2010-04-08
WASHINGTON (Reuters) - The World Bank is set to approve a controversial $3.75 billion loan on Thursday to help South African state utility Eskom develop a coal-fired power plant despite objections from the United States and environmental groups.

Eskom has argued it has no immediate alternative but to develop the 4,800-megawatt Medupi coal-fired plant in the northern Limpopo region to ease chronic power shortages in South Africa and ensure power supplies to neighboring states.

While $3 billion of the loan will fund the bulk of the coal-fired plant, the remainder of the financing will go toward renewables and energy efficiency projects.

"We believe this project is important for South Africa and South Africans and we expect it will be well received by the board," World Bank spokesman Peter Stephens told Reuters.

Arguing that the World Bank should be promoting clean energy sources, the United States is expected to withhold support for the loan at Thursday's meeting of the World Bank board, made up of member countries.

It is unclear whether Britain, which has threatened not to back the loan, will support the project in the end after a recent visit to London by South African President Jacob Zuma in which he lobbied British officials to support the loan.

Regardless of U.S. opposition and possible British opposition, the loan is expected to be approved. The question is whether they attach conditions to the loan that compels Eskom to meet certain criteria on energy efficiency and extending electricity to the poor.

The opposition to the Eskom loan has raised eyebrows among those who note that the two advanced economies 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 "cleaner coal" technology used in the United States and other developing countries to lower carbon emissions.

Meanwhile, environment and development groups stepped up pressure on the World Bank ahead of Thursday's meeting not to finance the project.

In a letter endorsed by 125 organizations, the groups argued that the project will not bring electricity to the poor but will benefit large mining houses and smelters.

In a complaint submitted this week to the World Bank's independent complaint body, the Inspection Panel, on behalf of residents living near the Medupi plant claimed that the project violated World Bank policies.

"This coal loan is not about alleviating poverty or supporting sustainable development and the World Bank has no business making it," environmental group Friends of the Earth said in a statement on Wednesday.

LAWMAKERS' CONCERNS

In a letter to World Bank President Robert Zoellick on March 26, three senior Democrats, including John Kerry, Barney Frank and Patrick Leahy, who chair congressional panels, raised concerns about the loan and the Bank's rationale for supporting a project that will be a major polluter.

They said while developing countries should not be constrained by a lack of access to energy "we cannot ignore the reality that our planet is hurtling toward potentially catastrophic climate change."

The lawmakers said the World Bank loan contract should include a commitment by Eskom to update the Medupi plant with additional environmental protection as new technology becomes available, and should insist that Eskom upgrade the environmental standards of its other power facilities .

In his April 5 response, Zoellick told the lawmakers the World Bank had worked with the South African government to significantly improve the Eskom project over the past year, guided in part through discussions with the U.S. Treasury.

In the letter obtained by Reuters, he said without the new power plant South Africa would face rolling blackouts similar to the ones that crippled its economy in 2008. He said South Africa had taken an "early and strong position" on cutting carbon emissions and scaling up renewable investments.

"We have conducted due diligence on all aspects of the project and have concluded that the projects development and poverty reduction merits, along with the need to support South Africa in meeting its energy crisis, should lead us to submit the project to our board for their consideration," he added.