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South Africa seeks to renegotiate coal pact tied to R48.36bn

South Africa is seeking to alter the terms of a landmark agreement under which it promised to cut its reliance on coal in exchange for access to financing.

The government of President Cyril Ramaphosa is pushing to renegotiate a deal with Climate Investment Funds (CIF), a group tied to the World Bank, so that it won’t be required to close three coal-fired power plants in the coming years. The plants, owned and operated by Eskom, are among the country’s biggest polluters, according to government advisers.

South Africa’s government is seeking an “adjusted approach to the program with the decommissioning date for three power stations” moved to the end of March 2030, the department overseeing the project in the president’s office told Bloomberg. The decision is motivated by “energy security concerns,” the department said, adding that South Africa is still working to reduce its emissions.

The development has the potential to affect a total of roughly $2.6 billion in financing from multilateral development banks and other sources, the first tranche of which would be a $500 million disbursement from CIF’s Accelerating Coal Transition program. The funds, which are tied to the country’s commitment to weaning itself off the world’s dirtiest fossil fuel, are part of a larger $9.3 billion climate pact.

The failure of a G20 nation to live up to its commitments around coal power would represent a blow to a $40 billion program known as the Just Energy Transition Partnership, under which South Africa’s agreement was struck. As the first JETP nation, South Africa’s retreat from the original terms of its agreement would raise questions around the program’s credibility.

In response to a request for comment, Daniel Morris, clean energy lead at CIF, confirmed that South Africa is currently “updating its investment plan.” CIF expects the government to provide an update “by the fall,” he said.

The development underscores just how hard it is for developing nations such as South Africa, which relies on coal for about 80% of its electricity, to switch to cleaner energy sources. While Ramaphosa had backed the original terms of the program, the country’s energy and electricity ministers criticised it as representing a threat to the stable supply of power to a nation plagued by constant outages.

South Africa’s JETP investment partners — the US, UK, Germany, France, the Netherlands, Denmark and the European Union — remain broadly supportive, according to responses to Bloomberg. But they also voiced concerns about the ramifications of delays in closing coal plants.

An official at the US Treasury department said the expectation remains that South Africa can achieve its most ambitious emissions-reduction targets.

But the country’s new plan represents a material change to what was agreed, four South African officials familiar with the situation said, asking not to be identified. One said it’s not clear the Eskom plants in question would have the technical capability to run at lower levels, potentially undermining a key plank in the government’s proposed strategy for cutting emissions.

The details of specific units and specific stations are “the subject of rigorous discussions” both internally and with key external stakeholders, a spokesperson for Eskom said, without elaborating.

JETP commitments have in part been complicated by South Africa’s May 29 election, the most tightly contested since the end of apartheid in 1994. Environment Minister Barbara Creecy, a key proponent of the JETP program, will instead oversee transport, with environmental matters handed over to a member of a separate party within the country’s first coalition government in three decades.

A panel of experts appointed by Creecy to advise her on Eskom’s appeals against rulings to cut emissions said that any delays in closing coal plants could risk the climate finance package on which South Africa relies. Of Eskom’s 14 coal-fired facilities, the three plants now set for delayed closure are among the biggest greenhouse-gas emitters per unit of power produced, the panel also said.

South Africa, which has the most carbon-intensive economy in the G20, isn’t the only JETP signatory struggling to meet its commitments. Last month, the US said plans in Vietnam to build a new coal-fired power plant may “complicate” its progress in meeting JETP targets.

Meanwhile, South Africa’s efforts to build out its renewable power capacity are falling short. Under Gwede Mantashe, who served as energy minister from 2019 until a new cabinet was announced this week, 46 projects were approved with the combined potential to add 5 939 megawatts of generation capacity to the national grid. To date, only 150 megawatts have been connected.

© 2024 Bloomberg