By Mandla Mbongeni Hadebe
The World Bank Group on April 9, 2010 approved a US$3.75billion loan for the construction of South Africa’s 4800MW coal-fired power station, Medupi, which will have an estimated emission of 25 million metric tons of carbon dioxide per annum. The Medupi project consists of six 800MW units due to be commissioned progressively between 2012 and 2016. The station is already under construction and orders for most of the major components have already been placed. The World Bank’s contributions of US$3b is essential to complete the US$15.4 b project to this timetable, increasing Eskom’s total generating capacity by about 12%. This additional capacity is urgently needed to meet recent power shortfall and expected power demand in South Africa and throughout the Southern Africa region.
This loan, however, has angered many in civil society as they feel this project will greatly increase South Africa’s contribution to climate change, particularly so soon after the failed Copenhagen Climate Conference in December 2009 which ended in confusion against the background of an exclusive meeting by leaders of 26 countries. Civil society, including churches worldwide, played a significant role to mobilise people ahead of and during the Copenhagen Climate Change meeting.
The World Bank has said part of the loan will also finance wind and solar power projects but activists say the Medupi power station in Limpopo province will pollute rivers and the air and make it difficult for South Africa to meet its climate change obligations by increasing carbon emissions.
There is a particular need to continuously apply pressure to South Africa as a key site, but it is also important to mobilise in the individual southern African countries. Moreover it is of great importance to start to strategize for 2011 when South Africa will host COP 17.
The electricity supply industries of Southern Africa are dominated by South Africa’s state-owned utility, the Electricity Supply Commission (ESKOM). It was also known by its Afrikaans name Elektrisiteitsvoorsieningskommissie (EVKOM). The two acronyms were combined in 1986 and the company is now known as Eskom. ESKOM generates around two thirds of the electricity produced in the whole of Africa and its transmission grid extends north into neighbouring sub-Saharan countries. Eskom provides about 95% of South Africa's electrical power and more than 60% of Africa's[1].
ESKOM, with a generating capacity of about 40 000 MW from 20 power stations, is one of the largest utilities in the world. Generation is primarily coal-fired, but also includes a nuclear power station at Koeberg, two gas turbine facilities, two conventional hydroelectric plants, and two hydroelectric pumped-storage stations. The company also owns and operates the national transmission system. Koeberg, which is located outside Cape Town and has a capacity of 1930 MW, accounts for approximately 7 % of the country’s total electricity generation[2].
South Africa is a member of the 12-country Southern African Power Pool (SAPP) and exports electricity to six of these (Botswana, Lesotho, Mozambique, Namibia, Swaziland and Zimbabwe). The share of electricity imports in these countries varies between 50 – 100% of their total needs. The SAPP as a region intends to increase its electricity consumption in the next few years, potentially doubling their imports from South Africa by 2015. It is anticipated that the Medupi project will alleviate this power crisis by using coal and one of the most efficient coal technologies available (super critical boilers) to reduce carbon dioxide emissions. (Davidson, Hirst, and Moomaw, 2010).
While Eskom has correctly pointed out difficulties in obtaining international finance, it has often neglected to look at the financial implications of its own cost overruns. The Medupi coal-fired power station has escalated in costs from R78bn to R120bn, forcing Eskom to delay indefinitely the R19bn Tubetse pumped storage project (1500MW peak capacity), a R3bn Northern Cape wind farm (100MW capacity), the R24bn CIC Mmamabula (Botswana) coal-fired power station, and the R1.8bn Majuba rail venture. This last project is a 68km railroad from the Ermelo coalfields to the stranded Majuba power station. The implementation of this would save considerable funds in road transport and maintenance.[3]
Access to Electricity in South Africa
South Africa has made remarkable progress in widening access to electricity. Prior to 1990, less than a third of households had access. A decade later that proportion had doubled. However, in recent years the programme has slowed, and it now seems unlikely that the targets set by government will be met (Marquard, Bekker, Eberhard and Gaunt, 2007).
The dominant planning assumption within South Africa’s national electrification programme during the 1990s was that 80% of all households in South Africa would be electrified by 2012[4]. This target was, however, revised in 2004 when President Thabo Mbeki, in his parliamentary State of the Nation Address, said ‘...with a strengthened local government working with our state enterprise, Eskom, we will, within the next eight years, ensure than each household has access to electricity’.[5]
Seventy percent of South Africa’s population have access to electricity, well above the SADC average of around 20 %. The National Electricity Regulator has been supervising Eskom’s progress towards government targets, which aim to bring electricity to the entire country. The South African government introduced an electricity "poverty tariff" in November 2001 that reduces electricity prices for the poor. Nearly half of rural households in South Africa still do not have power[6].
More demand on energy
South Africa and its neighbouring economies desperately need additional electricity supply. This has steadily become apparent, more so during the power outages in 2007 and 2008 which left both households and industries in darkness and eventually getting load shedding timetables due to crippling shortages.
In response to this problem, Eskom initiated a build programme which included the Medupi coal fired power plant. The plant is said to contribute an extra one eighth to South Africa’s generation capacity. Civil society has objected to the building of this plant as it will add more carbon dioxide in the atmosphere, and thereby contribute to further climate change.
South Africa ratified the United Nations Framework Convention on Climate Change (UNFCCC) in 1997, which requires all countries to shift to a cleaner energy and lower carbon development trajectory, and acceded to the Kyoto Protocol in July 2002. South Africa has taken the lead in developing the collective African negotiating position on climate change and was the voice of reason in the 2009 infamous Copenhagen Accord (Davidson, Hirst and Moomaw, 2010).
Africa’s current contribution to global climate change is extremely small, both currently and accumulatively, a mere four percent of global carbon dioxide emissions. Its forests partially offset these emissions, acting as a carbon sink, thus South Africa’s reliance on coal for producing more electricity is not the best decision in a world trying to reduce greenhouse gases (GHGs) and makes it a net emitter. South Africa could have rather scaled up on energy investments in renewable energy technologies and low emission fossil-fuel technologies (Davidson, Hirst and Moomaw, 2010).
Africa, as a continent, is the lowest consumer of electricity worldwide and has yet to meet the average threshold of electricity use needed to ensure minimum power needs for acceptable quality of life. It is undergoing a major energy crisis despite having sufficient fossil and renewable energy to produce all its power needs. Southern Africa has most of the coal deposits, with almost 90% being in South Africa, which has the fourth largest global reserves (Davidson, Hirst and Moomaw, 2010).
The Contentious World Bank Loan
The World Bank Group has, despite vigorous protests by civil society, approved a US$3.75billion loan for the Medupi coal-fired plant. The World Bank’s contribution of US$3b is essential to complete the US$15.4 b project, increasing Eskom’s total generating capacity by about 12%.
The second component of the World Bank loan consists of support for a wind farm, for transmission enhancements and for a concentrating solar power (CSP) plant. These are expected to both cost about US$1b. South Africa has no significant wind energy plant at present, but has a significant wind and solar resource.
The third component of the package consists of US$490m of IBRD financing towards a railway to the existing Majuba coal power plant, power plant efficiency improvements and technical assistance on efficiency. The 68km railway line will displace the convoy of 700 trucks a day that now supplies coal to Majuba with substantial efficiency gains and benefit to the local environment (Davidson, Hirst and Moomaw, 2010).
Civil Society Objections
What has irked most civil society organisations, apart from the climate change issue, is the disparity between what ESKOM charges its domestic customers against what its commercial customers pay. The groups argue that it simply does not make sense to use South African coal to generate electricity at the cheapest rates in the world, to zap imported bauxite, to increase profits of corporations headquartered in London, Melbourne, Luxembourg and Zurich, which worsens South Africa’s already precarious balance of payments deficit, and for which vast new coal-fired powerplants must be built, financed by World Bank loans and privatised shares (49% projected for Kusile), and then by huge tariff increases for poor people, whose development, health and gender equity needs are ignored.
Most World Bank coal power projects are designed to supply industry not people. The industries in turn are export oriented. Eskom’s biggest users, BHP Billiton, Anglo American, Samancor - to mention the major ones, pay between 9 cents and 35 cents a kilowatt. Working class people are paying from 45 cents a kilowatt. This deal does not alleviate energy poverty, but instead entrenches suffering by shifting “cost-recovery” to people who cannot afford it. Already Eskom has announced that township households will face a 2009-2012 monthly rise from R360 (US$48) to R 1000 (US$130).
Taking the loan could be more disastrous for the country both in terms of the economy as well as GHG emissions. Conditions imposed with a World Bank loan often result in policy restrictions and worsening of poverty. In many developing countries, debt servicing has diverted scarce resources needed to improve health, education and nutritional services to the poor. The financial danger 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.
From an environmental perspective the deal is bad because it will be driven by large coal-fired stations and this means that South Africa may have as many as 40 new coal mines and this has implications on South Africa’s already high carbon intensity not to mention the degradation of scarce water resources and air pollution. South Africa will sink into much deeper ‘Climate Debt’ to Africa.
The World Bank’s loans within the energy sector do not support developing countries’ transition towards a low-carbon development path. In fact, it seems as if the World Bank fossil fuel lending is on the rise with very little being done to incentivise for a reduction in financing for fossil fuels. Instead of expanding its coal 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. Furthermore, the Bank’s loan will commit SA to fossil fuel based energy for the next 20 to 40 years. As such when developing countries eventually take on GHG emissions reduction targets, the World Bank’s current approach to energy will make meeting these targets more difficult and costly for these countries.
Bibliography
Davidson, Ogunlade, Hirst, Neil and Moomaw,William (2010) <
Davidson, Ogunlade and Mwakasonda, Stanford A. Energy Research Centre, University of Cape Town
Marquard, A Bekker, B, Eberhard, A and Gaunt, CT, (2007), <
MBendi Profile, Electrical Power in South Africa – Overview. Available at: http://www.mbendi.com/indy/powr/af/sa/p0005.htm
PRASAD, Gisela, VISAGIE, Eugene (2005), <
Sustainable Energy Briefing 12: What does our energy supply really cost? Who is paying? Who knows? Sustainable Energy and Climate Change Project of Earthlife Africa, Johannesburg
Wentzel, Marlett (2004), This paper was presented at the Domestic Use of Energy Conference in Somerset West, South Africa, in May 2004
[1] http://www.mbendi.com/indy/powr/af/sa/p0005.htm
[2] Ibid
[3] http://www.earthlife.org.za/wordpress/wp-content/uploads/2009/02/se-5-re-potential-in-sa.pdf
[4] http://www.gsb.uct.ac.za/files/UncertaintieswithinSouthAfricasgoalofuniversalaccesstoelectricity.pdf
[5] http://www.info.gov.za/speeches/2004/04052111151001.htm
[6] http://www.mbendi.com/indy/powr/af/sa/p0005.htm
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