UK mulls R15.6bn deal to steer South Africa away from coal

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The UK plans to guarantee at least $1 billion (R15.6 billion) of South African debt as part of a deal to reduce the country’s dependence on coal and promote a transition to green energy.

Further negotiations are underway over the operation of the guarantee, part of which will apply to debt provided by the African Development Bank, people familiar with the matter said, asking not to be identified as the talks are not not public.

The guarantee is part of a larger $8.5 billion (R133 billion) funding package offered by the UK, US, Germany, France and the European Union.

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The deal – which these countries have previously said will consist of concessional loans and grants – is seen as a prototype for other coal-dependent countries, such as Indonesia, to reduce their greenhouse gas emissions. Greenhouse. South Africa, which depends on coal for more than 80% of its electricity production, is the world’s 13th largest producer of greenhouse gases.

Yet the $8.5 billion is only a fraction of what South Africa will need to fund the energy transition. A report released this month by the Blended Finance Taskforce and the Center for Sustainability Transitions at Stellenbosch University estimated that the country will need $250 billion over the next three decades.

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It is unclear what proportion of the UK’s contribution to the COP26 climate finance deal the guarantee will account for, the people familiar said.

Even then, a British guarantee would ease pressure on the South African government to bear any debt that power utility Eskom Holdings might need to fund its switch to renewables. In March, the national treasury issued 560.1 billion rand ($36 billion) in guarantees to state-owned companies, of which Eskom accounted for around 79%. The electricity company has a debt of 396 billion rand.

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South Africa’s debt is rated below investment grade by the world’s three largest rating companies and the country is reluctant to take on more.


Read: South Africa unveils new strategy to attract more investment and create jobs

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