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South Africa's poor to pay for dirty World Bank loan

By Patrick Bond, Durban

April 14, 2010 -- Just how dangerous is the World Bank and its neo-conservative president Robert Zoellick to South Africa and the global climate? Notwithstanding South Africa's existing US$75 billion foreign debt, on April 8 the bank added a $3.75 billion loan to South Africa's electricty utility Eskom for the primary purpose of building the world's fourth-largest coal-fired power plant, at Medupi. It will spew 25 million tons of the climate pollutant carbon dioxide into the air each year. [For more background go to http://links.org.au/node/1570.]

South Africa's finance minister Pravin Gordhan has repeatedly said that this is theWorld Bank's "first" post-apartheid loan, yet the bank's 1999 and 2008 Country Assistance Strategy documents show conclusively that Medupi is the 15th credit since 1994.

Gordhan also claimed the loan will now help South Africa "build a relationship" with the bank. He forgets the bank co-authored the African National Congress (ANC) government's neoliberal 1996 Growth, Employment and Redistribution (GEAR) program, which led us to overtake Brazil as the world's most unequal major country, as black people's incomes fell below 1994 levels and white people's incomes grew by 24 per cent, according to official statistics.

Gordhan neglects that the World Bank itself regularly brags about its "knowledge bank" role here. In 1999, for example, after economist John Roome suggested to then water minister Kader Asmal that the government impose "a credible threat of cutting service" to people who cannot afford water, the bank's Country Assistance Strategy reported that its "market-related pricing" advice was "instrumental in facilitating a radical revision in South Africa's approach". As a result, the cholera epidemic the following year -- catalysed by water disconnections -- killed hundreds.

Similar misery will follow the Eskom loan. Medupi will be built in a water-scarce area where communities are already confronting extreme mining pollution. Forty new Limpopo and Mpumalanga coal mines will be opened to provide inputs to Medupi and its successor, Kusile.

ANC conflict of interest

More worryingly, power-plant construction plans include a pay-off of $135 million profit for the ANC, whose investment arm owns a quarter of Hitachi, which received a $5 billion Eskom contract. So blatant is the conflict of interest that the government's public protector last month judged Valli Moosa -- then chair of Eskom and an ANC finance committee member -- to have acted "improperly". Official embarrassment is acute, especially since the World Bank issued a major report, Quiet Corruption, just weeks ago. This is a prime case.

The potential sale of the ANC's share in Hitachi within the next six weeks (announced and then retracted) doesn't really mitigate matters, given Medupi's huge cost escalations (from $5.5 billion to $18 billion) and the increased value of Hitachi's shares thanks to the improper, corrupt contract.

Five dozen SA civic, environmental, church, academic and labour organisations began a campaign against the World Bank loan in February. They are concerned not only that catastrophic climate change will be hastened, along with privatisation of electricity generation, but worse, Medupi's main beneficiary will be the world's largest metals and mining corporations, which already receive the world's cheapest electricity thanks to multi-decade deals cut in the last years of apartheid. In early April, a small modification was made to one sweetheart "Special Pricing Agreement" -- but it was to BHP Billiton's "advantage", the Melbourne-based company reported.

Medupi's vast costs will mainly be passed on to people who cannot afford to pay the loan, through a 127 per cent electricity price increase over four years. Protests against service delivery deficits make South Africa among the world's most dissent-rich countries and the Congress of South African Trade Unions (COSATU) is threatening a national strike against Eskom that may well last into the soccer World Cup, which starts on June 11.

Bond boycott

South African civic groups and their 140 international allies now say they will start financial punishment of the institution, harking back to the World Bank bonds boycott campaign launched by the late poet-activist Dennis Brutus exactly a decade ago.

In response to Brutus's call, the city of San Francisco and other municipalities pledged not to buy World Bank bonds. Scores of major financial institutions and endowment funds followed suit, including the world's largest pension fund, TIAA-CREF, whose annual meetings Brutus visited on three occasions.

With the focus now broadening to include climate, San Francisco supervisor Ross Mirkarimi reacted angrily to the Eskom financing: "The loan provides sobering proof that the World Bank's recent talk about its commitment to climate finance was nothing but a bunch of hot air. We will renew our commitment to keep our clean money from being tarnished by investment in the bank's coal-dirtied bonds."

Neo-con boss

To understand why the bank took this huge risk -- with major shareholders like the US and European countries abstaining from voting -- requires insights into its leader, Zoellick. A major player in the "war on terror", Zoellick served as number two at George W. Bush's State Department and then in 2007 replaced World Bank president Paul Wolfowitz, who was fired by the bank board for arranging a plush State Department job for his girlfriend.

Like Wolfowitz, Zoellick was at the outset a proud member of the neo-conservative think tank, the Project for a New American Century, and as early as January 1998 went on record arguing that Iraq should be illegally overthrown. In the same period, Zoellick also worked for Fannie Mae, Enron and Alliance Capital, all of which effectively went bankrupt.

From 2001-05, Zoellick was the US trade minister, and his bumbling at the 2003 Cancun ministerial summit confirmed the World Trade Organization's subsequent demise. And just prior to becoming World Bank president, Zoellick was a top executive at Goldman Sachs, widely blamed for amplifying the 2008-09 global financial crisis.

Zoellick's efforts promoting the World Bank as lead climate financier at the December 2009 UN Copenhagen climate summit were equally unsuccessful, and the bank's backing of carbon markets has now now widely been decried as a lost cause.

Zoellick has broken many things in his career, and having now granted Eskom the $3.75 billion loan, he can add to his belt some new notches: the budgets of poor and working South Africans who will suffer the demise of their electricity budget, local ecology, national democracy and the climate.

[Patrick Bond directs the University of KwaZulu-Natal Centre for Civil Society in Durban.]

Comments

COSATU demands to see conditions to Eskom’s World Bank loan

Patrick Craven, COSATU, 9 April 2010

COSATU has noted the decision by the World Bank to grant a $3.75 billion loan to Eskom for its Medupi power station project and related renewable energy commitments.

COSATU has consistently argued that Eskom and the government should have found alternative ways of raising the money for capital expenditure on new power stations, rather than its succession of massive tariff increases, which are crippling poor households, who pay more per unit that the rich big users who get big, sometimes secret, discounts.

The federation will not therefore oppose loans in principle, as they are one legitimate alternative source of revenue. We agree however with the National Union of Mineworkers’ call on both the government and Eskom to make public all the conditions attached to this World Bank loan.

As the NUM says: “Quite often these kinds of loans come with stringent conditions".  Indeed the World Bank has a notorious record of using conditional loans, particularly to developing countries, to impose their neoliberal agenda and demand privatisation and opening up of markets to big multinational companies.

COSATU shares the NUM’s concern that “the conditions attached to this loan must not open up our energy sector to global competitors who will roll back our desire to electrify all households in South Africa and that they will not impact negatively on empowerment policies”.

The federation needs to be certain that there are no conditions which could lead to any form of privatisation, including the introduction of independent power producers into the industry and ending Eskom’s monopoly in electricity generation. Should there prove to be any such strings, COSATU will oppose the loan.

We remain opposed to privatisation of the country’s basic infrastructure. In Eskom’s case it will inevitably lead to even higher tariffs, retrenchments and worse service, as the new owners are driven only by the need to maximise their profits.

Bank approves Eskom loan

The United States, the Netherlands and the UK all abstained from supporting the coal-powered project because they were concerend with the impact it would have on the environment.

The World Bank asserts that this plant would ease power shortages in South Africa and throughout the southern Africa region. "I really believe the World Bank shouldn’t be financing coal in South Africa or any other country particularly because they have a stated position on climate change and sustainable development ," Melita Steele, Climate and Energy campaigner for Greenpeace Africa tells RFI from Johannesburg.

Steele says the World Bank should be investing in large scale renewable energy projects in countries like South Africa, and it would be easier to handle due to the short time scale for renewable energy developments.

ANC's snout in the Eskom trough

ANC stake in Hitachi splits party
KARIMA BROWN
Business Day: 2010/04/14 06:47:30 AM

DAYS after African National Congress (ANC) treasurer- general Mathews
Phosa promised the party would sell its stake in Hitachi Power Africa,
it has become clear that the party leadership is divided on the issue
and unable to confirm whether any such sale will, in fact, take place.

The party stands to make a profit of about R1bn on a R38bn contract
Hitachi has to supply boilers to Eskom’s new Medupi power station in
Limpopo.

The party’s investment trust, Chancellor House, has a 25% stake in Hitachi.

Although the arrangement patently constitutes a deep conflict of
interest, a strong body of opinion within the leadership is holding out
for the money.

Phosa is the only senior figure publicly opposed to continuing with the
Chancellor House stake in Hitachi.

But Phosa may be isolated.

He promised almost two years ago that the ANC would deal with the
conflict of interest — but it still has not.

Former North West premier and businessman Popo Molefe, who is also
chairman of Chancellor House Trust, through which the ANC benefits from
Chancellor House investments, was vague and noncommittal yesterday about
Phosa’s pledge to sell the Hitachi stake.

After conflicting reports about the disinvestment from Hitachi, Phosa
referred queries to Molefe when asked for clarity yesterday.

Phosa was quoted in Engineering News as saying: “The chairman of the
trust (Popo Molefe) has been briefed (about the planned sale), and there
is consensus between us and him.”

But Molefe disagreed with Phosa. “In short, I can’t speak for a company
called Chancellor House,” he said.

“I don’t know what authority they (ANC secretary-general Gwede Mantashe
and Phosa) have, because I have no trust deed that says I manage the
trust of the ANC,” he said.

Molefe said the trust, as a shareholder in Chancellor House Holdings,
could not decide whether to disinvest from Hitachi. The board of
Chancellor House had to make that decision.

The contradictory statements also hint at the murkiness of the ruling
party’s business dealings.

Molefe was annoyed at having to field questions about the vexed
relationship between the ANC and Chancellor House and Phosa’s statement.

“I was a politician once. I resigned from politics.” Molefe said. “I was
a premier, Phosa was a premier. He and Gwede (haven’t) come to me to
talk about these issues…. I don’t want them to communicate to me through
the Business Day.”

Molefe also appeared puzzled about why Phosa had referred matters to
him, and said: “If Mr Phosa has said things, I can’t solve it for him. I
don’t know what authority they have.”

Mantashe said at a media briefing yesterday that the ANC did not discuss
where Chancellor House invested, and that the party left those matters
to its board .

“Where Chancellor House invests is the business of the governing board
of that company,” he told reporters.

At the weekend, opposition parties welcomed news that the ruling party
was to sell its 25% stake in Hitachi Power Africa within six weeks, but
they demanded to know how much the ruling party would earn from the sale
of its stake.

Both the Democratic Alliance and the Independent Democrats lobbied World
Bank shareholders and the World Bank to refuse to make Eskom a 3,75bn
loan if the ANC was to benefit.

It was argued that the ruling party should not benefit financially from
a capital project funded by the taxpayer.

The bulk of the World Bank loan will be used to finance the construction
of Medupi.

ANC U-turn on shares

By DOMINIC MAHLANGU, MARCIA KLEIN and KEA MODIMOENG, TIMESLIVE, 14 April 2010

 The ANC made yet another U-turn on its ownership of shares in a company benefiting from contracts with state-owned utility Eskom.

Just days after ANC treasurer-general Mathews Phosa announced that the ruling party would be disinvesting from Japanese-owned Hitachi Power, party secretary-general Gwede Mantashe said only the board of Chancellor House can make such a decision.

Chancellor House, named after the building in Johannesburg from which former ANC leaders Nelson Mandela and Oliver Tambo operated as lawyers in the 1950s, is the investment arm of the ruling party.

The investment company owns a 25% stake in Hitachi Power - the company that was awarded a R38.5-billion contract to build boilers at Eskom's Medupi power station.

Commenting on Phosa's statement to the Sunday Times that Chancellor House would be selling off its stake in Hitachi Power within six weeks, Mantashe said such a decision cannot be taken at Luthuli House as the Chancellor House board of directors operated independently of the ANC.

He said: "The debate whether we are going to sell the stake will continue for some time . I don't think it's an issue that must be taken at Luthuli House, because you have a company that has a board.

"That decision must be taken at that level, rather than at our level because that's the right thing to do.

"If we begin to manage the investment company from Luthuli House it is likely to be inefficient, but if it is run by its management team under the guidance of the board, it will take proper decisions depending what is the interest of the company," Mantashe said.

The ANC has been strongly criticised for holding a stake in Hitachi Power, particularly after the country had to go cap in hand to the World Bank for a massive loan to help Eskom build the power station and relieve the power crisis.

Critics believe the ANC has set itself up to be a major beneficiary of the crisis.

Chancellor House managing director Mamatho Netsianda told a business magazine on Monday that the company would not sell its 25% stake in Hitachi Power.

Netsianda could not be reached for comment.

When Phosa was contacted, he referred The Times to former North West premier Popo Molefe, who chairs the board of trustees of Chancellor House.

Phosa had said earlier that Molefe was briefed about the sale and that consensus had been reached.

Molefe would say only that companies have directors and managing directors who deal with matters such as these, before he referred The Times back to Phosa.

Mantashe said the ANC took a decision to invest in companies in 1995 when donor funding for the ruling party was drying up.

NUMSA response to Eskom's secret deals

NUMSA RESPONSE TO ESKOM’s SECRET DOSSIER!

21 April 2010

The National Union of Metalworkers of South Africa (Numsa) fully backs Eskom’s initiated agreement with global mining giant BHP Billiton to unwind a special pricing arrangement that saw Eskom selling nearly a 10th of its output at a loss.

The imperialist companies BHP Billiton and Anglo American signed clandestine deals with Eskom in the past decade, guaranteeing the two imperialist owned companies the supply of cheap electricity at a price of 12cents per kilowatt-hour for most of the lifespan of aluminum smelters built on the basis of the contracts.

This clandestine or secretive deal was nothing less than stealing from the poor to benefit the rich. The unwinding of the agreement by Eskom will not ease the burden currently faced by the workers and the poor as a result of high cost of electricity and pending tariffs hikes recently approved by Nersa.

We demand Eskom to unwind the agreement in the interests of the workers and the poor. This should be done through halting or stopping the approved tariffs hikes by Nersa.

Castro Ngobese
National Spokesperson

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