World Bank grants $1 billion loan to support South Africa’s energy sector

The World Bank has approved $1 billion loan to support South Africa’s energy sector which is currently experiencing the worse conditions including inadequate funds for overhauling, renovation and upgrading. Energy experts believe that the World Bank’s loan, seems the last resort, would pull South Africa out of its persistent energy crisis that has adversely hit domestic supply and industrial production.  

The energy problem has forced the country to lean on its highly polluting coal-fired power stations and consistent difficulties of generating enough electricity for its 62 million people. The state-run power utility, Eskom, generates approximately 80% of the country’s electricity through its coal stations, but they have failed to meet demand due to gross mismanagement, deep-seated corruption and regular breakdowns.

“The loan endorses a significant and strategic response to South Africa’s ongoing energy crisis, and the country’s goal of transitioning to a just and low carbon economy,” the World Bank said in its latest report. But, South African government has often said it needs nearly $80 billion over the next five years to fund its transition to greener energy sources.

It has already received a $439.5 million loan from the World Bank to help convert a former power station into a renewable energy provider. The Komati power station was decommissioned last year, but its story is an example of how developing countries desperately need money to finance their change to greener energy sources to help meet climate change goals.

Energy experts have consistently suggested that South Africa undergo some necessary reforms its energy sector in order to address and consequently overcome regular power cuts that have curbed economic growth and industrial production.

Marie Francoise Marie-Nelly, the World Bank’s director for South Africa, said in a statement that the bank wants to support the country’s reforms to split struggling power firm Eskom and to transition to a low carbon economy

In the statement, Marie-Nelly said reforms the government had launched would “benefit the people of South Africa – particularly the most vulnerable households – the economy, the environment, and advance the energy transition.” Eskom’s coal-fired power stations routinely break down, leading to outages of up to 10 hours a day.

The World Bank said its Development Policy Loan would contribute to a gradual reduction in water and air pollution by reducing the reliance on coal for power generation. It would also support “a low-carbon transition by encouraging private investment in renewable energy, including by households and small businesses, and strengthening carbon pricing instruments.”

South Africa’s government pledged to split Eskom into three subsidiaries – transmission, generation and distribution – in 2019. In February, it agreed to take on 254 billion rand ($13.3 billion) of Eskom’s debt, more than half its total debt, which was at risk of default. 

In an interview back in April 2021, Knox Msebenzi, Managing Director of the Nuclear Industry Association of South Africa (NIASA), discussed the impact of challenges on the country’s economy and a way out of the power generation difficulties in South Africa.

According to him, Eskom, the utility company had a good handle on electricity consumption growth and had asked to build new capacity to meet the growing demand but was stopped by the government whose policy was to introduce other players in building new capacity. As a result of this delay and the ageing of the coal fleet, supply became increasingly a problem, resulting in load shedding. The impact was devastating. Some industries closed down and prospective investments could not come into the country because of no security of supply offered by the utility.

He explained that South Africa should pursue an energy mix that includes coal, nuclear and renewables going forward. The problem with the power industry is that there are too many players with self-commercial interest mudding the waters and driving the agenda that favours one type of technology at the detriment of the others.

Under Jacob Zuma, the narrative was that the insistence on nuclear power was driven by a corrupt agenda. Under Cyril Ramaphosa, it seems those who are pushing for renewable energy as the only sustainable source are getting more exposure. Experts, however, suggested an all-inclusive energy mix as a sustainable, long-term solution to South Africa’s energy needs. It cannot be an either-or scenario. The Integrated Resource Plan (IRP), which is the government’s energy policy, is very clear that an energy mix is the path towards attaining energy security.

South Africa is not the only country experiencing energy shortage and crisis. In fact, energy poverty is pounding a number of Southern African countries. Nearly all are suffering from acute power deficits. Southern Africa and other African countries must display capability of solving the electricity situation. The challenges relating to nuclear are well articulated but are manageable. Criticisms of nuclear relating to costs and project managements (long delays with huge projects) are being addressed with Small Modular Reactors.

Kester Kenn Klomegah
Kester Kenn Klomegah
MD Africa Editor Kester Kenn Klomegah is an independent researcher and writer on African affairs in the EurAsian region and former Soviet republics. He wrote previously for African Press Agency, African Executive and Inter Press Service. Earlier, he had worked for The Moscow Times, a reputable English newspaper. Klomegah taught part-time at the Moscow Institute of Modern Journalism. He studied international journalism and mass communication, and later spent a year at the Moscow State Institute of International Relations. He co-authored a book “AIDS/HIV and Men: Taking Risk or Taking Responsibility” published by the London-based Panos Institute. In 2004 and again in 2009, he won the Golden Word Prize for a series of analytical articles on Russia's economic cooperation with African countries.