Ethiopian Roads Administration

In a startling revelation, the Ethiopian Roads Administration (ERA) finds itself grappling with an array of challenges that have brought its projects to a grinding halt. Unpaid project costs, instability, right-of-way issues, and a severe lack of finance have combined to create a perfect storm, leaving the ERA unable to carry out critical infrastructure projects.

As of now, the Administration is facing a daunting 10 billion birr debt to contractors, a financial burden that has snowballed from the previous year. This staggering debt has resulted in the suspension of 60 out of the 200 federal road projects currently underway, with an additional 30 projects halted in the Tigray and Amhara regional states due to security threats.

ERA Director General, Habtamu Tegegn, minced no words during a recent presentation to the House of Peoples’ Representative (HPR), expressing his frustration at the critical financial flow problem. The situation is exacerbated by the fact that a substantial portion of road projects is contracted to Chinese firms, many of which have suspended operations due to prolonged COVID-19 restrictions in China.

The ERA is also grappling with a USD 125 million debt owed to foreign road contractors, further complicating matters. Foreign contractors typically receive 15 percent of the project cost in foreign currency, with the remaining amount paid in birr. This financial strain has led to the suspension of projects such as the Modjo-Hawassa expressway, where the Chinese contractor awaits payment in foreign currency.

Compounding the financial crisis are right-of-way costs, which now account for a quarter of a project’s total cost, providing an opportunity for corruption, particularly in regional states where exorbitant compensation claims are being triggered intentionally. The ERA also faces legal challenges, with attorneys allegedly forcing the Commercial Bank of Ethiopia to transfer awarded compensation directly from the ERA’s accounts.

In addition to these financial woes, the ERA grapples with price escalation due to inflation. Over the past four years, fuel prices have surged by 262 percent, cement by 180 percent, and bitumen and rebar by 188 percent, further complicating project viability.

Director Habtamu stresses that the lack of availability of machinery, especially after businesses affiliated with the former regime vanished, exacerbates the challenges. Many road machinery rental providers are now absent, leaving contractors without essential equipment.

The Shashemene Hawassa road project, needing USD 20 million from the central bank, is among those stalled due to foreign exchange shortages. While understanding the country’s foreign currency challenges, Habtamu remains hopeful that the end of the war in Ethiopia will bring stability, though he anticipates a surge in compensation claims from contractors once stability is restored.

Amidst these challenges, members of the standing committee and HPR appreciate the ERA’s management for navigating wisely through immense pressure. However, they acknowledge a lack of cooperation from stakeholders, including regional states and professional associations.

In an effort to address the multifaceted problems, a major solution proposed is the revamping of the road sector policy. Currently, a new road policy is in progress, involving a road proclamation, an amended ERA establishment proclamation, and corresponding regulations and directives. The legislation aims to decentralize the road sector’s development, redistributing responsibilities to regional governments.

Under the new legislation, roads will be categorized into six types, with the federal government focusing on expressways, main highways, and link roads across regional states. Regional states will be responsible for the other three categories with their own budgets, leading to the creation of regional road agencies once the legislation is approved.

Habtamu emphasizes that these legislative changes are essential for long-term solutions to the challenges faced by the ERA. With 557 road projects spanning over 22,000 kilometers, he believes decentralization will empower regional states to own projects, enhancing efficiency and cooperation. The legislation is expected to be tabled in parliament soon, offering a roadmap for sustainable road financing, economics, environmental considerations, and research and development aligned with national logistics policies.