World Bank to probe Eskom loan

Johannesburg - The World Bank is investigating possible violations of its policies and procedures related to the awarding of its $3.75bn loan to power utility Eskom.

In a statement to the World Bank board, inspection panel chairperson Reberto Lenton clarified that the investigation related to "allegations of violations of World Bank operational policies and procedures".

The loan, which was awarded in April, was the World Bank's first major lending engagement with South Africa since the fall of apartheid 16 years ago.

The bulk of the loan - $3.05bn - was allocated for the construction of Eskom's Medupi coal-fired power station in Limpopo Province, th while $260m was earmarked for investment in renewable energy and $485m set aside for investment in low-carbon efficiency components, such as road to rail coal transportation.

According to the bank, the loan aimed to benefit the poor directly, through jobs created as the economy bounces back from the global financial crisis and through additional power capacity to expand access to electricity.

However, it was the people the loan was aimed at benefiting that called for the investigation.

Lenton said requests were received from community members living in the project area of Lephalale in Limpopo Province through groundWork and Earthlife Africa, two non-governmental organisations.

"They are particularly concerned about communities that live in the vicinity of the coal-fired plant who will be exposed to increased levels of particulates and sulphur dioxide, which already exceed local and international air quality limits."

Furthermore, they had complained to the World Bank that the Medupi power plant and its water-intensive "sulphur scrubbers" would put additional strain on existing water sources in an area already suffering from water scarcity.

The residents stated that cultural practices in the area could be negatively impacted by the "destruction" of grave sites and sources of traditional medicines due to the construction of Medupi.

There were also concerns that the pollution from the power station would negatively affect agriculture, livestock rearing, and eco-tourism, the inspection panel said.

The communities added that SA regularly experienced "currency crashes" leading to a devaluation of the currency, and that repaying the loan would "require more exports and higher tariffs" to allow the economy to endure any future currency devaluation.

Inspection team

Since then, an inspection panel team has visited South Africa to ascertain the validity of the request for an investigation.

"During this visit, the panel was struck by the widespread level of concern among requesters and other local residents about the potential impacts of the project, especially local social and environmental impacts," Lenton said in the statement.

He added that the community indicated that it was not against development in the area but was worried about the project's potential impact on their lives and livelihoods.

"Based on its review of the relevant documentation and its field visit, and taking into account the sharply different views of the requesters and management, the panel considered that the request raises important issues of compliance and harm that can be addressed only in the context of an investigation," Lenton said.

The panel has therefore recommended that an investigation be carried out on the issues raised by the request that relate to allegations of violations of World Bank operational policies and procedures.
"The panel's investigation will also report on any steps and actions taken by management during the course of the investigation to address the issues of compliance and the concerns raised by the requesters," the report carrying the recommendation read.

 - I-Net Bridge & Sapa
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