Today the World Bank (WB) will make a decision on whether or not to provide $3.7 billion worth of loans to South African – based power utility Eskom, the world’s fourth largest power company and Africa’s largest carbon emitter (with 40% of South Africa’s total emissions).  Spotty electricity supply which have caused billions of pounds of damage to South Africa’s economy in the past two years is the main reason for the loans, which would finance the the world’s fourth most CO2-intensive power plant, pumping out an estimated 25 million tonnes of carbon dioxide a year into the atmosphere.  As is expected, various environmental protection groups including Greenpeace, Friends of the Earth and Christian Aid argue that the risk to the world’s climate from the plant’s emissions outweighs the benefits of the secure electricity it would supply.  African civil rights groups also have protested the proposed loan which,  but the biggest surprise may come from the United States, one of the largest shareholders in the WB.  The U.S. has has enacted guidelines to push for “no or low carbon” ways of meeting the energy needs of developing nations that rely on international financial institutions.  If the United States abstains from voting on the proposed loan, or all out opposes it we may see a decision being rendered against coal-powered generation, ironically by a nation that derives half it’s electric power from coal.  And so some very fundamental questions come out of the woodwork, lets dive in shall we?

Eskom issues

Eskom is a South African electricity public utility, established in 1923 as the Electricity Supply Commission (ESCOM) by the government of South Africa in terms of the Electricity Act (1922). 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.  The utility is the largest producer of electricity in Africa, is among the top seven utilities in the world in terms of generation capacity and among the top nine in terms of sales.  Eskom is not adverse to controversy in regards to its pricing structures, environmental degradation and power supply.  As points out, the loan is being pursued at a time of intense controversy surrounding Eskom mismanagement. In its last annual reporting period, the company lost $1.3 billion mainly due to miscalculations associated with hedging aluminium prices and the SA currency.  Both the chairman and chief executive office lost their jobs late last year amidst unprecedented acrimony.  Meanwhile, Eskom continues its giveaway prices – the world’s cheapest electricity, heavily subsidised by all other users – to several large export-oriented metals/mining multinational corporations (headquartered in London, Melbourne, Luxembourg and Zurich, where profits flow, thus exacerbating SA’s dangerously high international payments deficit), dating to scandalous late-apartheid-era, multi-decade ‘Special Pricing Agreements’ deals.  These deals should be rejected as odious, and as recently as August 2009, Eskom leaders publicly admitted that they would have to be reconsidered – but they haven’t been. An example of these ‘Special pricing Agreements’ can be found in a deal that Eskom signed with BHP Billiton, an aluminum manufacturing and export company, in the 1990’s.  Essentially, they link the price that BHP Billiton’s smelters – in Richards Bay and Mozambique – pay for their electricity to the dollar price of aluminium. The crash of metals and minerals prices dramatically lowered demand. 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. 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 a thousand.  Having lost the vast majority of South Africans’ trust, Eskom began raising prices by more than triple the inflation rate in 2008. From 2009 to 2012, the price of a month’s normal electricity use in an ‘average township household’ is anticipated to rise from $47 to $132, according to Eskom. These price increases will have an extreme adverse impact, leading to a major increase in disconnections (and illegal re-connections, hence electrocutions) of poor households, that can best be described as ‘underdevelopment’. The WB in considering this loan is rejecting the advice from its own independent advisory panel’s recommendations – the 2004 World Bank Extractive Industries Review – which called on the Bank to phase out fossil fuel projects.

For the WB to provide upwards of $4 billion to a company so horribly mismanaged that its own government would not provide funding to it is absurd.  Also the lack of any sustainable solution to South Africa’s energy crisis is disconcerting.  If the WB wants to shape the development of infrastructure in nations like South Africa it has to abide by a policy that falls in line with its major contributors and shareholders, basically that coal plants shouldn’t be built.  The fact that the situation is ripe with hypocrisy is not lost on anyone,  the United States is heavily dependent on coal, but the Obama administration also raises that the transition away from coal-powered generation or more sustainable coal-powered generation i.e. carbon capture and sequestration, is long overdue.  Thus a massive push to invest in nuclear has been made by Obama.  The arguement that the developed world has no business denying poor people access to life and liberty, on account of the environment, has been used and will continue to be touted as basis for ‘Socialist control tactic’ hysteria theories.  I don’t think it holds water here.  South Africa has a power problem,  they want money to fix it.  But the option they are proposing is rife with potential corruption, and environmental hazards.  The World Bank should deny this loan,  listen to reason and ask Eskom to come back to the table with another option.  Maybe the WB should consider providing loans for nuclear power, which in the long run is a much better option for the South Africans.



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