South Africa Energy · Eskom P116410 · MDB Reform Platform
Does the World Bank Learn from Project Failures? (Part 3) — One Project. One Utility. $18.1 Billion. Rated Moderately Unsatisfactory.
The Largest Single-Project Failure in the World Bank’s Africa Portfolio. Nine Consecutive Unsatisfactory ISRs. $1.7 Billion Disbursed While the Project Was Failing. No PPAR.
The Climate Champion That Financed Coal
In October 2008, the Bank endorsed its Strategic Framework for Climate Change. $6.4 billion for Climate Investment Funds. An 87 per cent increase in renewable energy financing. Zoellick pledged “low carbon growth.” The US Treasury proposed guidelines requiring “full consideration of alternatives” before approving a coal plant. Eighteen months later — April 8, 2010 — the same institution approved its largest-ever loan: $3.75 billion for Medupi, a coal-fired power plant emitting 25–30 million metric tons of CO2 annually — more than 60+ of the world’s lowest-emitting countries combined. Five shareholder countries abstained. Over 200 civil society organisations opposed. When the disbursement opportunity presented itself, the climate credentials were set aside.
The Corruption Was Already in the Public Record
The Bank was not the first to arrive. Construction at Medupi had started in 2007 — three years before the Bank’s involvement. The design was fixed. The procurement was already compromised. In 2007, Hitachi’s boiler contract involved the ANC’s investment arm, Chancellor House, which held a 25 per cent stake in Hitachi Power Africa. The Eskom board chairman simultaneously sat on the ANC Finance Committee. In 2015, Hitachi paid a $19 million fine to the US SEC under the Foreign Corrupt Practices Act. The boilers that resulted from this corrupted procurement turned out to be defective. The Bank appraised in 2009. It approved in 2010. The corruption was already in the public record. Two days before the Board voted, the Inspection Panel received a complaint from Lephalale communities. The Panel’s Investigation Report found non-compliance. The project proceeded.
The Record: Appraisal vs. Completion
| Measure | At Appraisal | At Completion | Variance |
|---|---|---|---|
| Total project cost | $13.86bn | $18.13bn | +$4.27bn (+31%) |
| Medupi component | $12.05bn | $17.47bn | +$5.43bn (+45%) |
| IBRD loan disbursed | $3.75bn | $3.16bn | $590M cancelled |
| ERR | 22.7% | 12.8% | Halved |
| Closing date | Oct 2015 | Jun 2021 | 6 years late |
| Restructurings | 0 | 6 | Dec 2014 – Jun 2020 |
| Unplanned outages | — | 28% of time | Below all benchmarks |
A note on the financing figures
The Bank’s own IBRD loan was $3.75 billion ($3.16 billion disbursed). The IEG database records $9.13 billion — the Bank’s loan plus co-financing from the AfDB, EIB, JICA, the Clean Technology Fund, and bilateral lenders. The total project cost at completion was $18.1 billion. All three figures appear in the paper.
State Capture: The Zondo Commission Record
The state capture literature — the Zondo Commission, Betrayal of the Promise, Shadow State, the GuptaLeaks investigations — documents what happened to Eskom in precise detail. R74 billion ($10.6bn) in annual procurement became the most valuable prize in South Africa’s political competition for rents. The board was captured: almost every new appointee had documented Gupta links. The CEO visited the Gupta compound 19 times in four months. Coal contracts escalated from R161/ton to R550/ton. The R659 million overnight prepayment funded the Gupta purchase from Eskom’s own coffers. R14.7 billion ($920 million) in Eskom contracts were found by the Zondo Commission to be “afflicted by State Capture.”
Not a Bystander: The Bank’s Procurement Role
The Bank was not a passive observer. It was actively participating in the procurement architecture of a captured institution. The Bank-approved procurement plan for P116410 was revised six times — each revision submitted to and approved by Bank staff. The Bank conducted Prior Review on all works contracts above $15 million: reviewing bid evaluations, assessing contract awards, clearing procurement decisions. Contracts worth tens of millions of dollars were signed during 2015–2018 — the exact period the Zondo Commission found Eskom’s procurement was being manipulated by politically connected networks.
Four Country Directors oversaw the project: Ruth Kagia, Guangzhe Chen, Paul Noumba Um, and Marie Françoise Marie-Nelly. Three Regional Vice Presidents for Africa: Obiageli Ezekwesili, Makhtar Diop, and Hafez Ghanem. Makhtar Diop presided over every one of the nine consecutive Unsatisfactory ISRs — and subsequently became VP Infrastructure and then Managing Director of IFC. The word ‘state capture’ does not appear in the ICR. The word ‘Gupta’ does not appear. The Bank’s 106-page completion report does not name the crisis.
The Game Theory: Why No One Stopped It
The TTL who pushed the largest IBRD loan in history through Board approval subsequently rose to one of the most senior infrastructure positions in the institution. The RVP who presided over nine consecutive Unsatisfactory ISRs subsequently became Managing Director of IFC. The project failed. The careers advanced. The sovereign guarantee ensured the Bank would be repaid regardless of what happened to Eskom, to the communities of Lephalale, or to the South African taxpayers. Nobody bears the cost of failure except the borrowing country. In the Nash equilibrium of the approval culture, pushing for approval is individually rational regardless of the development outcome.
No PPAR: The Evaluation That Will Not Be Conducted
| Project | Country | Commitment | Rating | PPAR? |
|---|---|---|---|---|
| Energy Efficiency (P116680) | Armenia | $1.8M | MS | Yes |
| Food Crisis Response (P113219) | Sierra Leone | $3.0M | MS | Yes |
| Fish Resources (P105881) | Senegal | $3.5M | HU | Yes |
| Electricity Enhancement (P073477) | Senegal | $44.1M | U | Yes |
| Eskom Investment Support (P116410) | South Africa | $3,750M | MU | No |
Annex: The ISR Split-Screen Timeline (Key Rows)
| # | Date | DO | IP | Disbursed | External events |
|---|---|---|---|---|---|
| 01 | Jun 2010 | S | S | $0M | Board approved Apr 8. IP complaint filed Apr 6. US/UK/NL abstained. |
| 03 | Dec 2011 | S | MS | $569M | Inspection Panel finds non-compliance: water, air quality. |
| 06 | Oct 2013 | U | U | $1,333M | CRASH. Both ratings drop to Unsatisfactory. |
| 09 | Jun 2015 | U | U | $2,292M | Hitachi pays $19M FCPA fine. Boiler defects detected. |
| 14 | Mar 2018 | U | MU | $3,028M | Nine consecutive U-rated ISRs end. Zondo Commission launched. |
| 16 | Apr 2019 | MS | MU | $3,048M | DO jumps U → MS in one cycle. Underlying problems not resolved. |
| 21 | Aug 2021 | MU | MU | $3,132M | Project closing. $18.1bn total cost. IEG: no PPAR. |
The full 21-row timeline is in Annex A of the paper.
Series: Does the World Bank Learn from Project Failures?
| Part | Country–Sector | Commitment | Status |
|---|---|---|---|
| 1 | Nigeria Water | $1.8bn | Published |
| 2 | Angola DPF | $2.2bn | Published |
| 3 | South Africa Energy (Eskom) | $9.13bn | This paper |
Companion Papers
Institutional Power Architecture and Portfolio Distortion at the World Bank — How MTI controls the DPF instrument, manages the Finance Ministry relationship, and records the worst outcome rate of any GP at scale.
Why the System Does Not Learn: A Game Theory Analysis — The Nash equilibrium of the approval culture. Why no single actor inside the institution has the incentive to stop a project that is too large to cancel.