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SA has drawn down on just over a quarter of the $8.5 billion (about R153 billion) of climate finance pledged to the country’s Just Energy Transition by international partner countries in the two-and-a-half years since the deal was struck in November 2021, the Treasury said on Monday.
The Treasury is also in discussion with several additional funders to support the Jet programme including the World Bank ($1 billion) and the AfDB ($500 million)
The Just Energy Transition Partnership (JetP) was considered a groundbreaking transaction. It was the first funding arrangement in which the developed world pledged financial assistance to developing countries to decarbonise their economies.
However, SA has been slow to match funding commitments with viable projects to maximise the transaction’s leverage. Eskom has also been responsible for the slow start, as it has been unwilling to take on debt offered by the funding partners to finance transmission infrastructure, which is considered a high-impact investment.
The Jet aims to transition SA from coal energy to greener energy and ensure that mining and power station communities are not left stranded without livelihoods when coal production and energy generation are shut down.
Capital raising
Speaking at the Climate Resilient Symposium hosted by the Treasury and the Presidential Climate Commission, deputy director-general Mmakgoshi Lekhethe said that, to date, $2.4 billion had been raised from the pledges. Said Lekhethe: The total pledge made was $8,5 billion, and over 2022 and 2023, we had raised $2.4 billion. We are currently engaging with the partners to raise further funding from the package, and we anticipate that funding for 2024 will be around the $2.3 billion or $2.4 billion mark.
The original donor grouping behind the $8.5 billion included the UK, US, EU, France, and Germany. The group was later expanded to include several other European countries, taking the overall amount to $11.5 billion. However, only some of the funding is cash. It includes a small grant component (just over $500 million) and a mixture of concessional loans, commercial loans, guarantees, and export credits.
The Treasury is also in discussion with lenders for the 2024 loans. From the JetP, the AFD has confirmed an amount of €300 million to be disbursed in two equal tranches in 2024/25 and 2025/26. The KFW has not confirmed the quantum for 2024.
Other lenders, outside of the JetP, are also in discussion for loans to support Jet programme, says Lekhthe. These include the World Bank ($1 billion) and the AFDB ($500 million). NT and the Project Management Unit in the Presidency are also in discussion with the AFDB for funding of a $1 billion offer that will be enabled by the UK Guarantee for off-balance sheet projects.
Opening the symposium, President Cyril Ramaphosa said that SA’s reliance on coal was “not sustainable” as trading partners moved to impose penalities on emissions-heavy economies. However, Ramaphosa tacitly acknowledged that SA had not yet taken full advantage of the JetP.
“International development finance institutions and governments of the Global North that made financial pledges under the Paris Agreement and COP26 are important sources of cheap and concessional capital. To access this and other funding, we need a credible project pipeline,” he said.
Acceleration
Among the first statements made by the new Minister of Forestries, Fisheries, and the Environment, Dion George, was the need to accelerate the implementation of the JetP. “We’ve got the money, and now we must spend it,” George said in an interview with Bloomberg on Friday.
The JetP has been managed by a Presidency project management unit (PMU). In February, the head of the PMU, Joanne Yawitch, said that more work needed to be done on developing projects and matching them with donors and funders.
In a research paper released before the symposium, the PCC recommended the establishment of a Just Transition Financing Mechanism (JTFM) that would assist affected communities in preparing local economic development projects that would be attractive to donors.
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The JTFM would also assist in using grant money to leverage commercial funding to maximise their impact.
Its immediate role would be to “matchmake” projects with donors and prepare projects collaboratively with the state’s development finance institutions. The mechanism might also raise additional grant funding or leverage blended finance with grant money.
Leveraging finance
It could, for instance, leverage grants, concessional funding, and fiscal allocations at the municipal level to assist these smaller-scale and lower-returning development projects in getting off the ground.
The JTFM would not be permitted to borrow in its own right, which will remain the preserve of the Treasury, other levels of government such as municipalities, and state-owned companies.
Head of Climate Finance and Innovation at the PCC, Dipak Patel, said that the proposal was for the JFTM to take on the “very specific role” of advancing the socioeconomic and justice elements of the transition at a local level and not act as a general fundraising mechanism.
