/ 24 May 2023

The status of SA’s energy transition financing

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South Africa is on the path to a just transition. But does it make sense? (Getty Images)

At the COP26 climate change conference in Glasgow in 2021, a group of international partners pledged $8.5 billion to accelerate South Africa’s Just Energy Transition (JET). Since then there have been numerous discussions about how the money will be used and when it will be received by South Africa, with varying degrees of clarity.

The JET investment plan was endorsed by the cabinet last year and was then shared with the International Partners Group (IPG), which comprises the European Union, the United States and the United Kingdom. Since then, multilateral discussions have been held about how best to coordinate the implementation of the plan and allocate the $8.5 billion.

To figure out the status of these funds, the Mail & Guardian spoke to Joanne Yawitch, head of the project management unit (PMU) responsible for implementing the JET investment plan and reports on its progress to the project management office in the presidency.

Yawitch said that $2.6 billion out of the initially pledged $8.5 billion will come from the climate investments funds (CIF) for the accelerated coal transition investment plan. This multilateral finance partnership channels concessional finance through the World Bank and the African Development Bank to support climate action.

“The approval of South Africa’s application for CIF finance has opened the way for the detailed project plan to be developed,” Yawitch said.

“We developed a concept and went to the board of the CIF, which has a programme called accelerating coal transitions. There are countries in different parts of the world that are applying to use those funds — we applied for an allocation from that fund. This is conditional on the development of a detailed plan for the use of the funds.”

International partners

“We are trying to formalise this process within government and are setting up a steering committee that will include representatives from key government departments and a number of other organisations.”

She said this would provide a governance structure in the government.

“The intention is that, as these governance arrangements develop, we will also keep on ensuring that there are report-backs to the presidential climate commission to bring transparency into the process.”

The work the PMU has been doing with the IPG partners is “to analyse and understand in much more granular detail the nature of the offers that have been made, including understanding the grant component of the work”, she said.

There had been a process to determine what would happen to each individual amount that makes up the $8.5 billion pledged, and how soon it can be allocated to projects that align to the JET investment plans. 

According to Yawitch, one of the roles of the PMU is to match the $8.5 billion with projects, including the grants.

The type of financing offered has been a sticking point in the negotiations. Grants make up just 3.8% of the funding pledged by the IPG. The rest is loans, raising concerns about South Africa’s debt burden.

Treasury loans

Just over half the funding is earmarked as concessional loans, made on more favourable terms than South Africa could access on the debt market.

Yawitch said that some of the loans go to the treasury, and there is bilateral engagement between financiers and treasury about the loans. “In particular, the development finance institutions of France and Germany have been engaging with the treasury,” she added.

On 4 November, South Africa signed two concessional loans with the French Agence Française de Développement (AFD) and Germany’s Kreditanstalt für Wiederaufbau (KFW) for €300 million (about R6.2 billion) concessional loans each. The loans were provided directly to the treasury.

According to a treasury spokesperson, both are sovereign bilateral loans that take the form of non-earmarked budget financing transferred directly into the national revenue fund. These loans underpin the policy and institutional reforms undertaken by the government in support of its energy transition.

A statement released by treasury said the loans were “highly concessional as their terms are substantially more generous than what the government would be able to raise in capital markets”. 

The loans are reflected in South Africa’s gross borrowing requirement in the 2023 medium-term budget policy statement.

Eskom debt

Yawitch pointed out that the Eskom debt relief package from the treasury announced in February stipulates that Eskom cannot borrow money for the next three years, and that it is unable to apply for sovereign guarantees.

“A number of international financiers were making the assumption that it would be possible to finance Eskom’s energy transition plans,” she said. 

“The PMU is now working with the treasury to look at the way funds could flow under these circumstances. The approach we are taking is evidence-based work, given the complications and difficulties that the country is facing in relation to energy. How do we keep ourselves on track? What is going to be the best use for these funds?”

Asked whether it is the right decision to delay the decommissioning of some of Eskom’s coal-fired power plants, she said: “The IPG and its ambassadors live in South Africa, and they understand what we’re going through. Given the energy crisis, I think they understand the need to keep every megawatt that we can on stream at the moment.” 

She pointed out that no final decisions had been taken in this regard.

The treasury has commissioned an assessment of the power stations to come up with a solution and is due to release its findings in July. This would inform decisions relating to the dates of end of life of specific coal power stations.

Yawitch added that the results of that study would dictate the next steps.

Thabo Molelekwa is an Oxpeckers associate, and an alumnus of the Oxpeckers #PowerTracker training programme. This investigation for the Oxpeckers #PowerTracker project is supported by the African Climate Foundation’s New Economy Campaigns Hub.