South African Government's Response to Questions on the Eskom loan application to the World Bank
The World Bank Board will consider a $3.75 billion project loan to South Africa's power utility, Eskom on 8 April 2010 to finance its capital expenditure programme. The premise upon which the World Bank loan application for Eskom was made, was based on the fundamental belief that developing countries must be allowed to develop their energy security for their populations, in the most cost effective and sustainable manner.
South Africa is pursuing an energy strategy compatible with both our commitments in the Copenhagen Accord to reduce emissions by 34% below the "business as usual" level by 2020, and 42% by 2025. This strategy includes meeting urgent generation expansion while committing to an aggressive programme to enhance energy efficiency measures and introducing renewable energy as well as demand-side management.
The generation technologies that Eskom has chosen to use are fully embedded in and informed by the Long Term Mitigation Scenarios (LTMS) adopted by the Government in 2008. The intention is to ensure that carbon emissions peak during 2020-2025, reaching a plateau for a decade, and then begin declining thereafter. Therefore the issue of carbon mitigation from increased generation needs to be viewed in a broader context, as the mitigations derive from several sources and sectors, and also over an extended time frame. Since the LTMS and its outcomes, there has been sound assurance among various stakeholders, within government, civil society and the private sector, of implementation actions that are required to meet its objectives. The Medupi power plant for example, is the first in Africa to use the cleaner coal "supercritical" technology, the same technology used in developed countries for new coal power generation.
The Government of South Africa and Eskom have sought to consult and engage with stakeholders, domestically and internationally, on Eskom's loan application to the World Bank. In the interest of transparency and good governance, we have listed the following questions and concerns raised by stakeholders and our responses.
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11. What procedures were followed to ensure the Medupi contracts were awarded transparently? Does the Government plan a response to the opposition on the issue of the Chancellor House-Hitachi contract?
Eskom's commercial activities are governed in the first place by the Constitution of the Republic of South Africa, 1996 and by the Public Finance Management Act, 1999 (PFMA). Both require that an organisation such as Eskom should have in place a procurement system which is "fair, equitable, transparent, competitive and cost-effective". Within this framework Eskom has an approved set of Commercial Policies and Procedures complying with the PFMA, the use of which is mandatory.
In addition to the PFMA and the Constitution, Eskom's procurement process must adhere to the requirements of administrative justice and comply with a number of common law and statutory provisions regulating procurement, corruption, fraud, competition and related matters.
Together with the robust commercial procedures, Eskom's procurement processes include an audit oversight framework. For the audit framework, a panel of external Auditors, including amongst others Deloitte, Price Waterhouse Coopers and Ernest & Young, are in place. For all transactions larger than R750 million, the auditors carry out a non-financial due diligence and probity checks on all members of the Evaluation Teams and Tender Committees.
Regarding the the Chancellor House-Hitachi contract, Government is mindful of some of the concerns raised in this regard. Government is, and will continue to engage with all concerned stakeholders on this important question with a view to having a constructive dialogue. We will ensure that we have a transparent framework to deal with matters such as these.
These are extracts from a statement posted on The Treasury website, April 7 2010. The full version can be accessed here - PDF.
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