SA implores investors: Forgive R146bn debt in exchange for Eskom meeting climate targets

(Bloomberg) — David Masondo, South Africa’s deputy finance minister, suggested that investors forgive about 146 billion rand ($10.2 billion) 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 Holdings SOC Ltd. will need to borrow about 400 billion rand, 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 146 billion rand, 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.

(Updates with IMF proposal in last paragraph)

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