Home >> Our Work >> Projects >> Kostolac lignite power plant, Serbia

Kostolac lignite power plant, Serbia

The Kostolac mine.

On January 19th 2015, the Serbian parliament voted on the ratification of a USD 608 million loan agreement from the China ExIm Bank for its construction. Previously in November 2013, the Serbian Government had signed an agreement with China Machinery Engineering Corporation (CMEC), which would implement the project.

There are already existing units Kostolac A1, A2, B1 and B2 and Drmno and Cirikovac open cast mines at the site.

Serbia relies on lignite for around 70 percent of its electricity production, which poses challenges for the country in switching to a low-carbon economy in line with EU policy. It also poses problems in terms of climate change resilience, as the floods in 2014 have shown (see below).

Successful court challenge sent improper Environmental Impact Assessment back to the drawing board

The first environmental impact assessment for Kostolac B3 was approved in December 2013. It lacked any analysis of transboundary impacts, even though the site is just 15 km from the Romanian border, and suffered from numerous other deficiencies. It was therefore challenged in court by the Serbian Center for Ecology and Sustainable Development – CEKOR.

In June 2016 the court ruled that CEKOR’s arguments were valid and that the decision should be revoked. By this time, however, the decision had already expired and the environmental assessment has had to be started again.

Risks from flooding

During the tragic floods that hit the Balkans in 2014 the Kostolac B power plant narrowly avoided being flooded thanks to the tireless work of plant workers, firefighters and civilian volunteers. While their efforts were successful that time – unlike at Kolubara and Nikola Tesla, which were seriously affected by the floods – at the end of July 2014 in a separate flooding incident unit A2 at Kostolac was closed for several days and the Drmno mine was partially flooded.

Such vulnerabilities have not been taken into account while planning the new unit.

Read more

When water mixes with coal - The impacts of the floods in Serbia on people living next to lignite mines
Blog post | May 30, 2014

EBRD in Serbia: Don't use floods to prop up coal
Press release | July 7, 2014

Espoo Convention breached by Serbia in the Kostolac B3 Environmental Impact Assessment in a transboundary context

The Kostolac site is just around 15km from the Romanian border and even nearer to the River Danube, yet Serbia had not notified potentially affected Parties, i.e. Romania about the plans for the new plant and mine.

At its 33rd meeting held in March 2015, the Espoo Convention Implementation Committee noted that the construction of one block at the Kostolac lignite power plant was an activity listed in Appendix I to the Convention and that the likelihood of a significant adverse transboundary impact could not be excluded.

On those grounds, the Committee decided to begin a Committee initiative under paragraph 6 of the Committee’s structure and functions. The Committee asked Serbia to proceed with the notification under article 3, paragraph 1, as soon as possible.

In his letter, the Chair also urged Serbia to comply with its obligations under the Convention. This is the first time that the Committee has opened an initiative related to cross-border impacts of a coal fired power plant, thus opening an interesting precedent for the numerous coal plants being planned across the Balkans which often cut corners in legislative implementation.

The case was closed at the Committee’s 36th meeting (pdf) in September 2016, after the Serbian Ministry of Environment had indeed sent a notification to the Romanian Environment Ministry to inform about the reopening of the environmental impact assessment and seek the confirmation from the neighbouring country about the intention to be part of the transboundary impact assessment.

The Romanian Ministry has created a dedicated section on its website regarding this project, but so far no documents have been submitted for consultation.

No environmental assessment required for mine expansion

The Drmno mine only has approval for production of 9 million tonnes of lignite per year and needs to expand to 12 million in order to feed the new plant. However in 2013 the government decided that no environmental impact assessment would be necessary for the mine expansion.

Serbia’s Parliament fast track ratification of the loan – a procedure subject to European institutions’ criticism

The fact that the extraordinary session to ratify the contract between the Serbian and Chinese governments was announced less than twenty-four hours in advance is an outrageous attempt to bypass public debate while making major commitments.

This year's European Parliament resolution on the EC's progress report criticises Serbia's lack of progress with renewable energy, while it also expresses concern that most laws in Serbia are adopted under the fast-track procedure, not always allowing for sufficient stakeholder consultation.

The fact that the extraordinary session to ratify the contract between the Serbian and Chinese governments was announced less than twenty-four hours in advance is an outrageous attempt to bypass public debate while making major commitments.

State aid incompatible with the Energy Community Treaty

State aid risks

Kostolac is only one of several coal infrastructure projects in Energy Community countries that may be breaching state aid regulations.

Find out more

Serbia, as a signatory to the Energy Community Treaty, must 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 Serbian Government has agreed to provide loan guarantees for commercial loans for the Kostolac B3 unit. 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. It is not clear whether this is the case with Kostolac.

In addition, on December 29, 2011 a contract was signed between the Government of the Republic of Serbia and Chinese Exim Bank, for USD 293 000 000 – 85% of the cost of the full project Phase 1 - envisaged for reconstruction of blocks B1 and B2 of TE-KO Kostolac, construction of a desulphurization system, building of a landing dock on the Danube and construction of railway infrastructure.

In this contract, the Republic of Serbia is the borrower, responsible for paying back the loan amount, while TE-KO Kostolac, part of the state-owned electricity company Elektroprivreda Srbije (EPS) is named as the end-user of the funds.[1] Thus the state takes on all the responsibilities connected with paying back the loan and gives EPS an advantage over potential competitors. This scheme was continued in December 2014 when the Serbian state signed the USD 608 million with China ExIm Bank for the new plant.


1. The Law on the ratification of the contract is available at: http://www.istinomer.rs/wp-content/uploads/2015/11/Prilog-1-Zakon-Garanc...


Latest developments


Press release | April 28, 2017

The European Union has today approved an updated set of binding standards for power plants, which include new, stricter pollution limits.

Blog entry | March 29, 2017

At least 9 new lignite power plants are being planned in Bosnia-Herzegovina, Kosovo, Macedonia, Montenegro, and Serbia, but according to our new report their feasibility studies do not take into account the effect of CO2 prices. As a result, when these countries join the EU, the plants will not be competitive anymore and will need to be closed down – just like the many coal power plants in Western Europe that are now being shut. The taxpayers in the Western Balkans will end up footing the bill.

Press release | March 29, 2017

A new Bankwatch analysis examining ten coal-fired power plant projects across the Western Balkans finds that, once the cost of carbon emissions allowances are factored in, they could become a serious liability for both the companies involved and the public. Moreover, only a few feasibility assessments for coal power plants in the region are publicly available, and most of those have failed to properly take carbon costs into account, the briefing authors note.

Blog entry | December 20, 2016

Smoke signals the coming of a polluted winter in Drmno, Serbia. Bankwatch’s independent air quality measurements show for the first time the alarming levels of dust particles near the Kostolac B power plant.

Blog entry | November 14, 2016

Now is the time for southeast Europe to start an inclusive and just transition away from lignite, argues new Bankwatch research.


Briefing | March 29, 2017

This briefing analyses ten coal-fired power plant projects across the Western Balkans and finds that, once the cost of carbon emissions allowances are factored in, they could become a serious liability for both the companies involved and the public.

Briefing | November 14, 2016

Coal is the single biggest contributor to global climate change. But governments and investors planning new coal capacities have a range of flimsy arguments why coal would be the best or the only alternative. This briefing busts a number of myths surrounding coal, such as "coal is cheap", "alleviates poverty" or "coal is clean".

Study | November 14, 2016

This report reveals how and why promises for new jobs in south-east Europe’s coal sector are exaggerated. Hardly any coal operations across the region are economically viable, and as a result many coal workers, especially in the mines, are set to lose their jobs, even if the plans for countless new power plants materialise. Governments, coal workers and their wider communities need to work together towards a just transition.

Available languages:

Briefing | July 31, 2016

Bosnia and Herzegovina, Serbia, Montenegro and Romania all plan new lignite power plants during the next few years. In contrast, most EU countries are giving up building new coal plants and seven EU states are already coal-free. Since the European Investment Bank, the European Bank for Reconstruction and Development and the World Bank have virtually halted lending for new coal power plants, most of them are due to be financed by Chinese state banks – ExIm Bank and the China Development Bank.

Study | June 13, 2016

This sociological survey included 162 (or 65.9%) of the registered 246 households in Drmno, Serbia. It illustrates the bleak reality in the village where a large majority of households have health problems, cracks in houses and other negative impacts from the nearby lignite power plant and mine.

The document is only available in Serbian. See also Bankwatch member CEKOR's website [sr] for information on the survey.