South Africa's Finance Minister Pravin Gordhan would initiate discussions with those developed countries that had indicated their reticence to endorsing a $3,75-billion (about R28-billion) World Bank loan for South Africa's power utility Eskom, which is seeking finance for its R120-billion Medupi coal-fired development.

Speaking with Bloomberg in London on Thursday, Gordhan said he had been "disappointed" by the response of some rich countries to what would be South Africa's first World Bank loan since the advent of democracy in 1994.

"Suddenly, there are all sorts of doubts," Gordhan lamented in a television interview.

He argue, too, that these questions seemed to go against the agreements reached in Copenhagen, Denmark, in December, where it was acknowledged that developing countries had the right to continue with coal-fired projects while seeking to transition to longer term low-carbon growth paths.

Eskom was currently building two new coal-fired power plants, Medupi and Kusile, which would together be phased in to add some 9 600 MW of much needed new capacity between 2012 and 2018. Both projects were, however, facing potential delays, with Eskom reporting last year that Kusile would be delayed by at least a year.

The utility has already indicated that it will have to draw on development finance institution resources, as well as on the South African and international capital markets, to help it in close a substantial funding gap for its R460-billion-plus build programme.

This gap would remain considerable, despite the National Energy Regulator of South Africa having granted the utility price increases of around 25% a year for the next three years. The approval, which was a full ten percentage points lower than that which had been requested by the utility, was expected to result in an increased borrowing requirement at Eskom.

The utility, whose 40 000 MW fleet was more than 90% coal based, secured a R20,7-billion loan from the African Development Bank in November 2009. It was now hoping to secure a larger World Bank loan, with a decision possible during March or April.

But environmental groups, as well as some governments, were opposed to the loan, saying that the Medupi project would contribute to the acceleration of climate change and should not be financed, despite having apparently met the World Bank's guidelines for coal projects.

In fact, Business Unity South Africa (Busa), which supports the provision of the loan to Eskom, has argued that the Medupi project is in line with ‘Development and Climate Change: A Strategic Framework for the World Bank Group'.

"Accessing a World Bank loan is appropriate for a developing country like South Africa, which is both under borrowed internationally and anxious to build necessary infrastructural capacity," Busa said in a statement.

Meanwhile, World Bank vice president for Africa Obiageli Ezekwesili was quoted by Reuters as saying that South Africa's urgent need for an energy infusion made the Medupi project necessary, while noting that the South African government had committed to a long-term plan to move toward more investments in renewable sources of energy.

"There is no viable alternative to safeguard South Africa's energy security at this particular time," Ezekwesili said. South Africa's Eskom, he said, provided 95% of the country's power but also 45% of Africa's needs.

ALREADY FACTORED IN

South Africa's delegation on a State visit to the UK, which was led by President Jacob Zuma, had apparently canvassed the loan issue with the UK government, and was expected to approach the US, France and Germany on the same matter before the next World Bank board meeting.

Eskom's finance director Paul O'Flaherty indicated that the loan had already been factored into the funding plan as submitted as part of its recent tariff application and "was critical for South Africa and the region".

"It is recognised that as a developing country, South Africa needs to capitalise responsibly on its natural resources whilst honouring its greater commitment to reduce carbon emissions over time,"
O'Flaherty said.

This World Bank transaction would fund specific components of Eskom's capital expansion programme such as the Medupi power station as well as to "catalyse new 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," O'Flaherty said.