Italian Saliani awarded $2.8B Hydropower Contract to build 2,200 MW Koysha Dam on the Omo River, Ethiopia

June 17, 2016

Italy’s Milan-based industrial group Salini Impregilo has been awarded a $2.8-billion hydropower project by Ethiopian Electric Power Corp., a state-controlled company that produces, transmits, distributes and sales electrical energy in Ethiopia.

The contract involves the construction of 2,200 MW Koysha Dam on the Omo River in the southern part of the country with financing from Italy’s credit agency Servizi Assicuative de Commerce Estero.

Salini is currently constructing Ethiopia’s 6,000 MW Grand Ethiopian Renaissance Dam, which when commissioned in 2017 will be Africa’s largest hydropower project and rank 11th overall in the world. The Italian construction firm last year completed the 1,870 MW Gibe III hydroelectric power project at the cost of $1.6 billion.

The new Koysha hydropower project will have a 170-meter-high rolled compacted concrete dam with a 6,000-million-cu-m capacity reservoir and generate an estimated 6,460 GWh of electricity annually.

“The project together with Gibe III and Grand Ethiopian Renaissance Dam on the Blue Nile will enable Ethiopia become Africa’s leader in energy production,” a statement from Salini said in May.

Ethiopia, which has an existing generation capacity of 2145 MW, nearly 200% more than the capacity it had in 2008, is still implementing the first phase of the 20-year Growth and Transformation Plan (GTP), which involves the completion of the $4.1-billion Grand Renaissance Dam and $1.8-billion Gibe III project with capacity to increase the country’s generating capacity from 2400 MW to 10,000 MW by the end of last year. Only Gibe III has been completed. Under phase two of the GTP, Ethiopia has approved construction of energy projects with a combined capacity of 12,000 MW by 2020. The GTP has the potential to “help sustain Ethiopia’s continued economic growth and enable it to become a regional renewable energy hub in East Africa,” said the U.S. Agency for International Development in March.

Ethiopian government reports estimate the country’s electricity generation potential at 60,000 MW from diverse renewable sources such as hydroelectric, wind, solar and geothermal.

Ethiopian Electric Power Corp. estimates that the GTP energy sector plan could cost the country $25 billion by 2020.

“For this ambitious energy plant, the idea is to finance at least 50% from our own coffers, the Ethiopian government, while the rest will come from other sources which could be grants, soft loans and commercial laons from foreign banks,” said EEPC Chief Executive Officer Azeb Asnake in a previous interview with Reuters.

Despite the ambitious new energy generation plans, Ethiopia faces numerous challenges in achieving its electricity expansion targets. A USAID report earlier this year ticked off the challenges:  rehabilitation of an aged distribution system with high losses, ensuring more efficient operation and maintenance of the expanded system, becoming a creditworthy purchaser of electricity from independent power producers, addressing foreign exchange constraints, reforming tariffs to allow for full-cost recovery, and delivering more power to the majority of the population living off-grid.”

U.S. President Barack Obama’s Power Africa initiative is offering technical assistance to Ethiopia in its energy expansion program in partnership with Sweden, Norway, the World Bank, European Commission, the UN, DFID, and other development partners specifically in the development of new laws and regulations to woo private-sector led investments in renewable energy projects from Independent Power Purchasers.

The Power Africa initiative is also helping Ethiopia negotiate and bring to a financial closure the initial landmark IPP for the Corbetti and Tulu Moye Geothermal Projects with a combined generating capacity of 1,000 MW according to a recent power country review by USAID.

The agency said other areas Power Africa is supporting Ethiopia’s power sector plan include the transitioning to competitive tendering, the planning, operation, and maintenance of generation, transmission, and distribution systems, developing a grid code that specifies the rules and responsibilities for all energy stakeholders, developing a plan to reduce distribution losses and assist with introduction of “smart grid technology” and “strengthening the Ethiopian Electricity Authority to perform as an effective regulator and assist with determining cost reflective tariff rates.”