In 1952, a UN resolution federating the former Italian colony of Eritrea with Ethiopia went into effect. In 1962, Emperor Haile Selassie unilaterally dissolved the Eritrean parliament and annexed the country. The Eritrean fight for independence continued even after Haile Selassie was ousted in a coup in 1974. A 30-year struggle for independence ended in 1991, with Eritrean rebels defeating the governmental forces led by Mengistu Haile Miriam. On April 23-25, 1993, Eritreans voted overwhelmingly for independence from Ethiopia in a UN-monitored free and fair referendum. The Eritrean authorities declared Eritrea an independent state on April 27, 1993. The National Assembly was elected in a national, freely contested election, and then chose former liberation movement leader Isaias Afwerki as President.
When Eritrea and Ethiopia separated amicably in 1993, several border issues remained unresolved. Fighting broke out between the two countries in May 1998 and continued until June 2000, when both sides accepted an Organization of African Unity (OAU) peace proposal. The formal treaty ending the war was signed on December 12, 2000 and an independent entity, the Eritrea Ethiopia Boundary Commission (EEBC) was established to determine the new border. The EEBC released its report on April 13, 2002, but Ethiopia is contesting some of the commission's decisions.
Growth of the Eritrean economy was hampered by the war. Eritrea's real gross domestic product (GDP) growth in the two years prior to the conflict averaged 7.4 percent. Real GDP growth fell to 4.0 percent in 1998, 0.0 percent in 1999 and -13.1 percent in 2000. With the cessation of hostilities, real GDP growth of 9.2 percent was observed in 2001, and growth of 0.7 percent in 2002. Growth was 3.0 percent in 2003, 1.8 percent in 2004, and 0.6 percent in 2005. Growth of 1.0 percent was the forecast for 2006. Inflation is an ongoing problem; it was 15.1 percent in 2005. Multilateral and bilateral donors have pledged nearly $132 million towards the demobilization of 200,000 Eritrean soldiers and the social and economic recovery of the country. Donor development funding is seen as crucial in the improvement of the country's economy.
Hydrocarbon exploration, primarily offshore in the Red Sea, began in the 1960's when Eritrea was still federated with Ethiopia. In 1995, Eritrea signed a production sharing contract (PSC) with U.S.-based Anadarko Petroleum (Anadarko) for the offshore Zula Block. Anadarko signed a second PSC for the offshore Edd Block, located south of the Zula Block, in September 1997. Anadarko announced, in December 1997, that it had reached an agreement with ENI/Agip (Agip) to swap interests in exploration acreage. Anadarko received a 25 percent interest in a Tunisian block operated by Agip, and Agip received a 30 percent share in the 6.7-million acre Zula Block and 30 percent interest in the Edd Block. Burlington Resources, a U.S.-based independent, later joined the consortium by acquiring a 20 percent interest in both acreages. Anadarko's first two exploration wells, both drilled on the Zula Block, were unsuccessful. In January 1999, a third dry well, Edd-1 on the Edd Block, was drilled. Citing the disappointing exploration results, Anadarko and its partners ceased exploration activities and relinquished their rights to the offshore blocks.
Another attempt also did not meet with success. In May 2001, U.S.-firm CMS Energy signed an exploration agreement for a 14,000-square kilometer block in northeastern Eritrea, but the company did not find oil. CMS Energy sold its exploration interests to Perenco S.A. of France in late 2002.
Bab el-Mandeb (Mandab)
The Bab el-Mandeb is a narrow waterway situated between Eritrea, Djibouti and Yemen that connects the Red Sea with the Gulf of Aden and the Arabian Sea. In 2000, it was estimated that around 3.2-3.3 million barrels per day (bbl/d) of oil flowed through the Bab el-Mandeb. Disruptions or closure of the Bab el-Mandeb could keep tankers from the Persian Gulf from reaching the Suez Canal/Sumed pipeline complex, diverting them around the southern tip of Africa (the Cape of Good Hope). This would add greatly to transit time and cost, and effectively tie up spare tanker capacity. The Bab el-Mandeb could be bypassed (for northbound oil traffic) by utilizing the East-West oil pipeline, which traverses Saudi Arabia and has a capacity of about 4.8 million bbl/d. However, southbound oil traffic would still be blocked. In addition, closure of the Bab el-Mandeb would effectively block non-oil shipping from using the Suez Canal, except for limited trade within the Red Sea region.
In December 1995 and again in August 1996, Eritrean and Yemeni forces clashed over control of the Hanish Islands, located just north of the Bab el-Mandeb. In October 1996, the two countries signed an agreement over the islands. The two sides agreed to put their case before an international court of arbitration (Permanent Court of Arbitration - PCA). The court then issued two rulings; one on who has sovereignty over the disputed area, and one on the demarcation of the two sides' maritime boundary. In October 1998, the PCA ruled that the Hanish Islands are subject to the territorial sovereignty of Yemen. In December of 1999, the PCA issued its ruling on the maritime boundary.
Downstream and Refining
Eritrea has crude refining capacity of 18,000 barrels per day (bbl/d), but the refinery located in the Red Sea port of Assab has been shut down since 1997 due to the high operating and maintenance costs. Ethiopia and Eritrea, joint operators of the facility, decided to close the Assab refinery in August 1997 and import refined petroleum products to meet domestic needs.
Eritrea's petroleum consumption was estimated at 6,000 bbl/d in 2001. Marketing and distribution of petroleum products is performed by ExxonMobil, Shell and Total. In June 2000, Shell purchased the downstream operations of Agip in several African countries including Eritrea and Ethiopia. The Eritrean assets included service stations, two petroleum product depots and a liquefied petroleum gas (LPG) filling station.
In August 2000, Sudan's National Petroleum Company announced plans to lay pipelines to supply Eritrea and Ethiopia with petroleum products from its Khartoum refinery. Eritrea has not yet benefited from Sudanese oil and relations between the two countries soured in April 2003 when Sudan accused Eritrea of supporting Sudanese rebels in the eastern part of Sudan. Although Eritrea denies the charges, future trade relationships are unlikely under the current climate.
Eritrea has approximately 60 megawatts (MW) of diesel-fired generating capacity. The Eritrean Electricity Authority (EEA) handles generation, transmission and distribution of electricity. In 1997, South Korean firms Daewoo and Hanjung signed an agreement to build a heavy oil-fired plant in at Hirgigo, just outside of Massawa. The plant, nearly completed, was damaged in a bombing raid by Ethiopia in 2000. In 2001, Eritrea signed loan agreements with the United Arab Emirates and Saudi Arabia for the facility's repair. The 88-MW facility came online in March 2003, but effectively using the new capacity will require improvements to Eritrea's dated grid system.
The World Bank has funded the Eritrea Power Distribution and Rural Electrification Project at a cost of $57.2 million. This project was approved in 2004 and it will run through 2009. It includes (1) rehabilitation and expansion of the Asmara city distribution system (2) rural electrification and (3) power-sector reform to increase efficiency and attract private investment. The project supports making the Eritrean Electricity Authority (EEA) an autonomous and financially self-sustaining company. Five substations have been constructed to transform the 132,000-volt power from Hirgigo to 15,000 volts. Distribution centers have acquired higher capacity transformers that operate at 66,000 volts instead of 50,000 volts. EEA has signed a contract with a Spanish company to update the power supply of the city of Asmara.
Electricity is only available in Eritrea's larger cities and towns, leaving about 80 percent of the Eritrean population without access to electricity. Some smaller villages have community diesel generators which can provide small amounts of electricity to households. Photovoltaic (PV) electricity generation is being used in special applications throughout the country. Twenty-six rural health centers are each supplied with 2-kilowatt (kW) solar photovoltaic power systems for refrigeration, lighting, operating theaters, fans, and laboratory equipment. Additionally, the majority of the 140 rural clinics are equipped with solar powered vaccine refrigerators. Approximately 3 percent (about 60 villages) of Eritrea's villages have been supplied with PV systems (0.8 to 1.2 kW) to power water pumps to supply drinking water. Each system serves a minimum of 300 households. Over 70 rural schools (out of 700) have been provided with PV systems for lighting and power.
- African Union (AU)
- Common Market for Eastern and Southern Africa (COMESA)
- EIA: Country Information on Eritrea
- Intergovernmental Authority on Development (IGAD)
- International Geothermal Association (IGA) - Eritrea
- International Monetary Fund (IMF) - Eritrea
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