In this thesis, transient stability enhancement using Static Synchronous Compensator (STATCOM) is presented. The test system was Ethiopian 230 kV and 400 kV power network. The study focuses on the effect of three phase fault at Gilgel gibe III (the largest generation) bus terminal and Kaliti I (it is far from the generation station). Due to the fast growth of power demand, the power system becomes overloaded and pushed to operate with much closed to its stability limit. In this situation, transient instability is occurred. To solve the problem, installing static synchronous compensator (STATCOM) device at proper place in the power system is a better solution. In this thesis, placement and sizing of STATCOM is done using Digital Simulation and Electrical Network Calculation Program (DIgSILENT) software. To enhance transient stability, increase transfer capability and to reduce overloading, the proper placement and sizing of STATCOM is determined by using PVcurve and power flow analysis respectively. The dynamic model of STATCOM was developed based on DIgSILENT simulation language (DSL). The PI controllers are tuned using Modulus Optimum (MO) and Symmetric Optimum (SO) to make the system faster. The inner current controller transient response specifications are: 75.617 ms, 2.1 ms, 1.6 ms 1.0439 and 4.385 for rise time, settling time, peak time and overshoot respectively. The STATCOM was installed at Combolcha substation. The three-phase fault at Gilgel gibe III and Kaliti I buses. The system response was analyzed with and without the device for the two cases. From the simulation result it is clearly shown that, with STATCOM the steady state voltage profile of some buses enhanced by 6.72% at the point of connection. The steady state active power loss was reduced by 2.067% and the transient state active power loss was reduced by 27.4%. The Available Transfer Capability (ATC) enhanced by (9.377%) with the device. In both cases, the fault occurred at 100 ms. The Critical Clearing Time (CCT) is enhanced from 260.5 ms to 288 ms and from 367.8 ms to 411 ms when the fault occurred at Gilgel gibe III and at Kaliti I respectively. It can be concluded that, the Ethiopian power system can benefit significantly from the utilization of STATCOM technologies to solve some of the problems associated with it.