
(b) Consultative Process
    Malawi was deemed eligible for Compact assistance in 2007. To 
coordinate the Compact development process, the Government formed a 
core team (the ``MCA-Malawi Core Team'') in March 2008 to work with MCC 
to develop the Program. In May 2008, the MCA-Malawi Core Team initiated 
an analysis of constraints to economic growth in Malawi, in 
collaboration with the World Bank, the U.K. Department for 
International Development and the African Development Bank. Pursuant to 
this analysis and an extensive consultative process with key 
stakeholders, the power sector was identified as a key constraint to 
economic growth in Malawi.

[[Page 21052]]

2. Goal and Objectives
    The Compact Goal is to reduce poverty through economic growth. The 
Program Objective is to increase investment and employment income by 
raising the profitability and productivity of enterprises, expand 
access to electricity for the Malawian people and businesses, and 
improve delivery of social services. The Project Objective is to 
improve the availability, reliability, and quality of the power supply 
by increasing the throughput capacity and stability of the national 
electricity grid, increase efficiency of hydropower generation, and 
create an enabling environment for future expansion by strengthening 
sector institutions and enhancing regulation and governance of the 
sector.
3. Beneficiaries
    By reducing power outages and technical losses, enhancing the 
sustainability and efficiency of hydropower generation, and increasing 
the potential kilowatt hours (``kWh'') of throughput to electricity 
consumers, the Program will reduce energy costs to enterprises and 
households, improve productivity in agriculture, manufacturing, and 
service sectors, and support the preservation and creation of 
employment opportunities in the economy. The Parties expect the Program 
to result in the following benefits and distribution thereof:
    <bullet> An estimated 5 million individuals will benefit by year 20 
after the Compact Term through reduced domestic and enterprise energy 
costs, increased employment income, and profits;
    <bullet> An estimated US$2.4 billion of income benefits to Malawi 
at the present discounted rate of 10 percent;
    <bullet> An estimated 40 percent of beneficiaries are currently 
extremely poor, and 60 percent are poor \2\; and
---------------------------------------------------------------------------

    \2\ ``Extremely poor'' is defined as living on the equivalent 
amount in 2010 of less than US$1.25 per day 2005 PPP adjusted 
dollars, and ``poor'' is defined as living on less than US$2.00 per 
day 2005 PPP adjusted dollars.
---------------------------------------------------------------------------

    <bullet> Extremely poor individuals will gain approximately US$221 
of benefits in PPP terms, and poor individuals will gain an average of 
US$291 (estimates based on recent employment and electricity connection 
patterns, and incorporate effects of a modest rise in tariffs, to 
partly finance expanded access).
    These estimated income benefits do not include the full value of 
improvements to the delivery of health and education services of 
improved power supply, but these are likely to be important both 
economically and socially. All projected results depend upon 
complementary investments in generation capacity, as well as the 
successful implementation of the infrastructure investments, the 
sustained turnaround of ESCOM, and the realization of power sector 
reforms.

B. Power Sector Revitalization Project

    To advance the Program Objective, the Parties have designed a 
project to achieve a better-performing power sector with improved 
availability, reliability and quality of the power supply, increased 
efficiency of hydropower generation, and strengthened sector capacity 
and governance (the ``Power Sector Revitalization Project''). Set forth 
below is a description of the Power Sector Revitalization Project that 
the Government will implement, or cause to be implemented, with support 
from MCC Funding.
    The Power Sector Revitalization Project consists of the following 
activities (each an ``Activity''):
    <bullet> Investing in infrastructure development, including 
investment by the Government in new generation, and MCC Funding for 
generation and increased transmission and distribution capacity 
(``Infrastructure Development Activity''); and
    <bullet> Rebuilding ESCOM into a financially strong, well-managed 
utility and developing a regulatory environment that supports public 
and private investment in new generation capacity and expanded access 
(``Power Sector Reform Activity'').
1. Infrastructure Development Activity
    The Infrastructure Development Activity will rehabilitate, upgrade 
and modernize ESCOM's generation, transmission and distribution assets 
in most urgent need of repair, in order to preserve existing 
generation, improve the capability of the transmission system, and 
increase the efficiency and sustainability of hydropower generation. To 
facilitate the development and implementation of the Program, MCC is 
providing support for the Government's ability to identify and 
prioritize investments in the sector by developing an integrated 
resource plan. MCC Funding will support significant investments in the 
power system infrastructure to preserve generation and stabilize and 
modernize the transmission and distribution network.
    The Infrastructure Development Activity is only viable, technically 
and economically, if the Government and ESCOM maintain current 
generation assets and expand the generation capacity of the power 
system. Under the Infrastructure Development Activity, the Government 
will invest in new generation by completing the construction of the 
Kapichira II hydropower plant. Additionally, the Government will 
continue to seek to attract sustainable investment from the private 
sector and other donors to add significant amounts of new generation to 
the system.
    The Parties expect that by the end of the Compact Term, the 
Infrastructure Development Activity, together with the Government's 
commitment to complete construction of Kapichira II, will result in 
increases in generation capacity (from 286 MW to approximately 356 MW), 
network throughput capacity (from 260 MW to approximately 410 MW) and 
distribution capacity (from 868 MVA to approximately 1,078 MVA), and a 
reduction of total system losses from 20-25 percent to 18 percent.
(a) Integrated Resource Plan
    To facilitate the development and implementation of the Program, 
MCC is supporting the development of the Malawi 2020 Integrated 
Resource Plan (``IRP'') to enhance the Government's efforts to add 
generation. The objective of the IRP is to identify a prioritized list 
of generation resources that can help the Government and ESCOM meet the 
increasing demands for power in a manner that balances the objective of 
least or low cost power to users and diversification of energy sources, 
and to increase the impact of the Project. The expected outcome of the 
IRP is an executed plan to target and secure increased investments in 
the power system.
(b) Nkula A Refurbishment Sub-Activity
    MCC Funding will support the refurbishment of the Nkula A 
hydropower plant, with the objective to improve the availability of 
power in Malawi by reducing outages caused by the condition of the 
assets, and maximizing power output from Nkula A. The refurbishment 
will improve the reliability of the plant, extend its useful life, and 
thereby avoid a partial or total failure of the plant.
(c) Transmission Network Upgrade Sub-Activity
    This sub-activity is designed to upgrade the backbone of the 
transmission network to: (1) improve the quality and reliability of 
supply in the northern, central, and southern regions of the country; 
(2) increase the capacity to move power from the south where 98 percent 
of Malawi's power is generated to the central and northern regions; (3) 
reduce technical losses on

[[Page 21053]]

transmission lines; and (4) provide a secure transmission link between 
the southern and central regions.
    MCC Funding will support the following investments:
    (i) 220kV high voltage power line (the transmission ``backbone'' of 
the Malawi power system as currently configured) from the Nkula B 
hydropower plant to Lilongwe, which covers the southern and central 
regions of Malawi; the section of the backbone from Bawi or Golomoti, 
as the case may be, to Lilongwe--subject to completion and results of a 
full feasibility study and environmental and social impact assessments; 
and
    (ii) 132kV line parallel to existing 66kV and 33kV lines from 
Chintheche to Luwinga and from Luwinga to Bwengu in the northern 
region.
    (d) Transmission and Distribution Upgrade, Expansion, and 
Rehabilitation Sub-Activity.
    This sub-activity includes investments in the southern, central, 
and northern power systems of the Malawi power network. MCC Funding 
will support the following measures:
    (i) Upgrading (up-rating) of existing network connections (33kV, 
11kV);
    (ii) Extension of existing substations (including 66kV);
    (iii) Up-rating of transformers in existing substations;
    (iv) Development of new substations;
    (v) Installation of improved protection systems;
    (vi) Provision of new network extensions and connections; and
    (vii) Installation of new controls and communication systems 
(SCADA).
(e) Environment and Natural Resource Management (``ENRM'') Sub-Activity
    The objective of the ENRM sub-activity is to help the Government 
and other relevant stakeholders address the growing problems of aquatic 
weed infestation and excessive sedimentation in the Shire River which 
cause costly disruptions to downstream power plant operations. MCC 
Funding will support the following measures:
    (i) Mitigation of the impact of the weeds and sedimentation through 
mechanical and biological measures (in accordance with international 
best practices), including the purchase and use of dredgers and weed-
harvesting equipment at existing hydropower plants and the Liwonde 
Barrage, and expanded use of upstream biological control measures; and
    (ii) Development and implementation of an Environmental and Natural 
Resource Management Action Plan (``ENRMAP''), acceptable to MCC, that 
enables an improved understanding of the environmental, social 
(including gender), and economic factors that cause or contribute to 
weed infestation and sedimentation in the Shire River, and establishes 
a set of prioritized interventions based on economic, institutional, 
policy, legal, environmental and social criteria to increase capacity 
to address these factors, in collaboration with other donors and 
stakeholders.
    The Parties expect that the ENRM sub-activity will decrease outages 
and increase electricity output at the Nkula, Tedzani, and Kapichira 
hydropower plants that are currently affected by invasive weeds and 
excessive sedimentation. The ENRM sub-activity is also expected to 
improve land use and watershed management practices in the Shire River 
basin to help resolve underlying environmental and social issues that 
affect hydropower, communities, and other users dependent on ecosystem 
services.
(f) Public Sector Power Sector Preservation and New Generation 
Investments
    An essential part of the Infrastructure Development Activity is the 
addition of new generation for the utilization of the new and upgraded 
transmission and distribution assets. The economic viability of MCC-
funded investments is contingent on maintaining at least the current 
generation capacity of the power system (286 MW) during the Compact 
Term and then expanding it by at least 64 MW no later than the end of 
the Compact Term. In addition to this new generation, the Government 
expects to add significant generation to the system in the coming 
years, and MCC Funding will support planning and technical assistance 
through the IRP.
    To achieve the preservation and new generation required under the 
Compact, the Government commits to meet milestones. Under the 
preservation milestones, the Government commits to taking all steps 
necessary to maintain current generation capacity in accordance with a 
plan developed by ESCOM in line with industry best practices, as 
acceptable to MCC. If the system's generation capacity falls below 286 
MW, unless caused by the temporary shutdown of plants for maintenance 
or rehabilitation or force majeure, the Government will use 
commercially reasonable efforts to obtain interim replacement output. 
Under the new generation milestones, the Government commits to 
providing a construction schedule for the 64 MW Kapichira II hydropower 
plant (``Kapichira II'') prior to entry into force and completing 
construction by the end of the Compact Term. The Government will 
provide quarterly updates to MCC on the satisfaction of milestones of 
the Kapichira II construction schedule.
2. Power Sector Reform Activity
    The Power Sector Reform Activity complements the Infrastructure 
Development Activity by providing support for the Government's policy 
reform agenda and building capacity in pivotal sector institutions: 
ESCOM, the Malawi Energy Regulatory Authority or its successor 
(``MERA''), and the Ministry of Natural Resources Energy and 
Environment (``MNREE''). The Power Sector Reform Activity consists of 
two sub-activities: the ESCOM Turnaround sub-activity and the 
Regulatory Strengthening sub-activity.
(a) ESCOM Turnaround Sub-Activity
    The objectives of this sub-activity are to restore ESCOM's 
financial health and rebuild ESCOM into a financially strong, well-
managed company. MCC Funding will support three main areas of the 
turnaround: finances, corporate governance and operations.
(i) Finances
    MCC Funding will support the provision of technical assistance and 
equipment to ESCOM, including: (1) Development of a detailed financial 
plan for 2011-2016; (2) deployment of a financial turnaround team; (3) 
development of a non-technical loss reduction study; (4) assistance in 
rapid billings and collections improvements; (5) strengthening of 
internal controls; (6) rebuilding of the customer database; (7) pursuit 
of debt collection; (8) development of a new automated financial 
management system; (9) assistance with tariff applications to the 
regulator; and (10) assistance with fixed asset mapping.
    The Government agrees that a detailed financial plan for ESCOM is 
at the core of understanding and resolving the current financial 
challenges of the company. With MCC assistance, the Government will 
develop a detailed financial plan (the ``Financial Plan'') designed to 
restore ESCOM to financial and operational sustainability. The 
Financial Plan will project the working and investment capital needs of 
ESCOM for the 2011-2016 fiscal years, as agreed to with MCC. The 
Financial Plan will be based upon key financial inputs, such as 
projected accounts receivables and payables, future maintenance and 
capital investment needs, tariff increase projections, planned 
operational efficiencies, annual results of operations pursuant to 
audited financial statements, and other inputs relevant to

[[Page 21054]]

obtain sound projections of the budget support that the Government will 
provide, if required, through the Turnaround Facility. The Financial 
Plan will be updated on a quarterly basis with current ESCOM financial 
information, and will be approved by ESCOM's Board of Directors and the 
Government, as shareholder.
    The Government will create and fund the ESCOM Turnaround Facility 
to support ESCOM's working capital and investment needs, as identified 
in the Financial Plan, during the Compact Term. The Government and MCC 
will identify specific milestones in the Malawi budget process and 
review progress leading up to the appropriation of funds for the 
Turnaround Facility. The Government will transfer to the Turnaround 
Facility, by the start of each ESCOM fiscal year (July-June) the 
required funding for that fiscal year to cover the maximum projected 
shortfall for ESCOM in working and investment capital under the 
Financial Plan. The Government will apportion this funding through the 
Government budget prior to the start of each fiscal year, beginning 
FY2011-2012. The ESCOM Board will control the use of funds disbursed 
from the Turnaround Facility. The funding and expenditure, if needed, 
of the Turnaround Facility in accordance with the Financial Plan will 
be a condition to Disbursement of continued MCC Funding.
    The Government has converted a substantial portion of the debt owed 
to it by ESCOM into equity. Any remaining debt owed to the Government 
by ESCOM will be cleared from ESCOM's balance sheet no later than entry 
into force of the Compact. In addition, the Government will ensure that 
ESCOM restructures its third-party debt obligations in a manner that 
affords ESCOM a reasonable debt-service burden, consistent with the 
Financial Plan.
(ii) Corporate Governance
    To improve corporate governance and support the turnaround, MCC 
Funding will support: (1) Recruitment services for key personnel; (2) 
twinning/mentoring arrangements or management contract support; (3) a 
performance management system; and (4) strategic planning by the board 
of directors of ESCOM (``ESCOM Board''). MCC funding will provide 
technical assistance on corporate performance standards, including a 
study on best practices and benchmarks for corporate governance of 
electric utilities with regional, continental and international 
benchmarks and recommendations for ESCOM no later than the end of the 
second year of the Compact Term (the ``Corporate Governance 
Benchmarking Study'').
    The Government will ensure that ESCOM employs a Chief Executive 
Officer (CEO) prior to entry into force of this Compact. The individual 
selected for CEO will have at least ten years of public utility 
management experience, preferably at the CEO level, and a professional 
qualification in engineering, business, or finance.
    The Government recognizes that good corporate governance of ESCOM 
is essential for long-term performance of the company and commits to 
improve ESCOM's corporate governance framework and practices. The 
Government will ensure that the ESCOM Board adheres to clear benchmarks 
for good corporate governance, including: (A) compliance with the 
requirements under Malawi's Companies Act, Public Financial Management 
Act, Public Audit Act, and the Energy Laws; (B) adherence to Malawi 
Code II, including duties of care and loyalty to the corporation and 
restrictions on conflicts of interest and related party transactions; 
(C) following the Sector Guidelines for Parastatal Organizations (the 
most recent of the draft or final form); and (D) staggering of ESCOM 
Board terms.
    The Government warrants that ESCOM has restructured its existing 
ESCOM Board committees to have the following three committees: (i) 
Finance and Audit Committee; (ii) Technical Committee; and (iii) 
Appointments and Remuneration Committee. The Government will ensure 
that future nominations and appointments to the ESCOM Board will be 
done in accordance with a framework established pursuant to Malawi's 
Parastatals Reform Programme.
    The Government will ensure that ESCOM submits and publishes its 
annual audited financial statements and annual reports to the relevant 
authorities, and will publish reports similar to those applicable to 
listed companies under Malawi's Companies Act, all of which will be 
posted on ESCOM's Web site. Quarterly reports will be made available to 
key stakeholders, including MCA-Malawi and MCC.
    MCC Funding will support an annual performance audit of ESCOM 
operations. Prior to each audit, MCC and the Government will agree to 
the terms of reference based on standards for companies in Malawi, 
including Malawi Code II and the Companies Act. The Government will 
ensure that ESCOM takes appropriate corrective action to address any 
material weaknesses or recommendations identified through the audit.
    To improve ESCOM's coordination with the Government, the Government 
will designate and coordinate all interaction with ESCOM through its 
Department of Statutory Corporations or a replacement or successor 
Government ministry or agency (``DSC''). The Government will ensure 
that all Government interaction with and shareholder oversight of ESCOM 
will be coordinated through DSC.
(iii) Operations
    MCC Funding will support change management efforts, including 
developing organizational design, conducting performance management 
reviews, and designing human resources strategies. MCC Funding will 
support the procurement division by strengthening the internal control 
environment and developing policies and procedures to implement best 
practices in procurement. MCC Funding will support other operational 
assistance, including live wire repairs, asset management, occupational 
health and safety, safety and diagnostic equipment, and critical spare 
parts.
    MCC Funding will also support the development of ESCOM's annual 
maintenance plan. The Government will ensure that ESCOM budgets and 
expends the amount set forth in the maintenance plan (based on a 
percentage of undepreciated asset value) for preventive maintenance of 
generation, transmission and distribution assets.
    The GOM affirms that ESCOM will adhere to the Public Procurement 
Act of Malawi and the policies and procedures of the Government's 
Office of the Director of Public Procurement (``ODPP''). ESCOM will 
also take the following steps: (1) Strengthen the Internal Procurement 
Committee as an effective manager and overseer of procurement; (2) 
develop procurement benchmarks and milestones; (3) restructure its 
procurement and stores management staff to streamline operations; (4) 
minimize redundancies and fill skill gaps; (5) conduct public outreach 
through an information campaign; (6) design and agree on a new 
procurement organization structure merging procurement and supply; (7) 
secure guidance from ODPP; (8) develop a formal process to draft annual 
procurement plans; and (9) review and restructure the stores function 
and conduct regular stock checks.

[[Page 21055]]

(b) Regulatory Strengthening Sub-Activity
    The Regulatory Strengthening sub-activity complements the 
Infrastructure Development Activity and the ESCOM Turnaround sub-
activity by providing support for the Government's policy reform agenda 
and building capacity in pivotal sector institutions, MERA and MNREE. 
The objectives of the Regulatory Strengthening Sub-Activity are to 
develop a regulatory environment, consistent with best practices in 
independent power utility regulation, that support investment in 
generation and grid capacity at an affordable cost, with the potential 
participation of the private sector.
(i) Tariff Reform
    The Government understands that appropriate tariff levels are 
critical to ESCOM's financial recovery and the growth of the power 
sector. MCC Funding will support a cost of service study to determine 
appropriate tariff levels and schedules to achieve full cost recovery, 
more efficient utilization of electricity, and achievement of social 
objectives. Based on the results of this study, the Government agrees 
to a phased implementation of full-cost recovery tariffs and schedules 
according to a timeline to be determined by entry into force of the 
Compact. Without reducing current tariff levels, the phased 
implementation will ensure an incremental increase in the scope of 
tariff levels and schedules, that will begin with a tariff that permits 
recovery of operating costs, thereafter recovery of operating costs 
plus capital replacement charges, and by the end of the Compact Term 
recovery of capital replacement costs, capital replacement charges and 
capital expansion charges. This full-cost recovery tariff should 
include recovery of operating expenses, financing costs actually 
incurred by ESCOM, capital replacement charges and capital expansion 
charges so that tariffs reflect ESCOM's long-run marginal costs. The 
Government will also seek to ensure adequate protection of poor and 
vulnerable groups through a lifeline tariff or other mechanism in a 
manner which is consistent with average total cost recovery and 
efficient utilization of electricity.
    The Government will adopt the policy, legal and regulatory changes 
necessary to implement tariff reform, including: (1) rationalizing the 
five percent inflation fluctuation trigger and the four-year interval 
for review of base tariffs and tariff adjustment formula, so that 
tariffs may be adjusted on a basis that supports the viability of 
licensees; and (2) improving the components and definitions for the 
tariff adjustment components (collectively, the ``Tariff Indexation 
Framework'').
(ii) MERA Capacity Building
    MCC Funding will support capacity building at MERA to improve its 
regulatory oversight activities and operations. This work will include 
the development and implementation of training and mentoring of MERA 
staff, and complementary activities designed to develop MERA. MCC 
Funding will also assist MERA to develop peer relationships with other 
regulatory bodies or related organizations.
    MCC Funding will be used to complete a study to support the 
Government's commitment to further develop independent and capable 
governance of MERA. This study will be completed by the end of the 
second year of the Compact Term. The study will focus on best practices 
and benchmarks for corporate governance for electricity regulators, 
including regional, continental and international benchmarks and 
recommendations for the future governance of MERA (the ``Sector 
Benchmarking Study'').
    The Government will ensure that MERA develops new technical codes 
for transmission, distribution and metering to account for captive, 
cogeneration and other forms of generation. MERA will also develop new 
``use of system'' charging mechanisms, implement the design for a 
bilateral market, and develop codes to implement existing legal 
provisions on third-party access to the transmission network. MCC 
Funding will support these activities through technical assistance.
    The Government will consider changing the composition of the board 
of directors of MERA (``MERA Board''), to make the MERA Board and its 
governance procedures consistent with best practices for independent 
regulatory authorities in the region and internationally. Specifically, 
the Government will review the continued membership of ex officio 
directors and the appropriateness of cross-representation on power 
sector boards and potential conflicts of interest that may arise 
between the regulator and regulated entities through board membership, 
such as the presence of the Principal Secretary for Energy Affairs and 
the Director of Energy Affairs on the MERA Board. To the extent that 
Government ex officio members continue on the ESCOM and MERA Boards, 
the Government affirms its commitment to ensuring that the ESCOM and 
MERA Boards meet standards applicable to Malawi parastatals with 
respect to conflicts of interest and independent decision-making, that 
the ex officio directors on the MERA Board will continue to be non-
voting members, and that regulatory rulings are transparent.
    The Government will ensure that the scope of MERA's power sector 
responsibilities is limited to regulation and policy implementation, 
and not for policy development or the solicitation of new generation.
    In recognition of another key indicator of their progress 
developing a model regulatory institution, the Government and MERA 
confirm that levies and other charges applicable under the Energy Laws 
are, and have been, sufficient to cover MERA's operating expenses. The 
Government will ensure that MERA will publish an annual report 
including audited financial statements, as required under the Energy 
Regulation Act. MCC Funding will be used to support MERA in its 
development, including development of an annual report.
(iii) Enabling Environment for Public and Private Sector Investment
    MCC Funding will support the Government's efforts to implement a 
suitable market model based on the studies performed in connection with 
the development of this Compact. MCC Funding will support MNREE's 
efforts to study and design (1) a single buyer model for the power 
sector (``SBM Plan''); and (2) the building blocks of a bilateral power 
trade market. MCC Funding will also assist with stakeholder education 
and outreach to support consumer organizations, industrial and 
commercial users, and other key players in advocating for improved 
service. In addition, MCC will seek to work with Parliament to 
strengthen its role in oversight of the power sector.
    Based on the SBM Plan, the Government will create a single buyer, 
either ring-fenced within ESCOM, or a separate legal entity so that the 
single buyer's financial and system operation activities are autonomous 
from other ESCOM business units or government entities. Also, the 
Government will provide support to improve the credit worthiness of 
this single buyer. The Government will not unbundle ESCOM, except as 
otherwise provided herein, and shall not make effective the provisions 
in Section 4 and Parts IV and V of the Electricity Act that limit 
licensees to one license.
    The Government will also clarify the Rural Electrification Act (the 
``REA'') so that entities that pursue rural electrification activities 
without

[[Page 21056]]

receiving funding from the Rural Electrification Fund are not subject 
to the REA's internal rate of return and megawatt size restrictions. 
The Government will also revise its National Energy Policy to allow 
charging of differential tariffs for off-grid electrification.
(c) Power Sector Reform Agenda Semi-Annual Review
    The Government and MCC will jointly supervise, through specific 
milestones, progress on the implementation of the Government's power 
sector reform agenda in the following areas: ESCOM finances; ESCOM 
operations; ESCOM corporate governance; tariff reform; MERA governance; 
and regulatory enabling environment for public and private sector 
participation (collectively, the ``Power Sector Reform Agenda''). The 
Government and MCC have specified the milestones below, for which new 
capitalized terms are further defined in Annex III. Prior to entry into 
force of the Compact, the Parties will identify semi-annual benchmarks 
for each milestone. The parties will conduct a semi-annual review of 
progress on the Power Sector Reform Agenda. Corrective action, 
acceptable to MCC, as needed to ensure satisfactory progress, will be a 
condition of continued MCC Funding.
(i) ESCOM Finances
    The financial health of ESCOM will be tracked by setting and 
maintaining the following financial ratios and covenants:
    (1) Cost Recovery Ratio;
    (2) Current Ratio supported by cash flow statements;
    (3) Bad Debt Ratio;
    (4) Average Cost of Electricity Billed; and
    (5) ESCOM Billing and Collection Efficiency.
(ii) ESCOM Operations
    Improvements in the operations of ESCOM will be measured by the 
following areas:
    (1) Quantity of Electricity Metered;
    (2) Quantity of Electricity Billed;
    (3) Reduction in Losses;
    (4) Voltage Quality;
    (5) Maintenance Expenditures;
    (6) Reduced Outages; and
    (7) Annual Procurement Audit.
(iii) ESCOM Corporate Governance
    ESCOM corporate governance will be measured by ESCOM's performance 
on:
    (1) Corporate Governance Benchmarking Study;
    (2) Annual performance audit reports; and
    (3) Public annual report and audited financial statements.
(iv) Tariff Reform
    Progress on tariff reform will be phased and measured by:
    (1) Cost of service study;
    (2) Tariff levels and schedules;
    (3) Tariff Indexation Framework; and
    (4) Tariff design efficiency, including, a lifeline tariff.
(v) MERA Governance
    Improvements in MERA's governance and capacity will be tracked by:
    (1) Sector Benchmarking Study;
    (2) Peer review; and
    (3) Public annual report and audited financial statements.
(vi) Improved Market Structure for Private Investment
    Key milestones in the establishment of an enabling environment will 
be:
    (1) Single-buyer model formed; and
    (2) Legal framework for strengthened electricity market.
3. Environmental and Social Safeguards
    The Project will be implemented in compliance with the MCC 
Environmental Guidelines and the MCC Gender Policy, and any 
resettlement will be carried out in accordance with the World Bank's 
Operational Policy on Involuntary Resettlement in effect as of July 
2007 (``OP 4.12'') in a manner acceptable to MCC. The Government also 
will ensure that the Project complies with all national environmental 
laws and regulations, licenses and permits, and applicable 
international conventions and treaties, except to the extent such 
compliance would be inconsistent with this Compact. Specifically, the 
Government will: (a) Cooperate with or complete, as the case may be, 
any ongoing environmental assessments, or if necessary undertake and 
complete any additional environmental assessments, social assessments, 
environmental management plans, environmental and social audits, 
resettlement policy frameworks, and resettlement action plans required 
under the laws of Malawi, the MCC Environmental Guidelines, this 
Compact, the Program Implementation Agreement, or any Supplemental 
Agreement, or as otherwise required by MCC, each in form and substance 
satisfactory to MCC; (b) ensure that Project-specific environmental and 
social management plans are developed and all relevant measures 
contained in such plans are integrated into project design, the 
applicable procurement documents and associated finalized contracts, in 
each case, in form and substance satisfactory to MCC; and (c) implement 
to MCC's satisfaction appropriate environmental and social mitigation 
measures identified in such assessments or plans. Unless MCC agrees 
otherwise in writing, the Government will fund all necessary costs of 
environmental and social mitigation measures (including, without 
limitation, costs of resettlement) not specifically provided for or 
that exceed the MCC Funding specifically allocated for such costs in 
the Detailed Financial Plan for the Project.
    To maximize the positive social impacts of the Project, address 
cross-cutting social and gender issues such as human trafficking, child 
and forced labor, and HIV/AIDS, and ensure compliance with the MCC 
Gender Policy, and to the extent that such does not conflict with MCC's 
Gender Policy, the Malawi National Gender Policy as ultimately adopted 
by the Government, the Government will: (i) Develop a comprehensive 
social and gender integration plan which, at a minimum, performs a 
gender, institutional and policy review relevant to the Compact 
Project, identifies approaches for regular, meaningful and inclusive 
consultations with women and other vulnerable/underrepresented groups, 
consolidates the findings and recommendations of Project-specific 
social and gender analyses and conducts additional gender analysis as 
needed, and sets forth strategies for incorporating findings of the 
social and gender analyses into final Project designs and additional 
targeted activities as appropriate (``Social and Gender Integration 
Plan''); (ii) ensure, through monitoring and coordination during 
implementation, that final Activity designs, construction tender 
documents and implementation plans are consistent with and incorporate 
the outcomes of the social and gender analyses and Social and Gender 
Integration Plan; and (iii) on an annual basis, review and update the 
Social and Gender Integration Plan as needed to reflect lessons learned 
and project-specific analysis.
    During the development of the Compact, MCC and the Government 
assessed and identified the potential environmental and social impacts 
and risks of the Activities. Under the definitions articulated in MCC's 
Environmental Guidelines, (1) the Infrastructure Development Activity 
is classified as a Category A project; (2) the Power Sector Reform 
Activity is a Category C project; and (3) the ENRM sub-activity is 
categorized as a Category B project. In addition to environmental 
risks, MCC has also identified certain social and gender-related and 
resettlement risks from the Activities.

[[Page 21057]]

    Several measures have been taken to mitigate the risks associated 
with these Activities. Environmental and Social Impact Assessments 
(``ESIAs'') have been developed for the Infrastructure Development 
Activity, and additional environmental and social (including gender) 
analysis and mitigation planning will be carried out for certain 
activities of the Infrastructure Development Activity and the ENRM sub-
activity. MCC will require appropriate storage and disposal, possibly 
outside of Malawi, of oil-contaminated soils, PCB-contaminated oils, 
soils and equipment, and other hazardous waste associated with 
implementation of the Infrastructure Development Activity. MCC Funding 
will be used to design and implement a hazardous waste management plan 
under the Infrastructure Development Activity. MCC will also require, 
and MCC Funding will support, measures to ensure appropriate disposal 
of weeds and sediment extracted from dredging and weed harvesting 
operations at the hydropower plants. The Government has identified 
potential sites for the disposal of weeds and sediment associated with 
implementation of the ENRM sub-activity and will require appropriate 
development and management of such sites.
    To address resettlement risks, a Resettlement Policy Framework has 
been prepared to specify how resettlement planning and implementation 
will proceed in connection with the Compact Activities. This 
resettlement framework will attempt to minimize loss of land and 
immovable assets, and avoid physical displacement of residential and 
other structures. In the event an Activity triggers involuntary 
resettlement, MCC Funding will support the development of a 
resettlement action plan by MCA-Malawi in consultation with relevant 
Government entities, and such resettlement action plan will be 
submitted for approval to MCC.
    The Compact will fund additional analysis of social and gender-
related implications of the Activities. This analysis will build upon 
preliminary work conducted during Compact design to ensure that the 
Activities are implemented so as to address and integrate the needs of 
vulnerable groups, in adherence with MCC's Gender Policy.
4. Donor Coordination
    MCC and the MCA-Malawi Core Team have sought development partners 
with complementary expertise on energy issues and whose further 
involvement could help ensure sustainability of the Compact. During 
Compact development, MCC's review of feasible investments identified 
approximately $200 million more in beneficial projects than currently 
feasible under the Compact. Given MCC's inability to finance these 
otherwise important investments, MCC has discussed with the World Bank 
and the African Development Bank--the other key donors supporting the 
power sector in Malawi--the possibility of partnering to support a 
comprehensive power sector reform program. This reform program could 
also include sector institutional strengthening activities such as 
capacity building and technical assistance for the MNREE's Department 
of Energy.
    MCC has also been in discussions with the International Finance 
Corporation (IFC) regarding creating an appropriate enabling 
environment for private sector and IFC investment. IFC recently funded 
a study that identified barriers to private sector investment in energy 
efficiency and renewable energy opportunities and scoped potential IFC 
investments. IFC's report identifies a critical need for technical 
assistance for the Government to establish an enabling environment in 
order to facilitate these energy efficiency and renewable energy 
opportunities. As of November 2010, MCC is considering incorporating 
the IFC's recommendations in the policy, regulatory and legal framework 
strengthening activity currently supported under the Compact.
5. USAID
    While USAID does not currently play an active role in implementing 
this Compact, MCC is seeking USAID involvement to provide technical 
assistance for the power sector. MCC is investigating whether USAID's 
Africa Infrastructure Program (AIP) could potentially provide technical 
assistance to the Government of Malawi to assist them with structuring 
agreements with independent power producers and capacity building for 
MERA. In addition, MCC will coordinate its outreach initiatives with 
the Malawi parliament, media and civil society under the Regulatory 
Strengthening sub-activity with USAID's complementary governance and 
accountability initiatives under its Malawi Legislative Strengthening 
program.
6. Sustainability
    The Compact includes several measures to ensure sustainability of 
MCC's investment. As designed, both the Power Sector Reform Activity 
and the ENRM sub-activity are targeted to ensure sustainability of the 
Infrastructure Development Activity. In addition, the Infrastructure 
Development Activity includes certain sustainability safeguards such as 
requiring a certain percentage of asset value to be set aside for 
preventative maintenance.
    Substantial progress on the Power Sector Reform Activity is 
essential to the magnitude and sustainability of the Compact 
investments in physical infrastructure, and to the sustained economic 
growth of Malawi. The Power Sector Reform Activity also addresses key 
structural issues in the power sector including tariff reform, creating 
an environment capable of attracting private sector investment, and 
ensuring the creation of a strong and independent energy sector 
regulator. These reform activities are structured both as covenants in 
the Compact and conditions to entry into force of the Compact, or will 
become conditions to disbursement in the Program Implementation 
Agreement. Due to the weed and sedimentation problems plaguing Malawi's 
almost entirely hydropower-based generation facilities, the ENRM sub-
activity will also provide necessary steps to ensure sustainability of 
the Compact.
    In addition to the sustainability benefits inherent in the project 
design of the Power Sector Reform Activity and the ENRMAP, the 
sustainability of the Infrastructure Development Activity will also 
heavily depend on a robust maintenance regime for generation, 
transmission and distribution assets. As part of the Infrastructure 
Development Activity, MCC will require a certain percentage of its 
asset value be set aside for preventative maintenance of its MCC funded 
as well as other assets.

C. Implementation Framework

1. Overview
    The implementation framework and the plan for ensuring adequate 
governance, oversight, management, monitoring and evaluation, and 
fiscal accountability for the use of MCC Funding are summarized below. 
MCC and the Government will enter into the Program Implementation 
Agreement, and any other agreements in furtherance of this Compact, all 
of which, together with this Compact, set out certain rights, 
responsibilities, duties and other terms relating to the implementation 
of the Program.
2. MCC
    MCC will take all appropriate actions to carry out its 
responsibilities in connection with this Compact and the Program 
Implementation Agreement, including the exercise of its approval

[[Page 21058]]

rights in connection with the implementation of the Program.
3. MCA-Malawi
    In accordance with Section 3.2(b) of this Compact, MCA-Malawi will 
act on the Government's behalf to implement the Program and to exercise 
and perform the Government's rights and responsibilities with respect 
to the oversight, management, monitoring and evaluation, and 
implementation of the Program, including, without limitation, managing 
the implementation of Projects and their Activities, allocating 
resources, and managing procurements. The Government will ensure that 
MCA-Malawi takes all appropriate actions to implement the Program, 
including the exercise and performance of the rights and 
responsibilities designated to it by the Government pursuant to this 
Compact and the Program Implementation Agreement. Without limiting the 
foregoing, the Government will also ensure that MCA-Malawi has full 
decision-making autonomy, including, inter alia, the ability, without 
consultation with, or the consent or approval of, any other party, to: 
(1) Enter into contracts in its own name; (2) sue and be sued; (3) 
establish Permitted Accounts in a financial institution in the name of 
MCA-Malawi and hold MCC Funding in such accounts; (4) expend MCC 
Funding; (5) engage a fiscal agent who will act on behalf of MCA-Malawi 
on terms acceptable to MCC; (6) engage one or more procurement agents 
who will act on behalf of MCA-Malawi, on terms acceptable to MCC, to 
manage the acquisition of the goods, works, and services required by 
MCA-Malawi to implement this Compact; and (7) competitively engage one 
or more auditors to conduct audits of its accounts. The Government will 
take the necessary actions to establish and maintain MCA-Malawi, in 
accordance with the terms hereof including the applicable conditions 
precedent to the Disbursement of Compact Implementation Funding set 
forth in Annex IV to this Compact. MCA-Malawi will be administered and 
managed by a Board of Trustees and a Management Unit. In addition, MCA-
Malawi will have a Stakeholders' Committee to continue the consultative 
process during implementation of the Program. MCA-Malawi will be 
incorporated through a trust deed under Malawi's Trustees Incorporation 
Act, which trust deed will be included in the Program Implementation 
Agreement (hereinafter referred to as the ``MCA-Malawi Trust Deed''), 
which will, collectively, set forth the responsibilities of the Board 
of Trustees, the Stakeholders' Committee and the Management Unit. The 
MCA-Malawi Trust Deed will be developed and adopted in accordance with 
MCC's Guidelines for Accountable Entities and Implementation 
Structures, published on the MCC Web site (the ``Governance 
Guidelines''), and will be in form and substance satisfactory to MCC. 
MCA-Malawi on behalf of the Government will administer the MCC Funding.
(a) Board of Trustees
    (i) Composition. MCA-Malawi will be governed by a board of trustees 
(the ``Board of Trustees''), which will consist of voting members 
representing the Government, private sector, and civil society groups, 
as well as a non-voting representative of MCC as an observer. The 
appointment of the trustees will be articulated in the MCA-Malawi Trust 
Deed and will adhere to MCC's Governance Guidelines. Subject to further 
discussion, members representing the Government will include the 
Secretary of the Treasury, the Principal Secretary for Natural 
Resources Energy and Environment, and the Principal Secretary for 
Development Planning and Cooperation. Non-government members will be 
nominated by key private sector and civil society groups rather than by 
the Government, and may include but shall not be limited to the Council 
for Non-Governmental Organizations in Malawi (CONGOMA), the Economics 
Associations of Malawi (ECAMA), and the Malawi Confederated Chambers of 
Commerce and Industry (MCCCI). There will be a minimum of seven 
trustees, and a maximum of nine trustees. The composition of the Board 
of Trustees will comply with the Governance Guidelines, to MCC's 
satisfaction.
    (ii) Roles and Responsibilities. The Board of Trustees will be 
responsible for overseeing the implementation of the Program and will 
have final decision-making authority and responsibility over the 
implementation of the Program. The Board of Trustees will meet 
regularly; the frequency of meetings will be set forth in the MCA-
Malawi Trust Deed and will be in accordance with the Governance 
Guidelines. The specific roles of the voting members and non-voting 
observers will be set forth in the MCA-Malawi Trust Deed. The 
chairperson of the Board of Trustees will be selected by a majority 
vote of the Trustees. On at least an annual basis or as otherwise 
required by the Government, the Board of Trustees will report to the 
Government on the status and progress of the Compact regarding 
implementation, financial matters, procurements, and other matters 
identified by the Government.
(b) Stakeholders' Committee
    (i) Composition. A Stakeholders' Committee will be selected 
according to a process in accordance with the MCC's Governance 
Guidelines and the MCA-Malawi Trust Deed, as approved by MCC. Without 
limiting the foregoing, as required in MCC's Governance Guidelines, the 
Stakeholders' Committee will be composed of inter alia, representatives 
from non-governmental organizations, civil society, private sector, and 
local and regional government Program beneficiaries.
    (ii) Roles and Responsibilities. Consistent with the Governance 
Guidelines, the Stakeholders' Committee will be responsible for 
continuing the consultative process throughout implementation of the 
Program. While the Stakeholders' Committee will not have any decision-
making authority, it will be responsible for, inter alia, reviewing, at 
the request of the Board of Trustees or the Management Unit, certain 
reports, agreements, and documents related to the implementation of the 
Program in order to provide advice and input to MCA-Malawi regarding 
the implementation of the Program.
(c) Management Unit
    (i) Composition. The management unit, which will be led by a 
competitively selected Chief Executive Officer, will be composed of 
competitively selected staff with expertise in the key components of 
the Program, including, without limitation, a Deputy Chief Executive 
Officer, Legal Advisor, Human Resources Officer, Power Director, 
Communications and Outreach Director, Finance and Administration 
Director, ESA Director, Deputy Director for Social and Gender Issues, 
Procurement Director, Policy Specialist, M&E and Economics Director, 
and MIS Specialist (the ``Management Unit''). The Management Unit will 
also include such other personnel as provided for in the MCA-Malawi 
Trust Deed. The directors will be supported by appropriate additional 
staff to enable the Management Unit to execute its roles and 
responsibilities.
    (ii) Roles and Responsibilities. The Management Unit will be based 
in Lilongwe, Malawi, and will be responsible for day-to-day 
implementation of the Compact, with oversight from the Board of 
Trustees. The Management Unit will serve as the principal link between 
MCC and the Government, and will be accountable

[[Page 21059]]

for the successful implementation of the Program, the Project, and each 
Activity. As a recipient of MCC Funding, MCA-Malawi will be subject to 
MCC audit requirements.
4. Implementation Arrangements
    Subject to the terms and conditions of this Compact and any related 
agreements entered into in connection with this Compact, MCC and the 
Government have identified certain institutions, including ESCOM, MERA 
and MNREE, that may receive technical assistance or other support under 
this Compact, and that, together with MCA-Malawi, will have key roles 
in the implementation of the Project and the Activities (each, a 
``Project Partner''). The Government will ensure that the roles and 
responsibilities of each Project Partner will be clearly articulated in 
an agreement between MCA-Malawi and the Project Partner, which 
agreement must be in form and substance satisfactory to MCC (each a 
``Project Cooperation Agreement'').
    The Government will ensure that ESCOM, as a Project Partner, will 
do the following in support of the Project: (a) Provide access to its 
facilities and cooperate with MCA-Malawi, and its consultants 
(including the PMC as defined below); (b) dedicate key staff to the 
Project, including engineers, environmental, social and gender 
specialists, and monitoring and evaluation personnel; (c) bear any 
transportation costs and per diems and incidental expenses for any of 
its personnel who travel in connection with the Project; and (d) 
provide administrative and technical support and use of appropriate 
office space and facilities.
    MCA-Malawi will contract a project management consultant (``PMC'') 
to manage and supervise the implementation of the infrastructure 
portions of the Infrastructure Development Activity and will assist 
MCA-Malawi with technical evaluations and contract negotiations. The 
Project Cooperation Agreement between MCA-Malawi and ESCOM will set 
forth the roles and responsibilities of each entity and any 
coordinating mechanisms to ensure that the PMC is able to successfully 
carry out its mandate. The PMC will also provide technical assistance 
to ESCOM with respect to project management.
5. Fiscal Agent
    Unless MCC otherwise agrees in writing, the Government, directly or 
through MCA-Malawi, will engage one or more fiscal agents (each a 
``Fiscal Agent''), who will be responsible for assisting the Government 
with fiscal management and ensuring appropriate fiscal accountability 
of MCC Funding. Duties of the Fiscal Agent will be set forth in the 
Program Implementation Agreement and in such agreement as the 
Government, directly or indirectly through MCA-Malawi, enters into with 
each Fiscal Agent, which agreement shall be in form and substance 
satisfactory to MCC.
6. Procurement Agent
    Unless MCC otherwise agrees in writing, the Government, directly or 
through MCA-Malawi, will engage one or more procurement agents (each as 
``Procurement Agent'') to conduct and certify specified procurement 
activities in furtherance of the Compact. The roles and 
responsibilities of the Procurement Agent will be clearly articulated 
in the Program Implementation Agreement and in such agreement as the 
Government, directly or indirectly through MCA-Malawi, enters into with 
each Procurement Agent, which agreement shall be in form and substance 
satisfactory to MCC. Each Procurement Agent will adhere to the 
standards set forth in the MCC Program Procurement Guidelines and 
ensure that procurements are consistent with the procurement plan 
adopted by MCA-Malawi pursuant to the Program Implementation Agreement, 
unless MCC otherwise agrees in writing.

Annex II Multi-Year Financial Plan Summary

    This Annex II summarizes the Multi-Year Financial Plan for the 
Program.

1. General

    A multi-year financial plan summary (``Multi-Year Financial Plan 
Summary'') is attached hereto as Exhibit A. By such time as specified 
in the PIA, the Government will adopt, subject to MCC approval, a 
multi-year financial plan that includes, in addition to the multi-year 
summary of estimated MCC Funding and the Government's contribution of 
funds and resources, the annual and quarterly funding requirements for 
the Program (including administrative costs) and for the Project, 
projected both on a commitment and cash requirement basis.

                                                      Exhibit A--Multi-Year Financial Plan Summary
--------------------------------------------------------------------------------------------------------------------------------------------------------
                         Component                              CIF         Year 1       Year 2       Year 3       Year 4       Year 5         Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
1. POWER SECTOR REVITALIZATION PROJECT
--------------------------------------------------------------------------------------------------------------------------------------------------------
(a) Infrastructure Development Activity...................    2,978,000   12,134,000   80,191,000   80,715,000   64,344,000   42,638,000     283,000,000
(i) Nkula A Refurbishment Sub-Activity....................  ...........  ...........    4,436,000    7,762,000    7,762,000    2,218,000      22,178,000
(ii) Transmission Network Upgrade Sub-Activity............    1,712,000    6,843,000   48,862,000   45,151,000   35,280,000   25,531,000     163,379,000
(iii) T&D Upgrade, Expansion, and Rehabilitation Sub-           740,000    2,590,000   19,090,000   19,675,000   15,377,000   11,086,000      68,558,000
 Activity.................................................
(iv) Environment and Natural Resource Management Sub-           526,000    1,588,000    6,133,000    7,910,000    5,925,000    3,803,000      25,885,000
 Activity.................................................
(v) Resettlement: Action Plan Development and               ...........    1,113,000    1,670,000      217,000  ...........  ...........       3,000,000
 Implementation...........................................
(b) Power Sector Reform Activity..........................    3,352,000    4,470,000    4,469,000    4,470,000    4,469,000    4,470,000      25,700,000
                                                           ---------------------------------------------------------------------------------------------
    SUBTOTAL..............................................    6,330,000   16,604,000   84,660,000   85,185,000   68,813,000   47,108,000     308,700,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
2. CROSS-CUTTING SUPPORT
--------------------------------------------------------------------------------------------------------------------------------------------------------
(a) Gender Integration....................................      260,000      348,000      348,000      348,000      348,000      348,000       2,000,000
(b) Monitoring and Evaluation.............................      387,000    2,259,000    1,073,000    1,073,000      858,000    1,350,000       7,000,000
                                                           ---------------------------------------------------------------------------------------------
    SUBTOTAL..............................................      647,000    2,607,000    1,421,000    1,421,000    1,206,000    1,698,000       9,000,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 21060]]

 
3. PROGRAM ADMINISTRATION
--------------------------------------------------------------------------------------------------------------------------------------------------------
(a) MCA-Malawi Administration.............................    2,143,000    3,607,000    3,602,000    3,899,000    3,940,000    4,076,000      21,267,000
(b) Financial Management and Procurement Controls.........  ...........    2,060,000    2,122,000    2,185,000    2,251,000    2,319,000      10,937,000
(c) Financial Audits......................................  ...........      150,000      155,000      159,000      164,000      168,000         796,000
                                                           ---------------------------------------------------------------------------------------------
    SUBTOTAL..............................................    2,143,000    5,817,000    5,879,000    6,243,000    6,355,000    6,563,000      33,000,000
                                                           ---------------------------------------------------------------------------------------------
        TOTAL COMPACT BUDGET..............................    9,120,000   25,028,000   91,960,000   92,849,000   76,374,000   55,369,000     350,700,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

Annex III Description of Monitoring and Evaluation Plan

    This Annex III (this ``M&E Annex'') generally describes the 
components of the Monitoring and Evaluation Plan (``M&E Plan'') for the 
Program. The actual content and form of the M&E Plan will be agreed to 
by MCC and the Government in accordance with MCC's Policy for 
Monitoring and Evaluation of Compacts and Threshold Programs as posted 
from time to time on the MCC Web site (the ``MCC Policy for Monitoring 
and Evaluation of Compacts and Threshold Programs''). The M&E Plan may 
be modified as outlined in MCC's Policy for Monitoring and Evaluation 
of Compacts and Threshold Programs with MCC approval without requiring 
an amendment to this Annex III.

1. Overview

    MCC and the Government will formulate and agree to, and the 
Government will implement or cause to be implemented, an M&E Plan that 
specifies: (a) How progress toward the Compact Goal, Program Objective 
and Project Objective will be monitored (``Monitoring Component''); (b) 
a process and timeline for the monitoring of planned, ongoing, or 
completed Activities to determine their efficiency and effectiveness; 
and (c) a methodology for assessment and rigorous evaluation of the 
outcomes and impact of the Program (``Evaluation Component''). 
Information regarding the Program's performance, including the M&E 
Plan, and any amendments or modifications thereto, as well as progress 
and other reports, will be made publicly available on the Web site of 
MCC, MCA-Malawi and elsewhere.

2. Program Logic

    The M&E Plan will be built on a logic model which illustrates how 
the Program, Project and Activities contribute to the Compact Goal, the 
Program Objective and the Project Objective.
    The goal of the Compact is to reduce poverty through economic 
growth. The Program Objective is to: (a) Increase investment and 
employment income by raising the profitability and productivity of 
enterprises; (b) expand access to electricity for the Malawian people 
and businesses; and (c) improve delivery of social services. The 
outcomes of the Project Activities, otherwise referred to in the 
Compact as the Project Objective, are to improve the availability, 
reliability, and quality of the power supply by increasing the 
throughput capacity and stability of the national electricity grid, 
increase efficiency of hydropower generation, and create an enabling 
environment for future expansion by strengthening sector institutions 
and enhancing regulation and governance of the sector. These results 
are expected to contribute to Malawi's own poverty-reduction and 
economic growth goals as defined in the Malawi Growth and Development 
Strategy (``MGDS'').

3. Monitoring Component

    To monitor progress toward the achievement of the impact and 
outcomes of the Compact, the Monitoring Component of the M&E Plan will 
identify: (1) The Indicators (as defined below), (2) the definitions of 
the Indicators, (3) the sources and methods for data collection, (4) 
the frequency for data collection, (5) the party or parties responsible 
for collecting and analyzing relevant data, and (6) the timeline for 
reporting on each Indicator to MCC.
    Further, the Monitoring Component will track changes in the 
selected Indicators for measuring progress towards the achievement of 
the Program Objective and Project Objective during the Compact Term. 
MCC also intends to continue monitoring and evaluating the long-term 
impacts of the Compact even after Compact expiration. The M&E Plan will 
establish baselines which measure the situation prior to a development 
intervention, against which progress can be assessed or comparisons 
made (each a, ``Baseline''). The Government will collect Baselines on 
the selected Indicators or verify already collected Baselines where 
applicable and as set forth in the M&E Plan.
(a) Indicators
    The M&E Plan will measure the results of the Program using 
quantitative, objective and reliable data (``Indicators''). Each 
Indicator will have benchmarks that specify the expected value and the 
expected time by which that result will be achieved (``Target''). All 
Indicators will be disaggregated by gender, income level and age, and 
beneficiary types to the extent practicable. Subject to prior written 
approval from MCC, the Government or MCA-Malawi may add Indicators or 
refine the definitions and Targets of existing Indicators.
(i) Compact Indicators
    (1) Goal. The M&E Plan will contain the following Indicators 
related to the Compact Goal. The Target of these Indicators is to 
contribute to the national goals specified in the MGDS. Although the 
Program contributes to these goals, satisfaction of these goals is not 
intended to be solely attributable to the Project:
    (A) Absolute poverty rate \3\ nationwide: 35-40 percent living on 
less than US$1.00 a day in 2010 to 33.3 percent by 2016; and
---------------------------------------------------------------------------

    \3\ Poverty rates cited above are based on MCA-Malawi Core Team 
projections using poverty line of US$1.00 a day. Annex I defines 
poverty line as US$1.25 a day.
---------------------------------------------------------------------------

    (B) Absolute rural poverty rate nationwide: 40 percent living on 
less than US$1.00 a day in 2010 to 36 percent by 2016.
    (2) Other Indicators. The M&E Plan will contain the Indicators 
listed in the following tables.
    MCA-Malawi will update Baselines for key Indicators after new data 
becomes available, including the Malawi Integrated Household Survey 
III, after a new billing system is installed at ESCOM, and after a Cost 
of Service study and Integrated Resource Plan are

[[Page 21061]]

completed. Indicators on outages and load shedding will be refined 
prior to entry into force of the Compact and during the first year of 
the Compact. Financial Targets and performance will be reviewed and 
updated regularly, as defined in Annex I of the Compact.
Table 1: Compact-Wide Results
    The following are Indicators and Targets for the monitoring of the 
Program Objective as further described in paragraph 2 of Part A of 
Annex I. The Project is expected to contribute to the achievement of 
these Indicators and Targets, but is not solely responsible for the 
results.
---------------------------------------------------------------------------

    \4\ Indicator is sourced from World Bank Enterprise Survey, 
2009. Baseline data reflects manufacturing sector data only. MCA-
Malawi will explore developing a tool to capture information for 
smaller, informal firms.
    \5\ Indicator sourced from Malawi Chamber of Commerce (MCCCI) 
survey, 2009.
    \6\ Indicator sourced from World Bank Enterprise Survey, 2009.
    \7\ ``LV'' is defined as low voltage; ``MV'' is defined as 
medium voltage.
    \8\ Data and targets will be sourced from Malawi's Electricity 
Investment Plan and Integrated Resource Plan.

                                                              Table 1--Compact-Wide Results
--------------------------------------------------------------------------------------------------------------------------------------------------------
            Result                  Indicator          Definition              Unit                     Baseline                    Year 5 Target
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Objective Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Increased Profitability and     Business sales     Average value of   %.....................  16.97.......................  TBD
 Productivity of Doing           losses due to      sales losses due
 Business in Malawi.             power              to electricity
                                 interruptions      outages.
                                 and quality,
                                 disaggregated by
                                 firm size \4\.
                                Electricity as a   Average ranking    Rank..................  9.8.........................  5
                                 major obstacle     by firms of
                                 to doing           electricity as a
                                 business \5\.      major obstacle
                                                    to doing
                                                    business. 10 is
                                                    most severe, 1
                                                    is not a
                                                    constraint.
                                Back-up diesel     Average annual     %.....................  6.55........................  TBD
                                 generation for     kWh of diesel
                                 firms \6\.         generation
                                                    consumed by
                                                    registered firms
                                                    as a percentage
                                                    of total
                                                    electricity
                                                    consumed.
                                Energy sales to    (Annual            %.....................  Est. 46.....................  55-65
                                 industrial         electricity
                                 customers.         sales (MWh) for
                                                    industrial
                                                    customers (Power
                                                    LV & MV))/Total
                                                    Electricity
                                                    Sales (MWh) \7\.
Improved Electricity Access     Percentage of      Percentage of      %.....................  9...........................  9.5-11
 for Households and Key Social   population         households in
 Services.                       electrified        Malawi using
                                 disaggregated by   electricity for
                                 national, urban    lighting to
                                 and rural.         total population
                                                    of Malawi.
                                                   Percentage of      %.....................  3.0.........................  3.2
                                                    households in
                                                    rural areas
                                                    using
                                                    electricity for
                                                    lighting to
                                                    total population.
                                                   Percentage of      %.....................  11.5........................  TBD
                                                    rural households
                                                    using
                                                    electricity for
                                                    lighting to
                                                    total rural
                                                    population.
                                                   Percentage of      %.....................  43.6........................  TBD
                                                    urban households
                                                    using
                                                    electricity for
                                                    lighting to
                                                    total urban
                                                    population.
                                Electric Power     (Total kWh billed  kWh per capita........  103.........................  111-115
                                 Consumption per    in all regions)/
                                 Capita.            Total population.
                                Social service     Percentage of      %.....................  TBD.........................  TBD
                                 electricity        total schools
                                 connections,       and total health
                                 disaggregated by   centers
                                 schools and        connected.
                                 health centers.
Expansion of Sector to Better   Investment in      Total US$ million  US$ million...........  0...........................  TBD
 Meet Demand for Power.          energy sector,     committed by
                                 disaggregated by   financial close,
                                 private and        disaggregated by
                                 public sectors,    private and
                                 and generation     public sectors,
                                 and other assets   and generation
                                 \8\.               and other.

[[Page 21062]]

 
                                                   MW of investment,  MW....................  0...........................  TBD
                                                    disaggregated by
                                                    private and
                                                    public sectors,
                                                    and generation
                                                    and other.
                                System Maximum     Total demand met   MW....................  260 (2009)..................  320 \9\
                                 Demand Met.        by the system.
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 2: Infrastructure Development Activity.
    The following are Indicators and Targets for the monitoring of the 
Infrastructure Development Activity as further described in paragraph 1 
of Part B of Annex I.
---------------------------------------------------------------------------

    \9\ Target will be calculated using total installed capacity 
minus 10 percent reserve margin for largest plant.
    \10\ Baseline data are sourced from MCA Compact Development 
Indicator Traking Template Pilot Exercise FY2010.
    \11\ Baseline data are sourced from MCA Compact Development 
Indicator Traking Template Pilot Exercise FY2010, and reflect the 
average for the fiscal year.
    \12\ Baseline data are derived from MCA Compact Development 
Indicator Traking Template Pilot Exercise FY2010, and reflect the 
average for the fiscal year.
    \13\ Baseline data are derived from MCA Compact Development 
Indicator Traking Template Pilot Exercise FY2010, and reflect the 
average for the fiscal year.
    \14\ Load shedding Indicators and their definitions will be 
refined prior to entry into force of the Compact and in the full M&E 
Plan.
---------------------------------------------------------------------------






                                                      Table 2--Infrastructure Development Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
               Result                       Indicator              Definition                 Unit                 Baseline            Year 5 Target
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Outcome Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Increased Availability of            Quantity of             Total MWh billed in     MWh..................  1,421,958 \10\.......  1,800,000
 Electricity.                         Electricity Billed.     all regions.
Reduction in Losses................  Total System Losses     [(Total kWh generated - %....................  20.13 \11\...........  17.5
                                      (Technical and Non-     Total kWh billed)/
                                      Technical).             Total kWh generated
                                                              during same billing
                                                              period].
                                     Transmission System     [(Total kWh received    %....................  8.54 \12\............  6.5
                                      Technical Losses.       by transmission from
                                                              generation - Total
                                                              kWh sent from
                                                              transmission to
                                                              distribution)/Total
                                                              kWh received by
                                                              transmission from
                                                              generation].
                                     Distribution System     [(Total kWh received    %....................  11.58 \13\...........  8
                                      Technical & Non-        from transmission to
                                      Technical Losses.       Distribution - Total
                                                              kWh billed)/Total kWh
                                                              received from
                                                              transmission to
                                                              distribution].
Reduced Outages....................  System Average          [No. of customer        Customer               NA...................  TBD
                                      Interruption            interruptions > 3       Interruptions/
                                      Frequency Index         mins/Total customers].  customer.
                                      (``SAIFI'').
                                     System Average          [(No. of customer       Duration of Customer   NA...................  TBD
                                      Interruption Duration   interruptions > 3       Interruptions/
                                      Index (``SAIDI'').      mins * Duration of      customer.
                                                              outage)/Total
                                                              customers].
                                     Total System Load Shed  Average MW load shed    MW...................  2.5..................  TBD
                                      \14\.                   per occurrence in a
                                                              year.
                                                             Cumulative duration of  Hours................  27,500...............  5,800
                                                              load shed in a year.
                                                             Maximum MW load shed    MW...................  Est. 30-40...........  TBD
                                                              during peak hours.

[[Page 21063]]

 
Improved quality of power at         Voltage Quality,        Percentage of time      %....................  83...................  90
 primary substations \15\.            disaggregated by        within (<plus-
                                      transmission and        minus>10%
                                      distribution.           transmission and
                                                              <plus-minus>6%
                                                              distribution) voltage
                                                              range South.
                                                             Percentage of time      %....................  83...................  90
                                                              within (<plus-
                                                              minus>10%
                                                              transmission and
                                                              <plus-minus>6%
                                                              distribution) voltage
                                                              range Centre.
                                                             Percentage of time      %....................  83...................  90
                                                              within (<plus-
                                                              minus>10%
                                                              transmission and
                                                              <plus-minus>6%
                                                              distribution) voltage
                                                              range North.
Increased Connections \16\.........  Number of residential   Southern electricity    Customer.............  67,316...............  3,139 additional
                                      customers connected     supply total domestic
                                      to electricity,         connected.
                                      disaggregated by
                                      region.
                                                             Central electricity     Customer.............  59,375...............  1,540 additional
                                                              supply total domestic
                                                              connected.
                                                             Northern electricity    Customer.............  22,612...............  1,255 additional
                                                              supply total domestic
                                                              connected.
                                     Number of commercial    Southern electricity    Customer.............  11,751...............  343 additional
                                      customers connected     supply general
                                      to electricity,         customers connected.
                                      disaggregated by
                                      region.
                                                             Central electricity     Customer.............  9,189................  301 additional
                                                              supply general
                                                              customers connected.
                                                             Northern electricity    Customer.............  4,158................  258 additional
                                                              supply general
                                                              customers connected.
                                     Number of industrial    Southern electricity    Customer.............  4,204................  8 additional
                                      customers connected     supply [Power LV +
                                      to electricity,         Power MV connected].
                                      disaggregated by
                                      region.
                                                             Central electricity     Customer.............  2,510................  9 additional
                                                              supply [Power LV +
                                                              Power MV connected].
                                                             Northern electricity    Customer.............  812..................  10 additional
                                                              Supply [Power LV +
                                                              Power MV connected].
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Nkula A Sub-Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Output Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Nkula A refurbished and operational  Total MWh at Nkula A    Total energy produced   MWh..................  168,900..............  207,441
                                      hydroelectric plant.    (MWh) annually at
                                                              Nkula A.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Transmission Network Upgrade Sub-Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Output Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Transmission Lines Upgraded,         New 132-kV lines......  Kms of new 132-kV       Kms..................  0....................  153
 Rehabilitated and Extended.                                  lines built by
                                                              Activity.
                                     New 66-kV lines built.  Kms of new 66-kV lines  Kms..................  0....................  79
                                                              built by Activity.
                                     New 220-kV lines built  Kms of new 220-kV       Kms..................  0....................  190-205
                                                              lines built by
                                                              Activity.
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 21064]]

 
                                                 T&D Upgrade, Expansion and Rehabilitation Sub-Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Output Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total New Transmission Transformer   Transmission            Sum of transmission     MVA..................  991.5................  790 additional
 Capacity.                            substation capacity.    transformer capacity.                                                 through Activity
Increased Network..................  SCADA Coverage          Percentage of master    %....................  TBD..................  98-100
                                      Transmission.           station availability.
Control and Improved Data            SCADA Coverage          Percentage of           %....................  TBD..................  90-95
 Acquisition.                         Distribution.           communication links
                                                              available in
                                                              installed sites.
Distribution Network Upgraded,       Kms of New              Kms of new 33-kV lines  Kms..................  0....................  113.3
 Extended and/or Operational.         Distribution lines      upgraded or built by
                                      upgraded or built.      Activity.
                                     Kms of New              Kms of new 11-kV        Kms..................  0....................  5.44
                                      Distribution Cables.    cables built by
                                                              Activity.
                                     Distribution            Sum of distribution     MVA..................  868..................  210 additional
                                      substation capacity.    transformer capacity.                                                 through Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------

Table 3: Environment and Natural Resource Management (ENRM) Sub-
Activity
    Due to the distinct nature of the data collection and outcomes of 
the ENRM sub-activity, it has been broken out into a separate table 
below. The following table describes the key Indicators and Targets for 
the monitoring the ENRM sub-activity and its relevant components, as 
further described in paragraph 1(e) of Part B of Annex I.



---------------------------------------------------------------------------

    \15\ Substations will be identified in the full M&E plan.
    \16\ Data for Baseline are sourced from June 2010, ESCOM sales 
statistics and does not include export customers. The Indicator is 
useful for monitoring trends and performance as a function of 
overall sector growth, and will be used for impact evaluations. 
Targets are based on the Project's technical benefits projections 
from ICF-CORE Feasibility Study and which were used in ERR analysis.

                                        Table 3--Environment and Natural Resource Management (ENRM) Sub-Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
            Result                  Indicator          Definition              Unit                     Baseline                    Year 5 target
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Outcome Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved availability of        Energy not served  Sum MWh by HEP     MWh...................  TBD.........................  57,218 less than Baseline
 hydroelectric power plants      due to weeds and   unavailable due
 (HEP) in generation.            sedimentation,     to weed and
                                 disaggregated by   sedimentation
                                 HEP.               faults.
                                Percent            Actual energy      %.....................  73 (Nkula A)................  85 (Nkula A)
                                 utilization or     generated by HEP                          69 (Nkula B)................  75 (Nkula B)
                                 operating ratio    MWh/Theoretical                           82 (Tedzani I&II)...........  90 (Tedzani I&II)
                                 of HEP,            maximum energy                            70 (Tedzani III)............  75 (Tedzani III)
                                 disaggregated by   of installed                              77 (Kapichira I)............  85 (Kapichira I)
                                 HEP \17\.          capacity MWh.
Reduced weed infestation and    Distribution of    Area (Km \2\) of   Km \2\................  TBD.........................  TBD
 siltation in upper Shire        invasive aquatic   weeds in upper
 River basin.                    species.           Shire River
                                                    basin as
                                                    observed in
                                                    geographic
                                                    information
                                                    system maps and
                                                    field
                                                    observations.
                                Water turbidity..  Total suspended    TSS...................  TBD.........................  TBD
                                                    solids using
                                                    standard
                                                    methodology.
--------------------------------------------------------------------------------------------------------------------------------------------------------
  ENRMAP component (Indicators and Targets to be defined prior to entry into force of the Compact and MCC approval of activities to be funded under the
                                                                    ENRMAP component)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Output Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Harmonized, gender responsive   Harmonized and     Legal framework    Legal framework         ............................  Legal framework adopted.
 and effective institutional     gender             adhering to the    adopted.
 and policy environment for      responsive legal   findings and
 sustainable environmental       and policy         recommendations
 management and protection.      framework          of the ENRMAP
                                 enacted.           developed \18\.

[[Page 21065]]

 
                                Operational        Legal framework    Legal framework         ............................  Legal framework adopted.
                                 payment for        enabling           adopted.
                                 ecosystem          ecosystem
                                 services           finance
                                 mechanism          developed as per
                                 established.       the findings of
                                                    the ENRMAP
                                                    established.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Weed and Silt Management Component
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Output Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved Control of Aquatic     ESCOM expenses on  Total MK expended  Million MK............  TBD.........................  TBD
 Weeds.                          aquatic weed       by ESCOM per
                                 management \19\.   year on aquatic
                                                    weed control,
                                                    including staff,
                                                    equipment and
                                                    fuel.
                                Yearly amount of   Average weight in  Million MT............  13.4........................  20.04 \20\
                                 weed harvested     metric tons
                                 at Liwonde         (``MT'') of weed
                                 barrage.           harvested at
                                                    Liwonde barrage
                                                    per year.
                                Average daily      Average peak       MT....................  120.........................  216 \21\
                                 peak weight of     weight in metric
                                 weed harvested     tons of weed
                                 at Liwonde         harvested at
                                 barrage.           Liwonde barrage.
                                Biocontrol         Number of          Number................  TBD.........................  TBD
                                 inoculations,      biocontrol
                                 disaggregated by   inoculations
                                 key location.      conducted,
                                                    disaggregated by
                                                    key location.
                                Efficiency of      Feeding scars on   TBD...................  TBD.........................  TBD
                                 biological         sampled water
                                 control on water   hyacinth based
                                 hyacinth.          on standardized
                                                    methodology \22\.
Improved Control of Silt......  ESCOM expenses on  Total MK expended  Million MK............  TBD.........................  TBD
                                 silt management    by ESCOM per
                                 \23\.              year on silt
                                                    removal,
                                                    including staff,
                                                    equipment and
                                                    fuel.
                                Percentage of      Head pond volume   %.....................  30..........................  75
                                 head pond          for Nkula/
                                 available.         Original head
                                                    pond volume for
                                                    Nkula.
                                                   Head pond volume   %.....................  50..........................  75
                                                    for Tedzani/
                                                    Original head
                                                    pond volume for
                                                    Tedzani.
                                                   Head pond volume   %.....................  50..........................  75
                                                    for Kapichira/
                                                    Original head
                                                    pond volume for
                                                    Kapichira.
--------------------------------------------------------------------------------------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \18\ Legal framework may include environmental management bill 
(including establishment of the National Environmental Management 
Authority), water resource management bill, and development of a new 
soil conservation bill.
    \19\ Indicator is useful for monitoring trends and performance 
as a function of overall ecosystem conditions.
    \20\ Total harvested material will depend on the performance of 
harvesting measures and biological controls.
    \21\ Total harvested material will depend on the performance of 
harvesting measures and biological controls.
    \22\ Indicator will be refined after completion of key 
feasibility studies and design work for the ENRMAP.
    \23\ Indicator is useful for monitoring trends and performance 
as a function of overall ecosystem conditions.

---------------------------------------------------------------------------

[[Page 21066]]

Table 4: Power Sector Reform Activity
    The following are Indicators and Targets for the monitoring of the 
Power Sector Reform Activity as further described in paragraph 2 of 
Part B of Annex I. Key Targets and Baselines for these Indicators will 
be defined prior to entry into force of the Compact. Targets on 
financial Indicators will be reviewed semi-annually as defined in 
paragraph 2(c) of Part B of Annex I, and updated on a yearly basis.
---------------------------------------------------------------------------

    \24\ Financial targets will be set after financial modeling is 
completed, and will be updated annually. Data will be sourced from 
audited financial statements. Baseline for Cost Recovery Ratio is 
sourced from World Bank Benchmarking Study. Indicators are useful 
for monitoring trends and performance as a function of overall 
financial and investment conditions.
    \25\ Total revenue based on energy, demand and fixed charges 
revenue. Operating expenses include cost of generation, transmission 
and distribution operations, corporate expenses, and financing costs 
to be incurred.
    \26\ Capital replacement costs include depreciation.
    \27\ Capital expansion costs include cost of long-term system 
expansion projects.
    \28\ Targets to reflect results of financial analysis and/or 
MERA regulations.
    \29\ Indicator to be refined after assessment tool has been 
defined prior to EIF.

                                                          Table 4--Power Sector Reform Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
            Result                  Indicator          Definition              Unit                     Baseline                    Year 5 target
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Outcome Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved Financial              Cost Recovery      Total Actual       %.....................  TBD.........................  Greater than 100%
 Sustainability/Solvency of      Ratio.             revenue/
 ESCOM \24\.                                        Projected
                                                    operating
                                                    expenses \25\.
                                                   Total Actual       %.....................  TBD.........................  Greater than 100%
                                                    Revenue/
                                                    Projected
                                                    operating
                                                    expenses plus
                                                    capital
                                                    replacement
                                                    costs \26\.
                                                   Total Actual       %.....................  TBD.........................  100%
                                                    Revenue/
                                                    Projected
                                                    operating
                                                    expenses plus
                                                    capital
                                                    replacement plus
                                                    capital
                                                    expansion costs
                                                    \27\.
                                Debt Equity Ratio  Total Debt/Total   Ratio.................  TBD.........................  TBD\28\
                                                    Equity.
                                Acid or Quick      Current Assets/    Ratio.................  TBD.........................  TBD
                                 Test.              Current
                                                    Liabilities,
                                                    excluding
                                                    receivables and
                                                    stocks.
                                Current Ratio....  Current Assets/    Ratio.................  TBD.........................  TBD
                                                    Current
                                                    Liabilities.
Improved Internal and External  Quality of ESCOM   Progress against   TBD...................  TBD.........................  TBD
 Governance of ESCOM and the     Corporate          milestones set
 Power Sector.                   Governance.        as a result of
                                                    independent
                                                    expert
                                                    assessment based
                                                    on international
                                                    and regional
                                                    best practices
                                                    and Malawi law
                                                    as articulated
                                                    in Corporate
                                                    Governance
                                                    Benchmarking
                                                    Study..
                                Regulatory         Progress against   TBD...................  TBD.........................  TBD
                                 Independence and   milestones set
                                 Effectiveness      as a result of
                                 \29\.              independent
                                                    expert
                                                    assessment and/
                                                    or benchmarking
                                                    study on issues
                                                    such as quality
                                                    of regulatory
                                                    decisions based
                                                    upon sound
                                                    analysis,
                                                    conformity with
                                                    Laws of Malawi,
                                                    independence,
                                                    and transparency
                                                    based on
                                                    international/
                                                    regional best
                                                    practices and
                                                    governing
                                                    principles in
                                                    conformance with
                                                    Annex I.
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 21067]]

 
                                                              ESCOM Turnaround Sub-Activity
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                 Output Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved Financial Management.  ESCOM Billing and  [Total revenue     %.....................  TBD.........................  85-90
                                 Collection         from post-paid
                                 Efficiency \30\.   bills collected
                                                    in current month/
                                                    total post-paid
                                                    billed in
                                                    previous month]
                                                    x 100 for SES.
                                                   [Total revenue     %.....................  TBD.........................  85-90
                                                    from post-paid
                                                    bills collected
                                                    in current month/
                                                    total post-paid
                                                    billed in
                                                    previous month]
                                                    x 100 for CES.
                                                   [Total revenue     %.....................  TBD.........................  85-90
                                                    from post-paid
                                                    bills collected
                                                    in current month/
                                                    total post-paid
                                                    billed in
                                                    previous month]
                                                    x 100 for NES.
                               -------------------------------------------------------------------------------------------------------------------------
                                Electricity        Indicator to be    TBD...................  TBD.........................  TBD
                                 Metered.           defined prior to
                                                    entry into force
                                                    and in the full
                                                    M&E plan, in
                                                    accordance to
                                                    Annex I..
                                Average            365/(Total post-   Days..................  180.........................  50
                                 Collection         paid sales/
                                 Period in days.    ((Beginning
                                                    accounts
                                                    receivables +
                                                    ending accounts
                                                    receivable)/2)).
                                Bad Debt.........  (Percentage of     Days..................  TBD.........................  TBD
                                                    accounts over
                                                    180 days)/(total
                                                    accounts
                                                    receivable).
                                Average Creditor   365/(Total credit  Days..................  150.........................  60
                                 Days.              purchases/
                                                    ((Beginning
                                                    accounts
                                                    payables +
                                                    ending accounts
                                                    payables)/2)).
                                Financial Plans    ESCOM Financial    Update to Plans.......  ............................  Update to plans
                                 updated.           Plan with agreed
                                                    upon financial
                                                    ratios and
                                                    covenants as
                                                    defined in Annex
                                                    I under Compact
                                                    updated.
                                Publication of     ESCOM audited      Publication of          0...........................  Annual publication
                                 Audited            financial          statements.
                                 Financial          statements made
                                 Statements.        public as
                                                    defined in Annex
                                                    I under Compact.
                                Working Capital    Yearly Government  MWK Millions..........  TBD.........................  0
                                 Gap Financed       financial
                                 \31\.              contribution
                                                    required.
                                                   Yearly Government  Percentage............  NA..........................  100% if positive amount
                                                    financial                                                                required
                                                    contribution as
                                                    fraction of
                                                    amount indicated
                                                    by MCC-approved
                                                    Financial Plan.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved Quality of Customer    Average time to    Average time to    Days..................  3.36........................  2.7
 Service.                        respond to         restore power
                                 forced outages.    for high voltage
                                                    forced outages.
                                                   Average time to    Days..................  5.60........................  3.5
                                                    restore power
                                                    for MV/LV forced
                                                    outages.

[[Page 21068]]

 
                                Customer           Percent            %.....................  TBD.........................  TBD
                                 satisfaction and   improvement in
                                 perceptions of     key indicators
                                 ESCOM service,     of customers'
                                 disaggregated by   satisfaction,
                                 gender.            disaggregated by
                                                    gender.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved ESCOM Operational      Average Cost of    [Total expenses    US$/kWh...............  TBD.........................  TBD
 Management and Efficiency.      Electricity        for Gx, Tx and
                                 Billed (kWh).      Dx (MK)/total
                                                    electricity
                                                    generated(kWh)*U
                                                    S$].
                                Maintenance        Actual             %.....................  TBD.........................  100
                                 Expenditures.      maintenance
                                                    expenditures/
                                                    Planned
                                                    maintenance
                                                    budget as
                                                    defined in Annex
                                                    I \32\.
                                                   Adherence to       Plans.................  NA..........................  Yearly update to plans
                                                    ESCOM
                                                    maintenance
                                                    plans as defined
                                                    in Annex I.
Improved management of          Procurement        Number of          Audit.................  ............................  TBD
 procurements by ESCOM.          Audits.            procurement
                                                    audits completed
                                                    by Auditor
                                                    General's Office
                                                    receiving
                                                    satisfactory
                                                    assessments.
                                Procurement        Procurement        Million MK............  ............................  Increase over Baseline
                                 threshold.         threshold
                                                    increased by
                                                    ODPP as a result
                                                    of improved
                                                    ESCOM compliance
                                                    to procurement
                                                    procedures.
--------------------------------------------------------------------------------------------------------------------------------------------------------
 Regulatory Strengthening Sub-Activity (Indicators and Targets to be defined prior to entry into force and MCC approval of activities to be funded under
        the sub-activity. Additional Indicators will be defined as per the benchmarking study, peer review and/or independent expert assessment)
                                                                 Output Level Indicators
--------------------------------------------------------------------------------------------------------------------------------------------------------
Strengthened Regulatory         Tariff             Average time to    Days..................  TBD.........................  TBD
 Environment.                    application        respond to
                                 processing time.   tariff rate
                                                    cases.
                                Tariff Indexation  Refinement of      Framework.............  0...........................  Framework approved and
                                 Framework.         legal basis for                                                          implemented
                                                    tariff
                                                    indexation
                                                    framework
                                                    adopted and
                                                    implemented, as
                                                    defined in Annex
                                                    I.
                                Audited financial  Audited financial  Annual Report.........  0...........................  Yearly publication of report
                                 statements and     statements and
                                 annual report      annual report
                                 published by       published.
                                 MERA.
                                MERA Resolutions.  Percentage of      %.....................  ............................  TBD
                                                    ESCOM
                                                    performance
                                                    reports reviewed
                                                    on time.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Improved Market Structure for   Power Market       Creation of        Single buyer created..  ............................  Credit worthy buyer created
 Private Investment.             Structure.         credit worthy
                                                    single buyer.
                                                   Revised Energy     Laws passed...........  ............................  Amended laws passed
                                                    Laws in
                                                    conformity with
                                                    agreement in
                                                    Compact approved
                                                    and enacted.
--------------------------------------------------------------------------------------------------------------------------------------------------------

     (b) Data Collection and Reporting. The M&E Plan will establish 
guidelines for data collection and reporting, and identify the 
responsible parties. A performance monitoring task force will be 
created at ESCOM, with participation by MERA and MCA-Malawi.
---------------------------------------------------------------------------

    \30\ Baselines will be set after a new billing system is 
installed.
    \31\ Financial targets will be set after financial modeling is 
completed, and will be updated annually. Data will be sourced from 
audited financial statements and other sources of financial 
information.
    \32\ Maintenance plan is based on a percentage of un-depreciated 
asset value for preventive maintenance of generation, transmission 
and distribution assets.
---------------------------------------------------------------------------

Compliance with data collection and reporting timelines will be 
conditions

[[Page 21069]]

for Disbursements for the relevant Activities as set forth in the 
Program Implementation Agreement. The M&E Plan will specify the data 
collection methodologies, procedures, and analysis required for 
reporting on results at all levels. The M&E Plan will describe any 
interim MCC approvals for data collection, analysis, and reporting 
plans.
    (c) Data Quality Reviews. As determined in the M&E Plan or as 
otherwise requested by MCC, the quality of the data gathered through 
the M&E Plan will be reviewed to ensure that data reported are as 
valid, reliable, and timely as resources will allow. The objective of 
any data quality review will be to verify the quality and the 
consistency of performance data across different implementation units 
and reporting institutions. Such data quality reviews also will serve 
to identify where those levels of quality are not possible, given the 
realities of data collection.
    (d) Semi-annual Reviews. Semi-annual reviews of the Power Sector 
Reform Activity will be conducted as outlined in paragraph 2(c) of Part 
B of Annex I.
    (e) Management Information System. The M&E Plan will describe the 
information system that will be used to collect data, store, process 
and deliver information to relevant stakeholders in such a way that the 
Program information collected and verified pursuant to the M&E Plan is 
at all times accessible and useful to those who wish to use it. The 
system development will take into consideration the requirement and 
data needs of the components of the Program, and will be aligned with 
existing MCC systems, other service providers, and ministries.
    (f) Role of MCA-Malawi. The monitoring and evaluation of this 
Compact spans one discrete Project and two Activities, and will involve 
a variety of governmental, nongovernmental, and private sector 
institutions. In accordance with the designation contemplated by 
Section 3.2(b) of this Compact, MCA-Malawi is responsible for 
implementation of the M&E Plan. MCA-Malawi will oversee all Compact-
related monitoring and evaluation activities conducted for each of the 
Activities, ensuring that data from all implementing entities are 
consistent, accurately reported and aggregated into regular performance 
reports as described in the M&E Plan.

4. Evaluation Component

    The Evaluation Component of the M&E Plan will contain three types 
of evaluations: (1) Impact evaluations; (2) project performance 
evaluations; and (3) special studies. MCC also intends to continue 
monitoring and evaluating the long-term impacts of the Compact even 
after Compact expiration. The Evaluation Component of the M&E Plan will 
describe the purpose of the evaluation, methodology, timeline, required 
MCC approvals, and the process for collection and analysis of data for 
each evaluation. The results of all evaluations will be made publicly 
available in accordance with MCC's Policy for Monitoring and Evaluation 
of Compacts and Threshold Programs.
    (a) Impact Evaluation. The M&E Plan will include a description of 
the methods to be used for impact evaluations and plans for integrating 
the evaluation method into Project design. Based on in-country 
consultation with stakeholders, the strategies outlined below were 
jointly determined as having the strongest potential for rigorous 
impact evaluation. The M&E Plan will further outline in detail these 
methodologies. Final impact evaluation strategies are to be included in 
the M&E Plan. The following is a summary of the potential impact 
evaluation methodologies.
    (i) Infrastructure Development Activity. The evaluation will 
attempt to assess the effectiveness of individual transmission lines 
and distribution investments in reducing outages and improving power 
quality, particularly in northern Malawi using a combination of 
approaches, to include potentially an interrupted time series approach, 
exogenous spatial variation due to the project, combined if 
sufficiently informative with phased implementation of distribution 
projects. The incremental impacts of improved reliability, quality and 
access to power will be estimated by comparing key intermediate 
outcomes, including changes in business investments and productivity, 
between businesses with access to infrastructure improvements, those 
without access to improvements, and for those in areas or zones that 
experience greater or lesser improvements in electricity due to 
differential levels of infrastructure upgrading. Gender disaggregated 
information for female-headed businesses will be pursued to the extent 
possible.
    (ii) Power Sector Reform Activity. The most rigorous evaluation 
possible will be conducted, possibly employing an interrupted time 
series approach. The evaluation will estimate the causal relationship 
between changes in sector governance with: (1) Changes in ESCOM 
financial and operational performance; and (2) increases in private 
investment, generation capacity and electricity coverage for different 
groups such as female-headed households and regions of the country. The 
evaluation will also assess: (A) the extent to which improvements in 
MERA independence and regulatory capacity result in improved quality of 
service and supply by ESCOM; and (B) the extent to which this Activity 
improves the efficiency (employees per customer, response time to 
outages, etc.) and reduces losses at ESCOM. Differentiated impacts on 
customer service and access to men, women, and vulnerable groups will 
be explored.
    (iii) Environment and Natural Resource Management (ENRM) Sub-
Activity. The evaluation will attempt to isolate the causal factors 
linking weed and siltation in the Shire river basin to outages 
downstream at generation sites, particularly the extent to which 
palliative weed and silt management measures reduce the frequency and 
duration of outages and improve plant availability at hydropower plants 
downstream of Liwonde barrage. Potentially using a difference-in-
differences and/or matching design, the evaluation will also attempt to 
look at how increases in tariff and/or electrification affect consumer 
energy choices, such as the use of charcoal and fuel wood, and the 
impact of the latter has on the environment. To the extent appropriate, 
differentiated impacts on different income groups, males vs. females, 
formal and informal firms, and factors such as access or non-access to 
capital will be explored. In order to implement the most rigorous 
evaluations possible, the Government and ESCOM will cooperate in 
assembling the required time series and other data required to 
implement the chosen methodology.
    (b) Project Performance Evaluation. The M&E Plan will make 
provision for evaluations of all relevant Project activities. The M&E 
Plan will also make provision for final Project level evaluations 
(``Final Evaluations''). With the prior written approval of MCC, the 
Government or MCA-Malawi will engage independent evaluators to conduct 
the Final Evaluations at the end of the Project. The Final Evaluations 
will review progress during Compact implementation and provide a 
qualitative context for interpreting monitoring data and impact 
evaluation findings. They must at a minimum: (i) Evaluate the 
efficiency and effectiveness of the Activities; (ii) determine if and 
analyze the reasons why the Compact Goal, Program Objective and Project 
Objective, outcome(s) and output(s) were or were not achieved; (iii) 
identify positive and negative unintended results of the Program; (iv) 
provide

[[Page 21070]]

lessons learned that may be applied to similar projects; and (v) assess 
the likelihood that results will be sustained over time.
    (c) Special Studies. The M&E Plan will include a description of the 
methods to be used for special studies, as necessary, funded through 
this Compact or by MCC. Plans for conducting the special studies will 
be determined jointly between the Government or MCA-Malawi and MCC 
before the approval of the M&E Plan. MCC, the Government and MCA-Malawi 
have agreed to conduct the following study as part of the Power Sector 
Reform Activity:
    (i) Prior to entry into force of the Compact, the Government and 
MCC will agree on a method by which to independently evaluate and 
assess Malawi's regulatory environment and the governance of ESCOM and 
the power sector in Malawi as a whole. MCA-Malawi and the Government 
will then conduct both the Corporate Governance Benchmarking Study and 
the Sector Benchmarking Study by Year 2 of the Compact.
    The M&E Plan will identify and make provision for any other special 
studies, ad hoc evaluations, and research that may be needed as part of 
the monitoring and evaluating of this Compact. Either MCC, MCA-Malawi 
or the Government may request special studies or ad hoc evaluations of 
Activities, or the Project as a whole prior to the expiration of the 
Compact Term. When the Government engages an evaluator, the engagement 
will be subject to the prior written approval of MCC. Contract terms 
must ensure non-biased results and the publication of results.
    (d) Request for Ad Hoc Evaluation or Special Study. If MCA-Malawi 
or the Government require an ad hoc independent evaluation or special 
study at the request of the Government for any reason, including for 
the purpose of contesting an MCC determination with respect to a 
Project or Activity or to seek funding from other donors, no MCC 
Funding resources may be applied to such evaluation or special study 
without MCC's prior written approval.

5. Other Components of the M&E Plan

    In addition to the monitoring and evaluation components, the M&E 
Plan will include the following components for the Program, Project and 
Activities, including, where appropriate, roles and responsibilities of 
the relevant parties and providers:
    (a) Costs. A detailed cost estimate for all components of the M&E 
Plan; and
    (b) Assumptions and Risks. Any assumption or risk external to the 
Program that underlies the accomplishment of the Program Objective, 
Project Objective and Activity outcomes and outputs.

6. Approval and Implementation of the M&E Plan

    The approval and implementation of the M&E Plan, as amended from 
time to time, will be in accordance with the Program Implementation 
Agreement, any other relevant Supplemental Agreement and the MCC Policy 
for Monitoring and Evaluation of Compacts and Threshold Programs.

Annex IV Conditions Precedent to Disbursement of Compact Implementation 
Funding

    This Annex IV sets forth the conditions precedent applicable to 
Disbursements of Compact Implementation Funding (each a ``CIF 
Disbursement''). Capitalized terms used in this Annex IV and not 
defined in this Compact will have the respective meanings assigned 
thereto in the Program Implementation Agreement. Upon execution of the 
Program Implementation Agreement, each CIF Disbursement will be subject 
to the terms of the Program Implementation Agreement.

1. Conditions Precedent to Initial CIF Disbursement

    Each of the following must have occurred or been satisfied prior to 
the Initial CIF Disbursement:
    (a) The Government (or MCA-Malawi) has delivered to MCC:
    (i) An interim fiscal accountability plan acceptable to MCC; and
    (ii) A CIF procurement plan acceptable to MCC.

2. Conditions Precedent to Each CIF Disbursement

    Each of the following must have occurred or been satisfied prior to 
each CIF Disbursement:
    (a) The Government (or MCA-Malawi) has delivered to MCC the 
following documents, in form and substance satisfactory to MCC:
    (i) A completed Disbursement Request, together with the applicable 
Periodic Reports, for the applicable Disbursement Period, all in 
accordance with the Reporting Guidelines;
    (ii) A certificate of the Government (or MCA-Malawi), dated as of 
the date of the CIF Disbursement Request, in such form as provided by 
MCC; and
    (iii) If this Compact has entered into force in accordance with 
Article 7, (1) a Fiscal Agent Disbursement Certificate and (2) a 
Procurement Agent Disbursement Certificate.
    (b) If any proceeds of the CIF Disbursement are to be deposited in 
a bank account, MCC has received satisfactory evidence that (i) the 
Bank Agreement has been executed and (ii) the Permitted Accounts have 
been established;
    (c) Appointment of an entity or individual to provide fiscal agent 
services, as approved by MCC, until such time as the Government 
provides to MCC a true and complete copy of a Fiscal Agent Agreement, 
duly executed and in full force and effect, and the fiscal agent 
engaged thereby is mobilized;
    (d) Appointment of an entity or individual to provide procurement 
agent services, as approved by MCC, until such time as the Government 
provides to MCC a true and complete copy of the Procurement Agent 
Agreement, duly executed and in full force and effect, and the 
procurement agent engaged thereby is mobilized; and
    (e) MCC is satisfied, in its sole discretion, that:
    (i) The activities being funded with such CIF Disbursement are 
necessary, advisable or otherwise consistent with the goal of 
facilitating the implementation of the Compact and will not violate any 
applicable law or regulation;
    (ii) No material default or breach of any covenant, obligation or 
responsibility by the Government, MCA-Malawi or any Government entity 
has occurred and is continuing under this Compact or any Supplemental 
Agreement;
    (iii) There has been no violation of, and the use of requested 
funds for the purposes requested will not violate, the limitations on 
use or treatment of MCC Funding set forth in Section 2.7 of this 
Compact or in any applicable law or regulation;
    (iv) Any Taxes paid with MCC Funding through the date ninety (90) 
days prior to the start of the applicable Disbursement Period have been 
reimbursed by the Government in full in accordance with Section 2.8(c) 
of this Compact; and
    (v) The Government has satisfied all of its payment obligations, 
including any insurance, indemnification, tax payments or other 
obligations, and contributed all resources required from it, under this 
Compact and any Supplemental Agreement.

3. For Any CIF Disbursement Occurring After This Compact Has Entered 
Into Force in Accordance With Article 7

    MCC is satisfied, in its sole discretion, that:

[[Page 21071]]

    (a) MCC has received copies of any reports due from any technical 
consultants (including environmental auditors engaged by MCA-Malawi) 
for any Activity since the previous Disbursement Request, and all such 
reports are in form and substance satisfactory to MCC;
    (b) The Implementation Plan Documents and Fiscal Accountability 
Plan are current and updated and are in form and substance satisfactory 
to MCC, and there has been progress satisfactory to MCC on the 
components of the Implementation Plan for the Projects or any relevant 
Activities related to such CIF Disbursement;
    (c) There has been progress satisfactory to MCC on the M&E Plan and 
Social and Gender Integration Plan for the Program or Project or 
relevant Activity and substantial compliance with the requirements of 
the M&E Plan and Social and Gender Integration Plan (including the 
targets set forth therein and any applicable reporting requirements set 
forth therein for the relevant Disbursement Period);
    (d) There has been no material negative finding in any financial 
audit report delivered in accordance with this Compact and the Audit 
Plan, for the prior two quarters (or such other period as the Audit 
Plan may require);
    (e) MCC does not have grounds for concluding that any matter 
certified to it in the related MCA Disbursement Certificate, the Fiscal 
Agent Disbursement Certificate or the Procurement Agent Disbursement 
Certificate is not as certified;
    (f) If any of the officers or key staff of MCA-Malawi have been 
removed or resigned and the position remains vacant, MCA-Malawi is 
actively engaged in recruiting a replacement; and
    (g) MCC has not determined, in its sole discretion, that an act, 
omission, condition, or event has occurred that would be the basis for 
MCC to suspend or terminate, in whole or in part, the Compact or MCC 
Funding in accordance with Section 5.1 of this Compact.

Annex V Definitions

    Activity has the meaning provided in Part B of Annex I.
    Additional Representative has the meaning provided in Section 4.2.
    Audit Guidelines has the meaning provided in Section 3.8(a).
    Baseline has the meaning provided in paragraph 3 of Annex III.
    Board of Trustees has the meaning provided in paragraph 3(a)(i) of 
Part C of Annex I.
    CIF Disbursement has the meaning provided in Annex IV.
    Compact has the meaning provided in the Preamble.
    Compact Goal has the meaning provided in Section 1.1.
    Compact Implementation Funding has the meaning provided in Section 
2.2(a).
    Compact Records has the meaning provided in Section 3.7(a).
    Compact Term has the meaning provided in Section 7.4.
    Corporate Governance Benchmarking Study has the meaning provided in 
paragraph 2(a)(ii) of Part B of Annex I.
    Covered Provider has the meaning provided in Section 3.7(c).
    Disbursement has the meaning provided in Section 2.4.
    DSC has the meaning provided in paragraph 2(a)(ii) of Part B of 
Annex I.
    ESCOM has the meaning provided in Section 7.2(d).
    ESCOM Board has the meaning provided in paragraph 2(a)(ii) of Part 
B of Annex I.
    ENRM has the meaning provided in paragraph 1(e) of Part B of Annex 
I.
    ERNMAP has the meaning provided in paragraph 1(e)(ii) of Part B of 
Annex I.
    ESIAs has the meaning provided in paragraph 3 of Part B of Annex I.
    Evaluation Component has the meaning provided in paragraph 1 of 
Annex III.
    Excess CIF Amount has the meaning provided in Section 2.2(c).
    Final Evaluations has the meaning provided in paragraph 4(b) of 
Annex III.
    Financial Plan has the meaning provided in paragraph 2(a)(i) of 
Part B of Annex I.
    Fiscal Agent has the meaning provided in paragraph 5 of Part C of 
Annex I.
    Governance Guidelines means MCC's Guidelines for Accountable 
Entities and Implementation Structures, as such may be posted on MCC's 
Web site from time to time.
    Government has the meaning provided in the Preamble.
    Implementation Letter has the meaning provided in Section 3.5.
    Indicators has the meaning provided in paragraph 3(a) of Annex III.
    Infrastructure Development Activity has the meaning provided in 
Part B of Annex I.
    Inspector General has the meaning provided in Section 3.7(d).
    Intellectual Property means all registered and unregistered 
trademarks, service marks, logos, names, trade names and all other 
trademark rights; all registered and unregistered copyrights; all 
patents, inventions, shop rights, know how, trade secrets, designs, 
drawings, art work, plans, prints, manuals, computer files, computer 
software, hard copy files, catalogues, specifications, and other 
proprietary technology and similar information; and all registrations 
for, and applications for registration of, any of the foregoing, that 
are financed, in whole or in part, using MCC Funding.
    IRP has the meaning provided in paragraph 1(a) of Part B of Annex 
I.
    Kapichira II has the meaning provided in paragraph 1(f) of Part B 
of Annex I.
    kWh has the meaning provided in paragraph 3 of Part A of Annex I.
    M&E Annex has the meaning provided in Annex III.
    M&E Plan has the meaning provided in Annex III.
    Malawi has the meaning provided in the Preamble.
    Management Unit has the meaning provided in paragraph 3 (c)(i) of 
Part C of Annex I.
    MCA Act has the meaning provided in Section 2.2(a).
    MCA-Malawi Core Team has the meaning provided in paragraph 1(b) of 
Part A of Annex I.
    MCA-Malawi Trust Deed has the meaning provided in paragraph 3 of 
Part C of Annex I.
    MCC has the meaning provided in the Preamble.
    MCC Environmental Guidelines has the meaning provided in Section 
2.7(c).
    MCC Funding has the meaning provided in Section 2.3.
    MCC Gender Policy means the MCC ``Gender Policy''(including any 
guidance documents issued in connection with the guidelines) posted 
from time to time on the MCC Web site or otherwise made available to 
the Government.
    MCC Policy for Monitoring and Evaluation of Compacts and Threshold 
Programs has the meaning provided in Annex III.
    MCC Program Procurement Guidelines has the meaning provided in 
Section 3.6.
    MCC Web site has the meaning provided in Section 2.7.
    MGDs has the meaning provided in paragraph 2 of Annex III.
    MERA has the meaning provided in paragraph 2 of Part B of Annex I.
    MERA Board has the meaning provided in paragraph 2(b)(ii) of Part B 
of Annex I.
    MNREE has the meaning provided in paragraph 2 of Part B of Annex I.
    Monitoring Component has the meaning provided in paragraph 1 of 
Annex III.
    Multi-Year Financial Plan Summary has the meaning provided in 
paragraph 1 of Annex II.
    ODPP has the meaning provided in paragraph 2(a)(iii) of Part B of 
Annex I.

[[Page 21072]]

    OP 4.12 has the meaning provided in paragraph 3 of Part B of Annex 
I.
    Party and Parties have the meaning provided in the Preamble.
    Permitted Account has the meaning provided in Section 2.4.
    PMC has the meaning provided in paragraph 4 of Part C of Annex I.
    Power Sector Reform Activity has the meaning provided in Part B of 
Annex I.
    Power Sector Reform Agenda has the meaning provided in paragraph 
2(c) of Part B of Annex I.
    Power Sector Revitalization Project has the meaning provided in 
Part B of Annex I.
    PPP has the meaning provided in paragraph 1(a) of Part A of Annex 
I.
    Principal Representative has the meaning provided in Section 4.2.
    Procurement Agent has the meaning provided in paragraph 6 of Part C 
of Annex I.
    Program has the meaning provided in the Recitals.
    Program Assets means any assets, goods or property (real, tangible 
or intangible) purchased or financed in whole or in part (directly or 
indirectly) by MCC Funding.
    Program Funding has the meaning provided in Section 2.1.
    Program Guidelines means collectively the Audit Guidelines, the MCC 
Environmental Guidelines, the MCC Gender Policy, the Governance 
Guidelines, the MCC Program Procurement Guidelines, the Reporting 
Guidelines, the MCC Policy for Monitoring and Evaluation of Compacts 
and Threshold Programs, the MCC Cost Principles for Government 
Affiliates Involved in Compact Implementation (including any successor 
to any of the foregoing) and any other guidelines, policies or guidance 
papers relating to the administration of MCC-funded compact programs 
and as from time to time published on the MCC Web site.
    Program Implementation Agreement and PIA have the meaning provided 
in Section 3.1.
    Program Objective has the meaning provided in Section 1.2.
    Project has the meaning provided in Section 1.3.
    Project Cooperation Agreement has the meaning provided in paragraph 
4 of Part C of Annex I.
    Project Objective has the meaning provided in Section 1.3.
    Project Partner has the meaning provided in paragraph 4 of Part C 
of Annex I.
    Provider has the meaning provided in Section 3.7(c).
    REA has the meaning provided in paragraph 2(b)(iii) of Part B of 
Annex I.
    Reporting Guidelines means the MCC ``Guidance on Quarterly MCA 
Disbursement Request and Reporting Package'' posted by MCC on the MCC 
Web site or otherwise publicly made available.
    SBM Plan has the meaning provided in paragraph 2(b)(iii) of Part B 
of Annex I.
    Sector Benchmarking Study has the meaning provided in paragraph 
2(b)(ii) of Part B of Annex I.
    Social and Gender Integration Plan has the meaning provided in 
paragraph 3 of Part B of Annex I.
    Supplemental Agreement means any agreement between (a) the 
Government (or any Government affiliate) and MCC (including, but not 
limited to, the PIA), or (b) MCC and/or the Government (or any 
Government affiliate), on the one hand, and any third party, on the 
other hand, including any of the Providers, in each case, setting forth 
the details of any funding, implementing or other arrangements in 
furtherance of this Compact.
    Target has the meaning provided in paragraph 3(a) of Annex III.
    Tariff Indexation Framework has the meaning provided in paragraph 
2(b)(i) of Part B of Annex I.
    Tax Schedules has the meaning provided in Section 2.8(b).
    Taxes has the meaning provided in Section 2.8(a).
    Turnaround Facility has the meaning provided in Section 7.2(d).
    United States Dollars or US$ means the lawful currency of the 
United States of America.
    USAID is the United States Agency for International Development.

[FR Doc. 2011-8983 Filed 4-13-11; 8:45 am]
BILLING CODE 9211-03-P


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