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bne July 2017 Cover story I 25
SOUTHEAST EUROPE:
Chinese investors compete for Bosnian coal projects
Clare Nuttall in Bucharest
350MW plant at the nearby Banovici mine, also in the Bosnian Federation. Another state company, RMU Banovici, is understood to want to build the
plant to ensure there is a buyer for its coal, and signed its own agreement
with China's Dongfang in 2015, as the company beat its compatriots Shanghai Electric Group Company and China Gezhouba Group Company for the deal. Dongfang said at the time the agreement was signed that it would bring “impetus to the economic advancement of B&H
as well as wellbeing to local people”.
However, the plans for the two almost adjacent projects were heavily criticised in a May 2017 Bankwatch report. “There appears to be a serious lack of energy planning and co-ordination between the Tuzla 7 and Banovici projects. It is very unlikely that two plants within just a few kilometres of one another can both be feasible, yet the [Bosnian Federation] government has so far supported
both projects,” the report says.
The watchdog’s research coordi- nator Pippa Gallop describes the two as a “strange pairing”, tell- ing bne IntelliNews, “There is no justification for having both”.
What’s especially perplexing is that both projects are backed by different Chinese companies, and have loan offers from two different Chinese policy banks, apparently acting in direct competition with each other. This is despite the fact that the so-called “policy banks” – banks that are state owned or state controlled – require top-level sign off for their investments.
“We are seeing fierce competition between these two projects, with two Chinese construction companies backed by different state loans from China
... In such a little geographic area,
we see a very high concentration of Chinese projects, often in competition against one another,” says Bankwatch public finance policy officer Wawa Wang, who notes that like many of
the power plants planned in Bosnia
and other Western Balkan countries “the numbers simply don’t add up”.
No fewer than five new coal- fired power plants, most of them potentially funded by Chinese state banks, are being con- sidered in Bosnia & Herzegovina. Two of these projects – the seventh unit at the existing Tuzla plant and the brand new Banovici plant – are just 30km from each other, raising serious ques- tions about their economic rationale.
From the Chinese side the rationale is clear: industrial over-capacity at home has forced its engineering con- glomerates to seek out opportunities abroad, resulting in intense competi- tion to build new power plants even in the small Balkan economies.
It’s less clear how Bosnia, population 3.8mn, which already produces more electricity than its needs, can afford the new power plants currently being promoted, even if only some of them get built. Its government is keen to invest into new capacity both to replace ageing infrastructure and to further increase exports. However, information on the economics of the new plants, especially taking into account carbon costs, as well as their environmental impact, has largely not been disclosed.
Neither Tuzla 7 nor Banovici is cur- rently under construction but, after switching adherence from one proj- ect to the other for several years, the Bosnian authorities appear equally keen on both Chinese-funded projects.
A consortium comprising China Gezhou- ba Group and Guangdong Electric Power Design emerged as the preferred bidder for Tuzla 7 back in 2014, after Japan’s Hitachi withdrew from the race. State power utility Elektroprivreda Bosne and Hercegovine (EPBiH) signed an engineering, procurement and con- struction (EPC) contract with the con- sortium followed by a framework loan agreement with Chinese Exim Bank.
Numerous questions surround the Tuzla 7 project, not least how the construc- tion price was brought down from
the original €785.7mn to the €722mn more recently stated by EPBiH direc- tor Bajazit Jašarevic. Hitachi dropped out, at least partly because of the
lack of economic feasibility, though also because of the political upheav- als in the country at that time.
Yet arguably the most serious problem facing Tuzla 7 is the plan for another
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