HomeIndustry SectorsFinance and PolicyEskom's World Bank loan is subject to conditions

Eskom’s World Bank loan is subject to conditions

Finance Minister
Pravin Gordhan
25 June 2010 – Eskom’s World Bank loan is subject to conditions on combating corruption and mitigating the impact of greenhouse gas pollution, Finance Minister Pravin Gordhan says.

Gordhan revealed in reply to a parliamentary question that the World Bank agreed to apply retroactive financing for components of Eskom’s new Medupi power plant that were procured prior to the approval of the US3.75 billion loan (R28.6bn) in April.

“The bank agreed to apply retroactive financing… subject to Eskom’s procurement policy substantively complying with the World Bank procurement procedures and inclusion of the World Bank’s standard reporting requirements on fraud and corruption,” he said.

The bulk of the loan, US3.05 billion, is to go towards the construction of the coal-fired Medupi plant in Limpopo.

This raised concerns that the ANC’s investment arm, Chancellor House, would benefit from the loan through its 25% share in Hitachi Power Africa, which holds a contract to supply boilers for the plant.

Democratic Alliance leader Helen Zille met with United States ambassador Donald Gips to lobby against the World Bank granting an unconditional loan to Eskom to finance its massive infrastructure expansion programme.

Zille argued that providing the loan would aid and abet corruption, because of the unacceptable involvement of the ANC in the boiler contract.

Public Enterprises Minister Barbara Hogan has denied that World Bank money will go towards the boilers “The World Bank loan does not cover the Hitachi contract. It is completely separate from the boiler,” she told reporters.

Hogan has backed a call by Gordhan for the ANC to “do the right thing” by divesting from Hitachi Power Africa, a subject that appears to have divided top officials in the ruling party.

In his parliamentary reply, Gordhan said the World Bank also demanded that Eskom install flue gas desulpharisation equipment in each of the six generation units at Medupi “in order to mitigate for the environmental impact of coal-based generation”.

It also stipulated that the government was obliged to ensure that there was a sufficient water supply for the plant.

Environmental pressure groups lobbied against the loan, arguing that it would encourage the use of coal, and the US Treasury Department declined to vote for it, citing concerns about the climate impact of the project.

The South African government has underwritten the loan in terms of a guarantee framework agreement of R176bn given to Eskom in 2009.