Finance minister Enoch Godongwana is expected to give an indication in next week’s delayed budget on the way forward for the private sector financing of SA’s transmission grid, says electricity & energy minister Kgosientsho Ramokgopa.
The minister held a media briefing on the sidelines of the Africa Energy Indaba, which is taking place on March 4-6, saying that if Godongwana did not make the announcement himself, he would provide details soon after the budget.
The request for financing would be made by year-end at the latest, but the timelines for going out to the market would probably be much more aggressive than this, Ramokgopa said.
“I am confident that we have resolved it [the instrument] and we are confident that the market will find it acceptable,” Ramokgopa said. Considerable investment had been made in canvassing the market and investors on its design.
Expanding the transmission grid is critical for the country’s energy security because a 14,000km shortage has acted as a constraint to connecting independent power producers to the grid and to the development of the renewable energy sector.
Ramokgopa said the transmission development plan estimated the cost of rolling out 14,000km was more than R440bn, which was beyond the fiscus’ means.
The financing project, he said, had been championed by National Treasury, the World Bank and the International Finance Corporation (IFC).
During his speech on President Cyril Ramaphosa’s state of the nation address earlier this year, Ramokgopa said the Treasury and the World Bank were finalising a credit guarantee instrument to derisk grid projects in the absence of government guarantees.
Extensive work had been undertaken with the World Bank and the IFC on private sector financing of transmission, using the experiences of Chile and Brazil where the projects had succeeded.
Ramokgopa told journalists that late last year government went out on a market sounding exercise to determine how best to finance the transmission rollout.
He said it had designed a bespoke financing instrument that he thought would be acceptable to the market. It had been canvassed with financiers, was credit enhancing and did not place the burden squarely on the consolidated debt burden of the sovereign.
“The market seems to accept that. It was done in other parts of the world,” Ramokgopa said. It would be a multiline procurement for the separate transmission corridors.
He said transmission regulations would be issued soon as well as a ministerial determination on transmission in terms of the Electricity Regulation Amendment Act.
Trump
Ramokgopa noted that the foreign policy approach of the Trump administration might shrink the pool of resources available for the energy transition if it withdrew from the facility created by International Partners Group, which was anchored by the US.
The group has provided finance for the decarbonisation of SA’s economy and its move to clean energy sources.
The Trump administration has pulled out of the Paris agreement, which committed countries to reducing greenhouse gas emissions to combat climate change.
“In the current political dispensation I think that they [the US] might pull out. They have not said so but all indications are that they are moving in that direction.”
Yet, the pool was big at about $12.9bn, the minister said. This had not been tapped into yet due to ongoing discussions on what part was made up of grants and what concessional financing.
On electricity availability, Ramokgopa conceded that the system was under strain but would improve as planned maintenance ended and units such as Kusile unit six and Medupe unit four returned to the grid. Many private sector projects would also come on stream.
The minister said one of the things that gave him sleepless nights was the gas cliff, which refers to the decline in natural gas supplies from Mozambique.
Unless something significant was done in the next about two years, about 5% of the country’s GDP could be wiped out and more than 130,000 gas-supported jobs could be lost.
Qatar has been approached as a possible supplier. Price would be a major factor, but the higher the volume of local demand the lower the cost would be.
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