Pretoria-The World Bank has approved South Africa's US$3.75 billion loan to help the country achieve a reliable electricity supply.
Eskom approached the Bank for funds to build the coal fired 4800 MW Medupi power station in Limpopo. The power station will help increase the country's generation capacity.
The Bank's Board of Executive Directors approved the loan that will go towards energy supply and the financing of solar and wind power plants on Thursday night.
This loan is one of the Bank's first major lending engagements with South Africa since the fall of apartheid. It aims to benefit the poor directly through jobs created as the economy recovers from the global financial meltdown.
"Without an increased energy supply, South Africans will face hardship for the poor and limited economic growth," said Obiageli K. Ezekwesili, World Bank Vice President for the Africa Region.
"Access to energy is essential for fighting poverty and catalyzing growth, both in South Africa and the wider sub-region. Our support to Eskom combines much-needed investments to boost generation capacity for growing small and large businesses, creating jobs, and helping lay the foundations for a clean energy future through investments in solar and wind power," she added.
The loan follows on the country's energy crisis in 2007 and early 2008.
$3.05 billion will be used for the completion of Medupi, which will use some of the most efficient, lowest-emission coal-fired technology available, the first of its kind in Africa.
The bank said $260 million will be used for piloting a utility-scale 100 MW wind power project in Sere and a 100 MW concentrated solar power project with storage in Upington. And $485 million will be used for low-carbon energy efficiency components, including a railway to transport coal with fewer greenhouse gas emissions.
The Bank took note of South Africa's role in generating 60 percent of all electricity consumed on the continent as well as the country's free electricity policy of providing 50 kilowatt hours of free electricity to poor families.
"The Eskom project offers a unique opportunity for the World Bank Group to strengthen its partnership with the Government of South Africa, Eskom, and other financiers and help South Africa chart a path toward meeting its commitment on climate change while meeting people's urgent energy needs," said World Bank Country Director for South Africa, Ruth Kagia.
However, the loan has come under scrutiny from environmental groups who want clarity on the measures that will be put in place to offset the CO2 emissions from the Medupi plant.
Eskom indicated that it would comment on the matter later today.