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A Partnership For Progress

Djibouti and neighbouring Ethiopia enjoy a particularly close and mutually beneficial relationship. With trade set to increase, infrastructure links are being upgraded.

In order to handle the growing volumes of cargo flowing to and from Ethiopia, the Djibouti government not only privatised the country’s ports but also contracted one of the world’s foremost port operators, Dubai Port World (DP World) to optimise operations. This has led to productivity increasing exponentially, so that today the Port of Djibouti is one of the world’s leading ports, not just in terms of volumes – currently with a capacity amounting to 1.5m 20ft equivalent containers a year – but the standard measures of a port’s efficiency.

These measurements include criteria such as the movements of cranes each hour and ship turnaround times, critical areas when the choice of trans-shipment terminals is made by global shipping lines. Furthermore, Djibouti has built one of the biggest oil storage and handling complexes in Africa at Doraleh. This terminal, built at a cost of $120m, has two berths with 20m drafts, and operates around the clock to handle 3m tonnes of fuel a year. The terminal can, in fact, pump 2,000t of fuel an hour as well as liquefied gas.

These two facilities are crucial not just for Djibouti, which remains a net energy importer, but also the region as a whole, and especially landlocked Ethiopia. When disputes between Ethiopia and Eritrea led to conflict, Eritrea closed the ports of Massawa and Assab to Ethiopian goods, and ports that Ethiopia had used since before Eritrea’s independence, when the two countries were one unified entity, were denied to them.

Suddenly, without access to the ocean, Ethiopia was in a dire situation. It simply had to find alternative routes to the ocean for its exports like coffee, livestock and flowers – and for imports to fuel the country’s economy. Ethiopia has Africa’s second-largest population and is one of the continent’s fastest growing economies, but it was Ethiopia’s great fortune to have Djibouti as a neighbour with the capacity to assist.

The Port of Djibouti’s operations today are dominated by Ethiopia’s imports and exports, which comprise over 90% of the total throughput – although, of course, Djibouti handles significant trans-shipment volumes, i.e. where trade goods are offloaded at the port and then forwarded on a different vessel to other world destinations.

Consequently, relations between Ethiopia and Djibouti are particularly strong and mutually beneficial. Not only does Ethiopia depend on Djibouti for the transit of its trade goods, but Ethiopia also supplies essential foodstuffs to Djibouti. The establishment of a Free Trade Zone adjoining the port has also been a boon to both countries. Not only were Ethiopian companies able to establish operations here in proximity to the port, and to conduct business under a fiscal regime that was essentially as conducive as that within Ethiopia proper, but Djibouti was able to offer multi-dimensional services within the zone. The country is also pioneering an air-sea-land link for landlocked countries within the region.

Djibouti Free Zone is currently home to over 100 leading regional and global companies including BMMI, SDV Bollore, and Seven Seas. It has emerged as one of Africa’s leading trading and distribution hubs. The strategic location of the free zone allows companies located in DFZ to serve not just Ethiopia but 380m people in 19 countries in East and Central Africa.

It is also recognised that the energy sector is a further spur for co-operation and with tremendous opportunities for strengthening regional integration both within the Horn of Africa and the Eastern region of the continent. The African Development Bank has already financed the electrical interconnection network between Djibouti and Ethiopia.

However, on the horizon is the potential to generate massive amounts of power in Djibouti by exploiting the country’s geothermal assets. Located at the junction of three tectonic plates, Djibouti has significant geothermal potential, and with many points beneath sea level and lying on the Great Rift Valley, drilling presents a more viable and affordable option to many other places.

Geothermal energy production is a well-developed means of generating affordable electric power. It consists of drilling wells deep towards the earth’s magma to locate suitable hot rocks. Once found, water is pumped down to be super-heated and extracted as steam to drive turbines. The main problem is the cost of the initial exploration wells, but Djibouti’s policy is to offer opportunities for strengthening regional integration by Public Private Partnerships (PPP) complemented by Development Finance Institution funding for geothermal projects.

The government of Djibouti has already given the green light to one such project, reaching agreement for a $20m programme with the Global Environment Facility, World Bank and OPEC. The development phase will be in the form of a public private partnership. The drilling of exploratory and production wells is scheduled to be completed by 2013 with generation capacity of 56MW coming on stream by 2018.

Certainly, the African Development Bank envisages providing assistance in the establishment of a regional approach to energy projects, including the development of a blueprint, a harmonised policy framework, regulations and investment, capacity building, project financing and mobilisation of resources towards a response to the global climate change challenge. Meanwhile, Ethiopia is harnessing its hydroelectric generation capacities with both countries also developing green-energy solutions to further complement geothermal.

Early next year, a €35m desalination plant and an adjoining windfarm supplying 20MW, will begin construction with a view to completing by the end of 2014. There is also a 62MW wind farm being proposed for the Ghoubet region. By 2018, Djibouti has the ambition to be one of the first countries in the world to have 100% of its electricity consumption from renewable energy.

Further cementing the close relationship between Ethiopia and Djibouti is the latter’s investment in Ethiopia’s hydroelectric programme. Djibouti is the largest foreign buyer of bonds that Ethiopia has issued to finance the River Abay (Blue Nile) hydroelectric facility. Djibouti’s investment in the Grand Ethiopian Renaissance Dam amounts to $1m.

Djibouti needs reliable and affordable power supplies to bridge the energy gap that is envisaged will impact the country before new energy projects in the pipeline come on stream. Djibouti was the first country in the region to buy electric power from Ethiopia, with 35MW of electric power supplied beginning May 2011.

The importance of co-operation in completing major infrastructure projects is central to the policies of both countries. This becomes clear from the numbers of projects that are now being embarked upon. Quite apart from energy interconnections, the rehabilitation of the Djibouti-Dire Dawa highway and progress in the construction of the Northern Corridor (Dorra-Balho); the rehabilitation of the Djibouti-Ethiopian Railway and construction of a new rail corridor to the north, Tadjourah-Mekele; as well as the construction of the Port of Tadjourah, are indications of the two countries’ commitment to this common vision.

A leading Chinese railway construction company, “China Railway Engineering Corporation” (CREC), will build the new Addis Ababa–Djibouti railway track for both freight and passenger transport. The 656km route will connect Ethiopia’s capital Addis Ababa with the port of Djibouti and be electrified by as yet unannounced renewable energy sources, quite possible solar.

While there is an existing track in use along this route, the new railway, it is confidently stated, will reduce the travel time from Djibouti port to the Ethiopian capital by more than 50%. This should contribute handsomely to the economic development of Ethiopia’s hinterland through which the railway will be routed as well as relieve some of the burden on the two countries’ road networks. Longer term, this rail link will serve as a key component of the proposed trans-continental East to West African Railway Network.

A rail link for Djibouti, Ethiopia and South Sudan originating from Djibouti and terminating in Juba is also in the preliminary stages of a consultation process, having been first mooted during the region’s Third Infrastructure Council meeting held in Djibouti in 2009.
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