By spurning an offer from Cairo for help financing the project,
Addis Ababa has ensured it controls the construction of the
Renaissance Dam on a Nile tributary. The electricity it will
generate — enough to power a giant rich-world city like New York — can be exported across a power-hungry region.
But the decision to fund the huge project itself also carries the
risk of stifling private sector investment and restricting economic
growth, and may jeopardize Ethiopia's dream of becoming a middle
income country by 2025.
The dam is now a quarter built and Ethiopia says it will start
producing its first 750 megawatts of electricity by the end of this
year. In the sandy floor of the Guba valley, near the Sudanese
border, engineers are laying compacted concrete to the foundations
of the barrage that will tower 145 meters high and whose turbines
will throw out 6,000 megawatts — more than any other hydropower
project in Africa.
So far, Ethiopia has paid 27 billion birr ($1.5 billion) out of a
total projected cost of 77 billion birr for the dam, which will
create a lake 246 km (153 miles) long.
It is the biggest part of a massive program of public spending on
power, roads and railways in one of Africa's fastest growing
economies. Ethiopia's output has risen at near double digit rates
for a decade, luring investors from Sweden to China.
But economists warn that squeezing the private sector to pay for the
public infrastructure could hurt future prospects. Growth is already
showing signs of slowing.
Even so, Addis Ababa says the price is worth paying to guarantee
Egypt has no veto over the dam, the centerpiece of a 25-year project
to profit from East Africa's accelerating economic growth by
exporting electricity across the region.
"We did not want this dam to suffer from external pressures,
particularly with respect to financing," said Fekahmed Negash, a
director within Ethiopia's Ministry of Water and Energy.
Ethiopia's transformation from an economic disaster barely able to
feed its people into an emerging regional leader capable of
self-financing mega-projects has recast diplomacy over the Nile,
northeast Africa's most important resource.
Egypt, which has claimed exclusive right to control the river's
waters for generations, is fuming. Cairo worries the dam will reduce
the flow on which it has depended for drinking water and irrigation
for thousands of years.
It has demanded building be halted pending negotiations between the
countries, and had offered to take on joint ownership of the
project, an offer Addis Ababa dismissed.
Cairo no longer wields the same leverage it once did when upriver
sub-Saharan countries were too poor to build such huge projects
Still, the dam's cost of more than $4 billion is roughly 12 percent
of the annual output of Ethiopia, a steep price to pay for a country
spurning outside help.
Ethiopia has resorted to measures like forcing banks that lend to
private borrowers to lend the equivalent of 27 percent of their loan
books to the government at a low return, effectively a tax on
Along with other projects, the dam is draining so much financing
from the economy that private investors' access to credit and
foreign exchange is being jeopardized, hurting growth, the
International Monetary Fund says.
The IMF forecast in November that output growth would slow to 7.5
percent this fiscal year from 8.5 percent in 2011/12, and said the
economy needed restructuring to encourage private sector investment
now crowded out by huge public projects.
Ethiopia needs high growth to fulfill plans to lift its population
out of deep poverty. Per capita income was still just $410 in 2012,
the World Bank says.
The government disputes the view that lavish public spending is
hurting overall economic performance, and forecasts a higher growth
rate than the IMF.
Italy's biggest construction firm, Salini Impregilo, which is
building the dam, says all payments have been made on time so far
and it has no worries about Addis Ababa continuing to come up with
the needed billions.
"We have full confidence in the government of Ethiopia," the firm
said in an e-mail to Reuters.
And the dam is just the start for Ethiopia's ambition of becoming a
regional power hub. A government plan seen by Reuters would see
Africa's second most populous nation target installed capacity of
37,000 MW within 25 years — far more than the World Bank's estimate
of just 28,000 MW for the entire current output of sub-Saharan
Africa excluding South Africa.
More dams are being built and Prime Minister Hailemariam Desalegn is
fast securing deals to sell power abroad.
In the Ministry of Energy, a building whose stark design is a
throwback to when communists ran Ethiopia's economy into the ground,
a poster maps Ethiopia's energy goals.
From a dot on the Nile, lines run north through Sudan and across the
Sahara desert as far as Morocco while extending southwards to South
Africa, linking Kenya, Rwanda, Tanzania and other power-hungry
[to top of second column]
Djibouti, Kenya and Sudan already take 180 MW, which, though a small
amount so far, is already changing the economics of electricity in
the region, Ethiopian officials say.
"Before it started getting power from Ethiopia, Djibouti's tariff
was 30 U.S. cents per kilowatt hour. We are selling to them at 6
cents," said Mekuria Lemma, corporate planning chief at Ethiopia's
state-run power corporation, EEPCO.
Kenya has signed an agreement to buy about 400 MW. Rwanda too inked
a deal in March to take 400 MW by 2018 and a similar arrangement
with Tanzania is expected. Beyond Africa, talks are expected over
supplying 900 MW to Yemen via an undersea cable.
As long as Ethiopia spurns outside funding, there seems to be little
an angry Cairo can now do to stop the dam.
The sparkling streams at the foot of Ethiopia's Mount Gish spill
into Lake Tana from where the Blue Nile meanders gently towards
Sudan's capital, Khartoum, where it joins the White Nile and flows
north through Egypt and drains into the Mediterranean.
Among Cairo's worries is concern that years of filling the new dam's
74 billion cubic meter reservoir will temporarily cut the river's
flow, and that surface water evaporation from the huge new lake will
then reduce it permanently.
"Water problems even without this dam are sky high," said water
expert Klaus Lanz in reference to Egypt's shortage.
Egypt leans on a 1959 treaty with Sudan which hands Cairo the lion's
share of water. Some Egyptian politicians even urged military action
last year against Ethiopia, raising concerns of a "water war".
The public political bluster has died down, but Egyptian officials
still refer to safeguarding their nation's quota of the Nile's flow
as a matter of national security.
In a government white paper, Cairo calls the construction of the dam
a "violation" of international legal principles, in particular the
duty to prevent harm to other riparian nations.
"We have no other resources," Egyptian foreign ministry spokesman
Badr Abdelatty told Reuters. "So it's not a joke. We will not allow
our national interests, our national security ... to be endangered."
"We are still for cooperation, negotiation, but only serious
negotiations, not to waste time," Abdellaty added.
But distracted by militant violence and political turmoil at home,
Cairo appears to have few levers with which to force Addis Ababa to
halt the project. Ethiopian officials say the dam could be completed
as early as 2016.
Ethiopia denies Egypt will suffer and complains that its northern
neighbor has flexed its political muscle to deter financiers from
backing other Ethiopian power projects.
Fekahmed of the water ministry said Cairo had influenced a decision
by China's Electric Power Equipment and Technology Co. to pull out
of a $1 billion deal to connect the dam to the grid.
"The authorities in Egypt made a noise," Fekahmed said, adding that
another Chinese group was now lined up to fund the high voltage
lines. Egypt's Abdelatty did not comment on the specific case but
confirmed that Cairo was trying to use its influence to push
foreigners away from backing the project.
"We have contacts with everybody," said Abdelatty. "(The minister)
raised it with Russia, with China, you name it."
In a diplomatic coup for Ethiopia, and a political blow to Egypt,
the other major down river country, Sudan, has slowly warmed to the
dam project and lifted its own earlier objections. Sudan may benefit
from cheap power and irrigation water.
Egyptian Foreign Minister Nabil Fahmy told Sky News Arabic this
month he rejected a military solution and dismissed referring the
dispute to the International Court of Justice, which would require
the agreement of both sides.
Instead, Egypt continues to push hard for further studies on the
dam's design and impact on downstream countries. All the while,
Ethiopia shows no sign of ordering the downing of tools.
"We will finish it whether they like it or not," said a senior
Ethiopian official who requested anonymity. "But of course, we will
continue negotiating in the meantime."
(Additional reporting by Richard Lough in Nairobi, Stephen Kalin in
Cairo and Danilo Masoni in Milan; writing by Richard Lough)
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