Page 7 - AfrElec Week 36 2021

AfrElec ESKOM AfrElec

SA deputy finance minister

proposed debt-for-climate swap

SOUTH AFRICA SOUTH Africa’s Deputy Finance Minister David Presidential Climate Commission Eskom pre-
Masondo has proposed that South Africa’s strug- sented a convincing finance proposal that needs
gling state-owned utility Eskom’s enormous debt to be wholeheartedly supported. The plan sug-
should be forgiven in exchange for a rapid move gested that Eskom intends to raise additional
to green energy. low-cost debt from international investors to
Masondo’s plan, which he dubbed a debt-for- finance the accelerated decommissioning of its
climate-swap, was first floated at the end of July old coal-fired power plants, coupled with a pro-
to a lacklustre reception. gramme to build large-scale renewables plus gas
The plan essentially asks Eskom’s investors to power infrastructure.
forgive the power utility’s ZAR146bn ($10.3bn) Eskom proposed that international lenders
sovereign debt, in exchange for the power utility make available funds within a special-purpose
generating renewable energy. On the evening of climate finance facility that will then be released
September 7 Masondo again outlined the plan, to Eskom on condition certain agreed perfor-
at the Wits University Centenary webinar series mance targets are achieved.
hosted by the university’s School of Economics “Given SA’s energy and finance position, this
& Finance in Johannesburg. structure makes sense,” Masondo said.
With debt forgiveness, Eskom would be able He explained that public debt, including
to shut down its coal-powered plants, invest in Eskom debt, serves as a constraint towards
renewable projects and thus comply with cli- the transition, amounting to over 80% of GDP
mate targets. The utility is one of the highest excluding the state-owned enterprises’ contin-
carbon emitters in the world, as almost 90% of gent liabilities.
South Africa’s energy is generated from coal. Masondo emphasised that the energy transi-
At the same time, Eskom’s huge debt has tion would be difficult, if not impossible, with-
been a headache for South African officials for a out the ZAR400bn Eskom debt solution.
number of years, with no clear solution on how “Eskom’s transition transaction proposal
to lessen the burden. Masondo emphasised that is about raising new debt finance of about
Eskom is not only trapped in ZAR400bn debt ZAR400bn for funding Eskom’s just energy
but is also the largest carbon dioxide emitter in transition pathway.”
South Africa. But the deputy minister said the proposal
He imagines his plan could kill two birds did not claim to address Eskom’s legacy debt,
with one stone – eliminate debt and help South which is, in turn, a major barrier to its ability to
Africa to meet its climate change targets. be commercially viable. He called for a comple-
Masondo believes that resolving the current mentary sovereign-supported transaction to the
energy crisis requires a transition to cleaner Eskom-level transaction.
energy sources, in line with his country’s com- He dismissed increased tariffs as unviable
mitment to the Paris Agreement towards decar- and said Eskom could not take on any more
bonisation. He says the unreliable electricity debt.
supply from ageing coal plants has been con- “Hence a complementary transaction that
straining economic growth and redistribution. works with the Eskom transaction to address
He estimates that decommissioning the old the legacy debt issue is required. The sovereign
coal-fired power stations in South Africa could should consider measures that will assist Eskom
reduce carbon emissions by 1.5 gigatonne by to achieve its objectives by helping it become a
2050. more attractive and viable borrower.
“It is estimated that Eskom will require Masondo said the sovereign had a key role to
ZAR400bn to undertake a just transition play in supporting Eskom’s commitment to an
towards cleaner energy over a period of 15 energy transition.
years.” “We just need to be more creative.” ™
Masondo said that during the July 2021

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