South Africa, AfDB Sign $474M Just Energy Transition Deal to Boost Reform

South Africa has secured a significant financial injection into its Just Energy Transition (JET) agenda through a newly signed US$474.6 million concessional loan agreement with the African Development Bank (AfDB). The agreement represents a continued deepening of the country’s strategic partnerships aimed at accelerating its shift toward a low-carbon, climate-resilient economy while ensuring energy security and inclusive development.

A Critical Milestone in the Just Energy Transition Journey

The loan forms part of South Africa’s third Development Policy Operation (DPO) — a key policy-based financing tool to support the country’s structural reforms. It builds on a previous JET policy loan concluded with the AfDB in 2023 and is aligned with broader efforts to unlock inclusive, green growth.

According to the National Treasury, the latest agreement is pivotal in enhancing the socio-economic benefits of energy reform by focusing on long-term development gains such as job creation, skills development, and reduced inequality.

“This new agreement highlights the importance of South Africa’s partnership with the AfDB in advancing South Africa’s development agenda,” the Treasury said in a statement on Thursday.

Terms of the Loan: Concessional, Predictable, Sustainable

The AfDB loan is structured under highly favourable terms designed to reduce the cost of borrowing while enabling reform continuity. It carries a nominal value of US$474.6 million, with:

• A 15-year maturity period

• A 3-year grace period

• An interest rate benchmarked at the daily Secured Overnight Financing Rate (SOFR) plus 1.22%

This concessional financing significantly reduces the burden of foreign-currency debt service costs and aligns with the government’s debt sustainability goals.

Multi-Partner Backing for Reform and Resilience

The third Development Policy Operation is not limited to AfDB support alone. It reflects a multi-lender partnership including:

• The World Bank

• KFW Development Bank (Germany)

• Japan International Cooperation Agency (JICA)

• The OPEC Fund for International Development

Together, these institutions are co-financing a reform-driven agenda that prioritises improving the efficiency, resilience, and sustainability of infrastructure services—with a focus on energy and transport sectors.

Advancing South Africa’s Energy Transition Goals

The Just Energy Transition lies at the heart of South Africa’s decarbonisation strategy. It seeks to:

• Phase out dependency on coal-fired electricity

• Expand renewable energy capacity

• Ensure a socially equitable energy transition

• Empower communities historically dependent on fossil-fuel industries

This transition is especially significant given South Africa’s status as one of the world’s top 15 carbon emitters. Addressing energy insecurity, including persistent power cuts, is vital not only for climate targets but also for restoring investor confidence and economic competitiveness.

“The loan 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,” Treasury noted.

A Path to Inclusive and Job-Rich Growth

One of the core components of the JET programme is its focus on social justice—ensuring that no one is left behind in the transition. This includes:

• Re-skilling workers in coal-dependent communities

• Creating new green economy jobs

• Strengthening small business participation in renewable energy value chains

• Improving access to modern energy for under-served areas

The AfDB loan and its related policy support also aid South Africa in meeting its foreign currency obligations more cost-effectively, reducing pressure on national reserves.

Strong Support from AfDB

The African Development Bank has been a consistent ally in South Africa’s development journey, particularly in the wake of the energy crisis that escalated due to Eskom’s structural and financial challenges.

“The National Treasury wishes to express its appreciation to the AfDB for its continued partnership and support of South Africa’s development objectives,” the statement added.

The Bank’s backing has been instrumental in promoting clean energy adoption, supporting key public sector reforms, and helping the country attract private-sector participation in energy infrastructure.

Looking Ahead

The signing of this latest loan agreement marks a critical milestone in South Africa’s path toward a greener, more equitable energy future. It also strengthens international confidence in the country’s commitment to reform, resilience, and responsible energy transition leadership.

As global climate financing becomes more competitive, South Africa’s ability to secure multi-partner support at concessional rates bodes well for its long-term development, energy security, and climate change mitigation goals.