The International Partners Group (IPG) of France, Germany, the UK, the US and the EU jointly endorsed South Africa’s Just Energy Transition Investment Plan (JET-IP) during the World Leaders Summit at COP27, which took place at Sharm El Sheikh, Egypt, on November 7. Engineering News editor Terence Creamer spoke to Presidential Climate Finance Task Team head Daniel Mminele about the significance of the endorsement and what it means for both the mobilisation of the $8.5-billion Just Energy Transition Partnership (JETP) funding package and South Africa’s far larger $99-billion (R1.5-trillion) JET-IP, which is proposed for implementation over the coming five years to 2027.

Terence Creamer: Could you reflect on the significance of the IPG’s endorsement of South Africa’s JET-IP?
Daniel Mminele: It is a very pleasing development in the sense that we have seen emphatic endorsements from all the leaders – UK Prime Minister Rishi Sunak, US President Joe Biden, French President Emmanuel Macron, German Chancellor Olaf Scholz and European Commission President Ursula von der Leyen – who made very strong comments in support of South Africa's plan. With the work that we have undertaken since the announcement that was made at COP26, we have essentially refuted some of the narrative that was being pushed, which was that we weren't going to make our deadline of being able to provide a substantive update by COP27. The feedback that we received in Sharm El Sheikh is really encouraging and people are continuing to refer to the potential for this JET-IP to serve as a model, or as a benchmark, for other countries to follow. As you know, the plan that has been developed is South African-owned and South African-led, and it makes sure that South Africa-specific ambitions and priorities are taken care of and that the plan overall is aligned to our international decarbonisation commitments, while at the same time speaking to the need to put us on a new, inclusive and thus sustainable growth and development path.

Reference is made in the IPG statement to the fact that the funding will be dispersed using various mechanisms, including grants, concessional loans and risk-sharing instruments. How will these flows actually take place and will it all be managed through the National Treasury?
There will be a multitude of disbursement mechanisms, which actually will inform much of the next part of the work that we need to do. Right at the outset, we defined a set of principles, about nine of them, that would guide us in how we would put the financing package together. One of the principles is that the financing flows from the partner countries should be certain and predictable, so as to avoid any delays. Another one was that they should take advantage of the capacity and the capability that exists within South Africa by, for instance, involving our own development finance institutions (DFIs), such as the Development Bank of Southern African and the Industrial Development Corporation. That is the kind of work that we will now need to get into more granularity. But in principle, the potential implementation partners through which funds will flow is clearly government, or the National Treasury, but also other implementing institutions such as the DFIs, State-owned enterprises, the private sector and other social partners. So, there’ll be a multitude of implementing partners, but it’s fair to say that the bulk of it will come through the fiscus.

When you say a principle of ‘certainty and predictability’ of the flows should apply, how will that be realised?
The political declaration that was signed in Glasgow giving rise to the JETP indicated that these countries were committing to mobilise an initial amount of $8.5-billion over the initial period of three to five years, subject to concurrence on an investment framework, which is essentially what we've put on the table now with the JET-IP. So, there are certain elements of the financing package that couldn't be sufficiently advanced prior to us having put the investment plan out. Now that it's out, much more constructive conversations can be held around the more granular aspects of the financing package. It must also be understood that it has elements that are moving at different speeds. There are elements of it, such as the €300-million-apiece AFD and KfW concessional loans, that have been signed. And it's kind of a matter of time before those funds flow. Other elements still need to be progressed and negotiated. The plan sets out in clear terms what the priority investments are and talks to how these investments need to be sequenced for maximum impact, including the just components. So, there's a lot of detail in that plan, which will allow us to progress the other bits of the financing with the view of saying that we need this finance to flow for us in a way that sustains momentum in the investment process.

While the grant element is not a major component, it has been a major focus in the run-up to finalising the $8.5-billion offer. Can you share how much grant financing is available and, in principle, what it will be used for?
It’s just shy of 4% of the total package and, ideally, you would direct that to many of the ‘just’ investments; investments that are geared towards making sure that some of the workers in the communities that are currently highly dependent on the fossil-fuel value chain, particularly the coal value chain, are protected and supported. In addition, investments that are not revenue generating would lend themselves to be funded in this way, such as policy development, proofs of concepts and some of the technology transfer and capacity building initiatives.

When the IPG talks about ‘concessional’ or ‘highly concessional’ funding what does this mean?
One of the other principles we have agreed upon is that the financing package must reflect South Africa's unique needs and the country’s fiscal position. In other words, the composition of the funding instruments needed to take account of South Africa’s fiscal sustainability. And another one was that it needed to be on attractive terms versus the capital markets and that's where the concept of concessionality comes in to say that any debt-related terms for the sovereign should be more attractive than what the National Treasury could secure on its own in the capital markets. So that would be kind of the test, as we can't borrow debt under the JETP that would come at commercial rates.

How do you respond to criticism that this funding will simply deepen our debt crisis?
Based on what I was indicating earlier, that is one of the key financing principles: we would not have any debt-related terms that are too onerous, and they must be more attractive than commercial rates. We have also stressed that we don’t want onerous reporting requirements. It is also important that the financing forms part and parcel of our fiscal framework as it evolves. Therefore, all the negotiations around the financing package have been done in close consultation with the National Treasury, which took the lead on aspects of it. So, this is very much aligned to the argument that, while we're trying to respond to climate-change risk and transition to a low-carbon economy and more climate-resilient society, we cannot load up on unsustainable climate-related debt. Taking that position resulted in the very close involvement of the National Treasury to make sure that the package is affordable and sustainable and takes account of South Africa's fiscal realities and challenges.

And given that the loans are euro- and dollar-denominated, how will the foreign-exchange risk be managed?
We are absolutely alive to the foreign-exchange issue and to making sure that foreign exchange-related risks are managed in line with another financing principle, which relates to appropriate risk-sharing arrangements. Those are some of the issues we've been talking to our partners about in terms of how we make sure that issues such as foreign exchange-related risks are appropriately managed and that we get support in that regard as well.

Given that the JET-IP is still to be consulted in South Africa, do you have to go back to the IPG partners if changes are made?
The plan has been adopted by the Cabinet. And in taking the plan to the Cabinet there has been a fair amount of consultation already, leaning on some of the consultation that would have informed the Just Transition Framework that was developed by the Presidential Climate Commission. As the Presidential Climate Finance Task Team, we have also had initial rounds of consultations with civil society: with the youth, with business, with trade unions, with local authorities and with faith-based organisations. So pretty wide consultations and some of the elements in the JET-IP emerged from those initial rounds. What is happening now that the Cabinet has adopted the plan is that we're putting it out for broader consultation at home, with a focus mainly on the implementation of the plan. One also has to bear in mind that this is an initial five years that we're talking about in terms of the investment plan, but the transition journey is a much longer one, it's a multi-decade issue. So, the investment plan will have to be a living document.

In sequencing the investments, how much priority will be given to the just components, as well as investments in the transmission grid, which is a key enabler of the transition?
The bulk of the allocation goes into the electricity sector, including transmission, and the plan goes into quite a bit of detail around how one sequences these particular projects and programmes. It highlights that capacity needs to be built at a local government level, where a lot of implementation has to happen, and how workers and communities should be retrained. The approach from the outset is very, very clear that this is actually a whole-economy, a whole-society approach, which is driven by South Africa's needs because it fits into the overall approach of making this part and parcel of dealing with issues such as inequality and unemployment and poverty alleviation.

What assurance do the IPG members have that the money will be used for its intended purpose, and how can South Africa ensure that the flows not only materialise but do not displace other funding initiatives by these same international partners in sectors such as health and education?
The next area of focus, alongside progressing the financing and dealing with some of the risks, is to develop a comprehensive implementation plan. We also need to make sure that this implementation plan includes proper accountability, monitoring and evaluation of processes to ensure that we get the intended outcomes. We also need a mechanism for course correction if we find things are going off track. And that is what is now going to be the focus of our work: finalising a detailed implementation plan that considers these kinds of issues and the creation of proper governance arrangements, that include monitoring and evaluation processes, as well as regular reporting.

And when will that plan be in place?
I would be surprised if we didn't wrap that up during the first quarter of next year. We also want to make sure that there is no lull following COP27, as there was after COP26, so that there is no loss of momentum, and we can move swiftly to implementation.

What becomes of the Presidential Climate Finance Task Team and your own role once that implementation plan is finalised?
As I indicated to you, there is a lot of work to be done. One part of this implementation plan is to develop the future institutional arrangements, and how those should be structured for the next phase. The focus ahead of COP27 was really about putting shoulder to the wheel to get the plan out, which I'm glad we managed to do. There will be no let up, and we will sit down now and work out all those arrangements about what needs to happen in terms of next steps.

Will you be staying on?
Well, that's part of the discussions that we'll be having in terms of how we take this forward.

Finally, can the JETP be expanded beyond the founding IPG members and the $8.5-billion funding envelope?
Yes, to both questions. As we’ve stated in previous presentations, clearly what the IPG has put on the table is a very small amount relative to the scale of need. And so, we are already in discussions with other countries, many of which wanted to get a sense of what the investment plan was going to look like first. Now that the JET-IP is out, we're very pleased with the interest that is being shown by other countries, and we have already started negotiations with some of these. We are also in conversation with philanthropic organisations, who have similarly expressed an interest. This could take two forms. Other countries could join the IPG and expand the IPG funding as part of their contribution. Alternatively, countries could come and deal with South Africa bilaterally. You can already see that the JET-IP has not been written for the $8.5-billion, it is far larger. So, the plan allows us to tap into as diverse a universe of funders as possible. It also seeks to ensure that these scarce concessional resources are deployed in such a manner that allows us to crowd in the much bigger pools of finance that sit in the domestic and international private markets.