Oil Report

UPDATE 3-World Bank approves controversial Eskom loan

* World Bank approves loan for South African coal plant

* U.S., Netherlands, Britain withhold support

* World Bank: project will ensure reliable energy supply (Recasts with decision)

WASHINGTON, April 8 (Reuters) - The World Bank on Thursday approved a controversial $3.75 billion loan for the development of a coal-fired power plant by South African state utility Eskom despite the lack of support from major shareholder countries.

The United States, the Netherlands and Britain said they abstained from supporting the loan because of environmental and other concerns about the project.

Eskom has defended the development of the 4,800 megawatt Medupi plant in the northern Limpopo region, saying it is critical to ease the country’s chronic power shortages as well as to ensure electricity flows to neighboring states.

The World Bank said the loan would help “South Africa achieve a reliable electricity supply.”

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

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.”

A Dutch Foreign Ministry spokesman said it had advised its representative at the World Bank to abstain, citing concerns that Eskom was not doing enough 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,” a ministry 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.


The U.S. Treasury said the project was inconsistent with U.S. 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 that while it recognized South Africa’s pressing needs, it was concerned the project would produce “significant” greenhouse gas emissions.

It also said it did not expect the World Bank to bring forward similar coal projects for middle-income countries “without a plan to ensure there is no net increase in carbon emissions.”

Britain’s Department for International Development said the project raised “several sensitive and potentially controversial issues” that it had been unable to resolve due to an election campaign.

The opposition to the Eskom loan has raised eyebrows among observers who note that Britain and the United States are allowing development of coal-powered plants in their own countries even as they raise concerns about those in poorer countries.

The South African plant is using the same so-called clean coal technology used in the United States and other developing countries to lower carbon emissions.

The Environmental Defense Fund called the bank’s decision a setback.

“This was a missed opportunity for the U.S. and the World Bank to move away from a traditional focus on fossil-fueled growth and toward a new model of low-carbon economic development,” said Peter Goldmark, director of the Environmental Defense Fund’s climate and air program. (Reporting by Lesley Wroughton; Editing by Dan Grebler)