The World Bank has thrown Eskom the lifeline it was so desperately seeking by late on Thursday approving a $3.75-billion (R27.2-billion) loan to help South Africa secure its electricity supply.

The Bank said in a statement that the loan - the Bank's first major lending engagement with South Africa since the fall of apartheid 16 years ago - aimed to benefit the poor directly, through jobs created as the economy bounces back from the global financial crisis and through additional power capacity to expand access to electricity.

"The loan is provided to South Africa's power utility, Eskom, and was brought about by unique circumstances including South Africa's energy crisis of 2007 and early 2008, and the global financial crisis that exposed the country's vulnerability to an energy shock and severe economic consequences," the World Bank said in a statement.

Key voter abstains

The loan has been granted despite strong opposition from environmental lobby groups and the US' decision to abstain from voting in favour of the loan.

The US Treasury Department said the decision to withhold its vote reflected the country's concerns about the climate impact of the project and its incompatibility with the World Bank's commitment to be a leader in climate change mitigation and adaptation.

The bulk of the loan - $3.05-billion - is to go towards constructing Eskom's Medupi coal-fired power station in the Limpopo province while $260-million has been earmarked for investment in renewable energy and $485-million will be used for investment in low-carbon efficiency components, such as road to rail coal transportation.

Access to energy 'essential'

"Without an increased energy supply, South Africans will face hardship for the poor and limited economic growth," said World Bank vice president for the Africa region Obiageli Ezekwesili.

"Access to energy is essential for fighting poverty and catalyzing growth, both in South Africa and the wider sub-region. Our support to Eskom combines much-needed investments to boost generation capacity for growing small and large businesses, creating jobs, and helping lay the foundations for a clean energy future through investments in solar and wind power," Ezekwesili said.

This is the second major loan for the construction of the plant. Last year, the African Development Bank agreed to give Eskom $2.77-billion to build Medupi.

No plan B

The South African government this week admitted to having no Plan B if the World Bank loan was not approved. Instead it acknowledged that Eskom would be forced to turn to commercial markets to finance the plant - something that the government admitted would be "punitively expensive".

Without the plant, which is expected to be commissioned by February 2012, South Africa runs the risk of sinking deeper into an electricity crisis that saw a near-collapse of the national grid in January 2008.

"The Eskom project offers a unique opportunity for the World Bank Group to strengthen its partnership with the Government of South Africa, Eskom, and other financiers and help South Africa chart a path toward meeting its commitment on climate change while meeting people's urgent energy needs," said World Bank country director for South Africa Ruth Kagia.

The World Bank said in approving the loan, its board of executive directors had noted South Africa's achievement in increasing energy access from around 30% of citizens to more than 80% since the fall of apartheid in 1994.

It said it had also noted South Africa's Free Basic Electricity policy that provides 50 kilowatt hours (KWh) of free electricity per month to poor families.

SA key to Africa

South Africa's pivotal role as generator of 60% of all electricity consumed on the African continent and the importance of a functioning electricity sector for job creation, economic progress, human welfare, and poverty reduction were also taken into consideration.

Also discussed at the meeting were South Africa's efforts to diversify its energy sources and address climate change through its Long-Term Mitigation Scenarios and the United Nations Framework Convention on Climate Change, through which South Africa "have confirmed ambitious emission reduction targets," the World Bank said.

South Africa has committed to pursuing an energy strategy compatible with both its commitments in the Copenhagen Accord to reduce emissions by 34% below the 'business as usual' level by 2020, and 42% by 2025.

Green groups lobbied tirelessly against the loan, saying it encouraged the use of coal-fired power stations, which are among the largest emitters of carbons.

A group of 125 campaign organisations sent a letter to the World Bank, arguing that the project would not bring electricity to the poor but would benefit large mining houses and smelters.

Loan good for neighbours

But Eskom argued that the loan would not only help it as a developing nation grow economically, but would also bolster the economic development of neighbouring countries.

The World Bank cited a letter written by South African president Jacob Zuma to World Bank Group president Robert Zoellick stating that the energy sector in South Africa is of "strategic national importance" and "achieving energy security will be a critical factor for restoring economic growth, both in South Africa, and the wider southern Africa sub-region."

The Bank said the loan received strong support, both from South Africa and other parts of the world.