By MediaGlobal
Published April 14, 2010

The proposed World Bank loan of US$3.75 billion to energy South African company, Eskom, will finance the building of a coal-fired power station called Medupi in Limpopo, South Africa. The coal-fired power station is designed to address the current energy crisis in the country, and construction is due to be finished in 2013.

Eskom has, however, courted controversy in the past. Between 1951 and 1967, loans given to Eskom resulted in cheaper electricity for corporations and whites only, but the entire population of South Africa bore the burden of repaying the loans. Now, many development and environmental organisations are opposed to the so-called “dirty” loan for the construction of Medupi. The Wildlife and Environment Society of South Africa (WESSA), for example, has stated that it believes the negative impact of the power station far outweighs the positive.

Chris Galliers of WESSA says, “While WESSA appreciates the need for energy, it views the investment into “dirty” energy technologies as regressive in the pursuit for legislated sustainable development. Monies would be better spent on implementing energy-efficient technologies as well as fully exploring alternative energy sources that are not harmful to the environment. The pending threat of developing coal-fired power stations and the resultant expansion of coal mines will…negatively impact on South Africa’s unique biodiversity and the health of its citizens through the contamination of water, soil, and air quality. These impacts will come at a cost that will far exceed the short-term gains of these power stations.”

Another negative consequence is that the power plant would emit 25 million tonnes of carbon dioxide per annum, which would cause significant environmental damage. Additionally, the loan would increase South Africa’s debt and this could cause major financial problems for the country in the event of a currency crash since the rand is denominated against the dollar.

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In response to criticism against the loan, Heather Worley of the World Bank says, “Like many developing countries, South Africa needs to balance economic growth with climate change mitigation. When preparing this project for review by our Board of Executive Directors, the World Bank conducted a careful review of alternatives to the project and the economic consequences of not supporting it. South Africa is pursuing aggressively their renewable energy options but this takes time and significant financing. Given the fact that South Africa has not built a major power plant in more than a decade and in light of the serious energy crisis in the Southern Africa region, we viewed this project as an exceptional case worth our consideration.”

According to Worley, there are some positive environmental aspects of the loan: “The proposed loan includes $260 million for wind and solar power projects and US$485 million for energy efficiency investments. These are important steps in South Africa’s long-term plan to mainstream renewable energy. To put the solar project in context, the 100 megawatt solar power project will be the biggest grid-connected solar thermal power project in any developing country, the biggest ever solar thermal project with storage, and the largest central receiver-type solar power project in Africa.”

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South African Energy Minister, Dipuo Peters, stated at a media briefing on March 15, 2010 that if the Eskom loan did not go through, then South Africa would be unable to meet its power needs.

However Peters’ argument has been disputed by organisations like Groundwork, a non-profit environmental justice service and developmental organisation which works mainly in South Africa.

Sunita Dubey of Groundwork says, “The World Bank’s and South African government’s argument for building Medupi is based on the assumption that, without this coal power plant, the whole of South Africa is going to be plunged into darkness and will halt” economic growth. However, they forget to mention that the “power deficiency” is the result of “sweet heart deals” between Eskom and many corporations, who are being provided with one of the cheapest electricity in the world. While World Bank boasts about its policies on disclosure and transparency, it is mum on this issue.”

Dubey adds, “Medupi coal power plant is not a “necessary evil” and cannot be placed in the context of transition towards low carbon and renewable energy future, as it is ‘business as usual’ and an addiction to dirty and cheap coal for next 40 to 50 years. Rather than creating an enabling environment for renewables to thrive, World Bank loan for fossil fuels is stifling those options. A mere 7% out of US$3.75 billion loan for solar and wind project is not a down payment for South Africa’s greener future, as claimed by the World Bank. The upcoming decision on Eskom loan at the World Bank is a test of their own policies on poverty alleviation, transparency, and their commitment to climate change.”

But Worley responds that the World Bank “remains fully committed to working with partners across the developing world to solve their energy problems, lift people out of poverty, and protecting our environment against the effects of climate change.”

A MediaGlobal Article.