World Bank Group to consider $500 million for South Africa's Transmission Expansion
A senior bank official revealed that the World Bank Group was considering funding $500 million for South Africa to participate in a new facility of credit guarantee meant to unlock private finance for a massive expansion plan of the transmission grid.
South Africa is enticing private investors to invest in an ambitious plan that will add 14,500 km new lines, and increase transformer capacity, over the next ten years, for an estimated cost of $25 billion. The country wants to recover from a decade-long period of crippling power outages, which have ravaged the economy.
Standard Bank says the proposed credit guarantee vehicle will help to overcome transmission infrastructure bottlenecks which have prevented around 20 gigawatts renewable energy from being connected to the national electrical network.
The majority of renewable energy projects are located in the windswept Western Cape and Eastern Cape, which is far away from the existing transmission corridors that connect the rest of South Africa with the coal-powered power plants in the North.
The credit guarantee vehicle, which would operate as an independent entity, would provide guarantees in place of South Africa's Treasury and cover any payment defaults should anything go wrong during the rollout.
Yadviga Semkolenova, senior manager at the World Bank, stated late Thursday that "we could cover or commit to financing half a billon dollars U.S. of South Africa's government's first loss, or junior capital participation".
South Africa is trying to avoid further straining its finances by offering sovereign guarantees. It faces a lackluster growth, high debt servicing costs, and the failure of the coalition government to agree on a VAT increase this year.
Treasury has committed to providing first-loss capital or junior capital of 20%. This will initially be $100 million, before increasing to $500 million. A treasury report dated April 4 shows that the credit guarantee vehicle is aiming to grow to $2.5billion.
The document seen by details a package being discussed with the World Bank Group. It includes a loan of $100 million from the International Finance Corporation to fund the junior capital for the Treasury.
Multilateral Investment Guarantee Agency of the bank is also looking at reinsurance as well as political risk coverage.
Treasury officials have said that the World Bank Group's board of directors would approve the plan later this year.
In April, the Treasury said it had approached several development financiers to support the facility, including the Development Bank of Southern Africa (DBSA), African Development Bank (ADB), Germany's KfW, and British International Investment.
The DBSA stated that it would consider participating, while BII said that it could not make any comments on transactions it had not committed to or announced. Reporting by Wendell Roelf, Editing by Tim Cocks & Alison Williams
(source: Reuters)
