Where will the money come from?

The plant, only known as 'Coal 3', would be the third in the line of 'mega' coal-fired power stations currently being built by the state utility Eskom. South Africa is already constructing two of the biggest and most polluting coal fired stations in the world: Medupi and Kusile will rank as the third and fourth largest coal-fired power stations in the world when completed. Cabinet argues that the construction of 'Coal 3' is one of the necessary steps needed to 'reignite the South African economy'.

But at what cost?

The hidden costs associated with coal have been well documented. The University of Pretoria estimates Kusile's hidden costs at approximately R60-billion for each of the fifty years that it would operate,¹ and South African taxpayers will have to foot the bill. The R60-billion includes the costs associated with impacts on our scarce water resources, impacts on people's health, the impacts of coal mining and an increased contribution to climate change. R60-billion per year, for one coal-fired power station is not small change, by any stretch of the imagination, and there is a lot more at stake for 'Coal 3'.

Even if we were to put the hidden costs of coal-fired power stations aside for a second, that still leaves us with the very urgent question: where will the financing for a third mega coal-fired power station come from? Both Medupi and Kusile are very delayed, and costs have continued to escalate. Delays have added a further R14-billion to the cost of Medupi. However, even with this R14-billion included, the official R150-billion pricetag for Medupi excludes a flue gas desulphurisation plant that must be added to the coal-fired power station (R10-R15 billion) and the cost of interest during construction.²

Medupi was the recipient of a controversial World Bank loan, and 100% of the financing for Kusile has yet to be secured. At the same time, international financing institutions like the World Bank and the US Ex-Im bank are showing almost no appetite for paying for new investments in coal-fired power stations (unless in exceptional circumstances). These banks are increasingly recognising that there is no future in coal, and are refusing to continue to invest in coal-fired power stations.

On the other hand, Eskom's credit rating has recently been downgraded by Moody's (making investments in Eskom more risky than investments in South Africa), and the utility is already highly indebted with R200-billion debt on its books. NERSA has granted Eskom a yearly tariff increase of 8%, half of the 16% the utility was hoping for, and according to the utility's own funding model, it has depleted all sources of income other than bonds. And a large share of Eskom bonds has been (and will continue to be) bought up by the Government Employees Pension Fund - meaning that government employees are taking on a large chunk of Eskom's credit risks.

So, who is going to pay for the next major coal-fired power station (in an area with severely limited water resources)? The only answer that seems likely is that rather than reigniting the South African economy, a third massive coal-fired power station will throw this country much further into debt, and at the end of the day, it will be ordinary South Africans who pay the price.

[1] The External Cost of Coal-fired Power Generation: The case of Kusile
[2] Times LIVE: Whose heads will roll, Gigaba?