Just Transition Energy Investment Plan: Presidency briefing; with Minister

Meeting report

Minister's overview

Mr Mondli Gungubele, Minister in the Presidency, said the Just Energy Transition Investment Plan was meant to be a framework towards South Africa being a sustainable nation beyond the goal of achieving net zero emissions by 2050. The vision of net zero emissions had implications for a number of regions and economies across the world. It had implications for jobs. The challenge was that it also had implications for economies, social justice, the environment and governance. No fewer than100 000 jobs in the auto industry were under threat because Europe had stipulated a year in which they would stop buying cars that emit green gasses. This meant that if South Africa did not move with the pace of that call, it would lose being a trade partner in that sector. The main trading economies could refuse to trade with South Africa for climate-related reasons, no matter what one's stance was on climate change. South Africa’s attitude was that it wanted to take control of its own transition and navigation so that the control it took responded to the unique situation of the country. A lot of the content of the presentation demonstrates this.

Just Energy Transition Investment Plan: 2023-2027

Mr Daniel Mminele, Head: Presidential Climate Finance Task Team, gave a background of how South Africa was transitioning, and said this process was taking place in a challenging context. South Africa had other systemic issues, such as extreme poverty, high unemployment, high inequality, low economic growth rates, and low electricity supply. This made South Africa vulnerable to physical climate risks. Climate experts have stated that the actual effects of global warming would proceed on the African continent at twice the rate that one saw elsewhere in the world. The floods in KwaZulu-Natal and the Eastern Cape were clear examples that this was a real risk that was being faced by the country today. South Africa was exposed to transition risks that could affect its trade systems because of the degree of carbon embedded in its commodities. It was accelerating its efforts to reach net zero by 2050. If it did not respond to this target, there would be a direct impact on the demand for South African commodities. South Africa was one of the world's highly carbon-intensive economies, and the issue here was how it responded to secure its future.

South Africa’s Just Energy Transition (JET) plan was aimed at supporting South Africa’s goal of establishing a low-carbon and climate-resilient society, and sets out the scale of the need and the investments required to help the country reach its decarbonisation commitments in a just manner.

The key features of this plan include recognition that fossil fuel-dependent countries such as South Africa require significant support to transition and contribute to building resilience to transition risks and fostering social preparedness. The JET investment plan (IP) was a South African needs-driven five-year initial plan, with clear financing principles and preferred terms and conditions, which promoted a “whole of society” approach. The plan was not written to respond only to the offer of US$8.5 billion from the JET partners, but was put on a broader footing based on the scale of need for the first five years.

The JET IP definition of a just energy transition was a transition that builds resilient economies and people to meet the nationally determined contribution (NDC) targets. It did so through:

• Accelerating affordable, decentralised, diversely-owned renewable energy systems.
• Restoring previous and future ecosystems and natural resources impacted by coal mining and energy production.
• Reskilling present workforces and educating future ones in green and other new and viable development pathways.
• Building new productive models for comprehensive economic transitions.
• Supporting various impacted constituencies to play an active role in decisions and implementation of energy transition programmes, be it government or non-government actors.

It had been very important for the task team to convey to the international partners that they had been on the transitioning journey while they were considering the offer from the international partners, and that South Africa had been putting the appropriate regulatory frameworks for the transition in place. The JET IP built on what was contained in the National Development Plan (NDP), translated into the more ambitious and revised targets contained in the NDC, and followed by the Just Transition Framework. This plan was the last piece in the sequence.

Electricity was a priority sector, contributing about 45% to South Africa’s overall greenhouse emissions. This sector therefore provided the largest mitigation potential. Decarbonising the electricity sector and diversifying energy would be integral to improving energy security and energy supply in South Africa. Over a trillion rands of investments were needed in this sector to address electricity infrastructure and support the transition.

The ‘just’ component was central to the transition in the electricity sector. When developing the plan, the task force ensured that the just investments were embedded alongside the technical ones to ensure that the workers and the community were not left behind. The interventions would include interventions within the coal-producing and coal-reliant areas to spearhead diversification, socio-economic transformation, and so forth, to ensure that those most impacted by the coal phase-down were sufficiently protected. The plan envisaged a very planned, responsible and sequenced approach to transitioning. It had been clearly articulated right at the start that South Africa’s ability to achieve the ambitious targets it had put into the revised NDC was wholly dependent on the availability of resources. The plans were also set so that South Africa’s own ambitions regarding energy security were prioritised and taken care of as it transitioned.

Regarding new energy vehicles, he said that R28.1billion for this sector was being translated into various components. A fair amount of work and detail had been done. This sector contributes significantly to South Africa’s gross domestic product (GDP). The investment for this sector was focused on supply chain localisation, setting the base for the manufacturing of new energy vehicles and new energy vehicle chains to provide stability for the sector, and new growth through greener and newer methods.

The guiding principles for financing the JET IP guided the quality of finance South Africa would need to secure for the investment plan, reflecting how the $8.5 billion offer from the partner countries would assist. These principles were important, because they reflect South Africa’s fiscal and developmental priorities and ensure that the resources secured do not encumber present and future generations of South Africans in an undue manner. These principles include the policy that finance should follow the principles for support to developing countries established under the United Nations Framework Convention on Climate Change (UNFCCC), and that the composition of financing instruments should reflect South Africa’s unique needs as reflected in the JET IP, taking account of the need for fiscal sustainability, and incorporating appropriate risk sharing arrangements.

He concluded by stating that the JET IP presents an opportunity for South Africa to provide global leadership and had the potential to serve as a model for other countries that were looking at similar challenges. It was well received at the Conference of the Parties (COP). The task team was involved in consultation processes with stakeholders and communities to inform them of the implementation processes.

Minister Gungubele said this was how far the team could go in describing the transition journey and its framework. The presentation was extensive.

Discussion

Mr M Mahlaule (ANC) asked whether there was a reason why the Just Energy Transition seemed to be more focused on phasing out coal and repurposing coal power stations instead of emphasising more on investing in cleaner coal technologies. The Integrated Resource Plan 2019 (IRP2019) seemed to suggest that the allocation to coal would be around 1 500 megawatts in 2034. That implied that the pace in phasing out coal would be a rushed plan that would inevitably affect the workers and the coal industries itself and the communities that were created because of the coal industry, specifically in Mpumalanga and other provinces. The Presidency had developed a framework that they presented. He was worried about how they were taking along those communities in terms of educating them about this framework being followed, seeing that it was always emphasised that no one must be left behind, but they seemed to be leaving the people behind. The operative word in the ‘Just Energy Transition’ was ‘Just’. There was no justice in leaving the people behind, as the whole framework became unjust. How was the Presidency ensuring that the operative word ‘Just’ became a meaningful word and not just a slogan that gave people a false idea that the Committee was doing well? He was raising this because workers in the mining sector did not seem to know what government’s plan was, and it appeared that there was nobody who wanted to go to educate these people on what was happening.

Mr K Mileham (DA) said that the presentation was not clear on when this programme would be rolled out, what the specific deadlines were, and what the key measurable milestones of the programme were. He requested clarity in that regard. The presentation indicated that about 4% of the funding came from grants and the rest from loan financing guarantees. However, even if 50% was coming from grants, this was still about $4.25 billion -- was that affordable for the South African fiscus?

It was very important to acknowledge that the country’s coal fleet was very old and a large number of coal-fired power plants were going to be taken offline over the next several years. Nine out of 14 power plants would be decommissioned by 2034. The Integrated Resource Plan (IRP) indicated about 1.5 gigawatts of new generation from coal -- was that still on the cards? Was there any movement towards new coal generation? Was there any appetite for financing new coal generation? What was the priority? Was it saving jobs in the mining sector or was it saving the economy and growing jobs overall? The coal mining sector and coal-fired power plants seemed to be placed ahead of everybody else. He requested a definitive answer from the Minister on whether those coal plants were more important than the rest of South Africa, the rest of South Africans, and the jobs of South Africans.

Ms P Madokwe (EFF) said that Mr Mahlaule had covered most of her questions, but she would reiterate them because it looked like the conversation on the Just Energy Transition was mainly on coal and incurring debt for South Africans with unknown conditions. In addition to the plans around investing in clean coal and carbon capture technologies, she was interested in the plans around nuclear energy generation and the percentage of contributions from energy sources. COP16 spoke about loans and COP27 spoke about loans given to South Africa. When would South Africa get to a point where loans were just being collected, instead of anyone who wanted South Africa to "just transition" to just invest, especially considering the fact that Africa as a continent had a smaller carbon footprint as compared to the top ten contributors? What were the conditions for the loans when they were accepted? What happened to the $8.5 billion committed to South Africa at COP26? What was happening to the $10 billion that was mentioned this year? Who was actually going to foot the bill for these loans that were taken without actually consulting the citizens? There seemed to be an obsession with decommissioning coal and doing things the west expected. However, even countries like Germany, who had been called champions of renewable energy and for doing away with carbon emissions, were now starting to go back to coal energy generation and even buying South Africa’s coal.

Ms V Malinga (ANC) said she was from Mpumalanga, and this presentation did not sit well with her, especially given the fact that the government had stated that it was a people-centred government. She had never heard of any consultation with any people from Mpumalanga or the mine workers. This issue of saying that the mines would be decommissioned and the miners would be reskilled -- how did one reskill a mineworker who was not educated, had worked with coal for over 30 years, and was heading towards pension? Were these people being pushed to take an early pension so that South Africa could help the countries that were the biggest emitters? There could not be an energy mix without coal. South Africa had this commodity in trillions in its reserves. She concurred with Mr Mahlaule that the presentation should have said that South Africa had so much coal, and could government get investments to ensure that there was a Council for Scientific and Industrial Research (CSIR) in the country that could develop technology that would ensure that the country did not emit carbon, so that government was not directed by non-governmental organisations (NGOs). It seemed that government was dancing to the tune of NGOs. When was the government going to ensure it did what was best for its country?

Germany was resuscitating its coal-fired power plants, and saying it was going to reach net zero by 2038, but it was stockpiling South Africa’s coal to ensure that it had electricity using the same coal that they say was emitting carbon and causing floods. She did not think that the floods were caused by emissions. South Africa was nowhere near being one of the biggest emitters. China had said they would be at net zero by 2060, and South Africa was pushing to reach this by 2050, whereas South Africa’s fiscus did not allow for this. Why did South Africa, as a developing country, want to compare itself with developed countries? The developed countries were returning to the same commodity they were telling countries to abandon. She did not buy this. This meant that Mpumalanga was going to be turned into a ghost province, because most people there would not be employed. The reskilling of workers was not going to work. Eskom was part of this crisis and had been saying that they were reskilling workers, but load-shedding still persisted.

How had it been decided to just go and take money? She did not think that this was an investment. Nobody could give a country $8.5 billion to do away with its problems when they were the same culprits. These people were colonising the country again. It was her plea that the Presidency should go and look into this because the communities in Mpumalanga were confused over what was being spoken about. They had heard for the first time that Komati was being recommissioned.

Reskilling workers was not for everybody. One could not reskill people who were not educated and would not understand the new technology being brought in. This needed to be reworked by the government. South Africa was not even in the top ten of emitters. However, it was taking big loans that it could not even repay. It would not reach net zero by 2050, given the state of the country’s economy. South Africa wanted load-shedding ended, but this was not the way.

Responses

Minister Gungubele said he was convinced and comforted by some of the arguments put forward by the Committee. There was a risk of moving it from different platforms. The danger was that they may speak unnecessarily at cross-purposes. It was very difficult to assume they were moving it from a different platform. They may find that they disagree on matters they were not supposed to disagree on if they made that assumption. Time was maybe needed just to deal with the basic science that informed the plan. His understanding was that the Committee could afford to disagree on anything else, but not science. It was critical that there was an engagement on science. The Ministry in the Presidency could learn from the Committee, and the Committee could learn from the Ministry. Saying that there was global warming and that there was no relationship between it and floods was a scientific debate. The Ministry had well-established research capabilities in South Africa which analysed all the issues raised today regularly.

On the list of proportions for various technologies, he replied that the IRP had been adopted long ago to respond to short, medium and long-term demands. Having agreed on decarbonisation, the country had considered which technology, and in what proportion, was actually supposed to be in this space. When one says Africa was little, one is talking either about policy or geo-political situations and their effect. If one talked geo-politically from an economic point of view, one would say Europe was the main buyers of cars made in South Africa -- which was a geo-political situation which was out of the country's control but had huge implications for it. If one talked about global warming and its effects, which was a scientific issue, the point that was key here was that having agreed on decarbonisation and resilient transition, South Africa had to organise itself so that it could withstand the impact of global warming. It needs resources to do that. Particular relationships had to be struck with those who it trades with in order for it to get those resources.

The presentation addressed the key features. These included South Africa’s need-driven five-year plan. Whenever Members of Parliament were reacting, it was important to be scientific and factual, and realise that these were not unique to South African needs. The government was open to criticism of this plan, but some issues could not be resolved in the few minutes of this meeting.

Mr Mminele said that the work of the Presidential Climate Finance Task Team in putting this plan together and guiding its development was first and foremost informed by adopted government policies.

He said the IRP2019 predated the revised NDC. There was a process underway to look at the IRP and refine and adjust it to speak to the NDC. What would guide the work of the task team was that they would follow prevailing energy policy.

On educating people and consulting with people in Mpumalanga, he replied that this was a much longer-term process, and its implementation would be underpinned by ongoing consultation with the relevant constituency. There has been a wide range of consultation with various communities in developing the national framework in terms of the transition framework. Eskom had undertaken extensive consultation on the Komati project. A lot more consultation needed to take place, but it was an ongoing process. The task team had certainly leveraged on consultations that previously took place and had gone out and complemented that with its own consultation processes, with groups like civil society groups, labour, the South African Local Government Association (SALGA), and the youth. The consultation and participation process must be a central feature right through the implementation process to ensure that no one is left behind. A fair amount of consultation had taken place. Supporting these communities had to be a two-pronged approach, one being the provision of short-term safety net support, while the other being the longer-term re-equipping of industries and reskilling of people.

On the timeframe question asked by Mr Mileham, he replied that it was a multifaceted roll-out. A detailed implementation plan was going to be worked out that would include a lot of the issues Mr Mileham had asked about. Elements of implementation of the investment plan had already started. The first two facilities had been executed. This involved the German and French development institutions acting on behalf of the respective governments with the €600 million already secured.

Responding on the sustainability and affordability of the loan in terms of the country’s fiscus, he said that as part of his team’s work and key guiding principles regarding finance, as alluded to in the presentation, whatever financing package was put in place to underpin this plan must speak to South Africa’s unique fiscal challenges. The task team had been working very closely with National Treasury, which was part of the task team, and had ensured that everything done there was compatible with the country’s fiscal framework. Sustainability and affordability of the loan in terms of the country’s fiscus was top of mind.

The truth that needed to be admitted was that South Africa could not transition on its own in terms with the resources that were required. External resources needed to be tapped into. The key issue was that the return on investment should allow for the loan to be repaid with ease, and for the benefits for which the loan had been taken, to be derived.

On there being a possible obsession with the coal sector, he replied that three sectors were being prioritised. The key priority being placed on coal had to do with the potential this sector had to reduce the emission of greenhouse gases and the transition to a low-carbon economy.

On the conditions of the loan, he replied that any lender had terms and conditions on any loan that anyone took. Lenders wanted to know how the funds would be used and whether there was capacity to repay the loan. It needed to be communicated clearly that these were not conditions that had to do with reducing South Africa’s control over its own policies. The policy sovereignty and policy flexibility remained firmly in the hands of the South African government. The bulk of the loans would likely take the form of policy-based loans which had a distinguishing feature, in that they address and respond to the policy framework and initiatives that the government already has in place, as opposed to conditions that would lead to South Africa losing control over its own policies.

Mr Rudi Dicks, Head: Project Management Office (PMO), Office of the Presidency, responded to questions on policy-based matters.

He said it was very important to note that the process of decommissioning was in line with the IRP 2019. What had been done since the announcement of the energy intervention plan by the President in July was that there had been a commitment, given the chances that had been available, and the fundamental changes were being looked at. There was a commitment by the Minister of Mineral Resources and Energy to review IRP2019. All technology remained on the table -- there was a review process, and a conversation had taken place. The Minister of the DMRE had committed to releasing a first draft by March. It was important from a policy standpoint that they followed the terms of the decommissioning set out in the IRP2019.

Minister Gungubele said that when there was time, it must be indicated that the current load-shedding had little to do with whatever was done with coal. The problem of load-shedding was primarily to do with the power stations that were not using coal properly. Coal was still being used, but the entity was just being defrauded in one way or another. The main problem with load-shedding was the poor maintenance of the machines meant to use the coal. He agreed with the Chairperson that more time was needed.

The Chairperson said that the presentation had opened the Committee’s eyes and given them a base from which they could start having engagements. This was an important matter of national interest. The Committee was prepared to play its part in taking the country forward. It needed to check whether it could invite this Department again next year. The issues the Department had not dealt with today could be responded to in writing to Members.

From where the Committee was sitting, when it came to energy, demand and supply might be conflated with the production or extraction side of this exercise. The mineral resource indications, energy, sustainability, supply, and maintenance had to be looked at as one of the two so that they did not conflate the two as if they meant the same thing. Mining and decommissioning were two separate things that had to be looked at.

The Chairperson wished the Committee a good festive season.

The meeting was adjourned.