Bosnia & Herzegovina’s Muslim-Croat Federation breached the regulations of the Energy Community when issuing a guarantee for a loan from China’s Exim Bank for the construction of a new unit at the Tuzla coal-fired plant, the secretariat of the Energy Community has concluded.

The new unit at Tuzla has provoked numerous objections by environmentalists and was examined by the Energy Community, an international organisation which brings together the European Union and its neighbours to create an integrated pan-European energy market, after in July 2018, Bosnia’s state aid body approved a guarantee for the €614mn loan. At the time, two environmental NGOs objected that the guarantee that is supposed to be provided by the Federation’s government might be illegal.

Looking again into the case, the secretariat concluded that the guarantee is indeed state aid and urged the Bosnian body to reopen its procedure and re-examine the guarantee in line with the Energy Community state aid acquis.

“The secretariat assessed the State Aid Council’s decision and the additional documents provided by the Elektroprivreda BiH and came to the preliminary conclusion that the Tuzla 7 guarantee in fact constitutes State aid. The State Aid Council’s decision is thus not in line with the Energy Community State aid acquis,” the secretariat said in a statement.

“We invite the parliament of the [Bosnian Federation] not to approve a guarantee which may constitute illegal state aid. Such approval could lead to lengthy and costly recovery procedures. Besides, the secretariat may have to open infringement procedures against [Bosnia] pursuant to the Energy Community Dispute Settlement Rule,” the secretariat’s letter reads.

In September 2018, the Sarajevo-based NGO Aarhus Resource Centre and CEE Bankwatch Network signalled to the Energy Community that the Federation’s plan to guarantee the loan does not comply with EU rules and should be investigated.

The proposed guarantee covers 100% of the loan instead of up to 80%. According to the statement from the two NGOs, while there are circumstances in which this is allowed, they consider the relevant conditions are not fulfilled in this case.

The following month, the Energy Community secretariat recommended to the Federation’s parliament not to approve the guarantee. However, the guarantee was approved.

The 450 MW unit is estimated to cost €722mn and was supposed to replace units 3 and 4 that are due to be shut down, updating the facility but keeping its capacity the same. It was agreed to be built, as well as funded, by Chinese companies.

Bosnian state-owned power company EPBiH selected the consortium of China Gezhouba Group and Guandong Electric Power Design back in 2014 to build the new unit after the original frontrunner, Hitachi, pulled out.

The project was supposed to be completed within 56 months and the new unit was to generate 2,740 GWh of electricity and around 390 GWh of thermal energy a year.

The Tuzla power plant expansion is one of a numerous coal-fired power plant investments in the Western Balkans — five in Bosnia alone — most funded by Chinese banks, that are either at the planning stage or underway. Indeed, the existing Tuzla plant and the brand new Banovici plant are just 30km from each other, which raises questions about their economic viability. Both lined up funding from Chinese banks, and multilateral development banks are increasingly wary about financing new coal projects.