Planned contract for Plomin C coal plant most likely illegal state aid, says legal analysis

Zagreb, 05.05.2014 – A planned long-term power purchase agreement in which Croatian electricity company HEP will commit to buying at least 50% of electricity from the planned Plomin C power plant [1] for 20-30 years will most likely be illegal under EU state aid rules, according to a new legal analysis by Hungary’s Environmental Management and Law Association (EMLA). [2]

EMLA’s analysis finds that since HEP is state-owned, a long-term power purchase agreement would be considered state aid. State aid provided to economic actors is generally illegal in the EU, however particular aid can still be allowed in certain circumstances. In the case of Plomin C, however, EMLA considers it virtually impossible that HEP could fulfil the necessary criteria for the agreement to be considered legal. This could present a serious obstacle to the project’s implementation.

A tender process is currently ongoing to find a strategic partner for the 500 MW Plomin C coal power plant in Istria. On 1 May the Croatian government reported that three consortia had submitted bids. Although the government said it could not name the companies involved due to the tender rules, local media [3] reported that the consortia consist of Marubeni and Alstom; Daewoo and Croatian pension funds; and Edison and Samsung.

“At a time when starting new coal projects is going seriously out of fashion in the EU (4), the very fact that three consortia have submitted bids shows that HEP must be offering very generous – maybe too generous – incentives to potential investors. However EMLA’s legal analysis raises the question of whether HEP is making promises it cannot keep,” said Bernard Ivcic, President of Zelena akcija/Friends of the Earth Croatia.

“There has been no public debate about what kind of incentives HEP is offering for Plomin C, and what kind of costs this could bring to taxpayers. Considering that Plomin C will cost at least EUR 800 million, it is high time that the public gets to hear exactly what impact this will have on their bills”, concluded Zoran Tomic of Greenpeace Croatia.

*Photos from the presentation of the legal report today in Zagreb are available here: http://zelena-akcija.hr/hr/multimedija/foto/ugovor_za_plomin_c_najvjerojatnije_ce_biti_nelegalan_5_5_2014

Contacts:

Bernard Ivcic
President, Zelena akcija/Friends of the Earth Croatia
Tel.: +385 99/314 9138

Zoran Tomic
Greenpeace Hrvatska
Tel.: +385 91/234 5092

Pippa Gallop
CEE Bankwatch Network
pippa.gallop@bankwatch.org

Notes for the editors:

1. The Croatian Electricity Company Hrvatska Elektroprivreda d.d. (HEP) is planning the expansion of the already existing so-called Plomin A and Plomin B complex with a third unit to be named Plomin C.

Plomin A exists since 1969 while Plomin B exists since 2000. The capacity of Plomin A is 120 MW while the capacity of Plomin B is 210 MW. The planned Plomin C plant would introduce an additional 500 MW electricity generating capacity by 2019.

2. A summary of the legal analysis is available at:
https://bankwatch.org/sites/default/files/PlominC-legalopinion-publicsummary-22Apr2014.pdf

The analysis was carried out on the basis of the June 2012 project prequalification document obtained by Zelena akcija. The prequalification document can now be found online here:
https://bankwatch.org/sites/default/files/Plomin-prequalification-HEP-24Jul2012.pdf

3. See for example:
http://www.vecernji.hr/gospodarstvo/tri-ponudaca-predala-obvezujuce-ponude-za-plomin-c-936037

4. For example, in Germany, plans to construct 21 power plants have been abandoned since 2007 while 5 more have been put on hold for years and only two have started operating. A report by Poyry consultants last year concluded that no new coal plants are likely to be built in Germany, Spain and the Netherlands in the foreseeable future. See


https://www.gov.uk/government/publications/poyry-report-to-decc-outlook-for-new-coal-fired-power-stations-in-germany-the-netherlands-and-spain

Closer to Croatia, the Sostanj unit 6 project in Slovenia represents a stark example of what can go wrong with coal projects: Project costs have doubled from around EUR 700 million in 2007 to EUR 1.4 billion in 2013 and the plant is expected to run up annual losses of EUR 50 million. Added to that, investigations into potential corruption around the project are still underway.

https://bankwatch.org/news-media/for-journalists/press-releases/slovenia-continues-fall-economic-abyss-lignite-plant-sosta