Hogan: Eskom loan crucial for economic development

Friday, March 12, 2010

Cape Town - If the World Bank chose not to approve the $3.75-billion loan to help build two new power stations, we can "essentially say goodbye to our country", said Minister of Public Enterprises Barbara Hogan in Pretoria today.

Emphasising that the government remained committed to renewable energy, Hogan said South Africa and its Southern African Development Community (SADC) neighbours were currently experiencing an energy deficit that had the potential to constrain economic growth.

"If there is a vote against it, it will be the most unfortunate thing to have happened against the country's economic development," she said.

Hogan said it was not true that if the loan was approved, South Africa would effectively be handing over control of its economic policymaking to the World Bank.

The finance from the World Bank, she said, was in the form of a specific investment loan, which unlike the organisation's development policy loan, didn't come with any requirement that the country receiving it, puts in place policy requirements such as structural adjustments.

Dispelling fears that if approved, the loan would effectively be funding dirty energy, Hogan said Eskom's two new power stations - Medupi and Kusile - had been designed by the energy utility using the best proven technologies to minimise carbon emissions.

The two power stations would in addition use less water as they would be dry-cooled and would be energy efficient as they would operate at higher steam pressures and temperatures.

The coal power stations, which had been planned within the country's carbon mitigation strategy, had also been designed to be carbon-capture-space ready.

Hogan said a decision was due to be taken in early April by the World Bank on whether the loan would be approved or not.

She said the US had indicated they wouldn't vote against (the loan), but would abstain as they were under considerable pressure at home while the French and British had said they were in favour of the loan.

She said several petitions put out there contained inaccurate information, such as that the government planned to build 40 new coal-powered power stations.

The $3.75billion loan forms part of Eskom's investment programme which aims to double power generation capacity from 40 000MW to 80 000MW.

Included in the $3.75 billion loan will also include $485m for investment for low-carbon energy efficiency components such as road-to-rail transportation and power plant efficiency improvements, which Hogan said would be a major step towards achieving the country's long-term low emission plan.

She said $260 million of the World Bank loan will help fund investments in renewable energy including 100MW wind and 100MW concentrated solar power projects.

The government has in addition to this developed other initiatives towards developing greener energy, including the renewable energy feed-in tariffs for the renewable sector and the introduction of a 2c/kW hour levy on electricity generated from non-renewable sources.

She said government had cancelled a smelter project at Coega precisely because it was concerned about the energy usage of smelters.

The Department of Energy's second Integrated Resource Plan, which would be promulgated after June, would define the country's power portfolio beyond 2013, she said.

The plan is to ensure that the country has energy security, takes into consideration climate change and is able to finance its energy investment needs.

"South Africa is fully committed to renewable energy as a significant element of the energy mix," said Hogan, cautioning that time would be needed to ramp up these investments.

Speaking on the concern raised by Eskom's special pricing agreements with certain entities, Hogan said the power utility only had five special contracts with two customers and was currently in discussion with these customers.

She said these agreements were entered into before the 1994 democratic elections and it wasn't easy to move out of them as they were contractually binding.

Meanwhile, Minister of Energy Dipuo Peters said the country had taken several initiatives to reduce carbon emissions, including the compilation of a carbon geological atlas to locate potential geological storage sites for carbon capture; and a partnership between government and the Clinton Foundation to develop a solar energy project.

Peters said the Department of Public Works and her department were also working on ways to make government buildings less carbon intensive.