Ethiopia-to-Djibouti Rail to Be Complete in a Year, PM Says

by Zelalem

An electrified rail link from
Ethiopia’s capital along its main trade route to neighboring
Djibouti will be completed by October 2015, Prime Minister
Hailemariam Desalegn said.

The Railways Corp. project, funded with a $1.6 billion
advance from the Export-Import Bank of China and by Ethiopia’s
government, is half complete, he said yesterday in the capital,
Addis Ababa.

“Priority has been given to it,” Hailemariam said in
response to questions from members of parliament. “Next
October, the line will be finished.”

The 656-kilometer (408-mile) railway is part of a five-year
growth plan for Ethiopia started in mid-2010 that seeks to spend
569.2 billion birr ($28 billion) of public and private funding
on infrastructure and industry. The new route to Djibouti may
halve travel times, according to the government.

Seven out of 10 cane factories being built by the state-owned Sugar Corp. will also be completed in a year’s time, with
the rest finished in the subsequent six months, the premier
said. “We will be able to export the sugar they produce this
year,” he said, referring to the Ethiopian calendar year that
ends Sept. 11.

Sugar Corp. signed $580 million of government-guaranteed
loans last October with the China Development Bank to finance
six processors in the South Omo region, while China’s Ex-Im Bank
provided a credit line of $500 million in May for a sugar plant
in the northern Tigray region, according to data on the Finance
’s website.

Increase Output

In September 2011, the government said it planned to
increase sugar production almost eightfold to 2.3 million metric
tons by mid-2015, leaving a surplus for export of 1.25 million
tons. Plans to build 10 sugar factories, a 2,395-kilometer rail
network and boost power supply fourfold to 8,000 megawatts
haven’t been fully achieved, said Girma Seifu, the only
opposition legislator of 547 members of parliament.

“At this point in time we’re just importing sugar,” he
said by phone from the capital yesterday. “The plan is just for
propaganda purposes rather than implementation.”

Turkish contractor Yapi Merkezi Insaat VE Sanayi AS has
commenced work on a northern railway line from Awash to Woldiya,
while a Brazil-funded project to the southwest hasn’t begun,
Hailemariam said. Russia plans to fund a link to Kenya,
according to the Railways Corp. “Because there is an economic
slowdown those countries have not been able to release the
loans,” Hailemariam said.

Loan Maturities

An advance of $300 million from the Export Credit Bank of
Turkey funds the Turkish project at the six-month London
interbank offered rate plus 3.75 percent, according to the
Finance Ministry. Credit Suisse Group AG (CSGN) is loaning $450 million
at the same rate and $415 million at six-month Libor plus 4.59
percent for the line, the data shows.

All the agreements were signed July 7. The maturity of the
recent loans for rail and sugar is about 12 years. That compares
with a four-decade repayment period for World Bank advances,
which come with interest rates of about 0.75 percent.

The first Credit Suisse funding was released in August for
the “essential infrastructure” project that will be finished
in three years, bank spokesman Adam Bradbery said in an e-mailed
response to questions. Its financing for the 389-kilometer track
is split into a $450 million, seven-year maturity commercial
loan involving lenders from Europe, Africa, the Middle East and
the U.S., he said today.

The bank’s other loan is backed by Sweden’s
Exportkreditnamnden, Denmark’s Eksport Kredit Fonden and Swiss
Export Risk Insurance, and will be paid back over 13 years,
Bradbery said.

Ethiopia is on the “cusp” of going from a low to moderate
risk of debt distress, the International Monetary Fund said this
month. “Commercial loans to finance large public investment
projects by state-owned enterprises could increase the risk to
Ethiopia’s public debt sustainability,” it said.

To contact the reporter on this story:
William Davison in Addis Ababa at

To contact the editors responsible for this story:
Paul Richardson at
Michael Gunn, John Bowker

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