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The mechanism aims to attract private capital and reduce reliance on state guarantees.
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Power transmission projects given priority to promote energy security and renewable energy
The World Bank said on March 5 that its board had approved a new credit guarantee vehicle (CGV) that aims to help South Africa raise $10 billion in private capital over the next decade to boost infrastructure investment.
The CGV is part of the South Africa Blended Finance Platform for Resilient Infrastructure Program and includes an initial $350 million commitment from the International Bank for Reconstruction and Development (IBRD), a World Bank Group institution.
The vehicle will be hosted by the Development Bank of Southern Africa (DBSA). It will issue market-based credit guarantees to reduce investment risk in infrastructure, attract private capital and reduce reliance on sovereign guarantees.
“Over a ten-year period the program is expected to mobilize approximately $10 billion of capital (approximately R160 billion ZAR), including capital from private investors, commercial lenders and institutional investors, create approximately 997,000 direct and indirect jobs and contribute to the reduction of greenhouse gas emissions.“The World Bank said in a release.
South Africa has experienced economic growth of less than 1% for almost a decade, while unemployment remains above 30%. Persistent disruptions to electricity, freight logistics and water supplies are driving up costs, weakening productivity and limiting opportunities for businesses and households.
power transmission priority
Africa's most industrialized economy has a deep and sophisticated financial market, but long-term institutional capital is limited in infrastructure investment. Also, the infrastructure needs are substantial and cannot be financed by the public sector alone.
The new guarantee mechanism is expected to prioritize capital for power transmission infrastructure to strengthen energy security and accelerate the construction of renewable energy plants in solar and wind-rich areas of the country.
“CGV, which will support large-scale investment in transmission infrastructure, will be incorporated as a company in the coming months. Following this, we expect the development partners to confirm their capital participation. We are aiming to have the CGV operational later this year“The mechanism should be operational before the end of the year,” South African Finance Minister Enoch Godongwana said.
President Cyril Ramaphosa in February announced the creation of an electricity transmission company independent from state utility Eskom Holdings. Global energy companies including France's Engie, India's Adani Power and China's State Grid International Development have already expressed interest in the project, which involves building 14,000 kilometers of new transmission lines at an estimated cost of about 440 billion rand ($26.3 billion).
The guarantee mechanism, targeting an initial capitalization of $500 million, is also expected to support projects in transport, water and social infrastructure, the DBSA said separately.
“The mechanism is designed to be sustainable and scalable, starting with power transmission infrastructure and expanding to other sectors as the model proves itself” the regional development lender said.
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