Page 9 - DMEA Week 36 2021

DMEA POLICY & SECURITY DMEA

SA deputy finance minister

proposed debt-for-climate swap

AFRICA SOUTH Africa’s deputy finance minister David climate finance facility that will then be released
Masondo proposes that South Africa’s strug- to Eskom on condition certain agreed perfor-
gling state-owned utility Eskom’s enormous debt mance targets are achieved.
should be forgiven in exchange for a rapid move “Given SA’s energy and finance position, this
to green energy. structure makes sense,” Masondo said.
Masondo’s plan, which he dubbed a debt-for- He explained that public debt, including
climate-swap, was first floated at the end of July Eskom debt, serves as a constraint towards
to a lackluster reception. the transition, amounting to over 80% of GDP
The plan essentially asks Eskom’s investors to excluding the state-owned enterprises’ contin-
forgive the power utility’s ZAR146bn sovereign gent liabilities.
debt, in exchange for the power utility gener- Masondo emphasized that the energy transi-
ating renewable energy. On Tuesday evening tion would be difficult, if not impossible, without
Masondo again outlined the plan, at the Wits the ZAR400bn Eskom debt solution.
University Centenary webinar series hosted by “Eskom’s transition transaction proposal
the university’s School of Economics & Finance is about raising new debt finance of about
in Johannesburg. ZAR400bn for funding Eskom’s just energy tran-
With debt forgiveness, Eskom would be able sition pathway.”
to shut down its coal-powered plants, invest in But the deputy minister said the proposal did
renewable projects and thus comply with climate not claim to address Eskom’s legacy debt which
targets. The utility is one of the highest carbon is, in turn, a major barrier to its ability to be com-
emitters in the world, with almost 90% of South mercially viable. He called for a complementary
Africa’s energy generated by coal. sovereign supported transaction to the Eskom-
At the same time Eskom ‘s huge debt has level transaction. He dismissed increased tariffs
been a headache for South African officials for as unviable and said Eskom could not not take
a number of years, with no clear solution on on any more debt.
how to lessen the burden.Masondo emphasised “Hence, a complementary transaction that
on Tuesday night Eskom is not only trapped in works with the Eskom transaction to address
ZAR400bn debt but is also the largest carbon the legacy debt issue is required. The sovereign
dioxide emitter in SA. should consider measures that will assist Eskom
He imagined his plan could kill two birds to achieve its objectives by helping it become a
with one stone - eliminate debt and help South more attractive and viable borrower.
Africa to meet its climate change targets. Masondo said the sovereign had a key role
Masondo believed that resolving the current to play in supporting Eskom’s commitment to
energy crisis requires a transition to cleaner an energy transition. “We just need to be more
energy sources, in line with SA’s commitment to creative.”™
the Paris Agreement towards decarbonisation.
He said the unreliable electricity supply from
ageing coal plants has been constraining eco-
nomic growth and redistribution.
He estimates that decommissioning the old
coal-fired power stations in South Africa could
reduce carbon emissions by 1.5 gigaton by 2050.
“It is estimated that Eskom will require
ZAR400bn to undertake a just transition
towards cleaner energy over a period of 15 years.”
Masondo said that during the July 2021 Pres-
idential Climate Commission Eskom presented
a convincing finance proposal that needs to be
wholeheartedly supported. The plan suggested
that Eskom intends to raise additional low-cost
debt from international investors to finance the
accelerated decommissioning of its old coal-
fired power plants, coupled with a programme
to build large-scale renewables plus gas power
infrastructures.
Eskom proposed that international lenders
make available funds within a special-purpose

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