The terms of the two €300m loans (about R10bn in total) provided by public development banks in Germany and France to support SA’s transition to a low-carbon economy are “highly concessional” and offers “more generous” terms that what the government would have been able to raise in capital markets.
The Treasury said on Thursday that the loans from the French development bank (AFD) and Germany’s KFW each have a maturity of 20 years, including a five-year grace period. The AFD loan will have to be paid back at an interest rate of 3.6% (equal to the six-month Euro interbank offered rate [Euribor] plus 129 basis points) and the KFW loan has an interest rate of 3% (six-month Euribor plus 69 basis points).
“The estimated cost for the government of SA to raise an equivalent loan today in the market would be around 8.9%. This estimate is based on a fair value estimation of SA’s foreign currency bonds relative to the risk-free rate, secondary market activity and historical issue spreads,” the Treasury said.
These loans form part of an international funding package of $8.5bn, known as the Just Energy Transition Partnership (JETP), pledged to SA by France, Germany, the UK, the US and EU at COP26 in November 2021.
It has taken almost a year for clear details of the funding package to emerge and President Cyril Ramaphosa told reporters at COP27, which is under way in Sharm el-Sheikh in Egypt, that only about 2.7% of the $8.5bn will be provided by the partners in the form of grants. The rest of the money will be loans and concessional loans from development and commercial finance institutions.
At the time of publication the Treasury had not responded to questions from Business Day to confirm whether the money flowing to SA from these loans has already been allocated to specific just transition projects.
It did say in the statement that both loans are sovereign loans that take the form of non-earmarked budget financing that is transferred directly into the National Revenue Fund of SA. “These loans are in support of the policy and institutional reforms undertaken by the government of SA in support of its just energy transition,” the Treasury said.
SA’s Just Energy Transition Investment Plan, which was published last week, prioritises SA’s move away from coal for electricity generation and the development of new economic sectors for green hydrogen and electric vehicles.
According to the Treasury the loans from France and Germany are already reflected in SA’s gross borrowing requirement and the burden they place on the country’s finances is “well within SA’s risk benchmark of foreign debt as percentage of total debt”.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.