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An $8.7 billion power plant in South Africa won’t ever make a profit because of delays, design defects and increasing opposition to coal-fired electricity generation, one of its funders said. Picture: BLOOMBERG
An $8.7 billion power plant in South Africa won’t ever make a profit because of delays, design defects and increasing opposition to coal-fired electricity generation, one of its funders said. Picture: BLOOMBERG

Eskom’s $8.7bn (R135.2bn) Medupi power plant won’t ever make a profit because of delays, design defects and increasing opposition to coal-fired electricity generation, according to the African Development Bank (AfDB).

Cost overruns at the 4,764MW facility, along with the even larger Kusile plant are regarded as key reasons for Eskom’s R396b debt burden. The project won’t meet expected returns over its life and is unlikely to stay open as long as planned as pressure grows to reduce greenhouse gas emissions, said the multilateral development finance institution, which approved a €930m loan (R16.6bn) loan for its construction in 2009.

“The Medupi project as installed will not show a positive return and will deliver internal rates of return below the weighted cost of capital for Eskom,” the AfDB said in a completion report posted on its website last month. “This project will not show a financial benefit over its lifetime.”

Medupi, together with Kusile, was touted as the solution to the regular power cuts Eskom first implemented in 2008. Instead it’s become a millstone. An explosion at one of its units last year has temporarily reduced its capacity. Moreover, Eskom is being pushed to accelerate the closure of its coal-fired plants to help the country transition to green energy.

“Due to current perceptions of coal energy this plant is unlikely to reach its original projected 50-year life,” the AfDB said. “Choice of megaprojects with such long lives needs very careful consideration to avoid the challenges now faced by this project in terms of cost and time overruns as well as climate change related environmental concerns.”

Other funders of the plant include the World Bank. News24 reported on the AfDB’s report earlier.

More stories like this are available on bloomberg.com

Bloomberg

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