EBRD probes Slovenia plant contract with Alstom

9 May 2012, Reuters

LJUBLJANA/PARIS, April 20 (Reuters) – Slovenia has taken a step toward providing government loan guarantees that would enable completion of a controversial 1.3 billion euro ($1.7 billion) power plant upgrade awarded four years ago to French engineering company Alstom.

The Slovenian parliament in a preliminary vote, by a margin of 47 to 9, on Thursday backed a law that would allow the government to provide a guarantee for a 550 million euro European Investment Bank (EIB) loan for the project.

The law will come into force if the parliament supports the coal-fired plant in the next two debates, expected in May.

The chief executive of Slovenian state-owned electric utility Termoelektrarna Sostanj (TES), which awarded the contract to Alstom, told Reuters he was confident the project would receive the loan.

“We hope that the parliament will confirm the law on the guarantees in the coming month, which would enable us to complete procedures that are necessary to start using the EIB loan by July 31,” Simon Tot said in a phone interview.

The project involves the construction of a new 600 megawatt unit to replace four of the existing units of a coal-fired plant in Sostanj, northern Slovenia.

According to TES, the plant will account for one third of Slovenia’s power production and reduce the country’s dependency on energy imports.

The troubled course of the upgrade project shows some of the pitfalls faced by companies that rely on large public sector contracts when doing business in fast-growing emerging markets.

The deal has secured 750 million euros in loans from the EIB and the European Bank for Reconstruction and Development, but the government has delayed providing the necessary guarantees for the EIB loan because of concerns over high costs.

Alstom already started work on the upgrade in February, but it could halt the project and receive up to 300 million euros in compensation if the government does not provide the financing guarantees by May 20.

‘HIGH RISK’

The project is also the subject of several investigations of possible irregularities.

A February report by Slovenia’s Commission for the Prevention of Corruption found that the plant upgrade had been “designed and implemented non-transparently, lacks supervision and is burdened with political and lobbying influences”.

The February report also warned of a potential conflict of interests, noting that a member of the technical commission appointed by TES worked for an energy engineering company that was partly owned by SOL Intercontinental, which acts as a distributor for Alstom in Slovenia.

According to the report, this indirect link raises concerns that Alstom could have obtained information on competing offers, a possibility also under investigation by the Slovenian police and the country’s National Office of Investigation.

A spokeswoman for Alstom said the company did not obtain information on competitors’ offers.

“Regardless of whether such a risk arose, Alstom confirms that it did not receive any privileged competitor information,” she said.

Tot said TES had put in place a new management team unconnected to the allegations.

“Since TES got new management in November 2010, we undertook a number of measures to prevent irregularities and lead the project as transparently and economically as possible,” Tot said, adding that TES had explained to the EBRD the actions it has taken to prevent corruption.

EBRD, EIB

The EBRD said on Wednesday, it was looking into the allegations. The bank said it needed to see the government guarantees before unblocking further funds from its 200 million euro loan.

“At this stage we remain committed to the project,” an EBRD spokeswoman said.

The EIB, which has agreed to lend 550 million euros for the project, is carrying out its own investigation following complaints of irregularities in the award of the Sostanj contract, a spokesman told Reuters.

The new unit, due to be ready in 2015, will use Alstom’s so-called supercritical generators, which reduce emissions by generating the same amount of electricity from 30 percent less coal.

But environmental groups have opposed the construction of the new plant, saying that it would swallow up the country’s entire carbon budget by 2050. They have threatened to force a referendum on the issue if the government provides the state guarantees. ($1 = 0.7609 euros) (editing by Jane Baird)