South Africa Seeks to Renegotiate Coal Pact Tied to $2.6 Billion

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(Bloomberg) — South Africa is seeking to amend the terms of a landmark deal under which it pledged to reduce its reliance on coal in exchange for financing.

President Cyril Ramaphosa’s government is seeking to renegotiate a deal with the Climate Investment Funds, a World Bank-linked group, so it does not have to close three coal-fired power plants in the coming years. The plants, owned and operated by Eskom Holdings Ltd, are among the country’s biggest polluters, according to government advisers.

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The project’s oversight body in the president’s office told Bloomberg that the South African government is seeking a “modified approach to the program with the decommissioning date of three power plants” pushed back to the end of March 2030. The department said the decision was driven by “energy security concerns,” adding that South Africa is still working to reduce its emissions.

The development is likely to leverage a total of about $2.6 billion in financing from multilateral development banks and other sources, the first of which will be a $500 million disbursement from the Climate Investment Fund’s Coal Accelerator Program. The money, tied to the country’s commitment to phase out the world’s dirtiest fossil fuel, is part of a larger $9.3 billion climate deal.

A failure by a G20 country to meet its coal-fired power commitments would deal a major blow to a $40 billion program known as the Just Energy Transition Partnership, under which South Africa’s agreement was struck. As the first JET country, South Africa’s reneging on the original terms of its agreement would raise questions about the credibility of the program.

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Asked for comment, Daniel Morris, head of clean energy at CIF, confirmed that South Africa is currently “updating its investment plan.” He said CIF expects the government to provide an update “by the fall.”

The development underscores how difficult it is for developing countries like South Africa, which relies on coal for about 80 percent of its electricity, to shift to cleaner energy sources. While Ramaphosa has supported the original terms of the program, the country’s energy and power ministers have criticized it as a threat to stable power supplies for a country plagued by frequent blackouts.

South Africa’s JETP investment partners — the United States, the United Kingdom, Germany, France, the Netherlands, Denmark and the European Union — remain broadly supportive, according to Bloomberg responses. But they have also expressed concerns about the implications of delays in closing coal plants.

A US Treasury official said expectations remain that South Africa will be able to meet its most ambitious emissions reduction targets.

But four South African officials familiar with the situation said the country’s new plan represented a fundamental change from what had been agreed. One said it was not clear that the Eskom plants involved would have the technical capacity to operate at lower levels, which could undermine a key element of the government’s proposed strategy to cut emissions.

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An Eskom spokesman said the details of the specific units and stations were “the subject of rigorous discussions” internally and with key external stakeholders, without going into detail.

JETP commitments have been complicated in part by South Africa’s May 29 elections, the most competitive since the end of apartheid in 1994. Environment Minister Barbara Creecy, a prominent JETP supporter, will instead oversee transport, with environmental issues handed to a member of a separate party within the country’s first coalition government in three decades.

A panel of experts appointed by Creasy to advise her on Eskom’s appeal against emissions reduction rulings has said any delay in closing coal plants could jeopardise the climate finance package on which South Africa relies. The panel also said that of Eskom’s 14 coal-fired plants, the three now scheduled to be deferred are among the largest emitters of greenhouse gases per unit of energy produced.

South Africa, which has the most carbon-intensive economy in the G20, is not the only JCPOA signatory struggling to meet its commitments. Last month, the United States said plans in Vietnam to build a new coal-fired power plant could “complicate” its progress in meeting JCPOA targets.

Meanwhile, South Africa’s efforts to boost its renewable energy capacity have been falling short. Under Gwede Mantashe, who served as energy minister from 2019 until a new government was announced this week, 46 projects with a combined potential to add 5,939 megawatts of generating capacity to the national grid were approved. So far, only 150 megawatts have been connected.

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