Perils of a rail link built with Chinese funds

Saturday May 18, 2019
By Nizar Manek

The first commercial train of Addis Ababa Djibouti Railway carrying passengers from Addis Ababa. File | Photo Credit: AFP/Getty Images

The train had crossed the frontier on Chinese-built rails between Ethiopia and Djibouti. Barren escarpments and acacia trees were flowing past the windows. Behind lay Ethiopia and a disclaimer at the ticket booth warning passengers to travel at their own peril.

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Funded by China’s Exim Bank for $4.2 billion, this is Africa’s first electrified railway, except that it is not really. “Look at the electricity shortage: the train could be blocked for a whole day of operations,” Djibouti’s Finance Minister Ilyas Dawaleh told this writer in his office in Djibouti City.

In January, Mr. Dawaleh said, operations were halted for half a day when a train was blocked by protesters amid conflict on the border between Ethiopia’s Afar and Somali States. Ethnic Afar feared Somali annexation of villages.

“Everyone’s taking hostage of the infrastructure,” Mr. Dawaleh said. Besides the Ethiopian unrest, nomadic people demanding compensation for run-over camels too were not factored into a feasibility study Exim Bank approved for the over 700-km Ethiopia-Djibouti Railway in 2013, before disbursing the loan ($490 million) for Djibouti. In April, an Ethiopian freight train skidded off the tracks. Revenue forecasts for the railway, meant as a pivot for Ethiopia’s export-oriented industrial development dream, have been cut to a third against the feasibility study. The track remains incomplete in both the nations and the railway transports only one commercial train a day, not three as planned, said Ahmed Osman, Governor of Djibouti’s Central Bank.

During the railway’s first year of operations, 90% of trains from Ethiopia arrived empty at a container terminal in Djibouti, only to collect imports from a nearby loading point, said its director-general, Abdillahi Adaweh Sigad. At one point, there’s a railway station beside a mountain range abutting a fortressed base for China’s People’s Liberation Army (PLA) and linked to a Chinese-funded and part-Chinese managed port. Warehouses lie between and “some sensitive cargo” are imported, according to the port’s commercial director.

Ethiopia and Djibouti are working on restructuring the rapid rise of debt, whose maturity has already been extended. In February, Mr. Dawaleh met Exim Bank’s president in Beijing, saying Djibouti, like Ethiopia, wants partial railway privatisation. China Civil Engineering Construction Corporation (CCECC) and China Railway Engineering Corporation (CREC), railway constructors who became management contractors in December 2016, already want shares, the Finance Minister said. The plans may entail private operations of some wagons and segments of the 100-km track on Djibouti’s side, Mr. Dawaleh said.
Oil and gas development

In April, CREC met Ethiopia’s Prime Minister in Beijing, expressing interest in oil and gas development as State Grid Corporation of China signed a $1.8-billion investment deal with Ethiopia, including to supply power to the railway.

The railway network is planned extended to Damerjog in eastern Djibouti, where a 735-km pipeline with China’s Poly Group will transport natural gas from Ethiopia, said Djibouti’s Minister of Energy, Younis Ali Guedi.

Djibouti’s public and publicly-guaranteed debt was estimated to be at 104% of GDP at end-2018, according to the IMF. Djibouti disputed the forecast, saying it used outdated data from the IMF’s last debt sustainability analysis, in 2016, and included debts of state enterprises, which the government doesn’t compute as sovereign debts.

Djibouti, meanwhile, seeks new off-balance sheet commercial loans totalling $448 million, including a $56 million loan from Exim Bank, for an electricity transmission line. Shanghai Electric Group agreed in September to split the EximBank loan 50:50 with the state-owned Electricité de Djibouti (EDD).

Another line is planned, with finance expected from India’s Exim Bank. Djibouti separately seeks a European-financed $420-million loan for an airport that would be recorded on the balance sheet of Great Horn Investment Holding, a subsidiary of the Djibouti Ports and Free Zones Authority, and so, like the EDD loan, not accounted for as sovereign debt, said its chairman Aboubaker Omar Hadi.

(Nizar Manek is a journalist based in Addis Ababa)

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