Africa-Press – Eswatini. Eswatini stands at a critical juncture where strategic investments in infrastructure can safeguard its economic stability and energy security.
One such opportunity is the proposed Strategic Oil Reserve Facility at Phuzumoya, Siphofaneni, in the Lubombo Region.
Financed through a USD300 million (approximately E5.2 billion) loan from the Export-Import Bank of the Republic of China (Taiwan), this project has sparked debate, particularly regarding its cost compared to a cheaper E2.2 billion proposal. However, Members of Parliament (MPs) should vote in favour of the Loan Bill for this project due to its favourable loan conditions, long-term benefits, and the enhanced scope of the facility.
Critics, including some MPs, have raised concerns about the E5.2 billion cost, especially amid public discontent over project cost overruns voiced at Sibaya. However, the E5.2 billion figure reflects a negotiated reduction from E7 billion, demonstrating government diligence. The E2.2 billion estimate, based on older designs, may not account for inflation, rising construction costs, or the need for a 60-day fuel reserve. Nine years ago, the project was estimated at E900 million, highlighting how costs have escalated over time. Delaying the project or opting for a cheaper alternative risks further cost increases and prolonged vulnerability to fuel shortages.
Eswatini’s MPs now have a unique opportunity to secure the nation’s energy future by approving the Loan Bill for the E5.2 billion Strategic Oil Reserve Facility. The loan’s favourable terms—low interest, a 5-year grace period, and a 20-year repayment schedule—make it a financially viable investment. The project’s enhanced capacity, superior design, diplomatic benefits, and economic spinoffs outweigh the allure of the E2.2 billion alternative, which compromises on scale and quality. By voting in favour, MPs will demonstrate foresight, prioritising long-term stability over short-term savings. This facility is not just an infrastructure project—it is a commitment to Eswatini’s resilience, sovereignty, and prosperity.
Simplified Loan Conditions: Affordable and Flexible
The Export-Import Bank of Taiwan loan is structured to minimise financial strain on Eswatini’s economy while providing long-term repayment flexibility. Here’s a simplified breakdown of the terms:
Loan Amount: USD300 million (approximately E5.2 billion), providing sufficient funding to construct a robust oil reserve facility.
Repayment Period: 40 equal semi-annual instalments over 20 years, starting after a 5-year grace period from the first withdrawal. This translates to manageable payments of approximately USD7.5 million (around E130 million) every six months.
Grace Period: No principal repayments are required for the first five years, allowing Eswatini to focus on project completion and economic growth before repayments begin.
Interest Rate: The interest is calculated at the Term Secured Overnight Financing Rate (SOFR) plus a margin of 0.2% and an additional 1%, totalling SOFR + 1.2% per annum. With the current SOFR at around 4.5%, the total interest rate is approximately 5.7% per annum—a competitive rate for long-term infrastructure loans. Interest is payable semi-annually in arrears, aligning with government budgeting cycles.
Payment Structure: Interest payments during the grace period are modest, estimated at USD17.1 million annually (about E300 million, depending on exchange rates). The semi-annual schedule ensures predictability.
These terms are favourable for Eswatini, a nation with a GDP of approximately USD4.9 billion (E85 billion) and a public debt projected at 40.6% of GDP. The 5-year grace period provides breathing room, while the 20-year repayment schedule ensures the financial burden is spread across generations—aligning with the project’s long-term benefits. Compared to commercial loans, which often carry higher interest rates (7–10%) and shorter repayment periods, this loan from Taiwan is concessional and reflects Taiwan’s commitment to Eswatini’s development as a diplomatic ally.
Why E5.2 Billion Over E2.2 Billion?
While the E2.2 billion proposal appears more cost-effective, the E5.2 billion facility offers superior value through enhanced capacity, quality, and strategic benefits. Here are the key reasons MPs should support the higher-cost project:
Enhanced Storage Capacity and Energy Security
The E5.2 billion facility, designed by Taiwan’s Overseas Investment and Development Corporation (OIDC), is expected to provide a 60-day fuel reserve, significantly boosting Eswatini’s energy resilience. The country currently lacks adequate fuel stock reserves, with existing infrastructure lasting only 2–3 days. Eswatini consumes approximately 30 million litres of fuel monthly, meaning a 60-day reserve would store about 60 million litres. The E2.2 billion proposal, based on earlier designs, likely offers smaller capacity, leaving the country vulnerable to supply chain disruptions from regional conflicts or global commodity price volatility.
Superior Design and Long-Term Durability
The E5.2 billion project incorporates advanced designs and construction standards from OIDC, a reputable Taiwanese firm with expertise in large-scale infrastructure. Initial designs were costed at E7 billion but were negotiated down to E5.2 billion, reflecting a balance between quality and affordability. In contrast, the E2.2 billion proposal, based on a South African consultant’s designs, may compromise on quality, safety, or scalability. Infrastructure projects often face cost overruns when critical components are omitted in early designs, as highlighted by public concerns at Sibaya in 2023. Investing in a robust facility now prevents costly retrofits or expansions later.
Strengthening Diplomatic Ties with Taiwan
Eswatini remains the only African nation maintaining diplomatic relations with Taiwan, a partnership that has already yielded significant aid, including the USD1 million Women’s Start-up Microfinance Revolving Fund. Choosing the Taiwanese proposal reinforces this alliance and could unlock further economic support. The E2.2 billion proposal does not carry the same geopolitical significance and may weaken Eswatini’s position in securing future concessional loans or grants. In a region where China’s influence is expanding, Eswatini’s loyalty to Taiwan is a strategic asset.
Economic and Job Creation Opportunities
With its larger scope, the E5.2 billion project will generate more construction jobs and stimulate local economies in the Lubombo Region. OIDC’s involvement may also bring technical expertise, training, and opportunities for Swati workers, aligning with the Ministry of Labour’s localisation goals. The E2.2 billion project, with a smaller footprint, offers fewer economic spinoffs. Moreover, the completed facility will attract private sector investment by ensuring fuel reliability, supporting Eswatini’s shift to a private-sector-led growth model, as advocated by the IMF.
Mitigating Fiscal Risks with SACU Revenues
Eswatini’s fiscal position is improving, with a projected deficit of just 1.5% of GDP in FY23/24, supported by SACU revenue windfalls. The government plans to contribute USD82 million (1.8% of GDP) to a SACU revenue stabilisation fund to cushion future revenue volatility. The loan’s grace period aligns with these projections, allowing Eswatini to use SACU receipts to cover interest payments without immediate financial strain. The E2.2 billion alternative, while cheaper, does not justify sacrificing capacity and quality when prudent fiscal planning can support the larger investment.
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