World Bank approves loan for Eskom coal plant

By Lesley Wroughton

WASHINGTON (Reuters) – The World Bank on Thursday approved a controversial $3.75 billion loan to develop a coal-fired power plant in South Africa despite the lack of support from the United States, Netherlands and Britain.

The countries, all major donors to the World Bank, said they abstained from supporting the loan for South African state power utility Eskom due to environmental and other concerns.

Eskom has defended the 4,800 megawatt Medupi plant in the northern Limpopo region, saying there is no immediate alternative to easing the country’s chronic power shortages and ensuring power supplies to neighboring states.

It is the first World Bank loan approved for South Africa since the end of apartheid in 1994.

“Without an increased energy supply, South Africans will face hardship for the poor and limited economic growth,” said Obiageli Ezekwesili, World Bank vice-president for Africa.

The U.S. Treasury said it abstained due to “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.”

It urged the World Bank to increase its support for clean energy projects and cautioned that it should not propose similar coal projects in middle-income countries without a plan that ensures there is no net increase in carbon emissions.

A Dutch Foreign Ministry spokesman said it had advised its representative at the World Bank to abstain, citing concerns that not enough is being done to develop alternatives to coal.

“The Netherlands believes Eskom is doing relatively too little to develop alternatives to coal, so we don’t think this is a good proposal,” the spokesman told Reuters.

“We also understand that South Africa is in need of extra energy capacity to support its economic growth. Therefore, the Netherlands has advised our (executive director) for our constituency to abstain,” he added.

World Bank board decisions are arrived at through consensus among member countries rather than through voting, and countries can indicate their lack of support by abstaining from discussion of the issue.

Asked what message the abstentions sent to the Bank, Ezekwesili noted that while countries abstained they did not oppose the project through a “no” vote.

“It was a signal by the board that it supports the Bank engaging in balanced development of power to help deliver urgently-needed electricity to countries like South Africa… while concurrently charting a path toward a greener energy future,” she told Reuters.

GREENING OF ECONOMIES

The U.S. Treasury said the project was inconsistent with guidelines issued in December by the Obama administration on coal-related lending by development banks.

It said the project was also incompatible with the World Bank’s strategy to help countries pursue economic growth and poverty reduction in ways that are environmentally friendly.

The Treasury said while it recognized South Africa’s pressing energy needs, the project would produce “significant” greenhouse gas emissions and there was uncertainty future efforts to mitigate them.

The UK Department for International Development said the project raised “several sensitive and potentially controversial issues” that it was unable to resolve due to an election campaign in Britain ahead of a May 6 vote.

The opposition to the Eskom loan has raised eyebrows among developing countries who note that Britain and the U.S. are allowing development of coal-powered plants in their own countries even as they raise concerns about others.

The controversy over the Eskom loan goes to the heart of the divides between the developed and developing countries over tackling climate change. Both camps failed to seal a new climate agreement in Copenhagen in December due to differences over emissions targets and who should pay for poorer nations to green their economies.

The South African plant is using the latest so-called clean coal and carbon storage technologies available on the market, which is used by most rich countries to limit the environmental impact of burning coal.

Environmental and development groups slammed the World Bank decision, calling it a setback for development.

“This was a missed opportunity for the U.S. and the World Bank to move away from a traditional focus on fossil-fueled growth,” said Peter Goldmark, director of the Environmental Defense Fund’s climate and air program.

At a press conference, Greenpeace and the World Wildlife Federation in Turkey noted that the World Bank continues to invest far more in fossil fuels than in renewable energy [PDF], pointing out that from 2007 to 2009 the Bank doled out, on average, three times more public money for climate destroying fossil fuel investments than for environmentally sustainable, climate smart renewables.

A handful of World Bank staffers tried to disrupt this message, arguing about the NGO figures and handing out press releases about Bank lending for renewable energy.

[W]when you take the energy efficiency projects, the so-called low-hanging fruit, out of the equation, you’re left with a disturbing fact: for the fiscal years ending in June 2009, the Bank’s lending for actual power generation still favored fossil fuels over renewables ($1.9 billion versus $1.4 billion).

The World Bank remains heavily in denial about the coal, oil, and gas projects it continues to subsidize with low interest loans in the developing world, most often with devastating social, economic, and climate effects.

“The IFC has a portfolio worth some $2 billion in the oil and gas sector globally, of which 20 percent was in sub-Saharan Africa or a little less than $400 million, said Dorabawila.

“We definitely would like to have that increase… Africa is a focus area,” he said.

Over the last three years for which we have final figures (FY06-08), just one third of our financing was for fossil fuels. Of that, most was for natural gas –the cleanest of them. Coal financing represented less than 10 percent of our total energy financing worldwide, and only 4.1 percent of all Bank Group financing that year.

Furthermore, many leaders in developing countries would argue that any increase in funding for coal projects is a good thing. It means that hundreds of thousands of poor people in developing countries will finally have access to electricity. It means that hospitals can function safely, schools can operate fully, and factories can operate efficiently, creating jobs and building an economy.

For the World Bank, it also means that we are finding ways to help countries move on to lower carbon growth paths. The coal projects we help to finance follow our stringent environmental and social safeguard policies, as well as our strict guidelines on which fossil fuel projects to finance.
Mr. Lang and others seem to make the all-too-frequent erroneous assumption that developing countries have to choose between economic growth and poverty reduction or environmental protection. We think they can – and should – have both, and that is why we work with them to find the best ways to achieve these win-wins.

So isn’t is about time that the World Bank stopped funding coal-fired power stations? In 2008, as I’m sure you know, World Bank lending for coal increased by 256 per cent.

But the World Bank is not only increasing its lending for coal projects, it is also promoting carbon markets which will allow pollution in the North to continue: “The World Bank is in the forefront of facilitating the development of market‐based financing mechanisms and piloting new avenues to deepen the reach of the carbon market,” as Tony Whitten notes in his blog post.

Check it out at http://eapblog.worldbank.org/content/convenient-solutions-to-an-inconvenient-truth-how-old-fashioned-conservation-helps-deal-with

-James

(Full disclosure: I work with Tony on his blog)