WORLD BANK:

South Africa wins $3.75 billion coal loan

The World Bank yesterday approved a $3.75 billion loan to help South Africa build one of the world's largest coal-fired power plants, a decision long expected but bitterly fought from the streets of Durban to the halls of the U.S. Congress.

The loan to Eskom Holdings Ltd., South Africa's state-owned utility company, will allow the company to move forward with a 4,800 megawatt power plant north of Johannesburg. Environmental groups condemned the loan, calling the Medupi power plant a disaster for climate change that will enrich industry while keeping poor South Africans condemned to energy poverty.

World Bank leaders, meanwhile, took pains to highlight provisions boosting wind and solar energy development. They argued the loan -- the first to South Africa for since the fall of apartheid 16 years ago -- will strengthen the country's economy and raise living standards for the poor.

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

The South African government said the plant will provide much-needed baseload capacity to the country, ensuring "economic objectives remain on track and that the security of electricity supply is restored." South Africa faces frequent blackouts as a result of its failure to invest in new generating capacity in more than two decades.

In many ways the Medupi debate underscored the broader struggle to determine what responsibilities fast-growing countries should take on in the effort to reduce global greenhouse gas emissions. South Africa and others like China and India insist their economies must be allowed to grow as industrialized nations did, and note that coal remains the cheapest and most abundant fuel source available. The onus of cutting carbon, they argue, lies mainly with the West.

Environmental activists who traditionally take up the cause of developing countries this time insisted that South Africa must set itself on a cleaner energy path. Yet their top villain was the World Bank, which green groups accused of undermining its own effort to become a major player in financing climate change adaptation and mitigation efforts.

"I think it's pretty clear the World Bank is telling the people of South Africa that they're not taking their commitments to alleviating poverty and climate change seriously," said Mark Kresowik, corporate accountability and finance representative for the Sierra Club's 'Beyond Coal' campaign.

Abstainers: U.S., U.K., Netherlands, Italy

The United States, which is the World Bank's largest shareholder, withheld its support for the loan by abstaining. Also abstaining were the Netherlands, the United Kingdom and Italy. Several Scandinavian countries represented in a bloc by Norway voted to approve the loan. Norway, however, issued a separate statement noting it would have preferred to abstain.

In a statement released just as the 24-member World Bank board started to debate the Eskom loan behind closed doors, the U.S. Treasury Department issued a statement saying its abstention "reflects 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."

Still, the United States noted, it "recognizes South Africa's pressing energy needs and the lack of near-term feasible low-carbon alternatives."

Environmentalists who had urged the United States to vote against the plant slammed the decision to abstain. Kresowik accused America of "throwing its vote away ... throwing its influence away." Many argued the vote was incompatible with a December guideline the Obama administration issued directing U.S. directors of multilateral development banks to discourage coal loans.

In Norway, Per-Ivar Nikolaisen, spokesman for the Forum for Environment and Development criticized his country's decision to go along with the board vote, despite its misgivings.

"This must be the last time such a polluting project can be financed through the World Bank. Norway and other donors must ensure that the World Bank develops regimes which prevent projects that contribute to climate change," he said. Nikolaisen, like many other activists, is pressing the bank to eliminate all lending for fossil fuel energy projects.

Construction on the Medupi plant already is under way, and initially was envisioned as an enterprise that would be funded by the South African government and with private investments. The global economic crisis and declining private investment left the project short, though, and brought Eskom to the World Bank for assistance.

Developing countries stand with South Africa

The project drew scant attention in 2008 when it won a $500 million loan from the African Development Bank, a decision from which the U.S. also abstained. But by the time it came before the World Bank, climate change had claimed a central role on the world stage, and Western nations had made public commitments to change the world's trajectory toward clean energy development.

South African leaders, though, mobilized to see the loan through in a steady stream of phone calls, op-eds in leading newspapers and personal visits to members of Congress, the Obama administration and top officials in key donor countries.

One World Bank official said the pressure from South Africa in the weeks leading up to the vote was enormous. Executive directors from donor countries like the United Kingdom -- sensitive that it might be accused of blocking economic development -- were still thrashing for a position on the Eskom project as late as Wednesday.

"You could see they were wrestling on the telephone with London all day," the official said. The U.K. released a statement yesterday explaining its decision to abstain by noting that British law does not allow the government to make any new or potentially controversial decisions until after its election, scheduled for May 6.

A spokesman said the Eskom project "raises several sensitive and potentially controversial issues which it has not been possible to resolve" before the formal pre-election period began on April 6.

The United States also had been cautious about offending South Africa. Members of the Congressional Black Caucus led by Rep. Gregory Meeks (D-N.Y.) sent a letter to Treasury Secretary Timothy Geithner strongly supporting the plant. A separate set of lawmakers including Sens. John Kerry (D-Mass.) and Patrick Leahy (D-Vt.), as well as Rep. Barney Frank (D-Mass.), raised a number of concerns in a letter to World Bank President Robert Zoellick, but stopped short of opposing the loan.

A senior World Bank official who witnessed Thursday's board vote -- a meeting that occurs twice a week behind closed doors and in which countries are not obligated to disclose their positions to the public -- described the mood as civil. Italy surprised several countries by withholding support for the loan while Dutch leaders, who also abstained, pointed out that the country was not opposed to coal loans "per se," the official said.

Developing countries, meanwhile, "were like a single bloc," the official said, reciting percentages of coal-powered generation in the United States, United Kingdom and other industrialized countries and arguing the West shut down some of its own plants before telling the developing world to slow its growth.

No more, U.S. says

According to the World Bank, $3.05 billion of the loan will go toward completing the Medupi coal plant, which will be equipped with cleaner "supercritical" technology. Another $260 million will go toward piloting a utility scale 100 megawatt wind power project in Sere and a 100 megawatt concentrated solar plant with storage in Upington.

South Africa, meanwhile, vowed to use $1.25 billion of a larger World Bank loan package to reduce emissions at power plants. It also assured countries it stands by a commitment its leaders made at the Copenhagen climate summit last year to peak emissions between 2020 and 2025, plateau and then begin to actually cut carbon output.

U.S. officials said they were "encouraged" by those measures and others. But they also made clear they want this to be the World Bank's final coal battle.

"We expect that the World Bank will not bring forward similar coal projects from middle-income countries in the future without a plan to ensure there is no net increase in carbon emissions," Treasury said in a statement.

Jake Schmidt, international climate policy director for the Natural Resources Defense Council called the directive "a clear shot across the bow to the World Bank that they need to do better in the future. The time is now for this transition that they've been promising."

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