UK considering R15.6 billion deal to move South Africa away from coal

 ·31 May 2022

The UK is considering guaranteeing at least $1 billion (R15.6 billion) of South African debt as part of a deal designed to cut the nation’s reliance on coal and drive a shift to green energy.

Further negotiations are taking place over how the guarantee will work, with some of it to apply to debt provided by the African Development Bank, said people familiar with the matter, asking not to be identified as the talks aren’t public.

The guarantee is part of a larger $8.5 (R133 billion) billion funding package proposed by the UK, US, Germany, France and the European Union.

That deal – which those countries have previously said would consist of concessional loans and grants – is seen as a prototype for other coal-dependent nations such as Indonesia to cut their greenhouse gas emissions. South Africa, which depends on coal for more than 80% of its power generation, is the world’s 13th-biggest producer of the climate warming gases.

Still, the $8.5 billion is only a fraction of what South Africa will need to fund the energy transition. A report this month from the Blended Finance Taskforce and the Centre for Sustainability Transitions at Stellenbosch University estimated the country will need $250 billion over the next three decades.

It’s not clear what proportion of the UK’s contribution to the COP26 climate finance deal the guarantee will comprise, the people familiar said.

Even so, a UK guarantee would alleviate pressure on the South African government to stand behind the debt that state power utility Eskom Holdings may need to fund its shift to renewable energy. By March, the National Treasury had extended R560.1 billion ($36 billion) of guarantees to state companies, with Eskom accounting for about 79% of that. The power company has debt of R396 billion.

South Africa’s debt is rated below investment grade by the world’s three biggest ratings companies and the country is wary of taking on more.

Read: South Africa unveils new strategy to lure more investment and create jobs

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