South Africa, France and Germany have signed a loan agreements for the two European nations to each extend €300 million in concessional financing to South Africa to support the country’s efforts to reduce its reliance on coal through a just transition to cleaner energy sources.

The loans are provided by the French and German public development banks, AFD and KfW, directly to the South African government via its National Treasury.

The financing agreements were acknowledged and welcomed by Cyril Ramaphosa, President of the Republic of South Africa, Emmanuel Macron, President of the French Republic and Olaf Scholz, Federal Chancellor of the Federal Republic of Germany, at a ceremony held at the 27th United Nations Climate Change Conference (COP27) currently taking place in Sharm El Sheikh, Egypt. The signing represents a significant milestone in the implementation of the Just Energy Transition Partnership (JETP) announced at COP26 in November last year.

The JETP is a long-term partnership between South Africa, France, Germany, the United Kingdom, the United States, and the European Union. The first initiative of its kind, the JETP aspires to support South Africa in accelerating its journey to a low-carbon economy and climate-resilient society.

Last year, the founding partners of the JETP, known as the International Partners Group (IPG), pledged to mobilise an initial amount of $8.5 billion over the next three to five years to advance the partnership.

Andreas Peschke, German Ambassador to South Africa, says: “We are very happy about these agreements as they represent a very concrete implementation of our partnership.”

South Africa continues to depend on coal to produce most of its electricity and the coal sector remains significant to the country’s national economy and the livelihood of several communities.

“One year ago, French President Emmanuel Macron pledged that France was ready to commit significant support for South Africa’s ambitious decarbonisation project for a just energy transition. We are now putting those words into actions with this important loan,” says Arnaud Roux, Chargé d’affaires of the French Embassy.

Audrey Rojkoff, AFD Regional Director for Southern Africa & Country Director for South Africa says most countries around the world are trying to find a balance between inevitable short-term trade-offs and the long-term perspective of a future where nature and people prosper.

“All partners can make better progress by sharing their experiences and international institutions have an important role to play by encouraging dialogue. This first public policy loan to South Africa aims precisely at promoting policy dialogue between our countries.”

She says along with dialogue and knowledge-sharing with other countries, continued research will also be essential to fully understand potential climate risks and their impact on South Africa’s financial system.

As such, the AFD loan will be accompanied by grant financings from France to support several key South African actors involved in the production of knowledge and further policy development related to the JET.

“We expressly welcome South Africa’s commitment to reducing electricity generation from environmentally harmful coal,” says Silke Stadtmann, KfW Development Bank’s Country Director for South Africa.

“This is an important step in achieving the country’s climate goals. As a long-term partner of South Africa, we support these efforts not only with concessional loans for necessary investments and grants for a Just Energy Transition but also with comprehensive studies on energy sector reform.”

Ismail Momoniat, Acting Director General of the National Treasury, said that the South African Government welcomes concessional funding from AFD and KfW, which form part of a support for South Africa’s Just Transition, previously announced at COP26.

While South Africa still requires more support for its Just Transition path given the scale of the required transition in the context of the current socio-economic challenges of high unemployment, high level of poverty and inequality, this funding will assist in addressing the challenge of financing the critical adaptation and mitigation programmes and supporting a resilient, sustainable, and inclusive growth.

The funding will also provide much-needed catalytic funding for the implementation of the Just Energy Transition investments plan in mapping out a just transition to a low-carbon, climate-resilient economy and society.

These loans are concessional and contribute to the government’s efforts to mitigate rising government debt costs.