Tuzla 7 lignite power plant, Bosnia and Herzegovina
The 450 MW Tuzla 7 project has become an iconic example of the clash between Chinese-backed investments and EU standards in the Balkans. The lead contractor would be the China Gezhouba Group Co. and a financing deal was signed with the China ExIm Bank in November 2017. However, in December 2023, the Federation of BiH’s Prime Minister confirmed that the plant will not go ahead. The cancellation of the works contract is still pending, however.
We closely follow international public finance and bring critical updates from the ground.
For almost two decades, 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.
In 2021 it was announced that GE had pulled out as equipment supplier and that Gezhouba was offering alternative Chinese technology instead, putting the future of the project in doubt. In December 2023, Federal Prime Minister Nermin Nikšić confirmed that the project definitely would not go ahead, but stated it was unclear whether an agreement would be reached on terminating the contract or whether arbitration would be sought.
Poor economics and the threat of stranded assets
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. An annex to the contract signed on 04.05.2016 was reported to bring the cost down to EUR 722 million. However the project’s feasibility studies are clearly faulty.
An analysis by the Banja Luka-based Institute for Construction assumed that Tuzla 7 will have to start paying a carbon price only in 2034 and that it would only be EUR 7.1 per tonne, rising to EUR 12.12 per tonne in 2061. Considering the ETS price reached over 88 EUR per tonne in December 2021, this leads to a serious underestimate of the plant’s operating costs.
The assessment assumes annual carbon costs of EUR 2.7 million in 2034, rising to EUR 31.4 million in 2061. Yet even at 20 EUR/tonne, the annual cost would be EUR 51.87 million.
Moreover, the projected price at which coal would be sold by Elektroprivreda BIH’s mines to the Tuzla 7 plant is EUR 21.87/tonne. This is lower than 2013-2016 production price and is clearly not realistic.
Given that the plant is promoted by a state-owned company, if it ends up as a stranded asset, it will be the public that pays.
Illegal State aid
Bosnia and Herzegovina, under the Energy Community Treaty, is obliged to follow EU legislation on State aid, but in 2018 and 2019 the Federation of BIH authorities approved an illegal loan guarantee for Tuzla 7.
Such guarantees have to comply with certain conditions, such as not exceeding 80 per cent of the value of the loan. However the Tuzla 7 guarantee covers 100 per cent of the loan, plus additional unspecified costs. There are conditions in which covering 100 per cent of the loan could be allowed, but they are not met here.
Prompted by a complaint by the Aarhus Resource Center, Sarajevo, and Bankwatch, in March 2019 the Energy Community Secretariat opened an infringement case against Bosnia and Herzegovina.
EU Enlargement Commissioner Johannes Hahn also warned the country that its decision raised serious questions, “not only about Bosnia’s commitment to international treaties and European rules under the Energy Community Treaty but also about the choice of the energy technology as well as about a sound cost-benefit analysis in a responsible and transparent manner”.
In November 2021 the guarantee was confirmed by the Energy Community Ministerial Council as being illegal, and in June 2022 the Bosnia and Herzegovina State Aid Council revoked its 2018 decision to approve the guarantee, thus remedying the breach and leaving the project’s future in doubt.
However, the cancellation of the State Aid Council’s approval decision was successfully challenged in court by the Federal Ministry of Finance due to the impossibility of recovering unlawful aid that takes the form of a guarantee. Thus in January 2023 the approval decision was de facto reinstated despite the Energy Community Ministerial Council declaring it illegal.
Denial reigns on over-employment issues
The Federation of BIH’s mines are also propped up by subsidies. They suffer from the lowest labour productivity in southeast Europe and have for years received subsidies for social welfare payment obligations towards the state. It is not allowed to provide State aid for operating coal mines.
Closure is in any case inevitable in the medium term due to the need to phase out coal to tackle climate change and the increasingly poor economics of coal. For too long, politicians have made misleading promises about safeguarding 3500 workplaces in the mines by building Tuzla 7, which is impossible. And now they are starting to realise that the project is not such a good idea, it is difficult to backtrack.
Non-compliance with EU pollution standards
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 in the project, NGO Ekotim filed a court case challenging the permit in September 2016. This was rejected in October 2019 on the outrageous ground that Ekotim is based in Sarajevo, while the project would be in Tuzla. An appeal to the high court overturned this verdict in late 2021. By this point, the permit had already expired, and as of January 2024, no new one has been issued.
In 2017 the EU updated its pollution control rules for large industrial plants through the so-called the LCP BREF. Tuzla 7 has not been designed in line with these standards, making it out of date before it is even built.
Opposition to Šićki Brod ash dump site
The planned site for the ash dump needed for Tuzla 7 at Šićki Brod was heavily opposed by the Lukavac municipality council and local communities. In April 2016 they presented a petition with 2100 signatures against the site to the Ministry of Environment and Tourism, and in 2019 protests ensured that the site was not included in the local spatial plans. No replacement site has been confirmed.
'Hostages of coal'
An AlJazeera report on the situation of people affected by the coal infrastructure in Tuzla and Banovici.
Local language only.
Environmental legacies of existing operations
The existing units at Tuzla are not compliant with the Large Combustion Plants Directive or Industrial Emissions Directive. Due to Bosnia and Herzegovina’s commitments under the Energy Community Treaty, Units 3 and 4 should already have been closed. Unit 5 should also be closed in the next couple of years, and unit 6 must urgently comply with pollution control legislation, pending its closure date.
The ash dumps at Tuzla also brings 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 halting these and remediating the area must be the focus of attention instead of building new sources of pollution.