“Keep the Coal in the Hole!” - Critics of World Bank financing for Eskom announce global “No Coal Loan” campaign

21 Feb 2010

LOCATIONS: (simultaneous)

Durban: International Convention Centre, 45 Bram Fischer Road

Washington: Sierra Club headquarters, 408 C St NE

DATE:              Monday, 22nd February 2010

TIME:              4pm South Africa time, 9am EST (Washington)

SPEAKERS:

These and dozens of other civil society organisations will announce a global campaign against the World Bank and Eskom, endorsed by dozens of civil society organisations, with the intention of preventing a $3.75 billion loan (possibly $4 billion) that would dramatically raise South Africa’s world-leading carbon emissions and the price of electricity to ordinary people. The organisations represent millions of concerned citizens, community, environmental, labour and academic constituencies, in South Africa, the rest of the African continent and the world at large.

For more information:

Bobby Peek
+27-82-464 1383 (cell)
+27-33-342 5662 (landline)
bobby@groundwork.org.za

 BACKGROUND

The World Bank is trying to lend $4 billion to the Johannesburg-based parastatal Eskom, the world’s fourth largest power company and Africa’s largest carbon emitter (with 40% of South Africa’s total emissions). The loan is mainly to finance the world’s fourth most CO2-intensive power plant (Medupi, in the Waterburg).

The Bank also aims to finance privatised power generation, notwithstanding the abject failure of public-private partnerships in South African infrastructure, including electricity and water.

The loan would fly in the face of the Bank’s attempt to portray itself as climate-friendly financing, and will generate a vast, unnecessary debt – both a financial debt to South Africa’s poor and also an expanded climate debt owed by South Africa to the rest of Africa, for overusing its fair proportion of the continent’s CO2 carrying capacity.

For communities near the coal fields (40 new mines are requested by Eskom to supply its new generators) and coal-fired stations, the externalised costs imposed by Eskom are extremely high, including the complete degradation of water sources, air pollution, a frightening rise in mercury associated with coal, and other health burdens.

The loan is being pursued at a time of intense controversy surrounding Eskom mismanagement. In its last annual reporting period, the company lost R9.7 billion ($1.3 bn) mainly due to miscalculations associated with hedging aluminium prices and the SA currency.

Both the chairman and chief executive office lost their jobs late last year amidst unprecedented acrimony.

Meanwhile, Eskom continues its giveaway prices - the world’s cheapest electricity, heavily subsidised by all other users - to several large export-oriented metals/mining multinational corporations (headquartered in London, Melbourne, Luxembourg and Zurich, where profits flow, thus exacerbating SA’s dangerously high international payments deficit), dating to scandalous late-apartheid-era, multi-decade ‘Special Pricing Agreements’ deals.

These deals should be rejected as odious, and as recently as August 2009, Eskom leaders publicly admitted that they would have to be reconsidered – but they haven’t been. In early 2008, repeated national blackouts finally led to cuts in supply to some of these firms, showing that the deals could legitimately be violated. Moreover, the crash of metals and minerals prices dramatically lowered demand.

Demand-side management – a tried and tested alternative which the World Bank claims to endorse (but hasn’t considered in this case) - would mitigate the need for new power plants. Moreover, South Africa’s massive renewable energy potential has not even begun to be tapped. Eskom was given responsibility for rolling out more than a million solar-powered hot water heaters over three years, and after two years, can claim only a thousand.

Having lost the vast majority of South Africans’ trust, Eskom began raising prices by more than triple the inflation rate in 2008. From 2009 to 2012, the price of a month’s normal electricity use in an ‘average township household’ is anticipated to rise from R360 ($47) to R1000 ($132), according to Eskom. These price increases will have an extreme adverse impact, leading to a major increase in disconnections (and illegal reconnections, hence electrocutions) of poor households, that can best be described as ‘underdevelopment’.

Ironically, the World Bank and its hired-gun ‘Expert Panel’ (which reported on February 18th) insist that the proposed Eskom loan will have a ‘developmental’ impact. The civil society coalition vigorously object that the core problems listed above were downplayed or simply ignored in Bank staff and Panel research, and we therefore question both their competence and climate/poverty commitments.

The Bank is in an untenable position, as it soon releases a new Energy Policy and also campaigns to take on additional responsibilities for channeling finance related to climate change. The proposed Eskom loan should disqualify the Bank from any further role in climate-related activities.

Critics insist that if the Bank intends to raise $180 billion in new capital from member groups prior to the Bank/IMF Spring meetings in late April, it will have to shelve this loan, because the world’s citizens will object that this represents business as usual financing at a time energy transformation is increasingly urgent.

 In turn, the National Energy Regulator of South Africa - which is due to issue its statement on the proposed Eskom tariff hikes on Wednesday, February 24th - will have to go back to the drawing board and recalculate a fair rates increase for Eskom - without its expensive and unnecessary World Bank loan.

In addition, the national budget announced by Finance Minister Pravin Gordhan on February 17th will have to be rejigged, because a large proportion of it is reliant upon foreign financing; of South Africa’s 2010 anticipated inflows, a substantial amount was expected from the Bank.

Critics are gaining momentum:

In sum, this is a company that can be fairly described as a poor credit risk.

Dozens of organisations across the world have committed to oppose the World Bank’s proposed Eskom loan. They are contacting the Executive Directors of the World Bank from each country to demand a ‘no coal loan’ vote at any director’s meeting at which the loan is tabled. In advance of the Bank’s recapitalisation efforts, the critics are ready to take even more vigorous action against the Bank itself - including revival of the “World Bank Boycott“ which cost the Bank support from many major bondholders over the past decade (including the world’s largest pension fund, the city of San Francisco, the Calvert Group, and university and church endowment funds).

For the sake of environmental justice, the surrounding communities, the citizenry, the workers, Eskom customers and the continent of Africa (and all other sites affected by climate change), the Bank will have no choice but to withdraw this loan. Eskom will then have no other choice but to negotiate an appropriate energy mix and financing strategy with constituencies they have so far ignored.

CURRENT LIST OF ENDORSEMENTS: (21 February 2010)
South African Organizations
African organisations:
Global