By Probe International

Ethiopia’s Tekeze dam limps into operation

(November 23, 2009) The vastly over-budget and long-delayed Tekeze hydro-electric in Ethiopia is finally finished. The project, which was first proposed seven years ago and was scheduled to be competed in 2008, in the end cost $360-million—$136-million over budget.

At 185 metres, the dam—developed and built by the state-owned Chinese National Water Resources and Hydropower Engineering Corporation, now known as Sinohydro—is the largest of its kind in Africa and is expected to produce 300 MW of electricity.

Who financed the dam, is not entirely clear.

According to the World Bank, in 2002, China’s state-owned Export-Import (Exim) Bank provided $50 million in concessional financing for this US$224 million dam. But a Taiwanese news source said the China National Water Resources and Hydropower Engineering Corporation that built the dam, financed it entirely.  Nor is it clear yet, who will pay for the cost overruns, delays, and lost revenue: according to one report, the Ethiopian government is demanding compensation from the consortium for these losses.

The secrecy surrounding the financing of the Tekeze dam is not unusual. World Bank researchers had to comb Chinese language sources to scrape together enough information to conclude that relatively little is known about the value of Chinese finance for African infrastructure projects in general. They did manage to conclude, however, that most of the financing goes through China’s Ex-Im bank on concessional terms which are better than private sector terms, but not as heavily subsidized as official development assistance from old-time aid agencies like the World Bank. China often gives infrastructure financing in return for natural resources, such as oil, to feed its booming domestic economy.

Though it isn’t exactly clear whose taxpayers—Ethiopia’s or China’s—are paying for this dam, it is clear that the problems Chinese dam builders are having with their dams at home are being visited on their Ethiopian customers: plans to raise the reservoir of the massive Three Gorges dam to its maximum height are on hold because of fears of massive landslides caused by rising and falling reservoir levels. Experts are now beginning to question whether the Three Gorges dam will ever be able to reach its maximum power generating capacity.

At the Tekeze dam, dubbed with the unfortunate moniker the “Three Gorges of Africa,” the same problem is occurring: a massive landslide in April 2008 forced developers to spend an additional $42 million on retaining walls to keep the slopes from eroding.

The Tekeze dam is just the first of many more hydro-electric projects that the Chinese want to build in Ethiopia. The state-run Ethiopian Electric Power Corporation (EEPCo) is building, or has plans to build, at least six other hydro electric projects in the country and the Gezhouba Group Company and Sinohydro Corporation have agreed to build two of the six hydro electric projects: the $408-million Genale Dawa 3 hydropower project and the $555-million Chemoga Yeda hydropower project, respectively. Ethiopian officials expect that once all the hydro electric projects are completed, the excess power will be exported to neighboring countries.

Patricia Adams, Executive Director of Probe International, and a long time critic of foreign aid and export credit says Ethiopia should beware of free lunches, whether in the form of heavily subsidized foreign aid from the West or subsidized export credit from China.

“Subsidized project financing is usually given for political reasons, not because an investment is economically viable,” she says. “It usually distorts decisions and locks governments and consumers into ongoing costs. African governments would do better to let the discipline of the market choose projects that will truly generate enough wealth to pay investors back.”

Brady Yauch, Probe International, November 23, 2009

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