(Jan 21): South Africa is reluctant to tap billions of dollars in climate finance offered by some of the world’s richest nations because of the cost and strings attached, Electricity Minister Kgosientsho Ramokgopa said.
South Africa clinched a deal, known as the Just Energy Transition Partnership and initially worth US$8.5 billion, at the COP climate summit in Glasgow in 2021. Under the accord, the country would receive funding in exchange for cutting coal-fired power generation in one of the world’s most carbon-intensive economies.
The funds were set to come in the form of grants, loans and guarantees from France, Germany, the US, the UK and the European Union. Finance from the World Bank and other development finance institutions was also on offer.
Since then, South Africa has said it will miss deadlines to close coal-powered plants as it’s concerned about energy security. Politicians including Ramokgopa have repeatedly expressed concern about the conditions under which funds will be disbursed.
“South Africa will determine the pace and scale of that transition” and will pick the projects to benefit from the funds, the minister said in an interview with Johannesburg’s 702 Talk Radio from Davos, Switzerland.
“You juxtapose going out into the debt capital market and raising a similar amount of capital, and then you do a comparison of which money is cheaper,” he said. “And at this stage, as I speak to you, it doesn’t appear to be competitive.”
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US exit
It’s unclear what finance Ramokgopa was referring to.
While Denmark and the Netherlands joined the agreement later — bumping up the total to US$9.3 billion — the US last year withdrew its offer of US$1 billion in funding on commercial terms.
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Still, hundreds of millions of dollars have been disbursed in the form of grants and France and Germany have together loaned South Africa’s National Treasury about €2 billion under the programme.
The last German loan, through its development bank KfW, was a €500 million, 13-year facility with a three-year grace period and a fixed interest rate of 4.31%. South African rand-denominated, 10-year government bonds currently trade at a yield of 8.43%.
The UK offered a US$1 billion guarantee for African Development Bank debt that South Africa hasn’t taken up and the EU, through the European Investment Bank, has lent some money to South African institutions out of an offer of about US$1 billion.
In June, South Africa cleared a hurdle to access US$2.6 billion in funds from the World Bank and other institutions under a pact with the Climate Investment Funds, an international climate-finance facility. That pact had been delayed by South Africa, postponing power-plant closures. While the interest rate on that finance has yet to be determined, it would be at concessional rates.
Ramokgopa said South Africa’s plan to expand its power grid may be an opportunity to utilise the offered funds but those would need to be “affordable”.
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