Wealthy nations offer debt guarantees on the South African climate deal

A group of the world’s wealthiest nations has offered guarantees on South Africa’s debt as part of a proposed Rs.135 billion deal designed to reduce the nation’s dependence on coal for power generation, people familiar with talks, potentially solving a sticking point in the negotiations.

This would allow South Africa or companies like Eskom state guarantees to borrow the money needed to shut down coal-fired power plants and enable renewable energy generation, one of the people said. People asked not to be identified as the interviews are not public.

Such a deal would ease the pressure on the South African government to secure any debt Eskom may need to finance its transition to renewable energy, the person said. By March of this year, the National Treasury had extended R560.1 billion in guarantees to state-owned companies, with Eskom accounting for about 79%.

Soft loans and grants would be included in the support, announced last year at the COP26 climate summit, and could be extended over the next three to five years. The deal is funded by the United States, the United Kingdom, Germany, France and the European Union.

In addition to funding Eskom’s transition, some of the money could be used to strengthen South Africa’s power grid and compensate coal-dependent communities when power plants close. The government also wants to use some of the money to start its green hydrogen and electric vehicle industries.

Eskom and the EU declined to comment. The South African Treasury and the UK COP unit did not immediately respond to questions. Representatives from the US Treasury Department and the Office of US Special Presidential Climate Envoy John Kerry did not respond to requests for comment.

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

Eskom, which has R416 billion in debt, is considering proposing that the government take the loans and that those funds be converted into utility shares when needed, a person familiar with the thought said in March. of the company. South Africa is the 13th largest source of greenhouse gases in the world, with around two-fifths of its production coming from Eskom.

Direct loans to Eskom from partner countries would need collateral, said Daniel Mminele, the head of the government’s negotiating team, in a interview with News24 on Thursday.

– With the assistance of Prinesha Naidoo, Jennifer A. Dlouhy and Jessica Shankleman.