Standard Bank is planning to provide nearly R10bn ($520m) in new finance to support Eskom’s transmission system, Kenny Fihla, the bank’s CEO for corporate and investment banking, tells The Africa Report.
The bank needs Eskom to meet conditions to allow the money to be released and agreement from the national treasury to allow the utility to borrow, Fihla says. The mechanisms to ensure that the money is applied to transmission and that Eskom has the needed procurement abilities also need to be met.
Fihla is optimistic that the money can start to be deployed in coming months. “We’re trying to iron it out now.”
Fears that persistent Eskom load-shedding could escalate into a total South African grid breakdown have helped push down the rand in recent days. The concerns are “not exaggerated” and the bank has factored in a “very low” possibility of such an event into its contingency planning, Fihla says.
The bank is ensuring that critical employees have back-up power supplies at home. Fihla is “comfortable” that the bank’s data centres have enough back-up capacity to run for at least seven to twelve days. Migration of business processes into the cloud, which was already under way as a separate efficiency project, has been accelerated, he adds. “It’s the right business continuity strategy.”
Existing and new clients, meanwhile, can borrow at favourable rates for solar power installation, and the bank is increasing its ability to generate its own solar power.
Telecoms failures could still impact service delivery in a blackout, Fihla says. Consultations with other banks, he adds, have shown that they have the right contingency plans in place and that South Africa’s financial system would be able to keep functioning.
The real risk, he says, lies not in the bank’s ability to operate, but in the wider security implications of a grid breakdown. The nightmare scenario is that trains and traffic lights would be out of action for an indeterminate period. “The bigger risk is social unrest and crime.”
The bank has been engaging with the government on how those risks can be mitigated. Fihla is “encouraged” with the government response, which, however, does not yet amount to a comprehensive plan to manage a full blackout.
Even if the worst scenario does not come about, foreign investors are already factoring blackout risk into their decisions, he says. “The longer that continues, the more damaging that is to the South African economy.”
The bank is a potential financier for the East African Crude Oil Pipeline (EACOP) planned to run from Uganda to the Tanzanian coast. Environmental groups are contesting the plans, but Fihla says there is no question that the project would be “transformational” for the GDP of the two countries. The project is also clearly bankable, he says.
Questions remain over the social and environmental impacts of the project. The bank has studied an assessment prepared by the project’s developers and has raised a series of questions to which it awaits responses. Fihla will be visiting Uganda in coming weeks as part of the bank’s assessment.
The environmental consequences, he says, present greater complications for the project than the social impacts. Advice from the project’s and the bank’s own consultants will inform the final decision on whether to participate. “We will rely on the professionals.”
In Mozambique, Standard Bank is one of the financiers for the $15bn LNG project in the Rovuma basin which is led by France’s TotalEnergies. The development has been delayed by an Islamist insurgency in the northern Cabo Delgado province. The bank has been engaging with Mozambique’s government to understand when the project can restart, Fihla says. As yet, TotalEnergies is “not convinced” that it is safe to send people back there, he adds.
Shareholder group Just Share has argued that Standard Bank’s lack of targets based on absolute emission contractions means that it can keep increasing exposure to fossil fuels while remaining in line with its policies. The new financing for Eskom, Fihla says, could be classified as fossil fuel investment but in reality will enable increased transmission of renewable energy.
Fihla points to increased bank funding for renewable energy projects at Eskom’s Seriti unit, and for mining companies to develop solar generation capacity. Overall the bank is on track to deliver its targeted cuts in exposure to coal and oil, he says, adding that coal is a “sunset industry.”
The bank’s new funding for fossil fuels in 2022 was matched more than four times over by renewable energy funding, and there is “no reason” why the fossil-fuel reduction achieved in 2022 can’t continue in coming years, he says. The way forward for the bank and for Africa, he argues, is for a “balanced” energy policy which takes into account the need to mitigate environmental risks and allow economic development.
The Africa Report
