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Ethiopia - EEPCo Closing in $400m Deal with JP Morgan
The Ethiopian Electric Power Corporation (EEPCo), the state-owned monopoly, is getting close to finalizing a deal with an international investment bank to obtain a 400 mln dollar loans, sources disclosed to Fortune.
JP Morgan Chase, an investment bank headquartered in New York, will be lending the company the money at a six per cent interest rate - an amount observers say is on the high side - to be paid back over 10 years. According to Bloomberg, the average 10-year lending rate to AAA-rated companies in the US is currently 5.63pc.
EEPCo is seeking the loan to finance the construction of a hydroelectric dam project, known as Gibe III, which will be constructed in the Oromia Regional State and have a generating capacity of 1870mw of power. At a projected cost of 1.73 bln dollars, the investment is the largest ever of its kind in Ethiopia. Once completed, the dam is expected to help EEPCo cover 40pc of its target to generate a total of 4,000mw of electrical power by 2010, enough to provide coverage to about half the country.
In the past, EEPCo has relied on construction firms to provide financing for capital-intensive projects. For example, EEPCo in July 2006 tapped Italy's Salini Construction to bring in financiers for the Gilbel Gibe II project, a dam with 425mw of capacity. Salini, which was a partner in the construction of the dam, secured loans from the African Development Bank (AfDB) and the European Investment Bank (EIB), as well as the Italian and Ethiopian governments, to pay for its own costs and services.
THE PROJECT: Gibe III
COST: 1.73 billion dollars
GENERATION CAPCITY: 1,870mw
CONTRACTOR: Salini Const’n
FINANCIERS: AfDB, EIB, Italian and Ethiopia gov’ts
NEW LENDING: JP Morgan
LOAN AMOUNT: 400m dollars
Executives from Salini introduced bankers from JP Morgan Chase to the Ethiopian government, which initially asked the New York bank to funnel the loan through the state-owned Commercial Bank of Ethiopia (CBE), sources disclosed. JP Morgan Chase, however, insisted the federal government provide a guarantee on the loan, a request the government has been reluctant to accept due to recommendations from the World Bank and IMF against it.
According to reliable sources, the discussions between the two parties has been going on for the past six months until a breakthrough came when Finance and Economic Development Minister Sufian Ahmed finally convinced officials of the IMF and the World Bank in October 2007, at the annual joint summit of the two organizations held in Washington D.C., to concede his government's need to furnish the guarantee.
The two sides are expected to sign the loan agreement in two weeks, sources disclosed. If successful, it will be the first infrastructure project JP Morgan Chase has financed in Ethiopia.
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