18 January 2010

Ethiopia: Government Signs $1.5 Billion New Railway Study MOU

Photo: Arcelor Mittal
A Turkish firm will build a U.S. $1.7 billion section of the project, while a Chinese company will build the remaining portion.

A memorandum of understanding (MoU) has been signed by four foreign companies and the Ethiopian Railway Corporation for the launching of a study on the planned construction of a new railway line up to the border of Djibouti, at a projected cost of 1.5 billion dollars.

The companies, China Communication Construction Company (CCCC), China Railway Group, Overseas Investment Alliance (OIA) from India, and a Russian company, are said to be undertaking their own individual studies on the project to make their decisions, according to Hailemariam Desalegn, government whip at Parliament and director of the board of the corporation, told Fortune.

The company that will get the project will be the one that comes with the financing, Hailemariam said.

The technical and financial efficiency of the winning company will be evaluated by its engineering procurement contract (EPC).

The government intends for the construction to begin before the end of this fiscal year early July, a high-level government official told Fortune.

The two Chinese companies are sister companies, and CCCC has already concluded a deal with the Ethiopian Roads Authority for the construction of the Addis Abeba-Adama road. This company acquired the 349 million dollar financing for the construction from China Exim Bank.

OIA has a history of supplying machinery to the Ethiopian Electric Power Corporation (EEPCo). It is also undertaking the construction of Tendaho Sugar Factory with a 350 million dollar loan provided by the Indian Government.

The Indian company did not seem as keen as the Chinese company to get the project, averred the government official who spoke to Fortune on the condition of anonymity, meaning that the project may eventually go to the Chinese due to the Indian company's lack of enthusiasm.

The government chose to build a new railroad instead of upgrading the old one, because the old one allowed speeds of only 20km per hour, while the new one would enable up to 50km per hour, Hailemariam said.

"The fate of the old one is not yet known," Hailemariam said.

There is currently no railway transport between Addis Abeba and Dire Dawa, and only very occasionally between Dire Dawa and Djibouti.

The Ethiopian Railway Corporation was established by the government in 2007 with a capital of three billion Birr. The corporation's board members include Hailemariam and Arkebe Oqubay, state minister for Works and Capacity Building. The general manager, Getachew Betru, was not available for comment.

The Addis Abeba-Djibouti railway is part of the government's plan to lay down 5,000km of tracks along seven different routes of economic importance. The next phase will ensue with another track linking Ethiopia to Kenya, according to the same official.

Maintenance of the old of track was initiated at a cost of 50 million dollars, but it was interrupted for quality reasons.

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