South Africa Turns to Germany and the UK for Climate Funding as US Pulls Out

South Africa’s National Treasury is currently in discussions to obtain loans from Germany and the UK, following the recent withdrawal of the US from a climate agreement.

The Treasury has confirmed it is negotiating policy loans with lenders such as KfW, Germany’s state development bank, and the African Development Bank, which is facilitating UK assistance through credit guarantees. Additional details were not provided in response to inquiries.

The potential loans signify that nations involved in the Just Energy Transition Partnership are moving forward with their initiatives, despite the US’s recent decision to withdraw its commitment of $1 billion in loans and $48 million in grants. Sources familiar with the discussions indicated the loans may amount to nearly $1 billion, though they requested anonymity as no public announcement has been made.

“While the US’s withdrawal is unfortunate, the International Partners Group remains dedicated to supporting South Africa in achieving its just energy transition,” the other signatories of the pact — Germany, France, the UK, the European Union, Denmark, and the Netherlands — stated in a March 19 press release.

The JETP, established in 2021, aims to assist South Africa, which has the highest carbon-intensive economy among nations with populations over 4 million, in reducing its reliance on coal. Similar agreements have since been made with Indonesia and Vietnam, although the US has also exited those partnerships.

The KfW loan is expected to be around €500 million ($553 million) and will support the capabilities of South Africa’s newly established national transmission company, according to three sources. South Africa is looking to expand its electrical grid to accommodate an increase in renewable energy sources.

KfW opted not to comment on the matter. The National Transmission Company South Africa and its parent company Eskom did not respond to requests for input.

The UK loan, funneled through the AfDB, may exceed $400 million and is aimed at assisting municipalities in South Africa’s coal regions with water and additional projects, according to one source. The UK’s Foreign, Commonwealth and Development Office declined to comment, and the AfDB did not reply to an inquiry.

Both KfW and France’s Agence Francaise de Developpement have previously loaned money to the National Treasury as part of the JETP program for specific initiatives. KfW has extended €800 million while AFD has provided two loans totaling €700 million. To date, more than $2.5 billion has been disbursed by partners in the JETP from a total commitment of $8.3 billion.

Germany and the UK are also contemplating fulfilling some of the grant commitments previously made by the US for various projects, according to three sources.

These initiatives include the restoration of ash dumps at coal-fired plants, decarbonization efforts for municipalities, workforce training in the renewable energy sector, and encouraging the involvement of women in this industry.

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