Wealthy countries guarantee loans under the SA Climate Agreement

A group of the world’s richest nations has offered South African debt guarantees as part of a proposed $ 8.5 billion deal designed to reduce the country’s dependence on coal for power generation, a sticking point in the talks has potentially been resolved, say people familiar with the talks.

The guarantees would enable companies like South Africa or state power utility Escom to borrow the money needed to shut down coal-fired power plants and generate renewable energy, one person said. People have been asked not to identify the discussion as it is not public.

Such a move would ease the pressure on the South African government to guarantee that any money needed to convert ESCOM into renewable energy could be needed, the individual said. As of March this year, the National Treasury has extended R560.1 billion ($ 35 billion) guarantees to state-owned companies, of which Eskom accounts for about 79%.

Concessional loans and grants will be included in the funding support, which was announced at the COP26 climate conference last year, and may be extended over the next three to five years. The United States, the United Kingdom, Germany, France and the European Union are financing the agreement.

In addition to financing such transitions, some of the money could be used to strengthen South Africa’s power grid and compensate coal-dependent communities in the event of a power outage. The government wants to use some of the money to start its green hydrogen and electric vehicle industries.

ESCOM and the EU declined to comment. The South African Treasury and the UK’s COP unit did not immediately respond to a request for comment. The office of John Kerry, a representative of the US Treasury Department and the US president’s special envoy for climate change, did not respond to a request for comment.

The offer appears to be the latest attempt by the South African state to avoid increasing liability. If successful, it could support efforts to curb the downward trend in the country’s debt assessment, which is rated below the investment grade by the world’s three largest rating companies.

Essam, which has R416 billion in debt, is considering proposing that the government borrow and convert those funds into utility equity when needed, a source familiar with the company’s thinking said in March. South Africa is the 13th largest source of greenhouse gases in the world, with about two-fifths of its output coming from ESM.

ESCOM will need guarantees for direct loans from partner countries, Daniel Emminel, head of the government’s negotiating team, said in an interview with News24, a South African website published on Thursday.

© 2022 Bloomberg

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