The Development Bank of Southern Africa (DBSA) will be taking lessons from neighbouring Mozambique on how to finance the expansion of South Africa’s required 14 000km transmission network, in partnership with other stakeholders, to plug the electricity deficit.
This comes as the minister of electricity has stated that the expansion of the transmission grid will cost South Africa R210 billion, money that the struggling power utility Eskom does not have.
As a result, the government is unbundling Eskom and has established the National Transmission Company of SA, over and above lobbying the private sector to finance the lion’s share of the required spend in order to evacuate energy generated by Independent Power Producers (IPPs).
DBSA CEO Boitumelo Mosako advised on Friday that the DBSA was at the forefront of creating an enabling environment for financing transmission networks.
“We are currently in discussions with Eskom in developing a framework to support the transmission infrastructure rollout including different models of implementation,” Mosako said.
“It’s not just about Eskom doing it alone. It’s about how we, as a development finance institution, create an ecosystem of partnerships so that we can build new transmission lines.
“I mean, we have done that before with the independent power producer (IPP) office, of which the DBSA is one of the key partners alongside the Department of Mineral Resources and Energy (DMRE) and National Treasury.
Through the IPP office model we have demonstrated how to set up structures for private sector participation in developing infrastructure.“
DBSA Group Executive for Transacting, Mpho Mokwele told BR on Friday that the Bank was thinking deeply on how to catalyse the private sector into funding transmission.
Mokwele was speaking exclusively to BR after attending the African Development Bank (AfDB) Africa Investment Forum’s Market Days in Marrakesh, Morocco, where he presented some of the bank’s latest projects.
He said the DBSA, fortunately, has exposure elsewhere within the African continent, and so it was able to bring those innovative ideas and lessons from being involved in those projects back home.
“There is a similar structure on transmission that was involving the private sector under the Temane Transmission Project (TTP), which was implemented in order to get around similar transmission funding challenges we are faced with,” Mokwele said.
“In that structure, you had an Independent Power Producer (IPP) project that could not bring power to the grid. As such, a parallel transmission line project was needed in order to get around that challenge.”
The 563km TTP transmission project, which started being laid between Maputo and Vilanculos/Temane in March last year, is funded using grant and concessional finance offered by multilateral and regional development banks.
Mokwele said the power utility, Electricidade de Moçambique (EDM), also has the same issues as Eskom in terms of its deteriorating balance sheet which constrained its ability to borrow, meaning it could not assist in terms of expanding its transmission.
“Advised by the likes of the World Bank and African Development Bank, EDM set up a Special Purpose Vehicle (SPV) and said that SPV is going to house the TTP transmission project,” Mokwele said.
“The IPP power plant will now be able to connect via the TTP transmission line and for that service pay use-of-system tariffs. Such a structure ensures that the transmission line project becomes a viable and is able to pay for its debt.
Mokwele said these types of innovative transmission financing mechanisms and ideas need to be implemented in South Africa to resolve the country’s transmission challenges.
“It is however not going to be a ”Big Bang” approach where you construct and strengthen hundreds of kilometres of transmission lines all over the country at the same time. A project-based approach must be adopted going forward, such that a number of IPP projects in an area are able to partner and fund their transmission infrastructure needs,“ he said.
“So, although the funding requirements are quite significant at the estimated R210 billion, it will take the DBSA to play a leading role and collaborate with other multilateral and regional development banks, because they are quite involved when it comes to financing backbone infrastructure such as transmission. We are also open to bringing on board other banking and non-banking financiers to mobilise additional capital.”
The DBSA has pioneered and catalysed several national programmes to address energy security, including the establishment and financing of the Renewable Energy Independent Power Producers Programme (REIPPP), Embedded Generation Investment Programme (EGIP), the Infrastructure Fund (IF), the Infrastructure Investment Partnership Fund (IIPSA) and more recently the National Water Partnerships Programme (NWPP).
In August this year, the DBSA convened a roundtable meeting to discuss various blended finance and resource mobilisation strategies to address South Africa’s electricity transmission grid challenges.
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