Treasury takes on even more loans from Western countries to feed Eskom

by | Nov 22, 2023

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The International Partners Group (IPG) recently increased its lending commitement to South Africa to R170 billion, as part of its mission to decarbonise the South African economy

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On Tuesday, the treasury announced an increase in the renewable energy funding initiative by the International Partners Group (IPG), a Western international mission compased of European Union, the UK, the US, Japan, Germany, France, Italy, Canada, Denmark and Norway.

The IPG increased its financial commitment to South Africa’s just energy transition, increasing funding from $8.5 billion to $9.3 billion (R170 billion), as a result of agreements involving concessional financing from the World Bank, Germany, and the African Development Bank (AfDB), the latter proposing a share of €500 million.

The Treasury emphasized their role in supporting key government reforms related to climate change and the electricity sector, which has recently committed to a minimum of Stage 4 loadshedding for the foreseeable future. Moreover, the statement boasted of the favourable interest rates on these loans, contributing to a reduction in government public debt.

This is, however, an increase in public debt. Concerns have been raised about the country’s ability to afford these loans. Debt payments are closely matched to local inflation rates, growing annually at a rate of approximately 7.8%, far outpacing the meagre growth in government revenue, which is growing at an anemic 1% in dollar-adjusted terms.

The burden on the fiscus is already extreme, as evidenced by recent attempts by the Treasury to cut expenditure in recent medium-term budget proposals, which struggle with resistance from government payroll recipients, particularly the unions.

The initial $8.5 billion funding package was unveiled at the United Nations climate change conference, COP26, in Scotland in 2021. The IPG, comprising France, Germany, the United States, and the European Union, expanded earlier this year to include Denmark and the Netherlands.

The funds, as outlined in the Just Energy Transition Investment Plan (JET-IP), also promise to increase economic diversification, with provisions for training and reskilling projects in Mpumalanga, where over 85% of coal-related jobs are concentrated.

The JET-IP specifies reductions in carbon and gas based fuel generation to meet decarbonization targets.

Part of the IPG funding is earmarked for Eskom, with a priority on expanding the transmission grid to alleviate the persistent issue of load-shedding.

Electricity Minister Kgosientsho Ramokgopa emphasized on Sunday that such grid expansion is crucial for bringing renewable projects online, stating, “We know now that the transmission capacity has been exhausted in those areas.”

Such lack of grid capacity has already led the minister to declare that no new generation sources can be added to the Cape grid until additional curtailment measures, or additional grid infrastructure is built to cope with the current.

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