21 April 2010
The World Bank last week approved a $3.75 billion loan to South African’s energy suppliers Eskom to help build Medupi power station, a 4,800 MW coal-fired power plant in Lephalale in the Waterberg. The campaigning of Jubilee Scotland and other agencies meant that the UK did not support the vote, but their abstention is far from an adequate response to this huge loan which promises little in the way of pro-poor impact.

Eskom continually forces unaffordable annual price increases for customers, it plans to sell the bulk of the power from the coal plants to industrial clients at deep discounts, while charging residential customers three to five times more for the remaining power. By making this decision, the World Bank has shown, quite clearly, that it does not support transparency in lending and does not have South Africa’s long-term interests at heart.

In a statement announcing the loan's approval, the World Bank stressed how the loan "aims to benefit the poor directly, through jobs created…and through additional power capacity to expand access to electricity." This ignores the significant debt burden it ensures for South Africans. James Picardo from Jubilee Scotland commented; “this loan - the biggest in the World Bank's history - will mean a significant rise in energy prices for the poorest South African homes. It is yet another illustration of the inadequacy of the World Bank as a vehicle for the UK's international development strategy.”

As the loan is dollar based, this means that South Africa not only has a significant repayment risk in terms of currency exchange rates (if the Rand weakens to the dollar, the size of this loan will increase) but is also now forced to earn foreign currency to pay back this loan. The result will be a further entrenching of an export-orientated economy in raw materials; an economic model that has consistently failed, for the last hundred years, to eradicate poverty in the country. Essentially, the World Bank loan will come at a high cost in the decades to come.