4 March 2010 - South Africa is seeking international support for a potentially controversial $3.75bn World Bank loan for its hard-pressed electricity industry.

 

According to the Financial Times, the facility has been raised by South African ministers and officials who are in London this week for the state visit of Jacob Zuma, the president. It would assist in funding a new coal fired generating plant, helping to prevent future power shortages, but also increasing the country's relatively high carbon emissions.

 

The state power company, Eskom, has been granted permission for a 25 per cent price increase but the industry regulator turned down its request for a 35 per cent rise. This has increased the need for the World Bank loan to fund the planned expansion of generating capacity.

 

"We really have to go hunting and borrow much more than we would have had to [had the 35 per cent rise been approved]," said Mpho Makwana, the acting chairman and chief executive of Eskom. Eskom is preparing to build two large coal-fired plants. Some $3.1bn of the World Bank money is needed for one of the power stations - a 4800 MW plant at Medupi while the rest would be spent on renewables and energy efficiency projects.

 

South Africa is particularly keen to win support from the UK, as well as other powerful World Bank members such as the US, France and Germany, at a board meeting due early next month. But environmental campaigners argue the project contributes to global warming. In a document published earlier this month, the World Bank said the Medupi station met the environmental criteria for supporting coal projects because it would be equipped with "clean coal" and "carbon capture" technology.

 

In the longer-term, South Africa says that it plans to increase the amount of electricity it generates from hydroelectric and other renewable sources. But its failure to invest in new-generating capacity has left it facing potential shortages of power, after the black-outs of early 2008.

 

Pressure on Eskom eased last year as a result of economic slowdown, with output contracting by 1.8 per cent and a number of energy-intensive metal smelters going out of action.

 

Eskom, which lost its chairman and chief executive last year, had originally suggested a 45 per cent increase in tariffs this year. It was also seeking additional increases in 2011 and 2012, to bring prices closer to international levels. At present South African electricity is among the cheapest in the world.

 

However, pressure from industry, trade unions and consumers made the proposed increases politically controversial. Mining companies, which have already been hard hit by the appreciation of the rand, would have been particularly affected by the price rises.

 

"South Africa aims to supply electricity to all homes within four years and all schools by the middle of this year," the energy department said. "The extent of electricity penetration in the domestic sector is currently about 75 per cent," it said in its three-year strategic plan. "The target date to reach universal access for all formal households is 2012, with informal dwellings to follow by 2014."

 

The government plans to ensure that "clean energy" accounts for 30 per cent of the country's power by 2025. Solar water heaters should be installed in 6m households, a measure that will save 3600 MW of energy, it said. It did not set a deadline for the goal to be met. The government's previous target was to install solar heaters in 1m homes by 2014.