In a
rigorous empirical study of a large dam construction that has many similarities
with that of Ethiopia’s proposed Nile dam, Lin and Schuster[3] studied
the problem of hydroelectricity development for the Grand Inga Project in the
Democratic Republic of the Congo with particular reference to ownership of land
and water, policy assumptions behind development
of the project, public works construction, socio-economic development, and
environmental conservations. They concluded that investment in hydroelectricity
fails to stimulate economic development within the Democratic Republic of Congo
because of the following reasons:
“…
[t]he investment in the Inga-Shaba project … did not lead to socio-economic
development in DRC due to political instability and mismanagement of public
finance and resources, which result from the failure of the political regime to
develop institutions and laws that (1) involve stakeholders in the formulation
of national natural resources policies, (2) distribute benefits from
exploitation of natural resources in ways that are perceived as equitable and
legitimate by regional stakeholders, (3) ensures public accountability in
public investment, … and (4) use of military in political disputes”.
In a
separate study, theInternational
Rivers group reports that Africa’s large dams have consistently been built at
the expense of rural communities, who have been forced to sacrifice their lands
and livelihoods to them and yet have reaped few benefits. Large dams in Sudan,
Senegal, Kenya, Zambia/Zimbabwe and Ghana have brought considerable social,
environmental and economic damage to Africa, and have left a trail of
“development–induced poverty” in their wake. Project benefits have
been consistently overstated and inequitably shared. Large hydropower dams also
reinforce centralized power grids, which disproportionately benefit industry
and higher income groups, and widen income disparities (and energy inequities)
between Africa’s poor and Africa’s elite[4].
Similarly, The Economist,
in its issue of May 6, 2010, wrote: “…. political instability, graft and
incompetence have meant that many African dams, once built, have failed to
produce what was promised. The Inga I and II dams on the Congo River have
generated a fraction of the power they were meant to. The technology is
demanding. Seasonal rains produce muddy rivers, with higher sedimentation than
northern countries’ dams filled with melted snow. That means a shorter lifespan
and heavier maintenance”.
The Gibe III Project — A
Harbinger for the Nile Dam
A look back
at the disastrous experience with the Gibe III project may shed light on the
impending catastrophe with the ill-conceived mega project on the Nile. The Gibe
III dam, whose construction began in 2006, is perhaps Ethiopia’s largest
investment project so far. A fact sheet
about this dam in Ethiopia, published in May of 2009 by International
Rivers, a
lobby group that tries to save rivers from dams it considers are destructive, presents solid accounts of the technical, economic,
social, and environmental disasters that followed the construction and
mismanagement of the project[5].
According to the report, Zenawi’s government neglected
to properly assess economic, technical, environmental and social risks,
violating domestic laws and international standards. The government, in its
rush to construct the dam, also neglected to study the effects of regional climate
change, which could even dramatically affect the dam’s performance over its
lifespan. The report further disclosed that the dam could be a development
disaster for Ethiopia and the region.
Another human rights
group, Survival International, documented that the livelihood and culture of over
200,000 agropastoralists from eight distinct
indigenous people in the Omo river basin could be
ruined by Gibe III and even asserted that the government of Zenawi
has behaved criminally in pushing through the project[6].
The project will destroy the Omo River’s annual flood that supports riverbank cultivation
and grazing lands for livestock.
According to a UNESCO World Heritage Site report, Lake Turkana in Kenya, that is considered an oasis of
biodiversity in a harsh desert environment, will be destroyed by the Gibe III
project. More than 300,000 people with rich animal life depend on the Lake and
the agency warns that hundreds of thousands of fishing families and
pastoralists will be adversely affected if the lake’s fragile ecosystem is
stressed to the brink of collapse[7].
It may be
recalled that the government of Zenawi directly
awarded a no-bid engineering,
procurement and construction contract for Gibe III to the same Italian
construction company, SaliniCostruttori,
in June 2006. According to Transparency International, “large public works
projects are one of the world’s most corrupt sectors, and no-bid contracts are
an open invitation to corruption”[8].
The two contracts, worth $1.7 billion for Gibe III and $5 billion for the Nile
dam, violate Ethiopia’s Federal Public Procurement Directive, which requires
international competitive bidding. The World
Bank declined to consider project funding for both projects because the
contracts violated the Bank’s own procurement policy.
The Nile Dam – A Tragedy-in-Waiting
According to the report of the government, the proposed Nile
dam project will be Africa’s largest and the world’s 10th largest hydroelectric
dam, with twice the generating capacity of Hoover Dam in the United States and
slightly lower than Robert-Bourassa of Canada. The government claims that it
will be the single most important infrastructure project that will take
Ethiopia out of poverty. Despite the government’s manufactured exuberance over
the projected future benefit of the dam, by all accounts, it is a national
tragedy-in-waiting.
The proposed mega dam
project on the Nile is fraught with many questions that shed light about the
sinister ploy behind its genesis. Is the project serious and genuine? Why is it
announced at this particular moment? Why
insist on this project while all regional and global indicators and the adverse
outcome of our exercise with Gibe III advise against it? More importantly, if it
is advertised as the project of the millennium, how come it is not even
remotely indicated in the much talked about Ethiopia’s Five Year Development
Plan, billed as the Millennium Growth and Transformation Plan (GTP). Nowhere in
the document, even in the section of the plans of the Ethiopian Electric and
Power Authority, could one see any mention of this mega project. Why is it then that it is proclaimed all of a sudden with so
much fanfare? These and other secrets
that shrouded the project lead one to surmise the following:
1. It is just a propaganda ploy
manufactured after the release of the GTP document sometime in August to divert
attention from the revolutionary surges in the Middle-East and North Africa
2. A calculated scheme to garner new
sources of income for Zenaiw’s repressive regime.
Irrespective of the ulterior motives of Zenawi’s
regime, building this mega dam on the Nile is an ill-advised undertaking in
terms of feasibility, security, desirability, and sustainability. There will be
no benefit to the local people or the country. As evidenced by the negative
impacts of such huge dams around the world, there is no
economies of scale argument to justify the size and the scope of this
project in Ethiopia. It will fail with a hefty cost to the people, and a huge
debt for generations to come.
In an
article distributed to members of the Ethiopian Development Policy Focus Group
(EDPFG), HurissoGemechu
presents compelling arguments that there are other better alternatives to this
highly expensive and unsustainable huge hydroelectric project. More
specifically, mini or micro hydroelectric power systems can easily bring up
to100 KW of power to villages and towns using local water resources, and that
they can also easily be connected to other existing and future electric power
networks at low cost. Moreover, these types of hydroelectric projects can be
environmentally benign energy conversion options without significantly
interfering with river flows, and that they can be more attractive in terms of
economic values and environmental considerations. In the context of Ethiopia,
these alternatives are well suited for power generation as well as irrigation,
recreation, tourism, and fishing much better than what the highly eroded deep
escarpments of the Nile can provide.
Bond Issuance through
Coercion and Deceit
As acknowledged by Zenaiw’s
government, the usual donors and lenders will not fund this project. There are
several reasons for this apathy on the part of donor nations and institutions.
First, the project is a bad investment decision because it will have a certain negative
return. Secondly, any such venture will inevitably have an untoward impact on
the entire geo-politics of the Middle East. The West cannot afford to let this
happen, especially at this time of so much uncertainty about the region. Even
China would be reluctant since the benefit from such an investment is no match
for its oil interest.
As a consequence, having declared “it wouldn’t be hard for
80 million people to contribute 80 billion birr”, Zenawi
has launched a massive campaign of coercing the Ethiopian people and businesses
to buy the “Millennium Bond”.
The
features of the bond specify that it is a Corporate Bond, issued by the Ethiopian
Electric Power Corporation (EEPCO), through Commercial Bank of Ethiopia (CBE),
and is called EEPCO Millennium Bond. The guarantor of the bond is the
government and it is issued in USD, Pound Sterling, Euro and other convertible
currencies. The minimum bond issued is
USD 500 and the interest rates are 4%, 4.5 % and 5% for 5, 7 and 10 years
maturity periods respectively.
The bond has
several aspects that are not obvious to understand. It is defined as corporate
bond and the government is assigned to be a guarantor. If we accept it as
corporate bond, then, it will be a debt security issued by a corporation
and sold to investors. According to the internationally accepted practice, the
backing for the bond will be the payment ability of the corporation, the Ethiopian
Electric Power Corporation in this case. The payment ability of the corporation
is typically determined by the money to be earned from future operations. That
means, the payment ability of EEPCO is determined by
the money to be collected in the future from the operations of the Nile
hydroelectric power. In some
cases, where the future earnings of the corporation are not fully reliable
or secured, the corporation’s physical assets may be used as collateral
for bonds. At this point, it is not clear what the investors may have as collateral.
The physical assets of EEPCO or the Nile hydroelectric power are owned by the
government and cannot be disaggregated and disposed. At any rate, corporate
bonds are considered higher risk
than government bonds. As a result, interest rates are almost always higher
than for government bond, even for top-flight credit quality
companies.
One argument
that one could raise in regards to the bond collateral is that the government
is a guarantor. Unfortunately, the government of Meles Zenawi itself has a bond rating of CCC-, which is
less than what is called Junk Bond (BBB- rating by Standard & Poor’s). That
means, the government’s bond rating is equal to that
of corporations in default with little or no prospect for
recovery. How such a government with poor rating can be a reliable
guarantor of corporate bond is open to question.
Government
guaranteed corporate bonds are not customary, and happen rarely. Once such rare
instance was when the US Federal Deposit Insurance Corporation (FDIC) sponsored
Temporary Liquidity Guarantee Program to afford bank holding companies the
opportunity to issue unsecured debt (bond in this case) guaranteed by the US
government. The program is part of the government’s overall recovery plan and
is intended to facilitate bank holding company recapitalization during the
recent recessionary period. The program
will now be ended by June 30, 2012. One other country that is much known for
using the bond market to raise money for operations other than military
functions is Israel. Even then, Israel doesn’t accept responsibility for bonds
traded by Israeli corporations.
In
all likelihood, this “Millennium Bond” is a government bond because EEPCO is a
service agency of the government. Unlike the US government bond, usually called
Treasury bond that is regarded as extremely safe in the investment world, the bonds of many developing countries do carry
substantial risks. Like private corporations, countries can defaulton
payments. This has happened in Eritrea recently. As reported by Haile Tesfay in awate (Nov 23, 2002), the Eritrean people, especially those in the Diaspora, got
shortchanged following their generous response to the financial needs of the
Eritrean government during its conflict with the government of MelesZenawi. Tesfay
wrote:
Eritreans dug
deep into their pockets, bank accounts, credit cards and even took out second
and third mortgages on their homes in order to respond to this call. When the
government came out with the ‘dollar a day’ initiative, we dug into our
savings. When the government came out with the “first, second and third
offensive” initiatives, we emptied out our children’s education funds. When the
government screamed we need more money, we went as far as borrowing from our
credit cards. Finally, the government came up with bond certificates and we, in
good faith, bought them, with the understanding that they would be honored upon
their maturity. This year, the first batch of bond certificates matured and
many Eritreans are finding out that the Eritrean Government is playing the
‘procrastination’ game; that it is not honoring its legal contract with the
Eritrean people.
The
“Millennium Bond” is issued in USD, and other convertible hard currencies. This
makes it a Sovereign Bond. A Sovereign bond is a debt security issued by a national government
denominated in a foreign currency of a country with a stable economy. The
foreign currency denomination makes it significantly risky to the bondholder. According
to many investment advisors, Sovereign
Bonds, especially those issued by a government of a country with an
unstable economy, will have significant default risks. This is because that
government, beside all other economic problems, will most likely have shortage
of foreign exchange reserve to honor the bond up on maturity.
Why
do people invest in bonds? Generally, people invest in bonds to begin saving to
provide for a secure tomorrow. In a well-functioning economy and stable
political system, bondholders can reach their goals with safety, market-based
yields, and tax benefits whether they are saving for a new home, car, vacation,
education, retirement, or for a rainy day. In the US, for instance, U.S. savings bonds are backed by the full faith and credit
of the United States government. These bonds can earn market-based rates up to 30
years allowing the individual investment to grow.
There is no basis to suggest that government
of MelesZenawi, with a
very poor credit rating (CCC-) in the bonds market, can be trusted for this
kind of investment. The promised rates of
returns on the “Millennium Bond” in Ethiopia are 4%, 4.5%, and 5% for 5, 7 and
10 years maturity periods, respectively. Ethiopia has been perpetually plagued with
inflationary markets ever since the government of Zenawi
came to power. It has been experiencing a chronic inflation rate that is more
than 25% this current quarter alone, despite the stringent price control recently
announced by Zenawi. The ever increasing inflation in
the country has significant implication on the above rates of returns on the
bond, especially for the domestic investors. Even in the unlikely scenario that
the government will honor its obligation, the returns from
this bond investment are extremely low. In the situation in which the
government is the borrower and the bondholders are the lenders, the current
inflation implies that the bondholders are paying the government about 20% of
their savings in bonds so that the government could use their money! That is the
real rates of returns (the nominal rates minus the inflation rate) will be
negative 21%, 20.5%, and 20% respectively.[†] In this irrational investment scheme, where lenders
(bondholders) are paying the government (the borrower), the clear benefit of
this transaction goes to Mr. Zenawi and his cronies
at the expense of the Ethiopian people.
Concluding Remarks
Ethiopia
does not need a huge hydroelectric dam that is proven to cause untold human, economic,
social, environmental, and natural resource destructions. Many small dams with a
mix of various uses, including agricultural irrigation, power generation,
fisheries, tourism, and recreation could be built around the country at a much
lower cost and guaranteed success. Ethiopians should not allow a government
that has continued to embezzle and squander their hard earned money to put its
hands on their meager resources again. They should not be fooled by fake
nationalism and patriotism of a government that:
· made
the country landlocked, without any access to the sea and maritime trade,
· parcels
out the fertile agricultural lands to foreigners at almost no cost, and puts
out anything Ethiopian for sale,
· cedes
fertile farmlands of western Ethiopia, all the way from Gondar to Gambella, to Sudan,
· has
no respect or regard for the country’s history or heritage, including its flag,
· is
known for corruption, nepotism and lack of transparency,
· divides
the people along ethnic lines and homelands, and
· denies its people basic human rights and
freedoms.
The
ethno-centric government of MelesZenawi
has repeatedly demonstrated that it has no interest in promoting the long-term
interest of the country. The affront on Abbay (Nile),
which is very close to the hearts of many Ethiopians as a symbol of national
pride, is another attempt by Zenawi to reassert his
authoritarian control over the people in the guise of patriotism. Ethiopians
cannot and should not fall for this manufactured nationalism of a dictator, who
has much to account for crimes he has committed during his 20 years of authoritarian
rule.
Many
scholars believe that if there is another world war, it will be a war over
waters. Therefore, the Nile issue requires a sober and deliberated approach
where all Ethiopians are consulted and heard through a democratically elected
government.
By
all accounts, the TPLF government has initiated this mega dam project, not out
of its goodwill to catapult Ethiopia out of poverty, but out of its sinister
schemes to divert the attention of the people from the revolutionary uprising
on the horizon and to swindle money out of the pocket of the hardworking
Ethiopians. Therefore, all Ethiopians at home and in the Diaspora, have a
historic responsibility to stand in unison and thwart the destructive plan of
the dictator.
