EIB signs €440-million loan guarantee for controversial coal plant

14 January 2013, EurActiv

The European Investment Bank has signed a €440-million loan guarantee with the Slovenian government for a crisis-plagued 600 megawatt lignite TEŠ 6 coal plant, but the deal could yet be sunk by concerns about the climate and corruption.

The EIB has already paid an initial €110 million for the coal-fired power plant in the northern town of Šoštanj, but a deal unlocking the second sum was only agreed on 6 December.

EurActiv understands that disbursement will now take place after a bank management committee review, which will follow approval of the deal by the Slovenian parliament, a move that buys the EIB time and potential wiggle room.

This could be crucial as the TEŠ 6 plant, which has also been loaned €200 million by the European Bank for Reconstruction and Development, faces complaints of corruption, doubts about its profitability and questions as to why EU institutions are financing such a planet-warming power plant.

“We don’t think that public finance should be backing any coal projects at all because its completely out of line with the EU’s climate targets and decarbonisation agenda,” said Pippa Gallop, a spokeswoman for the Bankwatch Network.

“Šoštanj is forecast to continue operating until 2054 and would take up almost all of Slovenia’s emissions allowances, preventing its decarbonisation targets being met,” she said.

Although the EU is formally pledged to reduce carbon dioxide emissions across the continent to 80-95% of 1990 levels by 2050, European development banks are covering some two-thirds of the Šoštanj plant’s €1.2 billion costs.

Objections about irregularities in the plant’s tendering process have created one of many icebergs that the plant’s funders will need to navigate.

‘High risk of corruption’

A report by the Slovenian Commission for the Prevention of Corruption in February concluded that the Šoštanj project was “designed and implemented in a non-transparent manner, lacks supervision and is burdened with political and lobbying influences, and as a result there has been (and still is) a high risk of corruption and conflict of interest.”

The report’s authors found that Slovenia’s relevant law on state guarantee was actually drafted by employees of Holding Slovenskih elektrarn (HSE), the state-owned company which owns the TEŠ 6 power complex.

The Šoštanj project is the subject of an investigation by the European anti-fraud office, OLAF, and a separate probe by Slovenian national authorities over allegations of corruption and conflict of interest in the tendering process.

“The bank is closely following the outcome of these investigations and, if necessary, will take appropriate measures regarding its loan,” an EIB spokesman told EurActiv.

Whatever the probe’s eventual result, doubts about the plant’s long-term profitability are legion.

Methodological mistakes, unsubstantiated claims

The EIB says that it carried out an economic and financial analysis at the time that the loan was first agreed but that a complaint has since been filed, and is the subject of an ongoing inquiry.

Yet a CE Delft study in November 2011 found that the original proposals for the plant were bedevilled by methodological mistakes and unsubstantiated claims.

Cost-benefit analyses were incomplete, and implicit assumptions were made that, for example, the EU would not move beyond its 2020 climate targets.

For the 2050 climate targets to be met, coal would have to become substantially more expensive. That would mean plants like the one at Šoštanj would become more unprofitable.

“Under Slovenian conditions this project should not be granted the state support in the form of state guarantee,” the report concluded. But without state guarantees, the project could probably not have proceeded.

In April, the EBRD froze payment of its funds for the Šoštanj project over the corruption allegations and in May, the French power company Alstom suspended all work on the plant, pending state guarantees.

Ongoing complaints

EIB sources say that despite the guarantee, the 2050 decarbonisation issue forms part of an ongoing complaint being dealt with by the European Commission. EU Environment Commissioner Janez Potočnik, who is from Slovenia, is privately thought sympathetic to it.

The bank says that climate change is one of their priorities, and currently the subject of an internal review.

“Climate change considerations are mainstreamed in all EIB sectoral policies and integrated into all operational activities,” the bank’s website says. “They are also systematically included in all EIB project appraisals to make the Bank’s lending portfolio across all sectors more climate-friendly.”

The EIB has a rule that new coal plants it funds must reduce the carbon emissions of the plants they are replacing by 20%, and the bank puts a €30 per tonne price on carbon for its investment decisions – some four times higher than the market price.

But according to Bankwatch’s ‘Carbon Rising’ report, fossil fuels were the biggest beneficiaries of EIB energy sector lending between 2007-2010, enjoying a near-doubling of their funds from €2.8 billion to €5 billion.

Campaigners say that the funding of plants like Šoštanj demonstrates that the EIB’s public pronouncements are greenwash.

“The EIB decision on the project compatibility was made in 2007 and was regulated by EIB standards and policy applicable at that time,” an EIB spokesman protested.

“In addition, the EIB’s review of energy policy has not been terminated yet,” he added