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CONFORMED COPY
CREDIT NUMBER 3019 ET
Project Agreement
(Second Energy Project)
between
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
ETHIOPIAN ELECTRIC POWER CORPORATION
Dated January 25, 1998
CREDIT NUMBER 3019 ET 
PROJECT AGREEMENT
AGREEMENT, dated January 25, 1998, between INTERNATIONAL DEVELOPMENT ASSOCIATION 
(the Association) and Ethiopian Electric Power Corporation (EEPCO).
WHEREAS: (A) by the Development Credit Agreement of even date herewith between 
Federal Democratic Republic of Ethiopia (the Borrower) and the Association, the 
Association has agreed to lend to the Borrower an amount in various currencies 
equivalent to one hundred forty-six million one hundred thousand Special Drawing 
Rights (SDR 146,100,000), on the terms and conditions set forth in the Development 
Credit Agreement, but only on condition that EEPCO agrees to undertake such 
obligations toward the Association as are set forth in this Agreement;
(B)
by a subsidiary loan agreement to be entered into between the Borrower 
and EEPCO, a portion of the proceeds of the Credit provided for under the Development 
Credit Agreement will be made available to EEPCO on terms and conditions set forth in 
said Subsidiary Loan Agreement; and
WHEREAS EEPCO in consideration of the Association's entering into the 
Development Credit Agreement with the Borrower, has agreed to undertake the 
obligations set forth in this Agreement;
NOW THEREFORE the parties hereto hereby agree as follows: 
ARTICLE I 
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Definitions
Section 1.01. Unless the context otherwise requires, the several terms defined 
in the Development Credit Agreement and in the General Conditions (as so defined) have 
the respective meanings therein set forth and the following additional terms have the 
following meanings:
(a)
“Fiscal Year” and “FY” means EEPCO’s fiscal year which starts on  July 8 
of each calendar year and ends on July 7 of the following calendar year; and
(b)
“Panel of Experts” means the panel established by EELPA’s Board of 
Directors on February 27, 1996. 
ARTICLE II 
Execution of the Project
Section 2.01. (a) EEPCO declares its commitment to the objective of the Project, 
as set forth in Schedule 2 to the Development Credit Agreement, and, to this end, 
shall carry out EEPCO’s Parts of the Project with due diligence and efficiency and in 
conformity with appropriate administrative, financial, engineering, environmental, and 
technical practices, and shall provide, or cause to be provided, promptly as needed, 
the funds, facilities, services and other resources required for EEPCO’s Parts of the 
Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section 
and, except as the Association and EEPCO shall otherwise agree, EEPCO shall: (i) carry 
out EEPCO’s Parts of the Project in accordance with the Implementation Program set 
forth in the Schedule to this Agreement; and (ii) implement the Environmental 
Mitigation Plan and the Resettlement Plan in accordance with the timetables contained 
therein with due diligence and efficiency.
Section 2.02. Except as the Association shall otherwise agree, procurement of 
the works, goods and consultants' services required for EEPCO’s Parts of the Project 
and to be financed out of the proceeds of the Credit shall be governed by the 
provisions of Schedule 3 to the Development Credit Agreement.
Section 2.03. (a) EEPCO shall carry out the obligations set forth in Sections 
9.03, 9.04, 9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to 
insurance, use of goods and services, plans and schedules, records and reports, 
maintenance and land acquisition) in respect of the Project Agreement and EEPCO’s 
Parts of the Project.
(b)
For the purposes of Section 9.07 of the General Conditions and without 
limitation thereto, EEPCO shall: 
(i)
prepare, on the basis of guidelines acceptable to the Association, 
and furnish 
to the Association not later than six (6) months after the 
Closing Date or 
such later date as may be agreed for this 
purpose between the Association and 
EEPCO, a plan for the continued 
achievement of the objective of EEPCO’s Parts 
of the Project; 
(ii)
not later than six (6) months prior to the completion of the 
Project, prepare 
under guidelines acceptable to the Association a plan 
designed to ensure the 
regular inspection and maintenance of the 
Gilgel Gibe dam and its appurtenant 
structures; and 
(iii)
afford the Association a reasonable opportunity to exchange views 
with the 
Borrower and EEPCO on said plans.
Section 2.04. EEPCO shall duly perform all its obligations under the Subsidiary 
Loan Agreement. Except as the Association shall otherwise agree, EEPCO shall not take 
or concur in any action which would have the effect of assigning, amending, abrogating 
or waiving the Subsidiary Loan Agreement or any provision thereof.
Section 2.05. (a) EEPCO shall, at the request of the Association, exchange views 
with the Association with regard to the progress of the Project, the performance of 
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its obligations under this Agreement and under the Subsidiary Loan Agreement, and 
other matters relating to the purposes of the Credit.
(b)
EEPCO shall promptly inform the Association of any condition which 
interferes or threatens to interfere with the progress of the Project, the 
accomplishment of the purposes of the Credit, or the performance by EEPCO of its 
obligations under this Agreement and under the Subsidiary Loan Agreement.
Section 2.06. EEPCO shall maintain until the completion of the Project, the 
Panel of Experts with composition and terms of reference acceptable to the 
Association. 
ARTICLE III 
Management and Operations of EEPCO 
Section 3.01. (a) EEPCO shall carry on its operations and conduct its affairs in 
accordance with sound administrative, financial, technical, commercial, environmental 
and power utility practices under the supervision of qualified and experienced 
management assisted by competent staff in adequate numbers.
(b)
Without limitation upon the provisions of paragraph (a) of this Section, 
EEPCO shall, not later than June 30, 1998,  furnish to the Association, for its review 
and comments, a draft human resource development plan, which shall be designed to 
improve the performance of its staff, including  new job descriptions and a training 
program.
Section 3.02. EEPCO shall at all times operate and maintain its plants, 
machinery, equipment and other property, and from time to time, promptly as needed, 
make all necessary repairs and renewals thereof, all in accordance with sound 
engineering, financial, technical, environmental, and public utilities practices. 
Section 3.03. EEPCO shall take out and maintain with responsible insurers, or 
make other provision satisfactory to the Association for, insurance against such risks 
and in such amounts as shall be consistent with appropriate practice. 
ARTICLE IV 
Financial Covenants
Section 4.01. (a) EEPCO shall maintain records and accounts adequate to reflect 
in accordance with sound accounting practices expenditures in respect of EEPCO’s Parts 
of the Project.
(b)
EEPCO shall:
(i)
have its records, accounts and financial statements (balance 
sheets, 
statements of income and expenses and related 
statements), including those for 
the Special Account A, for each Fiscal 
Year audited, in accordance with 
appropriate auditing principles 
consistently applied, by independent auditors 
acceptable to the 
Association;
(ii)
furnish to the Association, as soon as available but in any case 
not later 
than nine (9) months after the end of its Fiscal 
Years 1997 and 1998 and six 
(6) months after the end of each of its 
subsequent Fiscal Years: (A) certified 
copies of its financial 
statements for such year as so audited; and (B) the 
report of such audit 
by said auditors, of such scope and in such detail as the 
Association 
shall have reasonably requested; and
(iii)
furnish to the Association such other information concerning said 
records, 
accounts and financial statements as well as the 
audit thereof as the 
Association shall from time to time 
reasonably request. 
Section 4.02. (a) Except as the Association shall otherwise agree, EEPCO shall 
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produce funds from internal sources equivalent to not less than 10% for FY 1998, 15% 
for FY 1999, and 25% for FY 2000, of the annual average of EEPCO's capital 
expenditures incurred, or expected to be incurred, for three years, comprising the 
Fiscal Year in question, the Fiscal Year immediately preceding and (on the basis of 
estimates acceptable to the Association) the following Fiscal Year. 
(b)
Before March 31 in each of its Fiscal Years, EEPCO shall, on the basis of 
forecasts prepared by EEPCO and satisfactory to the Association, review whether it 
would meet the requirements set forth in paragraph (a) in respect of such Fiscal Year 
and the next following Fiscal Year and shall furnish to the Association a copy of such 
review upon its completion.
(c)
If any such review shows that EEPCO would not meet the requirements set 
forth in paragraph (a) for EEPCO's Fiscal Years covered by such review, EEPCO shall 
promptly take all necessary action necessary on its part in order to meet such 
requirements.
(d)
For the purposes of this Section:
(i)
The term “funds from internal sources” means the difference 
between: (A) the 
sum of revenues from all sources related 
to 
operations, consumer deposits and 
consumer contributions in aid of 
construction, net non-operating income and 
any reduction in working 
capital other than cash; and (B) the sum of all 
expenses 
related to operations, including administration, adequate maintenance 
and taxes and payments in lieu of taxes (excluding provision for depreciation 
and other non-cash operating charges), debt service requirements, all cash 
dividends and other cash distributions of surplus, increase in 
working capital 
other than cash and other cash outflows other than 
capital expenditures.
(ii)
The term “net non-operating income” means the difference between: 
(A)
revenues from all sources other than those related to 
operations; and (B) 
expenses, including taxes and payments 
in lieu of taxes, incurred in the 
generation of revenues in 
(A) above. 
(iii)
The term “working capital other than cash” means the difference 
between 
current assets excluding cash and 
current 
liabilities at the end of each 
Fiscal Year. 
(iv)
The term “current assets excluding cash” means all assets other 
than cash 
which could in the ordinary course of business be 
converted into cash within 
twelve months, including accounts 
receivable, marketable securities, 
inventories and pre-paid 
expenses properly chargeable to operating expenses 
within the next 
Fiscal Year. 
(v)
The term “current liabilities” means all liabilities which will 
become due and 
payable or could under circumstances then existing be 
called for payment 
within twelve months, including accounts 
payable, customer advances, debt 
service requirements, taxes and 
payments in lieu of taxes, and dividends.
(vi)
The term “debt service requirements” means the aggregate amount of 
repayments 
(including sinking fund payments, if any) of, and interest 
and other charges 
on, debt. 
(vii)
The term “capital expenditures” means all expenditures incurred on 
account of 
fixed assets, including interest charged to construction, 
related to 
operations. 
(viii) Whenever for the purposes of this Section it shall be necessary to 
value, in 
terms of the currency of the Borrower, debt payable in 
another currency, such 
valuation shall be made on the basis of the 
prevailing lawful rate of exchange 
at which such other currency is, 
at the time of such valuation, obtainable for 
the purposes of servicing 
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such debt, or, in the absence of such rate, on the 
basis of a rate of 
exchange acceptable to the Association. 
Section 4.03. (a) Except as the Association shall otherwise agree, EEPCO shall 
not incur any debt, unless the net revenues of EEPCO for the Fiscal Year immediately 
preceding the date of such incurrence or for a later twelve-month period ended prior 
to the date of such incurrence, whichever is the greater, shall be at least 1.3 times 
the estimated maximum debt service requirements of EEPCO for any succeeding Fiscal 
Year on all debt of EEPCO, including the debt to be incurred.
(b)
For the purposes of this Section: 
(i)
The term “debt” means any indebtedness of EEPCO maturing by its 
terms more 
than one year after the date on which it is 
originally incurred.
(ii)
Debt shall be deemed to be incurred: (A) under a loan contract or 
agreement or 
other instrument providing for such debt or for the 
modification of its terms 
of payment on the date of such contract, 
agreement or instrument; and (B) 
under a guarantee agreement, on 
the date the agreement providing for such 
guarantee has been 
entered into.
(iii)
The term “net revenues” means the difference between: (A) the sum 
of revenues 
from all sources related to operations adjusted to take 
account of EEPCO's 
prices in effect at the time of the incurrence 
of debt even though they were 
not in effect during the twelve-month 
period to which such revenues relate and 
net non-operating income; 
and (B) the sum of all expenses related to 
operations including 
administration, adequate maintenance, taxes and payments 
in lieu of 
taxes, but excluding provision for depreciation, other non-cash 
operating charges and interest and other charges on debt.
(iv)
The term “net non-operating income” means the difference between: 
(A) revenues 
from all sources other than those related to operations; and 
(B) expenses, 
including rates and payments in lieu of taxes, 
incurred in the generation of 
revenues in (A) above. 
(v)
The term “debt service requirements” means the aggregate amount of 
repayments 
(including sinking fund payments, if any) of, and interest 
and other charges 
on, debt. 
(vi)
Whenever for the purposes of this Section it shall be necessary to 
value, in 
terms of the currency of the Borrower, debt payable in 
another currency, such 
valuation shall be made on the basis of the 
prevailing lawful rate of exchange 
at which such other currency is, 
at the time of such valuation, obtainable for 
the purposes of servicing 
such debt, or, in the absence of such rate, on the 
basis of a rate of 
exchange acceptable to the Association. 
Section 4.04. (a) Except as the Association shall otherwise agree, EEPCO shall 
not incur any debt, if after the incurrence of such debt the ratio of debt to equity 
shall be greater than one (1).
(b)
For purposes of this Section: 
(i)
The term “debt” means any indebtedness of EEPCO maturing by its 
terms more 
than one year after the date on which it is 
originally incurred.
(ii)
Debt shall be deemed to be incurred: (A) under a loan contract or 
agreement or 
other instrument providing for such debt or for the 
modification of its terms 
of payment on the date of such contract, 
agreement or instrument; and (B) 
under a guarantee agreement, on 
the date the agreement providing for such 
guarantee has been 
entered into. 
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(iii)
The term “equity” means the sum of the total unimpaired paid-up 
capital, 
retained earnings and reserves of EEPCO not allocated 
to cover specific 
liabilities. 
(iv)
Whenever for the purposes of this Section it shall be necessary to 
value, in 
terms of the currency of the Borrower, debt payable in 
another currency, such 
valuation shall be made on the basis of the 
prevailing lawful rate of exchange 
at which such other currency is, 
at the time of such valuation, obtainable for 
the purposes of servicing 
such debt, or, in the absence of such rate, on the 
basis of a rate of 
exchange acceptable to the Association. 
Section 4.05. (a) Except as the Association shall otherwise agree, EEPCO shall 
maintain a ratio of current assets to current liabilities of not less than one (1).
(b)
Before March 31 in each of its Fiscal Years, EEPCO shall, on the basis of 
forecasts prepared by EEPCO and satisfactory to the Association, review whether it 
would meet the requirements set forth in paragraph (a) in respect of such Fiscal Year 
and the next following Fiscal Year and shall furnish to the Association the results of 
such review upon its completion. 
(c)
If any such review shows that EEPCO would not meet the requirements set 
forth in paragraph (a) for EEPCO's Fiscal Years covered by such review, EEPCO shall 
promptly take all action necessary or appropriate on its part in order to meet such 
requirements.
(d)
For the purposes of this Section: 
(i)
The term “current assets” means cash, all assets which could in 
the ordinary 
course of business be converted into cash within twelve 
months, including 
accounts receivable, marketable securities, 
inventories and pre-paid expenses 
properly chargeable to operating 
expenses within the next Fiscal Year. 
(ii)
The term “current liabilities” means all liabilities which will 
become due and 
payable or could under circumstances then existing be 
called for payment 
within twelve months, including accounts 
payable, customer advances, debt 
service requirements, taxes and 
payments in lieu of taxes, and dividends. 
(iii)
The term “debt service requirements” means the aggregate amount of 
repayments 
(including sinking fund payments, if any) of, and interest 
and other charges 
on, debt. 
(iv)
Whenever for the purposes of this Section it shall be necessary to 
value, in 
terms of the currency of the Borrower, debt payable in 
another currency, such 
valuation shall be made on the basis of the 
prevailing lawful rate of exchange 
at which such other currency is, 
at the time of such valuation, obtainable for 
the purposes of servicing 
such debt, or, in the absence of such rate, on the 
basis of a rate of 
exchange acceptable to the Association.
Section 4.06. Unless the Association shall otherwise agree, EEPCO shall not 
undertake any investment for the expansion of its generation, transmission and 
distribution capacities, if after such investment the aggregate amount of its 
investment during the period 1997-2006 shall exceed, by more than five percent, the 
aggregate amount of investment specified in its investment program for the period 
1997-2006 (Birr 9 billion).
Section 4.07. EEPCO shall: (a) not later than June 30, 1998, adopt an action 
plan, in form and substance acceptable to the Association, designed to reduce its 
consumer payment arrears, and thereafter implement said action plan with due diligence 
and efficiency; and (b) by March 31, 1999, reduce its accounts receivable to less than 
60 days of sales and, thereafter, ensure that its accounts receivable remain below 
said level until the completion of the Project. 
Section 4.08. Article IV of the Project Agreement dated October 15, 1986, as 
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amended, between the Association and EEPCO is hereby deleted in its entirety and 
replaced by the provisions of Article IV of this Agreement, excluding this Section 
4.08.
ARTICLE V 
Effective Date; Termination 
Cancellation and Suspension
Section 5.01. This Agreement shall come into force and effect on the date upon 
which the Development Credit Agreement becomes effective.
Section 5.02. (a) This Agreement and all obligations of the Association and of 
EEPCO thereunder shall terminate on the earlier of the following two dates:
(i)
the date on which the Development Credit Agreement shall 
terminate; or
(ii)
a date twenty five years after the date of this Agreement.
(b)
If the Development Credit Agreement terminates before the date specified 
in paragraph (a) (ii) of this Section, the Association shall promptly notify EEPCO of 
this event.
Section 5.03. All the provisions of this Agreement shall continue in full force 
and effect notwithstanding any cancellation or suspension under the General 
Conditions. 
ARTICLE VI 
Miscellaneous Provisions
Section 6.01. Any notice or request required or permitted to be given or made 
under this Agreement and any agreement between the parties contemplated by this 
Agreement shall be in writing. Such notice or request shall be deemed to have been 
duly given or made when it shall be delivered by hand or by mail, telegram, cable, 
telex or radiogram to the party to which it is required or permitted to be given or 
made at such party's address hereinafter specified or at such other addresses as such 
party shall have designated by notice to the party giving such notice or making such 
request. The addresses so specified are:
For the Association:
International Development Association
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable address:
Telex:
INTBAFRAD
248423 (MCI) or
Washington, D.C.
 64145 (MCI)
For EEPCO:
P.O. Box 1233
Addis Ababa
Ethiopia
Telex:
21023
Section 6.02. Any action required or permitted to be taken, and any documents 
required or permitted to be executed, under this Agreement on behalf of EEPCO or by 
EEPCO on behalf of the Borrower under the Development Credit Agreement, may be taken 
or executed by its General Manager, or by such other person or persons as EEPCO shall 
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designate in writing, and EEPCO shall furnish to the Association sufficient evidence 
of the authority and the authenticated specimen signature of each such person.
Section 6.03. This Agreement may be executed in several counterparts, each of 
which shall be an original, and all collectively but one instrument. \0c
IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names in 
the District of Columbia, United States of America, as of the day and year first above 
written.
INTERNATIONAL DEVELOPMENT ASSOCIATION
By /s/ Callisto Madavo
Regional Vice President
Africa
ETHIOPIAN ELECTRIC POWER CORPORATION
By /s/ Tesfaalem G/Yesus
Authorized Representative
SCHEDULE 
Implementation Program
1.
Except as the Association shall otherwise agree, EEPCO shall: (i) carry out 
EEPCO’s Parts of the Project in accordance with EEPCO’s Project Implementation Plan; 
and (ii) not permit, EEPCO’s Project Implementation Plan, or any provision thereof, to 
be amended or waived in a manner which, in the opinion of the Association, may 
materially and adversely affect the implementation of EEPCO’s Parts of the Project.
2.
EEPCO shall establish, and thereafter maintain until the completion of the 
Project implementation period, a Project Management Unit (PMU), with terms of 
reference acceptable to the Association. PMU shall: (i) be responsible for the 
coordination of the implementation of EEPCO’s Parts of the Project, (ii) be headed by 
a Project Coordinator whose qualifications and experience shall be at all times 
satisfactory to the Association, and (iii) consist of suitably qualified staff in 
adequate numbers.
3.
EEPCO shall:
(a)
maintain policies and procedures adequate to enable it to monitor and 
evaluate on an ongoing basis, in accordance with indicators satisfactory to the 
Association, the carrying out of EEPCO’s Parts of the Project and the achievement of 
the objective thereof;
(b)
participate in the annual review referred to in paragraph 4 of Schedule 4 
to the Development Credit Agreement, and in the midterm review referred to in 
paragraph 5 of said Schedule; 
(c)
not later than thirty days prior to the reviews referred to in paragraph 
(b) above, furnish to the Association, for its comments, a report in such detail as 
the Association shall reasonably request, including an evaluation of the progress 
achieved in implementing EEPCO’s Parts of the Project, and a draft action plan 
containing proposals for remedying any identified deficiencies; and
(d)
promptly after said reviews: (i) prepare an action plan satisfactory to 
the Association based on the recommendations stemming from the aforementioned review, 
and (ii) adopt and implement said action plan until the completion of the Project.
4.
Unless the Association shall otherwise agree, EEPCO shall take all necessary 
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action so that: 
(a)
by June 30, 2000, it has developed and installed a decentralized 
accounting system for its operations, satisfactory to the Association, and provided 
the necessary training to its staff;  
(b)
by June 30, 1999, it has adopted a plan, satisfactory to the Association, 
for the decentralization of its billing and collection systems; and thereafter 
completed the implementation of said plan by June 30, 2000; 
(c)
(i) by August 31, 1999, it has completed the power system expansion study 
referred to in Part C.3 of the Project, including an action plan for the expansion of 
EEPCO’s power generation and transmission capacities, and (ii) by November 30, 1999, 
it has adopted a plan based on the findings of said study, acceptable to the 
Association, for the expansion of its power generation and transmission capacities; 
(d)
(i) by November 30, 1999, it has completed an evaluation of its fixed 
assets; and (ii) by June 30, 2000, it has revalued its fixed assets based on said 
evaluation; and 
(e)
by April 30, 2001, it has carried out a tariff study based, inter alia, 
on the findings of the power system expansion study to be carried out under Part C.3 
of the Project.