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World Bank Allocates $1 Billion to Bolster South Africa’s Energy Reforms and Decarbonization

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The World Bank has greenlit a substantial $1 billion development policy loan to endorse the ongoing electricity market reforms in South Africa and to support the nation’s shift towards a low-carbon future.

This development policy loan is earmarked for the National Treasury and has been acknowledged as timely by the government, although specific details regarding the loan’s terms and concessionality remain undisclosed for the moment.

Mmakgoshi Lekhethe, Deputy Director-General for Asset and Liability Management, expressed the significance of this operation, stating that it arrives at a critical juncture for South Africa. It will provide essential financial and technical support, enabling the pursuit of energy sector policy objectives, such as alleviating long-term electricity shortages, fostering private sector involvement, and generating employment opportunities in the renewable energy sector.

This marks the third policy loan since the establishment of the Just Energy Transition Partnership with several developed nations. French and German development banks, AFD and KfW, each contributed €300 million in November of the previous year.

This loan is the result of a collaborative effort involving the World Bank, the African Development Bank, KfW, and the government of Canada. The World Bank emphasized that it has been aligned with South Africa’s development priorities, including the Energy Action Plan aimed at addressing load shedding and facilitating the Just Energy Transition.

The financial infusion will support reforms in the electricity market and advance decarbonization efforts. Marie Francoise Marie-Nelly, the World Bank’s Country Director for South Africa, stressed that these reforms will not only benefit the economy and the environment but also accelerate the transition to cleaner energy sources.

This approval comes at a time when South Africa is grappling with its most severe year of load shedding, which has significantly impeded economic growth and eroded confidence. The rotational power cuts of 2022, the prior year with the most extensive power disruptions, are estimated to have diminished the gross domestic product by 2% to 3%.

The funding will enable a restructuring of the power sector by unbundling Eskom and redirecting resources toward investments in transmission and plant maintenance.

Marie-Nelly added, “Second, the operation supports a low carbon transition by encouraging private investment in renewable energy, including by households and small businesses, and strengthening carbon pricing instruments.”

South Africa, as noted by the World Bank, ranks among the top 20 greenhouse gas emitters globally, with 45% of these emissions stemming from the coal-based electricity sector.

The World Bank’s announcement follows the recent confirmation by the South African government that it has secured additional pledges worth nearly $3.5 billion to support its Just Energy Transition Investment Plan (JET IP), expanding the overall package of concessional debt and grant funding to $11.9 billion.

This development also anticipates the approval of the JET IP implementation plan, which is set to be presented to the Cabinet in advance of the forthcoming COP28 climate talks scheduled to take place in Dubai, United Arab Emirates, from November 30 to December 12.