Djibouti, a country bordered by Ethiopia, Eritrea, and Somalia, has managed to develop a strategy towards its neighbors to ward off threats to its stability and ensure prosperity. The country has taken an active role in fostering greater cooperation in the region. Bilateral relations with Ethiopia remain crucial for Djibouti’s development, though the government is not focusing exclusively on its larger neighbor. In 2013, ministers from the two countries signed an agreement to construct a pipeline supplying drinking water from Ethiopia to Djibouti. Given the levels of water scarcity in Djibouti, this infrastructure will become a key long-term strategic asset and support the development agenda in the country. Djibouti hopes to make this relationship a model for its interactions with other countries in the region; it hopes the cross-border infrastructure is just the start.
Djibouti is facing important climate challenges, including extreme heat, increased floods and droughts, and rising sea levels which threaten its coastal economy. Climate impacts undermine water security, increase the prevalence of climate sensitive diseases like malaria, and strain livelihoods.
Even with a growing population, urban water security is within reach with additional efforts to reduce network losses, use the pipeline connection at full capacity, and complete a planned expansion of desalinization. Djibouti has made important investments in new water sources, including desalinization capacity and a pipeline connection to deliver water from Ethiopia.
Ethiopia, Djibouti sign gas pipeline deal
Project Overview
On September 2, 2012, a Memorandum of Understanding (MOU) between the Government of the Federal Democratic Republic of Ethiopia and the Republic of Djibouti on Supply of Water to Djibouti was signed. Then, on September 11, 2013, China Eximbank and the Djiboutian Ministry of Finance signed a $322,050,000 preferential buyer’s credit (PBC) agreement for Phase 1 of the Ethiopia-Djibouti Water Pipeline Project. The proceeds of the loan (captured via Project ID#59425) were to be used by the borrower to partially finance a $339 million commercial contract between Office National De L'Eau Et De L'assainissement De Djibouti (ONEAD) and CGC Overseas Construction Co. The Government of Djibouti was responsible for the remainder of the commercial contract cost (approximately $17 million). According to Djibouti’s Ministry of Economy, Finance, and Industry, the PBC (loan) ultimately achieved a 108.2% disbursement rate (FDJ 61,826,000,000).
Phase 1 of the Ethiopia-Djibouti Water Pipeline Project involved the construction of a 63-mile long water pipeline from the Ethiopian town of Hadagalla into the interior of Djibouti, where it was expected to supply safe drinking water to 700,000 residents of Ali-Sabieh region, Dikhil region, Arta region and Djibouti City. CGC Overseas Construction Co. was the contractor responsible for project implementation. Its work was overseen by Office National De L'Eau Et De L'assainissement De Djibouti (ONEAD). The originally envisaged project implementation start and end dates (as specified in the April 11, 2013 commercial contract) were July 1, 2015 and March 30, 2018. A groundbreaking ceremony took place on March 22, 2015. However, Phase 1 implementation did not commence until March 30, 2015. As of February 2017, ONEAD reported that Phase 1 had achieved an 87% completion rate. Phase 1 was officially completed and handed over to the local authorities on June 30, 2017.
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Map of Djibouti showing the regions that benefit from the water pipeline.
Phase 2 of the Project
On December 25, 2017, China Eximbank and the Government of Djibouti signed an RMB 303,660,000 (or $43.38 million USD or 8,460,208,609 DJF) government concessional loan (GCL) agreement for Phase 2 of the Ethiopia-Djibouti Water Pipeline Project. The GCL, captured via Project ID#59453, carries the following terms: 20-year maturity, 7-year grace period, 2% interest rate, 0.25% commitment fee, and a 0.25% management fee. The Djiboutian legislature ratified the GCL agreement on June 25, 2018.
The purpose of Phase 2 is to provide electricity to various sites along a 63-mile-long water pipeline that runs from the Ethiopian town of Hadagalla into the interior of Djibouti, where it is expected to supply safe drinking water to 700,000 residents of Ali-Sabieh region, Dikhil region, Arta region and Djibouti City. CGC Overseas Construction Co. is the contractor responsible for the implementation of Phase 2. However, AidData has not yet identified any evidence that Phase 2 implementation has commenced.
Financial Aspects and Challenges
There are some indications that the China Eximbank preferential buyer's credit for Phase 1 of the Ethiopia-Djibouti Water Pipeline Project may have financially underperformed vis-a-vis the original expectations of the lender. According to the International Monetary Fund (IMF), the stock of the Government of Djibouti's external arrears stood at $107 million in March 2020. In May 2020, a Debt Sustainability Analysis (DSA) by the World Bank and the IMF concluded that Djibouti was at a high risk of debt distress.
In March 2022, the World Bank published a report, which noted that liquidity tensions are likely to arise due to the payment of deferred debt service linked to the DSSI, the maturing of the two loans on the water pipeline project connecting Djibouti to Ethiopia loan in 2022, and the Addis Ababa-Djibouti railway project in 2025. On November 29, 2022, the South China Morning Post reported that the Government of Djibouti had suspended debt service payment to China Eximbank. Djibouti’s Ministry of Economy, Finance, and Industry responded to the South China Morning Post report by releasing a public statement on December 7, 2022.
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The statement by the Ministry of Economy, Finance, and Industry noted that the Government of Djibouti had honored 85% of its loan repayment obligations in 2022. It also acknowledged that, as part of the Debt Service Suspension Initiative (DSSI), China Eximbank agreed to suspend principal and interest payments due in 2020 and 2021 under multiple loan agreements, and that the Government of Djibouti’s debt service obligations tripled with the expiration of DSSI. In 2023, Djibouti’s Ministry of Economy, Finance, and Industry published a report, which identified the Government of Djibouti’s total arrears to China as being equivalent to DJF 24,104,000,000 ($135,285,797) as of December 31, 2022.
| Phase | Description | Funding Source | Amount | Status |
|---|---|---|---|---|
| Phase 1 | Construction of water pipeline from Hadagalla, Ethiopia to Djibouti | China Eximbank (Preferential Buyer’s Credit) | $322,050,000 | Completed (June 30, 2017) |
| Phase 2 | Provision of electricity to sites along the water pipeline | China Eximbank (Government Concessional Loan) | RMB 303,660,000 (approximately $43.38 million USD) | Implementation not yet commenced |
Other names for the project
- Phase I of the Transboundary Water Supply Project
- French: le Projet Transfrontalier d'adduction d'eau (phase 1) or Le Projet transfrontalier d’Approvisionnement d’eau potable Ethiopie-Djibouti or Adduction d’eau phase I
- Chinese: 埃塞至吉布提跨境供水项目
The principal point of contact at ONEAD for this project is Mme Deka Khaireh Allaleh. Phone number: +25377812863.
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