President Cyril Ramaphosa announced SA’s Just Energy Transition investment plan (Jet-IP) to great fanfare on the eve of the COP27 climate summit in November, complete with details of the $8.5bn of financing committed by SA’s international partners.
But it has all gone very quiet since then, in an energy sector noisy with news of Eskom CEO André de Ruyter’s resignation and ANC calls to entrust Eskom to mineral resources & energy minister Gwede Mantashe.
Commitments are not yet cash. And a plan is just a plan, despite the exhaustive detail of the Jet-IP, which estimated SA needed R1.5-trillion to enable the economy to deliver on its decarbonisation goals in a just manner.
So amid the quiet, some questions. One is: what’s supposed to happen next (and when)? Someone needs to draw up an implementation plan and decide who will be in charge of making it happen. Then it needs to be implemented. Who all these people will be is as yet unclear. The contracts of the secretariat and the team, led by Daniel Mminele, that drafted the plan and negotiated with the international partners, have expired.
They could be extended. But implementing the plan will require other skills and a different level of political authority, so it’s likely to be a different team. And Ramaphosa and the interministerial team will have to decide where to locate it — the presidency’s project management office is a likely candidate — and under whose oversight.
But the plan also still has to be consulted on, in true Ramaphosa style, in line with the promise he made in November. So it will go another round with the stakeholders the team and presidential climate commission consulted before its release. That could take another couple of months. With luck it might be ready to roll by mid-March.
Meanwhile, however, question two is how much of that $8.5bn international money can be relied on to materialise (and where it will go). Of the five international partners, Germany, France and the EU have made the most tangible commitments, totalling about $3bn. Likewise, the $500m of Climate Investment Fund money arranged by the World Bank, which is solid and is meant to be leveraged up to five times that. The US and UK finance is a bit more smoke and mirrors — the UK committed guarantees rather than cash; the US will finance only private sector projects.
But the first €600m of French and German money is set to flow soon. It’s in the form of so-called development policy loans, at cheap interest rates, which reward SA for prior action already taken towards the just energy transition. It goes straight into the general government budgetary pot — the National Revenue Fund.
Treasury is looking to this kind of concessional lending, from the Europeans as well as from the World Bank, to raise much of the foreign financing it has pencilled into the budget over the next three years. There’s appetite from the lenders, who are willing to give SA credit for embarking on energy reforms and committing to reducing its carbon footprint.
How the Treasury is going to spin that it is in effect using climate-linked finance to help it fund the budget deficit is going to be interesting. The Treasury doesn’t like ring-fencing general budget funds for particular purposes. But even though these loans are not conditional, it will surely have to demonstrate that the proceeds are helping SA’s energy transition in some way.
Even more interesting is how this is going to link in with the Eskom debt restructuring that is a crucial piece of the puzzle. One reason the money goes straight to the Treasury is that the lenders can’t lend the money to Eskom — because it is essentially bankrupt.
This brings us to question three: where will this money go? Building new renewable energy projects doesn’t require cheap international or development funding — the private sector is desperate to invest and private financiers are lining up. Rather, the two core priorities are transmission and transition.
SA urgently needs to lengthen and strengthen its transmission grid to enable this investment in new renewable energy generation. It is Eskom, or its unbundled transmission company, that has to do that huge investment into transmission. It has detailed plans in place to do that. It’s just that it’s bankrupt. That is why taking much of Eskom’s debt off its balance sheet is essential to unlock the investment in transmission that SA needs for its energy transition. There’s something rather uncomfortable about climate finance being used to pay down part of Eskom’s historic debt. But that is essentially what the Treasury might do. And the argument can be made.
Transition, specifically a just transition, is also urgent. Eskom’s Komati power station has already shut down; other coal-fired stations are also reaching the end of their lives and will shut. They need to be repurposed for renewable energy, and new livelihoods found for affected workers and communities. Concessional loans and grants will be needed. Some of it goes directly to Eskom.
But that raises the biggest question of all: how likely is it that the De Ruyter/Mantashe story derails all of this? The uncertainty cannot be helping. It’s surely one reason for the Jet-IP hiatus. The lenders could get skittish at any sign that Eskom’s leadership or its minister are going back on commitments to push ahead with the energy transition. And the money is by no means in the bag yet.
But regardless of who the next Eskom CEO is, or which minister is Eskom’s shareholder, the government itself cannot afford to mess this up. The $8.5bn may be only a fraction of what SA needs for its just transition but if it materialises it will be a crucial catalyst, enabling essential projects that might not otherwise have happened.
Whichever way the political debates about coal go, SA will still run into carbon border taxes in the near future in Europe and elsewhere. Stalled progress on the energy transition will mean lost export markets. Those markets are some of our largest trading partners. In the end, the energy trade-offs could be quite clear, and quite loud.
• Joffe is editor-at-large.
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