As the build-up to the Conference of the Parties (COP26) climate change negotiations gets into full stride, the focus on securing climate mitigation and adaptation investment in developing economies has shifted into a new gear.
Last week the Group of Seven (G7) countries and their multilateral partners announced an $80bn commitment to invest in sustainable private sector initiatives across Africa, while the Climate Investment Funds has secured $2bn this year alone to assist with fossil fuel divestment in India and SA specifically.
As estimates from the International Finance Corporation (IFC) put the price tag for achieving SA’s national determined contributions to global climate change targets at R596bn a year to 2030, the need could hardly be more pressing. With the bulk of this finance required for the just transition from coal to renewables, along with Eskom’s electricity availability factor hitting a record low of just 60%, the president's decision that the upper limit for embedded electricity generation should be lifted to 100MW at least appears to open the door to accessing these climate finance flows. However, deploying these funds will be far easier said than done.
Let us contrast the energy investment needs of the well-heeled companies in the Energy Intensive User Group (EIUG) with the needs of the municipalities that have been servicing their electricity requirements up to now. For the EIUG members their sizeable balance sheets are capable of financing utility-scale projects without breaking a sweat, and with world-class in-house technical capacity the additional focus of multilateral donors is hardly required.
Local government municipalities, on the other hand, are too desperately short of the finance, technical capacity and creditworthiness to begin looking at 100MW embedded generation projects. In May finance minister Tito Mboweni lamented that “currently there are 163 municipalities in financial distress, 40 municipalities in a financial and service delivery crisis and 102 municipalities who have adopted budgets this year which they cannot fund”.
Clearly the need for investment here is most pressing but it will prove exceptionally difficult to access because of the erosion of investor confidence in municipal financial governance. This is an alarming state of affairs, not least because the single largest revenue source for municipalities across the country is electricity sales, something the new embedded generation limit will have a negative effect on.
While President Cyril Ramaphosa has said municipalities will now be able to generate their own electricity or enter into power purchase agreements of their own accord, it is only municipalities that are in “good financial standing” that will be allowed to do so. Given that only 8% of the country’s 257 municipalities received a clean audit in the past year, this perceived ray of hope is as real to most municipal managers as a pot of gold at the end of the rainbow.
The notable exception to this is the Western Cape, where 13 of the country’s 20 municipal recipients of clean audits are situated. Here the impact of good governance on investment attractiveness was plain to see last week, when the standing committee on local government met to receive a briefing on the rollout of the Sustainable Infrastructure Development and Finance Facility. The initiative is a partnership with the French government, aimed at boosting the economies of secondary cities through sustainable infrastructural development.
While the programme is still in its early stages and is now working with only five municipalities in the province, it has already identified catalytic projects worth R1.8bn in investment, with the eligibility of the municipalities hinging primarily on good governance and clean audits.
The message is clear. Unless decisive action is taken to eliminate the maladministration that is rife throughout SA’s municipalities, their continued financial decline, and service delivery collapse for the bulk of their constituents, is assured. The world is looking to us as a climate investment destination. Can we seize the opportunity?
• Maguire holds a master’s degree in global change studies from Wits and has been developing green economy solutions for the private sector, NGOs and the state for more than a decade.
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