Debt guarantees for SA as part of climate deal

A group of the worlds ’ richest countries offered SA debt guarantees in a proposed $8.5bn deal designed to cut its reliance on coal for power, possibly resolving a sticking point in talks, say informed sources.

The guarantees would enable SA or groups such as state power utility Eskom to borrow money needed to close down coalfired power plants and facilitate generation of renewable energy, said one of the sources. They asked not to be identified as the talks aren’t public.

Such an arrangement would alleviate pressure on the SA government to guarantee any debt Eskom may need to fund its transition to renewable energy, the source said. By March 2022, the National Treasury had extended R560.1bn of guarantees to state companies, with Eskom accounting for about 79% of that.

Concessional loans and grant funding would be included in the support, which was announced at the COP26 climate summit in 2021, and may be extended over the next three to five years.

The deal is being funded by the US, the UK, Germany, France and the EU.

In addition to funding Eskom’s transition, some of the money could be used to strengthen SA’s power grid and compensate coal-dependent communities when power plants close.

The government also wants to use some of the money to kick-start its green hydrogen and electric-vehicle industries.

The offer appears to be the latest effort to avoid increasing the SA state’s liabilities. If successful, it may support efforts to curb the downward trend in the assessment of the country’s debt, which is rated below investment grade by the world’s three biggest ratings companies.

Eskom, which has R416bn of debt, is considering proposing that the government take on the loans and that those funds be converted into equity in the utility when they are needed, a person familiar with the company’s thinking said in March.

SA is the world s 13th-biggest source of greenhouse gases, with about two-fifths of its output coming from Eskom.

Direct loans to Eskom from the partner countries would necessitate guarantees, Daniel Mminele, head of the government’s negotiating team, said in an interview with News24 published on Thursday.