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Loan guarantee for Bosnia’s Tuzla 7 coal plant confirmed as illegal

The guarantee for the public loan for the planned Block 7 of the Tuzla thermal power plant in Bosnia & Herzegovina is illegal according to the Energy Community Treaty, the Ministerial Council of the Energy Community has confirmed, according to information emailed to bne IntelliNews by the CEE Bankwatch Network. 

The Bosnian Federation has been preparing to build a new 450 MW unit at the Tuzla coal-fired power plant to replace units 3 and 4 that are due to be shut down. However, the government has been embroiled in a long dispute with the Energy Community secretariat over alleged state aid for the project. 

The case concerned a loan guarantee issued by the Federation’s finance ministry in 2017 to enable the entity to borrow €614mn from the Export Import Bank of China to finance the project. The guarantee was cleared by Bosnia’s State Aid Council in July 2018.

Following a complaint submitted by the Aarhus Center Sarajevo and Bankwatch in September 2018, the Energy Community secretariat twice advised the Bosnian Federation parliament not to approve the guarantee, after its examination of the case indicated that it would be in breach of EU law.

Under the Energy Community Treaty, Bosnia must follow EU rules on subsidies in the energy sector, which stipulate that in most cases state guarantees may only cover up to 80% of the total loan amount. The guarantee for Tuzla 7, however, covers 100% of the loan, plus interest and other associated costs. 

Despite this, the House of Representatives and House of Peoples approved the guarantee on March 7 and April 1, 2019, respectively.

‘The loan guarantee for Tuzla 7 has been confirmed as illegal and [lead contractor] Gezhouba cannot fulfil its contract. What more do Bosnia and Herzegovina’s decision-makers need to make them drop this fantasy project?’ said Denis Zisko of the Aarhus Centre Tuzla in a statement.

‘Fears about Bosnia and Herzegovina’s electricity supply are overblown. If we start reducing our massive energy wastage and invest more in solar and wind, Tuzla 7 can easily be substituted.”

There were already questions over whether the project will go ahead, amid a growing international shift away from coal power as pressure grows to keep greenhouse gas emissions under control. 

‘Tuzla 7 is a relic from a bygone age. Just like Slovenia’s notorious Sostanj unit 6, it would end up as a liability for Bosnia & Herzegovina due to the unrealistically low coal prices used in the feasibility study and the inevitable introduction of carbon pricing,” said Pippa Gallop of CEE Bankwatch Network. 

The Tuzla power plant expansion is one of numerous coal-fired power plant investments in the Western Balkans, including several in Bosnia, most funded by Chinese banks, that are either at the planning stage or underway. Coal power plants in the Western Balkans cause thousands of deaths both in the region and beyond its borders. 

The largest post-war investment in Bosnia’s electricity sector already came to a halt after the American company GE announced its withdrawal from the project. It had previously undertaken to produce a boiler, turbine and generator. China’s Gezhouba Group, the lead contractor, proposed to supply its own equipment, but the Bosnian side has not yet officially agreed to this.

GE's justification for leaving the project is understood to be based on in the global trend of phasing out coal energy and unfavourable geopolitical and economic trends, especially the severe global financial deterioration resulting from the COVID-19 pandemic and a significant global decline in projected projects for new coal-fired power plants.