Page 26 - bne_Magazine_July_2017

26 I Cover story bne July 2017
Bosnia already has coal-fired power plants in Tuzla, Kakanj, Gacko, Ugljevik and Stanari, while generat- ing around half of its electricity from hydropower. In addition to the Tuzla and Banovici projects, there are also plans for new units at Ugljevik, Kakanj and Gacko, although not all of these are moving forward at the moment.
Chinese investors are again involved. The Ugljevik 3 unit in Republika Srpska is being promoted by Russian billionaire Rashid Sardarov's Comsar Energy, but, if it goes ahead, it would be built by China Power Engineering and Consulting Group Corporation (CPECC). Meanwhile, the recently completed Stanari lignite power plant was financed by the China Develop- ment Bank and built by Dongfang.
According to Pippa Gallop of Bankwatch, the plans are “completely out of scale with both energy demand and with what [Bosnia] could actually afford”. With the exception of Ugljevik, the new power plants would be built by state-owned companies and state guarantees for the loans would most likely be required.
Bosnia is the most extreme example of an intense concentration of coal power projects, but new coal power plants
are being considered across the West- ern Balkans, despite requirements for would-be EU member states to curb emissions. They include the new Kosto- lac B3 lignite plant in northeast Serbia, financed by China Exim Bank and being built by China’s CMEC, and Pljevlja 2
in Montenegro, for which Podgorica is eyeing Chinese funding after the Czech Export Bank said it would not back
the project. There are also plans for a new unit at the Rovinari lignite power plant in EU member state Romania.
Chinese banks have become virtually the only option for governments and state power companies in countries from the region hoping to find backers for investments in coal capacity, after multilateral development banks decided in 2013 to stop financing new coal-fired power plants. The lack of economic viability has, meanwhile, ruled out financing from commercial banks.
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Chinese banks are not exclusively target- ing coal projects; they are interested
in a variety of potential investments across the energy and infrastructure sectors. Indeed, in 2016 China became the world's largest investor in renew- able energy, putting to work a total of $102.9bn, including $32bn overseas, the Institute for Energy Economics and Financial Analysis (IEEFA) said in a January report. “Chinese companies and institutions are increasingly looking overseas for opportunities in renewable energy development,” the report noted.
However, with a strong impetus to look for investment opportunities abroad, and local actors eager to secure fund- ing, within the Balkans Chinese banks have effectively become the financiers for coal projects by default. “Most concerning for the Balkan region
and beyond is that the financing of state-owned energy companies focus- ing on coal projects is enabling a very unfortunate trend of Chinese financ- ing dictating the fuel choice of those countries. Without [Chinese] money they wouldn't be able to develop those projects in the first place,” says Wang.
Even though Chinese banks are wooed by local governments and utilities, these investments – in the Balkans and elsewhere in the world – also have sub- stantial benefits for Chinese companies. With Beijing trying to tackle pollution at home, investments are increasingly being redirected towards renewables and away from more polluting fuel sources. The “war on pollution” has also led to the authorities ordering pollut- ing plants to suspend work to allow them to meet tough emissions targets.
All this has left its engineering compa- nies in need of new revenue sources, ideally from projects overseas. It’s also part of a broader trend for Chinese companies to seek opportunities abroad since the country’s gradual economic slowdown, as it can no longer rely on growth based on low-cost labour.
For this reason, according to Wang, Chinese interest in coal power plants even in the tiny Western Balkans econo- mies is intense. “For each of these [coal
power plant] projects in the Balkans we saw nine to 11 Chinese companies competing against one another in the first round of the tender,” she says.
“That goes to illustrate there is a very urgent need for China to export its over- capacity especially in the power genera- tion sector, considering China is reining in its own operation of power plants and coal mines ... Obviously all this equip- ment needs to get built somewhere else.”
This is not limited to the Balkans, according to Wang, with Southern Asia (especially Pakistan), Southeast Asia and African countries “seeing a similar tend in countries with indigenous coal or coal ports, which allows very uneco- nomic projects to take place ... Chinese coal projects are simply mushrooming in Pakistan – which relies on imported coal – after the signing of the China- Pakistan economic corridor agreement.”
This is in contrast to the recent rheto- ric from China of its commitment to fighting climate change and speeding up the shift away from fossil fuels, after President Donald Trump announced the US would withdraw from the Paris climate change agreement. The EU and China responded by affirming their commitment to the agreement, and
on June 12 China even signed a low- carbon agreement with the US state of California, bypassing Washington.
However, while China is investing
in renewables and cutting back coal generation at home, state-controlled banks continue to fund new coal power plants abroad. “There is definitely
a schism between what Beijing is say- ing on the record, and its financing and enabling the export of the coal industry and equipment overseas,” comments Wang. “We are not seeing [Chinese] statements and aspirations transposed into operational policies.”
It’s not clear if or when Beijing will
act decisively to rein in financing for coal projects abroad, given its commit- ments to addressing climate change. For now, the economic rationale for Chinese policy banks to invest into Balkan coal projects remains strong.