– Utility denies power for years after receiving over 874 million birr
– World Bank issues final warning over park financing
The Industrial Parks Development Corporation (IPDC), Ethiopian Electric Utility (EEU) and Addis Ababa city government are reaching the tipping point over right of way issues that delayed the construction of power infrastructure for Kilinto and Bole Lemi II industrial parks by four years.
The World Bank, the financer of the parks, has given a final warning to finalize the parks after extending the financial disbursement deadline for the third time.
According to officials of IPDC and project coordinators, EEU and Ethiopian Electric Power (EEP) failed to supply power for the two parks after receiving billions of birr down payment four years ago. Operationalization of the parks is complicated by reluctance from EEU, EEP, and the city government, costing the corporation billions of birr in revenue loss.
“We have arrived at a point where we cannot work with the Addis Ababa city administration, regarding industrial parks around Addis Ababa. We have declared to the board that we cannot work anymore, unless the problem with the city government is solved,” Sandokan Debebe, CEO of IPDC, told Ahmed Shide, Minister of Finance, and officials of Public Enterprises Holding and Administration (PEHA) during the annual performance review of industrial parks on September 1, 2022, at the Hilton Addis hotel.
“We need government support on this. The replacement of leadership at the city administration has also impacted on the projects. We also requested the Ministry of Finance repeatedly in our letters. For the past two years, there has been no progress on the industrial park projects financed by the World Bank. There are two basic problems: right of way and power,” Sandokan complained to the officials.
Kilinto and Bole Lemi II industrial parks, despite being 98 percent completed four years ago have been stalled for years due to power issues, which are further hampered by complicated right-of-way issues.
The parks were launched with USD 425 million in financing from the World Bank, of which around USD 100 million (5.5 billion birr) went to Kilinto. The bank disbursed 346 million as of March 31, 2021, and the closing date for the financing scheme was July 2021. But the bank extended the deadline for the third time since then.
“Last May, it was supposed to be finalized. The World Bank has given us final warning to finalize the parks. The projects are extended for the third time. We signed agreements with the EEU years ago. Still, to date, they have not started it,” Sandokan said. “The water system, waste treatment, and electricity systems cannot work in the industrial parks without the power supply.”
Sandokan believes that the contractors want to wrap up the projects and leave. “After costing USD 425 million, the industrial parks are stuck. This is our biggest problem IPDC is facing currently,” added Sandokan.
Six years ago, the IPDC requested 200MW for Kilinto and 134MW for Bole Lemi II industrial parks. The corporation signed an agreement for the procurement of cables, paying 635 million birr, for which there has been no progress has been seen so far.
The corporation also paid USD 38.2 million to import power cables and installation for the two industrial parks, in different allotments to EEU, according to project coordinators of the two parks.
The infrastructure construction for Kilinto and Bole Lemi II is different from the rest of the industrial parks in the country. Their infrastructure is horizontal infrastructure. They are different from conventional parks. Unlike other parks, IPDC does not build factory sheds and rent them to investors in Kilinto and Bole Lemi II.
The corporation has developed underground infrastructure for the two parks. Water, sewerage, power lines, telecom cable systems, and other infrastructure are buried underground. The construction cannot be undertaken without the EEU and EEP since these underground lines must be linked to major infrastructure like power lines.
A separate power station has to be built outside the park by the EEP. Then, the EEU has to stretch lines between the station and the parks to provide power.
Since these parks are specialized for pharmaceutical and medical factories, only incoming investors can build the right factory sheds. The corporation only develops the underground infrastructure and rents it out to investors. Such factories can be built only after meeting the standards of the Federal Drug Authority (FDA).
“The Addis Ababa city administration, in particular the Bole sub city and Lemi Kura sub cities, also failed to secure rights of way for the infrastructure development for these two parks,” Addisu Mamo, deputy CEO for corporate resource management at the corporation, said.
The Addis Ababa city government did not clear the right of way for the underground power lines, and the cables and power equipment have not arrived, according to Addisu.
He believes the delays have resulted in a number of foreign investors waiting to enter the parks.
“Whenever the industrial park contractors try to bury the infrastructure lines underground, we face compensation claims from the residents on the land. It is the role of the local administrations to identify who deserves the right of way compensation, how much, and conclude an agreement. This is Addis Ababa city administration’s role,” Addisu said.
The corporation is a federal institution, and according to Addisu, its mandate is to operate industry businesses. “We are working to create work for the residents of the city inside these industrial parks. But the city government, EEU, and EEP are not supporting us.”
The two parks cannot begin operations without a continuous power supply. Unlike any other park, two power supply lines (double lines) are requested for the parks.
“One of the foreign investors waiting to produce over six million capsules inside Kilinto Industrial Park is currently preparing to deploy a generator, since the power supply is delayed by years. A generator is out of the investment contract. When we invited foreign investors, we pledged to provide cheap electricity,” Addisu said.
For Addisu, the corporation is incurring a loss of billions of birr due to the delay.
“Construction of the two parks reached 98 percent four years ago, after taking huge finances. But so far, operations have not started. The depreciating cost of the parks is mounting. The IPDC is also losing the revenue it could generate from the parks. The country is also losing the foreign currency that could be generated from these parks,” Addisu said.
“For instance, Ethiopia has been importing 90 percent of medical demand. But since the Adigrat medical factory closed due to war, the country is importing 100 percent of medical supplies. People are dying of medical shortages,” added Addisu.
Addisu says these parks could substitute the huge forex Ethiopia is losing to medicine imports.
The corporation paid around 874 million birr to the EEU, according to Addisu. But stretching the power lines from the substation, connecting with the park, and energizing the park, could not materialize.
“Semera, Kombolcha, and other parks are also facing power problems. We have fewer options because the EEU is the sole power provider in the country. The EEU and EEP cannot complain of forex because we paid in dollars for the import of the electric equipment,” added Addisu.
Though officials of the corporation say the power issue is delayed due to the EEU’s reluctance, Melaku Taye, public relations head of the EEU, disagrees.
“High power supply requests are processed by the EEP, not the EEU. I think EEP is building the power substations for these parks, and the EEU basically buys power from EEP and sells it to end users. So our job is between substations and end users. We cannot do our job unless the EEP finalizes it first,” Melaku said.
However, Ashebir Balcha, CEO of EEP, told The Reporter that the construction of the substations for the two industrial parks are finalized one and a half years ago though it should have been earlier.
“The substations were initially delayed by right of way issues. Local residents blocked the way. But after that issue was solved, we finalized the substations 18 months ago,” Ashebir said.
The EEP built each substation for the two industrial parks and a power feeder – a third substation at Koye Feche. The EEP used USD 81 million for the import of transformers and other equipment. In addition, it used 350 million birr for local contractor payments for the three substations.
“The first problem is that the city administration sent us right of way documents for the substations seven months ago, after delaying them by over three years. The second problem is that the EEU did not start installing the power infrastructure that links the substations with the industrial parks, which is around two kilometers for each,” said an official.
After an exhausting back and forth with the IPDC on who should pay the compensation, the EEP paid the 53 million birr right of way compensation for the substations.
As the local governments dragged their feet in processing the right of way documents, the EEU argued that the compensation should be paid by the corporation since it is its project. The local governments have a mandate to identify residents eligible for right of way compensation, evaluate the amount and give the details to the project owner who pays the compensation.
Higher officials of the EEU and the city government did not respond to The Reporter’s repeated requests for a reply.