HILARY JOFFE: What the $8.5bn package will look like, and how it will be spent

One year after the COP26 climate summit in Glasgow, SA and its international partners are preparing to announce the details of their $8.5bn just energy transition investment plan at COP27, which opens in Sharm el Shaik on Sunday. President Cyril Ramaphosa is due to speak on the plan on Friday afternoon.

There will be so many questions to probe once the plan (the JET-IP) is released in full — possibly only after the big COP launch next week, where Ramaphosa will be joined by his counterparts from the UK, US, France, Germany and the EU. But meanwhile, it’s worth starting to ask what the long-negotiated $8.5bn package might look like — as well as where and how it will be spent.

How much of this is new money? Does that matter? And how much of it will actually materialise? Those are some of the questions to ask as we pick the package apart and ask how much of a difference it will make in helping SA to transition to cleaner energy, and in a way that not only mitigates the effect on affected communities but also smoothes the path to a different kind of economy.

This week the World Bank’s climate report on SA estimated the country will need $8.5-trillion between now and 2050 to meet the ambitious net-zero goals it has set for itself. The $8.5bn, which is intended to be disbursed over the next five years, is clearly just a fraction of that. Ramaphosa and the climate finance team are sure to emphasise that the JET-IP is just a start, with much work still to be done. The question will be whether it is a good start.

Much of the debate in the lead-up has focused on how much of the money is grants as opposed to loans. All indications are that SA won less by way of grants than it had hoped, with much of the package focused on concessional and commercial lending from the partner countries. We know too that a fair amount of the funding is not new, at least in the sense that it was being planned and discussed sometime before Glasgow, and might well have happened with or without the JET-IP.

That’s the case with the biggest chunk of funding, via the World Bank-led group of multilateral lenders in the Climate Investment Funds (CIF). The CIF has committed $500m to SA (and a similar sum to Indonesia) and expects to bring in other lenders to leverage this up to at least $2.5bn. This will help to finance SA’s Accelerating Coal Transition investment plan which was developed by Eskom to manage the scheduled decommissioning of its oldest coal fired power stations, by repurposing the stations and mitigating the impact on Mpumalanga’s coal communities.

Separately from the JET-IP, the World Bank will put $250m-$300m into the shutdown of the Komati power station, which is a pilot project. But the funding for the next set of Mpumalanga stations to be closed will come from the Accelerated Climate Transition, which is included in the JET-IP.

Also not new are about €300m from each of France and Germany, mainly concessional loans to government via their development finance institutions AFD and KfW. Those too were being negotiated before Glasgow, though Germany recently announced it would add fresh funding, which would raise its JET-related contribution to €320m.

Arguably it does not matter how much of the funding in the $8.5bn is genuinely new and would not have happened without it. The important thing is that the plan has brought the international partners together to commit to help kickstart SA’s energy transition — even if it is not nearly enough.

One of the interesting issues is going to be how the government deals with loans and grants that will go directly into the public purse. The Treasury tends to be reluctant to ringfence funds, but it will have to ensure this money goes to the just energy transition plan — and will have to account transparently for that. There is a broader issue, though, of how much of the $8.5bn goes to SA’s public sector and how much to its private sector. The US, for example, has committed more than $1bn of the total. But its government’s development finance arm only finances private sector projects, not public ones, so most of the US money is expected to go to private sector companies in SA.

It is not clear whether that will be commercial lending at market rates or concessional funding, but if it is commercial there is plenty of appetite from our local banks and financial institutions to fund private renewable energy projects, and one has to wonder why local companies would want dollar borrowing instead. There are some similar issues with the funding from the UK, which makes up around $1.8bn of the funding. Some of the UK’s contribution is also said to be commercial lending, but most of it is not actual money at all — it is a guarantee to the African Development Bank, which will use it to advance concessional loans. The reason, apparently, is that unlike the other partners the UK government does not have a development finance institution.

Then there is the really big question of where the money will be spent. In practice, different pots of money will go to different projects based on bilateral negotiations. The plan is not expected to detail particular projects. Instead, it will outline the allocation of the package to three broad programmes — electricity, electric vehicles and green hydrogen. If we really wanted to speed up SA’s transitioning from coal and bringing new private sector renewable electricity generators onto the national grid, we should surely have spent most of the $8.5bn on strengthening and extending that national grid. That would have provided the public transmission capacity urgently needed to support much more private electricity generation.

Hopefully a big chunk will go on boosting electricity transmission and distribution infrastructure. But trade, industry & competition minister Ebrahim Patel has clearly got his way on electric vehicles and hydrogen, even though private sector motor companies and miners would happily fund most of that without any help from the COP.

How the plan will work and how it will be executed have still to be sorted. It is going to be messy, more so if the international partners get worried that Eskom’s Andre de Ruyter might not stay in his job — or that climate finance chief Daniel Mminele might not stay in his, as rumours have it. The JET-IP has a long way to go. But even if only some of it materialises it will boost foreign inflows and investment at the same time as it advances the transition. So let’s see it.

• Joffe is editor at large.