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Inspection panel findings on impact of Medupi

17th May 2013

  

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Following a request for inspection of the World Bank’s Eskom Investment Support Project (EISP) pertaining to the Medupi coal-fired power station, in Limpopo, an inspection panel established that, at system level, the bank management’s assessment of South Africa’s legal and institutional framework is well founded.

The finding centred on management’s view that the country’s system is acceptable, supporting the application of the Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues in Bank-Supported Projects – OP 4.00 – (or ‘Use of Country Systems’) policy.

However, the panel, which was assisted by six international and local experts in relevant fields, identified three shortcomings in the World Bank’s assessment – the Safeguard Diagnostic Review – and related gaps that were linked to risk and impact management, and oversight.

As required by the resolution, each finding has a basis in the World Bank’s operational policies applicable to the EISP.

Firstly, World Bank policy requires that appropriate studies are undertaken proportional to, among others, cumulative impacts; the latter issue was a major concern of the requesters. At the time that the Medupi coal-fired power station’s environmental-impact assessment (EIA) was prepared there was not an equivalent requirement in South African law and the project’s EIA did not reflect these important impacts.

Secondly, the panel found that there was an inadequate assessment by management of capacity at provincial and local authority level. Although the national level of government is responsible for decision-making on the project and for enforcement of conditions of environmental authorisation, the subnational authorities play a crucial role in managing air quality and water services, and in oversight and compliance monitoring, enforcing environmental (including water) laws.

Thirdly, World Bank policy calls for the use of an independent advisory panel of international experts in the preparation and implementation of projects that are highly risky or involve serious environmental and/or social concerns. There is no such requirement in South African law.

At project level, the panel found lack of compliance with provisions of World Bank policy with respect to three main issues of potential harm.

Firstly, the operation of the power plant, including the technology for removal of sulphur dioxide from emissions, namely flue gas desulphurisation (FGD), will place an additional strain on water resources in an area that is already suffering from water scarcity. The panel is of the view that, although management recognised the risk of water availability to the plant, it did not fully consider the impacts and risks of water supply alternatives to other local water users. The panel’s understanding based on the project documentation is that the operation of FGD is dependent on the completion of Phase 2 of the Mokolo-Crocodile Water Augmentation Project (MCWAP).

“The apparent postponement of Phase 2 of the MCWAP adds considerable risks to the successful outcome of the project in terms of air quality and health issues. World Bank management has not provided adequate information on alternative sources of water for the plant and the environmental and social implications of their use, other than stating that Phase 1 of the MCWAP (with possible augmentation from groundwater and municipal wastewater) will be sufficient for these purposes,” states the report.

Secondly, the emissions from the Medupi plant pose a health risk to local communities, adding to existing background levels of air pollutants from the existing Matimba power plant and other sources. The panel commended management for insisting on incorporating FGD in the plant design, but noted that complete installation of FGD was only planned for three years after full operation of the power plant, and that the choice of wet FGD technology significantly increases the water requirements of the plant. Delays or interruptions in water supply may further extend the interval without emissions reduction.

“Thirdly, the influx of people related to the project and the associated expansion of the [Medupi Grootegeluk] coal mine places additional strain on public services and infrastructure in the [Lephalale] municipality. By its own recognition, this municipality is poorly equipped in terms of financial and human resources to accommodate the increasing needs,” says the report.

It also noted that the EIA identified this as an issue involving risks of high significance, but found that management had not adequately assessed the identification and implementation of commensurate mitigation measures.

Bank Management Response and Looking Forward

The World Bank board of directors discussed the panel’s investigation report on May 22, 2012.

Bank policy requires project supervision for pilot projects applying the ‘Use of Country Systems’ which, according to bank policy OP/BP 13.05, involves identification of key risks to project sustainability and the recommendation of appropriate risk management strategies and actions to the borrower.

In this case, the investigation validated three areas of significant environmental and social risks and potential harm at local and pro- ject level linked to the bank’s policy compliance regarding water resources, air quality and public health, and local public services and infrastructure. The risks and harms regarding water resources are inextricably linked to those of air quality and health. The investigation also provides lessons with respect to application of the policy on ‘Use of Country Systems’ in terms of system and project level assessments.

In this respect, and in response to the panel’s findings, the panel acknowledges management’s preparation of a supplemental note to the management report and recommendation, its commitment to extended supervision of the project until 2022, and further elaboration of the scope of its supervision.

The panel emphasises that the purpose of the process is to address the concerns raised by requesters when validated in relation both to alleged harms and compliance with World Bank policy. “A panel investigation may also provide important lessons for the bank in terms of policy application,” says the panel.

Hence, the intended outcomes of the panel process, in terms of actions moving forward, are the identification and implementation of appropriate actions in terms of redress when harm has been caused, the identification and implementation of actions to improve the project and strengthen implementation to manage risks of potential harm, and/or the identification of actions in response to lessons emerging from the panel’s analysis of compliance.

The panel notes that many of the potentially significant impacts may only materialise during the operational phase of the project, where operation of the first unit is planned to start this year.

In light of the potential significance of ‘harms’, should the risks materialise, the panel notes that bank policy BP13.05 calls for a supervision plan within a clear results framework to enable timely intervention where necessary to resolve problems. Moreover, the panel points out that the ‘Use of Country Systems’ policy emphasises capacity building and human resource development beyond individual project settings as a key objective.

The panel concurs with management that it is proper and appropriate to rely on South Africa’s comprehensive systems as the core means to address these challenges in future.

In addition, the panel appreciates that the outcome of the project relies heavily on a good working partnership between the World Bank and Eskom as well as the country’s national and subnational authorities. The panel also appreciates the commitment to foster transparency and broad stakeholder participation during the supervision period, and hopes that management continues to include the requesters and other locally affected persons in their consultations.

History of Request

On April 6, 2010, the inspection panel received a request for inspection from community members living in the impact area of the 4 800 MW Medupi power plant, which is a core component of the World Bank-financed EISP. The South African parastatal agency, Eskom, is the borrower and the government of South Africa is the guarantor of the loan.

The request contained 15 claims alleging potential harm as a consequence of the project and related issues of World Bank policy compliance. The potential ‘harms’ alleged were mostly local in nature, but some related to national or wider impacts. In accordance with its mandate, the inspection panel assessed all claims and concluded that 11 of these claims warranted an investigation of the bank’s compliance with its relevant policies.

A key feature of the panel’s investigation was the application of the ‘Use of Country Systems’ policy. This was the first panel investigation related to this policy, posing methodological challenges in assessing compliance at both a system and project level, as provided for in OP 4.00.


Medupi Project Context
The need for electricity generation in South Africa is urgent and of paramount importance to development in the country. The panel recognises that the project’s development objective is to support South Africa in enhancing its power supply and energy security. The $3.75-billion project is the largest loan made by the World Bank to date, and includes the 4 800 MW Medupi coal-fired power plant, in Lephalale, as well as associated infrastructure.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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