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BRUSSELS, Jan 26 2008 (IPS) - Financial support has been requested from the European Union for a controversial energy project in Ethiopia that could drive thousands of farmers from their land.
With a projected cost of 1.7 billion dollars, the Gilgel Gibe 3 dam is the single largest infrastructural work being undertaken in Ethiopia. At a launch ceremony Jan. 24, Ethiopian President Girma Wolde-Giorgis predicted that the hydroelectricity scheme will boost efforts to reduce poverty.
Yet his upbeat assessment is disputed by environmental and social policy activists.
They predict the dam will have adverse consequences for the ecology of the Gibe-Obo river system. Although 400 nomadic pastoralists are likely to lose access to grazing lands as a result of it, locals have not been formally consulted about its effects.
The European Investment Bank (EIB) has confirmed that it has received a request to loan money to the dam.
In a letter, seen by IPS, senior bank official Yvonne Berghorst said that "in order to qualify for funding, the EIB's normal thorough project appraisal procedure would need to demonstrate that the project meets the EIB's requirements on environmental and social standards, is technically, economically and financially viable and complies with relevant practices and standards regarding procurement."
Doubts have been cast on whether the project would comply with international tendering rules. Salini, an Italian construction firm, was awarded a contract for the project by the Addis Ababa government, without any competition.
An EIB spokesman said that because the contract had been granted in this way, the bank would "only be able to finance things that might be subcontracted" to other companies.
"We will be looking very carefully at the project's affordability," the spokesman added. "Does the project make sense for the Ethiopian economy? We will look at what positive effects it will have to make a balanced decision."
Campaigners have declined to accept this reassurance.
Magda Stockczkiewicz from Friends of the Earth's Brussels office pointed out that the EIB had previously financed earlier phases of the dam's construction between 1998 and 2005, even though similar problems had been observed in the awarding of contracts. A loan of more than 44 million euros (65 million dollars) was allocated to phase two, for example.
"It is in keeping with the classic EIB approach that it is not going to provide finance to all of a monster but that it is happy to finance the birth of a monster," said Stockczkiewicz.
Set up by the 1957 Treaty of Rome, the EIB is an official EU body, which approved loans totalling more than 53 billion euros (78 billion dollars) in 2006.
Although the bank raises its capital from international markets, its mandate requires that it adheres to the Union's policies. Under the Cotonou Agreement, a treaty signed in 2000 that lays down the legal basis for the EU's relationship with Africa, it is obliged to ensure that any work it supports in Africa helps reduce poverty.
Gilgel Gibe 3 is considered pivotal to an Ethiopian five-year plan to generate 4,000 megawatts of electricity. Almost half that energy is to come from the project.
But the question of whether the domestic population will benefit as a result is fiercely contested, given that much of its power could be exported to Kenya.
Caterina Amicucci from the Campaign for the Reform of the World Bank in Rome said that just 6 percent of Ethiopia's 73 million inhabitants are connected to the national electricity grid. It would be preferable, she added, to invest in improving domestic capacity than to support schemes designed to export energy.
As alternatives to Gilgel Gibe 3, campaigners are advocating a major effort to increase the supply of cooking fuels to rural communities.
Ethiopia has also been identified as having vast potential for the generation of geothermal energy – from heat stored beneath the earth's surface – particularly in the Rift Valley.
Despite being a critic of the World Bank, Amicucci argued that the Washington-based institution is "much more advanced" than the EIB. After sustained campaigning by a wide variety of organisations, the World Bank has become more transparent and has begun insisting that correct procedures are followed before it releases money.
"Because of the procurement issue (with Gilgel Gibe 3), the World Bank's offices in Addis Ababa have told us they can't support this project," Amicucci added.
Another concern being raised is that Ethiopia could struggle to pay back a large-scale loan.
In a report on Ethiopia issued last year, the International Monetary Fund (IMF) stated that the granting of commercial loans to public enterprises has a "sizeable effect" on debt sustainability.
The World Bank and IMF consider the external debt of a country as sustainable when it is around 150 percent of its yearly export revenues.
According to the latest data published by the World Bank, Ethiopia has an external debt of 6 billion dollars, equivalent to one-fifth of national income.
Some 40 percent of Ethiopians live below the poverty line.
"Loans have to be paid back," said Stockczkiewicz. "Our belief is that in such a situation, the responsibility on the donor is even greater. If they don't look through all the pros and cons of a project before giving a loan, at the end of the day it is the country's people that will have to pay the price."
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