Germany pushes back against South Africa’s electricity minister

Days after South Africa’s electricity minister questioned the benefits of a $10 billion climate-finance pact between the country and some of the world’s richest nations, Germany lauded its success.

A fact sheet distributed at a press conference hosted by Germany’s embassy in South Africa on Friday listed some of the below-market interest rates charged on almost €2.4 billion (R45.7 billion) in loans pledged to South Africa.

The event was staged during a visit by Rainer Baake, Germany’s envoy for the so-called Just Energy Transition Partnership.

South Africa’s Electricity Minister Kgosientsho Ramokgopa said the money offered under the compact wasn’t “competitive” with debt available through capital markets, in a Jan. 21 interview with a radio station at the World Economic Forum in Davos.

The dissonance between the two officials highlights the challenges developing nations face when trying to transition their economies from fossil fuels to modern and clean technology.

Coal underpins the economy of key towns and supports about 90,000 direct jobs in South Africa, and a powerful industry lobby has pressured the government to continue backing it.

South Africa’s transition pact, agreed in late 2021, was a prototype for similar agreements with Vietnam and Indonesia that have faced their own obstacles.

“Germany has more than doubled its original financial commitment,” Baake said, declining to comment on the minister’s assertions. “The political debates have to take place in South Africa.”

Germany disclosed the interest rates on three policy loans totalling €1.3 billion (R24.76 billion) made by state development bank KfW to South Africa’s National Treasury, saying they ranged between 2.8% and 4.4%. That compared with commercially sourced rates of 6.25% to 8.9%.

A separate €150 million (R2.85 billion) loan to the city of Cape Town for electricity infrastructure was lent at 7.79%, as opposed to a commercial rate of 11%.

Germany said it has pledged an additional €314 million (R5.98 billion) in grants and has lent, or is in the process of negotiating, a further €1.07 billion (R20.38 billion) in concessional loans to various South African entities via KfW.

“Those will be at even lower rates than the policy loans,” said Fabian Kyrieleis, head of cooperation at the embassy.

Negotiations over the JETP between South Africa and partner countries, including Germany, France and the UK, have been fraught with concerns about energy security and the pace agreed for shutting down polluting coal-fired power plants.

South Africa, which generates about three-quarters of its electricity from coal, operates one of the world’s most carbon-intensive economies.

After a prolonged period of power cuts due to insufficient capacity, it reneged on an agreement to shut down three coal-fired plants by 2030.

That delayed approval of $2.6 billion (R49.48 billion) in funding from the World Bank and other development-finance institutions.

“That hasn’t happened yet,” Baake said of the closures. Still, “South Africa has made some important reform steps” in how its power industry is regulated, leading to a surge in renewable-energy investment, he said.

In total, Germany has now pledged €2.68 billion (R51 billion) to South Africa under the program compared with an initial promise of €986 million (R18.77 billion).

That is “a clear response to strong South African demand and highly concessional funding,” the German government said in the fact sheet.

Despite the withdrawal of the United States and its pledge of more than $1 billion (R19.03 billion) from the JETP, the overall value of the pact has risen to about $10 billion (R190.39 billion) from an initial $8.5 billion (R161.84 billion).

“I don’t think that anyone can stop the energy transition,” Baake said. “Even though the US has now dropped out, there is more money available than there was originally.”