/ 10 November 2022

South Africa’s partners pledge R10.7-billion more for just transition

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South Africa’s loan agreements with France and Germany — R10.7-billion (€600- million) to assist the country to move away from coal to cleaner energy — will create the fiscal space to solve Eskom’s debt problem.

This is according to sources in the treasury department, who confirmed money will be used by Eskom to decommission its coal-fired power plants.

The treasury source noted that the loans were sizable and would help to manage Eskom’s debt and return it to solvency.

“This will, in turn, give Eskom the ability to function and be able to do the maintenance it needs. This is the reason the money will be released to the treasury so we can account for how the money is used.

“Eskom has close to R400-billion of debt on its balance sheet but generates enough revenue to service only R200-billion. We will take most of that debt so [the utility] can remain solvent,” the source said.

Eskom has relied on annual bailouts from the treasury for the past two years. 

In an interview with the Mail & Guardian, Finance Minister Enoch Godongwana confirmed that the government would take on a large portion — between a third and two-thirds — of Eskom’s staggering R392-billion debt. 

He said the debt relief programme will lower the power utility’s borrowing costs, freeing up more money for much-needed maintenance.

In November last year, at the United Nations Climate Change Conference (COP26) in Glasgow, Scotland, the Just Energy Transition Partnership (JETP) founding partners — France, Germany, the United Kingdom, the United States and the European Union — pledged $8.5-billion to South Africa.

The additional R10.7-billion (R151.2-billion) loan comes after Ramaphosa, on the eve of COP27 in Sharm el-Sheikh, Egypt, told the Presidential Climate Commission on the Just Energy Investment Transition Plan that the $8.5-billion pledged by the JETP partners was not enough, because South Africa needs $1.5-trillion over the coming five years to shift to cleaner energy.

The package “is not sufficient to meet the scale of our ambition going to COP27. That is the message we will be taking forward,” Ramaphosa said on a live briefing last Friday. 

“Our plan can really only be fully and properly executed if there is more grant funding and funding made available in concessional loans and investment packages. 

“We face a shortfall in electricity supply, which has caused our economy immense damage and destroyed jobs and livelihoods.

“We face unacceptable levels of poverty, unemployment and inequality, which strain the fabric of our society.

“And we face the critical and urgent threat of climate change, the effects of which we are already experiencing in South Africa.” 

Ramaphosa said in his address that the funds would be used to decommission coal-fired power plants in line with developing renewable-energy generation that will strengthen the transmission grid to assist Eskom in stabilising its power production. 

The investment plan estimates that $7.6-billion will be invested in electricity infrastructure, $700-million in developing green hydrogen projects and $200-million in an electric vehicle industry over the next five years. 

The treasury confirmed that the French and German public development banks, Agence Française de Développement (AFD) and KfW development bank, have provided the loans directly to the South African government through the treasury. 

Arnaud Roux, chargé d’affaires of the French embassy, said in a treasury statement: “One year ago, French President Emmanuel Macron pledged that France was ready to commit significant support for South Africa’s ambitious decarbonisation project for a just energy transition. We are now putting those words into actions with this important loan.”

Silke Stadtmann, KfW’s country director for South Africa, said: “We expressly welcome South Africa’s commitment to reducing electricity generation from environmentally harmful coal. 

“This is an important step in achieving the country’s climate goals. As a long-term partner of South Africa, we support these efforts not only with concessional loans for necessary investments and grants for a just energy transition, but also with comprehensive studies on energy sector reform.”

Speaking at a media conference at COP27, Ramaphosa said that only about 2.7% of the $8.5-billion would be in the form of grants, while the balance of the funding will be loans and concessional loans from various finance institutions.

But critics have warned that the loan will come with costs.

On Tuesday, the Economic Freedom Fighters criticised Germany. 

“Germany is still largely dependent on coal for its energy generation needs, yet has made no commitment to abandon its coal power stations in the interest of the climate,” the party claimed in a statement.

It added: “Much of the globe, particularly China, is reinvesting in the building of coal power stations at a large scale, because it appreciates that this natural resource can be used responsibly and safely for energy generation.

Supporting the EFF’s position, metal workers’ union Numsa’s spokesperson, Phakamile Hlubi-Majola, wrote in an opinion piece that the climate change deal will trap future generations into a permanent cycle of poverty and inequality.

“Only a tiny fraction of these funds will be allocated to cushioning the working class of Mpumalanga whose lives will be plunged into permanent unemployment and poverty, as a result of the closure of coal fired power stations,” she said.

Audrey Rojkoff, the AFD regional director for Southern Africa and country director for South Africa, said in a statement that the AFD loan would be accompanied by grant financing from France to support several key South African actors “involved in the production of knowledge and further policy development related to the just energy transition”.

And Ismail Momoniat, the acting director general at the treasury, said the loans being provided by Germany and France would not exacerbate South Africa’s debt and would help in “addressing the challenge of financing the critical adaptation and mitigation programmes” that South Africa hopes to implement.

“These loans are concessional and contribute to the government’s efforts to mitigate rising government debt costs,” Momoniat said in a statement.