UPDATE 2-U.S., Dutch abstain from World Bank loan to Eskom

Fri Apr 9, 2010 1:29am IST

* World Bank board poised to approve Eskom loan

* U.S., Dutch abstain from supporting project

* Eskom says plant is critical to ease power shortages (Recasts; adds U.S. statement)

By Lesley Wroughton

WASHINGTON, April 8 (Reuters) - The United States and the Netherlands on Thursday abstained from supporting a controversial World Bank loan for a coal-fired power plant in South Africa, citing concerns about its impact on the environment.

The World Bank's board, however, is set to approve the controversial $3.75 billion loan regardless of whether it has U.S., Dutch or possibly British support.

South African state utility Eskom [ESCJ.UL] has defended the development of the 4,800 megawatt Medupi plant in the northern Limpopo region, saying it is critical to ease the country's chronic power shortages as well as ensuring electricity flows to neighboring states.

The U.S. Treasury said in a statement it opposed the loan due to "concerns about the climate impact of the project and its incompatibility with the World Bank's commitment to be a leader in climate change mitigation and adaptation."

A Dutch Foreign Ministry spokesman said it had advised its representative at the World Bank to abstain and withhold its support for the project. For details, see [ID:nAAT010153]

"The Netherlands believes Eskom is doing relatively too little to develop alternatives to coal, so we don't think this is a good proposal," the spokesman told Reuters.

"We also understand that South Africa is in need of extra energy capacity to support its economic growth. Therefore, the Netherlands has advised our (executive director) for our constituency to abstain," he added.

World Bank board decisions are arrived at through consensus among member countries rather than through voting, and countries can indicate their lack of support by abstaining from discussion of the issue.

While $3 billion of the loan will fund the bulk of the coal-fired plant, the remainder of the financing will go toward renewables and energy-efficiency projects.

"We believe this project is important for South Africa and South Africans and we expect it will be well received by the board," World Bank spokesman Peter Stephens told Reuters.

CLEAN ENERGY CHOICES

The U.S. Treasury said the project was inconsistent with U.S. guidelines issued in December by the Obama administration on coal-related lending by development banks.

It said the project was also incompatible with the World Bank's strategy to help countries pursue economic growth and poverty reduction in ways that are environmentally friendly.

The Treasury said while it recognized South Africa's pressing needs, it was concerned the project would produce "significant" greenhouse gas emissions.

It also said it did not expect the World Bank to bring forward similar coal projects for middle-income countries "without a plan to ensure there is no net increase in carbon emissions."

It was unclear whether Britain, which had threatened not to support the project, will back it in the end after a recent visit to London by South African President Jacob Zuma during which he lobbied British officials to support the loan.

Since that visit, however, British Prime Minister Gordon Brown has called an election for May 6 and backing the project could be politically damaging.

The opposition to the Eskom loan has raised eyebrows among those who note that Britain and the United States are allowing development of coal-powered plants in their own countries even as they raise concerns about those in poorer countries.

The South African plant is using the same so-called clean coal technology used in the United States and other developing countries to lower carbon emissions.

ENVIRONMENTAL OPPOSITION

Environmental and development groups have stepped up pressure on the World Bank ahead of Thursday's meeting. A letter endorsed by 125 groups argued that the project would not provide electricity to the poor, but would benefit large mining houses and smelters.

A complaint submitted this week to the World Bank's independent complaint body, the Inspection Panel, on behalf of residents living near the Medupi plant, claimed that the project violated World Bank policies.

In an April 5 letter to U.S. lawmakers, World Bank President Robert Zoellick said the World Bank had worked with the South African government to significantly improve the Eskom project and add renewable sources.

"We have conducted due diligence on all aspects of the project and have concluded that the projects development and poverty reduction merits, along with the need to support South Africa in meeting its energy crisis, should lead us to submit the project to our board for their consideration," he said.

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