World Bank energy lending causes uproar

15 April 2010

Debate about the World Bank energy portfolio and its impacts on climate change has reached boiling point with hundreds of civil society organisations campaigning against the Bank’s $3.75 billion loan, most of which will finance a new coal plant in South Africa.

In early April the Bank’s board met and approved a loan for Eskom (see Update 65, 64), the South African energy utility, with $3.05 billion allocated to finishing construction of the Medupi coal plant, the fourth largest of its kind in the world. In addition, $440 million will go to a rail project to carry coal from associated coal mines with a mere $260 million for wind and solar power.

The US proved to be the most vociferous shareholder opposing the project, postponing a vote earlier in the year and abstaining in April. It cited concerns about climate change, lack of plans to offset the project’s large emissions and incompatibility with Bank strategy to help countries pursue economic growth and poverty reduction in ways that are environmentally sustainable. During intense debate sparked by the loan in South Africa, concerns were also raised about procurement procedures being inconsistent with Bank guidelines, deficiencies in environmental impact assessment and inadequate efforts to mitigate local pollution. The US further highlighted that the project is inconsistent with its 2009 coal lending guidelines (see Update 69).

The UK also abstained from voting, hiding behind restrictions on major government decisions in the run up to elections. “The UK abstaining at the last minute is a way for government to allow one of the world’s largest coal plants, with significant social and environmental concerns to be built without them dirtying their hands during an election,” said Ruth Davis of Greenpeace UK. The UK has set three-year targets to clean up the Bank’s energy lending portfolio, but these were not cited as a reason for the abstention.

The Dutch, who also abstained, released a policy paper in March laying out targets for reform of the Bank’s energy lending and calling for significant change at the institution. The paper also highlights inconsistencies in the way the Bank reports its investment in renewable energy, finding that more than half of the Bank’s renewable and energy efficiency lending relates to efficiency in fossil fuel energy projects. “The greater part of the Bank’s renewable energy programmes are funded by specific donor funds and are not a structural part of [Bank] energy lending,” concludes the report.

Huge carbon emissions

The Medupi plant will release an estimated 25 million metric tons of carbon dioxide annually, more than the emissions of 115 other countries including Kenya, Luxembourg, Burma and Croatia, according to The Guardian newspaper.

The plant will, for the most part, produce energy for large-scale industrial users that have low cost energy guaranteed. As a result, there are likely to be needed price increases for South African households in order to repay the loan.

Tristen Taylor of Earthlife Africa said that, "with massive disconnections looming due to a doubling of electricity tariffs, a million jobs lost last year, and an effective 40 per cent unemployment rate, one would think that poverty eradication would be foremost in the World Bank and the South African government’s mind. None of Medupi’s output will be for the poor, but will be used to service multinational firms.”

The Bank has defended its support for coal, arguing that scarce publically backed resources are needed to finance the Medupi coal plant in the wake of the financial crisis.

However, South Africa’s finance minister seemed unconcerned in advance of the vote: “South Africa, in 16 years of democracy, never has had to take any loans from the World Bank… If [the loan] doesn’t come through we will cope. This is an opportunity for the World Bank to build a relationship with South Africa.”

Eskom’s draft resource plan has been referenced heavily by World Bank experts evaluating the loan, but it has not been made public, raising concerns about transparency and participation.

Residents complain

Residents located near the site for the Medupi coal plant in South Africa’s Limpopo province have filed a complaint with the Bank’s independent complaint body, the Inspection Panel, highlighting the hidden costs of the project and the burden they will bear in terms of air and water pollution, land degradation and impacts on their livelihoods.

Bank track record

The Eskom controversy casts a shadow over the World Bank’s ongoing energy strategy review (see Update 69, 68, 67). Despite claims of thoroughness and openness, from the start of the consultation process, the Bank has been protective of its coal investments. In Paris in February, at the first energy strategy consultation, Bank energy director Jamal Saghir, stated that the Bank’s controversial approach to energy was not likely to change.

As part of the consultations, a coalition of UK NGOs published a paper in April, proposing a limited role for the Bank focussed on supporting energy access for the poor and demanding a phasing out of fossil fuel lending.

Bank lending to renewable energy is still dwarfed by its fossil fuel investments, according to new research. A paper by NGOs CRBM, Urgewald and the Bretton Woods Project also shows an increase in lending to energy through private financial intermediaries, which is not accounted for in the Bank’s energy lending unless it is specifically for renewables.

David Wheeler, a former Bank economist, argues that the Bank is lagging far behind. “Bank management beware: your institution’s status as a 21st century player is clearly in jeopardy. Your major clients are now investing in clean energy at levels that dwarf your own resources, while you continue to subsidise coal-fired power projects.”