The City of Johannesburg (CoJ) has secured a R3.8-billion loan from German State-owned development bank KfW, which it will use to finance critical electrical infrastructure investments in the 2025/26, 2026/27 and 2027/28 financial years.

The 15-year facility is one of the largest concessional development finance facilities ever to be extended to a South African municipality.

It will incur interest at a fixed rate of 8.56% a year.

With the loan being fully denominated in rand, this is a critical protection for the city as there is no exposure to the euro exchange rate fluctuation – a risk that has historically been a significant cost driver for South African entities borrowing in foreign currencies.

Additionally, unlike most large commercial loan facilities, KfW also requires no pledge of Johannesburg’s assets or revenue streams as collateral, which preserves the CoJ’s financial flexibility.

CoJ also benefits from the repayments only starting in May 2031, which is a meaningful window for the CoJ and its electricity utility City Power to realise revenue benefits from improved metering and network performance and stabilised cash flows.

City Power estimates the infrastructure refurbishment, maintenance and modernisation backlog for electrical infrastructure alone to be more than R40-billion.

“The KfW facility therefore forms part of a series of mitigation measures and turnaround interventions aimed at strengthening City Power’s financial sustainability while accelerating infrastructure investment and improving service delivery across Johannesburg,” CoJ explains.

CoJ says the loan forms a centrepiece of the city’s Just Energy Transition programme and will support a broader long-term financial recovery and infrastructure turnaround strategy that has been implemented for several years.

As part of this broader recovery programme, CoJ and City Power have actively pursued strategic partnerships with development finance institutions, the private sector and other funding partners to support infrastructure investment, network modernisation, revenue enhancement, operational sustainability and long-term energy security.

Among CoJ’s budget items for the next three financial years is more than R1.5-billion for primary network infrastructure, including transformer replacement and substation upgrades; R1.2-billion for secondary distribution network improvements; more than R500-million for installation of smart meters, bulk meters and revenue enhancement efforts; about R400-million for renewable-energy initiatives and R180-million for public lighting upgrades.

Of the R1-billion, R2.3-billion and R2.2-billion requirements for electrical infrastructure works over the three financial years, KfW’s loan funding comprises R732-million, R2.7-billion and R1.4-billion of the amounts, respectively.

MEASURABLE OUTCOMES
The CoJ targets various measurable outcomes by 2028, including a reduction in carbon emissions of 127 690 t compared with the baseline of 863 789 t; supply reliability improvements from 4 697 minutes to 4 400 minutes; reducing technical distribution losses from 11.5% to 9.8%; reducing commercial distribution losses from 18.3% to 13.2%; and having 500 MVA of new transformer capacity installed.

CoJ also targets new electricity connections for 2 100 dwellings by 2028, as well as to increase public lighting installations from 700 lights a year to 1 700 lights a year.

The reduction of commercial losses from 18.3% to 13.2% is particularly significant. Commercial losses represent unmetered and unbilled electricity and are a major driver of City Power’s financial deficit.

At City Power’s current revenue scale, a five-percentage-point reduction in commercial losses will generate hundreds of millions of rands in additional revenue – revenue that can be reinvested in maintenance, operations and further capital improvement without additional borrowing.

CoJ says the reduction of losses, improvement of revenue collection, and investment into modern infrastructure remain central to City Power’s long-term financial recovery strategy.