25 September 2007
The African Development Bank's $500 million loan to support Eskom's expansion raises the question of whether it wields sufficient leverage to ensure adherence to its social and environmental safeguards.
Last month, the African Development Bank (AfDB) announced the approval of its largest ever private sector project, a $500 million investment in the expansion of South Africa’s power company, Eskom. According to Reuters, the loan will support Eskom’s ambitious plans to add 8000 MW to its grid by 2012 as part of an investment package estimated to cost $20 billion. Such an expansion would represent a 22 percent increase in the company’s generation capacity.
Eskom’s reputation in Africa is varied. While some look to the utility giant as an effective service provider on the world’s most energy-scarce continent, many accuse the company of using its clout to buy up the lion’s share of the region’s energy supplies. Eskom is the lead agency in Westcor, a regional power initiative whose centerpiece is the controversial Inga 3, a planned hydroelectric dam in the Democratic Republic of Congo (DRC) that would supply much of the region’s power, especially to South Africa. Eskom is also widely criticized for its close ties to industrial interests in the region, whom many contend are receiving power at discounted rates subsidized by taxpayer money and tariffs from private, often residential, customers. Civil society groups are also alarmed by recent announcements that Eskom plans to add 20,000 MW of nuclear energy to its supply mix by 2025.
The AfDB’s decision to support Eskom’s expansion is consistent with its recent unprecedented scale-up of private sector investments. This year to date, the AfDB has already approved $1.6 billion in new private sector commitments, a four-fold increase from $400 million last year, and only $200 million the year before. This trend has generated renewed interest in the Bank, which until recently was only a small player on the continent. Although its influence is growing, particularly within the private sector, it remains unclear whether the Bank wields sufficient leverage to ensure that its social and environmental safeguards, which are fairly strong on paper, are adhered to in the projects it supports.
Earlier this month, the AfDB’s Board of Directors authorized a compliance review of the Bank’s investment in the controversial Bujagali Dam and an associated electricity interconnection project in Uganda. The investigation, the first of its kind since the establishment of an Independent Review Mechanism to address citizen complaints, will seek to determine whether the Bank violated its own policies in approving the projects and, if so, suggest remedial actions.
Resources
- AfDB lends South Africa $500 mln for power plant, Reuters, August 8, 2007 (Reuters website)
- US$500m ADB loan to Eskom by Geoffrey Kamali, East African Business Week, August 13, 2007 (AllAfrica website)
- South Africa's Eskom looks to nuclear plants by James Machuria, Reuters, September 4, 2007 (Reuters website)
- Eskom’s Expanding Empire: The Social and Ecological Footprint of Africa’s Largest Power Utility, International Rivers Network, June 2003 (IRN website)
- AfDB private sector investments reach record high, Bank Information Center, July 21, 2007 (BIC website)
- AfDB approves compliance review of Bujagali power projects, African Development Bank, September 11, 2007 (AfDB website)