David Masondo suggests investors forego R150bn of sovereign debt for Eskom to meet climate targets

In a statement on Tuesday, deputy finance minister David Masondo suggested investors forego almost R150bn worth of sovereign debt in order for Eskom to pivot to more sustainable methods of generating electricity. South Africa is the world’s 12th largest emitter of greenhouse gases with Eskom being the country’s biggest carbon emitter due to its coal-fired power stations. The parastatal has its hands tied with a near R400bn debt burden, making capital expenditure and the pivot towards more renewable sources of energy near impossible. – Justin Rowe-Roberts

Masondo raises $10bn South Africa debt forgiveness

(Bloomberg) – David Masondo, South Africa’s deputy finance minister, suggested that investors forgive about R146bn ($10.2bn) of sovereign debt in exchange for the national power utility meeting climate targets.

In order to transition from the use of coal to generate electricity to renewable energy Eskom will need to borrow about R400bn, equal to its current debt, and will need a “complementary transaction” to achieve that, he said in a speech on Tuesday.

Under Masondo’s proposal, which he termed a debt-for-climate-swap, a portion of national debt, which he suggested could be R146bn, would be forgiven by new or existing creditors. In exchange South Africa would pledge an equivalent amount as an equity injection into Eskom, conditional on it closing down coal-fired plants, and as guarantees for further borrowing, he said.

Some of the money could also be used to cushion communities from the impact of the coal plant closures, he said.

Masondo first raised the possibility of forgiveness to solve Eskom’s debt problem on July 30. He gave little detail at the time.

“It seems very dangerous for someone at the head of National Treasury to be talking about sovereign debt forgiveness,” said Peter Attard Montalto, head of Capital Markets research at Intellidex. Private investors are “unable to undertake this given their fiduciary duty as they get nothing to fill the hole that would be left,” he said.

In April Kristalina Georgieva, the managing director of the International Monetary Fund, said that a proposal for similar arrangements would be presented at the COP26 climate talks in November.

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