World Bank’s $1 billion loan to South Africa risks undermining just transition by doubling down on ‘de-risking’ private capital

Green Colonialism in Action

I have previously written about the green loans that Western governments are imposing on South Africa and their disastrous effects on our electricity supply.

The article below details the $1 billion loan that South Africa took to close down its coal power stations.

The DPF deepens the Bank’s influence in South Africa’s energy sector, following substantial financial support and policy guidance over the past decade (see Observer Winter 2022). In 2010, the Bank extended a $3.75 billion loan to Eskom for the construction of the 4800 MW Medupi coal-fired power plant – its largest ever energy loan (see Observer Spring 2019). This problem-riddled project has led to criticism from South African CSOs who have labelled it ‘odious debt’ and called for its cancellation.

Recently, the Bank also played a supporting role in the country’s Just Energy Transition Partnership (JETP) (see Observer Winter 2022). Agreed at COP26 in 2021, the JETP is a $8.5 billion climate finance initiative involving France, Germany, the UK, the US, the EU and World Bank-hosted Climate Investment Funds. It pools commercial loans, concessional loans and grants from rich nations while anticipating private sector coverage of the rest of the transition financing needs through public-private partnerships (PPPs).

The JETP shows a clear imprint of the Bank’s private sector-led approach to decarbonisation in low- and middle-income countries, where it encourages national governments to pursue de-risking measures to make projects ‘bankable’ for private sector investment (see Observer Autumn 2023, Winter 2022). This approach is based on the assumption that billions of dollars of public finance will unlock trillions of dollars from private investors (see Briefing, Gambling with the Planet’s Future).

The South African JETP has however fallen short of its promised financing, securing only one-tenth of the required funds, a challenge seen also in Indonesia and Vietnam, which have also launched JETPs (see Observer Spring 2024). As of last November, only $308 million of grant-funded projects under the JETP had progressed to the implementation phase, while information on loans, which make up a staggering 97 per cent of donor-backed support, has yet to be disclosed. The fact that most of the support is being provided in the form of loans, denominated in foreign currencies – making  them more expensive – raises further concerns, especially given South Africa’s (and Eskom’s) current debt burdens (see Dispatch Annuals 2023). 

As Gilad Isaacs of the South Africa-based Institute for Economic Justice argues, “South Africa’s JETP is a cautionary tale for all Global South countries. The deal was negotiated in secret, offers very little grant financing, fails to protect workers in transition sectors, advances privatisation, and overwhelmingly seeks to guarantee profitable investment opportunities for private finance. Instead, climate financing should take place through transparent multilateral process that acknowledge the Global North historic climate debt

Let’s consider what this loan condition means in practice. Western Carbon Evangelism is urging Africa to dismantle its most reliable electricity supply. Then those very same nations go on to wonder why China, Russia, and India are seen as more attractive partners.

There are ways to decarbonize an electricity system without compromising the living standards of ordinary people. However, the current approach, ironically named the “just” energy transition, is reminiscent of the politics of the 19th century when missionaries came to spread their gospel while the financiers stood behind them so they could loot their resources.

David Livingstone, like today’s environmental crusaders, also believed he was doing the work of God, King, and Country, all while naively preparing the way for Cecil John Rhodes, who would eventually grab the diamonds and name a country after himself.

Today, the Western powers are not coming to Africa for a gold rush, instead, they impose draconian loan conditions, asking these nations to destroy their own industrial base, all while doing it in the name of “saving the planet”.