The European Investment Bank (EIB), the European Union's long-term financing institution, is providing a EUR 25 million loan from risk capital resources (1) for the financing of improvement measures to urban power distribution in 8 Ethiopian cities. The project is part of of a larger, USD 200 million, project co-financed with the World Bank and IDA.
The Ethiopian power grid needs urgent rehabilitation due to back maintenance. Less than 10% of the population is connected. The project is complementary to the World Bank's and the EIB's Gilgel Gibe Power Plant Project of 1997. The current project concerns supply as well as maintenance aspects of the existing power supply system. It aims to improve the quality and reliability of electricity supply and extend supply to new customers. More reliable and extended electricity supply will provide the basic utility for the growth of business and encourage economic development.
The borrower is the Federal Democratic Republic of Ethiopia, funds will be on lent to the Ethiopian Electric Power Corporation (EEPCO) at conditions commensurate with HIPC consessionality. The loan will provide long-term financing for the project, which is otherwise unavailable domestically. The parallel funding of World Bank and the EIB is of vital interest for the development sector.
The EIB, established in 1958 by the Treaty of Rome, finances capital investment projects which further the European Union (EU) policy objectives. It also participates in the implementation of the EU's co-operation policy towards third countries that have co-operation or association agreements with the Union. Currently, the Bank's financing in Africa, the Caribbean and the Pacific (ACP) is carried out under the provisions of the Fourth Lomé Convention, which was concluded in 1989 for a period of 10 years and is accompanied by two Financial Protocols. Under the second financial protocol, the total financial aid available amounts to EUR 14.6 billion, of which EUR 12 billion is grant aid from the EU member states, EUR 1 billion is managed by the EIB as risk capital finance, and up to EUR 1.6 billion is in the form of loans from the EIB's own resources. The EIB is at the moment working in close collaboration with the EU Member States and the European Commission to finalise criteria and operational guidelines of the newly created Investment Facility, set up by the New ACP-EU Partnership Agreement, signed in Cotonou in June 2000, which will replace the Lomé Convention. Under the Cotonou agreement the total financial aid available amounts to EUR 15.2 billion for 2002-2006, of which EUR 11.3 billion is grant aid from the EU member states, EUR 2.2 billion is managed by the EIB under the Investment Facility, replacing risk capital finance, and up to EUR 1.7 billion is in the form of loans from the EIB's own resources. The Investment Facility is a revolving facility (loan amortizations will be invested in new operations), aiming at supporting technically, environmentally, financially and economically sound projects in the private or the commercially-run public sector.
The Republic of South Africa became an associate member of the Lomé Convention in 1997. The Bank has a separate lending mandate from the EU's Member States to provide long term financing for RSA totalling EUR 825 million over the period 2000-2006.
(1) The Bank manages part of the European Development Fund (EDF), constituted by contributions from EU Member States, under mandate, which it uses primarily for risk capital operations. In addition the Bank onlends "own resources", which are raised on the international capital markets.