Brics bank backs renewable energy

The New Development Bank (NDB) issued its first loans this week. Included in the first tranche was $180-million for Eskom that will be used to improve South Africa’s transmission grid and to aid the country’s renewable energy independent power producers programme, said the NDB.

It remains to be seen whether this money, and other funding, to improve the utility’s transmission infrastructure will ease some of the bottlenecks in connecting renewable energy projects to the grid.

In response to questions Eskom said that it and the NDB are still in discussions regarding the loan and that “negotiations are still at a preliminary stage”. Spokesperson Khulu Phasiwe said terms such as the rate and repayment period are being discussed.

Eskom said it is “vital” that transmission infrastructure is developed and “at par” with new grid capacity requirements; the loan would contribute to the overall funding of transmission infrastructure.

The first round of NDB loans will support renewable energy projects in the Brics (Brazil, Russia, India, China, South Africa) countries. About $300-million will be lent, through the Brazilian development bank BNDES, to projects to generate 600 megawatts of renewable energy. China’s Shanghai Lingang Hongbo New Energy Development Company has received $81-million for roof-top solar developments, and India’s Canara Bank will get $250-million, with a first tranche of $75-million earmarked for 500MW of renewable energy.

Projects in the pipeline
An NDB spokesperson said many more projects are in the pipeline, including some in Russia, that are in various stages of consideration and appraisal.

The loans are long term, for between 12 and 20 years, he said.

The bank will launch its first bond in the second half of this year.

Leslie Maasdorp, the bank’s chief financial officer, said last month that the bond will be issued in renminbi, to a value of between ¥3-billion and ¥5-billion ($460-million to $770-million), according to China Daily, and it will be sold on China’s onshore interbank bond market.

Earlier this year, the Chinese central bank did away with quota restrictions on foreign investors in this market, opening it up to international institutional investors, including commercial banks and asset managers.

Chinese interbank market
According to ratings agency Fitch, the Chinese interbank market accounts for 90% of China’s total domestic bond market, with only 1.6% of the ¥35-trillion (or $5-trillion) of outstanding bonds held by foreign investors.

Almost 80% of the domestic bonds are issued by government-supported entities, according to Fitch.

Bank representatives have said since its launch that it will raise funds from a range of sources, and in local currencies wherever possible.

The bank did not answer questions regarding the rates it has offered to the likes of Eskom.

An asset manager, who asked not to be named, said some of the money for these initial loans may have come from the funds provided by the Brics nations to capitalise the bank. The bank has already received $750-million in paid-in capital from its founding members, which will amount to $10-billion after several instalments.

It does not matter where the bank raises cash, the source said, because the bank could always do currency swaps, as long any currency-related risk is hedged properly. “A bank like this will be raising in many currencies and lending in many currencies, so this will be part of their business model.”

Scant details
According to Futuregrowth Asset Management investment analyst Conway Williams, although further details of the funding of the bank remain scant, the bank will start off by raising funding in China off the back of a strong institutional ratings, which in effect means lower borrowing costs.

The bank has received AAA credit ratings from two Chinese ratings agencies – the China Chengxin Credit Rating Company and China Lianhe Credit Rating Company.

It has been noted, said Williams, that the majority of the funding will be converted into US dollars to be used for various projects, with a percentage kept in renminbi to be used in China for local projects.

The news is a boost for the expansion of renewable energy, particularly in the developing world.

In Eskom’s case, the loan comes on top of other financial support from international institutions, particularly to support transmission infrastructure.

Difficulties connecting independent producers to a grid have hampered South Africa’s world-class renewable energy programme.

Budget quotes
The Mail & Guardian reported late last year that Eskom had suspended the issuing of budget quotes for renewable power projects under the government’s Renewable Energy Independent Power Producer Procurement programme (Reippp) It also applied to the National Energy Regulator for an exemption under the grid code regarding the issuing of budget quotes.

These include the cost of connecting projects to the national transmission network and are vital to achieve financial closure for renewables projects.

At the time, Eskom said this was a result of limited funds, because it could not issue binding budget quotes without financial provision being made through the multiyear tariff setting process.

The NDB loan follows a €670-million guarantee from the World Bank’s Multilateral Investment Guarantee Agency, which will back loans by two international commercial banks to Eskom to enhance its transmission infrastructure.

In early 2015, the German development bank KfW lent Eskom about R4-billion for grid enhancement.

Eskom said it has to date connected 47 renewable IPP projects to the national grid, including those from the third bidding round of the government’s Reippp programme, and would continue to support the procurement of energy from independent producers.

Nene’s job goes begging

The New Development Bank still has an advert out for the position of director general of its African regional centre, the post that was ostensibly earmarked for former finance minister Nhlanlha Nene.

The reason given for Nene’s summary axing from the ministry in December was that he was South Africa’s preferred candidate to head the regional office, according to the presidency.

Ironically, in the week that the bank announced its first round of loans for Brics (Brazil, Russia, India, China, South Africa) nations, it was announced that Nene has taken up a post in the private sector – on the board of the investment firm Allan Gray.

In a glowing statement, the company’s chairperson, Ian Liddle, confirmed his appointment.

“We are very happy to have someone of Mr Nene’s experience on our board,” he said, adding that “we are looking forward to his strategic and leadership contribution”.

In an interview with Business Day, Nene hinted that more posts in the private sector could be announced.

Meanwhile, the New Development Bank job is open to applications until May 2, should Nene change his mind.

Among the post’s requirements is a “minimum of 15 years of relevant experience, culminating in a leadership role and position of influence, in a multilateral development bank or equivalent or regulated private sector financial institution or government”.

NDB loan projects and their carbon offsets

  • Banco Nacional de Desenvolvimento Econômico e Social (BNDES), Brazil: assistance of $300-million for lending to projects for the generation of 600 megawatts (MW) of renewable energy capacity in the country. CO2 avoidance: one million tonnes.
  • Shanghai Lingang Hongbo New Energy Development Co, China: assistance of the local currency equivalent of $81-million for the generation of 100MW of roof top solar power, subject to the completion of the domestic approval process. CO2 avoidance: 73 000 tonnes. 
  • Canara Bank, India: assistance of $250-million, with a first tranche of $75- million, for lending to projects for the generation of 500MW of renewable energy capacity in the country. CO2 avoidance: 815 000 tonnes.
  • Eskom, South Africa: assistance of $180-million for transmission lines to evacuate 670MW generation and the transformation of 500MW of renewable energy generation by independent power producers in the country. CO2 avoidance: two million tonnes – Source: New Development Bank

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Lynley Donnelly
Lynley Donnelly
Lynley is a senior business reporter at the Mail & Guardian. But she has covered everything from social justice to general news to parliament - with the occasional segue into fashion and arts. She keeps coming to work because she loves stories, especially the kind that help people make sense of their world.

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