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.
We closely follow international public finance and bring critical updates from the ground.
For more than a decade, 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.
Although it is usually cited as a replacement for existing units, Elektroprivreda BiH plans to close only units 3 and 4 by 2023 (total 310 MW), while units 5 and 6 would continue to operate. Thus Tuzla 7 would result in additional coal capacity compared to the current situation.
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. But as of early January 2022, no final decision had been made by the Federation of BIH side about whether to go ahead.
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 the Federation of BIH has 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”.
Bosnia and Herzegovina then requested a mediation process with the Energy Community Secretariat to resolve the issue, but no agreement was reached. Since the Federal government went ahead with signing the guarantee, the Energy Community Secretariat broke off the mediation process in December 2019 and continued with the infringement process. In November 2021 the guarantee was confirmed by the Energy Community Ministerial Council as being illegal.
Infographic: Promises for new jobs in south-east Europe’s coal sector are exaggerated
Our interactive infographic shows how labour productivity in mines across the Balkan region compare to those of other countries. Hardly any coal operations in the Balkans are economically viable. 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.
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.
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.
Competition for scarce water resources
The Tuzla power plant takes cooling water from the Modrac Reservoir, the same source as much of the drinking water for Tuzla. This reservoir is fed mainly by the Turija and Spreča rivers and already suffers from pollution caused by coal production and separation. If the Banovici coal power plant is built just a few kilometers away from Tuzla, it will directly compete with the Modrac Lake for water in drier periods.
Opposition to Šićki Brod ash dump site
The environmental permit for Tuzla 7 is incomplete as it does not cover any planned ash landfill. Article 71 of the Federation’s Law on Environmental Protection states that an environmental permit must include measures for managing waste produced by the facility in question.
The planned site 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. So far, 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. Units 3-5 need to be closed within a few years, while plans exist to modernise unit 6.
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.