MEDUPI POWER PROJECT SUPPLEMENTARY LOAN
- Reference: P-ZA-FA0-002
- Appraisal Date: 31/07/2015
- Board Presentation: 17/02/2016
- Status: LendingLEND
- Implementing Agency: ESKOM HOLDINGS LTD (Public Sector client)
- Location: South Africa
The project components are as follows:
(i) financing to cover the basic and cost price adjustment elements of the contract price of Medupi Power Station Project's boiler and turbine contracts; (
(ii) financing the Construction of four Transmission Lines: construction of approximately 190km of 2 x 400kV new transmission lines for the integration of the new Kusile Power station and Zeus substation as well as integration between the existing Kendal Power station and Zeus (95km); and construction of two 400Kv lines namely Ariadne - Venus and Ariadne - Eros to ensure strengthening of the Eskom East network grid as well as integration of the Pinetown and Empangeni areas. The project also includes financing Underrated Equipment Replacement in Mpumalanga Region
The National Development Plan 2030 (NDP) supports the Government's long-term goal of building a harmonious and prosperous society through livelihood improvement, and regionally balanced and environmentally sustainable growth. The three pillars of the National Development Plan are:
(i) Raising employment through faster economic growth,
(ii) Improving the quality of education, skills development and innovation, and
(iii) Building the capability of the state to play a developmental, transformative role. One of the objectives of the National Development Plan is to produce sufficient energy to support industry at competitive prices, ensuring access for poor households, while reducing carbon emissions per unit of power by about one-third. The NDP aims for 5.4% average annual economic growth rate and 11 million more jobs between 2012 and 2030. Accordingly it aims to reduce unemployment rate from 25% in 2012 to 6% in 2030.
However the infrastructure bottlenecks in electricity supply pose significant constraints to economic growth. The excess capacity situation that prevailed over the last decade gave rise to complacency which led to inadequate attention to planning for system expansion. Even though the South African economy experienced significant growth, 2000 to 2007, and demand for electricity grew at a rate of approximately 3.4% per year, limited capital investment was made. Although the national utility, Eskom, actively sought to avoid load-shedding between 2008 and 2014 as part of its "keep the lights on" policy, it has been compelled to resort to load-shedding on numerous occasions since 2014, due to the increased unplanned outages combined with the low operating reserve margin. As South Africa relies strongly on the exports of its precious metals to finance its current account deficit the impact of load shedding on mining operations (which are energy intensive) has led to a strong depreciation of the rand as well as a stalling of economic growth and downward revisions in growth forecasts.
The project is thus consistent with one of the proposed interventions of the NDP - increasing investment in social and economic infrastructure in order to lower costs, raise productivity and bring more people into the mainstream of the economy. The Project will be support of two of the Strategy Integrated Projects in the National Infrastructure Plan 2012 with a focus on accelerating the implementation of new generation capacity and transmission and distribution network to address historical imbalances, provide access to electricity for all and support economic development. It also supports the targets laid out in the Integrated Resource Plan for Electricity 2010-2030 and is well aligned with Eskom's Ten-year Development Plan (2013-2022) which puts integration of power stations developed by Eskom and Independent Power Producers to the network a major priority. reduce carbon emissions and encourage development of clean energy resources. It is also consistent with the Bank South Africa Country Strategy Paper pillars on Infrastructure Development and support for Regional Integration as the investments will strengthen the systems transmission capacity which is essential for regional energy trade.
The Bank Group's Ten Year Strategy strives to support the twin cross-cutting objectives of inclusive growth and transition to green growth in the Regional Member Countries. The project is fully aligned with three of the five operational priorities of the Bank's Ten-Year Strategy (2013 - 2022) by developing power infrastructure, supporting regional economic integration, and providing a platform for private sector development. The intervention is partly aimed at the completion of the Medupi project, which the Bank is already financing, and that Eskom continues to act as a catalyst for private-sector participation in South Africa's electricity industry through connecting Independent Power Producers to the grid. The Medupi Project is also part of the Bank's Southern Africa Regional Integration Strategy Paper 2011 -2015's target project to facilitate regional energy supply and trading The Bank support will ensure that Eskom can access resources for the critical capital expansion program at a reasonable cost with consequent favourable impact on tariffs which is a boost to inclusive growth.
The project has various components with different sub-objectives. The completion of the Medupi power plant and the expansion of the transmission program through improvements in the 4 transmission related interventions shall ensure that power supply and electricity access are improved and expanded. Employment equity policies have been implemented at Eskom that are inclusive of race, gender and people with disabilities to ensure that Eskom builds an organisation that is representative of all the people of South Africa. In addition, it is expected that the project will generate business through supplies and services linked to the project. Eskom has continued to demonstrate commitment to development and transformation by investing in educating and training workers, both internal and external to Eskom. The project is expected to include in its design a training program for its employees in administrative and technical areas.
The scourge of HIV/AIDS continues to impact on population of South Africa including those in rural areas. The impact of HIV/AIDS is managed through education and awareness programs, voluntary counselling and testing, and care and support for infected and affected employees. The project shall include in its design an expanded program of HIV/AIDS awareness and prevention program for the construction workers and for communities around the project areas. The appraisal mission will collect more information to inform the social indicators in the logframe.
KANONDA Farai Epiphanius - ONEC2