/ 17 September 2022

‘War’ over how $8.5-billion climate finance will be distributed

The Presidential Climate Commission (PCC) objects to extending coal-fired power stations beyond their natural lifespan. (Waldo Swiegers/Getty Images)

The $8.5 billion funding agreement made by a handful of wealthy countries during COP26 in Glasgow — to enable South Africa to transition to a cleaner economy — has come under fire over how the funding should be allocated. 

According to sources within the Presidential Climate Finance Task Team, different interests within the country are tussling over how the money, which equates to R132.5‑billion, which is yet to land, should be distributed. 

“There is currently a war regarding how the money should be distributed. In the meetings, there are a lot of people bargaining for that money,” the source said. 

“There is tension over how it is distributed — that is why it has taken us so long to divide it. We are less than two months to COP27 and there is already fear that projects might not sufficiently get the money,” one said.

Rich nations pledged the $8.5-billion for the country’s Just Energy Transition. This commitment was built on an earlier Eskom proposal to launch a $10-billion sustainability-linked loan. 

The governments of the UK, US, Germany, France and the EU formed the Just Just Energy Transition Partnership (JETP), which together with the World Bank-linked Climate Change Investment Funds, raised the money, which will be distributed to projects to lower carbon emissions. But questions about how the money will be allocated, who will distribute it and whether civil societies have a voice need to be addressed.

According to Eskom spokesperson Sikonathi Mantshantsha, South Africa’s load-shedding problem and the carbon-heavy electricity sector would be prioritised.

“Eskom has proposed that repowering and repurposing at its decommissioned coal plants be included, along with the grid investments needed to unlock more renewables,” he said.

Projects have been earmarked at the Komati Power Station in Mpumalanga, which will be fully decommissioned this year. It has been revealed that some of these projects will be presented to the World Bank board for approval.

The source in the Presidential Climate Finance Task Team said some of the funding would be directed towards supporting the development of local electric vehicles and green hydrogen projects. 

Mandy Rambharos, the head of Eskom’s just energy transition office, said Eskom had not only plans, but a project pipeline already in place. She added that Eskom would need R180-billion.

For the countries providing the funding, “there is much riding on the programme’s success”. 

“This is the biggest global deal South Africa has ever secured. It is vital that it demonstrates the ability to manage and deliver results without corruption, failure or leakage,” she said.

According to a source at Eskom, for loans to be released to the utility, it must prove that it has a project available that requires funding. The source added that because Eskom is the country’s sole power producer, it stands to gain 90% of the funds.

“As most of the money will go to Eskom, the utility’s capacity to prepare and execute projects is the biggest risk and most difficult part of the transaction.”

Eskom’s failures had made it difficult to discuss the terms because “we all want the money to come and solve our energy problems”. 

“Without any plan to stabilise Eskom’s issues, we might have a problem negotiating at COP27.”

According to the report by the Blended Finance Task Force and Stellenbosch University’s Centre for Sustainability Transitions, called Making Climate Capital Work, the details of the commitment are still being discussed but there are concerns about whether it will be “fit for purpose” — matched to the unique needs and challenges in South Africa.

“The majority of the $8.5-billion pledge will either be sovereign debt, channelled via different entities and multilateral trust funds or simply ‘mobilised’ money from development finance institutions and private investors, with very little concessional and/or grant funding. This means that the total $8.5-billion will not be easily, or entirely, available or accessible on terms which create the right incentives and mechanisms to rapidly transition.” 

The lack of transparency surrounding the commitment was a concern, according to the report. 

It also noted that coordination between donors, and engagement between donors, financial institutions, civil society and relevant players was severely lacking. 

“All are critical to implementation.”

Reuters recently reported 80% of the pledge by rich nations for South Africa’s transition from coal “will be loans, not grants and some may be hard to unlock due to national rules protecting domestic jobs”.

The Making Climate Capital Work report notes how the $8.5-billion must include systems that work better for the country and won’t leave it in debt. This should incorporate “new, not repurposed funding for catalytic instruments such as guarantees, currency hedging and grants”.

The funding must address the most challenging transition costs, linked to decommissioning coal, accelerating enabling grid infrastructure and supporting the just components of the transition for workers and communities. 

“Simply offering additional debt to countries (unless on significantly concessional terms to absorb key transition and transaction costs) is not going to cut it. Similarly, pledging already committed capital goes directly against the principles underpinning the commitment. That is not only insulting, it is greenwashing. No country should accept this kind of a deal,” it states, listing seven donor principles to ensure climate finance commitments are fit for purpose. 

Environment minister Barbara Creecy, who is heading the negotiations, said during the meetings, the finance team had underestimated the complexities of having different country partners.

“I think we had underestimated how complicated it is when you have four partners and each has their own budgetary issues (and) development agencies. The discussions over terms were now happening concurrently, which is speeding things up before the deadline.

“The investment plan is now for ministerial consideration. We are having that meeting this week or next week,” she said.

Creecy added that the chances of returning the deal were high because South Africa was criticised at the COP26 for citing domestic circumstances as a reason to keep burning coal, however, “the same countries that criticised us are now themselves going back to burning more coal”. This was largely due to the energy crisis these countries were experiencing.

Earlier this month,  Life After Coal and Fair Finance Southern Africa sent a letter to the head of the Presidential Climate Finance Task Team Daniel Mminele, President Cyril Ramaphosa, Mineral Resources and Energy Minister Gwede Mantashe, the Presidential Climate Commission and the secretariat of the JETP, highlighting their concerns over the lack of transparency and accountability in the JETP process.

They described how it is of “utmost importance that proper governance and accountability mechanisms are formulated in consultation with all relevant stakeholders to ensure the highest standards of accountability and transparency related to climate finance flows”. 

The groups cited, for example, how in relation to the JETP investment plan and draft investment guidelines, which have not been made publicly available, “we confirm that we have not been provided with either of these documents … 

“Civil society cannot be expected to attend stakeholder consultations without having access to any underlying documents, modelling and/or reports that would enable meaningful participation in such consultations.”

Decommissioning coal is also a priority for Eskom. (Dean Hutton/Getty Images)

They wrote: “We would like to understand what percentage of the JETP deal will be concessional, grant, sovereign loans and/or other forms of finance. Specifically, we would like to know whether the existing financial offers include grant or concessional finance, and if both, the percentages thereof. How much is actual money and how much are guarantees or export credits to the benefit of private investors, particularly from international partner group member countries or some form of derivative linked to concessional finance?” 

Dean Bhekumuzi Bhebhe, campaign coordinator at the African Climate Reality Project, said the biggest concern is the lack of transparency in “because when this kicked off, civil society organisations welcomed the partnership … but as it went through the stages there was little or no accountability and transparency”. 

“There’s frustration because there’s little one can comment on because very little has been said to us… so it speaks how the government must increase accountability.”

Leanne Govindsamy, attorney and head of corporate accountability and transparency at the Centre for Environmental Rights, said: “There’s a distinction between the $8.5-billion deal, known as the JETP, and mobilising broader climate funds, which is a three-decade ambition. 

“We’re trying to make that distinction in the letter that we appreciate that this $8.5-billion deal must be concluded ahead of COP27, or at least there must be an in-principle agreement, there’s the JETP investment plan that is being drafted and which is supposed to be going to cabinet in October — we appreciate there are very tight time frames around that. 

At the same time, she said, how the deal is crafted will set the precedent for the mobilisation of the broader $250-billion climate finance needed for South Africa and for JETPs being concluded around the world. 

“Civil society is not just acting in the interests of South African civil society and community organisations in advancing the just transition, but we’re thinking about what precedent does this set globally.”

This was incredibly important. 

“That’s why we wrote the letter in the way we did. Because once we agree on terms, where we don’t have documents or information when we’re being consulted, it’s going to be hugely problematic as this deal unfolds. That will be the accepted standard of engagement with civil society.”