World Bank extends $1Bn loan to South Africa for energy reforms

The World Bank Group has announced that its board has approved a loan of US$1 billion to South Africa which is intended for financing energy reforms that will enable the country to restore energy security.

South Africa has been facing an ongoing energy crisis which has had a marked negative impact on productivity and safety, at a time when the country has been working to implement a just transition to a low carbon economy. In 2022, electricity cuts, known as load shedding, averaged eight hours per day, costing 2-3%of GDP growth to the economy.

The loan provided by the World Bank to South Africa will help facilitate the restructuring of the country’s power sector by supporting Eskom’s plans for unbundling its generation, transmission and distribution units into separate entities. 

The reforms are expected to help open up the power market through improving Eskom’s efficiency by redirecting its resources toward investments in transmission and maintenance of existing power plants.

Furthermore, the finance by the World Bank will support South Africa’s energy transition by encouraging private investment in renewable energy, including by households and small businesses, and strengthening carbon pricing instruments.

“We are pleased to support South Africa’s government, which has taken decisive reforms to address the challenges posed by the energy crisis,” said Marie Francoise Marie-Nelly, World Bank Country Director for South Africa.

“These reforms will benefit the people of South Africa—particularly the most vulnerable households,—the economy, the environment, and advance the energy transition,” added Marie-Nelly.

The World Bank revealed that the loan was extended through a collaborative effort between the Government of South Africa, the World Bank and three partners that include the African Development Bank (AfDB), KfW Development Bank (KfW), and Government of Canada.

Mmakgoshi Lekhethe, Deputy-Director General: Asset and Liability Management, of the National Treasury of South Africa commented on the loan extension saying; “This operation comes at a crucial time for South Africa as it will provide much needed fiscal and technical support, enabling us to pursue our policy priorities in the energy sector including easing the electricity crisis in the long term, stimulating private sector engagement and creating jobs in the renewables space.”