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BusinessAfrica’s largest geothermal project hits a snag

Africa’s largest geothermal project hits a snag

– Government contemplates to establish geothermal exploration, development enterprise

Africa’s largest geothermal development project with an installed generation capacity of 1000MW planned to be carried out with an out- lay of four billion USD in the Oromiya Regional State near Shashemene town has hit a snag due to outstanding issues with the Ethiopian government.

Corbetti Geothermal, a multinational company that is striving to develop the first phase of the project, 500 MW of energy with two billion dollars investment, has faced a hitch in the negotiations it is holding with the Ethiopian government.  

Originally, Reykjavik Geothermal, an Icelandic company specialized in geothermal energy development projects, signed a framework agreement with the Ethiopian government in October 2013 that enables it to develop 1000 MW of electricity from geothermal energy sources in Corbetti and Tulu Moye localities in East Arsi Zone. Reykjavik Geothermal with its local partner Rift Valley Geothermal established Corbetti Geothermal Plc and brought along two major investors – Berkley Energy and Iceland Drilling – who have shown a keen interest to involve in Africa’s largest geothermal development project.

Reykjavik Geothermal split the 1000 MW geothermal development project into two phases – the 500MW Corbetti project and the 500MW Tulu Moye project – each costing two billion dollars. Corbetti Geothermal is currently working on the Corbetti geothermal development project located 270 km south – east of Addis Ababa in East Arsi Zone, ShallaWoreda, CorbettiKebele. Reykjavik Geothermal owns a 28.5 percent stake on Corbetti Geothermal Plc, Berkley Energy 53.5 percent and Iceland Drilling 18 percent. Corbetti Geothermal secured funding from major international financiers, including African Development Bank and European Investment Bank. Other many public and private investors from the US, the UK and other European countries are behind the Corbetti geothermal project. The project is also backed by the US President’s Power Africa Initiative.

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The Corbetti Geothermal Project, pronounced as the biggest geothermal development project in Africa was announced during the UN General Assembly in New York in 2013 with wide international media coverage. 

After a long negotiation Corbetti Geothermal and the Ethiopian Electric Power (EEP) signed a power purchasing agreement in July2015, the first power purchasing agreement signed with an independent power producer in Ethiopia. Corbetti Geothermal agreed to sell one KWh of electric for 7.7 cents to the national grid operator, the Ethiopian Electric Power.

Before signing the final implementation agreement with the Ethiopian government, Corbetti embarked on the predevelopment works like building access roads, water pipelines and other basic infrastructure.

After repeated delays the implementation agreement was expected to be signed in August 2016, by Corbetti Geothermal, the Ministry of Water, Irrigation and Energy, the Ministry of Mines, Petroleum and Natural Gas and the Ministry of Finance and Economic Cooperation.Corbetti Geothermal had finalized negations with drilling contactors and was poised to import drilling rigs and crew and commence drilling bore holes in December 2016. However, this cannot be realized now as the negotiation with the government had got tenstuck.

Reliable sources told The Reporter that the source of the disagreement between the two parties was the newly endorsed geothermal development proclamation enacted last July. Ethiopia did not have a geothermal development law and the sector was governed by the country’s mining law. Sources said the new geothermal development proclamation has become a stumbling block to the signing of the final implementation agreement.

The framework agreement for the geothermal project was signed in 2013 while the geothermal development proclamation was enacted in July 2016. This has triggered unforeseen obstacles to the implementation agreement. “Africa’s largest geothermal development project is in limbo,” sources said.

In the sidelines of the 6th African Rift Geothermal Conference held this week in Addis Ababa State Minister of Water, Irrigation and Electric, WondimuTekle, told The Reporterthat the first challenge was the absence of geothermal development proclamation. “The proclamation was endorsed recently. Before endorsement, it was tabled for discussion and all the stakeholders including Corbetti Geothermal has forwarded their comments and suggestions which we incorporated in the draft law. Accordingly, the proclamation was endorsed by the Council of Ministers and the Parliament,” Wondimu said.

The state minister,after the endorsement of the proclamation of the company (Corbetti Geothermal) began raising various questions. “The private sector always tries to maximizes its benefits. They raised some seven questions. We accept some of them but can not accept some others.”

The size of the license area and ownership right on associated resources that could be discovered during drilling geothermal exploration work have been a bone of contention between the parties.

“They acquired the concession and signed an agreement when the geothermal sector was governed by the Mining Law. Under the new proclamation the size of the license area is restricted based on the phase of the project. During the reconnaissance stage the company can have a vast land. Then during the exploration period the size of the land will diminish and during development it will be only a limited area. So Corbetti Geothermal has raised an issue on the size of the license area that will be allotted to it,” Wodimu said.

The other major issue is associated resources. “When the company drills the geothermal exploration holes it could discover gold or petroleum resources. Who is going to own it? The company claims that it should be entitled to ownership right on the resource that could be discovered during drilling. We did not accept that. Any resource that could be discovered in the process belongs to the public. There are also other issues that we need to address,” Wondimu said.

The State minister , however, said that the outstanding issues would be addressed and the company would proceed with the implementation of project. “The project could be realized if the company is really committed,” Wondimu said.

Corbetti Geothermal refutes this, our sources report which claims that the project is in limbo. CEO of Corbetti Geothermal Steve Meyer said that it was inaccurate information. “We are working closely with the government to develop a means to comply with the law while at the same time fulfilling our obligations and meet the interests of all stakeholders. I would not say that the project is in limbo;rather, we have experienced some additional delays,” Meyer told The Reporter.  

In a statement sent to The ReporterCorbetti Geothermal said with the resolution of the contract issues, a reasonably stable environment throughout Ethiopia, and good communications, the project will move forward with completing the road and commencing the drilling program.

“It is very rewarding for the people involved with the Corbetti Geothermal project to see the people living in and around the site to use the road that we have built. In addition to making life easier for the local people it will allow access for the project’s drilling rig and power plant equipment.  Starting the road which costs millions of dollars before the project is fully ready to proceed shows the investors commitment to the project.”

Corbetti said it had stopped construction of the road while it is works with the Government of Ethiopia to resolve a few remaining issues related to the Power Purchase Agreement and the Implementation Agreement.  “The parties are trying to make sure that these agreements, negotiated over a 5-year period, can be legally implemented and remain in force for decades to come.  We are hopeful that we can meet this objective in the near future.”

Although Corbetti is planned to be a $2 billion investment, it will be done in phases.  The first phase of the project is designed to demonstrate that there is a significant amount of thermal energy in the caldera and that a major infrastructure project can be carried out efficiently and without undue risk to the investment or to the project people.  “This requires a reasonably stable environment from Djibouti, where equipment will be imported, to the site near Hawassa.  Unfettered communication at the site will also be necessary for us to manage the project effectively and to quickly respond to any emergencies,” Corbetti said.  “We are excited about the prospect of achieving this goal in the near future,” it added.

Though Ethiopia has an immense geothermal potential that could generate 10,000 MW of electric in the East Africa rift system stretching from Arbaminch in the South  all the way to the Dallol depression in north – eastern part of the country, it has so far been able to set up only the AlutoLangano geothermal project which generates a meager 7MW.

Neighboring Kenya is in the leading pack in the global geothermal development sector. Kenya is the 8th largest geothermal energy producer in the world. The Olkaria Geothermal plant which started generation in 1981 reached 202 installed generation capacity in 2010. This has been enhanced to 650 MW. Ethiopia lags way behind its neighbor.

In the sideline of the African Rift Geothermal Conference held at the UNECA October 31-November6, 2016 the new Minister of Mines, Petroleum and Natural Gas, Motuma Mekassa, told a press conference that in the past Ethiopia had not given due attention to geothermal energy development. 

Ethiopia has a big potential not only in geothermal but also in hydro, solar and wind energy Concerning geothermal energy we have not yet developed much. The reason is that the government in the past gave no attention to develop geothermal energy. Currently, the government is giving due attention to develop this potential because we have to make energy mix in this country,” Motuma said.

Motuma, who was serving as minister of Water, Irrigation and Energy until the reshuffle of Cabinet on Tuesday, said that Ethiopia was getting 92 percent of electric power from hydro. “Sometimes we  face a challenge for example when there is a drought wecan not have water. If there is no water there is no generation. That is why we are trying to mix the energy,” the minister said.

Motuma said the government was trying to create an conducive environment for the private sector to invest in the geothermal energy sector. “The Corbetti Geothermal project is a lit bit delayed because of the legal framework. We did not have any regulation in the past. Now we have endorsed a new proclamation. We are preparing regulation and will complete it soon. If all these regulations are in place and we create a conducive investment environment the private sector can come and join us in harnessing geothermal energy. There are already companies that have shown interest to develop geothermal energy and we have to strengthen that,” the minister said. 

The director general of Geological Survey of Ethiopia (GSE), Masresha Gebresillassie, said that various studies and exploration work have been carried out in the Rift valley system in Ethiopia and potential areas for geothermal areas have been identified. Masresha said efforts and under way to scale up the AlutoLangano geothermal project from 7 MW to 70 MW with the assistance of JICA and the World Bank Group.  The World Bank has provided a 200 million dollars loan to the AlutoLangano project which will fund the procurement of drilling rigs and the drilling of bore holes for the development of the untapped geothermal resource in the Langano area.

A soft loan of 20 million euros has also been secured from French development bank, AFD, to undertake a study on the Tendaho geothermal development project in the Afar Regional State.

WondimuTekle believes that Ethiopia should not rely only on the private sector. “We have undertaken a study on the viability of geothermal energy with the help of JICA. Experiences in other countries like Kenya and Indonesia have shown that effort to develop geothermal energy only by the private sector is not fruitful. The public sector has to be involved,” Wondimu told The Reporter.

Wondimu said private sector avoids risk and it would be commendable if the public sector engages in the exploration sector. The state minister said that his ministry is contemplating to establish a public enterprise that would engage in the exploration and development of geothermal energy.

Some 82 countries use geothermal energy in the world with an installed generation capacity of 13 GW. In addition to electric power generation geothermal energy is used to heat green houses and for medical purposes.

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