The World Bank’s board has approved a loan that aims to help South Africa fix its failing energy network and power its green transition.
The bank wants to support Africa’s sixth most populated nation and help it reduce its energy emissions.
South Africa’s energy grid has been increasingly struggling, with the country’s coal-fired power stations routinely breaking down and leaving citizens without power for up to 10 hours a day.
To address this situation, the World Bank said it will provide a $1bn (£830m) development policy loan (DPL) to South Africa. The funds are expected to help facilitate the “restructuring of the power sector” through the unbundling of state-owned utility firm Eskom.
The World Bank said the loan “supports the opening of the power market and aims to improve Eskom’s efficiency by redirecting its resources toward investments in transmission and maintenance of existing power plants”.
In addition, the funding is also expected to help the country reduce its CO2 emissions by “encouraging private investment in renewable energy” and “strengthening carbon pricing instruments”.
South Africa is among the top 20 highest greenhouse gas emitters in the world. The energy sector in particular is responsible for 81 per cent of the country’s emissions, which mainly originate from Eskom’s coal stations.
Although the nation has expressed a desire to transition to renewable energy sources, Eskom is struggling to meet the population’s electricity demand. Corruption, poor management and frequent breakdowns of its stations have led to frequent electricity cuts, which in 2022 averaged eight hours per day.
Earlier this year, South Africa President Cyril Ramaphosa decided to delay the shutdown of some of Eskom’s coal stations as part of an effort to address the electricity cuts.
The country’s plans to split Eskom into three subsidiaries – transmission, generation and distribution – were first announced in 2019. In February, the country agreed to take on $13.3bn of the debt held by the state-owned company, which was at risk of default.
With its loan, the World Bank aims to drive forward the planned reform of the country’s energy sector. In addition to the funding, South African authorities will also receive technical assistance to identify future reforms necessary to manage the social costs associated with the decommissioning of coal-fired power.
“This operation comes at a crucial time for South Africa as it will provide much-needed fiscal and technical support, enabling us to pursue our policy priorities in the energy sector including easing the electricity crisis in the long term, stimulating private sector engagement and creating jobs in the renewables space,” said Mmakgoshi Lekhethe, National Treasury of South Africa asset and liability management deputy-director general.
Marie Francoise Marie-Nelly, the World Bank’s director for South Africa, said the reforms would “benefit the people of South Africa (particularly the most vulnerable households), the economy and the environment while advancing the energy transition”.
