South Africa - Fourth Electricity Supply Commission (ESCOM) Power Project

RESTRICTED flLE ItVCPY Report No. P-496 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ELECTRICITY SUPPLY COMMISSION FOR THE CAMDEN THERMAL POWER PROJECT SOUTH AFRICA July 18, 1966  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVEIOPDNT RUKPORT AND RECOI1ENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTNS3 ON A PROPOSED LOAN TO ELECTRICITY SUPPLY COM1,1SSION FOR THE CAMDEN THERHAL POWER PROJECT 1. I submit the following report and recommendation on a pro- posed loan in an amount invarious currencies equivalent to $20 million to the South African Electricity Supply Comrmission (ESCONi). PART I - HISTORICAL 2. The Bank has made ten loans to South Africa of together $221.8 million of which three loans, made in 1951, 1953 and 1961 res- pectively and totalling $74 million, were for ESCOM. To meet the rapidlv rising demand for power, ESCOM1 prepared a comprehensive ex- pansion program for 1966-1970 providing for an increase of 56% in in- stalled capacity over the period. In Sentember l16h, E3CON approached the Bank for assistance in financing this program. In preparation for the Bank's consideration of this request, an economic mission visited South Africa in the early part of 1965 to review the country's economic position and prospects. 3. After discussions with the South African delegation at the Annual Iteeting of the Bank in S4tember 1965, I informed the Itinister of Finance, Mr. Dtnges, that we would be prepared to consider a loan of up to $20 million to match funds which they could raise in private capital markcets. Following an issue made by ESCOM in October equivalent to $12.5 million, referred to in paragraph 4 below, the Bank decided to go ahead with an appraisal of a loan of $20 million on the basis that the South African Government would continue to raise further sums in the market as practicable. A mission visited South Africa in April and May 1966 to appraise ESCOMts expansion program and the proposed project. Negotiations were held in Washington in the first half of July. The South African delegation consisted of Mr. G.R.D. Harding, Mr. H.2. Torr and Mr. J.A. Bothma of ESCOM, and Mr. N. Prinsloo of the Department of Finance, representing the Government. 4. South Africa has a strong economy which is reflected in its balance of payments and reserve position and its high rate of saving. As such, it has been able in the past to cover its external capital needs mainly in private markets, and in fact most Bank loans to South Africa since 1955 have been combined with borrowing operations by the Government or ES3O0I in private markets. In recent years South Africa has continued to borrow abroad whenever practicable, and in October 1965 ESCOM w-ipas successful in makcing an issue in Germany of DN 50 million, 6-1/2% 15-.year bonds at 96-1/2. In these circumAstances I believe that South Africa comes within the category of market eligible countries. I am therefore proposinrg that the ten-year loan now: under consideration  would carry interest at 6-1/4%, the rate applicable in the terms of my statement at the meeting of the Executive Directors on Harch 8, 1966 (Seci'I 66-7i). 5. The followJing is a summary statement of Bank loans to South Africa as of June 30, 1966: Amount (U.S. $ Miillion) Total (less cancellations) 221.8 of which has been repaid 17h.6 Total now outstanding h7.2 Amount sold: 138.9 of which has been repaid 119.0 19.9 Total now held by Bank 27.3 All loans have been fully disbursed. The final payments on loans still outstanding are due in 1971. Apart from the loan to ESCOII nowi proposed no further loans to South Africa are being considered by the Bank at this time. PART II - DESCRIPTION OF TfHE PROPOSED LOAN 6. Borrower: Electricity Supply Commission Guarantor: Republic of South Africa Amount: An amount in various currencies equivalent to $20 million Purpose: To help finance construction of the Camden thermal power station Amortization: Term of 10 years, including 1