SA’s dirty secret: Eskom and the Medupi power plant

The Beijing dragon breathes, and as it does — given that China has since become the world’s major emitter of carbon dioxide (CO2), overtaking even the gaseous US economy that has historically led the polluters pack — we expect raging fire. But even with a population in excess of 1.3 billion, China’s emissions, averaging five tonnes per capita, are lower than those of South Africa with just 46 million people. South Africa emits almost 20 tonnes per capita of economic output, comparable to the US, hosting 5% of the world’s population, but guzzling 25% of its reserves.

So what do China and South Africa — two emerging global powers — have in common?

Both speak the vocabulary of developing nations. And both, in conjunction with India and the US — described by Senator John Kerry as the “four horsemen of the climate change solution” — hold the reins capable of pushing the world off the edge, or pulling it back from the brink.

But unlike China’s exploitation of fossil fuels, which is used to power up job-intensive economies, lifting in excess of 600 million people from poverty and in the process contributing 164% to global poverty reduction, South Africa now hosts the most unequal society on the planet.

According to the Gini coefficient index (a value of 1 reflects complete inequality, while a value of 0 reflects complete equality), South Africa has since overtaken Brazil, with income inequality between the country’s richest and poorest standing at 0.67%.

The government maintains that the Gini index is not an adequate reflection of wellbeing, as 13 million people are dependent on “welfare” via free basic services, lessening the burden of disposable income for state services. But as a Gauteng minister recently revealed, protests directly correspond to the quality of state services; employment, electricity and water have featured prominently in marches, averaging 8 000 or more each year.

One solution would be significant investment in lucrative job-intensive “green energy” industries. South Africa holds more than 50 000MW in available wind energy, capable of powering up to 70% of the nation’s estimated future energy requirements, in addition to 500 000MW of solar power. Yet South Africa’s wind farms like Klipheuwel — built at a cost of $5 million and delivering power for 2 500 households — are “experimental” only.

When it comes to job-intensive “green energy”, though China may not be host to political muscles like Greenpeace — an organisation that described South Africa as the “star of the Copenhagen Climate Summit” — in a bid to create energy security (and independence from volatile foreign sources of fossil fuels), Beijing increased wind power by 124% in 2009 alone, generating 13 803MW from 10 129 turbines.

These turbines, constructed over a matter of months, generated more than half of South Africa’s total energy supply. Thus not only is China revitalising and protecting the economy through energy security but it is — crucially — developing highly skilled global job-intensive infrastructure.

The European Wind Energy Association estimates that from commissioning to construction, wind power generated 15 jobs per MW or 151 316 jobs in the EU during 2007 (direct and indirect jobs related to manufacturing, installation, operation and maintenance). Contrast this to the fossil fuels industry: More than 80% of oil-rich nations are governed by autocracies, and there is a 92% correlation between arms sales and oil. The extractive industries, meanwhile, are not only dependent on foreign multinationals, but also generate lethal pollution; employment impacts are, according to the UN, negligible.

In his statement to the National Energy Regulator of South Africa, the current CEO of Eskom — the country’s national energy supplier — Mpho Makwana, declared under oath (January 22 2010), that South Africa could tap into 5 000MW, enough power to supply the Cape (Western, Eastern and Namibia), via 2 500 2MW wind turbines over a 900km2 stretch of land over a four-year period.

Yet Eskom’s $50 billion plan — developed not only to provide South Africa with energy, but the extractive industries in client states located across sub-Saharan Africa, from Mozambique and Lesotho, to Namibia, Botswana, Swaziland and Zimbabwe, prefers another source of power: coal.

The World Bank has thrown its weight behind the star of the show: Medupi, a 4 800MW coal-fired power station, extending $3.75 billion to the government. On the surface, it is cheap capital: a 0.5% fixed margin (and a variable of 0.24%), coupled with a seven-year grace period and 28 years in which to service the debt. But the loan will have to be financed in hard currency, further export-orienting the country as source of cheap primary commodities. Medupi is also estimated to generate more C02 than 115 developing countries ie 25 million tonnes each year, drawing water from three already strained major water-catchment areas: the Vaal, Orange and Limpopo river systems, in addition to the creation of 40 new coal mines.

According to the World Bank, Medupi will be the first power station in Africa to utilise supercritical clean coal technology, reducing emissions by 5%, coupled with “carbon capture and storage” mechanisms. Eskom’s managing director Steve Lennon confirmed the use of CCS technology stating: “One of the plants we are building is CCS ready, although to be quite frank no one really knows what that is at the moment.” Meanwhile, supercritical technology, if implemented, will reduce Medupi’s output to a real capacity of 3 600MW following sequestration.

Ironically, the difference between the capital costs of the 5 000MW wind project, and 3 600-4 800MW Medupi — whose total costs stand at R125 billion ($16.6 billion), is $3.5 billion — almost the full World Bank loan.

But the bank has backed the claims of Eskom, justifying the scheme as necessary to generate the electricity required to power the country, in order to prevent economic hardship from being visited upon the working poor, both directly — via energy shortages for 80% of citizens connected to the grid — and indirectly through the economy, which suffered one million job losses in 2009 alone.

Previous rolling blackouts, mitigated by Eskom through “load shedding” schedules imposed on citizens, came at a price tag of $4.66 billion according to the National Energy Regulator, with small and medium businesses buckling under the weight of power shortages, and citizens forced to use candles and gas equipment.

Beyond the deliberate leftist discourse, who really benefits from Medupi and what are the costs?

In his opinion editorial for the Washington Post, well-timed for publication before the World Bank’s major shareholders — including the US and Britain — were set to vote, Finance Minister Pravin Gordhan stated that “supply had not kept pace” due to the, “strong new demand for electricity. Millions of previously marginalised South Africans are now on the grid”.

Survival carbon, it seemed, was necessary for the country’s economic and political stability, required to power up basic services.

But Gordhan presented a misleading truth, designed to elide the real rot at the core of Eskom’s shortages and lack of capital as well as Medupi’s selective development: secretive “special pricing agreements’” formulated during the apartheid era, currently ensure corporate access to the world’s cheapest — and undisclosed — electricity rates.

Eskom’s former CEO, Jacob Maroga, recently revealed in court that iron-clad “sweetheart deals” inherited from South Africa’s apartheid era could not be renegotiated as the cost of “buying back power” from foreign-owned multinationals such as smelter BHP Billiton was “prohibitive” ie R5.9 trillion or $800 billion. The hands of the state, Maroga claimed, were tied.

Some 38 corporate entities including Anglo American, Alcan and BHP Billiton, consuming 40% of power generated at $0.05 US cents per kWh — the cheapest in the world, will be subsidised once again as Eskom imposed 25% tariff hikes on citizens — utilising just 5%-10% of national power, tripling the cost of access from $50 to $120 per month during a three-year period, with Eskom vying to increase tariffs by 35% per annum, receiving approval for 24%.

The electricity parastatal claims that Medupi will allow for the state to raise the free basic electricity (FBE) allowance per household per month, from 50kWh to 75kWh.

How does this stand against the best-case scenario for 85% of the country’s population? The average monthly household income for black citizens, for example, with stable formal sector jobs, averages $550, rendering tariff hikes unaffordable. For the working poor — the bottom 60% accessing just 15% average household income, and dependent on 50kWh FBE (uses include boiling a kettle once a day for seventeen days of the month), energy poverty — defined by the inability to finance electricity beyond FBE, demonstrates that tariff hikes are a lethal form of economic apartheid.

The bank itself has a long history of financing both the apartheid regime and Eskom: from 1951-1967, more than $200 million alone was supplied at cheap rates earmarked for the construction of coal-fired plants, designed to enable the apartheid regime to function independent of foreign suppliers of fossil fuel, circumventing the danger of boycotts.

This pattern corresponds to odious apartheid-era debt, imposed on the liberation government. By the second election, this debt — identified by Nelson Mandela as the primary obstacle to development — ballooned to R376 billion, despite the state auctioning as many assets as possible, such as one dozen state-owned firms.

Through Medupi, South Africa’s balance-of-payment deficits, ranked by The Economist magazine as the world’s most risky emerging market in 2009 due to balance-of-payment deficits, is set to become even riskier.

But this does not include ecological pollution: as Wits geologist Terence McCarthy revealed, acid-mine drainage combined with new coal-mining technologies will render coal regions such as Mpumalanga a “total wasteland” within 100 years. Meanwhile, in his 2005 budget speech, Trevor Manuel stated words to the effect that environmental protection would hinder economic growth.

But it is not just the environment that is to be corrupted: one investment arm that stands to benefit is Chancellor House, the ANC’s investment arm. Created in 2003, and composed of entities rooted in the minerals-energy complex, Chancellor House is neither audited nor transparent. One member, Hitachi Power Africa (HPA), received a R38.5 billion contract-price tender (60% or R23 billion earmarked for HPA) to supply boilers to Eskom’s Medupi and Kusile projects, the latter awarded without tender. Chancellor House Holdings — owned by Chancellor House Trust — a ring-fenced secrecy vehicle, holds a 25% stake in HPA, the South African arm of the Japanese corporation, purchased for more than R1 million.

According to Hitachi CEO Johannes Musel: “We did not know it was an ANC front company.”

This claim was confirmed by Hitachi’s chief financial officer, Robin Duff, who stated: “They were not legally obliged to identify them to us.”

Beneficiaries were described as “entities supporting the black struggle”. But Musel’s defence came too little too late as Deputy President Kgalema Motlanthe admitted that Chancellor House was created as an “ANC vehicle”.

“What we inherited actually corrupted us and therefore we are actually managing a corrupt system and a wrong value system. The new order [after 1994] … inherited a well-entrenched value system that placed individual acquisition of wealth at the very centre of the value system of our society as a whole … ” stated Gwede Mantashe, ANC secretary-general at Johannesburg City Hall. Ironically, Mantashe himself has fought “bitterly” — in the words of the excellent Mail & Guardian, to prevent Chancellor divesting from HPA. According to the paper, profits projected by HPA fall between R460 million to R1 billion short of accuracy.

Though the conflict of interest was known as early as 2007, the state has yet to divest despite treasurer-general Mathews Phosa acknowledging the conflict of interest, while the bank chose to overlook it.

Moreover, the bank has claimed that financing dirty coal is perfectly acceptable, as $260 million will be invested in solar and wind projects.

And despite the bank’s cheap loan, currency devaluation compounded with the South African rand crashing multiple times since 1996, will cause the loan to appreciate.

More recently, Eskom claims to have renegotiated Billiton’s “sweetheart” contract, removing 95% of pricing perks, due to be signed on May 27 2010 with possible divestment from Hitachi. But the plant remains.

Once upon a time, foreign capital — described by the architects of apartheid as “bricks in the walls of the regime’s existence” — financed the machinery of apartheid, burning South Africa alive. And once again, foreign capital has financed an inferno. This time, the effects spread beyond the country, to the continent, which will experience a 50% decline in food production by 2020, in addition to conflict over shared water basins — all in the name of … development?