The R2.4bn loan made by the New Development Bank (NDB), also known as the Brics bank, to Eskom was "in abeyance", bank president KV Kamath said in an interview on Wednesday.
Kamath was speaking on the eve of the opening of an NDB office in SA, an event that will be held with much fanfare on Thursday and which will be presided on by President Jacob Zuma.
The fact that the only loan made to a South African institution so far is on ice is something of a sensitive subject for the organisation, particularly since there has been substantial demand — particularly from India and China — for the bank’s financing since its inception two years ago.
The loan was made to Eskom in April 2016 with a grand flourish, but this was based on the assumption that Eskom would use the funding for transmission lines to connect 500MW of renewable energy from independent power producers to the national grid. Eskom subsequently refused to sign up new offtake agreements with renewable energy projects in terms of the Renewable Energy Independent Power Producer Programme, arguing they were not cost-effective.
In the South African context, where loans have not yet materialised outside of the Eskom loan, Kamath made a virtue out of the establishment of an office — the first the NDB will create outside its Shanghai base
That decision apparently led to a disagreement about whether Eskom could use the NDB loan for other purposes.
Kamath said the South African government had asked the NDB to put the loan on ice until at least 2018. No cash has been drawn down by Eskom in terms of the loan.
The NDB has focused on renewable energy projects since its creation and demand for financing in this field has been especially high.
Total loans from the other four countries in the Brics group, (Brazil, Russia, India and China) which have already been finalised, amount to $1.4bn.
Kamath said loans of a similar value were likely to be approved at the bank’s board meeting in September. This constitutes a flying start for the bank, which was established amid some controversy about whether and how it would compete with much larger and more established institutions — such as the World Bank.
In the South African context, where loans have not yet materialised outside of the Eskom loan, Kamath made a virtue out of the establishment of an office — the first the NDB will create outside its Shanghai base.
"This office is going to be an enormously useful place for us. It will be a single place for us to talk to the government, but also talk to people where the project originates, whether its originating in provinces, is it a water-supply project and so on, and if so, do we have a role in it.
"I would think the first task for this office is to get that pipeline deep and going.
"Interestingly, in the first and second year, the NDB will have the ability to lend between $1bn and $1.5bn to SA.
"I am going to task my team to achieve that. I want to see that pipeline that will absorb this much of lending," Kamath said.
There was a learning process involved in how to operate in each country.
"Some countries have a very well set up structure, where there is a ministry responsible to co-ordinate all the provinces, all the municipalities. A good example would be China and India. In Russia and SA, there are co-ordinating committees, but the mechanism is different.
"We are trying to learn how we can communicate our priorities and get a pipeline of projects to the government," Kamath said.
The bank has an initial authorised capital of $100bn and an initial subscribed capital of $50bn, of which $10bn has so far been paid by the founding members. Although the bank was set up under the Brics banner, a range of other countries are likely to join in the near future, as lenders or borrowers.
The bank issued its first bond in July 2016 amounting to $450m in the Chinese currency, the renminbi, and Kamath said that it was likely to increase domestic currency debt in the other four member countries, including SA.
Kamath met on Wednesday with a range of South African financiers and business people and said the appetite for raising debt locally seemed very positive. No target date had been set for how much debt it would raise and no time frame had been decided on, he said.
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