(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.
“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.
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 note.
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.
--Editors: Paul Richardson, Ana Monteiro.
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