|Will the World Bank Support Dirty Coal in South Africa?|
Critics say the proposed $3.75 billion World Bank loan for a new coal-fired power plant in South Africa is primarily intended to benefit large multinational companies. Will the government heed the growing opposition to a potentially disastrous project? Articles compiled by William Minter.
24th March 2010 - Published by AfricaFocus Bulletin
With a request for a $3.75 billion World Bank loan for a new coalfired power plant, South African political leaders seem determined to entrench a policy on climate change that disregards clear evidence of catastrophic consequences, echoing the earlier disastrous policies of former President Thabo Mbeki on AIDS. But opposition is mounting to the current plan, which would consolidate South Africa's Eskom as the continent's leading producer of greenhouse gases.
South African Finance Minister Pravin Gordhan defended the plan in a March 22 op-ed article in the Washington Post, contending that alternate energy sources were not practical to meet the country's power needs. But critics say that the power is primarily intended to benefit large multinational companies, rather than South African consumers, and that Eskom has an abysmal record of mismanagement and indifference to public needs. Critics of the loan include not only a large South African civil society coalition, but also international groups and even the U.S. Treasury.
The following articles were compiled by William Minter, editor of AfricaFocus Bulletin, comprising the February 16 statement by over 200 South African and other African organizations opposing the loan, and two recent background articles, one by Lori Pottinger, Africa specialist for the International Rivers Network, and the other by Patrick Bond, director of the Centre for Civil Society in Durban, South Africa. The original posting can be found here.
16th February 2010
Should the World Bank grant a $3.75 billion (R29 bn) loan to Eskom? No. We South African and African organisations which for years have advocated social and environmental justice here and abroad, oppose Eskom's proposed Bank loan - and indeed its new construction programme more generally - for several reasons.
1. A bad project, contributing to energy poverty and environmental destruction.
This particular project is fatally flawed, on grounds that Eskom's strategy is: based primarily on large coal-fired stations (followed by nuclear) and as many as 40 new coal mines, which will add to South Africa's already extremely high carbon intensity, as well as the air pollution and degradation of scarce water resources; designed to continue supplying the world's cheapest electricity mainly to large energy-intensive industries, including steel and aluminium, whose corporations are headquartered abroad (hence contributing to the profits outflow on South Africa's balance of payments); to be mainly paid for by unaffordable tariff increases imposed on ordinary South Africans, while the beneficiaries - the largest industrial consumers - are exempt from price rises because of multi-decade special purchase agreements offered to them during apartheid and in the 1990's; and as a result, unable to alleviate 'energy poverty', but instead entrenches suffering by imposing 'cost recovery' on people who cannot afford it, with Eskom already admitting a 'typical township household' will face a 2009-2012 monthly price rise from R360 ($48) to R1000 ($130).
2. Inappropriate financing.
We, therefore, oppose all funding, foreign and local, for Eskom's coal/nuclear expansion plans. Were Eskom to engage in a reasonable energy policy based on demand management, with supply shifting to renewable, and the expansion of Free Basic Electricity beyond the current tokenism as well as connections to urban shackdwellers and the rural poor, that would be worthy of support. As for green energy investments that are not import-intensive, local financing would be more appropriate than a World Bank loan - and is readily available, including through state debt and halting subidised electricity contracts to multinationals.
The financial danger of a World Bank loan is that the SA currency will crash (as it has five times since 1996), hence making repayment much more expensive (since the loans are not repaid in rand but in dollars), hence adding to the extreme cost burden poor South Africans will face.
3. Eskom's special responsibility to Africa.
We must not forget that South Africa consumes more than its fair share of Africa's environmental space for development (more than 40% of CO2 emissions from just 6% of Africans), mainly because of Eskom, Sasol and other large corporations which emit the vast bulk of greenhouse gases. The World Bank loan will sink Eskom - and South Africa - into not only financial debt to the West, but much deeper 'Climate Debt' to Africa. African civil society unites with SA critics of Eskom's irresponsible climate-denialist projects.
4. The World Bank's special responsibility.
Specifically, we oppose World Bank funding for Eskom and call on all governments with Bank voting power to oppose the proposed loan on March 24, when the Board meets. The World Bank has still not offered reparations for its 1951-67 apartheid-empowering loans to Eskom, for which only white people received electricity (but the entire society repaid the loans). Further, the Bank has consistently promoted privatisation and/or commercialisation of state utilities and cost-recovery (resulting in disconnections), which together prevent access to electricity by poor South Africans.
We call on the Bank's member governments and directors to endorse the recommendations of the 2004 World Bank Extractive Industries Review. The Review found that, aside from climate damage, the Bank's fossil fuel projects had neither the intention nor the effect of alleviating poverty and called for them to be phased out.
5. The US government's special responsibility.
We especially call on the US Treasury - which has opposed Bank coal financing in line with a recent 'Guidance Note ' - to veto the proposed loan, and to also halt US government subsidies to the coal industry so as to avoid the legitimate charge against Washington of hypocrisy. We are delighted about three processes internal to the US, which are a model for our own work in South Africa: Sierra Club legal action has prevented new coal-fired plants from being built; courageous activists in West Virginia are engaged in direct action to halt 'mountaintop coal removals'; and the US Environmental Protection Agency adopted December 2009 provisions to implement its 'endangerment finding' that carbon from coal is a pollutant and must be directly regulated.
What must be avoided is the US imposing responsibility for carbon cuts on the South, but without providing funding or technology support for renewable energies as part of the 'Climate Debt' that the US owes for taking up so much environmental space. World Bank Executive Directors representing the South have responded to the US Guidance Note making several of these points, and they oppose the use of the Bank as an instrument of US power. This is a fair point, and a long-standing grievance we all share, given Washington's extremely destructive role at the Bank and in the world economy.
Nevertheless, the dissident Executive Directors' response supports further Bank funding for fossil energy and specifically coal-fired power stations, justifying coal as necessary for poverty alleviation and economic growth in developing countries. In reality, economic growth has been accompanied by growing inequality in South Africa and many other countries that suffer 'resource curse'. The poor are mostly left worse off than before. Even where their income improves by conventional measures, the gains are lost to services cost recovery (and disconnections), to health costs imposed by pollution, to the loss of nonrenewable resources, to water/land theft associated with coal-fired power, and to the increased cost of access to amenities previously provided as public goods.
In addition, it is common cause that the poor are most vulnerable to climate change. In many countries, they are already feeling the costs in intensified droughts and floods and in the loss of land through coastal erosion.
6. Towards the transformation of energy, production and financing.
We see renewable energy, not coal-fired power stations, as the optimal development path for Southern economies, creating more jobs, building local manufacturing capacity, and avoiding the environmental mistakes of Northern countries. As in South Africa, most World Bank coal power projects are designed to supply industry, not people. They do not necessarily increase per capita access to energy. The industries in turn are mostly geared for export in line with the World Bank's promotion of export oriented production. The goods are then consumed primarily in developed countries.
Further, many industries are established with foreign direct investments. In the process, much of the heavy industry in developed countries has relocated to developing countries in search of cheaper energy and cheaper labour. Yet because their headquarters are in London, Melbourne, New York, Toronto, Zurich and other offshore sites, a substantial portion of profits is returned to rich countries, exacerbating the poor countries' balance of payments deficit. Because South Africa's payments deficit is so extreme, due to the outflow of profits and dividends to foreign corporations which benefit from the world's cheapest electricity, The Economist magazine judged the country as the world's riskiest emerging market (24 February 2009).
7. The demand side management alternative.
Instead of expanding its coal/nuclear facilities, Eskom should engage in serious demand side management, beginning by phasing out electricity to smelters that have little linkage with the South African economy and that are capital- rather than jobs-intensive. Concrete plans should be made for a 'just transition', so as to provide alternative, well-paid 'green jobs' - e.g. in subsidised thermal-solar geysers for every house - to those workers who are employed at the smelters. At the same time, the special purchase agreements should be disclosed to the public and opened for renegotiation. The freed up energy should be redistributed to provide for a much larger 'lifeline' supply of universal Free Basic Electricity - with a rising block tariff to encourage conservation to improve spinning margins which will buy time for a switch into renewable energy technologies.
By not expanding its coal/nuclear facilities and instead redistributing the electricity capacity it has, and by simultaneously switching to renewable sources, Eskom can survive this crisis. But it can only do so if it is not in the clutches of the world's leading financier of climate destruction, the World Bank.
9th March 2010 - Lori Pottinger, Huffington Post
In case you didn't catch it, the World Bank's top official for Africa just thumbed her nose at the dozens of renewable energy companies lining up to build clean energy in Africa's dirtiest economy.
Obiageli Ezekwesili, the Bank's Vice President for Africa, defended a controversial $3.75-billion loan to build a massive coal plant in South Africa with this head-in-the-sand statement: "There is no viable alternative to safeguard South Africa's energy security at this particular time."
The quote came in an article titled (without irony) "Africa Ready for Energy Transformation." With that kind of transformation, the continent can look forward to many more decades of playing catch-up with the rest of the world.
Maybe Ms. Ezekwesili missed the news that South Africa could get 10-20% of its electricity from wind power in the short term (and up to 70% over time), by harvesting some of its 50,000 MW of potential (it currently has just one 5MW commercial wind farm in place). Or that the sunny nation also has huge potential for solar (one study shows 547 gigawatts in potential for grid-based concentrating solar plants, not to mention equally impressive potential for solar water heating and solar PV).
Writes a local columnist, "Research shows that in conjunction with energy efficiency measures, 75% of our electricity could be generated by exploiting renewable energy sources by 2050, slashing our CO2 emissions by 54% below 1990 levels and making massive strides towards avoiding catastrophic climate change." But the national utility, Eskom, has been despairingly slow to move away from coal to embrace a green energy future.
Says South African professor Patrick Bond: "South Africa's five-fold increase in CO2 emissions since 1950 and 20% increase during the 1990s, can largely be blamed upon the attempt by state electricity company Eskom, the mining houses (led by Anglo American) and huge metals smelters (especially BHP Billiton) to brag of the world's cheapest electricity. Emitting 20 times the carbon tonnage per unit of economic output per person than even the United States, South African capital's reliance upon fossil fuels is scandalous."
Says extractive-industries activist Bobby Peek, of the South African group groundWork: "The South African government cannot continue to give away electricity below cost, to fire smelters which have little linkage to the South African economy. If the World Bank loan goes through, poor South Africans will have to bear the burden of Eskom's debt, and climate change will intensify."
It's not just activists who are up in arms: the Cape Town Chamber of Commerce is calling for a national investigation into Eskom's "sweetheart deals" for big industrial energy users at the expense of everyone else. Unions, too, have recently joined a coalition calling on the World Bank to drop the project.
The World Bank, whose job is to fund poverty alleviation, not cheap power for aluminum smelters, talks of Africa's energy sector "transforming" itself the way the telecoms industry did - a truly transformative sector-wide change that brought affordable mobile phone service across the continent. But the energy sector cannot transform itself if it looks only to megaprojects for salvation. The telecoms industry was a bottom-up transformation, one that bypassed big bureaucracies to create decentralized service one could buy in small packages, as needed. As long as Eskom and other African utilities are focusing more on mega-industries' needs, and giving them subsidized rates to keep them happy, there will be no transformation, nor a significant change in the ranks of the unconnected. Africa definitely needs an energy revolution, but it needs to focus on people power first.
Meanwhile, renewable energy developers are waiting in the wings for Eskom to show them the money in the form of power purchase agreements. Wind power developer Eddie O'Connor told Engineering News that South Africa was "pregnant with potential".
I guess the World Bank won't be the one to deliver that baby.
16th March 2010 - Patrick Bond, Links International Journal of Socialist Renewal
In an indication that the climate justice movement is broadening, deepening and going local, there is now intense opposition to a climate-destroying energy loan for South Africa. The campaign is led by community activists in black townships allied with environmentalists, trade unionists and international climate activists. The World Bank is trying to lend nearly US$4 billion to the Johannesburg-based state-owned electricity utility Eskom, the world's fourth-largest power company and Africa's largest carbon emitter (with 40% of South Africa's total emissions).
The loan is mainly for constructing the world's fourth most CO2-intensive coal-fired power plant, Medupi, in the ecologically sensitive Waterberg area north of the capital of Pretoria. The World Bank also aims to finance privatised power generation, notwithstanding the abject failure of public-private partnerships in South African infrastructure, including in electricity and water. More than 200 organisations have signed up in protest. The loan would fly in the face of the World Bank's attempt to portray itself as a climate-friendly financer, and will generate a vast, unnecessary debt - both a financial debt to South Africa's poor and also an expanded climate debt owed by South Africa to the rest of Africa, for overusing its fair proportion of the continent's CO2 carrying capacity. For communities near the coalfields (40 new mines are requested by Eskom to supply its new generators) and coal-fired stations, the externalised costs imposed by Eskom are extremely high, including the complete degradation of water sources, air pollution, a frightening rise in mercury associated with coal and other health burdens.
Poor Pay for Multinationals' Cheap Power
The loan is being pursued at a time of intense controversy surrounding Eskom mismanagement. In its last annual reporting period, the company lost R9.7 billion (US$1.3 bn), mainly due to miscalculations associated with hedging aluminium prices and the South African currency. Both the chair and chief executive office lost their jobs late last year amidst unprecedented acrimony. Meanwhile, Eskom continues its giveaway prices to several large export-oriented metals/mining multinational corporations, headquartered abroad - offering the world's cheapest electricity, heavily subsidised by all other - mainly poor - users in South Africa. The two main beneficiaries are BHP Billiton of Melbourne, which runs aluminium smelters, and the notorious Anglo American Corporation, which shifted its financial headquarters to London a decade ago.
Thus mining/metals profits flow abroad, exacerbating South Africa's dangerously high international payments deficit. Activists argue that the scandalous late-apartheid era, multi-decade "special pricing agreements" deals with BHP Billiton and Anglo American should be rejected as "odious". In early 2008, repeated national blackouts finally led to cuts in supply to some of these firms, showing that the deals could legitimately be violated. Moreover, the crash of metals and minerals prices dramatically lowered demand. Demand-side management - a tried and tested alternative which the World Bank claims to endorse (but hasn't considered in this case) - would mitigate the need for new power plants.
Moreover, South Africa's massive renewable energy potential has not even begun to be tapped. Eskom was given responsibility for rolling out more than a million solar-powered hot-water heaters over three years, and after two years, can claim only 1000.
Price Increases for Poor
Having lost the vast majority of South Africans' trust, Eskom began raising prices by more than triple the inflation rate in 2008. From 2007 to 2012, the price of a month's normal electricity use in an "average township household" is anticipated to rise 127% in real terms, according to Eskom. These price increases will have an extreme adverse impact, leading to a major increase in disconnections (and illegal reconnections, hence electrocutions) of poor households, that can best be described as "underdevelopment".
Ironically, World Bank staff insist that the proposed Eskom loan will have a "developmental" impact. The civil society coalition vigorously object. The World Bank is in an untenable position, as it soon releases a new energy policy and also campaigns to take on additional responsibilities for channeling finance related to climate change. The proposed Eskom loan should disqualify the World Bank from any further role in climate-related activities. Critics insist that if the World Bank intends to raise $180 billion in new capital from member groups prior to the World Bank/International Monetary Fund Spring meetings in late April, it will have to shelve this loan, because the world's citizens will object that this represents business as usual financing at a time energy transformation is increasingly urgent.
Opposition is Gaining Momentum
Communities and environmentalists have begun to protest the Eskom loan, including at the firm's Durban headquarters on February 16. The main manufacturing trade union in South Africa, the National Union of Metalworkers of South Africa, announced its opposition to the loan on February 18. Other trade unions have threatened strikes against the price hikes and Eskom's labour practices. The Pan African Climate Justice Alliance, which had the highest African profile at the December 2009 Copenhagen Climate Summit, has endorsed the no-loan demand, on grounds of environmental damage. The South African Council of Churches, which played a key role in criticising the World Bank due to its apartheid financing, has also expressed opposition to the loan. Eskom is suffering an upsurge of illegal electricity connections in communities, as prices become prohibitive.
In sum, this is a company that can be fairly described as a poor credit risk. Dozens of organisations across the world have committed to oppose the World Bank's proposed Eskom loan. They are contacting the executive directors of the World Bank from each country - including Australia's representative, James Hagan, who was visited by South Africans earlier this week - to demand a "no coal loan" vote at the April 6 meeting at which the loan will be tabled. In advance of the World Bank's recapitalisation efforts, the critics are ready to take even more vigorous action against the bank itself - including revival of the "World Bank Boycott" which cost the bank support from many major bondholders over the past decade (including the world's largest pension fund, the city of San Francisco, the Calvert Group and university and church endowment funds). For the sake of environmental justice, the surrounding communities, the citizenry, the workers, Eskom customers and the continent of Africa (and all other sites affected by climate change), the World Bank will have no choice but to withdraw this loan. Eskom will then have no other choice but to negotiate an appropriate energy mix and financing strategy with constituencies they have so far ignored.
Please send messages opposing the World Bank loan to:
Opposition to the loan in South Africa is being coordinated by Groundwork South Africa
Africa Action is among U.S. groups that have joined the 'No Coal Loan' campaign
The Sierra Club is also working on this issue, in coordination with their campaign to stop government funding of coal power in the United States
The Center for American Progress report on ensuring that multilateral development banks prioritize investment in clean energy rather than fossil fuel projects.
Report from the World Resources Institute on the project.
AfricaFocus Bulletins with material onclimate, the environment, and related issues.
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