Medupi deal 'in the bag'

09 April 2010 - 01:03

The World Bank was poised to approve a controversial $3.75-billion loan last night to help state utility Eskom develop the mega coal-fired, dry-cooled Medupi power station near Lephalale in Limpopo, despite opposition by some of the bank's member countries including the US and the Netherlands as well as the DA.

The US and the Netherlands indicated they would oppose the loan in statements by countries submitted ahead of the bank's board meeting. Britain - in the midst of an election race - was expected to do the same.

A Dutch foreign ministry spokes-man said it had advised its representative at the World Bank to abstain from supporting the loan, citing a lack of progress on developing renewable alternatives.

The loan was expected to be approved, however, regardless of US, Dutch and possible British opposition. Board decisions are arrived at by consensus among member countries rather than through voting, and countries can indicate opposition by abstaining from discussion of the issue.

DA leader Helen Zille also opposed the loan, saying it would enrich the ANC.

The ANC's investment arm, Chancellor House, holds a 25% stake in Hitachi SA, one of the biggest contractors for the Medupi power station.

Zille told Business Times this week that "the ANC stands to make a R1-billion profit" from the construction of the power station, despite assurances from World Bank officials that the loan would not pay for the Hitachi SA component of the deal.

Hitachi won a lucrative contract for boilers at the plant.

Zille lobbied the US, the UK as well as the World Bank itself not to support the loan request.

Eskom has argued that it has no immediate alternative but to develop the 4800MW Medupi plant in northern Limpopo to ease chronic power shortages in South Africa and ensure power supplies to neighboring states that depend on it for some of their electricity.

While $3-billion of the loan will fund the bulk of the coal-fired plant, the remainder of the financing will go to renewables and energy efficiency projects, it said.

"We believe this project is important for South Africa and South Africans and we expect it will be well received by the board," World Bank spokesman Peter Stephens said.

The US position is based on guidance issued in December by the Obama administration following the Copenhagen climate talks, which direct US representatives at development banks to encourage "no or low carbon" options.

It was unclear whether Britain, which had threatened not to support the project, would back it in the end after a recent visit to London by President Jacob Zuma in which he lobbied British officials to support the loan.

Since that visit, however, British Prime Minister Gordon Brown has called an election for May 6 and backing the project could be politically damaging.

The opposition to the Eskom loan has raised eyebrows among those who note that the two advanced economies are allowing development of coal powered plants in their own countries even as they raise concerns about those in poorer countries.

The plant is using the same "cleaner coal" technology used in the US and in other developing countries to lower carbon emissions.

Environmental and development groups stepped up pressure on the World Bank ahead of yesterday's meeting.

In a letter endorsed by 125 organisations it is argued that the project will not bring electricity to the poor but will benefit large mining houses and smelters.

In a submission this week to the World Bank's independent complaints body, the inspection panel, on behalf of residents living near the Medupi plant, it was claimed that the project violated World Bank policies and would harm their health and the environment. - Additional reporting by Lihle Z Mtshali