Running out of steam
The staggering level of external debt incurred by the Ethiopian Railways Corporation (ERC) has prompted authorities to look into ways of mitigating the problem.
The authorities have so far identified Transit Oriented Development (TOD) as a long-term sustainable plan. Through TOD, there are plan to supplement corporation revenue with additional sources by developing tourism sites and dry ports along the railway infrastructure, a high-ranking official told The Reporter. Regarding the swelling debt of the corporation, the authorities are looking into several options. Among these, transferring some portion of ERC's stakes to foreign firms has been identified as a last resort measure, the official told The Reporter.
An official document obtained by The Reporter details the present financial status of the corporation. According to the document, ERC owes a total of 102.5 billion birr debt, of which 95.7 billion birr is external debt borrowed from the Export-Import (EXIM) Bank of China and from European banks facilitated by Credit Suisse Bank.
The remaining debt was owed to local sources, mainly the state-owned Commercial Bank of Ethiopia (CBE).
The corporation has expended close to USD 500 million for the Addis Ababa Light Railway Transit (ALRT) that began operation one-and-a-half years ago. From the beginning, the government did not envisage profiting from operating the ALRT. Such projects in most countries are primarily intended to alleviate shortage of public transportation. This is also the case for the Addis Ababa LRT, which has played its part in addressing the city’s transportation challenges. For instance, it has transported 17.9 million commuters and collected 56 million birr from ticket sales within the past six months. Nonetheless, the ALRT has been incurring losses. According to the document, the corporation has lost 1.8 billion birr from the ALRT operation during the past one-and-a-half years. In addition to the loss, the corporation has started reimbursing the principal loan and interests it has borrowed from the EXIM Bank of China. Last July, it paid USD 28.9 million. Another USD 29.24 million is due the coming month. Apart from this, the corporation has started paying interests and commitment fees for the USD 2.5 billion loan obtained from China for the construction of the Addis Ababa-Djibouti railway corridor which is expected to begin operation as of May 2017. Similarly, it has commenced servicing interests and commitment fees for the USD 1.165 billion loan obtained from European banks facilitated by Credit Suisse for the Awash-Woldia-Mekele route.
In July 2016, the corporation paid USD 35.47 million and USD 18.73 million for the two loans, respectively.
Another round of debt servicing worth USD 96 million is due for the coming month. However the cash-on-hand category of the balance sheet shows nil and no alternative sources has been identified so far, according to the document.
Not only this, the corporation has been unable to secure the 60 billion birr budget it has approved for the ongoing Ethiopian fiscal year.
State Owned Enterprises Affairs Standing Committee of the House of People’s Representatives (HPR) summoned the ERC on Tuesday to report on its second quarter performance. Chief Executive Officer of ERC, Getachew Betru (PhD), was explicit in revealing the challenges of the debt burden and the financial challenges facing the corporation. Simultaneously, Getachew was bold and vocal in assuring the standing committee regarding the exit strategies. He admitted that 2017 would be a tough year for his agency.
“It is a debt-driven project from the beginning, and we know that such events will happen in due course,” the CEO told The Reporter, “what matters is the exit strategy,” he said.
According to another top official of ERC, the Addis Ababa-Djibouti route was very lucrative for anyone interested in investing in.
“We significantly reduce the external debt by transferring 40 percent of this route alone,” the official said. However, this required government approval on any of the alterative exit strategies.