Reuters Insight by Aaron Maasho
Ethiopia’s bold decision to pay for a huge dam itself has overturned generations of Egyptian control over the Nile’s waters, and may help transform one of the world’s poorest countries into a regional hydropower hub.
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 jeopardise 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 metres high and whose turbines will throw out 6,000 megawatts – more than any other hydropower project in Africa.
It is the biggest part of a massive programme 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 centrepiece of a 25-year project to profit from East Africa’s accelerating economic growth by exporting electricity across the region.
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.
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 private lending.
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 jeopardised, 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.
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.
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.
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 economies.
“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.
The sparkling streams at the foot of Ethiopia’s Mount Gish spill into Lake Tana from where the Blue Nilemeanders gently towards Sudan’s capital, Khartoum, where it joins the White Nile and flows north through Egyptand drains into the Mediterranean.
Among Cairo’s worries is concern that years of filling the new dam’s 74 billion cubic metre reservoir will temporarily cut the river’s flow, and that surface water evaporation from the huge new lake will then reduce it permanently.
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”.
“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.
“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 Cairowas trying to use its influence to push foreigners away from backing the project.
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.
“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.”