Why are SA's big four banks financing a new coal power plant that risks becoming a stranded asset?
South African’s big four banks are financing a new coal-fired power station in the Waterberg. This is despite the fact that a 2016 report by the Council for Scientific and Industrial Research (CSIR)has found that including any new coal in South Africa’s energy mix would be unnecessary, and more expensive. Moreover, building any new coal-fired power stations effectively means that South Africa would be unlikely to meet its climate change commitments under the Paris Agreement.
On 25 November 2016, Thabametsi Power Company (Pty) Ltd gave notice to interested and affected parties of its application to the National Energy Regulator of South Africa (NERSA), for a licence to operate 557.3MW of a 1200MW proposed coal-fired power plant near Lephalale, Limpopo, under the Coal Baseload Independent Power Producers Procurement Programme.
Earthlife Africa Johannesburg (ELA), represented by the Centre for Environmental Rights, has instituted review proceedings in the High Court in August 2016 to have the environmental authorisation for this power plant set aside. ELA contends that the environmental authorisation was granted without any serious consideration of the climate change implications of the new coal-fired power plant, and on the basis that the plant would use a significant amount of water in a drought-stricken part of the country.
South Africa has recently ratified the Paris Agreement, committing to pursue global efforts to limit temperature increases to well below 1.5°C, a decision which makes a rapid move away from the burning of coal essential. South Africa is particularly vulnerable to the impacts of climate change. The CSIR found that having 70 percent renewables by 2040 was not only technically feasible, but also the cheapest option for South Africa by R90 billion per year by 2040, even without taking into account the carbon tax.
Thabametsi is only scheduled to be commissioned in 2021, and plans to burn coal well past the year 2025 (by which date South Africa has committed in its Nationally Determined Contribution(NDC), to peak its carbon emissions). There is therefore a very real risk that Thabametsi will not be able to operate for its full expected lifespan, and will become a stranded asset.
Why are big SA banks investing in new coal?
Thabametsi’s application to NERSA cites the following banks as among those financing the project:
- Standard Bank;
- Rand Merchant Bank (part of FirstRand Bank); and
- Development Bank of South Africa (DBSA).
Speaking for the Life After Coal/Impilo Ngaphandle Kwamalahle Campaign (consisting of the CER, ELA and groundWork), attorney Nicole Löser said that the campaign was alarmed to see SA’s big banks committing to the financing of a project which entrenches South Africa’s reliance on coal for decades to come – in circumstances where the burning of coal is a primary cause of climate change, and has far-reaching and devastating effects on the environment and on human health. “We need to ask why big South African banks are investing in new coal projects like Thabametsi when the outcomes appear to be binary: new coal will either mean that we are unlikely to meet our climate change obligations under the Paris Agreement, or projects like this will have to cease operating, and become stranded assets,” says Makoma Lekalakala from Earthlife Africa Johannesburg (ELA).
“It appears that the banks have either not done a proper risk assessment, or they simply don’t care about the implications of climate change,” says Robyn Hugo, head of the CER’s Pollution & Climate Change programme.
Why is the PIC investing the UIF’s money in new coal?
According to the NERSA application, shares in Thabametsi Power Company (Pty) Ltd are held 49% by offshore entities, and 51% by onshore entities, of which 21% is to be held effectively by the Unemployment Insurance Fund (UIF). This fund is a statutory entity established in terms of the Unemployment Insurance Fund Act, 2001. According to Thabametsi, as at 30 September 2015, the UIF had existing committed investable capital amounting to approximately R2.3 billion, which is managed by the Public Investment Corporation (PIC).
“The UIF provides relief to people who have lost their jobs or are no longer able to work due to circumstances such as illness. Is it appropriate to invest these funds in a project that could end up a stranded asset?” asks Bobby Peek, director of groundWork. “Furthermore, how can a statutory entity like the PIC invest funds of another statutory entity in a way that will put South Africa in a position where it cannot meet its international obligations? The PIC should also be taking into account the significant detrimental health impacts that this investment will have on surrounding communities.”
Comments on the NERSA application are due by 9 December 2016. However, given the woefully-inadequate timeframe for consideration and comment by interested and affected parties, CER has been granted an extension to 10 January 2017. Other members of the public are encouraged to make written submissions and to participate when the public hearings on the application are scheduled.
The Life After Coal Campaign:
- Centre for Environmental Rights: firstname.lastname@example.org; email@example.com
- Earthlife Africa Johannesburg: firstname.lastname@example.org
- groundWork: Bobby Peek email@example.com
 The offshore entities are Axia Power Holdings B.V. (24.5%) and Korea Electric Power Corporation (24.5%).
 The onshore entities are Blue Falcon 253 Trading Proprietary Limited (21%); Jenzoprox Proprietary Limited (15%); Business Venture Investments No 1879 Proprietary Limited (10%); and Mandlalex Proprietary Limited (5.0%)
 Blue Falcon 253 Trading (Pty) Ltd which has 21% equity in Thabametsi Power Company (Pty) Ltd, is 100% owned by the UIF.
 Details of the other shareholder companies are available in the application (pages 15 to 17).