South Africa Considers R15.6bn UK Contract to Move Away From Coal

As part of a pact to reduce South Africa’s dependency on coal and encourage a move to renewable energy, the UK is considering guaranteeing at least $1 billion (R15.6 billion) in South African debt.

More conversations are underway about how the guarantee will function, with some of it being applied to debt given by the African Development Bank, according to persons familiar with the situation who asked not to be identified because the talks are private.

The guarantee is part of a broader finance plan worth $8.5 billion (R133 billion) proposed by the United Kingdom, the United States, Germany, France, and the European Union.

That agreement, which those countries previously stated would include concessional loans and grants, is considered as a model for other coal-dependent countries like Indonesia to reduce their greenhouse gas emissions. South Africa is the world’s 13th-largest producer of climate-warming gases, owing to its reliance on coal for more than 80% of its electricity output.

Nonetheless, the $8.5 billion is a drop in the bucket compared to what South Africa will need to support its energy transition. The Blended Finance Taskforce and the Centre for Sustainability Transitions at Stellenbosch University released a report this month estimating that the country will require $250 billion over the next three decades.

It’s unclear how much of the UK’s share to the COP26 climate financing accord will be covered by the guarantee.

Nonetheless, a UK guarantee would relieve pressure on the South African government to back the debt that state power utility Eskom Holdings may require to support its transition to renewable energy. By March, the National Treasury had given state businesses R560.1 billion ($36 billion) in guarantees, with Eskom accounting for almost 79 percent of that total. The electricity business owes R396 billion in debt.

The world’s three largest rating agencies have South Africa’s debt rated below investment grade, and the country is leery of taking on more.