Djibouti and Ethiopia- INTERDEPENDENT

[PasserBy]

EEPCo network to Djibouti may generate 721.8 million dollars and slash household energy costs

 

 

The idea of connecting Djibouti to Ethiopia’s national power grid is as old as the independence of this Red Sea nation, established in 1977. After almost four decades and an investment of 1.5 billion Br, Djibouti now receives power supply from Ethiopia for the first time in its history, described by Alemayehu Tegenu, Minister of Water and Energy, as “clean and carbon free” energy.

 

Leaders from both countries, who inaugurated the substation erected 12km west of Djibouti City on Wednesday, October 5, 2011, attributed the hydroelectric power interconnection to the political will shown by the leadership of the neighboring countries.

 

Prime Minister Meles Zenawi, who stayed in Djibouti for just five hours during the inauguration, praised the project as “another bond of brotherhood with [Ethiopia’s] special friend.”

 

The increasing interdependence between Djibouti and Ethiopia dates back to the early 20th Century and the building of what was originally the Franco-Ethiopian railway in 1917. In the early 1970s, the 782km railway corridor was handling 30pc of Ethiopia’s international trade. Its significance, however, also declined in the early 1970s after the reconstruction of the Port of Asseb at a cost of 30 million Br.

 

Eritrea’s breakaway from Ethiopia in the early 1990s, and the subsequent war later on that same decade, returned Djibouti to its former status. But it took nearly a century for the countries to share another major public infrastructure - hydroelectric power - which Meles said in his address last week was “another milestone” interconnecting the economies of the two countries.

 

Despite strong interest during the period of Emperor Haileselassie to develop the power supply project, it was not until the mid-1980s that the idea was pursued aggressively. A regional cooperation meeting called in March 1985 launched the feasibility study which took two years to complete.

 

Due to political instability in Ethiopia in the late 1980s and early 1990s, the project was buried. It was resurrected only in November 1999, after the two countries signed a cooperation agreement to re-launch the project, and a memorandum of understanding for power purchase agreement was signed in April 2008.

 

Over 90pc of the project cost was financed by loans and grants from the African Development Bank (AfDB). The project is thought to be very crucial to Djibouti, a country that aspires to become a regional hub for transport, finance and trade. Much of its 1.25 billion dollars in real GDP (2011) comes from its port services and the hospitality industry, both heavily dependent on electric power. Up to now, power has been generated not only from increasingly expensive sources, but also by noisy and frequently disruptive diesel-powered generators.

 

On Wednesday, a few hours after the inauguration of the substation in Djibouti’s PK12, one of the two stations built over the past two years, including the one in Dire Dawa, members of the Ethiopian delegation had to endure three interruptions of power while having lunch at the Palace Kempinski, Djibouti’s seaside luxurious hotel, and an icon of Dubai’s investment in Djibouti over the past 10 years.

 

Arial view of the substation located 12km from Djibouti City, part of the 1.5 billion Br investment on the Ethio - Djibouti transmission.

 

“Don’t blame us,” said Misiker Negash, public relations head of EEPCo, to a couple of journalists who traveled to Djibouti for the inauguration. “We supply them power between 11:00p.m. and 7:00a.m.”

 

Concluding the negotiation has not been as easy as signing the MoU. It took two years before the 25-year agreement was finalized in March of this year.

 

During that period, the project was redesigned to incorporate a double-circuit transmission line, and the number of Ethiopia’s border towns meant to benefit along the 283Km line went up from originally four to 12.

 

“The toughest part was, however, agreeing on the tariff,” Alemayehu told Fortune. “They stood their ground to get a much lower price.”

 

They finally settled for two tariffs: 0.6 US cents/kw during summer and 0.72 cents/kw for the winter, an amount which is higher than Ethiopia’s domestic tariff of 0.06 US cents/kw but 72.7pc lower than the tariff Djibouti’s Electricite de Djibouti (EDD) charges its subscribers.

 

“I’m more relieved to know that we will have less of an interruption than we have lived through,” said a prominent Djibouti businessman involved in the logistic and maritime industry.

 

The project has a lot more meaning to EEPCo than simply its ability to generate a projected 721.8 million dollars by 2037, which will make the company listed alongside Ethiopian firms whose exports and services generate revenues in foreign exchange.

 

Ever since a trail transmission began in May 2011, with provision of 20Mw power, EEPCo has been generating between 1.2 million dollars and 1.5 million dollars in monthly revenues, and the volume of power has been increased to a current 35Mw, with a further agreement to increase it to 50Mw. This may even go as high as 100Mw, a power supply that consumes 0.05pc of Ethiopia’s current generation capacity, according to a feasibility study conducted by AfDB.

 

“The power sector will now generate more revenues in foreign currency than some of the exportable items,” Mihiret Debebe, its managing director, declared to journalists in Djibouti.

 

Indeed, the energy sector could bring in more dollars than what exports of incense, leather, shoes and honey have earned during the last fiscal year.

 

But where his pride comes from is the symbolic value of the project to the realization of the East African Power Pool, whose secretariat Ethiopia hosts.

 

“Ethiopian and Djibouti governments have demonstrated their leadership by being the first countries in realizing this noble objective,” Mihiret told a delighted gathering that soldiered out the blazing sun of Djibouti and a temperature of 38 degrees. “It is the first power interconnection line in the region equipped with optical ground wire for broadband-secured highway communications.”

 

But it may not be the last. EEPCo has already signed the second phase of interconnection with Djibouti, to be financed by AfDB, to build a 350km transmission line with double-circuit 230Kv directed from Koka-Dire Dawa substations. When completed on schedule in September 2013, immediately after the anticipated commissioning of Gilgel Gibe III, Mihiret promised to quadruple the current energy consumption of Djibouti, which is now covered 65pc from power generated in Ethiopia.

 

Yet, more is to come in the way of supplying power to Sudan and Kenya, both countries in different stages of negotiations with EEPCo. When the power purchase agreements are signed, Sudan will get 100Mw, equal to what Finchaa Amertineshe will generate, and 500Mw to Kenya, a volume a little over of what Takeze and Gilgel Gibe I generate.

 

This is a regional initiative Djibouti’s President Ismail Omar Guelleh praised as “a concept we must, above all, believe in.”