South Africa Secures Climate Loans at Fractions of Market Rates

(Bloomberg): Some of the loans South Africa secured as part of its $8.5 billion climate financing package cost a fraction of what it would have paid to commercial lenders. It will reduce the country’s future borrowing costs, Finance Minister Enok Godongwana said.

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“When you take these loans, you’re actually 500 to 400 basis points lower than what you’re paying in the market,” Godongwana said in an interview in Johannesburg on Thursday.

A 10-year South African dollar-denominated bond yields 7.72%, while a 10-year rand-denominated bond yields about 11%.

Interest rates in South Africa rose after rating agencies stripped the country of investment grade status, raising interest rates on its debt and taking additional loans to finance its budget deficit. He said South Africa would have had to raise money at market rates if it had not taken out loans at preferential rates.

Read more: How South Africa plans to spend $8.5 billion in climate finance

The financing agreement includes $2.77 billion in loans at concessional rates from the European Investment Bank, France and Germany, and $2.56 billion from the World Bank-affiliated Climate Investment Fund, according to a copy of the investment plan. $10,000 of concessional financing is included. Approved by South Africa and its investment partners. Most of the rest comes in the form of commercial loans and debt guarantees offered by the US and UK. About $330 million will come in the form of grants.

Godongwana was referring to interest rates paid on concessional loans, his office said in response to questions.

State power company Eskom Holdings (SOC) plans to close many of its aging coal-fired power plants in the next few years, so most of the climate money will go to boost electricity production. used for

Energy shortages are a major constraint for Africa’s most industrialized economy, and Eskom is subjecting the country to intermittent blackouts as it cannot meet its electricity needs. And because utilities don’t generate enough revenue to cover operating and financing costs, Godongwana said last month that the government had taken one-third to one-third of its roughly R400 billion ($22 billion) debt. announced plans to incur 2 of

Read more: Why blackouts are still ravaging South Africa: QuickTake

Details of the bailout should be finalized by the next budget in February. Godongwana said the amount of aid will depend on the tariff hikes Eskom is allowed by the energy regulator and its strategy to replace older power plants.

“We need to finalize how much of Eskom’s debt will be borne and for how long the debt will be borne,” he said. The amount of debt owed by the government “should not confuse the debt-to-GDP ratio and deficit figures,” he said, referring to the government’s balance sheet.

Godongwana also stressed the need to improve the performance of Transnet SOC Ltd., which operates the country’s port and freight rail networks. Insufficient capacity of state-owned enterprises hinders important exports such as coal.

“We have to get private participation, but it will take time,” and in the meantime Transnet will need additional funding, the minister said. The revenue lost to unrepaired is more than the cost spent to fix Transnet.”

(Adds contribution of Climate Investment Fund in fifth paragraph)

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