Monday, May 16, 2011

Ethiopia: Nile dam project not negotiable

two articles on Ethiopia's new proposal to build Africa's largest dam on the Nile.  the second one, from an Ethiopian website, is surprisingly strong in describing the impacts of big dams.,38852

Nile dam project not negotiable, says Ethiopia ahead of Egyptian PM Visit
•  By Tesfa-Alem Tekle

May 10, 2011(ADDIS ABABA) - Ethiopia will never stop its program to construct the recently launched massive hydro power project in Nile River whether Egyptians welcome it or not, government officials said on Tuesday ahead of the Egyptian prime minister's visit to Addis Ababa this week.

"There won't be any reason that would stop or delay the undergoing construction of the Nile Dam. It is not something based on the goodwill of Egyptians" Shimels Kemal, a spokesman for the Communications Ministry of Ethiopia, told Sudan Tribune.

Egypt, which failed to thwart a recent pact on Nile water use signed by six riparian countries, had recently sent a 48-member popular delegation to discuss the issue with Ethiopia despite the latter's insistence the plan was not intended to harm Egypt.

As goodwill gesture Addis Ababa agreed to postpone ratification of the new treaty.

"Ethiopia only agreed to delay ratifying the new Nile pact until Egypt elects new government, if the upcoming rule in Egypt accepts the project we will push building the dam in joint cooperation" Ethiopian state minister for foreign affairs Birhane Gebrekirstos said.

"However if the new government in Egypt rejects to accept and bends to its old stance the program never stops and we will still carry on the project to end".

The state Minister said Egypt's Prime Minister Essam Sharaf, accompanied by senior officials, will arrive in Addis Ababa on Thursday for a two day visit.

According to the official, the Nile will be the main topic of discussion as well as some other bilateral issues.

"The Egyptian delegation will be briefed on the Nile project to illustrate them it doesn't hurt them and we hope a common understanding will be reached between the two sides", Gebrekirstos said.

Ethiopia has allowed a team of Sudanese and Egyptian experts along with other Ethiopian and international scientists, to observe the new dam in a bid to convince them the project is not intended to hurt them.


The Mega Nile Dam and the Millennium Bond: Redemption or Deception of the TPLF Government? By Getachew Begashaw, PhD.

May 3rd, 2011 

The government of Meles Zenawi has recently declared its plan to build a mega hydroelectric power dam along the Nile despite objections from concerned countries, especially Egypt. This dam will be built in the western part of Ethiopia, Benishangul Zone, about 25 miles (40 kilometers) from Sudan's border. The government claims that the project will cost as much as 5 billion US dollars, which is about 85-90 billion Ethiopian birr. According to Zenawi, the construction of this dam can be completed without any foreign aid. In one of his televised interview with Yasin of Al-Hayat London Newspaper, he touted: "… it will not be impossible for 80 million people to contribute 80 billion Birr". If the claims and estimates of Zenawi's are to be taken seriously, the projected dam will produce about 5,250 MW of electric power and will be completed in 5 to 10 years. The project is announced amid the recent Nile Basin Initiative (NBI) controversy among the riparian states. According to the Alternative Energy Africa's report, Egypt and Sudan are in partnership against all the signatories of the Entebbe agreement of the NBI that include Ethiopia, Rwanda, Tanzania, Uganda, Kenya, and Burundi.
Many Ethiopians are wondering why Zenawi's regime decided to embark on this huge project that could have serious impact on peace, stability, and development of the country and the region. The general sentiment is captured in a paragraph of an article by an anonymous writer that appeared on Ethiomedia, May April 26, 2001:
Undoubtedly, given the topography of the Blue Nile valley, constructing a hydroelectric dam on it requires a high-level engineering technology not to speak of the billions of Birr it requires. Has Meles acquired donor funding for it? We know he hasn't and in the deputy prime minister's own admission they have not secured any funding; and it is highly unlikely that donors will ever fund it because of political reasons that can trigger the wrath of Egypt thereby affecting the Middle East peace process. Why choosing this risky business at this time? No funding, political risks: why risk it now? Is it really possible to build a dam of such scale without donors' grants or loans from them but with contributions from the most impoverished people in the world and by selling bonds to them? We can discern from this that the purpose of the millennium project rhetoric is not development as it is neither serious nor feasible. By now, we can see the dominant feature of the political aspect in this project. It is indeed a political project aimed at deceiving the public and diverting their attention from a possible uprising.
In this paper I argue that, in addition to the above astute observation, Zenawi is cunningly using the project to perpetually milk the hard earned money of the Ethiopian people, including those in the Diaspora, for the foreseeable life of the project. The project not only will ensure kickbacks to Zenawi and his cronies from the no-bid contract awarded to Salini Costruttori, it is also conceived to generate a stream of revenue for TPLF through coercion to buy bond and lucrative contracts to the vast TPLF-held business conglomerate.
The implication for the Diaspora is particularly dire, since the naïve investors will be held hostage and be forced to buy more of the bond, to ensure the completion of the project and to redeem the bonds they have already bought. Indeed, this has been the indirect means of control the TPLF has exercised over our compatriots who have gone back to Ethiopia and have made some investments in real-estate and service industries.
Socio-Economic Consequences of Large Dams

Based on experiences with the construction and operation of large dams around the world, the benefits from these projects have been seriously questioned and challenged by numerous interest and focus groups, including locally affected people and global coalitions of environmental and human rights activists. Dorcey, in his book titled, large dams: learning from the past looking at the future, documents that the expected economic benefits of large dams are not realized and that major environmental, economic, and social costs are imposed on societies. In a related study, Scudder, a professor in Development Anthropology at California Institute of Technology and a World Bank's senior environmental advisor, asserts that adverse social impacts of large dam constructions have been underestimated and that they have "unnecessarily lowered the living standards of millions of local people". . Further, the 1994 Manibeli Declaration, the 1997 Curitiba Declaration, and the 2002 Posada Declaration, along with several other declarations, called for a moratorium on the World Bank funding and reparations for those affected by the constructions of large dams.
In a rigorous empirical study of a large dam construction that has many similarities with that of Ethiopia's proposed Nile dam, Lin and Schuster studied the problem of hydroelectricity development for the Grand Inga Project in the Democratic Republic of the Congo with particular reference to ownership of land and water, policy assumptions behind development of the project, public works construction, socio-economic development, and environmental conservations. They concluded that investment in hydroelectricity fails to stimulate economic development within the Democratic Republic of Congo because of the following reasons:
"… [t]he investment in the Inga-Shaba project … did not lead to socio-economic development in DRC due to political instability and mismanagement of public finance and resources, which result from the failure of the political regime to develop institutions and laws that (1) involve stakeholders in the formulation of national natural resources policies, (2) distribute benefits from exploitation of natural resources in ways that are perceived as equitable and legitimate by regional stakeholders, (3) ensures public accountability in public investment, … and (4) use of military in political disputes".
In a separate study, the International Rivers group reports that Africa's large dams have consistently been built at the expense of rural communities, who have been forced to sacrifice their lands and livelihoods to them and yet have reaped few benefits. Large dams in Sudan, Senegal, Kenya, Zambia/Zimbabwe and Ghana have brought considerable social, environmental and economic damage to Africa, and have left a trail of "development–induced poverty" in their wake. Project benefits have been consistently overstated and inequitably shared. Large hydropower dams also reinforce centralized power grids, which disproportionately benefit industry and higher income groups, and widen income disparities (and energy inequities) between Africa's poor and Africa's elite .

Similarly, The Economist, in its issue of May 6, 2010, wrote: "…. political instability, graft and incompetence have meant that many African dams, once built, have failed to produce what was promised. The Inga I and II dams on the Congo River have generated a fraction of the power they were meant to. The technology is demanding. Seasonal rains produce muddy rivers, with higher sedimentation than northern countries' dams filled with melted snow. That means a shorter lifespan and heavier maintenance".

The Gibe III Project — A Harbinger for the Nile Dam

A look back at the disastrous experience with the Gibe III project may shed light on the impending catastrophe with the ill-conceived mega project on the Nile. The Gibe III dam, whose construction began in 2006, is perhaps Ethiopia's largest investment project so far. A fact sheet about this dam in Ethiopia, published in May of 2009 by International Rivers, a lobby group that tries to save rivers from dams it considers are destructive, presents solid accounts of the technical, economic, social, and environmental disasters that followed the construction and mismanagement of the project . According to the report, Zenawi's government neglected to properly assess economic, technical, environmental and social risks, violating domestic laws and international standards. The government, in its rush to construct the dam, also neglected to study the effects of regional climate change, which could even dramatically affect the dam's performance over its lifespan. The report further disclosed that the dam could be a development disaster for Ethiopia and the region.

Another human rights group, Survival International, documented that the livelihood and culture of over 200,000 agropastoralists from eight distinct indigenous people in the Omo river basin could be ruined by Gibe III and even asserted that the government of Zenawi has behaved criminally in pushing through the project . The project will destroy the Omo River's annual flood that supports riverbank cultivation and grazing lands for livestock.

According to a UNESCO World Heritage Site report, Lake Turkana in Kenya, that is considered an oasis of biodiversity in a harsh desert environment, will be destroyed by the Gibe III project. More than 300,000 people with rich animal life depend on the Lake and the agency warns that hundreds of thousands of fishing families and pastoralists will be adversely affected if the lake's fragile ecosystem is stressed to the brink of collapse .

It may be recalled that the government of Zenawi directly awarded a no-bid engineering, procurement and construction contract for Gibe III to the same Italian construction company, Salini Costruttori, in June 2006. According to Transparency International, "large public works projects are one of the world's most corrupt sectors, and no-bid contracts are an open invitation to corruption" . The two contracts, worth $1.7 billion for Gibe III and $5 billion for the Nile dam, violate Ethiopia's Federal Public Procurement Directive, which requires international competitive bidding. The World Bank declined to consider project funding for both projects because the contracts violated the Bank's own procurement policy.

The Nile Dam – A Tragedy-in-Waiting
According to the report of the government, the proposed Nile dam project will be Africa's largest and the world's 10th largest hydroelectric dam, with twice the generating capacity of Hoover Dam in the United States and slightly lower than Robert-Bourassa of Canada. The government claims that it will be the single most important infrastructure project that will take Ethiopia out of poverty. Despite the government's manufactured exuberance over the projected future benefit of the dam, by all accounts, it is a national tragedy-in-waiting.
The proposed mega dam project on the Nile is fraught with many questions that shed light about the sinister ploy behind its genesis. Is the project serious and genuine? Why is it announced at this particular moment? Why insist on this project while all regional and global indicators and the adverse outcome of our exercise with Gibe III advise against it? More importantly, if it is advertised as the project of the millennium, how come it is not even remotely indicated in the much talked about Ethiopia's Five Year Development Plan, billed as the Millennium Growth and Transformation Plan (GTP). Nowhere in the document, even in the section of the plans of the Ethiopian Electric and Power Authority, could one see any mention of this mega project. Why is it then that it is proclaimed all of a sudden with so much fanfare? These and other secrets that shrouded the project lead one to surmise the following:
1. It is just a propaganda ploy manufactured after the release of the GTP document sometime in August to divert attention from the revolutionary surges in the Middle-East and North Africa
2. A calculated scheme to garner new sources of income for Zenaiw's repressive regime.

Irrespective of the ulterior motives of Zenawi's regime, building this mega dam on the Nile is an ill-advised undertaking in terms of feasibility, security, desirability, and sustainability. There will be no benefit to the local people or the country. As evidenced by the negative impacts of such huge dams around the world, there is no economies of scale argument to justify the size and the scope of this project in Ethiopia. It will fail with a hefty cost to the people, and a huge debt for generations to come.
In an article distributed to members of the Ethiopian Development Policy Focus Group (EDPFG), Hurisso Gemechu presents compelling arguments that there are other better alternatives to this highly expensive and unsustainable huge hydroelectric project. More specifically, mini or micro hydroelectric power systems can easily bring up to100 KW of power to villages and towns using local water resources, and that they can also easily be connected to other existing and future electric power networks at low cost. Moreover, these types of hydroelectric projects can be environmentally benign energy conversion options without significantly interfering with river flows, and that they can be more attractive in terms of economic values and environmental considerations. In the context of Ethiopia, these alternatives are well suited for power generation as well as irrigation, recreation, tourism, and fishing much better than what the highly eroded deep escarpments of the Nile can provide.

Bond Issuance through Coercion and Deceit

As acknowledged by Zenaiw's government, the usual donors and lenders will not fund this project. There are several reasons for this apathy on the part of donor nations and institutions. First, the project is a bad investment decision because it will have a certain negative return. Secondly, any such venture will inevitably have an untoward impact on the entire geo-politics of the Middle East. The West cannot afford to let this happen, especially at this time of so much uncertainty about the region. Even China would be reluctant since the benefit from such an investment is no match for its oil interest.

As a consequence, having declared "it wouldn't be hard for 80 million people to contribute 80 billion birr", Zenawi has launched a massive campaign of coercing the Ethiopian people and businesses to buy the "Millennium Bond".
The features of the bond specify that it is a Corporate Bond, issued by the Ethiopian Electric Power Corporation (EEPCO), through Commercial Bank of Ethiopia (CBE), and is called EEPCO Millennium Bond. The guarantor of the bond is the government and it is issued in USD, Pound Sterling, Euro and other convertible currencies. The minimum bond issued is USD 500 and the interest rates are 4%, 4.5 % and 5% for 5, 7 and 10 years maturity periods respectively.
The bond has several aspects that are not obvious to understand. It is defined as corporate bond and the government is assigned to be a guarantor. If we accept it as corporate bond, then, it will be a debt security issued by a corporation and sold to investors. According to the internationally accepted practice, the backing for the bond will be the payment ability of the corporation, the Ethiopian Electric Power Corporation in this case. The payment ability of the corporation is typically determined by the money to be earned from future operations. That means, the payment ability of EEPCO is determined by the money to be collected in the future from the operations of the Nile hydroelectric power. In some cases, where the future earnings of the corporation are not fully reliable or secured, the corporation's physical assets may be used as collateral for bonds. At this point, it is not clear what the investors may have as collateral. The physical assets of EEPCO or the Nile hydroelectric power are owned by the government and cannot be disaggregated and disposed. At any rate, corporate bonds are considered higher risk than government bonds. As a result, interest rates are almost always higher than for government bond, even for top-flight credit quality companies.
One argument that one could raise in regards to the bond collateral is that the government is a guarantor. Unfortunately, the government of Meles Zenawi itself has a bond rating of CCC-, which is less than what is called Junk Bond (BBB- rating by Standard & Poor's). That means, the government's bond rating is equal to that of corporations in default with little or no prospect for recovery. How such a government with poor rating can be a reliable guarantor of corporate bond is open to question.
Government guaranteed corporate bonds are not customary, and happen rarely. Once such rare instance was when the US Federal Deposit Insurance Corporation (FDIC) sponsored Temporary Liquidity Guarantee Program to afford bank holding companies the opportunity to issue unsecured debt (bond in this case) guaranteed by the US government. The program is part of the government's overall recovery plan and is intended to facilitate bank holding company recapitalization during the recent recessionary period. The program will now be ended by June 30, 2012. One other country that is much known for using the bond market to raise money for operations other than military functions is Israel. Even then, Israel doesn't accept responsibility for bonds traded by Israeli corporations.
In all likelihood, this "Millennium Bond" is a government bond because EEPCO is a service agency of the government. Unlike the US government bond, usually called Treasury bond that is regarded as extremely safe in the investment world, the bonds of many developing countries do carry substantial risks. Like private corporations, countries can default on payments. This has happened in Eritrea recently. As reported by Haile Tesfay in awate (Nov 23, 2002), the Eritrean people, especially those in the Diaspora, got shortchanged following their generous response to the financial needs of the Eritrean government during its conflict with the government of Meles Zenawi. Tesfay wrote:
Eritreans dug deep into their pockets, bank accounts, credit cards and even took out second and third mortgages on their homes in order to respond to this call. When the government came out with the 'dollar a day' initiative, we dug into our savings. When the government came out with the "first, second and third offensive" initiatives, we emptied out our children's education funds. When the government screamed we need more money, we went as far as borrowing from our credit cards. Finally, the government came up with bond certificates and we, in good faith, bought them, with the understanding that they would be honored upon their maturity. This year, the first batch of bond certificates matured and many Eritreans are finding out that the Eritrean Government is playing the 'procrastination' game; that it is not honoring its legal contract with the Eritrean people.
The "Millennium Bond" is issued in USD, and other convertible hard currencies. This makes it a Sovereign Bond. A Sovereign bond is a debt security issued by a national government denominated in a foreign currency of a country with a stable economy. The foreign currency denomination makes it significantly risky to the bondholder. According to many investment advisors, Sovereign Bonds, especially those issued by a government of a country with an unstable economy, will have significant default risks. This is because that government, beside all other economic problems, will most likely have shortage of foreign exchange reserve to honor the bond up on maturity.

Why do people invest in bonds? Generally, people invest in bonds to begin saving to provide for a secure tomorrow. In a well-functioning economy and stable political system, bondholders can reach their goals with safety, market-based yields, and tax benefits whether they are saving for a new home, car, vacation, education, retirement, or for a rainy day. In the US, for instance, U.S. savings bonds are backed by the full faith and credit of the United States government. These bonds can earn market-based rates up to 30 years allowing the individual investment to grow.

There is no basis to suggest that government of Meles Zenawi, with a very poor credit rating (CCC-) in the bonds market, can be trusted for this kind of investment. The promised rates of returns on the "Millennium Bond" in Ethiopia are 4%, 4.5%, and 5% for 5, 7 and 10 years maturity periods, respectively. Ethiopia has been perpetually plagued with inflationary markets ever since the government of Zenawi came to power. It has been experiencing a chronic inflation rate that is more than 25% this current quarter alone, despite the stringent price control recently announced by Zenawi. The ever increasing inflation in the country has significant implication on the above rates of returns on the bond, especially for the domestic investors. Even in the unlikely scenario that the government will honor its obligation, the returns from this bond investment are extremely low. In the situation in which the government is the borrower and the bondholders are the lenders, the current inflation implies that the bondholders are paying the government about 20% of their savings in bonds so that the government could use their money! That is the real rates of returns (the nominal rates minus the inflation rate) will be negative 21%, 20.5%, and 20% respectively. In this irrational investment scheme, where lenders (bondholders) are paying the government (the borrower), the clear benefit of this transaction goes to Mr. Zenawi and his cronies at the expense of the Ethiopian people.

Concluding Remarks

Ethiopia does not need a huge hydroelectric dam that is proven to cause untold human, economic, social, environmental, and natural resource destructions. Many small dams with a mix of various uses, including agricultural irrigation, power generation, fisheries, tourism, and recreation could be built around the country at a much lower cost and guaranteed success. Ethiopians should not allow a government that has continued to embezzle and squander their hard earned money to put its hands on their meager resources again. They should not be fooled by fake nationalism and patriotism of a government that:
• made the country landlocked, without any access to the sea and maritime trade,
• parcels out the fertile agricultural lands to foreigners at almost no cost, and puts out anything Ethiopian for sale,
• cedes fertile farmlands of western Ethiopia, all the way from Gondar to Gambella, to Sudan,
• has no respect or regard for the country's history or heritage, including its flag,
• is known for corruption, nepotism and lack of transparency,
• divides the people along ethnic lines and homelands, and
• denies its people basic human rights and freedoms.

The ethno-centric government of Meles Zenawi has repeatedly demonstrated that it has no interest in promoting the long-term interest of the country. The affront on Abbay (Nile), which is very close to the hearts of many Ethiopians as a symbol of national pride, is another attempt by Zenawi to reassert his authoritarian control over the people in the guise of patriotism. Ethiopians cannot and should not fall for this manufactured nationalism of a dictator, who has much to account for crimes he has committed during his 20 years of authoritarian rule.

Many scholars believe that if there is another world war, it will be a war over waters. Therefore, the Nile issue requires a sober and deliberated approach where all Ethiopians are consulted and heard through a democratically elected government.

By all accounts, the TPLF government has initiated this mega dam project, not out of its goodwill to catapult Ethiopia out of poverty, but out of its sinister schemes to divert the attention of the people from the revolutionary uprising on the horizon and to swindle money out of the pocket of the hardworking Ethiopians. Therefore, all Ethiopians at home and in the Diaspora, have a historic responsibility to stand in unison and thwart the destructive plan of the dictator.

1. Anthony H. J. Dorcey. (1997). Large Dams: Learning from the Past, Looking at the Future.
IUCN–The World Conservation Union and World Bank Group.

Thayer Scudder . (1997). Social Impacts of Large Dams. IUCN–The World Conservation Union and World Bank Group
Lin, Chen and Schuster, Allison. (2009). Hydroelectricty Investment in the Democratic Republic of the Congo - The Grand Inga. Tufts University Big Dams: Bringing Poverty, Not Power to Africa FACT SHEET: GIBE III DAM, ETHIOPIA

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