ETHIOPIA has finished nearly 70% of construction of the Grand Ethiopian Renaissance Dam (GERD), the Horn of Africa nation’s Communication Affairs minister Getachew Reda said recently.
The Renaissance Dam has been in the news for its scale – it will be the largest hydroelectric power plant in Africa and 11th largest in the world – and controversy over just how much it will affect the flow of River Nile water to Sudan and Egypt.
Hardline nationalist Egyptian ministers have in the past even threatened to go to war, because they argued anyone who messes with the River Nile kills Egypt. Calmer heads have since prevailed.
But perhaps the big story about the Renaissance Dam is that it is an African financing *hack.
There is a mad rush for construction in Africa and an equal scramble for loans. African countries can hardly finance their projects, the reason the Renaissance Dam, at one time called the Millennium Dam and sometimes Hidase Dam, stands out of the pack.
On March 31, 2011, a day after the project was made public, a US$4.8 billion contract was awarded without competitive bidding to Salini Costruttori and the dam’s foundation stone was laid on April 2, 2011, by then Prime Minister Meles Zenawi.
It is slated to be commissioned in 2017. For a country that boasts of hydropower potential of at least 45,000 MW the dam is a model of the possibility for an African government to marshal resources without traversing the globe with a begging bowl.
The government is funding the project through bonds and private donations, a first on the continent for similar energy projects of this magnitude. This is a particularly bold step to the extent that the approximate US$4.8 billion construction price tag, before factoring in the cost of power transmission lines, accounts for just less than 15% of the country’s Gross Domestic Product of US$41.906 billion as of 2012.
By contrast, for example, Uganda’s 600MW Karuma Dam currently under construction by Chinese firm Sinohydro since December 2013 at a price of $1.6 billion is pegged on 85% financing from China’s Exim Bank and the balance sourced from the East African country’s Energy Fund.
A smaller project, Isimba Hydroelectric Power Station (183 megawatts) going for US $570million (Shs1.4trillion) and now under construction by China International Water & Electric Corporation is also bankrolled by a loan from China’s Export-Import Bank after Parliament gave government a nod to borrow $482.5 million (about Shs1.4 trillion) from China Exim Bank at two percent annual interest repayable over 20 years. Uganda will contribute the remaining $107 million.
The contrasts put into perspective the tall order that the Ethiopian Renaissance Dam was, and why the project is a true hack for African project financing.
•A hack: a clever solution to a tricky problem.