Ethiopia announced last week that, faced with a 120 MW deficit, electricity will be cut, 14 hours daily for six days each month. Those lost 84 hours a month will cost the country’s economy 1% of its GDP.
Although Ethiopia has only 767 MW of grid-based electricity, it was more than the country’s demand until last year. Domestic peak demand has reportedly risen 24% since, beyond the national utility’s meager supply.
But Ethiopia’s power company, EEPCo, had every intention that two new hydro plants, Tekeze (300 MW) and Gilgel Gibe II (480 MW), would be supplying power long before now, doubling grid supply and even jumpstarting power exports in 2008. Once operational, both will loom largely over Ethiopia’s current largest power plant, the 184 MW Gilgel Gibe Dam. But technical delays and cost overruns, two characteristics notoriously common in large dams, are now haunting EEPCo.
In 2002, EEPCo awarded the Tekeze Dam contract to a Chinese construction consortium, expecting the dam to start generating power in 2007. But in 2004, the project contractors requested a one-year project extension due to, “problems with the location of the hydropower station.” In fact, the ground on which the dam was being built wasn’t strong enough. In April 2008, landslides of the reservoir walls forced an additional delay, requiring a costly and unexpected restraining wall. EEPCo’s bill: more than $35 million dollars, about 20% of the project’s original budget.
In 2004, EEPCo awarded the Gilgel Gibe II contract to Italian company, Salini, expecting this, too, would be completed by the end of 2007. But this 26 km tunneling scheme struck “problematic geological conditions.” A major piece of equipment was stuck in the tunnel. Unexpected sandy soil and water springs have turned the tunnel muddy, slowing the last stretch of digging and forcing a costly change in the tunnel’s path. Normally, the type of contract given to Salini would burden the contractor with these financial risks, but the Gilgel Gibe II contract reportedly exempted such geological risks because both parties knew that geological conditions had not been properly studied prior to construction. EEPCo is paying an unreported amount to finance these costs.
EEPCo now expects Tekeze and Gilgel Gibe II to be completed by August, but it’s hard to know with any certainty when the projects will start producing power. Had these projects undertaken proper soil studies before construction, could the problems have been foreseen, or even avoided? Did contract terms leave the utility unusually open to cost overruns, and contractors insulated from such risks?
Cutting corners in the design and preparation stage can be costly and disastrous. Proper studies are the least expensive way to identify project risks and protect development investments. Had Tekeze and Gilgel Gibe II been better studied during their design stage, and had both contracts been better reviewed to ensure that EEPCo’s financial risks would be minimized, Ethiopia would likely not be facing load shedding today.
An industry insider recently disclosed that the 1,870 MW Gibe 3 Dam, also under construction by Salini, likely suffers a number of technical problems, including soft soil and inadequate engineering studies. The dam’s anticipated social and environmental devastation aside, the project’s engineering design has not been properly reviewed – strange for a $1.7 billion investment. Lack of due diligence amidst the rush to construction could prove physically and financially catastrophic for the country’s largest electricity investment.
Given that Gibe 3’s physical and financial size is more than double that of Tekeze and Gilgel Gibe II combined, one can only expect that following the same feverish path of un-due diligence will bring the country’s power sector headaches of a comparable magnitude.