South Africa gets loan for massive new coal plant

The World Bank is getting roasted by significant political heat over its decision to grant a $3.75 billion loan to South Africa to build a 4,800 MW coal-fired power plant. Missing from dramatic protests about the climate impacts from the Medupi coal plant is the answer to the question of why the World Bank chose fossil fuel instead of nuclear energy?  The answer is found in a set of ideological policies the bank has relied on for the past 15 years.

Short-term thinking dominates the decision process.  South Africa argues that the new plant is needed because coal is abundant there and the nation needs to get the electricity online as fast as possible to shore up its faltering economy.  Plus, construction on the plant started in 2007 so it is further along than a cold start for a new site.

Critics argue that the South African plant will primarily benefit heavy industry, including mining, and won’t raise the living standards or quality of life for the general population.  They claim the electricity will be routed to a few key industries rather than poverty stricken communities.  Eskom denies this charge saying the plant will supply up to 10% of the nation’s electricity.

According to the Economist, South Africa has an officially measured unemployment rate of 24% as of December 2009. GDP growth has faltered due in part to problems with adequate electricity from existing infrastructure, most of it coal-fired.

Obama’s thin diplomatic line

President Obama walked a difficult diplomatic path in lodging objections with the World Bank without voting against the project.  Reuters reports the U.S. officially abstained from the vote for the project, citing a list of objections including the impact the plant will have on global warming by releasing 25 million tons of CO2.

The official statement from the Treasury Dept. said, “At the same time, the United States recognizes South Africa's pressing energy needs and the lack of near-term feasible low-carbon alternatives.”

The New York Times reported via Climate Wire that opposition to the loan in Congress came from Sens. Patrick Leahy (D-Vt.) and John Kerry (D-Mass.), and Rep. Barney Frank (D-Mass.)  They cited "serious concerns" in a letter to World Bank President Robert Zoellick and called for clean-energy portfolios in South Africa.

Zoellick reportedly responded with a five-page letter defending the plant.  He wrote that coal makes up less than 3% of the institution's lending.  He asserted that South Africa and other developing countries “deserve to increase energy supply” and must be able to use the cheapest and most abundant fuel source which is coal.

Foreign Policy Magazine put the issue in a nutshell. It wrote April 7:

“Governments are struggling with the task of shifting their economies onto a cleaner, less carbon-intensive trajectory, and the World Bank, with its dominant position in shaping developing-country economies, could be a critical tool in that effort.”

The magazine made a point of comparing the output of the coal plant to “five nuclear plants,” which sets the stage for asking why Obama’s “abstention” vote didn’t mention it.

Running room for coal projects

The Obama administration did not bring up the nuclear energy option in its objections to the World Bank decision. Instead, the administration lodged a series of complaints which hinged on the principle that the deal has too much “dirty fuel” and not enough “renewable or clean energy development.”  The World Bank countered that in addition to the $3.75 billion for the coal plant, it is also loaning South Africa $750 million for renewable/clean energy projects.

President Obama silence on the nuclear energy option, despite having granted $8.3 billion in Federal loan guarantees for twin new reactors in Georgia in February, gives the World Bank running room to continue its ban on funding new nuclear plants in countries like South Africa.

Nuclear energy equals power without gases

The controversy is a collision between advocates of control of greenhouse gases to slow down global warming and those who do not want the environmental concerns of the major powers to stand in the way of indigenous development. The key to providing the power without the gases is nuclear energy.

The Chinese are reportedly now setting up to build new 1,200 MW reactors at a blistering pace of just 50 months. A South African new power station providing 4,800 MW of electricity using carbon emission free nuclear energy could be built in four-to-six years once the necessary approvals were in place. That’s not much longer than the construction period for a similar size coal-fired plant.

South Africa had to cancel tenders for new nuclear power plants in 2008 because it could not obtain funding from international lending institutions for the plants. According to the World Nuclear Association, in 2007 Eskom, the state-owned electric utility that provides most of the power in South Africa, approved a plan to build 20 GWe of new nuclear capacity. The first units providing 4 GWe, roughly the same amount of power as the coal plant approved by the World Bank last week, would enter revenue service in 2016. The remainder of the reactors would be completed by 2025.

Areva and Westinghouse were short-listed in the bidding process. Both firms made promises for development of local manufacturing and supply chain facilities in South Africa to address the need for jobs. However, in December 2008, Eskom cancelled the bidding process due to lack of funds.

Eskom expected to pay for the new nuclear reactors through a combination of steep rate increases, government money, and private financing. The government refused to allow Eskom to raise rates. Then the global financial crisis hit leaving the project and the government with insufficient revenue to attract private capital.

French President Sarkozy calls for change in lending policies

The World Bank has long resisted offering loans for nuclear energy projects. In response, there is new pressure from one of the world’s leading developers of new reactors.  Just last month French President Nicolas Sarkozy (right) said the World Bank and other international lending institutions need to change their policies. 

Reuters reports that in a speech at an international conference in Paris, Sarkozy said March 7 that the members of the World Bank must “eliminate the ostracism of nuclear energy in international financing.”

In what could be seen as anticipating the current controversy about the South African coal project, Sarkozy said:

“I do not understand why international financial institutions and development banks do not finance civil nuclear energy projects. The current situation means that countries are condemned to rely on more costly energy that causes greater pollution.”

The mechanism of change, Sarkozy said, is to allow carbon credits to be applied to nuclear power plants. He complained that “outdated ideology” blocks their use for this purpose despite being available for other forms of “decarbonized energy.” He called on the World Bank to make the change by 2013.

World Bank unlikely to change soon

Despite Sarkozy’s high-profile speech, the Financial Times reported March 8 the World Bank said it has no plans to change the policy banning loans for new nuclear reactors. According to the newspaper, Richard Morier, a spokesman for the World Bank, said the reason is nuclear reactors are “still not the least-cost option.”  He noted the bank last financed a nuclear reactor in Italy in 1959.

However, the World Bank is a creature of its member countries which contribute the funds for its loans.   Morier also said the bank would “re-examine its policy” if enough of its members demand it. He added that the World Bank is aware of the growth of the global nuclear energy market.

Projected growth in nuclear energy projects

According to the World Nuclear Association, globally nuclear energy is expected to grow in substantially in 10 key countries by 2030. The World Nuclear Association outlook data for a conservative scenario indicates these countries account for more than 116 GWE or four-fifths of the predicted growth in nuclear energy.  Another 43 GWe are expected to be developed by 2030 in countries that don't have reactors now.  These countries would be prime candidates for World Bank loans.

Paradoxically, had the World Bank included nuclear energy in its portfolio of energy technologies for South Africa, it might have encountered other forms of opposition to the loan. Anti-nuclear groups in the U.S., and members of Congress, who come from the same “green” ranks as those who opposed the coal plant, would have lobbied just as hard against a loan to South Africa for nuclear reactors.

A bank with global reach has leadership responsibilities

The World Bank sees itself as being justified in its logic of approving coal-fired electricity generation to help South Africa get back on a solid economic footing as soon as possible. However, that isn’t leadership on a global scale. Real leadership would require forethought and looking ahead to slowing the growth of CO2 in the atmosphere.

It is clear that the decision was also driven by ideological blinders on that date back to its policy against nuclear energy loans set down in 1996. A global institution cannot lead by looking in the rear view mirror.

Nuclear energy is growing as the default choice for new carbon emission free electricity generation worldwide, but you’d never know it reading the missives from the money mandarins at the World Bank.