Thursday, May 5, 2011

The Mega Nile Dam and the Millennium Bond: Redemption or Deception of the TPLF Government?

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 na�ve
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

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-

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

You received this message as a subscriber on the list:

To be removed from the list, please visit:

No comments:

Post a Comment