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The quickest way to reduce Eskom’s balance sheet — declare odious debt on Medupi and Kusile


Sunny Morgan is the co-convener of Debt for Climate, a global Climate debt cancellation campaign.

The largest component of Eskom’s debt is to pay for two vast coal-fired power plants — Medupi and Kusile (costing well over R300-billion). Those transactions were always tarnished with corruption and accusations of bribery. 

On Friday, activists from Debt for Climate and Extinction Rebellion Gauteng are protesting in Johannesburg against the World Bank this week during the Group’s annual meetings being held in Washington DC. Protests are also happening in Washington DC, in Argentina, Peru, Panama, Indonesia and all across Europe.

For us, the most pressing issue is the damage to Eskom’s balance sheet by the World Bank, dating to 1951, but ramping up in 2010 with the $3.75-billion (R67 -billion) loan that made the Medupi coal-fired power station possible.

Eskom is now currently in debt to the tune of almost R400-billion. The board of Eskom and its only shareholder, the South African government, are looking for ways to address this debt, and since Eskom is already junk-rated, relief won’t come through more borrowing on the open market. 

And new lenders in the misnamed Just Energy Transition-Partnership are doing more harm than good: failing to recognise the $8.5-billion as a down-payment on the North’s climate debt; failing to ensure Eskom halts all new fossil fuel projects including methane gas; lending in hard currency at a time our rand is crashing; and simultaneously requiring repayment of Medupi “odious debt” that in a just world would be cancelled.

Repayment of the full amount is near impossible unless the taxpayer is burdened with a massive amount. There is a substantial lobby in the business sector — e.g. Morgan Stanley bank — suggesting that government do exactly that. They have proposed that Finance Minister Enoch Godongwana adds R250-billion in Eskom liabilities to the 26 October 2022 Medium-Term Budget Framework. 

If this happens, Eskom’s debt will become a noose around the neck of not only the largest state-owned enterprise and its customers, but now the taxpayer — and it will prompt Godongwana to impose even worse austerity on social spending to compensate. Some of Treasury’s most brutal cuts have been to the national-to-municipal ‘Equitable Share’ grants, and these cuts are already creating major outbursts of social unrest (including in places like Tembisa recently), as municipalities in turn cut electricity supplies and charge much higher prices to low-income black residents.

In these ways, the taxpayers, citizenry and electricity consumers of South Africa will be unfairly burdened for years to come by Eskom’s debt, the vast majority of which can be classified as odious debt. 

The largest component of the debt is to pay for two vast coal-fired power plants — Medupi and Kusile (costing well over R300-billion). Those transactions were always tarnished with corruption and accusations of bribery. 

The World Bank president knew of the corruption and at the same time, he ignored the efforts of a major international campaign against Medupi, one of the most widespread and visible in Bank history. The anti-Medupi movement even compelled the US Bank representative to abstain against what was the Bank’s largest-ever project credit. The original loan was for $3.75-billion, nearly all for the 4,750MW coal-fired power plant. 

This bribery was prosecuted in the United States. Hitachi paid a $19-million (R350-million) fine to US authorities in 2015. In South Africa, a 25% share of Hitachi Africa was given to Chancellor House, the ANC’s investment wing, at a time Eskom’s chair Valli Moosa also sat on the ANC Finance Committee in a blatant conflict of interest. 

Strangely this transaction was not investigated by the Commission into State Capture (the Zondo Commission)

In a 2007 report, the UN Conference on Trade and Development (Unctad) addressed odious debt, arguing that within the 1969 Vienna Convention on the Law of Treaties, “Articles 49 and 50 reflect an emerging body of international law in respect of fraud and corruption of a representative of a State.” 

Debt contracts can, in such cases, be questioned. 

Indeed, the Unctad report continues:

“A court may be able to fashion a remedy to allow… a State to avoid debts contracted by a collusive lender and corrupt government officials in the sovereign context. Even if a loan is assigned to a third party who had no knowledge of, for example, corruption or bribery contrary to the United States Foreign Corrupt Practices Act 1977, the law relating to the assignment of contractual rights provides that the borrower can raise the same defences against the assignee… 

“In recent articulations of the concept of odious debt, one of the conditions for the characterisation of debt as odious and eligible for repudiation is that the creditor at the time at which the loan contract was made knew, or should have known, that the debt was odious, i.e. that the funds were intended for a purpose contrary to the interests of the population.”

Critics of the loan in South Africa included environment, community, labour and other civil society groups, the main opposition party and the main business newspaper — all of whom asked the Bank not to lend for Medupi because of corruption by Hitachi or its implications for the climate catastrophe. 

But both Medupi and Kusile were built by Eskom, with Hitachi boilers costing tens of billions of rands, and without the required environmental interventions in place to prevent pollution — whether CO2, SO2, methane or other dangerous emissions — in flagrant disregard for local and global victims. 

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Indeed, Eskom has argued not only against a carbon tax to penalise the CO2 and methane emissions, but also against its obligations to reduce other forms of pollution, because to do so would simply be too expensive.

Also cost prohibitive is the interest bill because repayment of hard-currency loans to Eskom starting in 2011 (when money began flowing) was at a more reasonable rate, when a rand was worth R6.3/$. Today, currency crashes have left the rate at R18/$, making repayment exceptionally expensive. 

For these reasons, the World Bank must prepare itself to take a haircut under the Doctrine of Odious Debt. Other lenders — the BRICS Bank, China Development Bank, African Development Bank and bilateral creditors from the US, UK, Germany and France — should follow immediately, recognising their role in hastening Eskom’s death spiral through Medupi and Kusile financing.

Debt cancellation

To this end, the Debt for Climate campaign, a Global South-led campaign, is calling for the cancellation of all financial debt of the Global South owed to the World Bank, IMF and other multilateral, bilateral and commercial creditors.

We need the Global South to take effective climate action by leaving fossil fuels in the ground, by adapting to the extreme weather we anticipate more of in coming months and years (like the Durban April-May rain bombs, the Eastern and Western Cape Day Zero events, droughts, wildfires, floods and the resulting inflow climate refugees), and to repay victims of climate change the “loss and damage” reparations they are owed by those who caused the problem in the Global North.

Various activists have over the years called for debt cancellation, and in 2006-07, the Jubilee movement did win some relief that in turn allowed more state funding to flow into education, health and social welfare. But when it comes to reducing debt to lower environmental pressures as well as addressing the closely-related social justice investment backlogs, the Medupi odious debt is an obvious campaign to embark upon.

With the exception of the pro-privatisation lobby, we all agree on the need to return Eskom to servicing the public good, especially given our extreme inequality and energy poverty, in a context of unprecedented global environmental fragility. That will require cleaning up its balance sheet so that it can serve the social, economic and environmental needs of all the people of South Africa and the world. 

After all, the vain hopes placed by Eskom and the Bank in Medupi and Kusile led to inadequate investment in renewable energy (aside from buying a small amount from independent privatised generators). As a result, power outages (aka rolling blackouts) are ravaging the economy and disrupting daily life for all who are not wealthy enough to go off-grid or who are not members of Cyril Ramaphosa’s bloated cabinet. 

Eskom has an ageing coal-fired power plant fleet dating to the apartheid era (when the World Bank was lending billions to Eskom without regard for its racist policies). The plants either need to be constantly repaired or taken offline. If the debt were to be cancelled the utility would be able to transition to renewables, add sufficient energy storage and explore other non-polluting energy options such as demand management. 

Inglorious role of the World Bank

The World Bank’s prior activities in South Africa include not only financing a crime against humanity from 1951-67 under apartheid (for which it has not yet made reparations payments on its unjustifiable interest repayments) but also:

  • its leading advisory role and subsequent promotion of privatisation and austerity in its 2022 lending; and
  • the $2-million investment made with Transnet in 2019, in a proposed Liquefied Natural Gas terminal in Richards Bay, to import “blood methane” from northern Mozambique in spite of methane’s much greater potency as a greenhouse gas (85 times worse than CO2 over the next 20 years).

The World Bank and IMF will hold their Annual General Meeting in Washington DC from 14-17 October and Debt for Climate and other climate activist are holding protests, pickets and creative actions there and across the world, to bring attention to the debt crisis and to demand the following:

  1. The World Bank should consider Medupi, any other fossil fuel investment and other corrupt financing as odious debt and cancel them;
  2. The World Bank Group and IMF must cancel the other financial debt owed by the Global South — as a down payment on the climate debt owed by the Global North;
  3. The Biden Administration and other World Bank member states must fire Bank president David Malpass for being a climate denier, as confirmed to the New York Times last month.
  4. The World Bank and IMF must be democratised, not just by ending the tradition by which leadership of these institutions is restricted to only Americans or Europeans, but also because elites from any country — including South Africa — need civil society counterbalance so that the likes of the Medupi loan are never again contemplated at the Bank.



Comments - Please in order to comment.

  • jimpowell says:

    The answer is Small Nuclear Modular reactors. What happens when the wind does not blow or there is cloud cover and worse when both occur at the same time. What is the total full cycle cost of wind and electric solar?

    • Peter Atkins says:

      What is the question? How we can pour another 9 billion Rand down the PBMR tunnel?
      When SMRs have been developed and run commercially by other Guinea pigs for a decade or two and their price has dropped due to economies of scale, and disaster insurance is available, and nuclear waste disposal has been satisfactorily solved – then let’s go buy a few.
      Until then let’s use renewable energy plus energy storage – cheaper, safer, environmentally better, and bankable. EOR

  • Menahem Fuchs says:

    Excellent article, a well-articulated opinion which is difficult to refute.

    • Jacques Wessels says:

      I agree but to pass the ball to IMF does not absolve ZA own decision makers who had the same information but proceeded to impoverish this country for generations

  • Roelf Pretorius says:

    I agree with the bulk of these proposals. Of course it won’t happen without the consent of the global north, and I am not sure they will agree. Secondly, I am not so sure that the IMF/World Bank COULD have known about the corruption, because the corruption only occurred when the process was going on. Thirdly, we have to recognize that at the time of the planning of Medupu & Kusile SA really had an emergency, while the roll-out of green energy can’t be done on a short term basis. Such transition takes place over time with the old ways of electricity generation staying along with the green generation until the last can take over completely. There is also such a thing as energy security; a good example is the returning of Europe to older energy generation on the short term, in the wake of the Ukrainian crisis. In 2007/8 SA had such a crisis; it may have been of our own making, but by then that was water under the bridge and the situation had to be remedied. But if we can get the lenders to cancel the debt, we just then have to use the windfall to speed up the green energy generation, including the other 6 hydro-electric pump stations to use as storage facilities.

  • William Stucke says:

    > “The World Bank’s prior activities in South Africa include not only financing a crime against humanity from 1951-67 under apartheid”

    Please elaborate.

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