Ethiopia to Djibouti Rail Link will be Complete in a Year

An electrified rail link from Ethiopia’s capital along its main trade route to neighboring Djibouti will be completed by October 2015, Prime Minister Hailemariam Desalegn said.
The Railways Corp. project, funded with a $1.6 billion advance from the Export-Import Bank of China and by Ethiopia’s government, is half complete.

Specifications of Addis Ababa –  Djibouti Port Railway Project

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

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

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

What will change with this project?

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

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

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

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

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

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

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

Source : Bloomberg