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AFRICAN DEVELOPMENT BANK ETHIOPIA MEKELE-DALLOL AND SEMERA-AFDERA POWER SUPPLY FOR INDUSTRIAL DEVELOPMENT AND ACCESS SCALE-UP PROJECT (MDSAPIAP) APPRAISAL REPORT ONEC DEPARTMENT July 2016 Public Disclosure Authorized Public Disclosure Authorized
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AFRICAN DEVELOPMENT BANK
ETHIOPIA
MEKELE-DALLOL AND SEMERA-AFDERA POWER SUPPLY FOR INDUSTRIAL
DEVELOPMENT AND ACCESS SCALE-UP PROJECT (MDSAPIAP)
APPRAISAL REPORT
ONEC DEPARTMENT
July 2016
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Table of Contents
1. STRATEGIC THRUST & RATIONALE 1
1.1. Project linkages with country strategy and objectives ............................................... 1 1.2. Rationale for Bank’s involvement ............................................................................. 2 1.3. Donor Coordination ................................................................................................... 3
2. PROJECT DESCRIPTION 3 2.1 Project components .................................................................................................... 3 2.2 Technical solution retained and other alternatives explored ...................................... 4 2.3 Project type ................................................................................................................ 4 2.4 Project cost and financing arrangements ................................................................... 4
2.5 Project’s target area and population ........................................................................... 6 2.6 Participatory process for project identification, design & implementation ............... 6 2.7 Bank Group experience, lessons reflected in project design ..................................... 6
2.8 Key performance indicators ....................................................................................... 7
3. PROJECT FEASIBILITY 8 3.1 Economic and Financial Performance ....................................................................... 8
3.2 Environmental and Social Impacts ............................................................................ 8 3.2.1 Environment ............................................................................................................... 8 3.2.2 Climate Change .......................................................................................................... 9 3.2.3 Gender ...................................................................................................................... 10
3.2.4 Social........................................................................................................................ 10 3.2.5 Involuntary resettlement .......................................................................................... 11
3.2.6 Stakeholders ............................................................................................................. 11
4. IMPLEMENTATION 11 4.1 Implementation arrangements .................................................................................. 11 4.2 Procurement Arrangement ....................................................................................... 12
4.3 Financial Management ............................................................................................. 12 4.4 Monitoring and Evaluation ...................................................................................... 13
4.5 Governance .............................................................................................................. 15 4.6 Sustainability............................................................................................................ 15 4.7 Risk management ..................................................................................................... 16 4.8 Knowledge building ................................................................................................. 17
5. LEGAL INSTRUMENTS AND AUTHORITY 17 5.1 Conditions associated with Bank’s intervention ...................................................... 17
A. Condition Precedent to Entry into Force of the Loan Agreement ........................... 17 B. Conditions Precedent to First Disbursement of the Loan in Respect of Consultancy
Services for an amount not exceeding 3.35 million USD : ...................................... 18 C. Conditions Precedent to Subsequent Disbursement of the Loan ............................... 18
6. RECOMMENDATION 18
Appendix I: Comparative socioeconomic Indicator I Appendix II: Table of ADF Portfolio in the Country II
Appendix III: Table of Key Projects Financed By the Bank and other Development Partners
in the Country IV Appendix-IV: Project Location Map V
Appendix V: Justifiction For Financing More Than 50% Of Cost By AFDB VI
Currency Equivalents
As of May2016
1 UA = 1.4173 USD
1 UA = 30.5843 ETB
1 USD = 21.5788 ETB
1 ETB = 100 (Ethiopian cents)
Financial Year for EEP
July 8th – July 7th
Weights and Measures
1 metric ton = 2204 pounds (lbs)
1 metre (m) = 3.28 feet (ft)
1 kilometre (km) = 0.62 mile
1 hectare (ha) = 2.471 acres
1 kilovolt (kV) = 1000 volts
1 kilowatt (kW) = 1000 watts
1 megawatt (MW) = 1000 kW
1 gigawatt (GW) = 1000 MW
1 kilowatt hour (kWh) = 1000 watt hour
1 gigawatt hour (GWh) = 1000 kWh
i
ABBREVIATIONS
ADB = African Development Bank Group
ADF = African Development Fund
AFD = Agence Française de Développement
BADEA = Arab Bank for Economic Development for Africa?
CAGR = Compounded Annual Growth Rate
CIDA = Canadian International Development Agency
CSP = Country Strategy Paper
CSO = Civil Society Organization
DC = Direct Current
DFID = Department for International Development
DSCR = Debt Service Coverage Ratio
EEPCO = Ethiopian Electric Power (Corporation)
EIB = European Investment Bank
EC = European Commission
EEA = Ethiopia Electric Agency
EEP = Ethiopia Electric Power
EEU = Ethiopia Electric Utility
ENPV = Economic Net Present Value
EMU = Environmental Monitoring Unit
EIRR = Economic Internal Rate of Return
ENPV = Economic Net Present Value
ESI = Electricity Supply Industry
ESIA = Environmental and Social Impact Assessment
ESMP Environmental and Social Management Plan
ETB = Ethiopian ETB
ETFO = Ethiopia Field Office
FE = Foreign Exchange
FIRR = Financial Internal Rate of Return
FNPV = Financial Net Present Value
FY = Financial Year
GoE = Government of Federal Democratic Republic of
Ethiopia
GEP = Generation Expansion Plan
GDP = Gross Domestic Product
GTP = Growth & Transformation Plan
GWh = Gigawatt hour
HV = High Voltage
HVTL = High Voltage Transmission Line
ICB = International Competitive Bidding
ICS = Interconnected System
IPP = Independent Power Producer
ISS = Integrated Safeguards System
IDA = International Development Association
JICA = Japanese International Co-operation Agency
KFW = Kreditanstalt fur Wiederanfbaw
km = Kilo meters
kV = Kilo volt
LC = Local Cost
ii
LRMCS = Long Run Marginal Cost of Supply
LV = Low Voltage
MCM = Million Cubic Meters
MoFEC = Ministry of Finance & Economic Cooperation
MIS = Management Information System
MW = Megawatt
MV = Medium Voltage
NDF = Nordic Development Fund
NEPTP = Northern Ethiopia Power Transmission Project
NGO = Non-Governmental Organization
O&M = Operation and Maintenance
p.a. = Per Annum
PA = Project Area
PAPs = Project Affected Persons
PASDEP = Plan for Accelerated and Sustainable Development to
End Poverty
PCBs = Polychlorinated Biphenyls
PCR = Project Completion Report
PIT = Project Implementation Team
PPA = Power Purchase Agreement
PPER = Project Performance Evaluation Report
PSNP = Productive Safety Net Program
PSP = Private Sector Participation
QPR = Quarterly Progress Report
RAP = Resettlement Action Plan
SCS = Self Contained System
SIDA = Swedish International Development Agency
SMEs = Small and Medium Enterprises
SNNPR = Southern, Nations and Nationalities People’s Region
TPP = Thermal Power Plant
TVET = Technical, Vocational Education and Training
UA = Unit of Account
UEAP = Universal Electricity Access Program
UNDB = United Nations Development Business
UNECA = United Nations Economic Commission for Africa
USAID = United States Agency for International Development
USD = United States Dollars
VCT = Voluntary Counselling and Testing
TPP = Thermal Power Plant
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Loan Information
Client’s information
BORROWER: The Government of the Federal Democratic Republic of Ethiopia (GoE)
EXECUTING AGENCY: The Ethiopian Electric Power (EEP)
Indicative Financing Plan
Sources of financing Amount
(USD million)
Instrument
ADB 104.61 Loan
ADF -
EEPCO/ GoE 17.91 Counterpart
contribution
Total project cost 122.52
ADB’s key financing information
Loan currency
United States Dollar (USD)
Interest type Fully Flexible Loan
Interest rate spread Funding margin+60 bps lending
spread
Commitment fee None
Other fees None
Repayment Semi-Annual
Tenor 20 Years
Grace period 5 Years
FIRR 14.38%
FNPV (@10%) US$ 64.52 million
EIRR 29.13%
ENPV (@12%) US$ 293.42 million
Timeframe - Main Milestones (expected)
Concept Note approval September 2015
Project approval July 2016
Effectiveness October 2016
Completion July 2019
Closing date December 2020
Last repayment July 2046
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PROJECT SUMMARY
1.1 The Mekele-Dallol & Semera-Afdera Power Transmission Supply for Industrial Development
and Access Scale-up Project (MSPIAP) (with the associated Transmission lines, Substations and Rural
Electrification components) aims to improve the socio-economic development and livelihood of the
population of beneficiary regions through increased access to affordable & sustainable electricity
supply and improvement in service delivery. The two beneficiary regions are Tigray & Afar Regional
States of Ethiopia.
1.2 The Program’s main outcomes include (i) provision of adequate & reliable electricity supply
to industries and small businesses by adding 250 MVA capacity and making available 613 GWh/year
at Dallol (for potash companies Yara, Allana & Sercum Minerals) & 31.5 MVA at Afdera (small salt
extraction businesses); (i) increase in number of people with access to sustainable modern grid based
electricity supply; (iii) improvement in power utility revenue through increment in number of domestic,
commercial and industrial customers; and (iv) improved access in the provision of basic social services
such as schools, health centres safe water etc.. At output level, it will result in the construction of two
(2) 230 kV transmission lines and two (2) corresponding substations. The lines and substations to be
constructed will cover the following sections: (i) 130 km of 230 kV Mekele-Dallol transmission line
(ii) 175 km of 230 kV Semera-Afdera transmission line (iii) Construction of associated two new
substations at Dallo & Afdera, vi) Substation expansion on two existing Mekele & Semera 230 kV
substations (iv) Rural Electrification construction of MV and LV distribution networks (v) Consultancy
Services for project supervision and management and (vi) Technical Assistance and Capacity building
1.3 At completion in 2019, the project will benefit an estimated 36 rural towns/villages (estimated
102,000 people) directly in the beneficiary regions from improved access to electricity, basic social
services. The project will also support provision of adequate and reliable grid based power supply to
potash industries as well as other small business. The program will have a direct positive social benefit,
enabling improved education opportunities for women and school age children, improving access to
health services, creating productive/livelihood opportunities and employment through expanded service
and improved private sector activities.
2. NEEDS ASSESSMENT
2.1 The biggest challenge facing the Government of Ethiopia (GoE) is to mobilize the necessary
resources to meet the generation, transmission, distribution and rural electricity access scale-up
requirements,as these involve considerable investment costs. The Government has recently mobilized
resources for implementing three wind & hydroelectric generation projects; namely: Ashegoda Wind
project (120 MW) completed in 2012, Adama- I & II wind projects (204 MW) completed in 2015 with
financing from the French &Chinese Governments, Gibe-III hydropower plant(1870 MW), completed
end of 2015; Genale dawa-III hydropower plant (254 MW) to be completed in 2016 and Renaissance
dam (6,000 MW) to be completed in 2018, which are the latest development in EEP’s generation
expansion plan and are expected to provide an extra 8,124 MW to the system.
2.2 Implementation of this projectis therefore important to ensure that the generated power from
the power plants is transported to remotely located load centres. It will also solve the prevailing power
shortage due to in ability of the existing diesel power plants to satisfy rapidly growing demand in the
area as a result of the need to expand exploitation of large potash and salt resources in the area.
Providing electricity supply to large & small industries, urban & rural towns around Dallol and Afdera
with modern, cleaner and cheaper reliable power as opposed to diesel power, by extending the grid,
will stimulate economic activities that enhance job creation, improve access to basic services (schools,
health & social centres) and limit environmental degradation due to the utilization of fossil fuel. In
addition the proposed grid extension to the two towns will scale-up access to electricity in the Afar
Region from 55% to 75% by supplying to schools, health centres, social centres, etc. planned to be
connected.
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2.3 The Project Coordinator is already appointed. The submission of CVs of all Project
implementation Team including the procurement plan will be a condition for loan Negotiations. In order
to avoid the project stat-up delay, the advance contracting is already approved and procurement
documents for major components have already been received by the Bank. Procurement process is
expected to start soon. The Bank energy sector operation in the country so far has been very successful.
There is no energy project at risk. It can be concluded that the project preparedness is well advanced.
3. BANK’S ADDED VALUE
3.1 In support of the Government’s programs, the Bank has funded several projects in the
electricity sub-sector. These include (i) feasibility studies of hydropower projects, namely Alleltu,
Beles, Chemoga-Yeda and Halele-Werebesa (ii) Ethiopia-Sudan Power Interconnection Feasibility
Study (iii) Northern Ethiopia Power Transmission Project (iv) 230 kV Koka-Dire Dawa Power
Transmission, (v) Gilgel GibeI–Ghedo Transmission Project, (vi) 66 kV Transmission projects, (vii)
Gefersa Fitch, Debere Markos – Bitchena and Debre Markos Finoteselam Transmission(viii) Rural
electrification I, and (ix) Ethiopia-Djibouti Power Interconnection Project, to expand the transmission
system, increase rural electricity access and enable exchange of power with neighbouring countries.
These interventions have contributed to the development of Ethiopia’s hydropower resources, power
evacuation from the generating plants and expand rural electrification, which are vital for increasing
the population’s access to electricity. The Bank is currently financing: (i) the Ethiopia Rural
Electrification-II Project, which involves the electrification of 335 rural towns/villages, (ii) Electricity
Transmission System Improvement Project which involves construction of 943 km of 230 kV
transmission line and associated 21 high voltage substations expected to be completed in December
2016, and (iii) Ethiopia-Kenya Electricity Highway project which involves construction of 434 kms
500 kV HV DC transmission line with associated converter station expected to be completed in 2018.
3.2 The Bank considers the support of domestic infrastructure development and regional
integration, especially within the power sector, as a pillar of its strategy in the country which is aligned
with the New Deal on Energy for Africa and the high 5s. The Bank’s participation is vital for the
following reasons: (i) the financial support to EEP will strength the implementation of rural
electrification and transmission system improvement programs, that enables transmitting sufficient
power to customers (ii) the supply of electricity will contribute to the improvement of the standard of
living of the people (iii) create opportunities for effective utilization of energy resources (iv) the project
supports dialogue between the Bank and GoE on policy issues related to energy policy and regulatory
issues.
4. KNOWLEDGE MANAGEMENT
EEP has sufficient experience in the implementation of similar 230 kV and 400 kV transmission and
substation contracts and rural electrification projects. Implementation of this project will enhance the
knowledge (technical & project management) of the executing agency in managing the design and
project management/supervision of projects to be implemented in areas with extreme environmental
condition. The Bank continues to build capacity and strengthen knowledge and skills in EEP through
such types of projects. Bank’s Supervision Missions are key forums for dissemination and sharing of
experience and knowledge with implementing agency, contractors and regional administration to
improve sector coordination within government and financiers.
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Country and Project Name: ETHIOPIA-Mekele – Dallol and Semera – Afdera Power Supply for Industrial Development and Access scale-up project
Purpose: The Project is intended to supply Electric Power to Potash Industries, Salt Mines extraction businesses & create Electricity Access scale-up
Results Chain Performance Indicators Means of
Verification
Risks/Mitigation Measures
Indicator (incl. CSI) Baseline
2015
Target 2020 IM
PA
CT
I
1. Improved living conditions
and Socio-economic
development of the
communities
1.1 Reduced number of
people living below the
poverty line
28.5 % 20.4 % -Government
Statistics and
Bulletins;
- Central Statistics
Agency,
-UNDP Human
Development
index
1.2 Increased % of access to
primary education (% are
female)
39% 80% (50% are
female)
OU
TC
OM
E
2. Increased electricity access
& rural electricity supply
3. Improved availability of
reliable and sustainable
electricity for private sector
industrial development
2.1 Increased % of access to
electricity (% are female)
2.2 Increased number of
domestic customers (Million)
55% (2104)
1.98
90% (50% are
female)
5.85
-EEP and EEU
annual reports;
-Utility records
-Project
Completion
Reports
- MoFEC annual
reports
Risk 1: Timely completion of private sector
potash industries
Mitigation: The private sector investors
received investment permits and are actively
mobilized on site.
Risk 2 : Availability of sufficient power
Mitigation: Ethiopia is currently building
about 6,000 MW generation
Risk3: Shortage of financing resources
Mitigation: Government support to
financing, transmission system and rural
electrifications components.
3.1 Increase in number of
large industrial customer
connections
37,903 111,976
3.2 Increase in large &
small industry Energy
Consumption, GWH/y
5,407
15,063
OU
TP
UT
S
Component A
Construction of high voltage
transmission lines
Component B
Construction high voltage
Substations
1.Length of high voltage
line constructed for Potash
industry, Salt mines and
supply of urban & rural
towns (km)
n.a 305
Project Quarterly
progress report &
Bank’s site
Supervisions
Risk 4: Project completion delay
Mitigation: Deployment of project
management & supervision consultant &
enforcement of the PIT staff
Risk 5: Cost overrun
Mitigation: Physical (5%) and price (5%)
contingencies built into the project costs, the
contract packaging will ensure that all
necessary construction guarantees and
insurances will be in place.
2. Length of MV & LV
distribution lines constructed
for rural towns/villages
around Potash and Salt
industry electricity access
(km)
n.a 0.4 kV, 481 Km
33KV, 1,524 Km
vii
3. New high voltage
substations constructed for
Potash industry & rural
towns/villages electricity
access.
- Added Substation capacity
(MVA)
n.a
n.a
2
281
Risk 6: Financial viability of EEP (Low
tariff)
Mitigation: Implement cost reflective tariff
and expand export power to neighbouring
countries
4.Additional large industry
customers, No
n.a 3
5. Number of jobs created
during project
implementation (Semi-
skilled & unskilled)
-Temporary (% female)
-Permanent (% female)
n.a
n.a
4130 (35% fem)
2077 (35% fem)
Component C
Rural Electrification
4.Additional number of rural
towns connected
n.a 36
Risk 7: Scattered rural villages and public
institutions
Mitigation: Government plan to urbanize
rural villages and expanding electricity
access
5. Additional Rural
population benefited
- Connected households
(schools, health & social
centres, private businesses
and public institutions)
n.a
n.a
102,000 (45%
beneficiaries are
women)
20,400 (35
health & 43
educational
facilities )
Component D
Project Supervision and
Management
6. Supervision consultant
recruited
n.a 1
EA periodical &
Supervision
Mission Reports
Risk 8: Delays in recruitment of the
consultant
Mitigation: Consider using of Advance
contracting and timely no objection by the
Bank
Risk 9: Compensation & RAP
implementation delay
Mitigation: Make sure that the capacity &
skill mix of the team is adequate to manage
compensation and RAP implementation.
7. Delivered supervision
reports
- Project specific ESMP
developed and
implemented
n.a
n.a
12 Project
quarterly Reports
2 ESMP
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Component E
Capacity Building
8. Number of staff trained
within the EEP and Ministry
9. Percentage of action points
of the Gender Audit
implemented.
n.a
n.a
35 (out of the
total 50% are
women)
75%
EEP & Energy
Ministry Reports
Risk 10: EEP Management may lack the
necessary commitment and capacity to
implement the action points of the Gender
Audit
Mitigation: Budget will be set aside for the
implementation of the Gender Audit action
plan and for the procurement of technical
assistance if needed.
KE
Y A
CT
IVIT
IES
CTIVITIES INPUTS (MUSD)
Components
Component A Transmission Lines
Component B Substations
Component C Rural Electrification
Component D Consultancy Services
Component E Capacity building & Feasibility
Study of Transmission Projects
Component F Distribution of advanced Cook
stove & Solar Panels (PV) including capacity
building
Component G Project Management, Audit,
Resettlement, Compensation and ESMF
Component A, USD 49.56 m
Component B, USD 29.70 m
Component C, USD 16.50 m
Component D, USD 3.35 m
Component E, USD 5.0 m
Component F, USD 0.5 m
Component G, USD 17.91 m
Total: USD 122.52 m
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PROJECT IMPLEMENTATION SCHEDULE
Mekele – Dallol and Semera – Afdera Power Supply for Industrial Development and Access scale-up project
N
o Description
Year 2015 2016 2017 2018 2019 2020
Quart
ers 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
1 Concept Note approval
2 Project Approval
3 Effectiveness
Selection of Consultants
4 Bid Preparation
5 Bidding period
5 Evaluation, Contract
Award and Mobilization
6 Construction
7 Commissioning
8 Last Disbursement
1
REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO
THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO ETHIOPIA FOR MEKELE –
DALLOL AND SEMERA – AFDERA POWER SUPPLY FOR INDUSTRIAL DEVELOPMENT
AND ACCESS SCALE-UP PROJECT (MDSAPIAP)
Management submits the following Report and Recommendation on a proposed ADB loan of USD
104.61 million (UA 73.81 million) to finance the Mekele – Dallol and Semera – Afdera Power Supply
for Industrial Development and Access scale-up project (MDSAPIAP) in Ethiopia.
1. STRATEGIC THRUST & RATIONALE
1.1. Project linkages with country strategy and objectives
1.1.1 Ethiopia has made progress in all spheres of development and achieved a stable overall
macroeconomic performance and faster growth during the last ten years. The annual average real growth
rate of GDP of the country averaged 10.9% since 2004/05, placing it among the top performing economies
in the world. Growth has been broad-based and widespread and new jobs have been created in both the
public and private sectors, particularly through a boom in construction. All sectors have grown
significantly contributing to the overall growth registered in the country. On average, agriculture has grown
by 8.2%; industry by 14.4%; and services by 13.1% since 2004/05.
1.1.2 Its Growth and Transformation Plans (GTP I and II) outline equitable and inclusive development
and envisions the achievement of universal electricity access to its citizens by 2020. The GoE’s key
development objective, outlined in the just completed GTPI; (2011-15), and the new GTPII; (2016-2020)
is to achieve inclusive, accelerated and sustained economic growth and to eradicate poverty. Energy is one
of the nine priority sectors in the GTP. The sector is also underpinned through sound policy, legal and
strategic framework which includes the National Energy Policy (1994); new Energy Law, Proclamation
810/20131; Climate-Resilient Green Economy (CRGE) Strategy (2011) that outlines the green energy
development path and the 25 year Power Development Master Plan adopted in 2014, which describes the
national strategy and action plan for achieving the national electricity access and energy sector
development targets.
1.1.3 The 2016-2020 Country Strategy Paper (CSP) for Ethiopia was approved by the Bank’s Board of
Directors in March 2016. The CSP aligns with and facilitate attainment of GTP II objectives by continuing
to focus on: (i) Infrastructure development, especially energy, transport, and water and sanitations, and;
(ii) Promoting economic governance, with particular emphasis on facilitating effective and efficient
delivery of basic services and business enabling environment for private sector development. By aligning
with GTP II, the new CSP’s twin pillars are consistent with the objectives and core operational priorities
of the Ten Year Strategy (TYS) of the Bank and will contribute to the attainment of green growth and
climate resilience goals.
1.1.4 The Bank’s assistance strategy is part of the international donor community’s coordinated support
for the implementation of the Government’s Plan as articulated in Ethiopia’s Third Poverty Reduction
Strategy Paper, known as Growth and Transformation Plan (GTPI), covering the period under financial
years (FY) 2010/11 to 2014/15. A key objective set in the GTPI is to increase the country’s generating
capacity from 2,000 MW in 2010 to 10,000MW and electricity access from 41 % in 2010 to 75% by end
of 2015, particularly through the development of the country’s hydro power potential (estimated at over
45,000 MW but developed at less than 10% of this potential capacity to date) including other renewable
energy resources (wind, solar, geothermal.), electric power transmission and distribution infrastructure.
GTP-I had registered some progress in increasing the generation capacity from 2000 MW in 2010 to
1 New Energy proclamation has replaced the existed energy law in broader term and included both the electricity & energy
efficiency and conservation tasks. Proclaimed the establishment of the Ethiopian Energy Authority (EEA) under the
regulation of the Council of Ministers;
2
4180 MW in 2015 and electricity access from 41 % in 2010 to 60 % in 2015 and the achieved results were
below the set target.
1.1.5 The GTP-II covering the period 2015/16 to 2019/20 has considered achievements made and
lessons learnt under the GTP-I implementation and will focus on sustained economic development with a
clear target of achieving improvement in the livelihoods of the population by promoting universal
electricity access program and maintaining sufficient, affordable & reliable supply of electricity by the end
of the period. As a result, there is going to be given significant emphasis on the energy sector.
1.1.6 The project is intended to: (i) provide sustainable power for the population of the North and North
Eastern parts of the country and potash mining industries, (ii) facilitate the implementation of the rural
electrification program and (iii) reduce high transmission losses and improve system efficiency, stability
and reliability. The project will thus result in increased economic activities and will enable Ethiopia to
further exploit its hydro & other renewable energy potential and enhance industrialization and commercial
business as well as improving the livelihoods of the rural population for sustained economic growth. As
such, the proposed project is in line with the Bank CSP 2016-20120 and the Government’s GTP-II
(2015/16-2019/20).
1.1.7 The project is aligned with the New Deal on Energy’s focus on supporting energy access and
in particular the need for the sector to add 130 million on-grid connections by 2025. This transmission
line and last mile connectivity project will not only contribute towards industrialization by providing
power for three industrial enterprises with related benefits for the economy but provide the conveniences
of modern energy access to over 100,000 people through the provision of household connections.
1.2. Rationale for Bank’s involvement
The intervention of the Bank has been requested and is justified in view of the following:
1.2.1 Ethiopia has made modest improvements during the last decade in access to electricity and basic
services according to the Ministry of Finance & Economic Development (MoFEC) annual report.2.The
country’s plan to meet its medium-term growth target of 10% and to increase the rate of the population
with access to electricity from 60% in 2016 to 90% by 2020 will be realised with a focus on grid based
rural electrification and off grid supply options and relying significantly on the development of adequate
transmission & distribution systems for power transfer to various parts of the country. This project will be
critical to meeting sufficient power transfer capacity to satisfy the growing industrial, commercial &
domestic demand (at initial stage 80 MW and will increase up to 200 MW by 2020) in the affected regions
and increase EEP’s revenue by USD 19 million at the initial stage from energy sales. This project will
support the Bank’s country strategy by providing support for improved access to infrastructure, enhanced
access to basic services and rural development through making available necessary power supply to meet
the growing demand.
A request from the Government of Ethiopia dated January 12, 2015 has been received by the Bank.
1.2.2 Most income generation schemes that communities are currently engaged other than agriculture
are traditional, uniform and meant mostly to meet daily needs. Some of the activities widely undertaken
include traditional informal salt mining, sell of fuel wood, gathering wild honey, etc. Hence the project
will transform the beneficiary regions by creating enabling environment to industries, small & medium
enterprises (SMES) to be engaged in exploitation of the abundant potash (estimated at l40 to l50 million
tons) and salt mines resources in the region which are currently suppressed due to lack of adequate and
sustainable power. In addition it will trigger inclusion of new salt extraction/iodizing industries (currently
30,000 tons/month salt is extracted by small private businesses) and commercial businesses, as well as the
expansion of basic infrastructure (health and education facilities notably) and job creation opportunities.
2 Population Access to Electricity (Service coverage) has been improved from 17% (2005) to 55% (2015)
3
1.3. Donor Coordination
1.3.1 The Ministry of Finance and Economic Cooperation (MoFEC) is responsible for coordinating
donor financing within the sector. This is done through regular consultations between the GoE and the
Donors active in the energy sector through the Development Assistance Group (DAG). The DAG also
serves as a forum for donors to harmonize their strategies for intervention in all sectors including the energy
sector, and to share experiences from their respective areas of operation in the country to provide useful
lessons to the group for incorporation in future interventions. Furthermore, the DAG serves as the conduit
for development partners to assist the GoE in formulating policies as well as monitoring policy
implementation. The Bank’s country office in Ethiopia (ETFO) is playing a leading role in the DAG and
is currently serving as a Co-chair of the DAG Executive Committee. While there is no dedicated working
group for the energy sector, there is active sharing of information and harmonization of donors’ position
on key sector issues with a view to promoting long-term sector viability and growth on conducted
periodical Energy Sector Partners Group meetings.
1.3.2 The most active development partners (DPs) include: the World Bank, Japanese International
Cooperation Agency (JICA), French Development Agency (AfD), and European Investment Bank (EIB),
the Arab Bank for African Economic Development (BADEA), the Kuwait Fund, India, China, Italy and
the African Development Bank Group. The DPs are mainly involved in supporting (a) the Energy Access
projects aimed at helping the country establish a sustainable program for expanding the access to
electricity, and to improve the quality of electricity supply; (b) Energy project designed to increase the
efficiency and sustainability of Ethiopia's power sector; (c) the Universal Electricity Access Program
(UEAP); (d) Increase the hydro generation capacity and renewable energy mix (f) Urban distribution
system rehabilitation (g) Transmission and Substation rehabilitation & upgrading (h) Development of
geothermal power resources (for details see Appendix 3).
2. PROJECT DESCRIPTION
2.1 Project components
Table 2.1: Project Components
No Component Name Est. cost
(USD million)
Component description
A. Transmission Lines
Construction.
45.05
This component comprises of construction, on a turnkey basis,
the following two 230 kV transmission lines. (i) 130 km of 230
kV Mekele - Dallol line (ii) 175 km of 230 kV Semera-Afdera
transmission line
B Construction&
expansion of
substations.
27.00
This component comprises of extension of two substations at
Mekele & Semera and Construction of two new substations at
Dallol & Afdera, located in the north & North Eastern part of the
country.
C Rural Electrification
Access scale-up
15.00
This component comprises of construction of 1524 km of MV &
481 km of LV distribution lines, installation of distribution
transformers and connection of the rural & urban households
including energy meters.
D Project Supervision and
Management.
49.56
This component includes procurement of the consultancy
services for project management & s0u0pervision of the
construction contracts.
4
E
Technical assistance &
capacity building
29.70
- This component includes procuring consultancy services for
undertaking of feasibility & ESIA/RAP studies & bidding
document preparation for identified power transmission
projects by EEP.
- Undertaking capacity building training program for EEP
staff involved in the project planning, design and
environmental (ESIA/RAP) studies.
- Provision of technical and capacity strengthening support in
the implementation of the Gender Audit action plan.
F Distribution of
advanced cook stoves
solar panels and energy
saving light bulbs
3.35
This component includes provision of energy saving stoves and
distribution of solar panels and energy saving light bulbs for
selected rural households & public utilities in Dallol & Afdera
area.
G EEP Project
Management and
Implementation of
ESMP, RAP and ESMF
5.00
This component, consists of EEP project design, management
and implementation of mitigation measures and compensation of
people affected by the project including the Rural Electrification
component ESMF implementation &. The Project has been
categorized in ADB environmental and social category I.
2.2 Technical solution retained and other alternatives explored
The Feasibility study selected the 230kV extensions based on the length of the lines and the maximum
required power transfer. The 230kV voltage level was considered based on the recommendation of
Ethiopian Power Systems Expansion Master Plan and technical-economic analysis study done by EEP
planning Department.
Table-2.2 Project alternatives considered and reasons for rejection
Alternative name Brief description Reasons for rejection
a) Using the existing
132 kV supply
option.
The feasibility study
considered extension of
existing 132 kV systems to
supply the demand.
The alternative option does not have adequate transfer capacity
to transmit the anticipated load of 200 MW and give technically
acceptable voltage at the receiving end. In addition the losses at
132 kV networks are considerably higher and leads to multiple
lines being strung in the future at potentially higher cost
compared to the construction of the 230 kV lines.
b) New generation Plant
capacity initially 80 MW
and will grow up to 200
MW
Construction of power
plants to service the local
demand and avoid
building long
transmission lines.
The option was discarded because even though initial cost of
diesel or thermal option is relatively low; it involves high
operation & maintenance costs which will result in high energy
costs to the users as compared to grid energy and notwithstanding
the environmental cost of the use of fossil fuels
2.3 Project type
2.3.1 The proposed project is an integrated project and includes transmission lines, substation &
rural electrification components. The two 230kV transmission lines are extended from existing 230
kV substations. The proposed new transmission lines will considerably expand the high voltage
transmission system and increase the power transfer capacity from the existing and future generating
sources to the major load centers in the country.
2.4 Project cost and financing arrangements
2.4.1 The project cost is estimated at USD 122.52 million (UA 86.45 million), comprising foreign
exchange costs (71%) of USD 86.67 million (UA 61.15 million) and local cost (29%) of USD 35.85
million (UA 25.30 million).The summary of the cost estimates by component, sources of financing
and by category of expenditure are shown in tables 2.2 below. Additionally, table 2.5 shows ADB and
Govt. financing which Govt.’s contribution is estimated to be USD 17.91 million (UA 12.64 million).
2.4.2 The Bank provides an ADB sovereign guaranteed loan amounting USD 104.61 million to
finance 85.4% of the total financial requirement of the proposed project. The remaining 14.6% (USD
17.91 million) of the project cost will be covered by the Government of Ethiopia. Detailed
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justification is provided in Appendix V for the relatively low counterpart fund for the proposed
project.
Table 2.3: Summary of Project Cost Estimates by Component
No. Component FC LC Total FC LC Total
In Million USD In Million UA
1 Mekele - Dallo
1.1 Transmission Line 17.68 4.42 22.10 12.47 3.12 15.59
1.2 Substation 12.80 3.20 16.00 9.03 2.26 11.29
Sub Total 30.48 7.62 38.10 21.51 5.38 6.88
2 Samara Afdera - - -
2.1 Transmission Line 18.36 4.59 22.95 12.95 3.24 16.19
2.2 Substation 9.90 1.10 11.00 6.99 0.78 7.76
Sub Total 28.26 5.69 33.95 19.94 4.01 23.95
3 Rural Electrification - - -
3.1 Medium and Low Voltage 12.00 3.00 15.00 8.47 2.12 10.58
Total for Transmission line 36.04 9.01 45.05 25.43 6.36 31.79
Total for Substation 22.70 4.30 27.00 16.02 3.03 19.05
Rural Electrification 12.00 3.00 15.00 8.47 2.12 10.58
Sub Total for TR, SS and RE 70.74 16.31 87.05 49.91 11.51 61.42
Price Contingency 5% 3.54 0.82 4.35 2.50 0.58 3.07
Physical Contingency 5% 3.54 0.82 4.35 2.50 0.58 3.07
Total Project Cost for Transmission,
Substation and Rural Electrification
77.81 17.94 95.76 54.90 12.66 67.56
4 Project Supervision and Management 3.35 - 3.35 2.36 - 2.36
5 Annual Audit - 0.10 0.10 - 0.07 0.07
6 Capacity Building Program 1.50 - 1.50 1.06 - 1.06
7 Feasibility Study for New transmission
line projects 3.50 - 3.50 2.47 - 2.47
8 EEP Project Management and design
Cost - 16.14 16.14 - 11.39 11.39
Total for Services 8.35 16.24 24.59 5.89 11.46 17.35
9 Compensation, Resettlement & ESMF - 1.67 1.67 - 1.18 1.18
10 Distribution of advanced cook stove &
Solar Panels (PV) including capacity
building
0.50 - 0.5 0.35 - 0.35
Total Project Cost 86.67 35.85 122.52 61.15 25.29 86.45
Table 2.4: Source of financing in million USD and UA
Source In Million USD
FC LC Total
ADB 86.67 17.94 104.61
Gov. Ethiopia 0 17.91 17.91
Total 86.67 35.85 122.52
Table 2.5 Financing expenditure schedule in million USD
Source
Year
2016 2017 2018 2019 2020 Total
In Million USD
ADB 1.0 30.88 36.37 25.9 10.46 104.61
Gov.
Ethiopia 0.5 5.12 6.15 4.35 1.79 17.91
Total 1.50 36.00 42.52 30.25 12.25 122.52
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2.5 Project’s target area and population
2.5.1 The project is located in the Northern and North Eastern part of the country in the Tigray & Afar
regional states traversing the Woredas Quiha, Enderta, Atsbi woneberta, Kileteawulalo in Tigray &
Kunoba, Berahale, Dallol, Afdera in Afar part of the target area; Afar region is an emerging region with
below national average level of development across all social and economic indicators and thus
implementation of the said project will significantly improve the socio-economic development and access
to the basic services of beneficiaries as well as the region.
2.5.2 The main project beneficiaries will therefore include (i) the power utility EEP (ii) rural & urban
households, industries, health & education facilities, commercial businesses and agriculture (irrigations)
which are currently without electricity supply (like Afdera woreda 36 primary & 1 Secondary schools and
6 health centers etc.….). Existing electricity consumers connected to the diesel generation supply will also
benefit from the supply and increased reliability of service as a result of the project.
2.6 Participatory process for project identification, design & implementation
2.6.1 Participation in identification was embedded in the government’s annual budget programming
process. In line with the National Energy Policy, which emphasizes the need for the development of
indigenous resources, Ethiopia has started to aggressively develop its immense hydro power & renewable
energy potential, both for internal consumption and export purposes. The energy generated at the remote
hydro sites has to be evacuated to the load centers through high voltage transmission network.
2.6.2 At design and preparation stage, views of the various stakeholders were captured through
meetings and workshops carried out as part of the ESIA, ESMP and RAP studies. The main objective was
to ensure all issues concerning the proposed project were covered. Consultations included stakeholders in
relevant government ministries, communities including women & project affected population (PAPs),
districts, national and international NGOs, civil society (SCO) and representatives of potash mining
companies. Awareness campaigns and participatory assessments such as discussions with local leaders,
public village meetings and interviews with focus groups were also held.
2.6.3 Results of the consultations have been incorporated into the project design. Issues were discussed
and consensus was reached on land acquisition procedures, compensation in terms of valuation and
timeliness for buildings and crops, the prospect of increased spread of HIV/AIDS and possibility of
connecting villages along the line, among other issues discussed.
2.6.4 Stakeholders participation modalities during project implementation will be through involvement
and follow-up on the compensation, RAP and ESMP activities, getting required periodical information
about the project progress and undertake a visit to construction sites to witness actual accomplishment.
2.7 Bank Group experience, lessons reflected in project design
2.7.1 The Bank Group has been a partner of the Ethiopian government in the development of the
electricity sub-sector for a long time. Since 1979, the Bank had provided financing for seven projects in
the sub-sector. The Bank has also been supporting Ethiopia’s effort to expand and exchange power with
its neighboring countries through financing the multinational projects. Support has been focused on
providing finance for the high voltage transmission lines, rural electrification and regional interconnection
projects of where the major ones are indicated in section 3.1 of the project summary. Currently there are
three ongoing projects under the Bank’s energy portfolio namely Rural Electrification-II project (RE-II),
Electricity Transmission System Improvement Project (ETSIP) and Ethiopia-Kenya Electricity Highway
with amount of financing close to UA 390 million. The interconnection project is expected to be completed
in 2018 and RE-II and ETSIP projects are progressing well and are expected to be completed by the end
of 2016. Each of the operations above ensured that the ESIA were properly handled.
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2.7.2 The Bank has 16 ongoing investment operations in Ethiopia with a total value of UA 1.138 billion
and the overall performance of the portfolio is highly satisfactory with an average Implementation Progress
(IP) rating of 3.1 and Development Objective (DO) of 3.50 as depicted in Appendix II. Some of the key
lessons learnt from the on-going projects under implementation in Ethiopia, as well as those supported by
other donors’, were taken into account in the formulation and design of the program. These include:
(i) Challenges have been faced on the on-going Rural Electrification program in connecting
rural households as per the plan due to scarcity of adequate energy meters and connection
accessories. In this project procurement of energy meters and connection accessories will
be packaged under the rural electrification component.
(ii) The lack of competent project management team coupled with frequent staff turnover has
in many occasions delayed project implementation. The project considered capacity
building of executing agency project implementation team, and the project will also hire an
experienced engineering consultancy firm for project management and supervision works.
(iii) There have been delays in submitting procurement plans, bidding documents, evaluation
reports and contracts execution. The Bank is continuously conducting training of
procurement experts & project management staff in the country to expedite procurement
process & project implementation.
(iv) As in the case with other similar projects, where construction works are located in dispersed
geographical areas, it is more cost effective and time saving to arrange them such that the
contractors do not have to move across the country to access the different sites. In this
project, proper procurement packaging (in lots) designed for transmission lines, substations
and rural electrification project components in conformance to the Bank procurement policy
and guidelines;
(v) Due consideration has not been given by implementing agencies to the follow-up and
monitoring of ESMP & RAP implementation. In the project implementation arrangement
adequate environmental & social experts are foreseen at the main project office and
construction sites level.
(vi) Repeated loan saving utilization request were received from Government which in turn has
caused project aging due to multiple extension of the disbursement deadline especially on
the Rural Electrification-II project. In this project it is attempted to establish more realistic
cost estimation of various components and required close follow-up for disbursement rate
as well as project implementation and take timely decision on utilization of significant
amount of saving.
2.8 Key performance indicators
2.8.1 The main deliverables of the project are: (i) construction of 305 km of 230kV single and double
circuit transmission lines: (ii) extension of two substations at Mekele & Sermera (iii) construction of two
new substations at Dallol (250 MVA ) & Afdera (31.5 MVA) (iv) construction of 1,524km of 33kV MV
and 481 km LV distribution lines with customer connection materials including energy meters; (v) creating
adequate electric power transmission capacity to industries and commercial businesses and electricity
access (vi) Beneficiary population in 39 rural and urban towns (102,000 ) and connected households
(20,400) (vii) full implementation of the ESIA and RAP measures (viii) Timely undertaking the feasibility
studies, ESIA, RAP and bidding documents preparation.
2.8.2 The project will allow the transfer of 200 MW to the north and north eastern parts of the country
towards Dallol, and 100 MW to the north eastern part of the country towards Afdera from the national grid.
8
2.8.3 The progress during implementation will be monitored by the establishment of the Project
Implementation Team (PIT) which will ensure timely commencement of the works, regular disbursements,
timely submission of quarterly progress and environmental monitoring reports and annual audit reports.
3. PROJECT FEASIBILITY
3.1 Economic and Financial Performance
3.1.1 In order to determine the impact of the proposed investment, the Bank developed a financial and
economic model, based primarily on data from project technical feasibility studies prepared by EEP.
3.1.2 The financial and economic assessment of the project was undertaken over an operating period of
thirty five years starting in 2021. The investment will be carried out over four years (2017 to 2020). The
results of the analysis show that the project is financially sustainable and economically viable. Its financial
internal rate of return (FIRR) is estimated at 14.38% (real) while the financial net present value (FNPV)
discounted at a rate of 10% is equal to US$ 64.52 million. These figures were obtained on the basis of
weighted average tariff of US$ 0.06 per kWh charged across the different category of customers.
3.1.3 The main benefit for households being connected to the national grid is the supply of electricity
at a cheaper rate. The economic analysis of the proposed project was based on the willingness to pay of
the targeted population, estimated at around US$ 17 cents per kWh. The economic assessment of the
project results in an economic rate of return (EIRR) and economic net present value (ENPV) of 29.13%
and US$ 293.42 million (discounted at 12%, real).
3.1.4 The main financial and economic results are summarized in Table 3.1 below. The detailed
calculations and assumptions are presented in Annex B7.
Table 3.1: Main Financial and Economic Indicators
PARAMETERS VALUES
FIRR 14.38%
FNPV (@10%) US$ 64.52 million
EIRR 29.13%
ENPV (@12%) US$ 293.42 million
3.1.5 A sensitivity analysis was also performed against the key risk variables of the project to test the
robustness of its financial and economic cash flows. The identified key risks include an increase in
investment costs, an increase in operating costs, an increase of the energy generation costs and a reduction
in revenues, through a reduction of the end-user tariff. The results of the sensitivity analysis show that the
financial and economic results are robust under adverse conditions and also reveal that the metrics of the
project are more sensitive to a change in end –user tariffs and energy generation costs than to a change in
investment cost or operating and maintenance costs. Details of the financial and economic analysis, as well
as the sensitivity analysis, are provided in Annex B7.
3.2 Environmental and Social Impacts
3.2.1 Environment
3.2.1.1 Mekele-Dallol & Semera-Afdera Power Transmission project has been classified, as Category 1
in accordance with the AfDB’s Environmental and Social Assessment Procedures (ESAP) and the
Involuntary Resettlement policy. This classification is based on the voltage level of the lines, which is
230kV exceeding the Bank’s threshold of 110 kV and spanning on aggregate over 305km; and has a
potential impact of displacing more than 250 people in various settlements. This categorization is also
consistent with the Ethiopian Environmental Laws, Regulations and Ministry of Environment and
forestry,,Environmental Impact Assessment Procedural Guideline series 1, of November 2003, that
9
requires the preparation of full Environmental and Social Impact Assessment (ESIA) and Resettlement
Action Plan (RAP) reports. The full ESIA & RAP reports are prepared end of November 2015 and
ESIA/RAP summary of the project was posted on the Bank’s Public Information Centre in March 2016,
with reference P-ET-FA0-011.
3.2.1.2 In general, the vegetation coverage of project area is low. Due to natural factors (disasters, agro
climatic change, etc.) have reduced the species diversity in the area. In the project areas, the dominant tree
species currently existing is Acacia. In the hot lowlands and dry-desert agro-climatic zones of the project
affected sites are characterized by dwarf shrub grass land, dry thorn bush land vegetation types which will
most likely be affected by the HV transmission line.
3.2.1.3 The diversity of wild animals in the study areas, as a whole, is low. However, according to the
information from the project site woreda agriculture office, some common wild animals currently existing
in the area might be affected and will potentially migrate to other locations. During the field assessment,
based on data sources obtained from the project affected areas, there were no unique bird species in the
areas, and therefore, there is no significant impacts on birds.
3.2.1.4 Extensive clearance of the way-leave can potentially create a specific biotope in areas with denser
vegetation hence may become hunting ground for carnivores. Furthermore, traffic impact may be expected
to occur during a short period at peak construction in the form of increased congestion on the main roads
passing through the project areas. All of these impacts are expected to be localized, short lived, and
reversible. Mitigation measures are included in detail in the ESMP. The project is also expected to result
in affecting 246 households through creation of the way-leaves for the transmission lines. All the
mitigation, monitoring and management measures proposed will be adopted by the EEP. The assessment
of the potential impacts are within the acceptable limits of the Ethiopian and African Development Bank’s
safeguard polices and guidelines.
3.2.1.5 An estimated USD 1.67 million will be made available in the project budget for ESMP
implementation and resettlement and compensation in accordance with AfDB policy on Involuntary
Resettlement taking into consideration country’s own involuntary resettlement policy.
3.2.2 Climate Change
3.2.2.1 The project categorized as climate change category- 2 and the there is no major direct climate risk
with regard to the project implementation. But will affect bushes and shrubs as a result of the formation of
right off ways (ROWs) and shall be cleared during the construction period, dust may arise due to the
construction works and traffic increase that causes dust pollution (air quality) and may sometimes result a
respiratory problem on some of the construction workforces and local communities living around and soil
erosion due to clearing of vegetation and excavation works. Some of the mitigation majors are; taking
proper route selection to minimize the ROW vegetation clearance, re-cultivating cleared areas with suitable
sediment binding grasses & trees, taking proper dust abatement measures (e.g. watering) where necessary,
and by using properly handled /maintained machineries.
3.2.2.2 Implementation of the project will foster development in the beneficiary regions hydroelectric
production areas. This will allow for substitution of the current use of generators using diesel fuel, which
releases greenhouse gases into the atmosphere, with less polluting cheaper hydroelectric production and
by way of providing access to electricity to the rural Ethiopians, will reduce the burning of woods for fuel
consumption and thus reduction of environmental degradation due to reduction of cutting trees that caused
depleting of forests. Improvements in the establishment and functions of various social facilities in the
targeted sites, such as; education, health, water supply and other social service facilitates will contribute
much to the creation of public awareness and participation on environmental protection activities.
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3.2.3 Gender
3.2.3.1 The project is not expected to cause any major negative impacts on either women or men both
during construction and during implementation. However, it suffices to say that the most potentially
negative impacts of the project will emanate from relocation and destruction of property including food
crops whose incidences impact women more than men. Women bear the disproportionate burden of
constructing the tukuls (small cottages) and taking care of children. Traditionally women in rural areas
tend to rely more heavily than men on informal support networks. Interruption to these networks due to
relocation will potentially affect women more than men. Implementation of the resettlement action plan in
the project has included women as committee members and women interests will be highly considered.
Similarly, the scourge of HIV/AIDS impacts more on women and girls more than men and this will be
made worse by the influx of male workers into the project area. The project will embark on HIV/AIDS/STI
awareness and prevention programs geared towards women and girls especially students.
3.2.3.2 The availability of power supply would ease the burden of women in the project area. It will
facilitate the setting up of grinding/flour mills within their vicinities, thus reducing the costs of service. It
would also promote the use of improved technology for the preparation of food using electric appliances
for cooking and baking. Water pumps will function better because of power supply. Hence, construction
of the envisaged project will reduce portage burden on women, which benefits the female members of the
communities in particular. It would also enhance the social communication and interaction of women both
within and outside of the Zone of Influence (ZOI).
3.2.3.3 During project implementation, women just like men will have the opportunity for direct and
indirect jobs. It is expected that 30% of the semi-skilled and unskilled temporary jobs will be designated
to women. In addition women also benefited from the permanent employment opportunities by the
executing agency (EEP) in operation and maintenance of the constructed facilities and emerging private
companies and businesses as a result of the electrification program. It is planned under this project
provision of energy saving stoves using sustainable cooking fuels to 25,000 households in the Afdera and
Semera regions at a total cost of ETB 3.0 million. The initiative shall complement and draw synergies from
programs that are being funded by the Norwegian Government and UNDP with the involvement of NGOs.
The estimated total cost for the intervention is USD 200,000 covering educational and social mobilization
campaigns and training of both men and women in the technology to be carried out by the Directorate of
Alternative Technologies at Federal and Regional levels. During operation, benefits to women shall include
improvements to existing social infrastructures and services within reach such as health and secondary
education services; and availability of flourmills will reduce the labor input by women and girls, thus
freeing up time for other productive uses and girls will devote more time to their education.
3.2.4 Social
3.2.4.1 The construction phase of the transmission lines will take approximately 24 months, and during
that period, the project will create a number of employment and business opportunities associated with the
construction works. Over 90% of the rural population economy is cattle rearing and few agricultural based.
The project will therefore enhance the economies in the project area hence contributing towards poverty
alleviation through creation of jobs for local communities and supply of reliable and affordable electricity.
The power project is expected to generate as many as 800 temporary jobs in semi-skilled and unskilled
areas, thus the project has the potential to inject into the local economies an estimated ETB 79 million over
the construction period. An additional 77 people will be employed during operation to operate each of the
constructed 2 new substations and in the 2 new district offices to be opened in Dallol and Afdera for
customer services and an estimated of 3500 temporary & 2000 permanent jobs in potash mining companies
during construction & start potash mining. Since the power transmitted will be within the national grid,
project benefits should be seen in a national context since the project will facilitate economic growth in
the project area and nation through industrial growth in sectors such as manufacturing, agriculture and
services, resulting in more jobs being created hence increased incomes.
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3.2.4.2 During construction, several direct jobs will be created, including sub-contracting to local
transmission and substations contractors, supply of local materials, such as cement and reinforcement bars,
and casual labor for construction that could be sourced directly from the project area as well as contracts
for services such as security, bush clearing, digging and catering. Salaries, wages and fees to construction
workers and local sub-contractors will give a boost to the local economy. It is estimated that 15-20% of
project costs could be spent in the project area.
3.2.4.3 Although there are on-going awareness campaigns against the dangers of HIV/AIDS/STI and TB,
field workers such as those to be employed under this project may inevitably indulge in behaviors that may
put them at risk of contracting or spreading the diseases. The project, therefore, will put in place and made
provisions for implementing awareness and prevention campaigns for both contractor workers and the
communities in the project areas. A provisional sum has been included in the ESMP for HIV/AIDS and
STI awareness and prevention activities.
3.2.5 Involuntary resettlement
The project will result in affecting 246 households through creation of the way leave for the transmission
line, tower foundations, access roads and establishing sub-stations. Main types of the assets that are to be
affected are corrugated iron sheet (CIS) & small cottage houses, permanent loss of land etc.….The project
has set aside ETB 3,724,031 (equivalent of USD 178,524.73) for implementation of the resettlement action
plans (RAPs) for both lines (see Annex B8 for details). This will ensure that PAPs will be compensated
for all their losses at full replacement costs before start of the construction work for each particular
phase/section of the project and implemented in accordance with AfDB policy on Involuntary Resettlement
and Integrated Safeguards System (ISS) which became operational in July 2015. Implementation will be
done by EEP which has accumulated sufficient experience over the years in managing resettlement and
compensation actions.
3.2.6 Stakeholders
3.2.6.1 Stakeholder consultations were performed during project preparation and conceptualization
mainly through the ESIA and RAP exercises. Public Consultations were made with Zone, City, Woreda &
Kebele administrative officials and affected people, and selected communities at Berehalie Woreda.
Consultations and disclosure meetings were held with the affected community household members, elders
and chairpersons of the Kebele (Peasant) Associations. The outcome of consultation with main
stakeholders has shown that; (ii) they are supportive to the project; (iii) concerned raised have been taken
into account and the project design was informed accordingly.
3.2.6.2 All key agencies such as Ministry of Finance and Economy Cooperation (MoFEC), Ministry of
Environment and Forest (MoEF), Ministry of Water Irrigation and Electricity (MoWIE) and Ethiopian
Electric Power (EEP), Tigray & Afar Regional Governments will be served with copies of the respective
ESIAs. Zone and Woreda Administration offices will also be supplied with copies to be shared and
discussed with local leaders. The Bank also posted the Executive Summary of the ESIA and RAP its
website.
4. IMPLEMENTATION
4.1 Implementation arrangements
4.1.1 The GoE, through the Ministry of Finance and Economic Cooperation (MoFEC) will be the
borrower of the loan. Ethiopian Electric Power (EEP) will be the executing agency. The loan proceeds
will be transferred to EEP, a state institution established as per Council of Minsters rergulation
No.302/2013, as amended whose mandate is to implement the project by signing a subsidiary loan
agreement (on-lending) with the MoFEC on terms and conditions acceptable to the ADB.
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4.1.2 The day to day implementation of the project will be under the responsibility of a Project
Implementation Team (PIT). The PIT is headed by a Project Coordinator reporting to the Deputy
Executive Officer of Portfolio Management Office of EEP. The Project Coordinator is assisted by four
Site Managers. They will be located in Mekele, Dallol, Semera & Afdera. In addition a project
accountant, dedicated for the project and an Environmental & Social Officer to closely follow ESMP &
RAP implementation will also assist the project coordinator. Additional supervisors will also be
assigned as necessary. Project accounting and reporting in accordance with the Bank’s requirements
will be done at Project Coordination Office. In this regard, six appropriately qualified and experienced
accountants will be assigned by EEP (2 at the Project Coordination Office and 4 for each of the four
sub-sites).
4.1.3 Selection of the consultant for project supervision and management will be done prior to award
of the contract for construction.
4.1.4 The project implementing arrangements for the Mekele-Dallol & Semera-Afdera Project
including the Rural Electrification Component will comprise the overall Project Coordination Office
and four sub-offices at each of the project sites. EEP will submit the CVs of the Project Coordinator,
Site Managers and two accounting staff to be assigned at the project office for the Bank’s approval. The
establishment of the project implementation team at EEP, with qualifications and experience acceptable
to the Bank is one of the conditions for the Loan negotiation. The profiles of the project coordinator,
site managers and two accountants are given in technical annex B.3 implementation arrangement.
4.2 Procurement Arrangement
4.2.1 All Bank financed procurement contracts of goods, works and acquisition of consulting
services will be carried out in accordance with the Procurement Policy for Bank Group funded
operations, dated October 2015 and the provisions stipulated in the Financing Agreement.
4.2.2 Ethiopian Electric Power (EEP) through the procurement process to be undertaken by the
Procurement, Logistics and Warehouse Directorate, will be responsible for the procurement. The overall
project risk for procurement is moderate as the capacity of Procurement, Logistics and Warehouse
Directorate was assessed and found adequate to handle procurement with a recommendation to recruit
an additional procurement specialist to help the project. Advance Contracting (AC) procedures will be
followed with the objective of expediting important procurement processes. The project’s abbreviated
procurement plan was discussed and prepared during appraisal as part of the Procurement Technical
Annex and EEP team will prepare detailed Procurement Plan and submit prior to Loan negotiation.
Details of the procurement arrangements under the project are summarized in the Procurement
Technical Annex B5.
4.3 Financial Management
4.3.1 The Financial Management System of Ethiopian Electric Power (EEP) is adequate and capable of
recording accurate and complete transactions and delivering financial reports timely. The company uses
an automated financial reporting system, AGRESSO, which is specifically designed to meet the needs of
its operations. EEP has adequate and qualified staff to carry out the financial management responsibilities
of the project. As EEP is established as an autonomous public enterprise (Regulation No.302/2013), it is
responsible for the planning, budgeting, financial management, execution and monitoring of its projects.
EEP is financially autonomous and does not receive any budget allocation from the federal government.
Its budget is approved independently by the Board of Management. A detailed financial management
assessment is attached as technical annex B.4.
4.3.2 In line with the Paris Declaration on Aid Effectiveness and Accra Agenda for Action, the project
will make use of the Ethiopia’s Public financial management systems. The day to day management will be
as per the financial management policies and systems of EEP, as has been the case for previous projects
financed by the Bank. The Company will set up new account codes (as extended from the main chart of
13
accounts of the company) to record and report the financial transactions of the project within its accounting
system. Bank financed projects executed by EEP so far have demonstrated timely preparation of financial
statements with annual audit reports submitted to the Bank within a reasonable period of time. The audits
for all ADF financed projects and other projects for previous years were carried out by Audit Services
Corporation. All project audit reports for the FY 2014/2015 were submitted in time and draft statements
of project accounts for the FY 2014/2015 are also timely submitted.
4.3.3 The former EEPCo’s Corporate account for the FY 2011/2012 audit was issued with an “except
for” opinion and the FY 2012/2013 audit report with ‘Adverse’ opinion with recommendations given on
the inaccuracy of debtors, treatment of project costs incurred and projects not yet materialized and
treatment of exchange rate losses in their construction projects. EEPCo’s 2013/2014 account is closed and
draft statement prepared but not audited as they are in the process of finalization of division of assets and
other properties which took longer period than expected. This is observed to be one of the critical risk areas
due to backlog of two years’ unaudited financial statements.
4.3.4 The project implementing arrangements for the Mekele-Dallol & Semera-Afdera project will
comprise the overall Project Coordination Office and four sub-offices at each of the project sites. Project
accounting and reporting in accordance with the Bank’s requirements will be done at Project Coordination
Office. In this regard, six appropriately qualified and experienced accountants will be assigned by EEP
(two at the Project Coordination Office and one each for the four sub-sites). EEP will submit the CVs of
the two accounting staffs to be assigned at the project coordination office to the project for the Bank’s
approval.
4.3.5 Disbursement Arrangements: EEP will utilize the Bank’s four disbursement methods explained
in the Disbursement Handbook. However, due to the project nature and arrangement, it will mainly use the
Direct Payment method. No Special account method is to be used unless it is agreed between the Bank and
the EEP due to certain circumstances to occur during the implementation period. The Bank’s Disbursement
Letter will be issued stipulating key disbursement procedures and practices.
4.3.6 Audit Arrangement: The project financial statements will be prepared within three months after
the closure of every financial year and presented to the auditors by 30 September and financial statements
will be audited by independent and competent audit firm competitively recruited. The audit is to be
conducted based on the Bank’s audit terms of reference in accordance with the International Standards for
Auditing (ISA). The complete audited project financial statements, including a management letter, will be
submitted to the Bank within six (6) months after the end of the fiscal year.
4.4 Monitoring and Evaluation
4.4.1 EEP’s performance is monitored through the preparation of periodic monthly and quarterly
reports for both senior management and the Board. There are established performance indicators and
budgets against which actual reporting is done and significant variances explained. The Bank requires
quarterly progress reports showing cash receipts by sources and expenditures by main expenditure
classifications together with physical progress reports linking financial information with physical progress
and highlighting issues that require attention. The sector indicators for power infrastructure projects, as
captured in the log frame, will be monitored using reports produced by MoWIE, EEP and the Ethiopia
Energy Authority (EEA).
4.4.2 The Project will be launched in the 1st quarter of 2017 and will be monitored through supervision
missions from the Bank’s headquarters, Regional Resource Centre and the Ethiopia country office (ETFO)
at least twice a year from 2017 through to 2019. The Bank supervision will also involve desk supervisions
including review of bi-annual progress and annual audit reports. The ETFO will also carry out field
supervisions twice a year or on a need basis. The coordination of the missions will be done by the MoFEC
in collaboration with the MoWIE.
14
4.4.3 The PIT, assisted by the consultant, has the primary responsibility for monitoring project
implementation and fulfilling EEP’s reporting obligations to the Bank, including preparation and
submission of Quarterly Progress Reports (QPRs) and annual audit reports. These reports shall cover all
aspects of project implementation, including the status of progress, implementation of environmental and
social mitigation measures as well as status of fulfilment of the loan conditions. Moreover, EEP shall
maintain separate accounts that permit the identification of expenditures by category and financing source
for all components of the project.
4.4.4 The supervision consultants shall be required to prepare and submit to EEP and the Bank, final
commissioning reports at the completion of their assignments and assist the employer in Project
Completion Report (PCR) preparation. After the commissioning of the project, the EA will prepare the
PCR, which would serve as input in the preparation of the Bank’s own PCR.
4.4.5 During implementation, EEP’s Environmental, Health, Safety& Quality (EHS &Q) Office
assisted by the consultant will monitor the ESMP and will prepare and submit to the Bank quarterly
environmental reports. The EHS & Q Unit has been handling such tasks and is fully conversant with Bank
procedures. The Environmental Unit under the MoWIE will also be actively involved during the
monitoring phase.
4.4.6 Mid-Term Review (MTR): The Bank mid-term review of the project will be held not later than
18 months after the loan approval, which shall inform any adjustments to the project design to ensure that
project objectives are achieved.
4.4.7 Implementation Schedule and Supervision: The project will be implemented over a period of 24
months. On the assumption that the ADB loan is approved in July 2016, the project physical work
scheduled for completion by September 2018 with the commissioning of all sections of transmission lines,
substations and Rural Electrification component. The critical milestones for project implementation are
given below:
Table 4.2 Project Implementation milestones
No. Activity Responsible
Agency
Target Date
1 Loan Approval ADB July 2016
2 General Procurement Notice ADB/EEP June 2016
3 Loan Signed ADF/EEP September 2016
4 Effectiveness EEP October 2016
5 Recruitment of the Project Supervision
and Management Consultant
EEP/ADB July 2016
6 Bid document submitted to the Bank EEP May 2016
7 Review of bidding document and no
objection
ADB June 2016
8 Bidding EEP July -August y 2016
9 Evaluation, no objection EEP/ADB September-October 2016
10 Contract Signature for construction and
Mobilization
EEP/ADB
November 2016 to Jan.,
2017
11 Construction completion &
Commissioning
Contractors February 2019
12 Project Completion Report EEP/Consultant December 2019
4.4.8 All contractors for the line and substations will be mobilized at site in January 2017. Before
commencement of the construction work EEP will implement the environmental mitigation measures as
per the recommendation of ESIA report. The manufacturing, supply and installation of two sections of the
line and the substations will be undertaken in parallel and completed within 24 months from contract
commencement. The testing and commissioning of the transmission lines and substations is planned to
take place in January-February 2019, and the project will be operational by March 2019.
15
4.5 Governance
4.5.1 EEP is managed by the Board of Directors consisting of 9 members from various Ministries and
Government organizations and the CEO of EEP. The Board holds monthly meetings and works closely
with the Management Committee of EEP with regard to the overall activities of the company. The internal
controls of the company are very effective in monitoring the utilization of its resources. Furthermore,
EEP’s financial statements are audited annually by the Audit Service Corporation (ASC), a governmental
entity which carries out annual audits for public and private organizations in the country. However
employing (contracting) other competent private audit firms is also possible under competitive selection.
At the project level, the project office will be required to maintain accounting and financial records that
will be audited in accordance with international accounting standards.
4.5.2 In general, the energy sector’s governance issues are well-articulated in Ethiopia. Currently, the
country has begun undergoing Civil Service Reform Programs to attain competitiveness and accountability
in all sectors including the energy sector. Furthermore, the Government has established an Anti-Corruption
and Ethics Commission with the objective of fighting corruption at all levels and enhancing transparency
and accountability. The commission is being strengthened through technical assistance programs from
some development partners.
4.6 Sustainability
4.6.1 Government Commitment: GoE has shown great commitment to implementing the project due
to the fact that the project will provide support to transmit sufficient power for industrial development and
electricity access scale-up so as to strengthen the national economy and livelihoods of the population.
4.6.2 Technical Sustainability: EEP has over the decades implemented similar projects and the staff
has gained considerable experience in the implementation of such projects and also has staff that is
experienced in the operation and maintenance of high voltage transmission lines, substations and
distribution network. In addition EEP has allocated significant amount of financing for the rehabilitation
and upgrading of the existing installations to get assurance of sustainability of the electricity supply.
Capacity building for EEP staff involved in engineering, operation & planning functions foreseen in the
project design.
4.6.3 Financial Sustainability: The tariff system in Ethiopia is still a cautious tariff regime. A uniform
tariff is charged with a lifeline tariff for the first block of 50kWh of consumption maintained since the last
tariff change in July 2006. Current tariffs average US¢0.0273/kWh across all consumer categories and
tariff levels this low cannot cover all non-power operating costs and purchased power costs and effectively
place the utility in a position whereby it has a strong financial disincentive to connect additional consumers.
If tariffs are not periodically adjusted to cover these costs, the financial situation of the electric utilities
will deteriorate resulting in decreasing service quality and impacting the sustainability of electricity
supply services. As a mitigation measure Government supports () in capital injection through financing
some of capital investments and granting debt restructuring to reduce the burden of loan repayments from
cash flows and foreign earnings from energy exports that commenced to Sudan and Djibouti generating
close to USD 100 million per annum and committed 400 MW to Kenya by 2018. In addition, EEP & EEU
appears to be working within the framework of achieving a selling price of electricity placed or suppressed
to a rate equivalent to US¢0.06/kWh depending on the prevailing exchange rate. Recently, EEP has
submitted a gradual cost recovery tariff adjustment proposal initially up to 50% increase adjustment
because the rate has fallen below the benchmark rate of at US¢0.06/kWh due to mostly foreign exchange
fluctuations and increase in operation expenses.
The request is under consideration by the EEA and final decision is expected after undergoing scrutiny in
the Council of Ministers and the parliament, and revised tariff expected to be implemented in the year
2017.
16
4.6.4 Institutional Sustainability: The Sector undergone reform by restructuring of the monopolistic
former entity (EEPCo) into two independent entities mandated; EEP to the bulk generation, transmission
and substation operation and construction of new installations and EEU to be responsible for distribution
system operation, energy sales and customer services through commercialization and decentralization of
their operations to achieve efficiency & effectiveness.
4.6.5 Private sector participation: The public sector-led development strategy implemented over the
past decade, focusing on heavy investments in infrastructure, has sustained strong economic growth, which
reached an estimated 10.3% in 2013/14, which is over doubled of the Sub-Saharan Africa (SSA) average
growth rate. However, currently the government acknowledged that private sector involvement is crucial
to sustain the achievements so far made and continue the growth. The new energy policy allows local
private investment in generation facilities up to 25 MW (hydro, thermal and renewables) including
community organized cooperatives and similar entities. Over 25 MW, the policy allows local or foreign
investment in power projects.. The recent agreement with a private company to develop 2,000 MW
Corbetti geothermal power plant on IPP basis is also a demonstration of the Government’s intention
towards gradual opening of the power sector for private sector participation. The Bank also supported the
‘Roadmap to the Public Private Partnerships Framework in Ethiopia” study which was completed in 2014,
recommending government to issue a Public Private Partnerships (PPPs) policy statement.
4.7 Risk management
The major risks and mitigating measures during project implementation are outlined in the table below:
Table 4.3 Risk Management
Risk Description Rating Mitigation measures Starting potash
production
Delay in completion the
construction of private sector
potash industries
High The private sector investors received investment and
mining permits and are actively mobilized on site
and completed resources assessment and
verification.
Availability of sufficient
power
Inability to supply adequate
power to the industrial area and
rural towns
High Ethiopia is currently building about 6,000 MW
generation capacity which will be operational in
2018
Shortage of financing
resources
Insufficient fund for project
implementation
Medium Government support to financing (counterpart
funding) and commitment to implement,
transmission system and rural electrifications
components
Project completion delay Electricity supply infrastructure
projects implementation delay
High Deployment of project management and
supervision consultant ahead of start of the project &
re-enforcement of PIT.
Delays in recruitment of
the consultant
Procurement process execution
will take long time
Medium Consider using of Advance contracting and timely
no objection by the Bank
Lack commitment and
capacity to implement the
action points of the
Gender Audit
EEP Management may lack the
necessary commitment and
capacity to implement the
action points of the Gender
Audit
Low Budget will be set aside for the implementation of
the Gender Audit action plan and for the
procurement of technical assistance if needed.
Project cost overrun Project implementation cost
exceeding the allocated budget
Medium Physical (5%) and price (5%) contingencies built
into the project costs and the contract packaging
will ensure that all necessary construction guarantees
and insurances will be in place
17
Risk Description Rating Mitigation measures Financial viability of EEP
(low tariff)
Tariff levels is below true costs
of producing, transmitting and
distributing electricity
(including financing costs)
Medium
- Government has been very supportive through
financing some of capital investments and granting
debt restructuring to reduce the burden of loan
repayments on EEP’s cash flows.
- Whilst EEP does not currently employ foreign
exchange hedging mechanisms, the impact of ETB
devaluation will be mitigated through foreign
earnings from energy exports that commenced to
Sudan and Djibouti by 2011 generating close to
USD 100 million per annum and committed 400
MW to Kenya by 2018. In addition, the process to
revise the existing tariff and gradual increase to $
0.06/kWh has started, and will also contribute
much for improvement in financial viability.
Timely implementation
of compensation & RAP
Resettlement and compensation
program may not be
implemented in a timely
manner owing to capacity
limitation and litigations which
might arise.
Medium Appraisal mission has critically examined the
implementation program, the skill mix composition
of the team implementing the agreed plan to ensure
that the team has adequate experience and
competence mix on resettlement and compensation
issues.
Note: Risk rating (high, medium or low)
4.8 Knowledge building
4.8.1 The proposed project area is located in one of the hottest part of the country. The project
provides an opportunity to the staff of EEP in building transmission lines, associated substations and
distribution lines in difficult climatic areas. Therefore, during the construction of the transmission line
and the installation of the equipment, EEP’s staff will be trained on the job by the contractors and the
consultant. The Bank staff involved in the project will also gain access to the technology which could
be applied to other regional member states that intend to build similar projects.
4.8.2 The ESIA and the ESMP for the project conducted by EEP conform to international practices
on Health, Safety and Environment (HSE) standards. Implementation of the ESMP including the
monitoring system will allow the EEP to promote best international practice in operating transmission
system of such voltage level. EEP’s knowledge building resulting from the Bank’s intervention will
help GoE to attract more investment in the power generation & transmission sector. In turn the Bank
will also learn from the lessons learned from its planned supervision on how best to promote high HSE
standards.
5. LEGAL INSTRUMENTS AND AUTHORITY
The Project will be governed by a Loan Agreement between the Bank and the Federal Democratic
Republic of Ethiopia.
5.1 Conditions associated with Bank’s intervention
A. Condition Precedent to Entry into Force of the Loan Agreement
The Loan Agreement shall enter into force subject to fulfilment by the Borrower of the provisions of
Section 12.01 of the General Conditions Applicable to Loan and Guarantee Agreements of the Bank.
18
B. Conditions Precedent to First Disbursement of the Loan in Respect of Consultancy Services
for an amount not exceeding 3.35 million USD :
The obligation of the Bank to make the first disbursement of the Loan shall be conditional upon:
i. the entry into force of the Loan Agreement ;and
ii. The first disbursements of the Loan for an amount not exceeding 3.35 million USD (the
“First Disbursements”) shall be made by the Bank to the Borrower and the Borrower
shall apply such First Disbursements, solely for the purpose of the payment of
consultancy services in connection with the Project Supervision & Management services
for the Project (the “Consultancy Services”);
C. Conditions Precedent to Subsequent Disbursement of the Loan
The obligation of the Bank to make the subsequent of the Loan shall be conditional upon submission
by the Borrower of evidence satisfactory to the Bank that the following conditions have been fulfilled:
i. an On-lending Agreement has been signed between the Borrower and EEP in which the
Borrower on –lending the loan to EEP, on terms and conditions acceptable to the Bank.The
Borrower has submitted to the Bank a Works and Compensation Schedule (the “Works
and Compensation Schedule”) detailing (A) each section of civil works under the Project
and (B) the time frame for compensation and resettlement of all project-affected persons
in respect of each section, in accordance with the RAP or an updated RAP.
ii. Have compensated and/or resettled in accordance with the RAP and the Works and
Compensation Schedule, all Project Affected Persons in respect of the civil works under
the first section or lot of the Project.
D. Other conditions:
iii. The Borrower shall, based on tariff review recommendations received from Ethiopian
Energy Authority, maintain electricity tariffs at levels that enable EEP to achieve a positive
operating margin”.
5.1.1 Undertakings: The Borrower shall ensure that:
(i) EEP recruits additional Environmental and Social experts to strengthen its environmental
and social team;
(ii) Fully implements the recommendations of the Environmental and Social Impact
Assessment (ESIA), Environmental and Social Management Plan (ESMP) and the
Resettlement Action Plan (RAP) of the project, and comprehensively reports to the Fund
on the said implementation on a quarterly basis;
(iii) EEP undertakes to revise the current tariffs up to the level of cost reflective tariffs the latest
by March 2017 to ensure its financial sustainability.
6. RECOMMENDATION
6.1 Management recommends that the Board of Directors approve the proposed ADB loan of USD
104.61 million (UA 73.81million) to the Federal Democratic Republic of Ethiopia for the purposes and
subject to the conditions stipulated in this report and the Loan Agreement.
I
Appendix I: Comparative socio – economic Indicator3
3 Sources: AfDB Statistics Department Databases; last update :May 2014; For any given interval, the value refers to the most recent year available during the
period Note: n.a.: Not Applicable ; … : Data Not Available
Year Ethiopia Africa
Develo-
ping
Countries
Develo-
ped
Countries
Basic Indicators
Area ( '000 Km²) 2015 1 104 30 067 80 386 53 939Total Population (millions) 2015 99,4 1 184,5 5 945,0 1 401,5Urban Population (% of Total) 2015 19,4 39,7 47,0 80,7Population Density (per Km²) 2015 99,4 40,3 78,5 25,4GNI per Capita (US $) 2014 550 2 045 4 226 38 317Labor Force Participation * - Total (%) 2015 83,7 66,3 67,7 72,0Labor Force Participation ** - Female (%) 2015 78,3 56,5 53,0 64,5Gender -Related Dev elopment Index Value 2007-2013 0,853 0,801 0,506 0,792Human Dev elop. Index (Rank among 188 countries) 2014 174 ... ... ...Popul. Liv ing Below $ 1.25 a Day (% of Population) 2008-2013 36,8 39,6 17,0 ...
Demographic Indicators
Population Grow th Rate - Total (%) 2015 2,5 2,6 1,3 0,6Population Grow th Rate - Urban (%) 2015 4,9 3,6 2,6 0,8Population < 15 y ears (%) 2015 41,4 41,0 28,3 17,3Population >= 65 y ears (%) 2015 3,5 3,5 6,2 16,0Dependency Ratio (%) 2015 81,6 80,1 54,6 50,5Sex Ratio (per 100 female) 2015 99,6 100,1 102,8 97,4Female Population 15-49 y ears (% of total population) 2015 24,3 24,0 25,8 23,0Life Ex pectancy at Birth - Total (y ears) 2015 64,6 61,2 68,9 79,1Life Ex pectancy at Birth - Female (y ears) 2015 66,6 62,6 70,8 82,1Crude Birth Rate (per 1,000) 2015 31,9 34,8 21,0 11,6Crude Death Rate (per 1,000) 2015 7,2 9,3 7,7 8,8Infant Mortality Rate (per 1,000) 2015 41,4 52,2 35,2 5,8Child Mortality Rate (per 1,000) 2015 59,2 75,5 47,3 6,8Total Fertility Rate (per w oman) 2015 4,3 4,6 2,6 1,7Maternal Mortality Rate (per 100,000) 2013 420,0 411,3 230,0 22,0Women Using Contraception (%) 2014 34,4 35,3 62,1 ...
Health & Nutrition Indicators
Phy sicians (per 100,000 people) 2004-2012 2,5 46,9 118,1 308,0Nurses and midw iv es (per 100,000 people) 2004-2012 25,3 133,4 202,9 857,4Births attended by Trained Health Personnel (%) 2009-2012 10,0 50,6 67,7 ...Access to Safe Water (% of Population) 2015 57,3 71,6 89,1 99,0Healthy life ex pectancy at birth (y ears) 2012 55,0 51,3 57 69Access to Sanitation (% of Population) 2015 28,0 39,4 60,8 96,3Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2013 1,2 3,8 1,2 ...Incidence of Tuberculosis (per 100,000) 2013 224,0 245,9 149,0 22,0Child Immunization Against Tuberculosis (%) 2013 71,0 84,1 90,0 ...Child Immunization Against Measles (%) 2013 62,0 76,0 82,7 93,9Underw eight Children (% of children under 5 y ears) 2005-2013 29,2 20,8 17,0 0,9Daily Calorie Supply per Capita 2011 2 105 2 621 2 335 3 503Public Ex penditure on Health (as % of GDP) 2013 3,1 2,7 3,1 7,3
Education Indicators
Gross Enrolment Ratio (%)
Primary School - Total 2011-2014 87,0 106,4 109,4 101,3 Primary School - Female 2011-2014 80,5 102,6 107,6 101,1 Secondary School - Total 2011-2014 28,9 54,6 69,0 100,2 Secondary School - Female 2011-2014 22,3 51,4 67,7 99,9Primary School Female Teaching Staff (% of Total) 2012-2014 36,7 45,1 58,1 81,6Adult literacy Rate - Total (%) 2006-2012 39,0 61,8 80,4 99,2Adult literacy Rate - Male (%) 2006-2012 49,1 70,7 85,9 99,3Adult literacy Rate - Female (%) 2006-2012 28,9 53,4 75,2 99,0Percentage of GDP Spent on Education 2009-2012 4,7 5,3 4,3 5,5
Environmental Indicators
Land Use (Arable Land as % of Total Land Area) 2013 15,1 8,6 11,9 9,4Agricultural Land (as % of land area) 2013 36,3 43,2 43,4 30,0Forest (As % of Land Area) 2013 12,4 23,3 28,0 34,5Per Capita CO2 Emissions (metric tons) 2012 0,1 1,1 3,0 11,6
Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update :
UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports.
Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+)
** Labor force participation rate, female (% of female population ages 15+)
COMPARATIVE SOCIO-ECONOMIC INDICATORS
Ethiopia
november 2015
0
10
20
30
40
50
60
70
80
90
100
20
00
20
05
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Infant Mortality Rate( Per 1000 )
Ethiopia Africa
0
500
1000
1500
2000
250020
00
20
05
20
08
20
09
20
10
20
11
20
12
20
13
20
14
GNI Per Capita US $
Ethiopia Africa
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
20
00
20
05
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Population Growth Rate (%)
Ethiopia A frica
01020304050607080
20
00
20
05
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Life Expectancy at Birth (years)
Ethiopia Africa
II
Appendix II: Table of ADF Portfolio in the Country ETHIOPIA -ONGOING PORTFOLIO 15 MAY 2016
No Project
Loan/Grant Disbursement
IP DO PFI Status
Age
Approval
Date
Amount
(UA) Ratio Years.
PUBLIC SECTOR OPERATIONS
AGRICULTURE SECTOR 58,482,000
1 Drought Resilience and
Sustainable Livelihoods I 19-Dec-12 30,000,000 10.64% 2 3 PPP 3.4
2 Drought Resilience and
Sustainable Livelihoods II 26-Nov-
14 28,482,000 3.20% NR NR
NON-
PP/NON PPP 1.5
TRANSPORT SECTOR 316,770,000
3
Mombassa-Nairobi-
Addis Road Corridor –
Agere Mariam -Yabelo
Road Project (Phase II)
1-Jul-09 85,000,000 84.83% 3.77 4 NON-
PP/NON PPP 6.9
4
Mombassa-Nairobi-
Addis Road Corridor-
Hawassa-Agere Mariam
Road Project (Phase III)
30-Nov-11 105,000,000 40.16% 3 3 NON-
PP/NON PPP 4.5
5 Bedele-Metu Road
Upgrading 10-Nov-11 41,060,000 62.71% 3 3
NON-
PP/NON PPP 4.5
6
Modjo- Hawassa
Highway Road Project
Phase I 6-Nov-13 84,080,000 17.78% NR NR
NON-
PP/NON PPP 2.5
Modjo- Hawassa
Highway Road Project
Phase I* 6-Nov-13 1,630,000 2.21% NR NR
NON-
PP/NON PPP 2.5
ENERGY SECTOR 388,950,000
7 Rural Electrification II
Project 20-Dec-06 87,200,000 82.35% 3.82 3.5
NON-
PP/NON PPP 9.4
8
Electricity Transmission
Systems Improvement
Project 6-Dec-10 93,750,000 86.28% 3.85 4
NON-
PP/NON PPP 5.4
Electricity Transmission
Systems Improvement
Project* 6-Dec-10 58,000,000 96.83% 3.85 4
NON-
PP/NON PPP 5.4
9
Ethiopia-Kenya
Electricity Highway
Project 19-Sep-12 150,000,000 15.05% 3 3
NON-
PP/NON PPP 3.7
WATER SECTOR 120,027,122
10
Support to the One
Water Sanitation and
Hygiene National Water
Program
8-Sep-14 60,000,000 29.69% 3 3 NON-
PP/NON PPP 1.7
Support to the One
Water Sanitation and
Hygiene National Water
Program*
8-Sep-14 6,015,073 37.86% 3 3 NON-
PP/NON PPP 1.7
11
Four Towns Water and
Sanitation Improvement
Program 13-Jan-16 54,012,049 NR NR
NON-
PP/NON PPP 0.3
MULTI - SECTOR 186,143,000 0
12 Basic Services
Transformation Program 17-Dec-15 180,000,000 NR NR
NON-
PP/NON PPP 0.4
13 Institutional Support
project for PPPs* 26-May-15 1,173,000 10.73% NR NR
NON-
PP/NON PPP 1.0
14
Ethiopia-Africa Trade
insurance-RMC
Membership Program
Insurance agency
23-Sep-15 4,970,000 0.6
PUBLIC SECTOR 1,070,372,122
III
ETHIOPIA -ONGOING PORTFOLIO 15 MAY 2016
No Project
Loan/Grant Disbursement
IP DO PFI Status
Age
Approval
Date
Amount
(UA) Ratio Years.
PUBLIC SECTOR OPERATIONS
TOTAL
PRIVATE SECTOR OPERATIONS
15 Deba-Midroc Cement
Factory 16-Apr-09 39,882,752 100% 3.09 4
NON-
PP/NON PPP 7.1
16 Ethiopian Air Lines 23-Mar-11 27,998,968 96.68% 3.77 4 NON-
PP/NON PPP 5.2
PRIVATE SECTOR
TOTAL 67,881,720
TOTAL INVESTMENT
OPERATIONS 1,138,253,842
TRUST FUNDS
17 Assela Wind Farm SREP
PPG 28-Jun-12 1,206,418 21.02% 3.75 NR
NON-
PP/NON PPP 3.9
18 Africa Bamboo 5-Dec-14
532,550
6.61% NR NR
NON-
PP/NON PPP 1.4
19 AWF/NEPAD Baro
Akobo Sobat 2-May-13 2,060,000 28.00% 3 3
NON-
PP/NON PPP 3.0
20
Capacity Building for
Financial Inclusion in
Ethiopia (M-Birr) 26-Feb-15 230,247 40.68% NR
NON-
PP/NON PPP 0.1
21
Support to Institutional
Strengthening in Gender
Mainstreaming for
Infrastructure Sector
1-Apr-15 230,925 30% NR NON-
PP/NON PPP 1.1
22
ClimDev Fund for
Adaptation to Climate
Change in Ethiopia Jun-15 795,580 8% NR
NON-
PP/NON PPP 0.4
23
Marketing and Service
Chain Support for Total
Sanitation in Arba
Minch
11-Jun-15 973,536 NR NON-
PP/NON PPP 0.9
TOTAL TRUST FUNDS 6,029,256
TOTAL PORTFOLIO 1,144,283,098
* Grant components
IV
Appendix III: Table of Key Projects Financed By the Bank and other Development Partners in
the Country Project/Framework Development
Partner
Amount of
finance x1,000
Sector Contribution
Rural Electrification-I AfDB UA
34,230
Creating electricity access to 36 rural Woreda towns in seven
administrative Regions, to improve the livelihood of rural population
and economic development in the country,
Rural Electrification II AfDB UA
87,200
Creating electricity access to rural population to 335 towns and
villages in Amhara, Oromiya and Southern regions to improve the
livelihood of rural population and economic development in the
country
Ethiopia-Djibouti
Interconnection project
(Construction of 283 km 230 kV
line)
AfDB UA
59,400
Multinational power Transmission Interconnection, to enable
countries to exchange (export/import) electric power for mutual
economic benefit and reduction the fossil fuel generation by
importing/exporting clean energy
Electricity Transmission System
Improvement
project(Construction of 943 km
230 kV lines & 21 subsations)
AfDB UA
151,750
Improve access to electricity for the rural population, improve
transmission capacity and reliability of power supply to businesses and
manufacturing firms in urban areas through the reduction of system
losses and frequency of outages
Ethipia-Kenya Electricity
Highway project (Construction
of 1045 km, 500 kV HV DC
line)
AfDB UA
150,000
Multinational power Transmission Interconnection, to enable
countries to exchange (export/import) electric power for mutual
economic benefit and reduction the fossil fuel generation by
importing/exporting clean energy
Sululita-Bahir Dar-D.markos-
Sululta 400kV Transmission
line
China Exim
Bank
Improving the power transfer capacity & relaibility of high voltage
transmission network
Generation (Amertin Neshi
Hydro Electric power project,
100 MW)
China Exim
Bank
USD
117,000.00
Increasing the Country’s hydro generation capacity, to satisfy the
growing energy supply demand throughout the country
Generation (Gilgel Gibe II
Hydro Electric power project,
420 MW)
Govt. Italy &
EIB
EUR
270,000
(220,000,
50,000)
Increasing the Country’s hydro generation capacity, to satisfy the
growing energy supply demand throughout the country
Ethiopia-Sudan Interconnection
project
World Bank USD
41,000
Multinational power Transmission Interconnection, to enable
countries to exchange (export/import) electric power for mutual
economic benefit and reduction the fossil fuel generation by
importing/exporting clean energy
Addis Ababa distribution
rehabilitation project
World Bank Distribution network (rehabilitation & upgrading) to improve network
power distribution capacity, reliability and quality of electricity supply
to customers
Rural Electrification (EAREP I
& II)
World Bank USD
180,800
Electrification of 265 towns through grid expansion and additional
villages through mini off grid system and development of productive
use of energy
Transmission & Substations
Rehabilitation & Upgrading
project
World Bank USD
90,000.00
Rehabilitation & upgrading of the existing transmission lines &
substations in Addis Ababa area & other regions to enhance their
capacity in order to improve the power supply situation
Rural Electrification Kuwait USD
35,000.00
Electrification of 27 towns, improvement of 4 substations and
construction of 3 transmission lines in Afar Region to create access to
electricity & improve the livelihood of rural population
Rural Electrification BADEA-I USD
3,600.00
Electrification of 44 towns in two regions, Amhara and SNNP region
to create access to electricity &improve the livelihood of rural
population
Transmission (132 kV line and
substation for SAWLA-Key
Afer)
BADEA &
OPEC
USD
29,000.00
(9,000.0 &
20,000.00)
Constructing the 132 KV transmission line and associated substations
to improve power supply to Urban and Rural areas in southern part of
the country
Rural Electrification India USD
65,000.00
Electrification of 27 towns in Hagare-Mariam Mega area to create
access to electricity & improve the livelihood of rural population
V
Appendix-iv: Project Location Map
VI
APPENDIX V – JUSTIFICTION FOR FINANCING MORE THAN 50% OF COST BY ADB
1. Introduction: GOE made a request for this financing plan during appraisal of the program.
This appendix provides the justification for waiver for the Bank financing more than 50% of the
proposed operation financing as indicated in the financing plan depicted in the table below.
2. Country Commitment to Overall Development: Ethiopia has experienced strong economic
growth, averaging 10.8% since 2005, underpinned by public-sector-led development. Real gross
domestic product (GDP) is estimated to have grown by 10.2% in fiscal year 2014/15. The agriculture,
services and industry sectors accounted for 38.8%, 46.6% and 15.2% of real GDP, respectively. Public
investments are expected to continue driving growth in the short and medium term with huge
investments in infrastructure and the development of industrial parks, prioritized to ease bottlenecks to
structural transformation, which will still have to take shape with industry playing a significant role in
the economy.
The country has made significant headway in achieving most of the MDG targets owing to the
Government’s commitment to development. Poverty level declined from 45% in 1995/96 to 29.6% in
2010/11. Under five mortality dropped from 123 in 2005 to 88 in 2010. HIV/AIDs prevalence drop to
1.3% below the MDG target of 2.5%. Primary school net enrolment increased from 68% in 2005 to 95%
in 2013. In 2014/15, access to electricity supply reached 60% nationally, from a national average of
16% in 2004/5.
3. Financing allocated by Sector Targeted by the Bank: Ethiopia has made significant
improvement in basic social services over the years. This has been supported by progress in long-term
institution building, provision of physical infrastructure and gradual improvements in governance. With
the government’s consistent implementation of its poverty-reduction strategy, pro-poor spending
continues to rise (73% of total public expenditure in 2014/15). As a result, poverty in Ethiopia has
declined at an annual average of 1.94% since 1995. The population share of persons living below the
national poverty line fell from a baseline of 48% in 1990 to 45.5% in 1996 and 29.6% in 2011, and is
estimated to have further declined to 23.4% in 2015, which is below the MDG target of 24%. This trend
has continued under the government’s commitment in the GTP-I. The 2012/13 approved federal
government budget indicates the commitment of Government in implementing the GTP, which engulfs
the target sectors of the Bank (energy, roads, basic services and governance). The commitment in the
energy sector is even stronger, as reflected in the EEPs budget of 2012/13 below, which is one of the
Banks target sector:
Budgetary Allocation Budget 2012/13
Share for power Sector Total
Own
source
Generation Projects (20) 30,878.2 1,249.8 4.1%
Upgrading projects (1) 98.2 98.2 100.0%
Generation studies 10.6 10.6 100.0%
Transmission Projects (15) 10,605.2 188.0 1.7%
Transmission line studies 53.8 7.8 14.5%
Distribution 2,214.6 1952.0 88.1%
Universal Electricity Access 2,414.6 1000.0 41.4%
Institutional strengthening 1,311 715 53.8%
Total 53,405.2 4,220.3 7.9%
Source
Total Amount
Million US$
% Total
Million US$
ADB 104.61 85.4%
GoE 17.91 14.6%
Total 122.52 100%
VII
4 Ethiopia has started exploiting its huge hydropower potential for domestic needs and export of
power to the Eastern African region and beyond. The generation capacity in the national grid will be
increased from the current 4,180 MW in 2015 and to 17,347 MW in 2020. To evacuate the power
generated, the transmission and distribution systems will also be rehabilitated and expanded. The
national access to electricity will grow from the current level of 60 percent to 90 percent in 2020. EEP,
a State owned and vertically integrated utility responsible for the construction and operation of
generation plants, transmission & substation networks as well as bulk sell of sale of electricity in the
country, is expected to operate on dual objectives - undertaking such huge development oriented
programs and operating on financial sustainability with strict adherence to the performance benchmarks.
None the less, the utility was incapable of raising tariff since 2006, which is threatening its financial
sustainability. The major sources of finance for EEP were multilateral development banks, bilateral
financing, retained earnings and government equity. End user payments contributed to about 2 percent
of EEP’s sources of financing. The external sources were 65 percent concessional and 35 percent non-
concessional. All these were happening under the strong government guarantee and custody and all
these reflect government’s commitment and ownership.
5. Budget and Debt Situation: Ethiopia’s budget has been steadily growing and it has now
proclaimed to reach US$ 11 billion in 2015/16 financial year from US$5 billion in 2005/6. In 2014/15,
the fiscal deficit amounted to 2.0% of GDP compared to 2.6% in 2013/14. The tax-revenue-to-GDP
ratio improved to 13.4% in 2014/15 from 12.7% % in the previous year, but this remains well below
the sub-Saharan Africa average of about 20%. The growth in exports slowed down during the last 3
years, roving around US$ 3.0 - 3.25 billion in the last three years, showing contraction as a percent of
GDP, while import bill increased by about 20% in 2013/14. The trade balance is hence further
deteriorated as a percentage of GDP and by nominal value. The external debt increased from
USD 11.2 billion in 2011/12 to USD 19 billion in 2014/15, up from 12.1% of GDP in 2009/10 to 26.2%
in 2014/15. In 2014, Ethiopia accessed the EURBOND and borrowed USD 1 billion from the
international financial market. Ethiopia’s 2014/15 Federal budget law shows an allocation of 4.6% of
the federal budget to debt servicing. Ethiopia’s debt is steadily growing, despite still remaining at
moderate level in terms of debt stress.
5. Conclusion: The GoE has demonstrated commitment through its achievements and spending
in critical sectors such as in Energy & road. The HV transmission network expansion and rural
electricity access scale-up program shall not be seen in isolation from the national power sector
development for which Government’s contribution is estimated at 50% of the estimated financing need
of USD 29.3 Billion for the GTP-II (2016-2020). The financing under the program enhances the
achievement of the sector goals and builds on the Bank’s earlier contribution to the development of the
energy sector in Ethiopia. Furthermore, Ethiopia is still an ADF country only and eligible to access the
ADB resources based on the new Credit Policy approved in 2014 (Diversifying the Bank’s Products to
Provide Eligible ADF-Only Countries Access to the ADB Sovereign Window). Requiring an ADF
country to comply with counterpart financing level of ADB countries (refer 2.1.2, (ii) of the Policy on
Expenditure Eligible for Bank Group Financing) more than 50% of program financing is a burden to
the country.
