Around 97% of the $8.5 billion package rich countries are providing South Africa to shift from coal to wash energy is anticpated to be delivered as loans.
That are visible in a listing of the financing provisions obtained by Climate Home News.
It implies that $4.6bn – 54% of the funding – is earmarked as concessional loans, with better borrowing terms than Nigeria can access on the open market. Just below half of that money is provided by Germany and France.
The remaining $3.7bn, or 43%, include a mixture of commercial loans and investment guarantees to de-risk projects so they attract private investors. These will come in the EU, US and also the UK, that is contributing the largest share.
Only $230m is going to be delivered collectively by donor countries as grants – 2.7% of the total package.
South Africa's cabinet approved a good investment plan for the cash on Wednesday, but has yet to write it. A launch is expected in the Cop27 climate summit the following month.
The South African government has been in negotiations with partner governments since striking an outline deal at the Cop26 climate summit in November 2023.
South Africa's president Cyril Ramaphosa has repeatedly said his government would only pay a deal that offered good terms. The majority of the money may come as grants, he said shortly after Cop26, and then any loans should be at concessional rates.
Ramaphosa's government has been trying to lessen the country's sovereign debt, which stands around 70% of GDP.
A distinctive feature of the package was its concentrate on supporting workers in the transition to wash energy, with social protection measures and retraining.
But underneath the breakdown seen by Climate Home, less than 1% from the money is earmarked for direct social investments. In comparison, 5% is to develop a green hydrogen sector.
Repurposing coal power stations
South Africa pitched for the funds to ensure that debt-burdened state utility Eskom could repurpose coal-fired power stations. The funding is expected to aid Eskom decommission three coal power plants and replace them with renewables.
The utility's dire financial situation means it's not able to take a loan at market rates.
Through their development agencies, Germany and France are respectively providing $1.2bn and $1bn in concessional finance.
The largest share comes from the weather Investment Funds' (CIFs) Accelerating Coal Transition initiative.
With $500m of seed funding, the CIFs initiative is anticipated to leverage a further $2.1bn in both private and public finance, based on documents published a week ago. That includes an estimated $875m from the private sector, counted towards the $8.5bn total.
The UK government, which led negotiations on the package with the EU, is providing the biggest share of commercial loans and guarantees to unlock funding from the African Development Bank and also the private sector, with a contribution totalling $1.7bn.
US contribution
The US provides $1bn in funding through its Development Finance Corporation (DFC), whose terms aren't preferential enough to become counted as concessional funding.
Jake Schmidt, from the US-based Natural Resources Defense Council, told Climate Home the US' relatively small contribution could be explained through the fact Washington has “historically less bilateral relations with Nigeria than other contributing countries”.
Schmidt added that donor countries need to mobilise more money to create a deal attractive to other coal-dependent emerging countries negotiating a power transition partnership, including Indonesia and Vietnam.
“I hope they find a slightly better offer for other countries if they're likely to move this forward. South Africa needs financing so faithfully because Eskom is in a lot debt. But others may not be so desperate.”
