World Bank in firing line over power investment
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Emerging Markets

World Bank in firing line over power investment

Investments in coal-fired power stations undermines the World Bank’s clean energy agenda, critics charge

The World Bank’s multi-billion dollar investments in coal-fired power stations – at a time when it claims to be championing clean energy – are at the centre of a row with civil society organizations (CSOs).

A meeting in Washington on Thursday did not bring the two sides closer.

“We’ll have to make choices”, Lucio Monari, the Bank’s energy sector manager, warned the CSOs at the meeting, which focused on a new strategy document to be published in February next year and adopted by the summer.

There is little disagreement on the strategy’s declared aims of “improving access and reliability of energy supply”, and “facilitating the shift to more sustainable energy development”. The dispute is over how to achieve them.

The Bank says its lending to renewables and hydro projects has soared, to $3.63 billion in 2010 – but the CSOs say the Bank still lends more than that, i.e. too much, for coal-fired power stations and upstream hydrocarbon projects. Funding for coal hit a record high, $4.4 billion, in 2010.

When it comes to supplying energy to those without it – one in five of the world’s population – the Bank points to a project in Bangladesh that hopes to provide a million solar home systems by 2012, and one in Mali that has hooked up 40 rural communities.

The CSOs counter that most Bank project documentation says nothing about who will consume the energy, none of 26 fossil fuel projects reviewed independently identified energy access to the poor as an aim, and that funding for upstream hydrocarbons and coal-fired power “dwarfed” access projects in 2009-10.

Both sides acknowledge that coal will continue to play a part in meeting growing energy demand in developing countries – but strongly disagree about how long the Bank should keep funding it.

Documentation contributed to the strategy review by the Bank Information Centre, a Washington-based CSO, argues that fossil fuel lending to middle-income countries should be phased out by 2012 and to all countries by 2015.

Heike Mainhardt-Gibbs, who has authored BIC reports on the Bank’s energy lending, told Emerging Markets: “The Bank are surely considering our arguments on fossil fuels. But we haven’t seen any clear signal that they are going to address this issue in a new way.”

No loan has provoked greater controversy than a $3.75 billion deal for Eskom, the South African state-owned power producer, in April this year, including $3.05 billion to build the 4800MW Medupi coal-fired power station.

A coalition of South African CSOs, led by the Economic Justice Network and the Pan African Climate Justice Alliance, argued that Medupi’s main customers will be steel and aluminium producers, and other corporations who are exempt from electricity price rises “because of multi-decade special purchase agreements offered to them during apartheid and in the 1990s” – in contrast to hefty tariff increases now facing households.

A Bank document issued this week claims that the Eskom deal will “help deliver urgently-needed electricity” to the population – although Jamal Saghir, director of sustainable development for Africa at the Bank, told Emerging Markets that the Eskom loan “does not finance new [electricity] connections”. But by providing power to bridge a demand-supply gap, the Medupi plant will help Eskom get electricity to the 19% of South Africans who don’t have it by 2014.

South African had raised electricity access from 34% to 81% in 20 years, during which it “scraped by with power plants built many years ago”, Saghir said.

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