World Bank approves loan for coal-fired power plant in South Africa

By Reuters
Friday, April 9, 2010

The World Bank on Thursday approved a controversial $3 billion loan for the development of a coal-fired power plant by the South African state utility Eskom despite lack of support from major shareholder countries.

The United States, the Netherlands and Britain said they abstained from supporting the loan because of environmental and other concerns about the project.

Eskom has defended the development of the 4,800-megawatt Medupi plant in the northern Limpopo region, saying it is critical to ease the country's chronic power shortages as well as to ensure electricity flows to neighboring states.

The World Bank said the loan would help "South Africa achieve a reliable electricity supply." In addition to the $3 billion loan for the coal plant, the World Bank approved $750 million in financing for renewables and energy-efficiency projects.

"Without an increased energy supply, South Africans will face hardship for the poor and limited economic growth," Obiageli Ezekwesili, World Bank vice president for Africa, said in a statement.

The U.S. Treasury said it abstained because of "concerns about the climate impact of the project and its incompatibility with the World Bank's commitment to be a leader in climate change mitigation and adaptation."

The Treasury also said the project was inconsistent with guidelines the Obama administration issued in December on coal-related lending by development banks. It said that although it recognized South Africa's pressing needs, it was concerned the project would produce "significant" greenhouse gas emissions.

A Dutch Foreign Ministry spokesman cited concerns that Eskom was not doing enough to develop alternatives to coal. Britain's Department for International Development said the project raised "several sensitive and potentially controversial issues" that it couldn't resolve because of an election campaign.

The opposition to the Eskom loan has raised eyebrows among some observers, who note that Britain and the United States are allowing development of coal-powered plants at home even as they raise concerns about those in poorer countries. The South African plant is using the same technology used in the United States and other developing countries to lower carbon emissions.

The Environmental Defense Fund called the bank's decision a setback. "This was a missed opportunity for the U.S. and the World Bank to move away from a traditional focus on fossil-fueled growth and toward a new model of low-carbon economic development," said Peter Goldmark, director of the fund's climate and air program.

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