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Why coal is the best way to power South Africa's growth

By Pravin Gordhan
Monday, March 22, 2010; A17

Today, the South African economy is two-thirds larger than it was in 1994, when Nelson Mandela took office as the country's first democratically elected president. With this growth has come strong new demand for electricity. Millions of previously marginalized South Africans are now on the grid. Unfortunately, as in other major emerging economies, supply has not kept pace.

Reserve margins are increasingly tight -- too tight for an energy-intensive economy such as South Africa's, whose mines and factories rely on steady supplies of competitively priced power. South Africa has weathered the global downturn better than many richer countries, but the majority of our people remain poor and unemployment stands at an unacceptable 24 percent. To sustain the growth rates we need to create jobs, we have no choice but to build new generating capacity -- relying on what, for now, remains our most abundant and affordable energy source: coal.

Because this is not the most auspicious time for our energy utility, Eskom, to be looking to finance a $50 billion capital program, we are approaching sources of funding we have hitherto left untapped, including the World Bank, the African Development Bank and the European Investment Bank. But our application for a $3.75 billion World Bank loan faces stiff opposition. A strong body of opinion holds that multilateral development banks should be discouraged from funding coal-burning power projects with carbon dioxide emissions that contribute to climate change. We share this concern but, after careful consideration, have concluded that the course we have chosen is the only responsible way forward.

The bulk of the loan, or just over $3 billion, will go toward the construction of a 4,800-megawatt power station at Medupi in South Africa's Limpopo province. This plant, the first of its kind in Africa, will use some of the most efficient, lowest-emission coal-fired technology available. The rest of the loan, $745 million, will be invested in wind and concentrated solar power projects, each generating 100 megawatts, and in various efficiency improvements.

South Africa takes climate change and the need to reduce fossil fuel emissions extremely seriously. Working with Brazil, India and China, we helped to craft the compromise that saved December's United Nations climate change conference in Copenhagen from ending in deadlock. In thanks, Sen. John Kerry (D-Mass.), chairman of the Senate Foreign Relations Committee, called us and our partners "the four horsemen of a climate change solution."

At home, we are taking concrete action that will push our carbon emissions 34 percent lower in 2020 than they would have been otherwise and 43 percent lower in 2025, with net reductions kicking in 10 years after that. We are using every tool at our disposal -- legislative, regulatory and fiscal -- to promote clean and renewable energy and manage demand.

If there were any other way to meet our power needs as quickly or as affordably as our present circumstances demand, or on the required scale, we would obviously prefer technologies -- wind, solar, hydropower, nuclear -- that leave little or no carbon footprint. But we do not have that luxury if we are to meet our obligations both to our own people and to our broader region whose economic prospects are closely tied to our own. South Africa generates more than 60 percent of all electricity produced in sub-Saharan Africa. Tight supplies are not just a problem for us. Our neighbors Botswana, Lesotho, Namibia, Swaziland and Zimbabwe all rely on Eskom for their electricity. They face the same growth constraints that we do. Their factories and businesses, hospitals and schools, and their ability to provide basic services all depend on Eskom-generated power.

A question that has to be faced is whether stunting growth prospects in our region will in any way serve the goal we all share of eliminating greenhouse gas emissions over the long term. Whatever paths we take toward that goal, whether shifting to renewables and nuclear, or finding ways to keep harmful gases out of the atmosphere once created, the journey will inevitably be costly, requiring massive investments in technology, research and re-engineering the ways in which we live and do business. It will also require a true spirit of consensus and collaboration.

Neither of these requirements will be well served by hampering the transitional measures that developing countries like ours need to take to get themselves on sustainable growth tracks and generate the resources they need to play their part in preserving our planet.

The writer is South Africa's finance minister.

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