Electricity Revenue and Tariff Growth in Malawi

Abstract

In 2011, the Millennium Challenge Corporation, a Washington Based Aid Agency, signed a Compact agreement with the Malawi Government to implement a number of interventions in the power subsector; one of which was power sector reforms. Given that one of the key interventions under the reforms relate to improving the creditworthiness of the existing utility company by advocating for improved financial position (revenue and tariff growth); understanding what drives or impedes power utility growth is important, both in the short- and long-run. The empirical results show that electricity tariffs, electricity generated, and power sector reforms drive revenue growth; while the system losses and inflation impedes revenue growth in the short-run. However, in the long-run, the results show that electricity tariffs and electricity generated drive revenue growth; while system losses and power sector reforms impede revenue growth in the long-run. In terms of tariff growth, the study results show that inflation, real exchange rate depreciation, electricity revenues, and system losses drive tariff growth; while electricity generated impedes tariff growth in the short-run. However, the long-run results reveal that real exchange rate depreciation, revenue growth, and system losses, drive electricity tariff growth; while electricity generated impedes the tariff growth.Keywords: Malawi; Determinants of Utility Growth; Autoregressive Distributed Lag Models; Power Sector ReformsJEL Classifications: N17, O43, O55