Germany advances South Africa’s Just Energy Transition with R10bn loan

Germany has finalised a €500 million (around R10.4 billion) loan aimed at supporting South Africa’s Just Energy Transition (JET) through the KFW Development Bank (KFW).

The National Treasury on Monday said this KFW loan, which forms part of the country's third Development Policy Operation, signified a continued commitment to structural reforms crucial for enhancing the efficiency, resilience, and sustainability of the country's infrastructure, particularly within the energy sector.

The loan agreement, signed in the presence of prominent stakeholders including the World Bank, the African Development Bank, the Japan International Cooperation Agency, and the OPEC Fund, builds on two previous policy loans concluded in 2022 and 2023.

Altogether, these initiatives represent Germany's pledge made at the COP26 summit to aid South Africa's Just Energy Transition Partnership, which is designed to combat climate change while supporting the country’s socio-economic development.

On Monday, Finance Minister Enoch Godongwana underscored the significance of this partnership, pointing out that the collaboration with Germany and KFW was vital for advancing the nation’s development agenda.

Godongwana said this loan was a significant step towards strengthening short- and medium-term energy security measures, promoting decarbonisation, and ultimately realising inclusive economic growth through job creation for disadvantaged communities.

He further emphasised the need for ongoing policy and institutional reforms in the energy sector, adding that he believed that creating an enabling environment was essential to attract the necessary investments for a successful and just energy transition.

Echoing these sentiments, Cornelia Tittmann, KFW’s country director for South Africa, expressed optimism about the potential impacts of the loan.

Tittmann said this financial assistance sought to support the South African government's commitment to energy sector reforms, which will facilitate the country’s climate obligations and engage the private sector, thus opening new avenues for economic cooperation between Germany and South Africa.

KFW’s financing, which totals €1.3bn over three policy loans, is a cornerstone of the broader efforts to implement structural reforms.

These goals include strengthening public institutions, catalysing private investments, and improving service delivery across key sectors in the South African economy.

Tittmann specifically acknowledged the leadership of the National Treasury in coordinating this operation, highlighting the strengths of a collaborative approach over the past four years.

According to Treasury, the financial terms of the new loan are notably favourable, featuring a nominal value of €500m, with a maturity of 13 years and a three-year grace period, alongside a fixed interest rate of 4.31%.

The KFW loan also comes after South Africa last week inked a 15-year, R8.4bn loan agreement with the African Development Bank in a bid to bolster its energy transition efforts.

This financing is part of the third Development Policy Operation and comes with collaboration from key international players including the World Bank, KFW, Japan International Cooperation Agency, and the Organization of the Petroleum Exporting Countries Fund for International Development (OPEC Fund).

In November 2024, Agence Française de Développement (AFD) also finalised a landmark R7.6bn loan to drive South Africa’s Just Energy Transition Plan (JETP).

This loan builds on the €300 million (R5.7bn) public policy loan provided in 2022, bringing France’s total contribution to the JETP to €700m of the €1bn pledged at COP26 in Glasgow.

BUSINESS REPORT