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Opportunity knocks

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Opportunity knocks

Image of Terence Creamer

26th November 2021

By: Terence Creamer
Creamer Media Editor

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South Africans have become quite accustomed to government never failing to miss an opportunity. And nowhere has this been more apparent than in the electricity milieu.

After producing a sensible policy in 1998 outlining the restructuring of the industry, it failed to follow through.

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Warnings that a lack of investment in new generation capacity would leave the country short of power by 2008 went unheeded.

Arguments that South Africa’s unsustainably low electricity tariffs would incumber investment by the private sector, the designated builder of such capacity until load-shedding first emerged and Eskom was reassigned the role, were dismissed.

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Suggestions that basing industrial policy on cheap power might have a dark side were rebuffed.

Appeals for steady-state procurement of electricity from independent power producers to address an obvious supply deficit and to create the basis for green industrialisation were sacrificed on the altar of State capture and nuclear distraction.

Then there is the chronic problem of not taking the opportunity to hold a coherent energy policy line in support not only of a speedy resolution to the electricity crisis but doing so cost-effectively and cleanly.

The question now is whether South Africa will contrive a way to miss the opportunity being provided by an offer of $8.5-billion in climate financing.

True, the offer is far from clarified, including the mix between grants and concessional loans, even though it is likely to be heavily weighted towards loans.

True, both government and Eskom face balance sheet constraints, which makes absorbing fresh debt difficult.

And true, the international counterparties involved have not always honoured their past commitments.

Nevertheless, the offer, while insufficient in scale, still holds significant potential.

It can provide the catalyst for kick-starting not only South Africa’s much-needed energy transition, but for providing an international example of what just-transition programmes should look like.

It’s also beyond clear that South Africa will need to take on additional debt even while holding the fiscal consolidation line.

Therefore, accessing the cheapest-possible debt, even if ringfenced for a specific programme, makes sense. Such ringfencing would only be problematic if the programme were not core to South Africa’s future growth and development, which is definitely not the case in this instance, with insufficient electricity supply a binding constraint on both.

Government has a unique opportunity to use the profile and momentum created by the announcement – one of the few obvious bright spots in an otherwise underwhelming COP26 – to shape the offer into a transaction that moves the just-transition needle.

Doing so will require clear-eyed technocratic analysis to be sure.

As important, though, will be the political atmosphere in which the climate-finance negotiations take place.

Should that atmosphere continue to be polluted by policy incoherence and fiscal defeatism, then there is little prospect of success.

It’s time to display common purpose and to use such rare unity to secure the best deal possible for the country.

South Africa no longer has the luxury of missing opportunities.

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