Thursday, September 29, 2011

Ethiopia Sells Bonds to Finance Africa’s Biggest Power Plant

Ethiopia Sells Bonds to Finance Africa�s Biggest Power Plant

September 29, 2011, 11:21 AM EDT

By William Davison

(Updates with opposition comment in 12th, 13th paragraphs.)

Sept. 29 (Bloomberg) -- Ethiopia plans to offer more bonds to finance
Africa�s biggest power plant after selling 7 billion birr ($408
million) of debt domestically over the past six months, Communications
Minister Bereket Simon said.

The sale will contribute to the 80 billion birr needed to finish the
5,250-megawatt Grand Ethiopian Renaissance Dam on the Blue Nile River,
Bereket said in an interview on Sept. 27. The country isn�t raising
funds from foreigners in a bid to demonstrate its economic resurgence,
he said.

Ethiopia, source of the main tributary of the Nile River, started
building the hydropower plant in April as it seeks to become a
regional electricity exporter amid shortages in countries including
Kenya, Sudan and Uganda. The Horn of Africa nation, which relies on
commodities such as coffee for most of its foreign currency, is also
diversifying an economy that the African Development Bank says may
double in size by 2020.

�Building a dam on the Nile has been the dream of every Ethiopian,�
said Bereket, who heads a so-called public mobilization council to
raise funds for the project. �For millennia, we have been looking at
the Nile as if it has been a curse that took our fertile soil and
benefited others while Ethiopia was impoverished.�

Egypt depends on the flow of the Nile for all of its water and
historically opposed infrastructure projects by upstream nations
during former President Hosni Mubarak�s rule, according to Ethiopia�s
government. Since Mubarak was deposed in February, Egyptian and
Ethiopian officials have met twice and relations are improving,
Bereket said, without elaborating.

Bigger Than Singapore

The hydropower plant is scheduled to be completed by mid- 2017. The
project involves building a dam wall 145 meters (476 feet) high and
1.8 kilometers long, before flooding 1,680 square kilometers (649
square miles), an area more than twice the size of Singapore, of
mostly uninhabited forest on the Blue Nile in the western Benishangul-
Gumuz region.

The government�s plan to borrow 398.4 billion birr by mid- 2015 to
invest in industry and infrastructure may lead to the economy over-
heating and debt problems, the World Bank said in June. Annual
inflation in Ethiopia was 40.6 percent in August, partly because the
central bank boosted money supply.

Ethiopia, Africa�s second-most populous nation, has been ruled by
former rebel Prime Minister Meles Zenawi�s ruling party since 1991
when the military junta of Mengistu Haile Mariam was overthrown. The
economy, which ranks as Africa�s fourth-biggest, grew 9.9 percent in
2009, the fastest rate on the continent.

Sufficient Capacity

�The financial capacity to build the dam I don�t think should be in
doubt at all,� Zemedeneh Negatu, managing partner for Ernst & Young
LLP in Ethiopia, said in an interview on Sept. 22. �Over the next six
years, Ethiopia can collect from taxes somewhere between 450 and 500
billion birr.�

Donations of a month�s salary by civil servants have been converted
into bonds to help boost the nation�s savings rate, currently 5.5
percent of gross domestic product, Bereket said. Public funding is
unlikely to be maintained as it would be �too taxing,� so private
companies have been encouraged to buy the debt, which offers a coupon
of 5 percent.

There are also plans for bonds to be offered to the Ethiopian diaspora
with returns above the London Interbank Offered Rate, while sales to
farmers are planned �early next year,� he said.

Opposition Criticism

The opposition Oromo People�s Congress criticized the fund- raising
methods being used for what it said is an otherwise popular project.

�In a university of several thousand, the president said because five
people spoke they all agreed to donate one month�s salary,� Merera
Gudina, chairman of the opposition OPC and professor of political
science at Addis Ababa University, said in an interview in the capital
on Sept. 21.

A �significant� portion of funding will also come from the
government�s development budget, Bereket said. A National Bank of
Ethiopia directive issued in April compelling banks to buy government
bonds equivalent to 27 percent of their loans each month may raise 11
billion birr for development programs in its first year, according to
Access Capital, the Addis Ababa- based research group. That amount is
likely to increase in subsequent years, it said in an April research

Ethiopia will generate most of the electricity that will be traded
among nine countries that are expected to connect to a regional grid
by 2016, according to the Eastern Africa Power Pool, an Addis Ababa-
based body that facilitates regional integration. The country started
exports to Djibouti in May, a transmission line to Sudan may be
completed by January and a feasibility study for a link to Kenya has
been finished.

The dam, situated about 30 kilometers (18 miles) from the Sudanese
border, is �very critical� for Ethiopia to achieve its
industrialization goals and for neighboring states, said Zemedeneh.

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