The World Bank has approved the granting of a $3,75-billion loan to electricity parastatal Eskom.
In a statement late on Thursday night, the World Bank said its board of executive directors had approved the loan “to help South Africa achieve a reliable electricity supply while also financing some of the biggest solar and wind power plants in the developing world”.
It added that the loan was the Bank’s first major lending engagement with South Africa since the fall of apartheid 16 years ago.
“The loan is provided to South Africa’s power utility, Eskom, and was brought about by unique circumstances including South Africa’s energy crisis of 2007 and early 2008, and the global financial crisis that exposed the country’s vulnerability to an energy shock and severe economic consequences,” the Bank added.
The loan will assist Eskom with its development of a coal-fired power station at Medupi in northern Limpopo.
While $3-billion of the loan would fund the bulk of the construction of Medupi, the remainder of the funds would go toward renewable energy.
No alternative
Over the past weeks, the loan proposal raised objections from both political parties and environmental groups.
However, both government and the power utility stressed that there was no alternative but to develop Medupi to “keep the lights on”.
The opposition Democratic Alliance (DA) insisted that the Medupi deal would enrich the African National Congress (ANC) by about R1-billion.
This was due to the ruling party’s involvement in the building of Medupi via its 25% stake in Hitachi Africa, the company awarded a boiler contract for the power station.
Meanwhile environmental groups such as Earthlife Africa argued that the coal-fired Medupi power station violated World Bank policies and posed threats of air pollution and high sulphur dioxide levels to communities living nearby.
In the World Bank’s statement on Thursday, Obiageli K Ezekwesili, World Bank vice president for the Africa region said that without an increased energy supply, South Africans would face hardship for the poor and limited economic growth.
A catalyst for growth
“Access to energy is essential for fighting poverty and catalysing growth, both in South Africa and the wider sub-region.
“Our support to Eskom combines much-needed investments to boost generation capacity for growing small and large businesses, creating jobs and helping lay the foundations for a clean energy future through investments in solar and wind power,” he added.
In approving the project, the World Bank’s board of executive directors noted South Africa’s achievement in increasing energy access from around 30% of citizens to more than 80% since the fall of apartheid in 1994 and noted its free basic electricity policy that provided 50 kilowatt hours of free electricity per month to poor families.
“The Board noted South Africa’s pivotal role as generator of 60% of all electricity consumed on the African continent and the importance of a functioning electricity sector for job creation, economic progress, human welfare and poverty reduction.”
Ruth Kagia, World Bank country director for South Africa said the Eskom project offered a unique opportunity for the World Bank Group to strengthen its partnership with the government of South Africa, Eskom, and other financiers “and help South Africa chart a path toward meeting its commitment on climate change while meeting people’s urgent energy needs”.—Sapa