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

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.

"The thing came to a standstill," said Inger Andersen, the World Bank's director for sustainable development in Africa. "Hospitals were in blackout, schools couldn't function. This had a severe impact on confidence in the country, on the investment climate and on human development."

Rising rates have also brought the issue home for South Africans, even though a quarter of households receive subsidies to protect the poor. COSATU has threatened to call strikes over the rate hikes, complaining that big industries pay lower rates than individuals. (Zoellick said in his letter that the same was true in the United States and Britain.)

Mark Swilling, a professor at Stellenbosch University, says that the South African government is torn between conflicting goals of keeping electricity prices low enough to spur exports needed for growth -- and to get the foreign exchange needed to repay the World Bank loans -- and the desire to keep electricity prices high enough that new innovative companies will emerge to finance future power projects. Eskom, one of the world's 10 largest utilities, dominates the sector. But the government wants to promote new black-owned enterprises.

Swilling says that, without a new coal plant, South Africa could develop its own renewable energy industry, echoing the call for "green jobs" in the United States. "The World Bank loan will suppress the need for innovation thus destroying what really drives growth and job creation," Swilling said in an article this week in the Cape Times. He is urging the bank to give greater support to concentrated solar power plants, which could draw on South Africa's sunny weather in dry parts of the country.

Zoellick said in his letter that concentrated solar plants would cost three times as much as coal-fired plants.

But Patrick Craven, national spokesman of the COSATU labor federation, said, "Empirical evidence shows that while it is cheaper to produce electricity from coal now, it is going to be costly in the medium to long term. The inverse is true in relation to the renewable sources of energy; they will become relatively expensive initially but cheaper in the long term."

"The World Bank now faces a choice," said a report last month by the Center for American Progress. "As the governors and shareholders of the bank begin to defend their financing choices for power projects and solicit more resources to do their work they must decide whether this remarkable institution will be put at the service of the larger project of reducing carbon pollution or whether it will become an obstacle to it."

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