Ethiopian Dams Bring Rebirth and Power to East Africa

Ethiopian dam
Parts of Ethiopia’s dam project is already completed

The Grand Ethiopian Renaissance Dam (GERD) on the Blue Nile River, close to the border with Sudan, will transform Ethiopia into an East African power hub.

The dam will have an installed capacity of 6GW and generate around 15,000 GWh annually by mid-2017.

Ethiopia is already a regional power player: exports to Djibouti began in May 2011 and transmission lines to Sudan and Kenya are being laid.

Perhaps the most ambitious aspect of the 80bn birr ($4.5bn) GERD venture is the financing mechanism.

“The government has declared that is not going to ask for loans or donations for this project,” says communications minister Bereket Simon.

Much of the money for the construction, which began in April last year and is being carried out by Italian firm Salini Costruttori, has been raised in what one analyst described as the “quasi-forced” sale of treasury bonds with a 5% coupon rate over a five-year period.

Timeline: Completion due by mid-2017
Costs: $4.5bn
Probability: 90% – Addis has staked much on it

By September 2011, 7bn birr had been pledged by private companies, their employees and civil servants who voluntarily purchased one month’s salary worth of bonds.

The sale has been extended to the diaspora and farmers. Bereket anticipates that this will bring in an additional 5bn birr.

Additional unspecified funds will be generated by a May 2011 central bank directive compelling commercial banks to purchase National Bank of Ethiopia bonds worth 27% of their loan disbursements.

This funding strategy seems to have been a necessity, as potential partners like the World Bank, the European Investment Bank and the African Development Bank have been wary about investing in GERD.

This followed their withdrawal in 2010 from the Gibe III Dam on the Omo River as a result of a widely criticised environ mental impact assessment.

Potential conflict with the other Blue Nile riparian states has also discouraged investors, according to some NGOs.

Zemedeneh Negatu, the managing partner of Ernst & Young in Ethiopia, says he is confident that international financial institutions will come on board.

He cites the World Bank’s decision on 12 July to finance the Eastern Electricity Highway Project, which will connect Ethiopia’s electrical grid with Kenya’s, as an indication of tacit support for GERD