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BusinessLight Railway incurs 4.6 billion Birr in losses

Light Railway incurs 4.6 billion Birr in losses

It has been paying portions of its USD 475 million debt by borrowing from CBE

Addis Ababa Light Railway, which functions under the auspices of the Ethiopian Railway Corporation, incurred 4.6 billion Birr in losses in its first four years of operation, forcing it to borrow money from the state-owned Commercial Bank of Ethiopia (CBE) to repay its loan, a new report reveals.

A new performance audit undertaken by the Office of the Auditor General assessed the finance management system and service efficiency of the light railway between 2015/16 and 2018/19. The Audit found that it paid USD 2.8 million in fines due to its inability to pay its loan on time to Chinese Exim Bank during the four year period.

Built at a cost of USD 475 million, the railway became operational almost six years ago. While 85 percent of the project’s cost was covered by the Chinese bank, the remaining came from the coffers of the federal government.

Ever since it started operations, the Ethiopian Railway Corporation has been paying its debt by borrowing from CBE in a form of corporate bond. Nevertheless, it has been struggling to pay the loan due to its low rate of return.

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The management of the Corporation explained foreign currency shortage coupled with the difficulty of getting returns on such public projects have undermined its attempt to service its debt, according to the AG.

In its first four years of operation, according to the Auditor General, the light railway collected revenues of an aggregate 448 million Birr, but its total expense was 6.2 billion Birr, amounting to a 4.6 billion Birr loss.

The Addis Ababa City Administration, considering the contribution of the light railway in easing the transportation problem in the city, was expected to offset its loss, though little has been done to do so, according to the management of ERC.

“Such a project serves the public without being profit-oriented; so it requires subsidy. We have made such a request to the City Administration, but to no avail,” said the management of the Corporation, explaining why it has encountered loss during the period to the Auditor General.  

However, the Auditor General downplayed the response of the management, citing the railway’s feasibility study which explains the project will regain its original cost of construction within 10 years.

“The feasibility study has been inadequate and it was conducted without collecting enough information,” the Office of the Auditor General remarked. “This, coupled with the absence of a maintenance center to fix the trains that need repair and other factors, have contributed to the losses sustained by the light railway.”

The light railway was built by China Railway Engineering Corporation Limited (CREC) and was operated by Shenzhen Metro Group Company before. According to the Office of the Auditor General, although the operation started with 40 trains, 24 of them have on average been active during its first four years of operation.

Recently, Liability & Asset Management Corporation has been legally established to administer the debt of state-owned enterprises, including the Ethiopian Railway Corporation which owes CBE 56.7 billion Birr in the form of corporate bonds, as of the end of the last fiscal year.

The Corporation is expected to service the debt of SOEs from industrial development fund and financial support from development partners as well as from the coffers of the enterprises. 

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