7 April 2010

South Africa: A Loan Too Far - Why the World Bank Cannot Lend Eskom Money


Johannesburg — THE World Bank board will be in breach of its own regulations if it decides tomorrow to grant a loan of more than $3bn to Eskom to help it build its 4800MW coal-fired power plant at Medupi in Limpopo.

Not because of the plant's capacity to pollute, but because hundreds of millions of those dollars will end up in the bank accounts of the ruling African National Congress (ANC).

The World Bank surely cannot allow this to happen. If it does it will threaten its carefully constructed reputation as a corruption-buster in big projects around the world.

Corruption in the Eskom build programme -- which most South Africans appreciate is critical to the future success of our economy -- arises because the ANC, through a company it directly owns called Chancellor House, in turn owns 25% of one of the major contractors to Eskom. Hitachi SA has won contracts worth almost R38bn (about 5,5bn) to supply boilers to Medupi and a second coal- fired power plant, Kusile, planned for Mpumalanga.

The ANC's direct take out of these contracts will be big enough to make it one of the richest political parties in the world and to utterly skew SA's hard-won democracy in its favour for decades to come.

It isn't right and the World Bank should have none of it.

So far, however, debate about Medupi has centred merely on the desirability or otherwise of lending money to create more pollution. SA has a compelling case to meet these objections as we are still a poor and developing country with pressing needs at home and in our region.

But Finance Minister Pravin Gordhan has said that should the loan not be forthcoming from the World Bank, SA could finance Medupi on its own.

That would be fine, but the World Bank board would be doing SA a great favour if it agreed to the loan and attached just one condition to it and any other loan it may direct our way: that it cannot finance any project in which any political party in the country has a material interest.

The ANC has for years promised to shut down Chancellor House, but its cash requirements are so demanding that it just cannot bring itself to do the right thing.

Recently the party's secretary-general stoutly defended ownership of Chancellor House and the stake in Hitachi.

The World Bank board has a golden opportunity tomorrow to make it clear it will not even indirectly fund political parties. The ANC may, as it asserts, have the "right" to be in business but not on both sides of a deal like this. The party likes to assert these days that the government "belongs" to it.

That is all very well but that same government cannot, with a straight face, borrow from institutions vital to the health of the global economy while knowing parts of the loan will finance the party.

It is corrupt.

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