The South African government has signed a fresh loan agreement worth US$474.6 million with the African Development Bank (AfDB) to support its ongoing Just Energy Transition (JET) programme. This new financial deal is part of South Africa’s long-term plan to improve energy security, reduce carbon emissions, and promote inclusive economic growth.
This latest loan deal was announced on Thursday by the National Treasury, which said the agreement builds on earlier financial support from the AfDB. The first policy-based loan under this partnership was concluded in 2023 and also focused on the Just Energy Transition reforms.
According to the National Treasury, the new loan will not only help South Africa move away from carbon-heavy energy sources but also promote socio-economic development by boosting job creation and opening up more green economy opportunities. It added that the partnership with AfDB is vital for South Africa’s wider development goals, especially in addressing the energy crisis.
The Treasury noted, “This new agreement highlights the importance of South Africa’s partnership with the AfDB in advancing South Africa’s development agenda. It strengthens efforts to improve energy security measures, accelerate the decarbonisation of the economy, and enhance the socio-economic benefits of the energy transition enabling inclusive economic growth and fostering job creation.”
The loan is part of a broader Development Policy Operation (DPO) that also includes support from the World Bank, KFW Development Bank (Germany), Japan International Cooperation Agency (JICA), and the OPEC Fund for International Development. These partners are helping South Africa carry out important structural reforms in its energy and infrastructure sectors to improve long-term efficiency, resilience, and sustainability.
The financial terms of the AfDB loan are considered favourable, especially compared to commercial debt. The loan will run for 15 years, with a 3-year grace period, and comes with an interest rate tied to the daily Secured Overnight Financing Rate (SOFR) plus 1.22%. This concessional financing will help South Africa reduce its foreign borrowing costs while meeting urgent energy infrastructure needs.
The Just Energy Transition (JET) is a major component of South Africa’s climate and economic strategy. It aims to replace coal-fired power generation with renewable energy sources like solar and wind, while also ensuring that workers and communities who rely on the coal industry are supported during the transition.
South Africa remains one of the most coal-dependent countries in the world, with about 80% of its electricity still coming from coal. The energy sector has also struggled with load shedding and infrastructure breakdowns in recent years. The government is trying to solve these problems while honouring its international climate change commitments under the Paris Agreement.
With this loan, the AfDB joins other international donors and development partners that are backing South Africa’s JET efforts. In 2021, a US$8.5 billion Just Energy Transition Partnership (JETP) was announced at the COP26 climate summit, backed by countries like the UK, US, Germany, France, and the European Union.
The Treasury thanked the AfDB for its continued support and described the loan as an important step in tackling long-standing challenges in South Africa’s energy and transport systems. It said the funds would be used to implement critical reforms that would ensure long-term progress in both sectors.
“The National Treasury wishes to express its appreciation to the AfDB for its continued partnership and support of South Africa’s development objectives. This includes efforts to implement critical reforms in the energy and transport sectors, while also advancing the country’s Just Energy Transition goals and meeting foreign currency commitments at lower interest rates,” the statement concluded. As the country works toward its goal of a low-carbon future, this new financing from AfDB is expected to provide a needed boost in both technical and financial capacity, helping to drive investment into green infrastructure, energy transition policies, and climate-resilient development.
