South Africa gearing up to negotiate ‘new paradigm’ climate finance deal

9th May 2022 By: Terence Creamer - Creamer Media Editor

South Africa gearing up to negotiate ‘new paradigm’ climate finance deal

Presidential Climate Finance Task Team head Daniel Mminele

South Africa aims to pursue a financing solution that embraces a “different paradigm” with regard to the allocation of risk, as well as return expectations and investment horizons, when negotiating the terms and conditions of an $8.5-billion climate finance offer made in November by several developed countries.

A ‘Political Declaration on the Just Energy Transition in South Africa’, which incorporates the financing offer, was signed with the European Union, France, Germany, the UK and the US on the side-lines of the COP26 climate talks, in Glasgow, Scotland.

Processes are now under way to translate the pledge into firm transactions that will support the transition from coal to renewables in the electricity sector, while supporting coal workers and communities, as well as to lay the basis for the domestic production of electric vehicles and green hydrogen.

Presidential Climate Finance Task Team head Daniel Mminele argued during an event hosted by the Mapungubwe Institute for Strategic Reflection that innovation would be required if the declaration is to be translated into financial products and services that could meet the objectives of justice and inclusion.

While it was premature to speculate on the nature of the financial instruments or the balance between concessional loans and grants, Mminele stressed that it could not be “business as usual”.

“We need to appreciate that a different paradigm may be required, [with] a different approach to issues such as risk allocation and return expectations, or investment horizons.”

Any debt, he added, should be extended on terms that were more attractive than could be secured in the capital markets and without “unduly onerous reporting requirements”.

The financing instruments should also reflect South Africa's unique needs and fiscal challenges and incorporate appropriate and equitable risk-sharing arrangements.

“These include, for example, risk-mitigation instruments, grants, concessional loans, and other appropriate tools, be they financial or otherwise, that contribute towards the cost of the country's transition, but without inhibiting or negatively impacting the country's national priority programmes and budgets.”

The former central banker and Absa CEO also unpacked the principles that would govern South Africa’s approach to the upcoming negotiations, including:

“These principles … should then manifest in a financing package and investment plan through the partnership that addresses South Africa's fiscal realities and priorities,” Mminele added, noting that the $8.5-billion should be viewed only as a starting point give that scale of the investment that would be required over the coming three decades.

“The offer is not the magical pot at the end of the rainbow.

“At best, it is an initial contribution to a national effort.”

Discussions were currently under way with the IPG with a view to assessing the funding elements that could be provided under that partnership, while South Africa finalised its investment plan.

The National Treasury’s assets and liability management team had been drawn into the task team to analyse the financial implications on the fiscus and to ensure that it was both affordable and sustainable.

The Presidential Climate Finance Task Team and IPG negotiators were being supported by a secretariat, headed by National Business Initiative CEO Joanne Yawitch, which was coordinating several technical working groups.

The task team reports to an inter-ministerial Cabinet committee, chaired by President Cyril Ramaphosa, and Mminele said his task was to present final recommendations on an investment plan and a financing package for Cabinet’s approval.