South Africa has confirmed the signing of three new policy loan agreements – worth more than $1.8-billion – in support of the country’s Just Energy Transition Investment Plan (JET-IP), the implementation plan for which was approved by Cabinet last week.

The dollar- and euro-denominated loans are described as “concessional’ and have been provided directly to the National Treasury for general budget expenditure purposes by the World Bank, Germany’s Kreditanstalt für Wiederaufbau (KfW), and the African Development Bank (AfDB).

The $1-billion, 15-year World Bank loan includes a five-year grace period and carries an interest rate based on the six-month Secured Overnight Financing Rate (SOFR), which currently stands at 5.32%, plus 0.95%.

The current rate payable on a South African ten-year bond is about 10%.

The $300-million, 12-year AfDB loan is priced at the six-month SOFR, plus 1.22%, with a two-year grace period.

The €500-million, 12-year KfW loan, meanwhile, has been extended at a fixed 4.4% interest rate and also includes a three-year grace period.

The National Treasury said the KfW and AfDB loans followed their partnership with the World Bank on the second Development Policy Operation to support South Africa’s commitment to the just transition for a low-carbon and resilient economy.

“The financing facilities from the three development institutions are in line with the National Treasury’s funding strategy to diversify its funding mix for international borrowing and access concessional financing instruments offered by the development partners to support government’s key reforms under climate change and the electricity sector.

“These facilities also enable the National Treasury to raise funding at very affordable rates which help to reduce the government public debt,” the National Treasury said in a statement.

In November 2022, the French and German development banks, AFD and KfW respectively, extended €300-million apiece in support of the JET-IP; these were also extended in the form of policy loans to the National Treasury.

The announcement of the latest JET-IP-linked loans follows a reaffirmation by the International Partners Group (IPG) of its support of South Africa’s JET-IP.

Initially comprising France, Germany, the UK, the US and the European Union, the IPG was expanded earlier this year to include Denmark and the Netherlands and the total financing commitment has also increased to $9.3-billion from $8.5-billion.

The IPG also announced that the overall grant financing component had been increased to $713-million, representing a 116% increase from the amount committed at COP26 in 2021.

The IPG also welcomed the progress that South Africa had made on its JET-IP implementation plan, which was approved by Cabinet at its most recent meeting.

The plan will guide implementation of the far larger JET-IP, which was itself approved ahead of COP27 last year, and indicated that investment of about $99-billion will be required to support South Africa’s transition to greater climate resilience over the coming five years.

The JET-IP sets out investments that South Africa will need to make in electricity, new energy vehicles and green hydrogen to ensure its climate resilience in line with decarbonisation targets outlined in the Nationally Determined Contribution lodged with the United Nations.