Ethiopian Telecom and the Chinese Syndrome
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Ethiopian Telecom and the Chinese Syndrome

The Ethiopian Telecommunications Corporation (ETC) recently signed a mammoth U.S. $1.5 billion 'Supplier's Credit' Memorandum of Understanding (MoU) with three Chinese companies for all telecom projects in the coming four years, including the present Ethiopian fiscal year.
According to the proposed loan agreement, the interest rate has been fixed and ETC will have to make a down-payment of a certain per cent of the total project cost. The repayment period is fixed. The management fee is fixed at a certain per cent and the loan disbursement period is also agreed. Let me go into details.
The reimbursement period is 10 years. The interest rate is according to LIBOR+1%. The current LIBOR rate is 5.4%. So, the interest rate is 5.4%+1%=6.4%. This is ETC's proposal.
The Chinese are anticipated to come up with a high-ceilinged interest rate. The U.S. $1.5 billion divided by over the 10-year repayment period is U.S. $150 million per annum. This is the principal debt alone. The interest rate on the arithmetic mean is $90 million (all in U.S. dollars unless stated).
ETC pays $240 million or around 2.2 billion Ethiopian Birr annually at the current exchange rate. It does not end there. ETC has concurred to give 15% of the $1.5 billion as an advance payment to the Chinese companies, which they will prorate amongst themselves pursuant to their contribution in this venture. The money up front would be 15% of 1.5 billion, which comes to $225 million.
The 'Supplier's Credit' is nothing but one method of putting money into a project. This method of financing is discouraged by the World Bank and other international financial agencies. Actually, many experts even are reluctant to call it “supplier’s credit. The experts unwaveringly contend that it is more of “buyer’s credit".
ETC's telecom experts have vehemently gone up against this arrangement. The telecom experts have expressed their serious reservation on the Chinese telecom equipment quality. The Chinese will not give the $1.5 billion to ETC. The Chinese rather are going to supply Chinese made telecom equipment worth $1.5 billion.
According to other countries, that had lived through this, up to 40-50 per cent of such opaque credit goes to individuals' pockets.
A top political group led by Sibhat Nega has been pushing the deal that seeks to limit procurement of telecom equipment exclusively within Chinese companies. America and the entire West seem to have a "special arrangement" or an "excellent" division of labor with the Government of China; in which case the West to pump money in the form of loan and grant and the Chinese to take the "lion's share" in all transactions. As we all have watched in the government-owned TV program, the entire Chinese business companies’ executives and Chinese diplomats were guests of honor at the annual TPLF Congress recently held in Tigray region. No other country's diplomats or business representatives were present on the occasion.
A clandestine source pointed out that this idea was designed to ensure that the deal goes to the three Chinese companies. The local representatives of these companies have reached an understanding with the aforementioned members of a top political group of the country in which the representatives will pay to the EPRDF business empire 10 per cent of the total project cost as commission, the source claimed. This is one of the leading deals of this political group in the last 14 years of EPRDF rule.
The ex-top management of ETC, which was led by Tesfaye Biru, had already cleared a proposal to seek this loan from China for all ETC’s four-year projects. The incumbent management group will have no option other than signing the Agreement and implementing it. If the present CEO and his entire crew have a high moral standard and/or concern for this poor country, they have to show their defiance without further ado. This is a crime which will go down in history for a long time to come.
The Labour Union of ETC has been resisting this project starting from day one. It is expected that this fiasco plan will face fierce resistance from the Labour Union and the entire employees of ETC. The long term diabolic plan is to sellout ETC to the Chinese companies.
It is anticipated that Prime Minister Meles Zenawi will next month hammer out this project with the Chinese premier who is expected to right away agree to shore up the investment under "supplier's credit" scheme.
Far-sighted and apprehensive Ethiopians' resistance against the supplier's credit system, which is a non-transparent financing mechanism that encourages corruption, did put the project on the back-burner until early this year. Now the proposed scheme has been re-activated, project's lending term secretly negotiated and the whole thing is being finalized at a lightning speed.
What is remaining is to give a legal shape to the minutes of the secretly-held successive marathon meetings i.e., drafting the agreement expected to be signed forthwith. I am aware different groups and individuals are somehow trying to get hold on the MOU and the Agreement. They will hopefully make it public as soon as it reaches them. I appeal to any one of those concerned Ethiopians who already have the documents to make them public or directly send the items to:
Chinese sources said the China Bank submitted a loan proposal in this regard and the government's Hard Term Loan Standing Committee on August 8, 2005 identified the loan terms as "buyer's credit" since the loan terms are rigid. It is to be recalled the same Chinese company was set to install a mobile (cell phone) network with very low quality equipment. Many telecom experts severely criticized that procurement and at the end of the day the entire network which cost ETC 400 Million Ethiopian Birr was dismantled and the equipment dumped at the notorious warehouse of ETC. Now the entire Chinese network is replaced by Nokia system. Nobody so far is held responsible for this inexcusable serious crime. The present plan could be to dismantle the Nokia system and replace it by the Chinese system. This is like a joke and a mockery at the 77 million Ethiopian people.
The ETC presently has around 500 telephone exchanges across the country, with 85 per cent of them digitized. The remaining 15 per cent exchanges are situated at the interior village level and desperately need modernization.
The ETC now provides 650,000 fixed phone lines while it is unable to meet the huge demand of phones due to a lack of expansion of its exchanges. Telecom experts agree that further purchase of equipment is unwise while ETC is unable to use full capacity of its exchanges already available.
* Sebhat Nega is the 72-year-old TPLF founder who recently retired from his seat within the inner TPLF politburo circle. Despite some misleading media reports that attributed Sebhat Nega's retirement to "differences with Meles," he remains the most trusted man of the premier that he is still in charge of the never-audited chain of TPLF companies.
Hailegaber Sibhatu Idris can be emailed at:

Sebhat Nega is the 72-year-old TPLF founder who recently retired from his seat within the inner TPLF politburo circle. Despite some misleading media reports that attributed Sebhat Nega's retirement to "differences with Meles," he remains the most trusted man of the premier that he is still in charge of the never-audited chain of TPLF companies.


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