Controversies surrounding World Bank loan linger

The decision by the World Bank to grant a loan of US$3.75 billion to Eskom to build one of the world’s largest coal-fired power stations shows that the bank has confidence in the future of South Africa, and that it further believes the country will nonetheless be able to meet its Copenhagen climate change commitments. This, however, is not the end of the controversies surrounding the loan.

The loan is essential to the development of a reliable electricity supply in South Africa, which in turn is required for economic growth and poverty alleviation. Even so, there is much dissent around this view.

The Bank’s decision came at a tough moment for the country in the wake of the murder of Afrikaner Weerstandsbewewing (AWB) leader, Eugene Terre’Blanche.

On top of that came the performance by ANC Youth League (ANCYL) leader Julius Malema – adding to racial tensions and projecting intolerance to the outside world with his treatment of a BBC journalist.

Yet, despite all this, and in spite of strong opposition from green activist organisations and the political objections by leader of the opposition Democratic Alliance (DA) Helen Zille, the majority of the Bank’s 24 directors voted in favour of granting Eskom the loan.

This implies that the Bank has confidence in South Africa’s economic and democratic fundamentals and its future, as well as the business plan and goals presented by Eskom and guaranteed by the government.

Although there were suggestions prior to the loan decision that the Bank feared if it did not grant the loan, China would – no confirmation of such a consideration can be found.

The Bank also rejected green opposition, satisfying itself that South Africa will be able to meet its Copenhagen commitments regardless of Eskom’s capacity development programme. The loan further will be used to finance “some of the biggest solar and wind power plants in the developing world," the Bank stated.

Despite environmental groups condemning the loan, claiming that the planned Medupi power station will be a climate disaster benefiting and enriching only industry with cheap power, while keeping many South Africans condemned to energy poverty, the Bank was at pains to point out the green content of the business plan. The loan will strengthen the country's economy and raise living standards for the poor, it said.

The bottom line is that without the loan, and without the building of Medupi, the country would face more serious power blackouts – negatively affecting industry, the economy and employment, and leading to increased poverty and stunted growth.

It was no easy ride

Environmental impact concerns weighed so heavy that the United States, the Bank’s largest shareholder, abstained from the voting, as did the United Kingdom, Italy and the Netherlands. The loan was saved probably by Scandinavian countries – leaders in renewable energy technology – which voted in a bloc represented by Norway.

The fundamental underlying issue at stake here is the level of responsibilities to which fast-growing countries should commit in the effort to reduce global greenhouse gas emissions. South Africa, China and India, among others, argue that their economies must be allowed the same scope for growth as was enjoyed by the industrialised nations, where the onus for cutting carbon emissions should lie primarily. The developing nations maintain that coal is still the cheapest and most available fuel source.

With the granting of this loan, the developing nations have scored an important victory.

But it is still meeting with heavy criticism from green organisations, civil groups, trade unions and others. The Congress of South African Trade Unions (Cosatu) is concerned about the yet-to-be-revealed conditions attached to the loan; while activist groups say the Medupi power station will not benefit the poor, will pollute rivers and the air in the region, will adversely affect the health of people living there, and will place the burden on the poor for meeting South Africa’s climate change obligations and the paying back of the Eskom loan.

Meanwhile, opposition to the loan by Zille and the DA was based on the grounds that a corrupt relationship exists between the ruling African National Congress (ANC) and the Eskom project.

The ANC's investment arm, Chancellor House, is a 25% shareholder in Hitachi SA, which is one of the largest contractors for the Medupi power station. According to Zille, the ANC stands to make a R1-billion profit from all this without paying any tax because it is a non-profit organisation. But it seems she has been proven wrong.

Eskom says it will "ring-fence" the work being carried out by Hitachi Africa to ensure that none of the proceeds of the loan is directed toward the company and will ensure that it complies with World Bank procurement policies. As the Hitachi contract with Eskom predates the loan application, no part of the loan will be used to fund work carried out by Hitachi.

Sarwat Hussain, senior spokesperson for the World Bank's Africa region, says the Hitachi component is not part of what the World Bank is funding here – the implication being that this did not even come up for consideration.

In any case, the World Bank’s primary concern would have been the financial feasibility of the project and what is best for South Africa, all factors considered. While it is quite correct for Zille to attack corruption in the ANC or the Eskom project where it may exist, choosing the Eskom loan as a vehicle for that battle may have been a misguided choice. It would have been tantamount to throwing the baby out with the bath water, had the loan application failed because of it.

For Zille and the DA, a far better option would be to attempt to initiate legislation that would put an end to any corrupt, incestuous relationships involving business and politics.

The ANC since has indicated it will be selling its stake in Hitachi.

While the World Bank loan and the Medupi project may throw South Africa an energy lifeline, it only can be hoped that Eskom now will use this breathing space also to energetically pursue cleaner, alternative forms of energy for the future – something that has been a stop-start affair to date.