Deceptive feasibility studies for new coal power plants in Bosnia and Herzegovina

Three new coal power plants are planned in Bosnia Herzegovina, all potentially financed by Chinese companies. Just Finance has examined the assessments for Tuzla 7 and Ugljevik III, and found 11 serious errors or false assumptions in the pre-studies.

The contaminated ash from the Tuzla coal power plant is mixed with water and pumped out into a dessert-like field a few kilometres outside the city centre.

Well-implemented environmental impact assessments and feasibility studies are crucial for governments to make fully informed decisions. Underestimating environmental impacts or miscalculating costs will not only undermine accountability, but will most likely have hazardous consequences for public finance, the environment, local communities and the climate.

Just Finance’s analysis shows that the feasibility studies and environmental impact assessments for the Chinese-financed projects Tuzla 7 and Ugljevik III contain serious errors and false assumptions that undermine legal requirements, transparency, and the procedures for acquiring environmental permits.

Like many Chinese-funded overseas coal projects, both Tuzla 7 and Ugljevik III has commenced without obtaining the necessary legal environmental assessments and permits required by Bosnia and Herzegivina.

Further, these feasibility studies have not been subject to an open house or public comment period, even though public funds were used and state-owned companies involved.

Petar Gvero, a professor at the Department of Mechanical Engineering, University of Banja Luka, condemns the environmental impact assessment for the Ugljevik III power plant:

“When you look at this as a professional, you find millions of issues that haven’t been addressed.”

Gvero further claims that the assessments for Ugljevik III are hollow words, and lack the effort necessary for the plant’s safe operation:

“For an analysis to be conducted […] one must have the project’s blueprint or a feasibility study that provides/informs [an agency] with specific data, and here there’s nothing in that respect. What you find here is not sufficient for an agency to decide if a permit should be granted.”

Altogether, Just Finance found 11 major errors or false assumptions in the pre-studies for the Tuzla 7 and Ugljevik III coal power plants.

CO2 prices not included or heavily underestimated

Western Balkan countries are obliged to start pricing CO2 emissions in line with the European Union’s Emissions Trading Scheme (ETS). This was considered in the feasibility study for Tuzla 7, but its cost has been grossly underestimated. This could lead to substantial extra costs, and stymie the power utility’s chances of exporting electricity into the EU after 2023.

The studies also downplayed the importance of ETS’s role in the transition to renewables. The authors claimed that the Bosnian power utility Elektroprivreda BiH wouldn’t need to pay for carbon emissions until the country joined the EU (in 2034)1, and then only at the price of EUR 7/t of CO2. Since the studies came out, the price of CO2 on the ETS market has increased to around EUR 56/t, making Tuzla 7 uneconomical.

Further, the 2021 environmental impact assessment for Ugljevik III does not quantify the amount of CO2 the plant will release annually. This will jeopardize Bosnia and Herzegovina’s goal to align with the Paris Agreement. The expected lifetime of the two coal power plants is at least 40 years; this is directly opposed to the goals in the Green Agenda for the Western Balkans, which foresee the closure of all coal-fired power plants by 2050.

Underestimated coal price

According to Elektroprivreda BiH, Tuzla 7will be powered by lignite from local mines. The feasibility studies, however, operate with a coal price that is lower than both the production cost and the power utility’s 2019–2035 energy projections.

Internal documents from Elektroprivreda BiH describe a serious inefficiency in the local mining operations. The Kreka mine, for example, employs too many workers and has been malfunctioning because of a lack of expertise, despite the utility’s investments. The mine has therefore been unreliable in its provision of lignite to existing units.

The accumulated loss of all Elektroprivreda BiH’s mines was BAM 769 million at the end of 20172. Meanwhile, the utility has been buying significant amounts of lignite from outside suppliers, which undermines the feasibility studies’ calculations and risks making Tuzla 7 dependent on an outside supply. The price of coal on the international market has quadrupled in the past year, and if Tuzla 7 cannot count on the cheap domestic supply it may become a stranded asset on that count alone3.

Difficulties increasing the price of domestic electricity

The 2018 feasibility study for Tuzla 7 does not put a price tag on subsidised electricity to households. Elektroprivreda BiH’s latest projections showed household tariffs as lower than the cost of production, costing the utility around BAM 50 million per year. Another dubious assumption in the 2018 feasibility study is that Elektroprivreda BiH is charging industrial consumers at the market price.

Industrial producers in the Federation of Bosnia and Herzegovina have long used cheap energy prices as a competitive edge in export contracts. In autumn 2021, however, the power utility increased prices for retail industrial consumers by up to 70%. This was met with fierce opposition from the entrepreneurs’ association.

The Prime Minister of the Federation of Bosnia and Herzegovina publicly stated that household electricity bills would not increase while he is in power. By failing to properly account for the costs of hidden subsidies to the Bosnian power utility, the feasibility studies thereby provide an overly optimistic scenario for the profitability of the planned power plant.

A man is being interviewed, with camera and microphone pointing at him
German broadcasting company ZDF interviewing Goran Stojak, a spokesperson for villagers in Tuzla affected by the pollution from the nearby coal power plant.

Contested ash disposal sites

Neither the Tuzla 7 feasibility studies nor the environmental documentation for Ugljevik III consider the wishes of the communities affected by the future ash disposal site. In the case of Tuzla 7, although the investor Elektroprivreda BiH had to change and diversify the locations because of opposition from the local community, Šićki Brod is still on the list of alternative sites. In the environmental documentation for Ugljevik III, the authorities continue to ignore the wishes of the Bosniak returnees who live in the vicinity of the proposed site.

Copied and pasted from other studies

Bosnian MPs consulted the 2018 feasibility study for Tuzla 7 as the final authority before they voted to approve sovereign guarantees to China’s EXIM bank.Its authors, however, copied and pasted large chunks of text from an earlier study, without proper attribution. They also concluded that Elektroprivreda BiH would be able to service the investment costs of Tuzla 7 while making a significant profit, based in part on a comparison with another project (Gacko 2) that never got off the ground. Gacko 2 was meant to operate as a new merchant power plant, exporting 100% of its production. This is clearly not the case with Tuzla 7, which is pitched as a replacement unit.

Water demands not included in assessment.

The environmental impact assessment for Ugljevik III does not analyze the capacity and quality of water needed to supply the new power plant. According to civil society organisations, the plant’s operations would require an enormous volume of raw water, as well as water from the town’s network4. There has currently been no assessment of whether the water supply in the region will be sufficient to support the power plant.

Impact on rivers and other watercourses not included

The environmental impact assessment for Ugljevik III does not adequately elaborate on measures to protect existing watercourses and sources from harmful impacts. This lack of protection could lead to the loss of drinking water across the whole area.

Experts warn that the investors should have considered air cooling as an alternative to water cooling, because of the limited water reserves.

Type of coal is unclear

The environmental impact assessment for Ugljevik III names lignite as the plant’s fuel source, even though the planned open pit is a brown coal mine. If Ugljevik III plans to import lignite, the EIA should have analysed the transport-related environmental impacts, storage depots, costs, and the inevitable increase in harmful emissions5.

No assessment of aggregated emissions from current and new units

Although Ugljevik I is the biggest SO2 polluter in the region, the EIA for Ugljevik III does not discuss the effects of the aggregate emissions from both plants, which use the same type of low-energy, high-emission lignite.

The same goes for Tuzla 7: although it is usually cited as a replacement for existing units, Elektroprivreda BiH plans to close only units 3 and 4 by 2023 (a total 310 MW), while units 5 and 6 would continue to operate6. Tuzla 7 will therefore produce more CO2 than it does currently, even though SO2, nitrogen oxide and dust emissions might be lower.

Transboundary impacts were not assessed

Although the Tuzla 7 power plant would have an environmental impact outside the borders of Bosnia and Herzegovina, this was not considered in the assessment. During the open house and public comment period, Croatia expressed an interest in being consulted, and a complaint to the Espoo Convention Implementation Committee is currently being examined.

Market liberalization not assessed

The 2016 feasibility study for Tuzla 7 gave a projected price of EUR 54.90/MWh, on the assumption that half the energy produced (the surplus) would be sold on the wholesale market.

The later study uses the same price, without explaining the assumptions behind it. Neither study considers the fact that Bosnian electrical utilities compete in the regional market with Serbian and Montenegrin state utilities, as well as with a number of other private players. These studies base their predictions on the assumption that the plants will operate the maximum number of hours, and will be able to sell all their electricity surplus at a profit.


Sources

(1) 2018 Feasibility Study for Tuzla 7 by IG Institut za Gradjevinarstvo

(2) Long-term Projections and Strategic Plan, p. 34, July 2029

(3) 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 the 2013–2016 production price. Additionally, in this period the production price was higher than the sales price, and the government granted state aid to the mines to pay off debts accrued in unpaid social contributions. Source: Bankwatch

(4) Source: 2021 CZZS’s Observations on Proposed EIA

(5) Source: 2021 CZZS’s Observations on Proposed EIA

(6) Source: Bankwatch