$5 billion in World Bank loans in the works for South Africa’s power utility
Bank Information Center, 19 December 2008
African Development Bank also contributing record loans to address power shortage.
After initial rumors in mid-August that South Africa’s power company, Eskom, would turn to the World Bank Group for substantial financing, officials of the country’s Treasury department announced on December 3 that after a round of talks with Bank officials in South Africa, the Bank had offered $5 billion in loans to finance new power stations.
The news was confirmed the next day by the International Finance Corporation (IFC), the World Bank Group’s private sector division. Reuters quoted Saleem Karimjee, the IFC Manager for Southern Africa, “numbers to the extent of $5 billion over five years have been discussed, so that has been agreed in principle.”
The loan would complement a $500 million loan from the African Development Bank, secured in 2007. That loan to Eskom, a utility parastatal with a virtual monopoly on national power provision, was the largest ever made by the AfDB’s private sector window, and indeed constituted well over half of the increase (“a near-quadrupling”) the AfDB trumpeted for its private sector lending last year. Several recent reports have suggested that the AfDB may be willing to lend Eskom up to an additional $1 billion.
Karimjee cited the mining industry’s need for power as a crucial motivation for the IFC deal. Power shortages caused rolling blackouts across South Africa in early 2008, and Eskom says it needs to spend about $33 billion over the next five years to increase power production and avert further shortages.
It is not clear yet whether the entire loan would be through the IFC or partly through the public sector arm of the Bank. Indeed, Karimjee said, the deal is far from final, as the Bank Group may require government guarantees, and Treasury officials cautioned that approval from the institution’s board could take as long as 18 months.
It is also not clear what conditions would be placed on the loan – whether it would be a “blank check” for anything that Eskom needs as it wrestles with critical shortages, or come with clear guidelines for investment in renewable and clean energy. Karimjee said, “the details of to what use will the funds be put, how will they be structured, this is only beginning now. We can’t really say the World Bank will help Eskom build this power station or that power station.”
An article in the Financial Mail cites “industry sources” concerned about an extra $1 billion in costs Eskom will incur with IFI financing, owing to the institutions’ requirements for reduced emissions. The report does not explain how that figure was calculated.
Eskom’s current plans for power generation include a wind-farm, but at least 90% of its power is slated to come from coal. However, Eskom recently shelved plans to build a second nuclear plant, citing prohibitive costs. The World Bank says it does not fund or otherwise support nuclear energy.
The loan would almost certainly be the largest single IFI loan made in sub-Saharan Africa, by any gauge.
In Poznan, Poland, activists gathered for the conference of the UN Framework Convention on Climate Change at the time of the announcement, citing reports that the loan could support development of six coal-fired power plants, pointed out that it would also likely be the “most carbon intensive project ever undertaken.” Activists will undoubtedly be closely monitoring the climate impacts of the deal, especially as the World Bank promotes itself as part of the solution to the climate crisis.
The deal will also be a rallying point for public-interest advocates in South Africa who have been fighting for greater public accountability at Eskom. In a statement last week, the Public Service Accountability Monitor demanded that the World Bank “make any loan to Eskom conditional on guarantees of meaningful public participation in the formulation of South Africa’s future energy policy.”
RESOURCES
- World Bank agrees to lend Eskom up to $5 bln by Wendell Roelf, Reuters, December 4, 2008
- Press Release: AfDB extends US$500 Million Loan to Eskom Holdings Limited, African Development Bank, August 8, 2007 (African Development Bank website)
- AfDB approves largest ever private investment in South Africa’s utility giant, Eskom, Bank Information Center, September 25, 2007
- ’Attach conditions to Eskom loan,’ SAPA, December 10, 2008 (The Times [South Africa] website)
- Electricity Supply: Gone but not Forgotten by Matthew Hill, Financial Mail, December 12, 2008
- Coal Hard Cash by Steve Kretzmann, blog entry on Grist Magazine website, December 9, 2008
- PSAM urges public participation in power policy, Public Service Accountability Monitor, December 10, 2008
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