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Growth prospects hurt as Ethiopia struggles to keep the lights on

By Morris Kiruga
Posted on Thursday, 30 May 2019 15:06

The Grand Ethiopian Renaissance Dam is not being built fast enough to avoid the current electricity shortages. REUTERS/Tiksa Negeri

Ethiopia has instituted a power-rationing schedule that will see domestic users continue to suffer blackouts every day and heavy industries work with fewer shifts until July.

The East African country also announced it would be cutting its power exports to Djibouti by half and suspending exports to Sudan. Electricity exports to the two countries earned Ethiopia $80m last year. Sudan relies on Ethiopia for about 10% of its electricity.

Water woes

While briefing reporters in Addis Ababa last Friday, Ethiopia’s minister for water and electricity Seleshi Bekele said the government had been forced to ration electricity because of low water levels in a critical dam in the eastern part of the country.

  • Gibe III’s water has fallen by more than 16m from levels recorded in May last year, leading to a deficit of 476MW, which is more than a third of the country’s current generation of 1,400MW.
  • Other hydropower dams have been facing mechanical difficulties. Tekeze hydropower dam, for example, was brought back to full generating capacity in mid-May after months of repairs to three of its four turbines.
  • Meanwhile, the Ashegoda wind project is only generating half of its capacity.

The power rationing began on 9 May and is due to continue until 7 July. Under the initial rationing schedule, domestic users will receive electricity in three shifts.

  • According to the state utility company, there are 2.9 million customers, of whom 1.5 million are low-energy consumers.

Busted bottom lines

Businesses and heavy industries will either have to close shop or find costly alternatives. Journalist Birhanu Fikade, writing in The Reporter, says: “Businesses starting from small barbershops all the way up to skyscrapers are now forced to acquire or contract the services of these diesel-powered generators, incurring a cost of 1,500 ($51.6) to 3,500 birr per day, depending on capacity.”

Cement factories are splitting their operations in two so that one half can use power for 15 consecutive days while the other half remains in the dark. The same schedule applies to metal factories.

Dangote caught out unprepared

Among those affected is Dangote Industries Ethiopia, whose chief executive Danilo Trugillo told reporters had not received prior warning of the disruptive rationing schedule.

  • Trugillo told reporters that “As we were not told ahead of time, we have not prepared a plan. This is devastating to us.”
  • Ethiopia is the third-largest contributor of revenue for Dangote Cement after Nigeria, Ghana and South Africa.
  • Cheap electricity was a primary reason why Dangote Industries opened a subsidiary in Ethiopia, where it was offered subsidies that even further reduced its energy costs. The cement factory is using the resulting lower operating costs to target East African markets with cheaper cement.

Plans and obstacles

The rationing further complicates Ethiopia’s plans to become a light industry hub and a middle-income country by 2025. In a bid to improve the finances of the Ethiopia Electric Utility, Ethiopia has been raising its power tariffs.

  • The country has an installed capacity of about 4,300MW currently, up from just 380MW in 1991. There are multiple ongoing projects, like the huge Grand Ethiopian Renaissance Dam, that are expected to add an additional capacity of 9,000MW.
  • In an editorial, Addis Fortune wrote: “What haunts the energy sector more than the shortage of rain are structural problems, lack of diversification of energy sources and creating a competitive energy sector.”
  • Hydroelectric power accounts for 90% of the current production, with wind and thermal power accounting for the remaining 10%.

Although power cuts are a familiar thing in Ethiopia, the last time the country experienced structured rationing was three years ago. The two-month schedule will affect growth prospects this year, as people and industries dig deeper in their pockets to find alternative sources of power. It also places increased pressure on the government to find lasting solutions not just to power generation problems but also to transmission and maintenance issues.

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