Egypt furious at Ethiopian plan to wrest control of the Nile

SO IT BEGINS: Labourers work at the Grand Renaissance Dam in Guba Woreda, Benishangul Gumuz region, on a Nile tributary in this March 16 2014 file photo. Picture: REUTERS

April 25, 2014 (BDlive) — 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 jeopardising Ethiopia’s dream of becoming a middle-income country by 2025.

The dam is 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 Sudan border, engineers are laying compacted concrete to the foundations of the barrage that will tower 145m and whose turbines will throw out 6,000 megawatts — more than any other hydropower project in Africa.

So far, Ethiopia has paid 27bn birr ($1.5bn) out of a total projected cost of 77bn birr for the dam, which will create a lake 246km long.

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 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.

“We did not want this dam to suffer from external pressures, particularly with respect to financing,” said Fekahmed Negash, a director within Ethiopia’s Ministry of Water and Energy.

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.

It has demanded building be halted pending negotiations between the countries, and had offered to take on joint ownership of the project, an offer Addis Ababa dismissed.

Cairo no longer wields the leverage it once did when upriver sub-Saharan countries were too poor to build such huge projects themselves. Still, the dam’s cost of more than $4bn is roughly 12% of the annual output of Ethiopia, a steep price to pay for a country spurning outside help.

Ethiopia has resorted to measures like forcing banks that lend to private borrowers to lend the equivalent of 27% of their loan books to the government at a low return, effectively a tax on lending.

With other projects, the dam is draining so much financing from the economy that private investors’ access to credit and foreign exchange is in jeopardy, hurting growth, the International Monetary Fund (IMF) says.

The IMF forecast in November that output growth would slow to 7.5% this fiscal year from 8.5% in 2011/12, and said the economy needed restructuring to encourage private-sector investment crowded out by public projects.

Ethiopia needs high growth to fulfil plans to lift its population out of deep poverty. Per capita income was still just $410 in 2012, the World Bank says.

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 payments have been made on time so far and it has no worries about Addis Ababa continuing to come up with the needed billions. “We have full confidence in the government of Ethiopia,” the firm says.

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 37,000MW within 25 years — far more than the World Bank’s estimate of just 28,000MW for the entire current output of sub-Saharan Africa excluding SA.

More dams are being built and Prime Minister Hailemariam Desalegn is fast securing deals to sell power abroad.

In the Ministry of Energy, a building whose stark design is a throwback to when communists ran Ethiopia’s economy into the ground, a poster maps Ethiopia’s energy goals.

From a dot on the Nile, lines run north through Sudan and across the Sahara desert as far as Morocco while extending southwards to SA, linking Kenya, Rwanda, Tanzania and other power-hungry economies.

Djibouti, Kenya and Sudan already take 180MW, which, though a small amount so far, is already changing the economics of electricity in the region, Ethiopian officials say.

“Before it started getting power from Ethiopia, Djibouti’s tariff was 30 US cents per kilowatt hour. We are selling to them at 6c,” said Mekuria Lemma, corporate planning chief at Ethiopia’s state-run power corporation, EEPCO.

Kenya has signed an agreement to buy about 400MW. Rwanda too inked a deal in March to take 400MW by 2018 and a similar arrangement with Tanzania is expected. Beyond Africa, talks are expected over supplying 900MW to Yemen via an undersea cable.

As long as Ethiopia spurns outside funding, there seems to be little an angry Cairo can now do to stop the dam.

Sparkling streams at the foot of Ethiopia’s Mount Gish spill into Lake Tana from where the Blue Nile meanders gently towards Sudan’s capital, Khartoum, where it joins the White Nile and flows north through Egypt and 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 surface water evaporation from the huge new lake will 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”.

The public political bluster has died down, but Egyptian officials still refer to safeguarding their nation’s quota of the Nile’s flow as a matter of national security.

In a government white paper, Cairo calls the construction of the dam a “violation” of international legal principles, in particular the duty to prevent harm to other riparian nations.

“We have no other resources,” says Egyptian foreign ministry spokesman Badr Abdelatty. “So it’s not a joke. We will not allow our national interests, our national security … to be endangered. We are still for co-operation, negotiation, but only serious negotiations, not to waste time.”

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.

Ethiopia denies Egypt will suffer and complains that its northern neighbour has flexed its political muscle to deter financiers from backing other Ethiopian power projects.

Mr Fekahmed of the water ministry said Cairo had influenced a decision by China’s Electric Power Equipment and Technology to pull out of a $1bn deal to connect the dam to the grid.

“The authorities in Egypt made a noise,” Mr Fekahmed said, adding that another Chinese group was now lined up to fund the high voltage lines.

Egypt’s Mr Abdelatty did not comment on the specific Chinese case but he confirmed that Cairo was trying to use its influence to push foreigners away from backing the project.

Egypt continues to push hard for further studies on the dam’s design and impact on downstream countries. All the while Ethiopia shows no sign of ordering the downing of tools.

“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.”

Source: BDlive