World Bank Loan for Eskom: media briefing by Ministers of Energy and Public Enterprises

Journalist: A million solar water heaters sounded very ambitious. He hoped she would excuse his cynicism but she was talking in the wake of the promise that they would have solar powered traffic lights by this stage and they still did not have them. Did they know yet whether these solar water heaters including the panels would be made here or would they be made overseas? Would they be allowed to come into the country more cheaply than current import duties? Minister Hogan mentioned that Government had stopped a smelter from being built because of energy. Why did they not have a massive every-day-every-hour energy saving program brought on by Government. One was launched last year but that was the last they had heard of it. Was that because campaigns like that did not work? Was there some other reason why they were not having a massive public campaign to get everyone to save electricity?

Journalist: When did the World Bank actually meet at its board meeting to discuss the Eskom loan in question and who were the opponents other than the US within that. What was the US’s main reason for opposing that loan and what engagements were happening with the US around that? The conditionality of the Medupi aspect of the loan - did it suggest that it had to start planning for Flue Gas Desulphurization Technology as well as Carbon Capture Storage. If so at R120bn what was its final price tag adding FGD as well as carbon capture and storage.

Minister Dipuo Peters: On solar water heaters, the Minister of Trade and Industry, in tabling the Industrial Policy Action Plan, indicated the initiatives that Government would be following in ensuring they went the green economy way. One of the key driving platforms that they had identified was the localisation of solar panel manufacturing. They believed that would help South Africa to be able to deal with the challenges of the cost factor. Eskom introduced the subsidy for solar water heating a couple of years ago. The subsidy had been increased but the costs of the panels and the solar water heating systems in the country was so exorbitant that even those whom they thought could afford it, were not taking up the subsidy. So they believed a localisation would be the answer and the way to go. In the next few weeks they would be launching a mass rollout as she had indicated when they tabled the Eskom/NERSA determination. They would launch a program that would then be able to indicate to them the number of panels that they were going to be rolling out in a particular year. For this year they would rely on imports because local manufacturing had not taken off yet. From next year they believed that the production and manufacturing would have happened locally. The Working Group on Solar Water Heating that was also reporting to the IMC (Inter-Ministerial Committee) on Energy was working together with DTI to make sure the panels would be available locally.

Also if they had to invest in concentrated solar power plants they would need a very big type of investment in the manufacturing of the panels going forward. So they believed they were going to make it; in fact the indicators were that they would attain the 1 million long before the five years. They would give the details of that very soon.

On the Energy Saving Program, she agreed that maybe they had a ‘stop and start’ type of campaign on energy saving but it was one of the key programs that through the IMC they were working on and the Minister indicated there’s a stakeholder engagement platform that through the IMC they were developing. They would also be going that route to make sure that they re-launch through the office of the Deputy President who was the chairperson of the National Electricity Advisory Council so as to make it possible that there was a buy in from all stakeholders. They had also indicated the rebate that was being introduced for the intensive energy users so that whatever industry was saving from that aspect would be given the rebates. Including the water heating system was to make sure they were able to go into this Energy Efficiency Program. They had this Save It Program that was run jointly by the Department of Energy and GCIS would be soon launching a massive program, Working for Energy. They believed that in this tariff that had been determined now there was ample space for them to make it possible that they can then displace the use of electricity with alternative methods. The Energy Efficiency Campaign was not only solely determined on the individual utilisation or the individual consumer usage of electricity, but included the appliance being imported to South Africa or manufactured locally were energy efficient. They were working together with the Department of Basic Education so they could introduce materials for teachers to introduce as part of life skills energy efficiency. If they invested in the children they would have a more sustainable energy efficiency program, energy efficiency system where people would grow up understanding and knowing about energy efficiency. For the energy efficiency campaign, they were going to make it possible that it was not only that bar one saw on television that indicated utilisation but that on a daily basis each one of them would be aware they needed to save electricity because the more they saved, the more they would be able to reduce the number of power stations that they needed to build.

Minister Barbara Hogan: Chris Foley, the expert on Carbon Capture Storage, was in our Department and he would like him to answer this more completely on this. The Carbon Capture Storage was not a conditionality of the loan and it was already incorporated into the build and FGD would be developed later.

Chris Foley: If he remembered correctly and he stood under correction but with Medupi, FGD was not a requirement but there were some discussions that it might need to be made FGD ready. Kusile, he believed, was FGD ready and part of the project. Obviously the plants were being made Carbon Capture Storage (CCS) ready. They obviously needed to find places to store carbon in this country.

Minister Barbara Hogan: The World Bank decision was due to be taken early April, around 8 April. At the moment coming out of their visit to the UK, they were not going to be getting significant opposition - that was the mood they were hearing from the British. The Americans were under more pressure and they had indicated to them that they were not going to vote against but they would abstain from voting. They were under pressure from their own lobbies at home in America. The French had indicated they would support. So she knew in the next couple of weeks the decisions would be made. If there was a vote against it, it would the most unfortunate thing that had probably happened to this country in terms of its economy and in terms of developmental need. They could not stress how important it was that they all stood together and actually supported this initiative. This was not just playing around with little ideas about having nice clean energy - it was about gearing this country for moving forward.

Journalist: The latest objection that had gone to the World Bank was the complaint from the ID (Independent Democrats) that there was a conflict of interests between the Chancellor House Holding and Hitachi in the building of Medupi and Kusile and the ANC, the ruling party. Was that something that concerned the Ministers? And with the cancellation of the smelter contract for COEGA, could the Ministers categorically state that they would not be attracting any high energy smelters and business in future?

Journalist: Could the Minister explain what a dry cooled system was and secondly what a flue gas desulfurization process was. Thirdly what a standard retail price was which the 138 industrial companies were paying and fourthly please expand on the statement that the future was going to be nuclear. Minister Peters had said that after this build the future would be nuclear build.

Journalist: Eskom said about 2 weeks ago that they would have to start looking at least at 2017 to start building in nuclear and they were desperately waiting for political decisions to be made on this. Would they start seeing a fast track on these decisions? Was there any more support for Eskom from the Government even if they did not get this World Bank loan?

Minister Dipuo Peters: The future was going to be nuclear, she had indicted that and they all remember that in the press statements and the engagements they had had with the media for the last couple of months they had been indicating that as South Africa, they were busy developing a nuclear plan that would be able to inform or even be considered as part of the IRP2 indicators that they were giving about the different technologies that they would be using. The reason why she indicated that the future was going to be nuclear, if she look at the big other base load for electricity generation for the size of a community or society like South Africa and including if she look at the region through the Southern African power pool, the interconnectivity with the region, they definitely needed a massive base load. And between coal and all other sources they could safely say the next consideration would be nuclear to be able to provide the massive type of base load that they needed.

They were busy engaging on the final consultative processes through the IMC and she had indicated that when that plan was ready it would be tabled in Cabinet and Cabinet would then pronounce itself going forward about the build programme that Eskom would be engaged in. Eskom was correct that everything having been considered, in terms of the timelines that they had set themselves, if everything was in place by 2017, they had between 2017-2020 and that was why they indicated that in IRP2 a nuclear base load would be needed. They would be able to start building one or starting part of the fleet of the nuclear power plants that would be required to make sure that they could safely say to South Africans industry, commerce and household consumers that they had security of supply.

That was their concern - they needed to make sure those who were still sitting, not connecting to the grid needed to hear them say they were busy investigating methods to provide them with an alternative. If they had to really make sure that they meet their own targets for 2020 - they needed to have at least 34% of their carbon reductions, by 2025, 42%. If they went that route it meant they reduced the reliance on coal, what else could they provide. In between now and then the renewable technologies were very expensive and they needed to consider all other factors that were included in this. That was why today actually that question would also help them to even motivate further for the needed and reason why the World Bank must support South Africa in terms of ensuring that they get this loan that Eskom requires. As she indicated earlier on if they did not get this loan they would have to burden the consumers with the responsibility to pay for this massive financial requirement that they need. So it was important that they consider that.

There was a question that had been raised that was related to the issue of conflict of interest having been raised as an issue for the World Bank loan. It had never arise and she did not think that there had been anything that indicated that the individual companies that were suppliers of components through Eskom’s Build had been looked at with a microscope or whatever, she had never heard of that but what she know was that the application was made for the overall build programme not specifically looking at a particular company that had bid to be a supplier for the components of the power stations.

 Minister Barbara Hogan: The cancelation of the COEGA smelter let me not be a politician and say never ever but quite frankly having further smelters in this country just did not make economic sense. It was far too energy intensive for them and that underlines their decision and she would really say that she did not think Government would ever entertain going further on smelters. The standard retail price, did she have the latest one? They did not had the standard retail price but she could went onto the website, the standard retail price for these industrial consumers, NERSA had just published the standard retail price she could went onto it to get that standard retail price. She had said this on many occasions and she think they did needed to stress it again. There was a difference between the prices that was charged to these 138 industrial users and residential users. The issue was that it cost far more to bring electricity to an individual household than it cost to bring to one major factory or one major mine because in your distribution networks she bring power to a certain point and then they take it to every single household and that was why its far more expensive to provide to households than to one point which was a mine and that was why there was a price differentials because the tariffs had to be based on just what were the cost of bringing it. There were also other levies which the industrial users had to use which they were subject to as well which was over and above that tariff she did not know if Chris could speak to that. So that was not the only costs that were incurred by these industrial users. In effect what Eskom told them was that industrial users were charged more than the actual costs of operation and those residential users were charged slightly less then what it costs.

In terms of this comparison between residential and industrial users, part of the costs that a residential user incurs in areas where a municipalities provides the distribution network as suppose to where Eskom provides a distribution network was that municipalities also place a surge charge on electricity so that also increases the charges that went to residential user that were outside of the charges in which Eskom was levying. On this issue of nuclear going forward yes that was a proposal within the IRP but that did not mean that renewable was not part of that mix and she think that was sometimes where the confusion arises was that they were having an energy mix that was a base load going forward on that. In terms of the dry cooled power stations maybe she would like to speak on that.

Chris Foley: On the standard retail price, NERSA approved Eskom’s revenue which was calculated into an average price which was what it traditionally publicised. Eskom then took that revenue on occasion and turned it into tariffs, than instead of tariff classes that it had developed. NERSA also had to approve those and as the Minister indicated one could actually download the tariff booklet off the Eskom website. Now the large industrial customers would probably be on what Eskom calls mega flex and it had different prices for different times of the day. So depending on when one used energy, one could not say what the average was because it would turn out different for different types of customers. If they used everything in the peak and during winter it was also higher and they would pay a lot more for their energy. So that set of tariffs that one could get in Eskom’s tariff booklet was called the standard retail price and it was different for different customers.

When they talk about a dry cool system or station, it was like a car’s radiator. Essentially the power stations that were wet cooled, one would see those huge chimneys that people used to think had smoke coming out. There they used to use a wet cool system where essentially once the steam was heated in the boiler and used to make electricity, then it passed through - like a car radiator - but then they pour water over there to cool it. So you had to cool the steam back into water to use it again. With the dry cool station and if she went out to one of the Matemba or even the Medupi site she would see it looks like a bed of fans, so she still pass your steam that comes out of the boiler through a radiator like a car’s radiator, instead of using water to cool that one uses a big fan to blow air over these radiators. So instead of using the water that becomes steam and gets evaporated, one now uses air so one uses a lot less water. Flue gas desulfurization was essentially the gas that comes out of the chimney of the power station and those were very small stacks, so they remove the sulphur from that gas. He was not a chemist so he did not know all the technology but he did know they used a lot of water in the process. So one was going to take the sulphur out of the gas but now it also increased water consumption again.

Journalist: If one assumed the most unfortunate thing happened and Eskom didn’t get the loan, did this mean Eskom would then reopen the MYPD application process to factor that in? Secondly the long term contracts they were talking about, how long were they talking about? Was it 25 years, 15 years or 100 years?

Journalist: Did the US have veto rights over the Eskom loan decision and why was the US abstaining from voting?

Journalist: Minister Peters, was there or was there not a conflict of interest in the fact that the African National Congress (ANC) company would be a beneficiary of this loan? Was she saying that the World Bank didn’t have the room to consider such a conflict interest in evaluating such a conflict? Was Minister Hogan’s Department happy with the political alignment of some of the suppliers to the Medupi Power Station.

Journalist: Minister Peters said earlier that South African electricity consumers would have to pay more if the country failed to get the World Bank loan. Was that also tied to a possibility of more power cuts as they went forward? Was that a consideration? Secondly there was a mention by President Zuma in the State of the Nation Address of an institution that would basically decide from where to buy power. What had been the progress and when was that likely to come on board?

Minister Barbara Hogan: If they did not get the loan for Medupi? She thought what was also not understood in the public domain, was that Medupi had already been built - it was not like it was a new project. The loan was for the final 25% of the contracting on that - so they were already committed to Medupi. They would have to continue. This was not inconsiderable funding from commercial sources and it was going to ratchet up the costs of this project enormously. It was simply not affordable for South Africa, they were borrowing hugely for their infrastructure build. They had to try in every way possible to bring down the costs of this build and these were the best terms they could get. So the consequences of not getting this World Bank loan were very serious going forward. Would it then lead to blackouts and where they were at the moment in terms of their energy provision? They were at the point that if they did not build significant capacity for the short to medium term, they were going to have continual blackouts. There was not going to be enough energy going forward. The Medupi and the Kusile Power Stations were massive builds. They were the biggest builds on energy in the southern hemisphere. In fact Medupi was the biggest build in the southern hemisphere and it would be quite useful to take the press contingent out to that site. If they did not have that power in their system, they could say goodbye to their economy and to their country. This was how serious this thing was - they were not just talking about adding in an occasional power station to supplement. They were talking about building base load and that was an essential requirement for their economy going forward. That was why this build was so important.

About the USA, the unfortunate thing was that some of the NGOs in this country went abroad to the international NGOs and starting mobilising them against this World Bank loan - sometimes on grounds that did not bring in much factual information. She thought that the USA felt itself very much on the defensive in terms of climate matters, given Kyoto and all of these matters. They were under pressure in Copenhagen. She thought the USA was going the most neutral route available to them and they would abstain rather than voting against.

Minister Dipuo Peters: If Eskom did not get the loan, what did this mean for Medupi going forward? Medupi should be commissioned by 2013 and the biggest challenge would be that there was going to be a delay in commissioning Medupi. This had impact on SA’s economic development but also for its requirement for universal access. It was creating a huge challenge. They had two key policies that drove up the demand, free basic electricity for the poorest of the poor which they were committed to. They said by 2014 they needed to halve poverty and unemployment. How were they going to do it if they did not have access to energy sources, that was one of the areas.

On the issue of the ISO, the process for the establishment of the ISO was moving steadily on. They were at a stage where they were taking the Bill through a governmental consultation processes. The President did indicate in the State of the Nation Address that this was one way of ensuring they could bring on board more of the Independent Power Producers. There was a 30% requirement of renewable energy by 2013 and the number of renewable energy technology or Independent Power Producers that were in South Africa and internationally just waiting on the opportunity to be able to supply their independent systems to be connected to the power purchase agreement. It meant the power was out there and they just needed to get a system to buy it from the people.

The issue of conflict of interest of Chancellor House having a stake in a company that was a service provider or supplier of a component of power stations to Eskom did not arise in the World Bank application. She stood by that statement and she want to indicate here that she believed anybody was at liberty to raise their issues wherever they would want to raise them about challenges of Chancellor House conflict of interest. She want to indicate here that Chancellor House didn’t bid directly to Eskom for the build programme. Chancellor House in terms of her understanding was a partner in a company that had bid and she would believed that the Treasurer General of the African National Congress (ANC) which was a shareholder in Chancellor House was better placed to respond to those questions about the process leading up to Chancellor House, but it was based in Hitachi. Also as Ministers they did not participate in Eskom’s bidding processes or tender processes to influence or direct a particular line that particular tender should be taking. She did indicate that the issues the ID had and the queries about the conflict of interest that Chancellor House had in the build programme of Eskom, it never arose in the processes of engaging with the World Bank. She thought it was important the questions were raised with the relevant role players so that they could be able to answer the questions at the right time.

Minister Barbara Hogan: In relation to the conflict of interest, she pointed to the findings of the report of the Public Protector on this matter. Remember there was an inquiry conducted by the Public Protector to see if there was improper conduct by the former chairperson. Now the actual findings did say that the documentation on the Medupi contracts that was submitted and studied during the investigation clearly indicated that the prescribed procurement process was properly followed. It said that it was impossible for one individual to have influenced a decision in a particular direction that referred to Mr Moosa who was a member of the national executive of the African National Congress (ANC) at the time when he was chairperson of Eskom. Furthermore it said no indication could be found that a decision to award the contract to the Hitachi Consortium was in any way influenced by that chair. The evidence and information obtained during the investigation indicated that the contract would probably had been awarded to the Hitachi Consortium even if Mr Moosa was not a member of the board of directors at the time. Now the following findings they said there was a conflict of interest between the board because he was a member of the African National Congress (ANC) and he was also on the chair of the board. It said that it should have been managed better. The key finding was that the contract that was awarded to the Hitachi Consortium was not in any way affected by Mr Moosa’s conduct and that the awarding of the contract by Eskom to the entity in which the ruling political party had an interest, was not unlawful. They made one important recommendation saying that legislation should be introduced for submission to parliament to regulate the conducting of business between Government entities and political parties. She did not want to enter into discussion on this now because this was not a subject of this matter but she wouldn’t like the issue of the World Bank loan to be subsumed by all of these issues. She just wanted to think through some of these issues. They had unions that had investment companies and they had equity partnerships. Were they now going to say that those companies that had unions as equity partners could not bid. She thought it was a broader debate that they really needed to engage in around whether they were perceived or not perceived conflicts of interest in these circumstances.

Journalist: Minister Hogan, following up on the consequences if the loan did not come through. What was she expecting in early April, was she expecting a positive outcome?

Journalist: Eskom mentioned the date 2013 for Medupi - that was out of line with both the IRP as well as the Eskom schedule of 2012. Could they confirm that Medupi was a year late and secondly the two remaining Special Pricing Agreements (SPAs), could she name who the clients were and give them some feasibility about those contracts.

Minister Barbara Hogan: The other question was about SPAs. They were not trying to be secretive but the companies concerned had international contracts elsewhere in the world and they wanted to manage this contract because whatever happened here would have consequences abroad as well. So they had requested at this stage - that they were in a very advantage stage of negotiations - if these matters could at the moment remain confidential at this stage. They were absolutely confident that they were going to get this World Bank loan, they were determined that they would get this loan. They had been working day and night. They had been putting forward a very determined and professional bid to the World Bank and they were very impressed. She had got a call from Washington the other day saying they were fully behind this loan and they were doing all they could to ensure this loan came through. Everybody realised how important South Africa was for Africa and how important this loan was for South Africa going forward.

Chris Foley: About the announcement on the Kusile, he just had to check because he was not sure - but if it was 2013 was it January or February or was it December? They would have to follow up on that, but it would be part of the process going forward.

COMMENTS BY Ms DIPUO PETERS, MP, MINISTER OF ENERGY OF SOUTH AFRICA REGARDING THE WORLD BANK LOAN: UNION BUILDINGS, 12 MARCH 2010

As you are aware, last month NERSA pronounced on the tariff determination for Eskom which will cover the multi-year period from 2010 to 2013. Pursuant to the power station Build Programme, Eskom has applied to the World Bank for a $3.75bn loan, to finance the building of Medupi coal-fired power station. The World Bank decision on the loan application is due to be considered in April 2010. Certain stakeholders have expressed misgivings about the suitability of the loan application, citing environmental concerns relating to coal-fired power stations. It has therefore become incumbent upon us to clarify certain matters regarding these concerns.

An incorrect impression has been willfully created that South Africa intends to continue building more coal-fired power stations. This is being repeated in an attempt that seems oblivious not only to the impact of such a programme on climate change, but also on the opportunity cost of renewable energy generation. Wide coverage has been given to those who are opposed to the application by Eskom, whilst we are of the view that the silent majority does indeed support our quest to ensure that there is long term energy security for our country and our region. We therefore want to state quite categorically that the completion of the Medupi power station is inevitable, and the acquisition of the World Bank loan should therefore be supported.

We urge our people to appreciate and recognize the role of Medupi in the electricity supply-demand balance in our country. This is also in line with the clean energy programmes that South Africa has voluntarily adopted in our quest to reduce greenhouse gas emissions and consequenetly mitigate the negative impact of climate change.  We wish to put the South African power station program into perspective.
Firstly, the South African supply-demand situation requires that a base load power station be commissioned by 2013. This will be done in order to avoid black-outs and its consequent negative economic impact. It was in anticipation of this possibility that Medupi Power Station construction commenced in 2007. This power station will satisfy the South African power demand as well as that of the Southern African Power Pool (SAPP). Without Medupi being completed, the consequences for our sub-region will be dire as a result of the shortages that will ensue.

The loan application will make Medupi a reality, given the attractiveness and timeous availability of the funding. Without the World Bank loan, South Africa will not be able to meet its power needs and this will hinder the kind of economic growth that will be able to break the back of energy poverty and consequently create new employment opportunities. We have also considered alternative funding options and not only will these be more costly, but they  will also delay the commissioning of Medupi due to the time  it would take to negotiate a new transaction. We do no have the luxury of being afforded with such a possibility.

Secondly, from an environmental viewpoint, we took a conscious decision to compel Medupi to be fitted with flue gas desulphurisation technology (FGD) to reduce its emissions and to comply with the minimum requirements for such fossil-fired power stations. Government has modeled the various scenarios that can address climate change concerns related to “business-as-usual” coal-based power generation.
In this regard, the Integrated Resource Plan (IRP) is an instrument that defines our power station investment programme, indicating the different technologies that can be used over the next 25 years. IRP1 covers the period up to 2013, and over the next 3 years, we intend to diversify our energy mix to include 10 000GWh (or 5%) of renewable energy generation, as espoused in the Renewable Energy White Paper of 2003. This will be achieved through the introduction of, amongst others, the 100MW Sere Wind and the 50MW concentrating solar power (CSP) projects in the Northern Cape.

In addition, we will introduce 1 million solar water heaters in the domestic sector. This will be done as an energy efficiency measure to displace the electrical load which is a direct result of water heating. This programme which will focus on the the domestic sector will be complemented by an incentivized industrial energy efficiency program, or Energy Conservation Scheme, in terms of which large industrial consumers will receive a rebate (the standard offer) as they reduce their electricity consumption to set targets. NERSA has already provided for the rebate in their latest tariff determination.

It is our intention to promulgate IRP2 later this year (2010) which will define the power portfolio beyond 2013. IRP2 will be responsive to energy security, climate change as well as financing considerations. It will also pronounce on the technology that will be used for base-load power stations post-Medupi. It is likely that the next base-load power stations will be nuclear-based.

Whilst the renewable energy feed-in-tariff (REFIT) dispensation is being supported in IRP1, it is under IRP2 that renewable energy power generation is expected to take off in earnest, and new targets will be set in IRP2. The World Bank loan application was coupled to the Clean Technology Fund (CTF) portion, in terms of which $500m should be made available to support CSP and Sere as well as other renewable energy technologies. CTF will also facilitate the development of smart grids to connect clean energy projects.

South Africa takes its environmental responsibilities seriously and with the fortitude that it surely deserves.
In line with government intentions to reduce the carbon footprint, the Department of Energy has taken several initiatives aimed at reducing the country’s carbon footprint. These include the following:
We first indicated our interest in carbon capture and storage by joining the Carbon Sequestration Leadership Forum in 2003.We are currently finalizing the Carbon Geological Storage Atlas whose results we shall release before the end of this year. The purpose of the Atlas is to locate and characterize potential geological storage sites for carbon dioxide. This will form the basis for future geological storage work in South Africa.

The South African Government, through the DoE, has partnered with the Clinton Foundation regarding the development of an industrial solar park concept, focusing specifically on the Concentrated Solar Power (CSP). We are a key participant in the Clean Development Mechanism (CDM) which is the vehicle for us to obtain funding to implement clean energy projects. Given that our economy is coal based, there is a great potential in the CDM initiatives from renewable energy, energy efficiency, cogeneration and energy generation from waste.
We are currently working with the Department of Public Works to finalise regulations which will ensure that there is indeed energy efficiency in government buildings and this will be subsequently expanded to include the general building and construction industry by next year.
We have recently joined IRENA. This is an international renewable body dedicated to ensuring that there is collaboration among its members in relation to technological developments in this important area of renewable energy.


Government statement on Eskom’s World Bank loan and South Africa’s long term energy objectives by Public Enterprise Minister, Barbara Hogan

Introduction

Wide media coverage has been given to protests opposing Eskom’s application for a loan from the World Bank. As the government of South Africa we are concerned that the issues related to the loan have not been properly understood. We are also concerned at the level of misunderstanding regarding our commitment to a transition to a low-carbon economy and our unambiguous commitment to the introduction of cleaner energy technology in the country.

Eskom, with the support of government, has applied for a US$3.75 billion project loan from the World Bank. This forms part of Eskom’s long-term financing of a multi-year investment programme aimed at expanding power generation capacity by about 50 percent, from about 40 000 MW, to 80 000 MW, in order to ensure security of electricity supply required for economic growth and development.

The proposed loan has three components:
* US$ 3.05 billion for the Medupi power station, Africa’s first clean coal “supercritical” 4 800 MW power station
* US$ 260 million for investments in renewable energy (100 MW wind and 100 MW concentrated solar power projects)
* US$ 485 million for investment in low-carbon energy efficiency components comprising road to rail coal transportation and power plant efficiency improvements, which will be a major step forward towards achieving our long-term low-emission plan.

Why the World Bank?

The build programme is a massive infrastructure investment programme and is to be funded from a combination of internally generated cash, debt finance and funding from government. Eskom intends to raise up to R150 billion over the next five years to fund this programme and government has already committed to support Eskom through a R60 billion subordinated loan and up to R176 billion in guarantees.

The assumption that Eskom would raise R150 billion of debt, even with the R60 billion provided by government, was optimistic there was insufficient demand in the domestic market to provide for Eskom’s needs and access to finance in the international markets largely dried up.

Global market conditions were expected to remain adverse for some time ahead and there was a general risk aversion arising from the global financial crisis resulting in a re-assessment by lenders and investors of lending to institutions perceived to be a credit risk.

Therefore accessing loan finance from international agencies and other previously untapped sources, such as the World Bank, African Development Bank (AFDB) or the European Investment Bank (EIB) was seen as important to augment resources to support the build programme.

Amongst the general factors considered by government in approaching multilateral finance institutions such as the World Bank were:
* To ensure that the financing is provided at low interest rates
* Flexibility from the banks to re-finance loans in five to seven years
* Preventing the introduction of conditions that might be viewed to be encroaching into the domain of national policy, except where such requirements fit in neatly with the current policy direction of government

The loan from the World Bank is a specific investment loan (as opposed to a development policy loan), which means that the Bank will have no say in our policy-making processes, especially our macro-economic policy.

Coal as a base-load option and South Africa’s commitment to climate change South Africa’s demand-supply energy balance remains quite delicate. The construction of Medupi and Kusile will ensure that we have adequate base-load power to be commissioned by 2013. This is necessary so that we do not derail the country’s economic growth and development objectives.

As government we have clearly demonstrated our commitment to meeting long term climate change mitigation objectives. Our commitment to renewable energy will also be reflected in the upcoming integrated resource plan two. We believe that climate change, if ignored, has the potential to undo many of the positive advances made in meeting South Africa’s own development goals and Millennium Development Goals (MDGs). We are therefore committed to a long-term low emission growth path and strategy. This is in line with the Copenhagen accord and our agreement to aim to reduce our greenhouse gas emissions by 34 percent by 2020 and 42 percent by 2024, conditional on the provision of finance, technology and capacity building. In addition, in terms of our own Long Term Mitigation Scenarios (LTMS) we have agreed that our emissions will peak around 2020 to 2025, plateau for a decade and then decline in absolute terms from around 2035. It should be noted that Medupi and Kusile are included in this peak.

In addition, the Medupi and Kusile power plants have been designed by Eskom using the best proven technologies to minimise carbon emissions. These power plants are the first two in Africa to use the more-efficient “supercritical” (operate at higher steam pressures and temperatures) and “CCS-Space ready” design, which is the technology adopted by most Organisation for Economic Cooperation and Development (OECD) countries for all new power generation. In addition to using supercritical design, these power stations will be the largest dry-cooled power stations in the world, which is a further testimony to the sustainable infrastructure development policies of South Africa.

South Africa is fully committed to renewable energy as a significant element of the energy mix. Time will be needed to ramp up these investments. Both concentrated solar power and wind technologies are expected to make a significant contribution to the government’s target of 10,000 GWh (about 1,667 MW equivalent) from renewable energy sources by 2013. With the help of investors, including the World Bank’s Clean Technology Fund (CTF), we are increasing our investment in this area. South Africa has submitted a portfolio of projects to the CTF that include a concentrated solar power project, wind power developments, the development of the solar water heating industry and interventions to reduce emissions in the industrial sector.

In addition, other fiscal and policy measures, including the introduction of a renewable energy feed in tariffs (REFIT) tariff for the renewable sector, the introduction of a 2c/kw hour levy on electricity generated from non renewable sources, many energy demand side management interventions such as the roll out of Compact Fluorescent Lighting (CFL) lighting and the electric motor retrofit subsidy are also facilitating low carbon development, including supporting the creation of a new economic sector and private sector investment.

The Integrated Resource Plan (IRP)

As part of our commitment to reducing our carbon footprint, the Department of Energy’s IRP two aims to look at the ideal energy mix for our country. It is the department’s intention to promulgate IRP two after June 2010, to define the power portfolio beyond 2013. IRP two will be responsive to energy security, climate change, financing considerations and it will also pronounce the technology for the base-load power station that will be used post-Medupi and Kusile.

The inter-ministerial committee on energy is intensively engaged in trying to find sustainable solutions to these and other matters. In that regard, two of the working groups of the International Marketing Council (IMC) are focused solely on renewable energy and the Integrated Resource Plan (IRP) respectively.

We remain seriously committed to stakeholder consultation on the IRP two before it is promulgated. As government we understand that issues of energy are uppermost on the minds of South Africans, and that we need to work together with all the relevant stakeholders on this matter. We must therefore continue to engage in constructive and intensive dialogue on the IRP two and on the future of electricity supply for our country.

Special Pricing Agreements

Concerns have also been raised recently about Eskom’s Special Pricing Agreements. Eskom currently has less than five special contracts with two customers, and they are currently in discussions about these. All other customers (including the large industrial customers) supplied by Eskom are on standard retail tariffs and subject to the tariff increases as approved by the National Energy Regulator of South Africa (Nersa).

Conclusion

As a country we cannot afford not to have secure supply of electricity. The damage this would do to our economy is too grave to consider. We therefore call on everyone, all stakeholders, to work with us in ensuring that we are able to meet this objective, for the benefit of our economy.
South Africa and the Southern African Development Community (SADC) region are experiencing an energy deficit that may constrain current and future economic growth. Medupi and Kusile power stations are critical in addressing this deficit, together with energy projects that can delivered by the private producers. The building of Medupi and Kusile are important in meeting these current developmental needs of the country and the region. Ensuring that we burn coal in an efficient manner meets the aspiration to ensure that development is sustainable.

We are in a transition phase to a low emission path. Our commitment to developing electricity supply in the short-term is not just a sound investment in meeting the needs of South African citizens and business; it is also a statement of confidence in the economic outlook of the wider Southern African region, its people, and its prospects. All of these initiatives will ensure that South Africa will be able to meet the commitments as tabled at Copenhagen.