The World Bank Group is thinking of giving South Africa’s transmission expansion an additional $500 million
“A senior bank official told Reuters that the World Bank Group is considering financing $500 million of South Africa’s participation in a new credit guarantee facility meant to unlock private financing for a massive transmission grid expansion plan.”
At an estimated $25 billion, South Africa is seeking private investment for an ambitious plan to add 14,500 km of new lines and improved transformer capacity over the next ten years in an effort to recover from a decade of debilitating power outages that have severely damaged the country’s economy.
About 20 gigawatts of renewable energy have been prevented from joining to the national power network by transmission infrastructure constraints, which the proposed credit guarantee vehicle seeks to help remove, according to Standard Bank.
Numerous renewable energy projects are located in the windy Western and Eastern Cape or sun-drenched Northern Cape regions, which are remote from the transmission routes that now connect the majority of South Africa to the northern coal-powered power plants.
The credit guarantee vehicle would function independently, issuing guarantees in lieu of South Africa’s treasury and covering payment defaults, for example, in the event that a problem arises during the roll-out.
“We could cover or be committed to finance half a billion U.S. dollars of the government of South Africa’s first loss or junior capital participation,” senior World Bank manager Yadviga Semikolenova stated last Thursday.
South Africa, which is dealing with poor growth, high debt-servicing expenses, and the governing coalition’s inability to agree on a VAT raise this year, has tried to avoid adding to its already precarious financial situation by providing more sovereign guarantees.
Twenty percent junior or first loss capital, or $100 million initially, will be provided by the Treasury before increasing to $500 million. An April 4 Treasury document reveals that the credit guarantee vehicle’s ultimate goal is to reach $2.5 billion.
A loan from the International Bank for Reconstruction and Development to finance the treasury’s junior capital and a possible $100 million direct injection from the International Finance Corporation are two items in the package being discussed with the World Bank Group, according to the document obtained by Reuters.
Political risk coverage and reinsurance are also being considered by the bank’s Multilateral Investment Guarantee Agency.
Treasury officials said they anticipated approval from the World Bank Group board later this year.
The Treasury stated that it had approached a number of development funders, including the African Development Bank, the Development Bank of Southern Africa, British International Investment, and Germany’s KfW, in April to secure support for the facility.
The DBSA stated that it was thinking about taking part, but BII stated that it was unable to comment on any transaction that it had not committed to or disclosed.
