By Lidija Zivcic
The economics make no sense, the legality is questionable and it’s an environmental nightmare. Meet one of Europe’s biggest aspiring polluters: the TES6 project in Slovenia.
The economics: on thin ice
Termoelektrarna Sostanj or TES is a (lignite-fired) coal power plant Sostanj, North Slovenia. It is owned by HSE (Holding Slovenske Elektrarne d.o.o.), a 100% state-owned utility. A new sixth block of 600MW is now planned, allegedly to provide an environmentally friendly substitute for the old blocks. The project is known as TES6. The plant is located close to the Velenje Coal Mine that produces coal to meet mainly the power plant’s present and future needs.
The project was expected to cost EUR 700m in 2006, but costs escalated to EUR 1,3bn by 2012. The project is to be financed mostly with public money – mostly through loans from the European banks – the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). The EIB is expected to provide EUR 550m, while EBRD is chipping in EUR 200m. Due to EIB’s condition, the Slovenian government has provided state guarantee to facilitate the loan from EIB. The construction works started well before the state guarantee was awarded to the project, while the economic picture and the financial construction of the project were not finished.
The economic picture doesn’t look rosy. Environmental justice organisations have commissioned two reviews of the project’s investment plans (one by Dutch CE DELFT and one by an economist from Faculty of Economics in Ljubljana). They show that the project is very sensitive to changes in prices of coal, carbon and electricity. If the carbon price is taken from the scenarios from the EU 2050 Energy Roadmap, the net present value of the TEŠ 6 project remains deeply negative under all scenarios. The price of coal is also more likely to rise, because the easily accessible parts of the Velenje mine are already exhausted. And if the price of electricity falls, the project ends in bankruptcy.
The analysis by an economist from the Faculty of Economics in Ljubljana further shows that investors didn’t ensure that the Government’s conditions for obtaining a state guarantee were met. To lower the risks for guarantees to be cashed-in, the government had set a list of conditions: investment costs should be lowered from 1,3 bn; a contract should be signed between TES and the Velenje mine to define the maximum price of coal at 2.25 EUR/GJ, the project should achieve the internal rate of return in line with sectoral policy and CO2 emissions must be limited. None of these conditions were met. The state guarantee was supported by 29 of 90 members of the Slovene parliament but because of low attendance, that was a majority.
Legal challenges of the project
A variety of national and international NGOs have cast a light on the legal irregularities of the project. For example, the environmental impact assessment of the project limits the environmental impact area of the TES6 project with the limits of the industrial area of TES power plant. Such a definition of impact area is inappropriate because it is impossible that the environmental impacts would remain limited to the borders of TES. It also gives ground for excluding legal interest in the process of all parties, even the closest neighbours of TES. Furthermore, the EIA does not present an alternative to coal, in spite of Article 5 of Directive 97/11/EC, which requires that alternative solutions are defined and presented in the EIA. Furthermore, the EIA does not assess the impact of the project on climate, while impacts on air quality and health are not fully defined. In spite of these problems, the EIA received blessing from the Slovene authorities, the EC, the EIB and the EBRD.
There were three further legal complaints by two EJOs: Focus and Environmental Legal Service. The public procurement complaint, filed in November 2011, asserted that TES did not follow the procedures prescribed for awarding of public procurement by Directive 2004/17/EC coordinating the procurement procedures of entities operating in the water, energy, transport and postal services sectors, although the procedure prescribed for awarding of public procurement by Directive 2004/17/EC should have been followed.
The next complaint to the EC was filed in October 2011 and is related to the CCS. The CCS complaint asserts that the requirements of Article 33 of the CCS Directive (2009/31/EC) were not met in the course of the project development. Meanwhile the CCS Directive was transposed into Slovene legislation and the authorities checked if TES6 suitably responds to the Directive’s requirements. The authorities believe that to be the case, yet they do not grant access to the process to other interested parties to check if they will share the opinion. Recently, in February 2013, the EC was notified by the Environmental Legal Service that there is a high risk that Slovenian authorities breached EU’s state aid rules by awarding a state guarantee to the project.
Project under scrutiny of anti-corruption bodies of Slovenia and EU
In February 2012, after more than two years of investigation, the State Commission for the Prevention of Corruption in Slovenia published a report documenting numerous irregularities in the TES project. The report says that corruption could have influenced the awarding of the contract for a construction of the sixth block to the French company ALSTOM. Furthermore, the tender for the main technological equipment has been exempted from the requirements of Slovene procurement law and EU procurement legislation, all without legal justification. The Commission concludes that “the project is designed and implemented in a non-transparent manner, lacks supervision and is burdened with political and lobbying influences, and as a result there has been (and still is) a high risk of corruption and conflict of interest.” Investigations into the possible unlawful acts at TES have already been opened by the National Investigations Office and by the police in the town of Celje.
OLAF, the European Anti-Fraud Office, opened an investigation in 2012 about possible corruption, conflict of interests and other offences in the rewarding of the contract for the construction of TES6. Moreover, the EIB’s own Inspector General and the EBRD’s Office of the Chief Compliance Officer are currently investigating possible unlawful activities connected to the project and the integrity of the client.
The new unit will be in operation until 2054, compared to 2027 without it. That means more CO2 emissions in the life span of the power plant. Another aspect of the problem is that the majority of financial resources in the Slovenian energy sector will go to this controversial project instead of supporting renewable energy. Even worse: the profits from the cheap production of electricity in several hydro power plants will be directed into this lignite burning project. Operating TES6 without carbon abatement will result in emissions of 3.1mt CO2 per year, which is close to being equivalent to all of Slovenia’s emissions in 2050 (if Slovenia cuts emissions by 80% in line with European targets).
The overwhelming urgency of avoiding irreversible climate change leaves no room for financing a lignite coal power plant. Encouraging such dirty energy production would fly in the face of increasing calls by other international bodies to de-carbonise our economies and end fossil fuels subsidies. And the EU’s own climate targets should leave no room for justifying such an investment by the EU’s house banks.
Multifaceted efforts to prevent EU’s taxpayers funding the TES6 project
Numerous Slovene and international EJOs have been trying to stop this economically questionable, environmentally damaging and potentially corrupt project. At many occasions they have been in contact with the EIB and EBRD to bring the irregularities in the project to the attention of the both banks. At the end of January 2013, also several members of European Parliament called on EIB not to finance the Slovene lignite power plant. They have reminded the European Investment Bank of the economic and environmental risks that the Sostanj lignite power plant project poses for Europe and Slovenia and urged the bank to withhold the disbursement of EIB funds for the project.
“It is not acceptable that the EU’s house bank should transfer funds for a project which is being actively investigated at all levels for corruption and noncompliance with EU law [...] and whose economic feasibility is under such serious doubts.” Claude Turmes, Alojz Peterle, Kathleen van Brempt
At the moment, the decision is upon the EIB. According to media reports, EIB was planning to decide against financing of the project in February 2013, but the Slovene vice-president of the EIB, Anton Rop, prevented the negative decision by requesting to postpone the decision for several weeks. The vice-president’s role in the money disbursement decision-making process has also been put under spotlight by the media in the recent days by exposing the connections of his son with Holding Slovenske Elektrarne, the 100% owner of TES.
 An unofficial English translation is available at: http://bankwatch.org/siTEŠ/default/files/StateCommissionReport-corruption-TEŠ6-23Feb2012.pdf