2010-04-09
JOHANNESBURG (Reuters) - South Africa on Friday welcomed a decision by the World Bank to grant Africa's biggest economy a controversial $3.75 billion loan to develop a coal-fired power plant to boost flagging power supply.

The loan -- the first World Bank loan for South Africa since the end of apartheid in 1994 -- was approved despite the lack of support from the United States, Netherlands and Britain, which abstained mainly due to environmental concerns.

South Africa, which is battling a chronic power shortage said it would address the concerns raised over emissions. The country is reliant on coal for 95 percent of its electricity supply, and is the worst emitter on the continent.

South Africa's national grid suffered a near collapse in early 2008, costing the country billions of dollars in lost output across all sectors as Eskom enforced rolling blackouts.

The loan will finance the Medupi power station -- Eskom's first such plant in more than two decades -- and the country's first large wind and concentrated solar power projects.

Medupi is part of several new power stations planned to boost generation capacity to satisfy fast-rising power demand.

"This (loan) will ensure the country's economic development objectives remain on track and that security of electricity supply is restored," the Treasury said in a statement.

The loan rate is at 6 month LIBOR + 0.5 percent fixed margin and a variable spread of 0.24 percent, to be reset semi-annually. The maturity is 28.5 years with a grace period of 7 years, the Treasury said.

TARIFFS

Energy Minister Dipuo Peters said last month South Africa -- which increased power tariffs in February -- may have to raise electricity prices further if it did not secure the loan.

Analysts said without the loan, South Africa would have faced a far steeper climb towards energy security.

"Since the country has not constructed any new base load power stations since the mid-1980's and hence is faced with ageing infrastructure, it is critical for energy security that Medupi is completed as soon as possible," Frost & Sullivan's energy analyst Cornelis van der Waal said van der Waal said.

State owned power utility Eskom has said it plans to invest 461 billion rand to boost generating capacity and diversify away from coal-fired power station.

Eskom has defended the 4,800 megawatt Medupi plant in the northern Limpopo region, saying there is no immediate alternative to easing the country's chronic power shortages and ensuring power supplies to neighboring states.

The utility said the approval of the loan cleared the way for the full construction of the Medupi power station, which is expected to produce its first power by April 2012 when the first of six 800 megawatt units will be commissioned.

"We are very pleased that the World Bank has agreed with our planning and granted this substantial loan," Eskom's Acting Chairman, Mpho Makwana, said.

He reiterated the electricity system would be "critically tight" between 2011 and 2012, until new generation capacity kicks in.