Schism remains as World Bank nears vote on $3B S. Africa loan

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By Steven Mufson
Wednesday, April 7, 2010; 3:18 PM

The World Bank will vote Thursday on whether to lend $3 billion to South Africa's state-owned utility to build a giant new coal plant over the objections of environmentalists and South African trade unions who say the money should be spent on renewable energy projects.

Approval appears likely after World Bank President Robert Zoellick wrote a letter to members of Congress defending the project. He asserted that even after making provisions for the social costs, coal was still "the least-cost, most viable, and technically feasible option" for meeting South Africa's needs.

But one executive director, speaking on condition of anonymity, said some board members were torn between the bank's commitment to slow climate change and the desire to help people in sub-Saharan Africa gain the access to electricity that is needed to lift them out of poverty. The vote of the U.S. executive director could be decisive.

The issue has roiled South Africa, too, where the ruling African National Congress has backed the 4,800 megawatt Merupi coal project while its close allies in the Congress of South African Trade Unions (COSATU) oppose the plan. Critics of the project note that the ANC's investment arm owns a stake in Hitachi, the company that is expected to sell boilers for the new coal plant.

"I see it from two points of view," said Matthew Kuperus Heun, a Calvin College professor who spent the past year teaching engineering in South Africa. "One is the justice point of view. They say, 'Why can't we build coal plants? You guys have been doing it for a century.' And then you look at it from the point of view of what needs to be done for the Earth and for the environment and nobody should be building coal plants anywhere."

The decision is part of a wider debate about World Bank lending. Non-government organizations have been pressing the bank to shrink or eliminate its support for new fossil fuel plants. They say that new coal facilities will lock in carbon dioxide emissions for the 40-year lifespan of the plants.

But the bank believes that in some places -- especially sub-Saharan Africa, where in some countries 90 percent of the people have no electricity -- the priority of reducing poverty might justify some new coal plants. Renewable energy projects tend to be considerably more expensive, bank officials say.

Critics of the bank's energy policies are hoping to gain leverage from the bank's current appeal for additional capital to expand its overall lending. Environmental groups are trying to get support from Congress, which must approve any increase in the U.S. share of the bank's capital. Zoellick's letter was a response to inquiries from Senate Foreign Relations Committee Chairman John F. Kerry (D-Mass.), House Financial Services Committee Chairman Barney Frank (D-Mass.) and Sen. Patrick J. Leahy (D-Vt.), chairman of the Senate Appropriations Subcommittee on Foreign Operations and Related Programs.

The World Bank has already shifted its focus in recent years. Its lending for energy efficiency has increased more than sixfold and on renewables more than threefold since 2007. By 2009, renewable energy and energy efficiency projects accounted for 40 percent of the World Bank's $8.2 billion in energy lending while fossil fuel projects accounted for 24 percent.

The South Africa project could alter that ratio. But the bank also notes that the new giant coal plant will be among the most efficient in the world. Moreover, along with the $3 billion the bank wants to lend to the utility, Eskom, for the coal plant, the World Bank plans to lend $750 million on a variety of related projects including wind and concentrated solar energy, converting coal transportation to rail from road, and rehabilitating and improving the efficiency of old coal plants in South Africa.

But some want the bank to abandon coal lending altogether.

Since the end of apartheid, access to electricity in South Africa has soared from 34 percent to 81 percent, Zoellick said. In 2008, the country suffered from severe power shortages, a result of problems getting coal supplies to power plants but also seen as a result of generation shortages. Eskom, a state-owned utility with 13 other coal plants and a history of financial mismanagement, had done little investment in generation in 20 years. Zoellick said there hasn't been a new power plant built in a decade.

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