SA may be barred from using the $1bn in climate change financing pledged by the US to fund government-led projects under its just energy transition strategy, according to a senior US government official.
The funds from the US, part of an $8.5bn international package, will be in the form of loan guarantees from its state-owned development finance institution, the International Development Finance Corporation (IDFC).
By law, the IDFC, which partners the private sector to provide financing solutions in emerging markets, invests in individual projects “almost exclusively” in the private sector, said recently appointed US ambassador to SA, Reuben Brigety.
“There are some exceptions where it invests in the public sector,” Brigety said. “The most important thing for the US is that bankable projects be identified that contribute to the just energy transition, that the projects be financeable through private funding, and that they be private in nature.”
“We’ve been very clear to the [SA] government about that and they have heard us and, like everybody else, we are looking forward to seeing the investment plan.”
Brigety briefed the media on Friday following President Cyril Ramaphosa’s official visit to the White House earlier in September, during which possible solutions to end the climate crisis featured in discussions with his US counterpart, Joe Biden.
Just Energy Transition Partnership
The US is part of a group of rich nations, including Germany, the UK, France and EU countries that have pledged $8.5bn through the Just Energy Transition Partnership (JETP) to finance SA’s move away from coal. The funds were pledged during last year’s COP26 climate summit in Glasgow but have yet to be disbursed.
The country’s move towards renewables in order to wean itself off coal has become more urgent as power utility Eskom continues to lead SA’s long-standing energy crisis.
Mandy Rambharos, Eskom GM for Just Energy Transition, told Business Day on Friday that Eskom “submitted a whole pipeline of projects” for consideration for possible JETP funding. “We have some assurance that a lot of the money will be for Eskom,” she said. Rambharos was attending an event at Komati power station in Mpumalanga to mark the start of its “repowering and repurposing project”. It is to be decommissioned in October.
SA’s just transition framework, approved by the cabinet in September, states that SA requires at least $250bn over the next 30 years to transform the energy system, with at least $10bn allocated to support workers and communities who will be affected by, for example, a move away from coal-fired power to renewables, through compensation, retraining, relocation and the rehabilitation of regions and communities.
Each of the funding partners in the JETP are expected to outline their respective conditions for the funds.
Germany says it is open for the funds to be used for private or public sector-led projects but prefers them to be owned and led by SA, according to its environment attaché to SA, Jessica Suplie.
SA is expected to produce the investment plan for the pledged funds by rich nations by the end of October ahead of the next global climate conference in November, paving the way for funds to be disbursed.
If approved, the plan will serve as the blueprint for other emerging markets to move away from coal, on which SA relies to supply the bulk of its energy needs.
“We are in a delicate phase of integrating components from expert round tables and international partners are waiting for the second round of talks [regarding the investment plan]. The first version was more like a feasibility study which really laid out three sectors [electricity, electric vehicles and green hydrogen] and ... the [details] on how to deal with greenhouse gas emissions,” Suplie told Business Day.
The presidential finance task team, led by former Absa CEO Daniel Mminele, is devising the investment plan and is consulting the various stakeholders on the plan, while the Treasury is studying the terms of the financing from the various partners, says department of forestry, fisheries and the environment spokesperson Albie Modise.
“Upon conclusion, the [just energy transition investment plan] will be recommended for approval by the cabinet and for endorsement by the [international partnership group],” Modise said. With Denene Erasmus
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