A larger proportion of the funding pledged by international partners for South Africa's energy transition must be grants — rather than concessional or commercial loans — as the latter increase the country's debt burden, according to President Cyril Ramaphosa.
The South African government has found that only 2.7pc of the $8.5bn pledged last year by the US, the UK, the EU, France and Germany under the Just Energy Transition Partnership (JET-P) to support South Africa's transition was grant money, "while other portions were concessional loans, loans offered by development funding institutions as well as normal commercial institutions", Ramaphosa said.
Concessional loans are granted on more generous terms than market loans, with lower interest rates or grace periods for payment. The JET-P deal was signed during the Cop 26 UN climate conference last year to support South Africa's transition to a low-carbon economy and, specifically, to accelerate its phase-out of coal-fired power.
"The deal was quite historic in the sense that real money was committed," Ramaphosa said today at the Cop 27 UN climate conference in Sharm el-Sheikh, Egypt. But the financing mechanisms, both from public and commercial finance institutions, need to provide "good concessional loans and be upgraded towards grants and non-debt instruments", so it does not burden the country with more debt, he said. Ratings agency Fitch said earlier this year that South Africa's debt is still rising, despite increased revenues from higher commodities prices.
The JET-P ignited "hope that this partnership will offer ground-breaking processes for funding by developed countries, for the ambitious but necessary mitigation and adaptation goals of developing countries", Ramaphosa said. The partnership was quickly lauded as a model for how developing countries across the world can use international support to achieve their decarbonisation goals by moving towards cleaner energy sources, with talk of other partnerships underway with India, Indonesia or Senegal. But Ramaphosa said a reform of multilateral development banks, as well as international financing institutions, and the mobilisation of commercial banks is needed to meet the financial requirements of South Africa and many other developing countries.
The JET-P provides only a fraction of the funding that South Africa needs. The country will require around $98bn over the next five years to start its 20-year energy transition, according to the country's recently released Just Energy Transition Investment Plan. The plan includes a portfolio of investments across three priority sectors — electricity, green hydrogen and new energy vehicles.
"We have communicated [the amount we need for our transition] to our partners, and have said that because South Africa carries a sizeable loan burden, which it has to service from its fiscus, we require more grant funding," Ramaphosa said. At Cop 27, "we have been holding a number of bilateral meetings aimed at consolidating views on climate action, just transition as well as on funding processes. Our meetings have been beneficial", he said. "We hope that these discussions will continue in that vein," he added.
"We believe it is only with significant additional funding that we can ensure the future generation of South Africans live in an environment that has not been destroyed because of the inactions of today's leaders," Ramaphosa said, adding that African countries are losing 3-5pc of their GDP because of the effects of climate change.
