In November 2019, preparatory work began for a seventh unit at Bosnia and Herzegovina’s largest coal-fired power plant, Tuzla, in preparation for the arrival of Chinese construction teams. A spokesperson for Bosnia’s state-owned electricity company EPBiH confidently explained the ecological, economic and social benefits of Tuzla 7 and said construction would begin in spring 2020. Covid-19 has since delayed this.
The Western Balkans coal sector welcomed its first Chinese participation in 2010, when state-owned Dongfang Electric agreed to build a new power plant for a private investor in Bosnia, using a €350 million loan from the Development Bank of China. Since then, one new coal-fired power plant has been built in the area, two are under construction and four more are planned.
Coal-fired power generation in the Western Balkans has always been a problem a serious health risk, leading to thousands of premature deaths each year. Today, the entrenched interests of the region’s politicians, state banks and Chinese entrepreneurs threaten to lock one of Europe’s poorest and most polluted regions into increased dependence on coal for decades.
In 2010, Chinese coal financing still competed with Western development and export banks such as the European Investment Bank, the European Bank for Reconstruction and Development, and the German state-owned bank KfW. But Western lenders withdrew from coal financing over the decade and China is now on its own financing the expansion of the region’s coal sector.
The six Western Balkan states, Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia, are members of the Energy Community, an organization responsible for integrating their energy markets with that of the EU. Member states have been forced to adopt stricter emissions standards, liberalize their energy sectors and transpose parts of European law into their national legislation. Despite such commitments, several states keen to be part of the EU are pushing for a significant expansion of their coal fleets.
Decarbonization was never going to be easy for these countries. In 2017, dependence on coal (lignite in particular) for electricity production reached 96% in Kosovo, 75% in Bosnia and Herzegovina and 71% in Serbia. Entrenched coal interests wield powerful political force: dismantling the coal sector will require job losses and a costly “just transition” strategy. The same was true for South Wales, whose transition from coal is under study by other regions, notably the main coal-producing province of Shanxi in northern China. Yet the Welsh Development Agency has received significant funding from national, European and private sources for several decades. The capacity of Balkan states to finance and manage a just transition is questionable.
Touzla 7
The Tuzla plant began operation in 1963. The idea of replacing its aging parts was considered in the 1980s, but the plans were abandoned during the Bosnian War of the following decade. The project then remained dormant until 2010, when the government relaunched it as part of a long-term energy strategy. Following a public tender in 2014, the state power company chose a consortium led by Chinese state-owned Gezhouba, rather than Japan’s Hitachi. According to a document Circulated to Bosnian parliamentarians, Gezhouba’s selection came after Hitachi expressed reluctance to co-finance the project through a joint venture given the “political situation in Bosnia”. The main difference between the two bidders is Gezhouba’s offer of a 614 million euro loan from the China Export-Import Bank. This allowed Gezhouba to face relatively lower risks, as they are borne by the borrower (the Bosnia and Herzegovina utility), the lender (China Exim) and the guarantor (the government of Bosnia and Herzegovina).
Tuzla is the seventh highest emitting sulfur dioxide power plant in Europe. A 2016 report by HEAL claimed that its particle filters were regularly turned off at night, presumably to save costs under the cover of darkness. Analysis of ashes disposed of by a local environmental group EEC also suggests that the type of lignite and brown coal used in Tuzla contains high concentrations of chromium, nickel and arsenic. Another Chinese-funded project, the Banovići coal-fired power plant, is also planned in the Tuzla region, which would further deplete already limited water reserves. The additional coal capacity will require new ash disposal sites in the nearby town of Lukavac, triggering strong opposition from residents already surrounded by a coking plant, a cement plant and a soda ash producer with a large coal field. debris known as the “White Sea”. . Even if everything goes according to plan, Tuzla 7 will not be built in accordance with EU directives. resource and emissions standardsa costly renovation or premature closure are therefore distinct possibilities.
Although project supporters view Tuzla 7 as an improvement as it would replace older, less efficient coal-fired units, the project faces more than just environmental concerns. Like the Šoštanj 6 from Slovenia, another lignite fiasco In the region, Tuzla 7 faces an uncertain economic future amid low electricity prices, rising carbon costs and competition liquefied natural gas and renewable energies.
When the Bosnia and Herzegovina parliament voted in favor of the project, the documentation provided clearly stated that Tuzla 7 would only be economically feasible if electricity prices reached €56.50 per MWh. Regional prices currently hover around €30/MWh and a team of World Bank analysts suggested a price of €56/MWh would only be reached around 2033 – before taking into account the cost of mitigating emissions. Even Germany’s much more efficient power plants face rising carbon costs and competition from renewable energy, which is hurting them. profits.
Why wasn’t Tuzla 7 canceled?
Since the contractor was selected, nothing seems to be able to stop the project. Rijad Tikveša, head of an NGO based in Sarajevo Ékotim, has been fighting Tuzla 7 for years in the country’s courts and before the Energy Community. Even if a case alleging prohibited state aid in the form of a loan guarantee is always open, the Energy Community successfully concluded mediation regarding the plant’s emissions standards. With that complaint resolved, the utility announced that all legal hurdles had been resolved and the project could now move forward.
After Tikveša publicly disputed these claims, pointing out that several domestic court cases remained open, he was quickly served with three successive court decisions quashing Ekotim’s lawsuits. In a country where the justice system is notoriously slow, the courts’ sudden efficiency is a stark reminder of political support for the power plant’s expansion.
Despite obvious environmental concerns, a bleak economic future and a series of regulatory shortcomings, Bosnian politicians appear committed to new coal projects. A recent vote The parliament provided state guarantees for the Tuzla 7 loan without a single vote opposing it. Although job creation is generally cited as a key benefit by coal proponents, a report by Bankwatch CEE completely debunks this claim. Tikveša jokes that his constant lawsuits may explain why coal-fired power plants employ large numbers of lawyers, but a coal-related future will neither save existing jobs nor create future ones.
Money from China
The Tuzla power plant is emblematic of poor governance and state capture. This is where the role of Chinese financing becomes most problematic. When China’s coal sector began to feel the effects of national efforts to invest in low-carbon technologies and phase out provincial coal projects, Chinese state-owned enterprises have turned to the global market for work. Backed by the political cover of the Belt and Road Initiative and financed by Chinese state banks, their pursuit of lucrative contracts provides little incentive for due diligence, relying instead on host governments , from Bangladesh to Bosnia, to eliminate obstacles. Tuzla 7 was concluded with minimal public or parliamentary oversight, resulting in opaque contracts that avoid public tenders wherever possible. The host state has gone to great lengths to accommodate the Chinese side, rushing through environmental impact assessments and bulldozing domestic legal challenges. Even when doubts about the irregularity of the state aid had already arisen, the state granted an additional five years of asset-backed aid. guarantee in addition to a 15-year insurance policy signed by Sinosure worth 47 million euros – which was not even included in the initial cost analysis.
It doesn’t have to be this way. Denis Žiško, head of local environmental organization CEE, recalls a meeting at the Chinese embassy in which he was told that Chinese donors would happily support renewable energy projects, but officials Bosniaks insist on channeling funding to the coal sector. Thus, an unfortunate coalition of local politicians and Chinese state-owned companies is preventing the country from making an expected transition to renewable energy while the rest of Europe adapts to new realities.
Europe’s great energy gap mirrors that of prosperity, and nowhere is this more evident than in the Balkans, where coal-fired power plants are plentiful, highly inefficient and polluting. But emphasizing coal’s dismal profitability, its environmental costs, or its dubious job-creation claims may not be enough when it comes to entrenched political and social interests. Only a concerted effort targeting both domestic coal production and Chinese coal financing, alongside properly funded mitigation and transition programs, could persuade the Balkans to leave lignite in the ground where it belongs.
This article is based on research funded by a grant from the British Academy/Leverhulme.