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Since 1991, when the Ethiopian People's Revolutionary Democratic Front came to power, two parallel political processes have taken place in Ethiopia. Firstly, the country is restructuring into a federal system, where the regional governments are obtaining the right to self-government and representation at federal level. Secondly, the party in power is strengthening its control of the regions by creating satellite parties and including them within its centralised party structures. These processes have two fundamentally different aims. The federal system, formalised in the constitution, aims at enhancing regional autonomy from the central government, while the building of a centralised party system has the objective of concentrating the power in the hands of the party leadership at the top. This study is an analysis of the implementation of a federal system within a dominant party state. It includes examinations of both the legal and functional aspects of the federalisation process in Ethiopia. Theories on federalism and federations are used as guidelines in the exploration of literature, documents and own interview material on the implementation of the federal system. The analysis of the Ethiopian constitution and various proclamations has shown that the Ethiopian de jure model meets the requirements to be classified as federal. But the process of drafting and ratifying the constitution was totally dominated by the ruling party, and hence, the federal project lost legitimacy. The exploration of the functioning of the federal system disclosed that the federal division of power as defined in the constitution is severely undermined by the centralised party structures.