The problem with Tuzla 7 coal-fire power station

While not yet an EU country, Bosnia and Herzegovina is in the process of EU accession and must meet the obligations set by the EU Accession process that include the Stabilization and Association Agreement and the Energy Community Treat.1 

As a Contracting Party to the Energy Community, Bosnia and Herzegovina made legally binding commitments to adopt core EU energy legislation in order to align the country’s legislation with that of the EU on – among others – energy, competition and the environment.

Key concerns for the Tuzla 7 project

  • There is an ongoing review by the Aarhus Convention Compliance Review Committee into Bosnia and Herzegovina’s refusal of access to justice.2
  • In 2019, the European Commissioner for Enlargement strongly criticized Bosnia and Herzegovina’s parliament for approving a state guarantee for a loan from China Eximbank.3This guarantee would contravene EU state aid legislation, transposed through the Energy Community Treaty. There is an ongoing Energy Community investigation into this, which started in 2019.
  • There is another ongoing investigation into the project’s strategic environmental assessment conducted by the Espoo Convention Implementation Committee on Environmental Impact Assessment in a Transboundary Context. The committee cited the considerable transboundary pollution effect on Croatia and Serbia from the planned Tuzla and Banovici coal projects.4
  • There are lawsuits in Bosnia and Herzegovina’s courts over procedural issues relating to the renewal of the environmental permit for Tuzla 7.
  • Tuzla 7 is not designed to meet new EU pollution control standards.
  • The government has not confirmed the location of a new ash landfill site following the successful opposition to the proposed site by residents of Šićki Brod.

【翻译】口行投资图兹拉项目可能面临法律风险

Sham environmental permitting procedures

The Tuzla 7 project obtained a new environmental permit in July 2016 as the original one from 2009 expired in November 2015. Citing procedural irregularities and deficiencies in the environmental permit, Bosnian NGO Ekotim took the case to the Sarajevo Cantonal Court, which dismissed the case on the grounds that an organization based in Sarajevo cannot challenge the environmental permit for a project in Tuzla. In 2019, the case moved to the Supreme Court of the Federation of Bosnia and Herzegovina for a ruling.

Just like Serbia’s Kostolac B3 coal-fired power station, undertaken by China Machine Engineering Corporation and financed by China Eximbank, Tuzla 7 is not designed to meet the new pollution control standards under the EU Large Combustion Plant’s Best Available Techniques Reference Document (LCP BREF).

In August 2014, a Chinese consortium of Chinese SOEs – China Gezhouba Group and Guangdong Electric Power Design, both subsidiaries of China Energy Engineering Corporation – became the sole bidder for a new unit 7 of the Tuzla coal-fired power station project. This happened after the Japanese coal technology company Hitachi which was earlier shortlisted for the project that decided to withdraw from the bid because of concerns over political instability, the regulatory environment, and the weak economics of the project. Also, the project would not have qualified for financing support under the 2016 revised OECD Sector Understanding on Export Credits for Coal-fired Electricity Generation Projects.6 China is not a participant to the OECD so is not bound by its rules on export credits.

Image: Chinese state-owned enterprise including China Gezhouba Group meets with Bosnian investment authority in May 2016 to discuss investment deals5. Credit: China Council for the Promotion of International Trade.

Community resistance

People affected by the project in Šićki Brod village successfully resisted the construction of the ash landfill needed for Tuzla 7 in court, leaving the new plant without a designated site for its waste. China Gezhouba Group claims that the replacement of aging units at Tuzla power station with a new “clean coal” unit7 offers a “climate friendly” solution. This claim is unfounded because the construction of a new unit would extend the lifetime greenhouse gas emissions of the power station, as well as continue the legacy of air pollution and waste disposal that the people of Tuzla have stood up against.

Questionable economics8

The price tag for construction when the agreement was signed in 2014 between Elektroprivreda Bosne and Hercegovine (EPBiH) and China Gezhouba Group and Guangdong Electric Power Design was €785.7 million. The Bosnian government later admitted that the project was not economically feasible at this cost and it was later reduced to €722 million. It is unclear what compromises were made to achieve this saving. An independent feasibility analysis by the Banja Luka-based Institute for Construction,9 assumes that Tuzla 7 will have to start paying a carbon price only in 2034 and that it will be €7.1 per ton, rising to €12.12 per ton in 2061. The ETS price is over €25 per ton at the time of writing, suggesting that the plant’s generation costs have been seriously underestimated. The assessment assumes annual CO2 costs of €2.7 million in 2034, rising to €31.4 million in 2061. Yet even at €20/ton, the annual cost would be €51.87 million. Moreover, the projected price at which coal would be sold by EPBiH’s mines to the Tuzla 7 plant is €21.87/ton. This is lower than the production price between 2013-2016. Additionally, in this period the price of coal production was higher than the sale price, while the government granted state aid to the mines to pay off a deficit in staff welfare contributions. If the coal sales price covered the costs of production, it would have to increase. Together, the carbon price and cost of producing coal would significantly increase the cost of generation from the projected €2.45/MWh. There is a strong risk the plant will become a stranded asset. Given that EPBiH is state-owned, it is public money that will pay the cost if the project is unprofitable.

Tuzla 7 project preparation groundwork takes place despite ongoing legal challenges and compliance review.
Credit: Center for Ecology and Energy and VedvarendeEnergi (May, 2020)

Cooling Towers of Tuzla Power Plant. Credit: Creative Commons
  1. https://www.derk.ba/en/legislation/energycommunity
  2. https://www.unece.org/fileadmin/DAM/env/pp/compliance/C2020-177_Bosnia_and_Herzegovina/Communication_from_Communicant/toCommC177_23.03.2020.pdf
  3. https://www.reuters.com/article/us-bosnia-eu-energy/eu-official-criticizes-bosnias-backing-of-chinese-power-loan-idUSKBN1QU1JD
  4. https://www.unece.org/fileadmin/DAM/env/eia/documents/ImplementationCommittee/45th_Session/ Documents/1918449E.pdf
  5. https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=TAD/PG(2015)9/FINAL&docLanguage=En
  6. http://www.ccpit.org/Contents/Channel_3523/2016/0509/641433/content_641433.htm
  7. http://www.chinapower.com.cn/focus/20171130/98769.html
  8. https://bankwatch.org/wp-content/uploads/2019/12/China-Balkans-briefing_Dec-2019.pdf https://ve.dk/kina-finansierer-kulkraftvaerker-i-oesteuropa/
  9. Ocjena kritičnih varijabli studije izvodljivosti bloka 7, TE Tuzla, Institut za građevinarstvo „IG“, d.o.o, Banja Luka, 2018. – Assessment of the Critical Variables of the Feasibility Study for Unit 7 of the Tuzla power plant