Germany's below-market loans to South Africa: A boost for energy transition

Germany has offered South Africa loans at significantly below-market rates, with longer tenures and grace periods, German Special Envoy for the Just Energy Transition Partnership (JETP), Rainer Baake, has said.

Briefing the media on the current state of the JETP, Baake said the National Treasury had also confirmed the highly concessional nature of the financing, which he said was lower than listed debt market rates.

Baake steered clear of directly addressing comments by Minister of Electricity and Energy Kgosientsho Ramokgopa, made on the sidelines of the World Economic Forum in Davos, Switzerland, last week. Ramokgopa had said Eskom would need to turn to other, more affordable funding options—such as banks, private investors, and the bond market—after a pledge of more than R213 billion by major Western powers was rejected due to unfavourable terms.

Ramokgopa said: “Eskom has a duty to ensure that whatever money they access is capital that is affordable. At the end, you and I are going to pay for the cost of capital because it is going to find expression in the tariff configuration.”

“The partnership framework blends concessional loans, grants, guarantees, and technical support, aligned with South African priorities. Financing terms differ by instrument, project, and implementing partner. The loans from KfW Development Bank are considerably cheaper compared to market conditions,” Baake said.

Baake cited several examples, including a policy-based loan of €300 million issued in November 2022, with a maturity of 20 years, including a five-year grace period.

“The variable interest rate was, at the time of signing, around 3% and is currently around 2.8% (six-month Euribor plus 69 basis points), in comparison to market conditions for the National Treasury of around 8.9% per annum,” he said.

He said a second €500 million loan was issued in November 2023 with a maturity period of 15 years, including a three-year grace period.

“The interest rate is fixed at 4.4%, compared to 12-year Eurobonds issued by the South African National Treasury in late 2023 at between 7.1% and 7.95%,” he said.

A third policy-based loan of €500 million was issued in July 2025 with a maturity period of 13 years, including a three-year grace period.

Baake said the interest rate is fixed at 4.31%, compared to USD bonds issued by the South African National Treasury at 6.25%.

He said a loan to the City of Cape Town for electricity infrastructure of €150 million, issued in December 2024 with a maturity period of 15 years, carried an interest rate of 7.79%, compared to around 11% for commercial borrowing.

“Germany remains firmly committed to international climate cooperation and partnership-based approaches to the energy transition—regardless of shifting global political dynamics,” Baake said.

He said the funds are used in areas prioritised in the Just Energy Transition Investment Plan of the South African government: electricity, green hydrogen, new energy vehicles, Mpumalanga’s just transition, skills, and municipalities.

Baake said Eskom, which would be a natural partner for the JETP, is currently not permitted to take on new borrowing in the general capital market due to debt relief arrangements with the National Treasury.

“It is expected that Eskom will only return to the capital markets around the 2028 financial year. Eskom’s credit rating remains below investment grade, partly due to large municipal arrears and the broader financial picture. Improving these metrics is necessary before it can issue debt without heavy government guarantees,” Baake said.

The International Partners Group—consisting of Germany, the UK, France, the EU, Denmark, and the Netherlands—has not yet allocated all of its pledges in full but has delivered on concessional loans and overdelivered on grants.

In 2021, the International Partners Group pledged $329.7 million in grants. As of September 2025, $792m has been allocated (of which €314m from Germany, equal to approximately $365m). In 2021, the group pledged $5.325 billion in loans. As of September 2025, $4.491bn has been allocated, according to the IP Investment Register (Q3 2025), omitting, for example, the European Investment Bank’s €350m for Transnet.

Baake said that beyond financing, Germany’s support through GIZ focuses on a just and inclusive transition, including capacity building, skills development, and economic diversification. All activities are planned and implemented together with South African partners.

German technical assistance via GIZ covers all six Just Energy Transition Investment Plan portfolios (with new energy vehicles still in the planning stage).

Total project volume is valued at €176.7 million with €123.9m ongoing, €5 m planned and €47.8 m completed.   

“The South African government estimates the scale of investment needed for the country’s Just Energy Transition at around $100bn. To meet this investment need, international, domestic, public, and private finance will all need to play a role. Together with other members of the International Partners Group, Germany remains willing to act as fast as possible to support South Africa in its transition,” Baake said.

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