Finance & Financing mechanisms
Monday, 10 May 2010 16:01

World Bank loan for Eskom: local views

The US$3,75-billion loan for Eskom to develop a new coal-fired power plant was approved by the World Bank on 8 April 2010. The loan forms part of Eskom’s long-term financing of a multi-year investment programme aimed at expanding power generation capacity by about 50% (from about 40 000MW, to 80 000MW) and, according to Eskom and the South African Embassy, it will  ensure security of electricity supply required for economic growth and development.

The World Bank loan as three components:
• US$3.05-billion for the Medupi power station
• US$260-million for investments in renewable energy (1 000 MW wind and 100 MW concentrated solar power projects)
• US$-485-million for investment in low-carbon energy efficiency components comprising power plant efficiency improvements and road to rail coal transportation.


The controversial loan caused uproar from environmentalists, who are pointing fingers at the World Bank because of the bank’s policy to be a leader in climate change mitigation and adaption.

According to a statement by the World Wide Fund for Nature (WWF) South Africa, the NGO is less than enthusiastic about the approval of the loan because the decision “fails to adequately recognise the opportunities for renewable energy development in South Africa or to provide specifics of how the claimed public benefits, including contribution towards achieving universal access to energy services, will be achieved”.

“There must be a clear impetus and political will to move away from coal as the primary source of energy,” says WWF South Africa’s Living Planet Unit Head, Saliem Fakir.

International controversy
Board decisions by the World Bank are achieved through consensus from member countries (as opposed to voting). The loan was approved despite the lack of support from major shareholder countries such as Britain, the United States and the Netherlands, who abstained from voting.

According to a Dutch Foreign Ministry spokesman, the Netherlands does not think the loan is a good proposal because they believe Eskom is not doing enough to develop alternatives to coal ( The U.S. Treasury said that it abstained because of “concerns about the climate impact of the project and its incompatibility with the World Bank's commitment to be a leader in climate change mitigation and adaptation.”

Richard Worthington, Climate Change Programme Manager at WWFSA, says that other countries, such as the US, refrained from showing their support because of international as well as local pressures.

“America is internally under pressure to push the World Bank’s strengthened mandate to lessen poverty as well as move away from fossil fuel investments,” says Worthington. “America would not want to be a barrier to South Africa’s development aspirations so it can’t oppose the loan because the government has clearly asserted the position that South Africa need this money and the coal-fired power plant. At the same time, they also have to be responsive towards their own society groups who are fighting climate change,” said Worthington.

Economic development or environmental sustainability?
Government and Eskom insist that there is no alternative but to build Medupi in order to ensure energy security. In a statement by the World Bank, Obiageli Ezekwesili (World Bank Vice-President for Africa) said that the loan would help South Africa achieve reliable electricity supply. “Without an increased energy supply, South Africans will face hardship for the poor and limited economic growth,” said Ezekwesili (

South Africa’s Finance Minister, Pravin Gordhan, has been quoted as saying that NGO’s are more concerned about the environment than the country’s economy when it comes to opposition against the World Bank loan. 

“This demonstrates a lack of understanding of South Africa’s international commitment to reduce its carbon emissions and to move to a low carbon economy. Furthermore the fact that the Minister so easily dismisses the concerns of key stakeholders does not bode well for a transparent consensus-reaching approach to future energy planning in the country,” said Fakir.

Will the loan be enough?
Even with the $3,75-billion World Bank loan and Nersa’s approved 25% tariff increase, Eskom will still be facing “serious funding gaps”, said Minister Barbara Hogan, Department of Public Enterprises in Parliament, on 15 April 2010.

“Not only does the tariff hike not cover the full operating and interest costs of Eskom in the initial years going forward, but it also means that the Kusile build will be delayed due to some serious funding gaps. This has the potential to endanger the security of supply of energy in the future if appropriate steps are not taken by government,” said Hogan.

Medupi a temporary solution
Fakir says that the fact that the majority of the loan will be used for a coal-fired power plant is detrimental to the goals of initiating more renewable energy solutions in the country.

“The recent announcement that the loan includes a small quota to be used for renewable energy development entrenches the myth that renewable energy cannot contribute to base-load supply, or is best suited to ‘niche applications’.”

Hogan says that those who do not believe that government is not concerned with renewable energy must be assured that government is serious about their climate change commitments.

“For those concerned that government is not committed sufficiently to renewable energy, let me assure you that this is not the case. In fact, I am very excited that Eskomthrough the World Bank loan will lead the largest pilot project on CSP and wind in Africa. So as a government, we are serious about our long term low carbon trajectory as well as the commitments we have made on climate change internationally,” said Hogan.

Joanne Yawitch, Change Programme Manager at the Department of Environmental Affairs and Tourism (DEAT), told delegates at a WWF roundtable meeting in March that she supported the South African government’s application for the loan. “Although we need to find alternatives to coal-fired power plants, South Africa needs the loan to build Medupi. South Africa needs to make clear commitments in order to address climate change and reduce our greenhouse gas emissions over time.  Given the energy supply challenges we face, Medupi remains an important development to go ahead,” said Yawitch.

“Building Medupi will ensure our country’s sustainability. Eskom’s current coal-fired power plants are not sufficient to provide electricity for the country’s demand and we will have to build a new power plant to ensure energy security. But the new coal-fired power plant should only be seen as a temporary solution, we have to start acting now if we want to have renewable and cleaner energy sources in the future,” said Yawitch.

“Remember that Eskom’s coal-fired power plants not only supply electricity for South Africans, it is also exported to our neighbouring countries. The World Bank loan is needed to ensure the sustainability of our economy as well as the development of other African countries,” explained Yawitch.

“Both the tariff increase and the World Bank Loan have engendered heated discussion and debate about energy in our country. After all the heat and dust has settled, we as South Africans must reach an informed consensus about all matters relating to energy because it affects each one of us in our daily lives,” said Hogan.

Local politics and the loan
Since the World Bank loan was approved, the conflict of interest following the proximity between the ANC, its investment company and the company supplying boilers to Medupi, Hitachi, has been debated. On 2 April, the Democratic Alliance (DA), which is the opposition party to South Africa’s governing African National Congress (ANC) party, sent out a newsletter, entitled An ignoble and corrupt parasite, stating that many people don’t realise that the World Bank loan has serious implications for the country’s democracy.

The Medupi power station will be built by Hitachi Africa, which is 25% owned by the ANC’s investment arm, Chancellor House, which will give the ANC a ZAR5.8-billion stake in the deal and make an estimated ZAR1-billion profit (

“It is no exaggeration to say that, if the loan is granted and the deal goes through, no opposition party may ever be in a position to compete fairly with the ANC again. The ANC will entrench its single party dominance and, in doing so, gravely weaken our democracy,” wrote Helen Zille, Leader of the DA.

Dr Mario Oriani-Ambrosini, MP from the Inkatha Freedom Party (IFP), challenged the ANC to do the right thing and subject the World Bank loan to the review and approval of the parliamentary Portfolio Committee on Public Enterprises. “At least if so approved, someone will bear the political responsibility for this outrageous corruption,” wrote Oriani-Ambrosini.

According to, Hogan told journalists ahead of her budget speech in Parliament that the ANC would not benefit from the loan. “I don’t understand what the conflict of interest is, when there is no political party involvement, where there is no beneficiary,” Hogan said.
“One of the issues that come up continually is that the World Bank loan covers the boiler contract, which is what the Hitachi contract is for. The World Bank loan does not cover the Hitachi contract. It is completely separate from the boiler. So the World Bank is not involved in funding the boiler programme that Hitachi has contracted for.” (

Gary Pienaar, senior researcher at Idasa, an independent public interest organisation that promotes sustainable democracy based on active citizenship, says that transparency and inclusiveness is needed with regards to not only the World Bank loan, but also a variety of energy-related processes.

“South Africans need to know what the World Bank conditions are for the loan – and if there are any that may be of particular concern. The South African government has responded to public concerns about the loan with several recent reassurances. Nevertheless, the loan comes at a moment when important decisions are being taken about South Africa’s energy choices and its long-term energy future. Associated decision-making processes, such as the revised Renewable Energy White Paper and the upcoming IRP2 process, should be handled with the necessary transparency, consistent with government’s assurances to this effect” said Pienaar.


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