The UK is reportedly contemplating guaranteeing at least $1 billion of South Africa’s debt as part of a deal intended to reduce the country’s dependence on coal, in a push toward green energy.
According to people familiar with the matter, further talks will take place on how the guarantee will work and that some of the funds will cover the debt granted by the African Development Bank (AfDB).
This guarantee is part of the bigger funding package worth $8.5 billion offered by the US, UK, EU, Germany, and France, and will include grants and concessional loans. The deal is regarded as a prototype for other coal-relying nations to reduce their greenhouse gas emissions.
South Africa is the 13th largest producer of climate-warming gases, with 80% of its power generated by coal.
But $8.5 billion is a small part of what the country will require to fund its energy transition.
It is estimated that South Africa will require upwards of $250 billion over the next 30 years, as per a report by Stellenbosch University’s Centre for Sustainability Transitions and the Blended Finance Taskforce.
However, the country will be able to fund its state-owned electricity utility Eskom Holdings SOC Ltd. for the renewable energy transition with the UK guarantee.
Along with that, some of the funding can be used in strengthening South Africa’s power grid, with the government also wanting to utilize the funds in kicking off its EV and green hydrogen industries.
The country’s National Treasury was able to extend guarantees worth R560.1 billion ($36 billion) to state-owned firms by March this year, with 79% of it fulfilled by Eskom. The utility’s current debt is R396 billion ($26 billion).
The country, which has a debt rating below the investment grade according to the top three ratings companies, is now cautious to take on more debt.
The treasury stated that the Presidential Climate Finance Task Team is reviewing the financial offers made by the UK as well as its international partner group.
Enoch Godongwana, Minister of Finance, SA, stated that the country is reviewing a proposal from AfDB for managing the $8.5 billion.