China Grants U.S.$1.4 Billion Railway Loan to Ethiopia

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Ethiopia is investing heavily in infrastructure

AFRICANGLOBE – Ethiopian officials have succeeded in winding up a deal with their counterparts in China that involves a 1.4 billion dollars in loans, which will be used to finance the country’s national railway project.

A team comprising officials from the Ministry of Finance & Economic Development (MoFED) and the National Bank of Ethiopia (NBE) returned last week from Beijing, the capital of the red nation, concluding what is described as a milestone agreement for the loans. However, details on the period of the loan and interest to be paid are hard to come-by.

“There are final discussions left to attend,” said a senior official from MoFED, who declined to speak on the record, for, the final deal is pending. “The amount could even be much higher than mentioned.”

It will be the largest loan amount for Ethiopia to get from a bilateral source of funding when the final agreement is signed between the prime ministers of both countries, these sources disclosed. It will also raise the nation’s debt for the national railway project to 6.21 billion dollars, comprising 16pc of its growth domestic product (GDP) projected for the year 2012/13.

If the agreement goes according to plan, the signing ceremony is tentatively scheduled for January 2013.

The project, which aims at building a network of railway lines that will connect the country’s major cities through eight corridors identified, has already amassed around 4.81 billion dollars of debt so far, mainly from China’s Import-Export (EXIM) Bank.

A Win for China’s Railway Industry

China is not only financing the railway project but it has some of its giant railway construction companies awarded the construction of the railway with a turnkey contract. The companies included China Railway Euryan Engineering Group (CREEG), China Civil Engineering Construction Corporation (CCECC) and China Communications Construction Company (CCCC). Turkish and Indian companies are also involved, although managers at the Ethiopian Railway Corporation (ERC) have terminated few months ago a contract awarded to the Indian firm, according to sources.

The ERC, which oversees the construction of this national project, is entrusted to finalise 2,395Km of railway network, out of the total 4,744Km planned under the Growth & Transformation Plan (GTP), designed to come to an end in 2014/15. The government intends to construct the routes of the first phase with an initial projected cost of off-budget 173.6 million Br, one third of which constitutes a foreign exchange element.

The ERC plans to finalise the Addis Abeba-Modjo; Addis Abeba-Dire Dawa-Djibouti; Weldya-Semera-Tajourah; and Awash-Mekelle projects before 2014/15. Awarding contracts in a segmented manner, it, for instance, has contracted out a 339Km line from Meiso through Dire Dawa to Dewale to the Chinese CCECC. When completed, it is projected to cost 1.8 billion dollars.