Tuzla 7 lignite power plant, Bosnia and Herzegovina
The lignite-fired power plant in Tuzla. (Image by flickr user melisabeth - CC BY 2.0)
For several years a new 450 MW unit has been planned at the Tuzla coal power plant in Bosnia and Herzegovina, owned and operated by the state-owned Elektroprivreda BiH.
Although it is usually cited as a replacement for existing units, Elektroprivreda BiH plans to close only the existing units 3 and 4 (total 310 MW) in 2018 and 2021 respectively, while units 5 and 6 (total 415 MW) will continue to operate until after 2030 (pdf, pg. 231). Thus Tuzla 7 would result in additional coal capacity compared to the current situation.
An Engineering, Procurement and Construction (EPC) contract worth EUR 785 million was signed with China Gezhouba Group Co. on 30 August 2014, but it was later admitted that the plant would not be economically feasible. In May 2016 an annex to the contract was signed, which brought the cost down to EUR 722 million.
In December 2014 a Memorandum of Understanding on financing the facility was signed with the China Exim Bank, and in November 2016 a framework agreement on financing was signed, but the actual financing contract has not been signed yet.
Questionable economics and the threat of stranded assets
The annex to the contract signed on 04.05.2016 is reported to bring the cost down to EUR 722 million. However former EPBIH Director Amer Jerlagić in 2016 stated that neither the Banovići nor the Tuzla 7 plants appear feasible given the low prices on the European electricity wholesale market. This opinion has also been confirmed by the current Director of EP BIH, Bajazit Jašarević, who admitted that both the Tuzla 7 and Banovići plants are currently unfeasible.
Important questions remain unanswered with regard to the plant’s economics:
- What technical compromises have been made in order to bring down the cost?
- What future electricity prices are being assumed?
- What coal price is being assumed? In the original calculations presented to the Federation of BiH Parliament, it was stated that:
- Have future costs of CO2 emissions been included in the calculations and if so, at what price?
- Is the plant feasible if the planned 350 MW Banovići lignite plant, less than 30 km away, is also built?
"the price of coal should not rise above the current level which is already now above the price foreseen in the investment documentation for unit 7 (4.75 KM/GJ) [...] In the event that it does, the competitiveness of the current generation and feasibility of the realisation of the new units will be threatened."
Yet in 2014 the sales price for coal for power plants (pdf) was 4.90 KM/GJ. Moreover the sales price is nowhere near to reflecting the production costs in the Federation of BiH's mines, which in 2014 – the latest year for which information is available - amounted to 6.58 KM. None of these prices include the investments that would need to be made into the mines to continue production for the new unit.
State aid incompatible with the Energy Community Treaty
State aid risks
Tuzla 7 is only one of several coal infrastructure projects in Energy Community countries that may be breaching state aid regulations.
Bosnia and Herzegovina, as a signatory to the Energy Community Treaty, is obliged to follow EU legislation on state aid. This regulates the ways that state resources can be used to support undertakings, in order to avoid distorting competition and cross-border trade.
The Federation plans to provide loan guarantees for Tuzla 7. As well as the financial difficulties in doing this, sovereign or sub-sovereign loan guarantees have to comply with certain conditions, such as not exceeding 80% of the value of the loan and being paid for by the project promoter at market rates. However this is often not the case.
The coal mining sector in Bosnia and Herzegovina is also in deep economic trouble and a Bankwatch analysis has shown that the Federation of BIH’s mines suffer from the lowest labour productivity in southeast Europe. In late April 2016 the Director of Elektroprivreda BiH warned that if the Federal Tax Administration, banks and suppliers do not “show understanding” towards the Kreka mines and do not agree to delayed payment of debts, that the mine would have to be shut down.
The coalmines have for years received subsidies for social welfare payment obligations towards the state, which raise state aid issues. In general, it is not allowed to provide state aid for operating coal mines, only for closure, so unless the performance of the mines can be improved, they will have to be closed. This is in any case inevitable in the medium term due to the need to phase out coal to tackle climate change, but no BiH politician has had the courage to face up to this political hot potato so far. Instead, they make misleading promises about safeguarding 3500 workplaces by building Tuzla 7, which is impossible.
Compliance with Industrial Emissions Directive needs to be ensured
After Tuzla 7’s initial environmental permit expired in November 2015, a new one was issued in July 2016. As it contained numerous weaknesses including a failure to include the ash dump and failure to require the application of best available techniques, NGO Ekotim filed a court case challenging the permit in September 2016. In October 2016 Ekotim also submitted a complaint to the Energy Community since the environmental permit does not require the application of the Industrial Emissions Directive to the plant, even though this is required under the Treaty.
Competition for scarce water resources
The Tuzla power plant takes cooling water from the Modrac Reservoir, the same source as much of the drinking water for Tuzla. This reservoir is fed mainly by the Turija and Spreča rivers and already suffers from pollution caused by coal production and separation (pdf). If the Banovici coal power plant is built - another project just a few kilometers away from Tuzla - it will directly compete with the Modrac Lake for water in drier periods.
Opposition to Šićki Brod ash dump site
The environmental permit for Tuzla 7 is incomplete as it does not cover the foreseen ash landfill on the Šićki Brod site. According to Article 71 of the Federation of Bosnia and Herzegovina's Law on Environmental Protection, an environmental permit must include measures for managing waste produced by the facility in question.
In addition, using the Šićki Brod site as an ash landfill would contravene the Tuzla Canton and Lukavac and Tuzla municipality spatial plans, and is opposed by the Lukavac municipality council and the population living in the local communities surrounding the location. In April 2016 they presented a petition with 2100 signatures against the site to the Ministry of Environment and Tourism.
In November 2013, the Center for Ecology and Energy from Tuzla launched a report on the health impacts of existing and planned coal thermal power plants in the Tuzla area. Using the methods developed in the WHO's Health Response to Air Pollutants in Europe project, the study found that in 2013 in Tuzla existing power plants will have caused the loss of 4900 years of life, 131,000 lost working days and more than 170 hospitalisations due to cardiac and respiratory diseases.
Although the Tuzla coal plant is the largest source of pollution in the area, it should be taken into account that this situation is aggravated further by the cumulative impacts with other pollution sources such as the coking plant and soda factory in Lukavac, thus increasing the health risks even further.
An AlJazeera report on the situation of the "Hostages of Coal" infrastructure in Tuzla and Banovici (local language ony).
Environmental legacies of existing operations
Both Tuzla power plant and the Banovići mine have created environmental legacies and have insufficient management practices which need to be addressed before constructing new infrastructure. The existing units at Tuzla are not compliant with the Large Combustion Plants Directive or Industrial Emissions Directive (pdf) and the existing units need to limit their working time or be renovated by 2018.
The ash dumps at Tuzla also bring hazards for the local population from dust blowing on windy days and water pollution, as well as soil pollution through food cultivated on some of the closed sections and sold on nearby markets. At the Divkovići dump, a pipe designed to divert dirty water to a treatment plant for cleaning is not used and polluted water enters local watercourses.
These issues are not only a legacy of past practices but a reflection of current ones, and until these change, new pollution sources should not be constructed in the area.
Institution: Chinese investors
Theme: Energy & climate