One of the energy policy objectives is to ensure a reliable supply of energy at the right time and at an affordable price, particularly to support the country's agricultural and industrial development strategies. Enhancing and expanding the development and utilization of hydro power is one of the priorities of the energy policy.

Comprehensive energy policy measures in power sub-sector are to build national capacity in engineering, construction, operation, and maintenance and gradually enhance local manufacturing capability of electrical equipment and appliances.

The government has taken several measures to address the power sector issues and continues to make more changes. The specific changes that have been made recently are embodied in two parallel efforts: to delineate operation and regulatory functions, and liberalize the sector to promote private investment.

Accordingly, Proclamation No. 86/1997 has been enacted to regulate the activities of electricity suppliers and thereby operation and regulatory functions were delineated. The proclamation also provides for the establishment of a regulatory authority, The Ethiopian Electricity Agency, responsible, among other things, for recommending tariffs; and establishes the principle of third party access to the grid for facilitating private investment in the future.

The enactment of the investment Proclamation No. 37/1997 particularly allows the participation of domestic private investors in the production and supply of electrical energy with an installed capacity of up to 25 mega-watts. On the other hand, production and supply of electrical energy with an installed capacity of above 25 mega-watts is open to foreign investors.

The provision embraces the development of small and medium scale capacity plants from diesel, coal, gas, hydro and other sources. Council of Ministers Regulations No. 7/1996 and as amended in No. 36/1998 extends attractive package of encouragement in the form of duty and profit tax exemptions. The investment law coupled with the new regulatory framework is believed to provide a conducive ground for private investment in the sector.

In line with the national energy policy and the issues of the power sector, a five-year development program (1993-1997E.C, 2000/01-2004/05 G.C) has been launched. The program consists of five subprograms, namely: Power Generation, Power Transmission, Power Distribution, Rural electrification, and Institutional Development.