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South Africa in Talks with World Bank to Secure Energy Sector Loan

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CEM REPORT, ENERGY | South Africa has been battling a severe crisis in its energy sector. Eskom’s ageing, coal-fired plants have been often reported to break down. Rolling power cuts have crimped economic growth while fuelling private investment in renewable energy. To nip the crisis in the bud the country is in talks with the World Bank about a potential $1 billion loan to help South Africa to reform its energy sector.

Reuters reports that the loan would be directly to the government rather than to state utility Eskom.
According to Marie Francoise Marie-Nelly, the bank’s director for South Africa, the loan which is expected to come through very soon is a policy development loan which supports critical reforms. Adding that there’s a particular focus on transmission, because it is a stumbling block in terms of bringing new (capacity) that is going to be built mainly by the private sector.”

She said the government was “also looking at the broader climate agenda, including looking at the carbon tax.”
The World Bank loan would also support South Africa in making a “just transition” away from coal, to ensure vulnerable people do not suffer as a result.

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Subject to restrictions, the South African government agreed in February to assume over 254 billion rand ($13.4 billion) of Eskom’s debt through a debt relief scheme. The major requirement was that the power utility not incur any additional debt for three years unless approved by the country’s finance minister.

The government promised in 2019 to divide Eskom into three subsidiaries: transmission, generating, and distribution. In August, Eskom announced that its transmission arm would not be operational until 2025. The World Bank authorized $497 million in financing to decommission and repurpose one of Eskom’s coal-fired power units in November 2022.

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