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South Africa’s LNG-to-power challenges

South Africa’s latest debt downgrades add to the challenges facing the LNG-to-power procurement programme. The programme is technically difficult, with major questions about how to structure it, particularly given the government’s reluctance to accept a dollar element within the power tariff. The reduced capacity of gas set out in the 2019 Integrated Resource Plan had already made securing an affordable tariff difficult and increased cost of debt will exacerbate the issue. Meanwhile, Eskom’s weakness as an offtaker and the challenge of securing credit enhancement or guarantees for large projects make reform of the utility still more urgent.

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