SA has an electricity supply crisis, not just an Eskom problem, and the New Development Bank (NDB) expects to play a critical role in enabling investment in the country's ailing energy sector, says Leslie Maasdorp, bank vice-president and CFO.
Maasdorp, a former senior banker with Goldman Sachs and Bank of America Merrill Lynch, who has been with the NDB since its inception seven years ago, said energy was both the single biggest constraint and the major enabler for economic growth, and SA needed a significant investment in power to recover from the crisis.
The Shanghai-headquartered bank was established in July 2015 to fund infrastructure projects in the Brics group (Brazil, Russia, India, China and SA).
“SA has an energy supply crisis. Most people often see it solely as a crisis around Eskom. Eskom is of course the main provider. However, if there were fewer regulatory obstacles and red tape, we should have had an explosion of self-generation of power by independent power producers,” Maasdorp told Business Times.
Maasdorp said SA urgently needed to simplify the licensing and approval process to procure as much new solar and wind power as possible.
“The combination of new renewable energy plus battery energy storage systems are the only viable ways to reduce load-shedding in the next three-five years. NDB stands ready to provide financing in this domain and crowd-in further financing from other development banks such as the African Development Bank, World Bank and others. We need to inject renewed urgency into this effort.”
We need to remove the obstacles so there can be more players in the energy sector, local and international, who will be willing to invest if the environment is favourable
— Leslie Maasdorp, New Development Bank vice-president and CFO
Last month Eskom implemented stage 6 blackouts, citing a strike at power stations.
Maasdorp referred to the Chinese word for “crisis” — which combines the characters for danger and opportunity — as the best approach to take towards the utility.
“The very essence of the word 'crisis' means there is a problem and an opportunity, and that is what electricity in South Africa represents. We need to remove the obstacles so there can be more players in the energy sector, local and international, who will be willing to invest if the environment is favourable. If the investment climate is favourable then we will have more electricity.”
The bank had approved $33bn (about R560bn) of infrastructure projects across the five countries and in SA it had approved loans of $5.1bn for infrastructure projects including solar, wind and the upgrading of Durban harbour.
“We are widening and deepening that port so there can be more throughput, meaning there will be more exports and imports, which will contribute significantly to economic growth. The upgrade of the Durban container terminal is one of our biggest projects with Transnet,” Maasdorp said.
The bank had also approved the funding of phase 2 of the Lesotho Highlands Water Project, which is aimed at addressing water scarcity over the next decade by building new dams in Lesotho to feed SA.
According to Maasdorp, the NDB was the first bank to respond to SA's needs when the pandemic hit in March 2020. It approved a $1bn loan, mainly to help strengthen the public health system. The bank also provided a further $1bn loan towards helping the economy bounce back.
In terms of energy projects, Maasdorp said the bank had worked closely with the Development Bank of Southern Africa (DBSA) and the Industrial Development Corp (IDC). “We have financed solar projects through the DBSA and the IDC, which are key strategic partners for us. If you look at the IDC and DBSA activities you will see a lot of renewable energy projects financed by us, although they are managed by the IDC and DBSA.”
He said that SA could obtain up to $1.5bn a year from the bank over the next three-five years. “NDB is very committed to supporting the energy transition in South Africa to reduce the dependence on coal and move to a more appropriate energy mix, which should include new investments in renewable energy as well as battery energy storage.”
One of the bank’s biggest achievements was its AA+ credit rating, the highest of any financial institution in emerging markets. Maasdorp said the rating was seven notches higher than SA’s BB- credit rating and enabled the bank to borrow at much cheaper rates from the international capital markets; the NDB could pass on these lower rates to its borrowers.
“Because we have a high credit rating, our cost of capital is very low which means we can provide loans that are significantly cheaper than the government raising money itself,” he said. The bank could extend the duration of loans to longer maturities
“We can provide loans of 25 years, and in some cases 30 years. There are very few banks which can provide SA with more favourable terms.”
He said that when the bank was established, the focus was to grow beyond just the Brics countries. A few years ago the process of expanding the bank's footprint began and in 2021 the United Arab Emirates, Egypt, Bangladesh and Uruguay applied for membership.
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