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South Africa: Momentum against climate-destroying World Bank loan grows

By Patrick Bond, Durban

March 16, 2010 -- In an indication that the climate justice movement is broadening, deepening and going local, there is now intense opposition to a climate-destroying energy loan for South Africa. The campaign is led by community activists in black townships allied with environmentalists, trade unionists and international climate activists.

The World Bank is trying to lend nearly US$4 billion to the Johannesburg-based state-owned electricity utility Eskom, the world’s fourth-largest power company and Africa’s largest carbon emitter (with 40% of South Africa's total emissions). The loan is mainly for constructing the world-s fourth most CO2-intensive coal-fired power plant, Medupi, in the ecologically sensitive Waterberg area north of the capital of Pretoria.

The World Bank also aims to finance privatised power generation, notwithstanding the abject failure of public-private partnerships in South African infrastructure, including in electricity and water. More than 200 organisations have signed up in protest.

The loan would fly in the face of the World Bank's attempt to portray itself as a climate-friendly financer, and will generate a vast, unnecessary debt -– both a financial debt to South Africa's poor and also an expanded climate debt owed by South Africa to the rest of Africa, for overusing its fair proportion of the continent's CO2 carrying capacity.

For communities near the coalfields (40 new mines are requested by Eskom to supply its new generators) and coal-fired stations, the externalised costs imposed by Eskom are extremely high, including the complete degradation of water sources, air pollution, a frightening rise in mercury associated with coal and other health burdens.

Poor pay for multinationals' cheap power

The loan is being pursued at a time of intense controversy surrounding Eskom mismanagement. In its last annual reporting period, the company lost R9.7 billion (US$1.3 bn), mainly due to miscalculations associated with hedging aluminium prices and the South African currency. Both the chair and chief executive office lost their jobs late last year amidst unprecedented acrimony.

Meanwhile, Eskom continues its giveaway prices to several large export-oriented metals/mining multinational corporations, headquartered abroad -- offering the world’s cheapest electricity, heavily subsidised by all other -- mainly poor -- users in South Africa. The two main beneficiaries are BHP Billiton of Melbourne, which runs aluminium smelters, and the notorious Anglo American Corporation, which shifted its financial headquarters to London a decade ago.

Thus mining/metals profits flow abroad, exacerbating South Africa's dangerously high international payments deficit.

Activists argue that the scandalous late-apartheid era, multidecade "special pricing agreements" deals with BHP Billiton and Anglo American should be rejected as "odious". In early 2008, repeated national blackouts finally led to cuts in supply to some of these firms, showing that the deals could legitimately be violated. Moreover, the crash of metals and minerals prices dramatically lowered demand.

Demand-side management -– a tried and tested alternative which the World Bank claims to endorse (but hasn't considered in this case) -- would mitigate the need for new power plants. Moreover, South Africa's massive renewable energy potential has not even begun to be tapped. Eskom was given responsibility for rolling out more than a million solar-powered hot-water heaters over three years, and after two years, can claim only 1000.

Price increases for poor

Having lost the vast majority of South Africans' trust, Eskom began raising prices by more than triple the inflation rate in 2008. From 2007 to 2012, the price of a month's normal electricity use in an "average township household" is anticipated to rise 127% in real terms, according to Eskom. These price increases will have an extreme adverse impact, leading to a major increase in disconnections (and illegal reconnections, hence electrocutions) of poor households, that can best be described as "underdevelopment".

Ironically, World Bank staff insist that the proposed Eskom loan will have a "developmental" impact. The civil society coalition vigorously object.

The World Bank is in an untenable position, as it soon releases a new energy policy and also campaigns to take on additional responsibilities for channeling finance related to climate change. The proposed Eskom loan should disqualify the World Bank from any further role in climate-related activities.

Critics insist that if the World Bank intends to raise $180 billion in new capital from member groups prior to the World Bank/International Monetary Fund Spring meetings in late April, it will have to shelve this loan, because the world's citizens will object that this represents business as usual financing at a time energy transformation is increasingly urgent.

Opposition is gaining momentum:

  • Communities and environmentalists have begun to protest the Eskom loan, including at the firm’s Durban headquarters on February 16.
  • The main manufacturing trade union in South Africa, the National Union of Metalworkers of South Africa, announced its opposition to the loan on February 18. Other trade unions have threatened strikes against the price hikes and Eskom's labour practices.
  • The Pan African Climate Justice Alliance, which had the highest African profile at the December 2009 Copenhagen Climate Summit, has endorsed the no-loan demand, on grounds of environmental damage.
  • The South African Council of Churches, which played a key role in criticising the World Bank due to its apartheid financing, has also expressed opposition to the loan.
  • Eskom is suffering an upsurge of illegal electricity connections in communities, as prices become prohibitive.

In sum, this is a company that can be fairly described as a poor credit risk.

Dozens of organisations across the world have committed to oppose the World Bank's proposed Eskom loan. They are contacting the executive directors of the World Bank from each country –- including Australia’s representative, James Hagan, who was visited by South Africans earlier this week –- to demand a "no coal loan" vote at the April 6 meeting at which the loan will be tabled.

In advance of the World Bank’s recapitalisation efforts, the critics are ready to take even more vigorous action against the bank itself -- including revival of the "World Bank Boycott" which cost the bank support from many major bondholders over the past decade (including the world’s largest pension fund, the city of San Francisco, the Calvert Group and university and church endowment funds).

For the sake of environmental justice, the surrounding communities, the citizenry, the workers, Eskom customers and the continent of Africa (and all other sites affected by climate change), the World Bank will have no choice but to withdraw this loan. Eskom will then have no other choice but to negotiate an appropriate energy mix and financing strategy with constituencies they have so far ignored.

Please send messages opposing the World Bank loan to:

Executive director, Mr. James Hagan, Australian representative to the World Bank

Telephone: USA 202-458-1015

Fax: USA 202-477-2007

Email: jhagan@worldbank.org

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