Dirty coal gets closer to receiving almost half a billion euros from EU taxpayers

December 3, 2012

The European Investment Bank (EIB) is gearing up to pay 440 million euros to a new 600 MW lignite plant in Slovenia at a time when calls for an end to subsidies for fossil fuels are intensifying all over the world.

On Friday, November 30, the Slovenian ministries of finance and infrastructure signed contracts with the management of TES (the constructors of a new block at the Sostanj lignite plant) in view of offering a state guarantee for a loan of 440 million euros from the EIB needed if the 1.3 billion euro project is to go ahead. The guarantee still has to be discussed by the Slovenian government and ratified in the parliament.

"Despite huge controversy over this project in Slovenia, the ministries pulled it off to sign these contracts on the very last day of the most recent deadline set by the EIB," explains Barbara Kvac from Slovenian NGO Focus. "Yet these signatures actually put the EIB in front of a serious test of its credibility. On the one hand, the bank must be under significant pressure to hand over the money, but on the other, state guarantee or no state guarantee, there are still several investigations ongoing into suspected corruption in the project that the EIB should see the results of before paying any money."

Both OLAF (the European Anti-Fraud Agency) and the EIB are currently conducting investigations into corruption allegations in the management of Sostanj.

"In addition to corruption, the EIB has to also worry about the risks to its credibility represented by such a large investment in a lignite plant at a time when bodies like the International Energy Agency, the World Bank and others are calling for an end to subsidies for fossil fuels," says Pippa Gallop, Bankwatch research coordinator. "In October this year, the EIB started a process of reviewing its energy policy, partly to make it more in line with climate science. What kind of an energy policy can we expect from the bank next year if the debate around it coincides with payments made to a new coal plant?"

There are also serious concerns about the viability of the project as a whole, which should serve as serious warning for a European public bank. In July, Slovenia’s parliament gave a half-hearted go-ahead to the project, but only under certain conditions, laid out by the government in February, such as keeping project costs below EUR 1.3 billion, completing construction by 15 February 2016, keeping carbon emissions under a certain level and the maximum price of lignite at EUR 2.25/GJ and ensuring that the project has an internal rate of return of at least 9 percent.

The problem is, some of the conditions set out by the government are virtually impossible to meet. Even in the revised investment program (IP5), projections on the project's profitability do not come anywhere near 9 percent, and are diminishing as time goes on. Keeping the lignite price at EUR 2.25/GJ is also unrealistic given that it already cost EUR 2.7/GJ in 2011 and as the Velenje mine (the source of the lignite) becomes exhausted - projected to happen at around the same time as Sostanj Unit comes to the end of its life - it is hardly likely to get cheaper.