Eskom CEO Andre de Ruyter said on Tuesday that the message of the climate envoys who visited South Africa in the run-up to the COP26 climate talks in Scotland was that there is “substantial concessional financing available” to enable South Africa to pursue a just energy transition.

He indicated, however, that the initial focus would likely be on supporting Eskom to build the infrastructure required for decarbonisation, as well as to support vulnerable workers and communities, rather than to address Eskom’s legacy debt.

The State-owned utility has debt of R401-billion, which is said to be about R200-billion above the level where it could be considered sustainable. During its 2021 financial year, Eskom’s operating surplus of R31-billion fell short of debt interest payments of R37-billion.

In response to a question posed during a webinar hosted by the University of the Witwatersrand’s School of Economics and Finance, De Ruyter said, while he was not privy to the discussions held with government Ministers, the engagements between Eskom and the envoys had been “good” and “productive”.

The visit involved envoys from France, Germany, the UK, the US and the European Union and the discussions focused on opportunities for enhanced cooperation, financing and support for South Africa in light of its improved climate pledge.

South Africa has deposited an updated Nationally Determined Contribution range of 420- to 350-million tons of carbon dioxide equivalent (Mt CO₂-eq) for 2030 with the United Nations Framework Convention on Climate Change, which represents a marked improvement on its 2015 pledge of 614 Mt CO₂-eq to 398 Mt CO₂-eq.

During the visit, the South African government proposed the establishment of a Just Transition Financing Facility, supported by concessional finance from developed countries, to enable ambitious climate action, while also addressing the social impacts of the transition.

“I think the general message is that there is substantial concessional financing available to enable South Africa to make this energy transition in a just manner and I have to stress that the climate envoys are as committed as we are to ensuring that this is a just transition,” De Ruyter said.

Such finance, he said, could be used to support Eskom in building renewables generation capacity, to repurpose and repower its decommissioning power stations and to expand South Africa’s transmission and distribution networks.

He was less optimistic that concessional finance could be applied immediately to address Eskom’s legacy debt, as proposed in a recent paper by Meridian Economics.

The paper argues that a sovereign-to-sovereign concessional package, linked to decarbonisation targets, could save the country R100-billion and could help facilitate the part recapitalisation of the unbundled Eskom units of generation, transmission and distribution.

“If [such a deal] does happen, I believe that it will be through an extensive and very complex set of negotiations,” De Ruyter said, arguing that lenders would probably be reluctant to fund debt incurred to build coal assets.

“Unless we’re all prepared to, in my view, substantially accelerate the retirement of our coal-fired generation fleet beyond what we are currently contemplating . . . I think that addressing concessional financing vis-à-vis our legacy debt is going to prove remarkably challenging to implement,” he said.

“The package that we are talking about at the moment involves the concessional funding of new generation capacity, the repurposing and repowering of our power stations as they shut down, the expansion of our transmission grid and conversion of our distribution network.

“So, it is more about the future than it is about the past.”

Speaking at the tail-end of the recent visit, American envoy Dr Jonathan Pershing, who is US Deputy Special Envoy for Climate, described South Africa’s latest climate pledge as “extraordinary” and said donor countries would seek to support South Africa’s ambition to transition to a decarbonised economy with concessional finance.

Pershing noted that as a middle-income country, South Africa was not always able to secure concessional loans from the World Bank and other multilateral institutions.

“But that does not mean there is not a need here [and] it doesn’t mean that there is not a demand for capacity building that isn’t really accessible on commercial terms.

“And so, yes, we believe that part of what the donors will be seeking to do is to help raise concessional finance for the South African transition.”