Electric transmission and distribution system are the intermediate stages in the transferrnof electrical power from the central generating station to the consumers. Minimizationrnof power losses and improvement of voltage profile are the most essential concerns ofrnany electric utility to support increased load requirement. The voltage at buses reducesrndue to insufficient amount of reactive power in the network and consequently powerrnlosses increases. There are many numerous activities which have been tried to minimizerndistribution loss like upgrading MV and LV distribution conductors, taps changing andrninstalling new capacitor. rnIn this thesis work, optimal placements of the capacitors have been suggested. Arnmethodology to determine the optimal capacitor locations and their sizes to improvernvoltage profile and to minimize the line loss of the distribution system has beenrndeveloped. The study has been carried out on COTEBE Substation having 42 busesrnradial distribution system. The optimal capacitor placement is determined by thernrepetitive load flow to achieve the total minimum system loss. DIGSILENTrnPowerfactory software is used for Power flow analysis to determine the power loss andrnvoltage profile of the system. The location of reactive power support allocation has beenrnstudied according to the highest reactive power flow which has been observed. Lossrnsensitivity method has been used to determine the optimal capacitor location. Thernresults of the loss sensitivity are used for the optimal capacitor size selection.rnThe proposed objective function is the minimization of the total investment cost due to rnreactive power support for loss reduction and voltage profile improvement. Different rnavailable capacitors values are used for the test cases, starting from 10KVAr torn10MVAr and the capacitor sizes of 2.2MVAr and 3.3MVAr are selected as anrnoptimization solution. The selected test case result make that the total grid loss torndecrease from 0.583MW to 0.413MW and the minimum voltage level to increase fromrn0.905(p.u) to 0.959(p.u). Due to this, the Ethiopian Electric Utility can save 26,132.33$rnper annum with the payback period of Fifteen months.