Since its establishment in 1983, the Development Bank of South Africa (DBSA) has rapidly advanced to become one of the crucial catalysts in the transition to a green economy.
One of the greatest challenges faced by many governments is how to green the current economy so that it remains resilient and globally competitive. The UN’s Sustainable Development Plan has also put pressure on countries, including South Africa, to respond to global goals and targets by 2030, with South Africa targeting clean energy, low-carbon transport, smart water, the circular economy and smart agriculture. But to do so requires substantial finance, and depends largely on the ability of development finance institutions such as the Development Bank of Southern Africa (DBSA) to leverage available resources to attract private investment.
The DBSA works across sub-Saharan Africa to promote economic and social development, by sourcing and providing mostly infrastructural financing. Climate change has become increasingly important, and as such one of its priority focus areas is climate finance. According to Olympus Manthata, Head of Climate and Environmental Finance, the ability to mobilise climate finance at scale requires innovative approaches such as the DBSA’s Climate Finance Facility (CFF).This is a climate-related lending facility, which is a first in Africa and is based on the “Green Bank” model.
The CFF uses a blended finance approach, which essentially combines public finance with private finance to address market constraints and fill market gaps. These funds are for private projects that have potential but cannot currently attract market-rate capital at scale without credit enhancement. The DBSA bridges this gap and catalyses private funding by co-funding alongside developmental and private sector financial institutions, with the aim to achieve a 1:5 leverage.
The initial debt funding of R2-billion in use by the DBSA is a rand-denominated facility and directed purely at co-funding private sector projects in South Africa, eSwatini, Lesotho and Namibia — countries in the common monetary union. It brings credit enhancement products in the form of a first loss or subordinated funding and tenor extension of up to 15 years, combined with concessional funding provided by the UN’s Green Climate Fund (GCF).
Development of climate facilities
The DBSA with support from the GCF is currently developing various climate facilities such as the National Water Reuse programme, which it aims to finalise in the last quarter of this financial year. The DBSA will thereafter submit a funding proposal for $150-million to the GCF for the concessional part of the finance facility, and the bank aims to contribute significant co-financing for further credit enhancement.
“The package we are designing is aimed at making water reuse projects bankable. Water tariffs often limit the way in which water is costed; our solution is to target new and existing wastewater treatment plants that either need to be upgraded or expanded, and increase municipalities’ awareness of how to treat effluent water for reuse,” said Manthata.
“We are also taking a comprehensive approach, because there is a tendency to look at such projects in isolation. However municipalities generally experience the same challenges, and there are many lessons and benefits for all that partake in the programme. And, with a single programme in use, transaction costs will lower.”
This proved to be the case with the renewable energy programme, once financiers became more familiar and comfortable with the conditions of the contracts.
About 56% of South Africa’s wastewater plants are in poor or critical condition, said Manthata. The DBSA believes that it will take between 20 and 30 years to correct this, but again, it is going to require public and private sector buy-in. “If we can change the negative perceptions around water reuse, that it is not a wasted resource but has the ability to produce energy, and that its sludge has value, for example, the resulting revenue streams generated can potentially be used to finance other climate mitigating projects.”
DBSA’s role in key infrastructure development projects
Further credibility for the DBSA’s role in such projects comes from its playing a key role in developing the market for Independent Power Producers (IPPs), through the Renewable Energy Independent Power Producers Programme (REIPP). The bank has already invested R12.4-billion into 14 REIPP projects, of which R2.5-billion was funding support for nine BBBEE entities and 15 local community trusts.
The bank is also looking at investing in the country’s Embedded Generation Investment Programme (EGIP) to the tune of $84-million, directed at BBBEE organisations and local community SMMEs that are specifically focused on renewable energy. “EGIP is transformational in that it will add more than 450MW of new generating capacity, which in turn directly avoids more than 700 000 tonnes of carbon emissions per annum,” said Manthata.
Yet another of DBSA’s tasks is to manage The Green Fund on behalf of the Department of Forestry, Fisheries and the Environment, which allows the bank to provide access to funds for low-carbon and climate-resilient development. The Fund had an initial allocation of R1.1-million for disbursement, for use as complementary funding for green projects and programmes. To further enhance the DBSA’s role and commitment to climate change efforts, it also issued its first Green Bond in February through a private placement with French development finance institution, the Agence Française de Développement (AFD), with whom the bank has concluded many successful infrastructure financing facilities. Worth R3.59-billion, the bond will help finance domestic projects that will contribute to the green economy.
“The DBSA Green Bond issuance will be applied to projects that contribute specifically to climate mitigation and/or adaptation, aligned to the National Development Plan and sustainable development goals,” confirmed Manthata. “This inaugural issue is, however, intended primarily to refinance select renewable projects under the REIPP, but future issuances will also include wind, solar, small-scale hydro and certain biomass energy projects.” — Content supplied by DBSA –
More information visit www.dbsa.org
The DBSA Green Bond
The DBSA Green Bond is recognised as the first bond issuance where a South African issuer has issued bonds in Euroclear France. The DBSA green bond is a type of infrastructure financing instrument exclusively applied to finance or refinance eligible green projects — essentially projects that contribute to environmental sustainability.
According to Mohan Vivekanandan, Group Executive: Client Coverage at the DBSA: “The Green Bond is used to finance projects that contribute to climate mitigation and/or adaptation; that are aligned to South Africa’s National Development Plan objective of an environmentally sustainable and equitable transition to a low-carbon economy; and that are aligned to the UN’s Sustainable Development Goals.
“It is an attractive infrastructure financing instrument for impact investors. It is intended primarily to refinance select renewable projects under South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPP)”, Vivekanandan concluded. For future issuances, other renewable energy projects, including wind, solar, small-scale hydro and certain biomass energy projects would qualify.