In September 2023, the World Bank agreed a $1 billion development policy financing (DPF) loan to support South Africa’s low carbon transition (see Inside the Institutions, What is World Bank Development Policy Financing?). This support was deemed necessary due to South Africa’s electricity crisis, characterised by high tariffs, regular rolling blackouts and the significant debt of the state-owned utility Eskom, which amounted to 8.6 per cent of GDP in March 2022.
The loan mandates eight reforms across two pillars, aimed at further privatising South Africa’s electricity sector. Pillar 1 targets the restructuring of the power sector by supporting the separation (i.e. unbundling) of Eskom’s activities. Pillar 2 focuses on supporting the low carbon transition by encouraging private sector investments in renewable energy – including by removing threshold requirements for licensing projects that sell electricity directly to private consumers and extending tax incentives to businesses.
Civil society organisations (CSOs) have been calling for an overhaul of the Bank’s private sector led approach as part of the Evolution Roadmap, labelling it a “flawed development paradigm” because “the type of projects designed to attract profit-seeking private investors and generate quick returns might not match the public interest and national or local priorities, or support sustainable economic transformation” (see Observer Summer 2023).
South Africa’s JETP is a cautionary tale for all Global South countries. The deal was negotiated in secret, offers very little grant financing, fails to protect workers in transition sectors, advances privatisation, and overwhelmingly seeks to guarantee profitable investment opportunities for private finance.Gilad Isaacs, Institute for Economic Justice
Bank’s problematic engagement in South Africa’s energy sector continues
The DPF deepens the Bank’s influence in South Africa’s energy sector, following substantial financial support and policy guidance over the past decade (see Observer Winter 2022). In 2010, the Bank extended a $3.75 billion loan to Eskom for the construction of the 4800 MW Medupi coal-fired power plant – its largest ever energy loan (see Observer Spring 2019). This problem-riddled project has led to criticism from South African CSOs who have labelled it ‘odious debt’ and called for its cancellation.
Recently, the Bank also played a supporting role in the country’s Just Energy Transition Partnership (JETP) (see Observer Winter 2022). Agreed at COP26 in 2021, the JETP is a $8.5 billion climate finance initiative involving France, Germany, the UK, the US, the EU and World Bank-hosted Climate Investment Funds. It pools commercial loans, concessional loans and grants from rich nations while anticipating private sector coverage of the rest of the transition financing needs through public-private partnerships (PPPs).
The JETP shows a clear imprint of the Bank’s private sector-led approach to decarbonisation in low- and middle-income countries, where it encourages national governments to pursue de-risking measures to make projects ‘bankable’ for private sector investment (see Observer Autumn 2023, Winter 2022). This approach is based on the assumption that billions of dollars of public finance will unlock trillions of dollars from private investors (see Briefing, Gambling with the Planet’s Future).
The South African JETP has however fallen short of its promised financing, securing only one-tenth of the required funds, a challenge seen also in Indonesia and Vietnam, which have also launched JETPs (see Observer Spring 2024). As of last November, only $308 million of grant-funded projects under the JETP had progressed to the implementation phase, while information on loans, which make up a staggering 97 per cent of donor-backed support, has yet to be disclosed. The fact that most of the support is being provided in the form of loans, denominated in foreign currencies – making them more expensive – raises further concerns, especially given South Africa’s (and Eskom’s) current debt burdens (see Dispatch Annuals 2023).
As Gilad Isaacs of the South Africa-based Institute for Economic Justice argues, “South Africa’s JETP is a cautionary tale for all Global South countries. The deal was negotiated in secret, offers very little grant financing, fails to protect workers in transition sectors, advances privatisation, and overwhelmingly seeks to guarantee profitable investment opportunities for private finance. Instead, climate financing should take place through transparent multilateral process that acknowledge the Global North historic climate debt.”
