JET Funding: The Ministry of Finance is responsible for the administration and disbursement of funds. Image credit
Treasury said of the $11.6 billion committed so far for the Just Energy Transition (JET), grant funding of $148 million, or about 1.3%, has been allocated to Mpumalanga, while $825,000 has been directed to municipalities in the province.
Additionally, $255 million of the $2.6 billion allocated under the Accelerating Coal Transition (ACT) program — a new initiative to help coal-heavy countries transition to cleaner energy sources — will go toward community development and energy efficiency projects in the province, which is home to 12 of South Africa's 14 coal-fired power plants.
Revenue Management
The main question is how these municipalities will receive the funds, but Treasury explained that efforts are being made to support Mpumalanga municipalities through revenue management efforts. “This includes setting appropriate rates, aligning general assessment rolls and billing systems, and developing best practice in credit management and debt management,” Treasury said, adding that these measures are aimed at stabilising municipal finances and enabling them to participate more actively in the JET project.
The Ministry of Finance said it had incorporated the JET process into its local government fiscal framework: “The Ministry of Finance has expanded the scope of conditional grants under the Integrated National Electrification Programme to support alternative energy solutions such as solar, microgrids, wind, biomass and energy storage systems.”
Treasury said this was an important development aimed at enabling municipalities, particularly in Mpumalanga, to tailor their energy strategies to local resources whilst addressing financial constraints.
In November 2023, Oxpeckers reported that JET funding was being undermined by Mpumalanga's debt-laden municipalities being unable to access bank loans and therefore in a position to attract financial investment to support the transition to renewable energy. (See “Are municipalities good for JET funding?”)
The Ministry of Finance announced this week that it has updated its local government borrowing policy framework to clarify financing mechanisms and encourage private investment. The framework includes instruments such as green bonds, public-private partnerships and project finance. But the ministry acknowledged that challenges remain in generating bankable projects, and efforts are underway to build capacity for local governments to access these funds.
The Treasury Department is negotiating additional funding with international partners, including the African Development Bank and the Climate Investment Funds' Accelerated Transition Away from Coal Power.
“The negotiations are aimed at securing funding for electricity supply, water and sanitation projects in Mpumalanga, as well as community-based projects to mitigate the socio-economic impacts of the decommissioning of Eskom's coal-fired power stations,” the group told Oxpeckers.
Balance Sheet
Neil Cole, finance manager for the JET Implementation Plan Project Management Unit (PMU) in the President's Office, said the primary challenge in providing funds to local governments with weak balance sheets is that there is no mechanism for the national treasury to borrow and lend to local governments.
“The Treasury Department has not given state guarantees to local governments,” he said.
But Cole said a review process was underway to look at how municipalities that cannot borrow on their own balance sheets could receive the money.
“We are looking at what credit guarantee instruments we can put in place to help these local governments and weaker municipalities mobilise the funds they need. Additionally, we are looking at how we can use conditional grant mechanisms in innovative ways to de-risk and leverage funds from the private sector.”
It is not clear how much funding Mpumalanga alone will need to facilitate the transition, but Cole acknowledged the complexity of determining the province's exact funding needs.
“At this stage it is not easy to say how much funding Mpumalanga will need to facilitate the transition. Mpumalanga's investment plan is approximately R65 billion. The transition will require complex financing over the next five years and goes beyond just the electricity and gas components.
“We costed South Africa's transition investment plan and the total cost was $98 billion, or R1.5 trillion. A significant portion of the $11.6 billion will go to Mpumalanga, but we also need to mobilise additional funding,” Cole added.
Configuring work streams
Joan Yawich, a member of the Presidential Climate Commission (PCC), noted that while money is flowing into the national treasury, local governments are heavily in debt, hindering their ability to secure funding for the transition.
Speaking to Oxpeckers at the first JET Local Government Conference, organised by the PMU in collaboration with the South African Local Government Association (Salga) in late August, Yawich said the PCC was setting up a finance workstream to address these issues and find solutions.
“Municipal balance sheets limit their borrowing capacity and mechanisms need to be established to address this,” she said. “Furthermore, many municipalities lack plans, which further complicates the situation. Having a plan is very important as it provides the basis for solving problems.”
“Our job is to find many solutions to address these complex issues,” she said.
Yawicz explained that the strategy is to start with 20 municipalities that will handle 80% of distribution, including all major cities and some sub-urban areas. “By focusing on slightly larger municipalities, we can learn valuable lessons that can be applied more broadly,” he said.
“However, significant effort is needed in capacity building, particularly improving financial management, billing systems and debt collection. Our finance workstream will address how to access the necessary funding, overcome existing issues and develop plans for what councils need. This will involve collaboration with the capacity workstream which will focus on strengthening council capacity and resolving related issues.”
Yawicz expressed hope of seeing progress by the end of the year, saying: “We aim to identify a lead agency, establish a working group, and have the terms of reference and action plan ready by the end of the year. We hope to be fully up and running in early 2025. Effective and efficient use of funds is crucial in supporting the energy transition.”
Local consultations
At a recent business conference in Middelburg, Moeketsi Mpotu, CEO of the Middelburg Chamber of Commerce, told Oxpeckers that local businesses are ready to play a meaningful role in JET, but he stressed the need for proper consultation and transparency.
“There's an opportunity for local businesses to support the multinational companies that come here,” he says. “Our main issue is the lack of proper consultation and transparency about where JET funds are spent.”
Mpotu suggested that the JET office be based in Mpumalanga or that the chamber have some oversight over projects specifically relating to Mpumalanga, “so there would be transparency and we could trace where the money is being spent,” he explained.
Sarga's Role
Oxpeckers also spoke with Sarga's head of energy and electricity distribution, Nhlanhla Ngidi, about the organisation's role in the PCC's new just energy transition workstream. “We advocate on behalf of municipalities and also protect their interests,” he said.
“We have to look after the interests of the municipalities because the transition of power is not something that happens suddenly, it happens locally. As a result, our key role is to participate in the PCC as Sarga.”
Ngidi also expressed concern about municipal balance sheets: “Most municipalities' balance sheets are not in a good enough position to secure financing from financial markets or financial institutions. Therefore, when it comes to the energy transition and the financing available, we have to take a different approach to traditional financing requirements.”
“Governments themselves need to support municipalities and guarantee that funding is secured. This could include a combination of loans, grants and government support. There have been various pledges since COP26, but to implement projects and start receiving funds, we need to ensure that everything is fair. Mismanagement of these funds must be avoided.”
Ngidi said local governments are working on creating a preparatory manual that will outline all the projects they need to implement. “Local governments will be able to request funding based on these plans and the projects they have identified for JET,” he said.
“It is very important that municipalities package projects and conduct feasibility studies to determine project needs and budget requirements. Funding cannot be effective if we do not know the number and value of projects.”
“Once the preparations are complete, we move on to the actual implementation phase, which requires extensive public participation and consultation. Each municipality needs to have community representatives on project steering committees and to inform and involve local businesses and citizens. Everything must be communicated inclusively so that no one is left behind,” Ngidi said.
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