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FIFI PETERS: To matters of critical national importance right now. The Energy Bounce-Back Loan Guarantee Scheme has finally been launched. National Treasury announced this on August 8, 2023.
You’ll remember that this is the scheme that was announced by the minister of finance in his February Budget, which is expected to enable small businesses and households to invest in solar equipment, not only to help them lower their carbon emissions but also to get some energy security within their organisations and in people’s homes with the ongoing load shedding situation.
We have Vukile Davidson, chief director for financial markets and stability at Treasury, for more on this scheme and ultimately who can apply. Vukile, thanks so much for your time, sir. From my understanding, this scheme was supposed to launch back in April – just reasons for the delay?
VUKILE DAVIDSON: Evening to you and to your listeners. And thank you so much for having me on. You’re quite right. The scheme has been delayed by several months.
The principal reason for this delay is that it took us longer than expected to work through some of the consultations with the wide range of small business groups [and] financial institutions.
It was really important to us that we took on board some of the key lessons and the concerns that have been raised by various small business groupings and finance providers relating to the two previous similar schemes that we launched under the Treasury – namely the Covid scheme back in 2021 and the Bounce-Back scheme in 2022.
FIFI PETERS: Okay. Just talk to us about what you have launched today, which you say does incorporate some new additions based on the consultations that you have had with industry.
VUKILE DAVIDSON: Sure … [on Tuesday] we launched the Energy Bounce-Back Loan Guarantee Scheme. The scheme, as you mentioned earlier in your intro, is really aimed at providing some relief to small businesses in particular, as well as households that have experienced significant constraints relating to the lack of security of energy.
There are three principal mechanisms that are contained within the scheme. Before going into that, perhaps just to mention that through the scheme we aim to, like I say, reduce the burden being experienced by small businesses, and then cumulatively hopefully contribute to the generation of about 1 000 megawatts.
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The three elements of the scheme … the first one [comprises] a loan 20% first-loss facility that Treasury will be providing for those small businesses and households that want to take up the upfront cost of rooftop solar equipment.
The second mechanism is for households and small businesses who find it difficult to undertake the upfront costs of rooftop solar, by facilitating – through energy service companies – leasing power-purchase agreements and other deferred sort of payment instruments.
So what that’s really aimed at is relieving small businesses from the additional burden of assuming the full investment-plus upfront by having them procure their power through leasing agreements from energy service companies.
Lastly, through the first two mechanisms, we anticipate an increase in demand. The third mechanism is aimed at matching that increased demand with increased supply by providing working capital to all businesses up and down the value chain relating to rooftop solar.
FIFI PETERS: Let’s maybe put some numbers on some of the stuff that you’ve just mentioned. If I’m looking at the eligibility criteria, just based on the statement that National Treasury has issued, eligible businesses must have a maximum turnover of R300 million, which is one of the boxes that need to be ticked. Did you say that the maximum amount that a business can borrow is around R10 million rand? You say businesses can borrow about R30 000 through the scheme for resilience measures. For households, a maximum loan amount for the purchasing of rooftop solar is R300 000 per household.
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You are also talking about businesses that are in the business of the rooftop-solar supply chain – importing batteries, inverters, panels and the like. They can borrow up to R100 million for working capital needs.
Obviously in the interest of time, what criteria and what other boxes do businesses who may need this money, and households who are wanting to borrow this money from the scheme, need to make sure they have before applying to any of the banks to do so?
VUKILE DAVIDSON: How the power scheme will work is principally through participating banks. That doesn’t mean that financing is available only through banks. Non-bank SME finance providers, as well as development finance institutions, can access a scheme but will do so through their participating bank.
The reason I mentioned that is because that relates very closely to the criteria. So borrowers will have to satisfy the criteria set out by their participating bank or their non-bank SME service providers.
For the second mechanism that I mentioned, the solar-leasing mechanism, they would have to satisfy the criteria outlined by the energy service companies.
What’s really largely required there is that the energy service company, as well as the prospective business, will have to determine their need, as well as an appropriate solution, and then enter into an arrangement between the energy service company and the prospective client, be it a small business or a household.
FIFI PETERS: Vukile, one of the criticisms that was mentioned about the scheme in the current form was how inclusive it would be. In fact, at the weekend the [news]papers were just talking about how unjust the energy transition potentially stands to be, given the options that are available to some and not available to others. [They were] making reference specifically to businesses operating in the township economy, for instance, and whether they’d be able to meet some of the criteria demanded by the scheme in order to apply.
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Also there was reference to some households that might not be middle class, or might not be affluent, that might not be able to afford or meet the criteria required from their banks [for them] to invest in their own power stability.
So I’d like your comment on that, and to what degree you reckon this reshaped and repurposed Energy Bounce-Back scheme helps to address some of those concerns around whether it will be inclusive for businesses in the township economy and whether it will be inclusive for lower-income households as well.
VUKILE DAVIDSON: I think that’s an excellent question, and we spent a lot of time thinking around exactly these aspects.
On the first part of your question, we have to meet the possible need of informal businesses, as well as businesses operating in rural areas and the township economy. We were very careful to make sure that how we define and script in non-bank SME providers would be in a very inclusive way.
What I mean by that is that we have included in the expanding definition of ‘non-bank SME providers’ those large wholesale retailers which usually form the basis from which the inventories of small retailers and informal businesses receive their goods, to make sure that they too can participate and provide their customers whom they know very well with appropriate tools to be resilient against load shedding.
So that was, I think, an important new aspect that we spent a lot of time developing and making sure would reach the intended recipients.
On your second point, affordability, I think that this is a really important point and is one of the critical lessons that we learnt from the preceding loan-guarantee schemes.
We found through Covid – and the Covid loan-guarantee scheme in particular – that small businesses really are reluctant to take on additional debt where they are unsure [whether] the additional debt will definitely translate into additional revenue down the line.
So that really formed the basis of why we thought of the second mechanism and mechanism for leasing rooftop energy service providers.
So a small business doesn’t have to take on additional debt, they can simply swap out their current electricity provider for an energy service company solution, and match their existing monthly costs for energy through their current source – be it Eskom or the municipal provider – with more reliable energy and often cheaper energy that’s being provided by an energy service company through the leasing solution.
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FIFI PETERS: Okay, I get you. Vukile, we’ll leave it there, sir. Thanks very much for your time. Vukile Davidson is chief director of Financial Markets and Stability at Treasury.
In terms of the cost, the pricing of the loans has been capped at the repo rate; that’s around 8.25% plus a maximum of 6%. So it will depend on your credit quality at whichever bank or institution you approach for assistance on that. That’s how much some of the loans will cost you there.
For further colour on some of the eligibility criteria, you have to be tax-compliant, of course, and your business does need to be registered with the CIPC, the Companies and Intellectual Property Commission.
But for those of you who are looking to approach your banks to tap into this scheme or any other related institutions able to provide the lending, I’m sure they’ll give you the details that you need to access the support.
