Energy profile of Ethiopia

Introduction

Ethiopia's economy is primarily agrarian, with the agricultural sector accounting for 45 percent of gross domestic product (GDP) and 80 percent of the workforce. Coffee, Ethiopia's primary export crop, accounted for 58 percent of total exports in 1999, and has averaged two-thirds of all export earnings over the last 20 years. Other important agricultural exports include qat (khat), a mild stimulant from the leaves of the Catha Edulis shrub, pulses, oilseeds, live animals and hides. Ethiopia's real GDP growth was 5.4 percent in 2000 and increased to 7.7 percent in 2001. Growth in 2002 slowed to 1.6 percent as a severe drought decimated agricultural production. Growth was –3.9 percent in 2003, as Ethiopia’s economy shrank. It rebounded with 11.6 percent growth in 2004 and 5.4 percent in 2005. The projected growth for 2006 was 5.2 percent.Ethiopia is the oldest independent country in Africa. Unique among African countries, Ethiopia maintained its freedom from colonial rule, except during the Italian occupation of 1936-41. In 1974, a military junta, the Derg, deposed Emperor Haile Selassie, who had ruled since 1930, and established a socialist state. The Derg was toppled by a coalition of rebel forces, the Ethiopian People's Revolutionary Democratic Front (EPRDF), in 1991. A constitution was adopted in 1994, and Ethiopia's first multiparty elections were held in 1995. A two-year border war with Eritrea ended when a peace treaty was signed in December 2000. Disagreement on the location of the border between the two countries is ongoing, despite the final ruling of a commission charged with identifying the border.

Although continued donor support is seen as the crucial element in Ethiopia's economic reform, both the International Monetary Fund (IMF) and World Bank suspended new lending to Ethiopia during the border war with Eritrea. The suspension was lifted after the signing of the peace accord in December 2000. The World Bank approved a $400 million loan to finance emergency recovery, military demobilization and reintegration projects. In July 2001, the IMF approved a $112 million Poverty Reduction and Growth Facility (PGRF) to support Ethiopia's economic program. In November 2001, the IMF and World Bank announced that Ethiopia was eligible for a $1.9 billion debt relief package under the Heavily Indebted Poor Countries (HIPC) Initiative, becoming the 24th country to qualify for debt relief under the HIPC's enhanced framework. The savings in debt service resulting from the HIPC are substantial, amounting to about $96 million per year on average until 2021. The resources made available by debt relief provided under the HIPC have been allocated to key anti-poverty programs. Poverty-targeted expenditures in 2001-02 and 2002-03 increased by $259 million, substantially more than HIPC relief. In 2005, Ethiopia received a $4.9 million grant from the Global Environmental Facility (GEF) to provide solar photovoltaic (PV) systems and micro hydro capacity.

Oil and Natural Gas

Ethiopia's current proven hydrocarbon reserves are minimal, but the potential to increase reserves to commercial viability is seen as promising. The country's geology is similar to that of its oil-producing neighbors to the east (on the Arabian peninsula) and the west (Sudan). In April 2001, the Ministry of Mines and Energy reported that hydrocarbon seeps had been discovered in several regions. The government plans to conduct feasibility studies to establish the extent and viability of the deposits.

Hydrocarbon exploration in Ethiopia's Ogaden Basin began over 80 years ago (Standard Oil in 1920). The Ethiopian government formed the Calub Gas Share Company (CGSC) to develop the fields. In 1994, the World Bank approved a $74 million loan to develop the Ogaden Basin fields. The Ethiopian Privatization Agency (EPA) put the CGSC up for privatization in 1998, but the EPA, citing weak bids, withdrew the tender. In December 1999, Houston-based Sicor announced that it had signed a $1.4 billion joint-venture deal to develop the Calub natural gas project. Under the terms of the agreement, Gasoil Ethiopia Project (GEP), the joint-venture firm, will acquire 95 percent of the CGSC under the Ethiopian government's privatization law. Currently, 5 percent of the CGSC is held by local private investors. The Ethiopian government will hold a 20 percent interest in GEP with Sicor holding the remaining share. GEP plans to construct a 375-mile, 24-inch pipeline to transmit natural gas to the town of Awash, which is approximately 75 miles east of the capital Addis Ababa. At Awash, plans call for construction of a cryogenic liquids plant and twogas-to-liquids process systems with capacity to process 200 million cubic feet per day (Mmcf/d) of natural gas. The end products would be synthetic fuels and petrochemical feedstocks plus steam to generate electricity and help produce 20,000 bbl/d of potablewater. A planned refinery would produce products including diesel, gasoline, kerosene and jet fuels. The gas-to-liquids system would also produce some 500 tons of ammonia per day as feedstock for a urea plant to be constructed. Construction of the pipeline had originally been planned for 2002; however, gas development in Ogaden has not yet begun.

In June 2003, the Ethiopian government signed an oil exploration deal with Petronas for 5,800 square mile tract in Gambela, in the far western part of the country. The region is closely related to the Sudan oil fields. Petronas has committed to investing in regional infrastructure, employing local staff, improving health services, and developing the skills of the Ministry of Mines. Petronas is also interested in natural gas exploration in Ogaden, but no official plans have yet been made.

Downstream

Ethiopia's petroleum consumption was estimated at 32,000 barrels per day (bbl/d) in 2005. With the closure of the Assab refinery in 1997, Ethiopia is totally reliant on imports to meet its petroleum requirements. Some petroleum imports are received at the port ofDjibouti, and shipped via rail and tanker truck to Ethiopia. With the recent development of oil in Sudan, however, Ethiopia has begun importing oil which, under the Common Market for Eastern and Southern Africa (COMESA), is not subject to tariffs. Oil imports from Sudan began in January 2003, transported by tanker trucks along a new road between the two countries. Since the tradebegan, however, oil shipments, which are expected to meet 85 percent of Ethiopia's gasoline requirements, have halted twice. Nevertheless, the two countries have agreed to upgrade the road along this important transit corridor to increase commerce.

Marketing and distribution of petroleum products is performed by ExxonMobil, Shell and Total. In June 2000, Shell purchased the downstream operations of Agip in several African countries, including Ethiopia. The Ethiopian assets included over 100 service stations, two depots and four liquefied petroleum gas (LPG) filling plants.

Electricity

Ethiopia has approximately 690 megawatts (MW) of installed generating capacity. The vast majority of Ethiopia's existing capacity (85 percent) is hydroelectric. The Ethiopian Electric Power Corporation (EEPCO), the state-owned firm responsible for electricity generation, plans to construct several new generating facilities to provide electricity to Ethiopia. Currently, less than half of Ethiopia's towns have access to electricity, though EEPCO electrified more than eighty towns between 2001 and 2003. Since most of Ethiopia's electricity is generated from hydroelectric dams, the country's power system is vulnerable to extended droughts. Ethiopia recently endured more than six months of power cuts due to low water levels in dams around the country. Initiallyblackouts were scheduled once a week, but as the drought wore on, customers lost power for 15 hours two days a week, a situation that strained the resources of many businesses in urban centers.

EEPCO is rapidly expanding its generating capacity. The 73-MW Tis Abay 2 facility, located on the Blue Nile (Abay) came online in 2001. U.S.-based Harza Engineering (now MWH Global) is overseeing the construction of an additional 34-MW unit at the Finchaa hydroelectric facility in western Ethiopia. The 180-MW Gilgel Gibe hydroelectric facility began commercial operations in 2004. Gilgel Gibe, located on the Omo River in southwestern Ethiopia, increased the country's power capacity to 690 MW. EEPCO has begun construction of Ethiopia's largest hydroelectric generating facility at Tekeze. The dam will have a height of 513 feet, making it the tallest dam in Africa. The 300-MW hydroelectric facility will be located in northern Ethiopia and will cost about $350 million.

The Gojeb power plant is Ethiopia's first Independent Power Project (IPP). This 150-MW hydroelectric plant was built in western Ethiopia and started commercial operation in 2004. The project was developed by Mohammed International Development Research Organization & Companies (Midroc). Midroc sells the output from Gojeb to EEPCO. Agreements on additional IPP projects were signed in June 2001. The largest facility will be the 162-megawatt (MW) Genale hydroelectric facility located on the border between the Oromia Region and the Southern Peoples Nationalities Regional State. The plants will be built under the Build-Operate-Transfer (BOT) system. ENERCO will operate the facilities for 30 years, which would be renewable for another 30 years.

In April 2001, Ethiopia signed agreements to export electricity to neighboring Djibouti. Negotiations were ongoing, and exports were expected to begin in 2004, following the interconnection of the countries' electric grids.