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Nuts and bolts of Ethiopian power sector

Nuts and bolts of Ethiopian power sector

Debretsion Gebremichael (PhD) is the Minister of Communication and Information Technology (MoCIT) and board chairman of Ethiopian Electric Power (EEP), a state-owned corporation in charge of developing electric power infrastructure in Ethiopia. On top of that, Debretsion sits on the board of Ethio Telecom, another state-owned corporation, which is the sole provider of telecommunication services in the country. He is also on the board of the Grand Ethiopian Renaissance Dam (GERD) National Council. In a few days, this flagship hydropower project, which is being constructed on the main tributary of the Nile, will mark its sixth year. With its installed capacity of generating more than 6000 MW of electricity, the GERD is poised to become one of the 10 biggest hydropower projects in the world and, of course, the largest in Africa. However, the GERD is far more significant when one considers the fact that it was the first time that Ethiopia, which is the source of 80 percent of the Nile, has embarked upon a project of this scale on the shared water body. The project is symbolic in the sense that it has effectively ended the age-long dominance of Egypt over the Nile and that it has ushered in a new era of fair and equitable use on the longest river in Africa. On the occasion of the commemoration of the sixth year of the project, Yohannes Anberbir of the Reporter sat down with Debretsion for a brief interview on issues ranging from the progress of the GERD to other hydropower projects under construction. Excerpts:

The Reporter: How do you assess the progress of GERD in the past six years and how do you evaluate the mobilization of the public towards this flagship project?

Debretsion Gebremichael: I can honestly say that the GERD is one project which has brought Ethiopians together from the very beginning. It is still the same. The public is strongly behind this project both in terms of its financial requirement and moral support. We have witnessed that this project is really important for Ethiopians even during challenging times. It is truly a flagship project, which bears the mark of each and every Ethiopian. The project has seen the participation of citizens both in idea and actual physical input. The project employs workers coming from all regions of the country. In fact, the project has taken deliberate steps to have a balanced representation in terms of the labor force that is employed. So, I can truly say this project in a way reflects what it means to be Ethiopian. As of the start of 2017, 56 percent of the project has been complete, and I can say that we have not encountered any serious problems. Whatever challenges we have faced they were surmountable and we have been doing that.

We know foreign currency is a problem for Ethiopia. So, how is this project coping with shortage of foreign currency so far?

We do have foreign currency shortage at the national level, but we try to prioritize the allocation of available resources; surely GERD is a priority for us, and is given the highest priority when allocating foreign currency. This is the decision of the government and it is well known by all institutions, including banks and others. Although it was completed recently, Gibe III was another project which was accorded high priority in terms of foreign currency allocation. After these priority areas, others like in manufacturing and export-oriented sectors and those in services enjoy priority in the allocation of foreign currency. Thus, GERD has not faced any significant financing challenges in the past six years.

There are questions regarding the role of the Metal and Engineering Corporation (MetEC) as the main electro-mechanical contractor of the GERD project. Most of these questions have to do with capacity; how do you see that?

The government decided to award MetEC the electro-mechanical work of the project, and the corporation was selected to participate in this project for political reasons. I have to say the work the corporation has done has exceeded expectations. Its involvement in the project and the work it has done so far have allayed most of the concerns expressed by some of the foreign consultants working with the project. MetEC is now emerging as a strong domestic productive force. That being said, the decision to give MetEC the contract was motivated by political considerations. As you know, the electro-mechanical aspect of the project is almost half of the entire project. And had we decided to put a foreign company in charge of this project, the challenges we could have faced would be unimaginable. For one, given the nature of the project, the level of diplomatic pressure we could have been subjected to, would be quite considerable. We had no guarantee that foreign contractors would carry out the work in the face of intense diplomatic pressure from their governments and other countries. Worst case scenario, they could have abandoned the project midway.

This is something we considered carefully before we had started the project. In fact, if it was up to us, we would have loved to do everything using local capacity. This would not only reduce the risk of pressure but also our foreign currency requirements considerably. We have seen how political pressure could be challenging for such projects while constructing Gibe III. A number of foreign governments and NGOs have actively campaigned against this project and to some extent they have succeeded in curtailing foreign financing for the project. We know of some who wanted to support us, but were forced to abandon their plan due to intense diplomatic pressure. Finally, the government had to change its strategy to complete Gibe III. This has caused a two-year delay. So, we decided that the GERD should not be vulnerable to foreign pressure and influence.

Frankly, we could not afford to make it vulnerable. Even after taking such precautionary measures, we were not completely immune to foreign pressure with regard to the GERD. We have witnessed how the civil works contractor, the Italian company Salini, was pressured to abandon the project and leave Ethiopia. The pressure came from different directions: through the European Union, Italy and other countries. Fortunately, Salini understands the pressure very well and knows the country intimately as it was involved in different projects in Ethiopia for many years. You can imagine what would happen if the company was not Salini. Financial bargaining was also another easy way of influencing companies to leave the project. Mind you these lobbying groups do have the capacity to offer attractive financial rewards to companies. So, one of the mechanisms with which we were able to avoid pressure was by developing local capacity. We have also increased our domestic technological capacity in the process. We decided to do something which we have never done before and we have managed to do that.

You see, we can never say that we are free until we have developed the capacity to undertake such projects on our own. Being able to mobilize finances to hire foreign companies to undertake our projects is not enough; it is not independent in its true sense. So, it was important to have our own domestic contractors involved in this flagship project. Sure enough we started to reap the benefits of this decision just a year after project commencement.

As you may remember, we were able to upgrade the installed capacity of the dam from 5200 MW to 6000MW within a year. I am not saying it was all MetEC but the corporation was able to augment its capacity by contracting foreign expertise when needed. But, it also had its own capacity going into the project. We did not allow the corporation to just engage in an experiment. At the moment, the generating capacity of the GERD has reached 6,450MW; this means that we were able to improve the capacity by 1150 MW thus far. If you just look at the margin of improvement, it is equivalent to the overall generating capacity of Tekeze, Beles and Gibe II combined. Although it might not be much, there is still room for improvement.  This is the fruit of recruiting local partners. So, we have seen that a local corporation which we have decided to involve in the construction of the GERD for other reasons has in fact given us additional generating capacity. And the good part is we have not incurred any additional cost to achieve this improved generating capacity.

The original plan was to have the GERD to start generating power on limited basis before the end of the term of the first Growth and Transformation Plan (GTP I), but that did not happen. So, what is the tentative schedule for generating electricity at the moment?

It has to be clear that back when the generating capacity of the GERD was at 5200 MW, we said that we could start to generate electricity on limited basis. But, we did not say the power plant would be fully operational within the mentioned timeframe. As you know, we have spent the first year of the project on issues relating to contract and design. It was in this timeframe that we have managed to improve the installed capacity of the plant. But, we can’t keep on revising the design time and again. We will face objections from any of the riparian nations if we do that. So, we had to take our time and think really hard about the design of the dam to exploit the capacity of the GERD fully. Making improvement on the generating capacity of the dam would also entail design revisions on the civil work aspect of the project.

Specifically, we had to increase the number of turbines from 15 to 16; and this entailed some changes to the design of the dam. One extra turbine means widening the dam and that requires digging some 400 meters into the side of a mountain. So, we have shelved our plan to start limited power generation by the end of GTP I due to adjustments we had to make to the design and the actual construction work to accommodate the extra turbine. So, we knew that timetable would also have to be revised. Apart from the addition of one more turbine, the improvement in generating capacity come from the work we have done in improving the generators.

This improvement meant increasing the generating capacity of all but two of turbines to generate 400 MW each while the two turbines will continue with the capacity of 375 MW.  However, actual power generation would entail the dam being able to hold the needed water and this is something we do in consultation with the downstream riparian nations since we have our agreements. We have agreements to do consultancy related works together. So, the rate at which the GERD would hold water is something that we are discussing with downstream countries. Although we have not reached at a final agreement, we are in talks to decide in how many years to fill the dam. As far as we are concerned, we have reached at a critical stage in our project where the dam is completely ready to hold water. So, this is why we have left the two turbines from making improvements; they are expected to start preliminary power generation. Apart from that, we are currently completing some works which are needed to start the first phase power generation. As for the preliminary power generation work, we are currently putting final touches and the two turbines are ready to be installed. As far as the water needed to start preliminary power generation, it will not result in any significant decrease to any of the downstream nations. We only require a limited amount of water to make that work. If not for sake of involving and consulting with all the concerned downstream nations, it would not require that much of a negotiation. But, the challenge is in agreeing on a reasonable timeframe to fill the whole dam with water. So, we need to arrive at an agreeable timeframe to fill the whole dam possibly supported by the professional recommendation of the two selected consulting firms.

The dam filling timeframe is the only factor that could affect downstream nations and we need to have consensus on that. The two consulting firms are getting ready to start their work. As I have said before, we have not interrupted our work. We are now getting ready to collect water, which will enable us to start preliminary power generation. This water volume would not have a significant impact on any of the downstream countries. So we can easily commence with first phase power generation and we don’t expect this to be an issue between Ethiopia and the two downstream countries. But, the water volume required to activate all 16 turbines is quite significant; it is equivalent to two sizable lakes. This is bigger than the Aswan dam. So, this is where the three countries need to agree on a reasonable and agreeable timeframe through negotiation.

Speaking of other power-generation projects, Ethiopia has plans to expand its overall power-generating capacity to 17,000 MW by the end of GTP II. Some say this is quite ambitious. How do you evaluate the chances of meeting this target?

As you know, the demand for power has been growing consistently in Ethiopia over the years. And this demand is quite significant. As you know, currently there are a number of problems in relation to power supply in the country. Unfortunately, the recent power supply problems have nothing to do with the adequacy of the power being generated in the country. Rather, the problem is about power distribution, specifically at substations. As we have done in the telecom sector, we need to overhaul our power distribution infrastructure. The problem is definitely with power distribution infrastructure; it needs to be revamped. Side by side, we also need to push on power generation. Although it is not the main issue at this time, adequate power supply would surely become an issue sometime in the future since the demand is growing very fast.

The only solution is to develop as many power plants as possible before the demand catches up to us. So, we need to increase our generating capacity to 17, 000 MW before the end of GTP II. This target is not chosen randomly. We have set this goal with due consideration to the power requirement of a middle-income country. Granted, given our current capacity, we are doing better than some of the middle-income countries in terms of per capita energy consumption. But, per capita measures are a bit tricky; they don’t reflect the real distribution and consumption of power.  In Ethiopia, in spite of the per capita numbers, we still have a long way to go to ensure universal access to electricity. So, although we do have another ten years before Ethiopia reaches middle-income country status, we thought that we need to make power available before reaching middle-income status, and that is why we decided to expand our capacity to 17,000 MW in the next five years. We thought that the power demand has to be met before the economy rises to a certain level. Yes, the plan is a bit ambitious; but I am confident that we will meet a good portion of the target.

One of the strategies devised by the government to meet this target is to invite private investors into power generation and feed the national grid. To that effect, you have floated an open bid and to select companies. So, what is the rationale for adopting this approach? What is the status of the bid process at the moment?

As you know, during GTP I, we relied largely on government investment to improve our power-generation capacity. But, as we were setting the targets for the GTP II, we have identified that the power-generation needs of the nation could not be met by government investment alone. This is because the demand is growing exponentially and to cope up we needed a new approach. To satisfy the growing demand in terms of financing, we need something like one trillion birr. This is a huge financial burden for the government. Our plan is to gradually reduce the government’s share to around 20 percent of the overall power generation investment in Ethiopia. Our energy policy allows investors to participate in the power-generation sector. So, we have decided to follow an independent power production (IPP) approach. It is a system where private investors would come with their own financial resources and develop power plants and sell the power on the national grid.

Power distribution will still be the jurisdiction of the government. We did not want to attract companies that we worked with before. We wanted to draw investors from different countries. So we have decided to float an open bid and blocked any window for negotiation. The results have been amazing. For instance, we have received 63 to 70 entries for 100 MW lot. This is an unprecedented level of interest to invest in the Ethiopian power sector. Let alone to develop power projects using external resources, we have not even seen such interest when we floated a bid to develop power plants with our own financial resources. A closer look at this strategy tells you that it gives so many other interrelated benefits to the country. For one, a heavy financial burden on the government will be shared by the private sector, enabling the former to allocate money where it is needed the most. On the other hand, project administration burden on the government will be significantly minimized. The other advantage is from the perspective of meeting stiff project timetables. No investor would delay a project when it is his or her money that is on the line. So, we will be able to build our power-generation capacity quickly. The main point is to negotiate a better tariff for the power that will be supplied to the national grid. Apart from that, we need to work on technology transfer. In view of this, we have made a willingness to take local partners as one of the criteria to evaluate the bid proposal. So far, we have seen that there are companies willing to offer up to 35 percent to local companies. This is instrumental in nurturing local technological capacity. By the looks of it, our plan to generate power from wind and solar will most likely meet the targets we have set on GTPII. I am also confident that we will go a long away in terms of meeting targets set in hydropower generation.