Treasury sets the stage for infrastructure overhaul with R1.8bn credit guarantee vehicle

The National Treasury has taken a step towards addressing South Africa's staggering infrastructure gap, which is projected to reach around R3.5 trillion to R4trln by 2025.

Deputy Minister of Finance David Masondo said on Thursday that the government has committed to injecting an initial R1.8 billion into a newly established Credit Guarantee Vehicle, with plans to escalate the total investment to R9bn if needed.

Speaking at the launch of the pre-qualification process for Independent Transmission Projects (ITP), Masondo highlighted the urgency of the situation.

He noted that at least 32 development partners have expressed interest in investing in the new scheme, which aims to rally private capital to bridge the nation’s infrastructure financing gap.

"Formal engagements with participating partners are continuing and will lead to the delivery of conditional equity participation commitment letters in the third quarter of 2025," Masondo said. 

"This will enable the Credit Guarantee Vehicle to be operationalized by July 2026 to align with the first phase of ITP projects."

He said the infrastructure gap called for scaling up of public financing as well as crowding in private capital through public-private partnerships (PPP). 

"The objective of the Credit Guarantee Vehicle is to mobilize and leverage private capital to address South Africa’s infrastructure financing gap by mitigating offtake risk for private investors," Masondo said.

"This vehicle will also support the efficient deployment of development partner funding under the Just Energy Transition Partnership (JETP) and the achievement of the country’s decarbonisation commitments."

Masondo said while the Credit Guarantee Vehicle will focus on the initial phase of enabling investments in transmission infrastructure, it will be expanded into other areas such as logistics and water over time. 

"The vehicle will be incorporated as a private company in South Africa, regulated by the Prudential Authority. It will operate as a standalone entity with an independent balance sheet and will target a minimum credit rating of AAA," he said.

"A professional executive management team and board of directors with relevant experience and expertise will be appointed to operate and manage the fund. The Credit Guarantee Vehicle will issue a combination of payment and termination guarantees to a Special Purpose Vehicle established for the project."

Speaking at the same occasion, Electricity and Energy Minister Kgosientso Ramokgopa said the proposed amendments to the Integrated Resource Plan (IRP) 2019 anticipate the onboarding of more than 30GW of renewable energy by 2030 and approximately 56GW of new connections by 2035.

"That's an aggressive programme. For that to happen you really need the transmission infrastructure to be in place," he said.

"Major players in the renewable space will tell you 53GW of private sector sponsored projects that are waiting for this connection are at various stages, but its just an indicator of the insatiable appetite that exists in the private sector."

In this context, he discussed the initial phase, which encompasses 1 164 kilometers with a capacity of about 2 600 MVA, projecting that unlocked renewables could produce an impressive 3 322 megawatts.

He acknowledged that Eskom had historically delivered around 350km per annum, but stressed the necessity to scale up infrastructure development.

"It's about the maturity and readiness of local industry because we have not done a significant build programme over a continuous uninterrupted period. We have undermined the capacity of industry to respond to opportunities of this scale," Ramokgopa said.

"That is an immediate risk that's facing us that's why we will be engaging with the industry to see how best they are ready and of course build up that capacity over time."

BUSINESS REPORT