South Africa: Cancel Eskom’s odious debt to the World Bank

3 September 2019 by Jonathan Cannard

$3.05-billion of the loan was dedicated to completing the Medupi coal-fired power station in Limpopo (Madelene Cronje/M&G)

Despite significant and wide-ranging concern about the fate of Eskom, the World Bank has recently expressed its full confidence in the state-owned power utility’s ability to complete Medupi power station and ensure national electricity provision.

The bank’s vote of confidence in the struggling entity is a product of the Ramaphosa government’s courting of international investors and financial institutions at the expense of South Africans. Given the overwhelming evidence of corruption and environmental degradation fostered through the World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

’s 2010 loan to Eskom, the grounds for repudiating the debt are firm.

Instead of accepting the World Bank’s vote of confidence in the struggling power utility, the public should use this moment of Eskom’s crisis to express a lack of confidence in the World Bank, an expression that must be accompanied by the repudiation of the debt incurred in 2010. The odious nature of the debt is clear, and it is only a lack of political will that prevents the state from standing up to the bank.

In April 2010 the World Bank Group’s International Bank for Reconstruction and Development approved a US$3.75-billion loan to Eskom as a major part of the funding for the Eskom Investment Support Project, justified under the guise of promoting renewable and clean energy. Despite this rhetoric, $3.05-billion of the loan was dedicated to completing the Medupi coal-fired power station in Limpopo.

This power station, if completed, will be the largest coal-fired power plant on Earth, emitting more carbon dioxide than the 143 least-emitting countries. Just $260-million was dedicated to building the Sere Wind Farm and the Upington Concentrated-Solar Project. A further $450-million that was meant for “low carbon efficiency components,” was mainly used for building a railway that transports coal.

The doctrine of odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
, long recognised in international law, rests on two pillars: debt that is (a) incurred against the best interests of the population of the borrower state, and (b) that this condition was known — or ought to have been known — by both borrower and lender.

The Committee for the Abolition of Illegitimate Debt (CADTM by its French acronym) is an international network of finance and debt specialists, with extensive experience of studying odious debt dating back to 1980. CADTM defines odious debt as follows: “Debt, which the lender knew or ought to have known, was incurred in violation of democratic principles (including consent, participation, transparency and accountability), and used against the best interests of the population of the borrower state, or is unconscionable and whose effect is to deny people their fundamental civil, political, economic, social and cultural rights.”

The climate degradation, local pollution and blatant corruption surrounding the 2010 loan clearly signify that the debt is odious.

The World Bank repeatedly claimed that the 2010 loan was meant to increase South Africa’s electricity generation capacity through a progressive “energy mix”. To this end, the bank promoted Medupi as a power station that would employ efficient, ultra-supercritical “clean coal” technology. Clean coal has largely been shown to be a myth. Medupi may be one of the most efficient coal power plants ever built, but it still emits more carbon dioxide than most countries.

The completion of Medupi power station is against not only the interests of the population of the borrower state, but also the world, given its enormous greenhouse gas emissions. The local air pollution from Medupi will directly affect nearby Botswana as well, and possibly other Southern African countries.

A 2017 study found that Eskom’s coal emissions result in 2 239 premature deaths annually. Regardless of the exact number, Medupi’s local air pollution will inevitably contribute to numerous excess deaths, not to mention countless ill health effects and increased public health spending. The adverse effects of coal on local residents, and on the global environment, have been known for many decades.

The scientific consensus on anthropogenic climate change shows that allowing global average temperatures to rise significantly will have drastically adverse effects on human, animal and plant life. One of the first major international meetings on climate change was in 1979, when the World Meteorological Organisation convened a conference of scientists to discuss the adverse effects of climate change on human societies, and its anthropogenic origins. There have since been regular climate change conferences, such as the United Nations Framework Convention on Climate Change meetings that have been held annually since 1995.

The rise in atmospheric temperatures will not be experienced evenly across the globe: sub-Saharan Africa is predicted to suffer from twice the global average warming. The incidence rate of disasters such as droughts, famines and cyclones is expected to increase dramatically. The high death toll and damage caused by Cyclone Idai to Mozambique, Zimbabwe, Malawi, and Madagascar in March is exemplary of what is to come if radical action is not taken to mitigate the effects of the climate crisis.

In 2010, the same year as the loan to Eskom, the World Bank itself released a long report detailing the harmful effects that climate change will have on development. A section of the report is unambiguously titled, “Unmitigated climate change is incompatible with sustainable development.” If the bank takes its own research seriously, it begs the question as to why it then approved a US$3.05-billion loan to complete a coal-fired power station.

The 2010 World Bank loan was also mired in severe corruption. Hitachi Power Africa, the sub-Saharan African subsidiary of transnational corporation Hitachi, was contracted to build the boilers at Medupi. Chancellor House Holdings, an ANC investment arm, owned 25% of Hitachi Power Africa. The ANC is said to have been enriched by up to R1-billion through Chancellor House’s dealings with Hitachi, earning a roughly 5 000% return on investment.

The links between Chancellor House and the upper echelons of the ANC have long been known, and were reported on in the media before the 2010 loan. In November 2006 the Institute for Security Studies published an exposé revealing that Chancellor House was an arm of the ANC; then ANC secretary general Kgalema Motlanthe later confirmed the connection.

Hitachi Power Africa was formed at the end of 2005, with Chancellor House Holdings as a stakeholder. In 2007 Hitachi won R38.5-billion in contracts to build boilers for Eskom, including Medupi’s boilers.

In 2015 the United States Securities and Exchange Commission (SEC) ordered Hitachi to pay a fine of $19-million because of Hitachi’s breach of the US Foreign Corrupt Practices Act. The SEC investigation found that Hitachi gave Chancellor House millions of US dollars in “success fees” in instances in which Hitachi was granted contracts “substantially as a result” of Chancellor House’s direct connection to ANC decision-makers. This ensured that it was profitable for the ANC to contract Hitachi.

The investigation found that Hitachi was explicitly aware of the ANC-Chancellor House connection, and intentionally used this connection to win contracts. By loaning Eskom billions of US dollars, the World Bank was fostering and condoning such corruption.

Following the SEC settlement, the Democratic Alliance requested that the World Bank carry out its own investigation. Suspiciously, the stunted probe, which concluded that a full investigation was not warranted, was approved by the bank’s then vice-president for integrity, Leonard McCarthy. As former head of the Directorate for Special Operations (Scorpions), McCarthy had clear conflict of interest in this probe given his political and social proximity to the ANC. He is also known for using the Scorpions as a political tool for influencing internal ANC leadership struggles in favour of former president Thabo Mbeki, which puts into question his integrity — and the earnestness of the bank’s investigation.

Even the current head of the World Bank, David Malpass, has been critical of the corrupt dealings of the bank. As Bear Stearns investment bank’s chief economist, Malpass urged the public not to panic about the credit market, just months before Bear Stearns collapsed from exposure to subprime mortgages, indicative of the calibre of economic leadership the World Bank encourages.

In a rare moment of honesty at a US House hearing in 2017, Malpass accused the bank of regular corruption when dealing in developing countries, explicitly mentioning South Africa. This serves as yet another example of the understanding at the highest levels that the World Bank’s loans are not in the public interest.

Politicians, civil society, organised labour and numerous other stakeholders recognise that there is an urgent need to address the Eskom situation in some manner. One of the more common suggestions is the “unbundling” of Eskom. This will inevitably lead to privatisation, turning electricity provision into a commodity rather than a public service. A more appropriate measure would be to cancel the odious Eskom debt. In the face of the current government’s constant appeasing of international financial institutions, South Africans must demand accountability to the public.

Repudiation of Eskom’s debt to the World Bank is a simple yet effective demand. The clearly illegitimate nature of the debt burden could be used to rally popular mobilisation, allowing the public to hold the South African government and the World Bank responsible for the adverse effects of the 2010 loan to Eskom.

Jonathan Cannard

is an intern at the Alternative Information & Development Centre, working on trade, climate change, and the Campaign to Dismantle Corporate Power.

Other articles in English by Jonathan Cannard (2)



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