SA, France and Germany have signed loan agreements for the two European countries to each extend €300m concessional financing (about R10bn in total) to SA to support the country’s efforts to reduce its reliance on coal in the energy sector.
The loans are provided by the French and German public development banks, AFD and KfW directly to the SA government via the Treasury.
The financing agreements were welcomed by President Cyril Ramaphosa, French President Emmanuel Macron and German Chancellor Olaf Scholz at a ceremony held at COP27 in Sharm el-Sheikh, Egypt.
This is one of the first steps towards implementation of the Just Energy Transition Partnership (JETP) announced at COP26 in November 2021, a partnership between SA, France, Germany, the UK, the US and the EU to support SA’s transition to a low-carbon economy.
Funding partners have pledged to mobilise an initial $8.5bn over the next three to five years. The loans from France and Germany form part of the $8.5bn funding committed by the partner countries.
Ramaphosa told reporters at COP27 said that only about 2.7% of the $8.5bn would be provided by the partners in the form of grants. The rest will be loans and concessional loans from development and commercial finance institutions.
SA’s climate investment plan, which provides a finance road map for the implementation of the just transition plan, estimates about $98bn will be needed over the next five years for SA to meet its climate goals, Ramaphosa said.
This plan has three major development pillars: transforming the energy sector away from coal, establishing a green hydrogen economy, and developing electric vehicle capabilities for local use and manufacturing of these vehicles.
He appealed to developed countries, including the JETP funding partners, to make more grant funding available as SA seeks to raise the $98bn funding requirement.
Because of SA’s “already sizeable loan burden” the country would need to secure more grant funding to finance its just transition projects, he said.
“Financing mechanisms from public and commercial institutions need to provide good concessional loans as well as nondebt instruments — [funding provided] must be upweighted towards grants,” Ramaphosa said.
Audrey Rojkoff, AFD regional director for Southern Africa and country director for SA, said in a statement that the AFD loan would be accompanied by grant financing from France to support several key SA actors “involved in the production of knowledge and further policy development related to the just energy transition”.
Ismail Momoniat, acting director-general of the Treasury, said the loans being provided by Germany and France would assist in “addressing the challenge of financing the critical adaptation and mitigation programmes” that SA hopes to implement.
“These loans are concessional and contribute to government’s efforts to mitigate rising government debt costs,” Momoniat said.
SA is also in process of concluding another financing arrangement that could raise about R17bn to R18bn to pay for the decommissioning of coal plants.
Earlier in November, the World Bank approved a $497m (about R9bn) in financing to help SA lower its greenhouse gas emissions by decommissioning and repurposing the Komati coal-fired power plant in Mpumalanga using renewables and batteries.
A document published recently by the Climate Investment Funds, a multilateral climate finance mechanism, and the department of forestry, fisheries & environment, indicated that the institution will, through its Accelerating Coal Transition initiative, grant SA a loan of $500m, also for the decommissioning and repurposing of coal plants.
Update: November 9 2022
This article has been updated with new information.
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