Will this be the multi-billion dollar deal that saves Eskom?


The Presidential Task Team on Eskom has recommended a financing arrangement for Eskom that will be the "biggest climate finance deal in the world".

A $10bn climate finance deal for Eskom is the centrepiece of a package of recommendations made by the Presidential Task Team on Eskom’s sustainability. An impeccable source with direct knowledge of the talks has told Fin24 that if the deal were to go ahead, it would be the "biggest climate finance deal in the world".

In a nutshell, it would see international development finance institutions funding Eskom if it speeds up the decommissioning of its coal power plants and accelerates its carbon emission reduction plans. Fin24 understands that informal talks with at least two major European development finance institutions are underway, but the task team needs the green light from President Cyril Ramaphosa to take the talks further.

The climate finance deal is part of a package of recommendations made by the Presidential Task Team, appointed by Ramaphosa to advise him on Eskom’s sustainability in December last year. It has just submitted its final report to Ramaphosa. 

The task team recommended the unbundling of Eskom into three entities which would deal individually with transmission, generation and distribution. The team needs a "firm mandate" from Ramaphosa to keep talking to potential financers, who are "extremely interested in taking this forward," Fin24 was reliably told.

It would probably not involve the funding of new renewable technologies by the international financers directly. But it would mean that Eskom could invest in clean energy technologies at a faster rate and fast track the decommissioning of Eskom’s older coal stations.

Many stations from Eskom’s coal fleet are decades older than their shelf life and are malfunctioning due to a lack of maintenance and their age. The decommissioning plans have been on the cards for several years, but timelines have been something of a moving target for Eskom.

Fin24 previously reported that Eskom’s current approach is to turn off the older units as they are evaluated for their viability on a case-by-case basis. South Africa’s long term energy policy trajectory has been to gradually ween the country off of its reliance on coal and to introduce renewable energies via its Independent Power Producer (IPP) programme.

But this cannot happen faster partly due to the cost of decommissioning the power stations, and partly due to Eskom’s inability to replace the base-load energy that would be lost in this process quickly and inexpensively, on its own. Fin24 was told that the deal is not the result of the international financing community imposing conditions on Eskom in exchange for funding. 

Rather, the deal "pays us to move towards renewables", the well-placed source said. The facility would be a "blended" one, Fin24 was told, and it would probably involve payments in tranches. Possibilities on the table include concessionary funding, international development finance institutions, and pension funds coming in in a staggered way. 

While international development financiers interested in funding climate change mitigation strategies have had their eyes trained on big carbon emitters in the developing world like India and China, they are also very interested in countries like South Africa, which have concentrated carbon emissions and economies that are very coal-intensive. 

The task team has made a range of recommendations to Ramaphosa, including options to restructure Eskom’s debt. Business Day reported on Thursday that a number of options are on the table, including the possibility of a state-owned special purpose vehicle which could offer debt-for-equity options in some cases. 

It is a complex set of recommendations, but it could be more palatable to government, and especially to National Treasury, than endless government bailouts. In his State of the Nation Address last week, Ramaphosa announced that a R230bn bailout would be fast-tracked. While some of the task team’s recommendations will take aim at reducing Eskom’s total debt, the "climate" funding facility would be aimed more strategically in reducing the cost of paying off the debt. 

Eskom told Fin24 this week that a project team was in place to manage the separation of Eskom into three entities, and that "delinking" various corporate functions back to "line divisions" is at an advanced stage. Eskom also said it had not yet spoken formally to its current lenders about the unbundling process and what this will mean for its debt obligations, but said that these conversations would be "very critical". 

"These engagements will take place once firm direction on the proposed unbundling is established," Eskom said in response to questions.

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