The African Trade Insurance agency (ATI) has deployed its regional liquidity support tool to back a solar power project in Malawi, the first ever to be connected to the country’s electricity grid.

ATI, in conjunction with German development bank KfW, launched the tool, known as the regional liquidity support facility (RLSF), in 2017 to help clinch the financial closure of power projects on the continent.

The perceived high risk of default by national electricity companies, whose purchases underpin the viability of power projects, means banks are often reluctant to lend.

ATI announced on July 15 that it will provide US$4.4mn in cover to South African-based Absa Bank, which is providing a standby letter of credit (SBLC) for the 60MW Salima Solar PV plant, about 70km from the capital Lilongwe. The owners of the plant can draw on the SBLC in the event of non-payment.

The amount will cover the risk of delayed payment by Escom, Malawi’s national power company, and has an initial tenor of up to 10 years. The collateral is a combination of on-demand guarantees and cash, ATI tells GTR.

The agency says the cover will enable US$78mn of total project financing, although no banks have yet been mandated for financing the plant’s ongoing operations. A refinancing of the project is expected after operations commence.

Canadian power producer JCM, publicly funded investor InfraCo Africa – part of the Private Infrastructure Development Group (PIDG) – and the Dutch development bank FMO provided construction equity.

The project was developed by JCM Matswani Solar Corp Limited, a special purpose vehicle owned by JCM, and InfraCo Africa.

The plant is expected to start operations in August this year.

The ATI cover has “played an important role in enhancing the project’s bankability”, according to JCM’s country director Phylip Leferink.

It is the second time ATI has used the RLSF facility in Malawi, a land-locked country of around 19 million people. The first was for a smaller, 21MW solar plant in Nkhotakota district in November 2020.

The addition of solar power to the country’s energy mix will help ease reliance on hydro power, the reliability of which has been hampered by drought, ATI says.

“The government of Malawi views private investment as critical to achieving its goals for the power sector,” the agency’s chief executive Manuel Moses says. “This is evidenced by Escom’s recent positive track record in meeting its payment obligations to Malawi’s only operational [independent power producer] in a timely manner, as recorded by ATI’s Transparency Tool.

“We remain confident that Escom’s payments to JCM Matswani will follow the same trend.”