World Bank loan will support South Africa’s energy transition

The World Bank’s $1 billion loan to bolster South Africa’s energy transition will provide much-needed fiscal and technical support, the treasury’s deputy director general for asset and liability management, Mmakgoshi Lekhethe said.

In a statement, Lekhethe said the loan would help the country ease its electricity crisis in the long term, “stimulating private sector engagement and creating jobs in the renewables space”.

Announcing the loan on Wednesday, the World Bank said it was aimed at helping to facilitate the “restructuring of the power sector” through the unbundling of state-owned utility Eskom.

“It supports the opening of the power market and aims at improving Eskom’s efficiency by redirecting its resources toward investments in transmission and maintenance of existing power plants,” the bank said.

It added that the loan would also boost the low carbon transition “by encouraging private investment in renewable energy … and strengthening carbon pricing instruments” and would support poor households and businesses — particularly women- and black women-owned businesses — through access to credit from commercial banks to enable them to invest in solar technology.

The loan —  a collaborative effort between the World Bank, the African Development Bank, German development bank KfW and the government of Canada — comes as South Africa grapples with its worst-ever year of load-shedding which has severely undermined growth and confidence.

It will see the government receive technical assistance to identify reforms necessary to manage the social costs associated with the decommissioning of coal-fired power stations.

“We are pleased to support SA’s government, which has taken decisive reforms to address the challenges posed by the energy crisis,” said World Bank country director for South Africa Marie Francoise Marie-Nelly.

“These reforms will benefit the people of South Africa — particularly the most vulnerable households — the economy, the environment and advance the energy transition.”

The loan is the third policy loan pledged to the country since the conclusion of a Just Energy Transition Partnership with several developed countries, with KfW, and French development bank AFD, having extended €300 million in November last year.

To support South Africa in its quest to move away from fossil fuels, the EU, Germany, France, the US and UK  pledged $8.5 billion (R161.78 billion) in finance.

Last month, the treasury announced that the Netherlands and Denmark had joined the Just Energy Transition Partnership, pushing South Africa’s just energy transition funding to $11.9 billion.

Neil Cole, financing manager of the Just Energy Transition Investment Plan’s project management unit, previously told the Mail & Guardian that the treasury had thus far received €600 million (about $640 million) of the pledges. 

“We now have pledges of $11.9 billion, but it’s still a long way from the just under $90 billion [about R1.5 trillion] that will be required over the next five years,” Cole said.
At the recent Africa Climate Summit in Kenya, Environment Minister Barbara Creecy stressed the importance of African countries developing a new financing model that will not increase debt and worsen their fiscal positions.

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