Standard's R20bn China deal

Standard Bank struck a R20-billion deal with the world's biggest bank, to help fund renewable energy projects in South Africa, on the sidelines of last week's Brics summit in Durban.

The agreement was signed by Standard Bank and the Industrial and Commercial Bank of China and is "innovatively structured", the South African bank said.

The Chinese bank is Standard's biggest shareholder. It acquired a 20% stake in 2007.

Standard said yesterday that the agreement was "structured to provide the funding out of rand money accruing to the Industrial and Commercial Bank of China by virtue of that shareholding".

Work has already begun on a number of projects that will lead to independent power producers entering the South African energy market.

The Department of Energy last year named about 30 independent power producers that intend to diversify this country's energy mix and lessen its dependence on Eskom's coal-fired power stations.

But the department's announcement had been postponed several times before November, and the programme recently had a setback when Eskom's requested price increases were rejected by the National Energy Regulator.

Eskom asked for an increase of 16% a year for the next five years, but was granted only 8% a year.

Three percentage points of the 16% increase were to have been used to finance the purchase of electricity fed into the national grid by independent producers.

The independents' power would be at a much higher cost than Eskom-generated power.

Asked last year whether the 3% increase would cover the costs of buying wind- and solar-generated power, Ompi Aphane, the Department of Energy's deputy director-general, said that he did not want to comment before the regulator had decided what the electricity price increase would be.

The funding agreement was signed by the Chinese bank's chairman, Jiang Jianqing, and Standard Bank group joint CEO Ben Kruger.

"[The Chinese bank's] aim is to promote the use of renewable energy in South Africa in support of the South African government's renewable energy programme, and through this partnership to help save the environment," said Kruger.

Independent power producers will enter the market in three phases.

George Kotsovos, head of power and infrastructure finance at Standard Bank, said that in the first phase, finalised last year, the bank provided financing of more than R9-billion; in the second phase, it expects to allocate R6-billion.

The third phase was expected to elicit increased interest among developers and liquidity might then become an issue, according to Kotsovos.