The scandal-marred lignite plant TES 6 in Slovenia will likely cost 1.44 billion euros

27 January 2014, Balkans Business News

The scandal-marred lignite plant TES 6 at Sostanj in Slovenia will likely cost 1.44 billion euros (2 billion US), more than double than what was initially predicted, and is due to produce annual losses of 50 million euros, show calculations recently revealed by Slovenian media. These cost escalations, predicted by NGOs critical of the project, should constitute a word of caution for other countries in South-Eastern Europe that are considering building new coal capacities

Today, the Slovenian parliament is meeting in an extraordinary session to address the risk of cashing tax payer’s money for the losses of the corruption infected project. Last year, Slovenian authorities agreed to offer a state guarantee for a half a billion euro loan from the European Investment Bank that was crucial to turn the project into reality(2). The Slovenian government too, debated the issue of cost overruns this month, considering even the option of dropping the coal project altogether. Slovenian Prime Minister Alenka Bratusek was quoted by the national press agency on 15 January: “We don’t have the privilege to decide whether this project can still be stopped. The data we have show halting it would be more expensive than completion.”

When Slovenian authorities agreed to offer a state guarantee for the EIB loan last year, they posed several conditions: that Termoelektrarna Šoštanj manages to keep costs for the plant at below €1,3 billion and that the price of the lignite stays at a level of 2,25 €/GJ (otherwise the project would not be economically viable and the state would have to cover losses – precisely what seems set to happen now). None of these conditions are being met and, with electricity prices very low, the project is looking increasingly like a liability. If the plant runs at such a big loss, the state guarantee may have to be cashed in. Slovenian media reported this month that the EIB too has sent a letter to the project promoter (HSE, which owns Termoelektrarna Šoštanj) asking for clarifications on the economics of the project and indicating that they could withdraw funding.

“NGOs have been for years warning about the dodgy economics of this project, appealing both to the government and to the EIB not to get into it, but to no avail,” says Lidija Živčič from Focus Slovenia. “Now it looks like Slovenian tax payers’ money will have to cover the damage of this project, in spite of an appeal to our coalition government to step out of the project now, before more losses accumulate, which was signed by a coalition of 17 NGOs.” (3) “The amount of bad decision-making on this project, from Slovenian authorities and international financial institutions supporting it (the EIB and the EBRD), is staggering,” comments Bankwatch’s Pippa Gallop.

“Although known as the ‘Switzerland of the Balkans’, Slovenia made a disastrous decision in regard to this project. While for the EIB and the EBRD a loss making coal plant in Slovenia won’t make a big difference – especially since it is state guaranteed – for Slovenia it can mean the difference between floating and sinking.” “Sostanj must serve as a lesson to its neighbours in the Western Balkans which are planning new lignite-fired power plants under the false impression that it is cheap. Lignite is dirty at the best of times, but plants such as Pljevlja II in Montenegro, Kostolac B3 in Serbia or Stanari in Bosnia and Herzegovina are not even planned to run in accordance with EU standards, which will run up additional costs in a few years’ time when they have to be upgraded.”