The Stanari power plant in Bosnia-Herzegovina. Photo by Ning Hui.

10:37 am | December 5, 2019

Coal at a Crossroads in the Balkans

Even as a consensus has emerged that coal must be phased out, Chinese investment is empowering the growth of coal power across the globe. At the crossroads of this debate in Europe is a series of new coal power projects in Bosnia-Herzegovina.

By Ning Hui / Initium

In the town of Stanari, in the northern hills of Bosnia-Herzegovina, the Chinese came and the Chinese went. Jerimic M. Eoran, 43, a local coal miner whose family has worked in the open pit lignite mine here for three generations, recalls lignite mining in the area slowing progressively through the years. By 2004, operations had nearly come to a complete stop.

All that changed in 2012 with the arrival of the Chinese construction and engineering crews. That year, work began on the building of the brand new 300 MW Stanari thermal power plant, or TPP Stanari.

Key Points:

* In 2016, construction was completed for Bosnia-Herzegovina’s first new coal-fired power plant in decades, made possible by Chinese financing. Five other coal power projects in the country are in planning with Chinese financing.

* Given Bosnia-Herzegovina’s lagging economy and lack of jobs, employment positions at state-owned mines and power plants is highly prized for those with political connections. Local politicians tend to use such projects as political capital.

* A loan guarantee for one Chinese-financed coal project, Tuzla 7, could constitute illegal state aid under EU rules. This and other concerns regarding state aid, public procurement and environmental impact could cause problems for Bosnia-Herzegovina’s bid for EU membership.

Coal’s new lease on life in Stanari began in 2005, as Energy Financing Team (EFT), a London-based company founded by Serbian businessman Vuk Hamovic, took over control of the mine and announced plans to build a coal power plant. China Development Bank stepped in to extend a 350 billion Euro loan, and Dongfang Electric, a Chinese company headquartered in Sichuan province, won the bid for construction of the plant. A contract was signed in late 2012, and the Chinese arrived on site soon after.

Eoran remembers hundreds, sometimes thousands, of Chinese workers camped near the building site. Through faltering interactions, he managed to pick up odd details about Chinese life and culture. “It turns out that all Chinese names have special meanings,” he explains. But the detail that made the most lasting impression was a story he didn’t dare pursue further. “One Chinese worker received news that his father had died,” he tells me. “He wanted to go home and attend the funeral, but the boss wouldn’t allow it, so he committed suicide. He hanged himself.”

This rumor, which spread among the local miners in Stanari at the time, is Eoran’s strongest lingering impression of the Chinese. Once construction was completed in 2016, the Chinese workers packed up and left. For a while, a few engineers remained to ensure that the EFT team could operate the plant smoothly. But even the engineers are gone now.

Fighting the Phase Out

Before the Stanari plant went up, a new coal plant had not been built in Bosnia for decades. The country did not lack for generation capacity, and in fact has for years exported electricity to neighboring markets, including Croatia and Montenegro. But its four state-owned power stations, with an average running period of 40 years, were all seriously aging.

The open pit lignite mine in Stanari, which supplies fuel for TPP Stanari. Photo by Ning Hui.

Few question that Bosnia-Herzegovina’s power infrastructure is urgently in need of upgrading. But the reliance on coal, experts and environmentalists say, means turning back to the past at a time when more action is needed to face the challenges of environmental pollution, climate change, and sustainable economic development.

Climate scientists are in agreement that the best way to mitigate the most serious effects of climate change is to move toward renewable sources of energy and away from coal and other fossil fuels. Phasing out the use of lignite – one of the dirtiest and most carbon intensive forms of power generation –has been cited as a particular priority.

Reliance on coal, experts and environmentalists say, means turning back to the past at a time when more action is needed to face the challenges of environmental pollution, climate change, and sustainable economic development.

Given the clear trend away from coal and toward renewables, more and more financial institutions have divested from thermal coal. The World Bank announced in 2013 that it would stop supporting coal projects, and as of February 2019, more than 100 financial institutions globally, including 40 percent of the world’s top 40 banks and 20 insurance companies had divested themselves. The European Investment Bank announced last month that it would stop funding fossil fuel projects by the end of 2021.

For all of these reasons, Bosnia-Herzegovina, which still relies on coal for roughly 60 percent of its electricity generation, has fewer and fewer opportunities available to attract loans or investment from the West for the construction of new coal power capacity.

There are opportunities, however, in the East, where China has shown itself willing to support new projects, both in financing and construction.

Building Capacity

When it comes to China’s financing and construction power in Bosnia’s coal power sector, Stanari is just the beginning. Aside from Stanari, five other coal power projects in the country could accept financing from China. These include the Tuzla 7 lignite power plant, a brand new 450 MW unit that is to be added to the Tuzla Thermal Power Plant, the largest thermal power station in Bosnia-Herzegovina.

Coal projects in the Balkans with Chinese involvement. Graphic by Alice Tse. Data source: Wawa Wang.

The Tuzla 7 project has an estimated total investment of 901.3 million euros, of which nearly 614 million will come from loans from the Export-Import Bank of China, a state-funded and state-owned policy bank directly under China's State Council. The project is to be built and operated by two companies, China Gezhouba Group, under the central state-owned enterprise China Energy Engineering Group, and Guangdong Electric Power Design Institute, a subsidiary of the state-run China Southern Power Grid.

Tuzla, located roughly 80 kilometers from Stanari in the northeastern corner of Bosnia and Herzegovina, has long been the industrial heartland of the country. Unlike TPP Stanari , the Tuzla Thermal Power Plant is a state-run project, operated by Elektroprivreda Bosne i Hercegovine (EPBiH), sometimes referred to as Elektroprivreda BiH. Its six units currently burn an estimated 330,000 tons of lignite each year.

To the tens of thousands of residents living in towns and villages near the plant, the chimneys rising from the power plant, erected back in the 1960s, have often been a source of contention.

Senad Isakovic Roko, a 50-year-old army veteran who has opened a pet grooming shop in the village of Šićki, close to the Tuzla plant, places a compliant white Pekinese onto his worktable as he gestures off in the direction of the plant, a razor in his hand. “I can see the power plant from the window in my house,” he says, starting to shave the dog. “But central heating from the plant has never been made available to me.”

Senad Isakovic Roko, a 50-year-old army veteran who has opened a pet grooming shop in the village of Šićki, has been a leading activist against the Tuzla Thermal Power Plant. Photo by Ning Hui.

Roko explains how the plant has installed a heating system in the more densely-populated and wealthy urban area of Tuzla, but has passed over nearby villages, where homes are sparser – and where votes, he says, are of less consequence.

After the end of the Bosnian War in 1995, the national electrical grid, which had been united under the Socialist Federal Republic of Yugoslavia, was divided among three states, Elektroprivreda Bosne i Hercegovine coming under the ownership of the Republic of Bosnia and Herzegovina. Meanwhile, through a program of privatization developed under the guidance of the US Agency for International Development (USAID), a large number of formerly state-owned companies in the country were rapidly privatized. Sectors that had remained public, including electrical power and communications, became leverage in games of political tug-of-war, ripe for the trading of access and influence.

Roko explains that getting an employment position at the Tuzla Thermal Power Plant requires, first and foremost, the right political connections.

State-owned enterprises have long been regarded as a “black hole” in the national economy. Currently, Bosnia-Herzegovina’s 550 state-owned enterprises employ roughly 80,000 people, 11 percent of the country’s labor force. But these enterprises accounted for about one-third of the country’s tax arrears in 2017, and aggregate SOE debts amounted to roughly 26 percent of GDP. Over-employment is also a major problem. In 2017, the government took in 41 million euro in dividends from state-owned enterprises, according to an April 2019 assessment from the European Commission, but aggregate transfers to these enterprises came to 109 million euro.

Roko explains that getting an employment position at the Tuzla Thermal Power Plant requires, first and foremost, the right political connections.

The young blond woman who brought in the Pekinese joins the conversation, telling us that although she was a top student in her university she has applied for a job at the power plant numerous times without success. “Without the right connections, you just can’t get in,” she says. She now runs her own accounting practice. I suggest this doesn’t sound too bad, but she shakes her head and explains that people who manage to get jobs at the plant through personal connections have much more stable positions earning better salaries.

“Maybe the work is uninteresting,” she says, “but it’s a very secure job.”

Health Hazards

If the employment opportunities afforded by the power plant are often out of reach for local village residents, the environmental impact of the plant is obvious and ever-present.

STANARI COAL PLANT TIMELINE

2005: UK-based Energy Financing Team (EFT) assumes control of the lignite coal mine in Stanari, Bosnia-Herzegovina, and announces plans to build a new coal-fired power plant.
2006: The Stanari coal mine undergoes refurbishment to provide a stable fuel supply for the planned power station.
2008: EFT secures a 30-year concession to build a new power plant in Stanari and expand the adjacent coal mine.
June 2012: The China Development Bank approves a 350 million euro loan for the Stanari project.
May 2013: China’s Dongfang Electric Corporation (DEC) and EFT begin construction.
November 2013: Expert analysis shows that pollution from the Stanari power plant will exceed EU limits by 2-10 times.
February 15, 2016: Bosnia-Herzegovina formally applies for EU membership.
September 2016: The Stanari plant becomes operational.

Close by the village of Šićki lies the plant’s powdered coal ash landfill. It is here that the coal ash left behind by the burning of the lignite fuel was deposited until 2013 without the proper control measures, and coal dust and sulfur dioxide – the latter a strong irritant to the respiratory tract, eyes and skin – settled over the village and the surrounding area.

Pollution has become a serious threat to health in Tuzla. A monitoring project conducted in 2018 showed that the PM10 value at Tuzla, referring to coarse particulate matter, reached 78.9 micrograms per cubic meter (78.9 µg/m3), far above the country’s legal standard of 40 µg/m3. The report pointed to high PM10 levels as the cause of 1,339 known cases of bronchitis among Tuzla’s adult population. The study pointed to PM2.5 pollution in Tuzla – referring to atmospheric particulate matter – as causing 136 cases of premature death among the local adult population in 2018 alone.

Roko, the resident dog groomer, is also one of the most active local residents in resisting the Chinese-financed Tuzla 7 project that would expand the burning of coal in the area. His activism dates back to 2001, when the power plant proposed using a large pit left behind be an open lignite mine called Šićki Brod as a site to deposit coal ash. Roko and others were opposed because the pit, having been abandoned for more than two decades at that point, had filled with fresh groundwater and gradually transformed into a beautiful lake that locals stocked with fish. That year, in order to keep the power plant from destroying what had become a beloved and uncontaminated place, Roko and other villagers collected thousands of signatures to voice their opposition.

Over the past 10 years, the plant has repeatedly revisited the idea of turning the lake into a coal ash landfill. Each time surrounding communities and local NGOs have mobilized against these plans. The last time this happened was in 2018, as the power company considered where it might dump the coal ash produced by the newly built Tuzla 7. The landfill currently in use for the other six units, which is just a few kilometers from Roko’s pet grooming business, has nearly reached capacity. In stark contrast to the lake beloved by Roko and other members of the community, this current landfill site is a pit filled with liquid of an eerie and unnatural blue color, the result of calcium sulfite and other chemicals.

In publicly available files, Elektroprivreda BiH has claimed that it has obtained all of the necessary environmental permits, including for the proposed new landfill. In fact, this is far from the truth. The location of the landfill has not yet been decided, owing to continued objections from local communities and NGOs.

These days, people like Roko who actively resist the actions of the power plant, are fewer than they were in the past, he says. Some of the older residents, he notes, have now passed away. With bitterness, he adds: “It’s all because of the pollution from the power plant.” The younger generation is moving away, seeking jobs elsewhere in Europe, or overseas. “Bosnia’s young people are all lining up at all the embassies, just waiting to leave the country.”

Denis Žiško, director of the Center for Ecology and Energy, a local NGO in Tuzla, visits the current coal ash landfill site for the Tuzla Thermal Power Plant. The eerie blue color is the result of calcium sulfite and other chemicals in the water. Photo by Ning Hui.

Rationalizations and Realities

In 2018, Bosnia-Herzegovina recorded an increase of 0.8 percent in its employment rate. This was not due to an increase in jobs, however, but to a decrease in the labor force. Behind this trend is a low rate of birth and a high rate of immigration in the country. According to official data from 2017, at least 2 million Bosnians have relocated abroad, amounting to a staggering 56 percent of the population. Research released by the EU this year suggest that if this rate of migration continues, the population in Bosnia and Herzegovina will decline by 73 percent by 2060.

Against the backdrop of Bosnia-Herzegovina’s sluggish economy, the question of employment in the mining and power sector has become a two-sided coin that means very different things depending on how the coin lands.

On the one hand, employment at state-owned mines or power plants remains a top choice for those people who can manage to get such jobs, which are regarded as secure and high-paying. Likewise, politicians often promise to maintain or increase employment at mines and power plants, using these facilities as essential political capital. On the other hand, state-owned mines and plants suffer from low efficiency. The World Bank warned as early as in 2004 that employment in the coal industry in Bosnia-Herzegovina would need to decline by 80 percent (from 15,000 jobs to 3,000) in order for the sector to become commercially competitive.

The Tuzla Thermal Power Plant in Bosnia-Herzegovina. Photo by Elisabeth available at Wikimedia Commons under CC license.

Though Elektroprivreda BiH has acknowledged that it should reduce the number of workers at its facilities – and a decade ago in fact received state subsidies in order to reduce its workforce – the result thus far has been far from satisfactory. According to a Bankwatch report, the Tuzla Thermal Power Plant hired 665 people for its four units in 2016, at which time it generated just 4.6 gigawatt hours per employee, compared to 17.5 gigawatt hours generated by Sostanj 6, a lignite thermal power unit in Slovenia. If the efficiency of the Tuzla plant was raised to levels comparable to other units in the region, the report said, only 177 employees would be needed to operate it.

The reality is that these aging units will likely be shut down in the next 15 years, and opportunities for employment in the sector will decrease.

At present, government subsidies and not the energy market support and maintain the security of employment for which the state-run coal mining and power sector in Bosnia- Herzegovina has become known.

According to a 2019 report by the European Energy Community (EEC), an international organization established between the EU and other third countries to broaden the internal energy market to Southeast Europe and implement relevant EU energy regulations, coal industry subsidies from the Bosnian government reached 99.04 million euros in between 2015 and 2017. Without these state subsidies, household electricity prices in Bosnia-Herzegovina would rise an estimated 37 percent, from 74.4 euros/MWh to 102.2 euros/MWh, and the price for industrial electricity would rise 29 percent, from the 65.3 euros/MWh to 84.3 euros/MWh.

The reality is that these aging units will likely be shut down in the next 15 years, and opportunities for employment in the sector will decrease.

Ordinary Bosnians who enjoy low electricity prices and look favorably on the high salaries paid to employees of state-owned power plants may not realize that the wool comes from the sheep’s back – which is to say that the money is ultimately coming from their own pockets.

If the government benefits from the coal and power industry, it will seek to lower the risks of investment in coal power, whatever the costs.

In March 2019, the House of Representatives of the Parliamentary Assembly of Bosnia-Herzegovina (the lower house) agreed to guarantee a 614 million euro loan from the Export-Import Bank of China for the Tuzla Project. The amount covered 85 percent of the total value of the contract for the project signed in November 2018 between Elektroprivreda BiH and the China Gezhouba Group and Guangdong Electric Power Design Institute consortium.

Environmentalists were already objecting at the time that the coal projects financed by the Chinese went against EU rules and added to already high pollution levels. Another concern was that they might commit Bosnia-Herzegovina, an EU enlargement country, to costly upgrades to meet EU standards once it formally joined the bloc. But the approval of the loan guarantee also set off an official infringement procedure by the Energy Community, whose Secretariat announced in March 2019 that a legal review had determined that the guarantee constitutes illegal state aid under EU rules.

EU Enlargement Commissioner Johannes Hahn voiced concern this year over a loan guarantee for Tuzla 7 passed by Bosnia’s lower house. Image from Austria’s Federal Ministry of Education and Research available at Wikimedia Commons under CC license.

On March 12, 2019, Johannes Hahn, the EU's enlargement commissioner, said publicly that he was "surprised" by majority support in Bosnia-Herzegovina's lower house for the loan guarantee. Support from Elektroprivreda BiH for the new lignite unit at Tuzla, said Hahn, "raises serious questions not only about BiH’s commitment to international treaties and European rules under the Energy Community Treaty but also about the choice of the energy technology.”

Bosnia-Herzegovina, like several other countries in the Balkans, is a candidate for accession to the European Union – having submitted an official application in 2016. Earlier this year, the European Commission issued an opinion on Bosnia-Herzegovina’s application to join the EU, noting key issues that must be addressed. These include energy infrastructure.

The opinion noted in particular Chinese investment in the Tuzla project, and issues related to state aid provisions. “The extension of Tuzla Block 7 will be financed through a Chinese loan which has received a guarantee by the Federation entity in spring 2019, raising some concerns by the Energy Community Secretariat in regard to violation of EU state aid rules,” it read. It added that “future investments into energy infrastructure, including thermal and hydro power plants, need to be implemented in compliance with Bosnia and Herzegovina’s obligations under the Stabilization and Association Agreement and the Energy Community Treaty.” These obligations refer to EU standards on public procurement, environmental impact assessment, and state aid.

“State aid,” the name given to a subsidy provided by a government, is a concept unique to the Europe. The European Commission supervises subsidies or other aid from member states to enterprises, and the categories can be broad, covering not just subsides, but also tax benefits, capital injection and debt relief. Except in a few circumstances, state aid is considered incompatible with the EU market, and without an exemption from the European Commission, such aid is considered unlawful.

The ruling by Bosnia-Herzegovina’s State Aid Council in September 2018, saying that the loan guarantee for Tuzla 7 does not constitute state aid has been rejected by the EEC.

A view across to the Gacko Coal Mine in southern Bosnia-Herzegovina, not far from the border with Montenegro. The country is rich in lignite coal deposits. Image byJulian Nyča available at Wikimedia Commons under CC license.