David Masondo, South Africa’s deputy finance minister, suggested that investors forgive about R146 billion of sovereign debt in exchange for the national power utility meeting climate targets.
In order to transition from the use of coal to generate electricity to renewable energy Eskom will need to borrow about R400 billion, equal to its current debt, and will need a "complementary transaction" to achieve that, he said in a speech on Tuesday.
Under Masondo’s proposal, which he termed a debt-for-climate-swap, a portion of national debt, which he suggested could be R146 billion, would be forgiven by new or existing creditors. In exchange South Africa would pledge an equivalent amount as an equity injection into Eskom, conditional on it closing down coal-fired plants, and as guarantees for further borrowing, he said.
Some of the money could also be used to cushion communities from the impact of the coal plant closures, he said.
Masondo first raised the possibility of forgiveness to solve Eskom’s debt problem on July 30. He gave little detail at the time.
"It seems very dangerous for someone at the head of National Treasury to be talking about sovereign debt forgiveness," said Peter Attard Montalto, head of Capital Markets research at Intellidex. Private investors are "unable to undertake this given their fiduciary duty as they get nothing to fill the hole that would be left," he said.