Govt, Eskom, business welcome World Bank Loan

Friday, April 9, 2010

Pretoria- Government has welcomed the World Bank's decision to grant Eskom a US$3.75 billion project loan to go towards ensuring sufficient energy supply.

"The government of the Republic of South Africa welcomes the decision by the World Bank to grant the US $3.75 billion project loan to Eskom, South Africa's power utility," said government on Friday.

The Bank announced on Thursday that it would grant the utility the required loan that will co-finance the 4800 MW Medupi coal fired power plant in Limpopo as well as the country's first large wind and concentrated power projects.

"The rate is at six month London interbank offered rate of +0.5 percent fixed margin and a variable spread of 0.24 percent, which is reset semi-annually. The maturity is 28.5 years with a grace period of seven years," explained government.

Government added that Medupi's cleaner coal supercritical technology together with the country's first renewable energy projects, are a critical part of the country's approach to planning for future energy needs.

"The construction of the Medupi power station will provide much needed base-load capacity, which will be commissioned from 2012 onwards. This will ensure that the country's economic development objectives remain on track and that security of electricity supply is restored," said government.

It added that while there were three abstentions, the majority of the executive directors voted in favour of the loan.

The South African government said it will continue to engage the Bank and all stakeholders in a transparent and constructive manner and that it is committed to meeting its long term climate change mitigation objectives.

It said South Africa will intensify its focus on energy efficiency to maintain a healthy reserve margin.

"The success of the initiatives contained in the loan (both projects and technical assistance) could defer the need to build by 2017 and allow for the introduction of other cleaner technologies," it said.

Eskom acting chairman, Mpho Makwana, said the granting of the loan is a vote of confidence in the country and the parastatal.

"On behalf of the Board of Directors, I welcome this commitment to South Africa and to the regions future development. Eskom is thankful to all the role-players for making this loan possible. We look forward to the mutually beneficial relationship that will result from this support," said Makwana.

Makwana said the loan significantly contributes to the provision of baseload power and that improved energy security will advance the country's development agenda for economic growth and human upliftment.

Eskom' s Finance Director, Paul O'Flaherty said the funds combine favourable financing rates with a structured repayment profile, thereby making it an economically attractive option to contribute to South Africa's future economic growth.

"This approval clears the way for the full construction of Medupi Power Station and is catalytic for South Africa's commitment to renewable energy and lower carbon technologies such as large-scale solar thermal and wind power. The funding is well aligned to jump-start progress on South Africa's commitment to a lower carbon footprint," he said.

The power utility said the completion of Medupi is a matter of urgent national interest, as energy demand has grown considerably in the past 15 years and is projected to grow further as the economy expands.

"In particular, as the electricity system remains critically tight between 2011 and 2012," said Eskom.

Construction of Medupi is progressing well and its first unit is expected to come on line in 2012.
Medupi will be the largest dry-cooled power plant in the world.

The South African Chamber of Commerce and Industry (SACCI) said it welcomed this decision.

"Fundamentally, developing countries must be allowed to develop energy security for their own populations in the most effective and sustainable manner to promote economic growth," said SACCI.

It said that the granting of the loan provides clear evidence that the Bank has confidence in South Africa's ability to meet its Copenhagen commitments. It also said that it's an acknowledgement that power is needed to increase electricity access to South Africans.