UPDATED: Slovenia continues to fall into the economic abyss of the lignite plant at Sostanj

UPDATE (January 24, 2014, 14:49): The text has been modified to include a reference to the EBRD's assessment of Slovenia's economic outlook.

Ljubljana – The scandal-marred lignite plant TES 6 at Sostanj in Slovenia will likely cost 1.44 billion euros (2 billion US), more than double than what was initially predicted, and is due to produce annual losses of 50 million euros, show calculations recently revealed by Slovenian media (1). These cost escalations, predicted by NGOs critical of the project, should constitute a word of caution for other countries in South-Eastern Europe that are considering building new coal capacities.*

* READ OUR BRIEFING ON UPCOMING COAL PROJECTS IN THE BALKANS:

Today, the Slovenian parliament is meeting in an extraordinary session to address the risk of cashing tax payer’s money for the losses of the corruption infected project. Last year, Slovenian authorities agreed to offer a state guarantee for a half a billion euro loan from the European Investment Bank that was crucial to turn the project into reality (2).

The Slovenian government too, debated the issue of cost overruns this month, considering even the option of dropping the coal project altogether. Slovenian Prime Minister Alenka Bratusek was quoted by the national press agency on 15 January: "We don't have the privilege to decide whether this project can still be stopped. The data we have show halting it would be more expensive than completion."

When Slovenian authorities agreed to offer a state guarantee for the EIB loan last year, they posed several conditions: that Termoelektrarna Šoštanj manages to keep costs for the plant at below €1,3 billion and that the price of the lignite stays at a level of 2,25 €/GJ (otherwise the project would not be economically viable and the state would have to cover losses – precisely what seems set to happen now). None of these conditions are being met and, with electricity prices very low, the project is looking increasingly like a liability. If the plant runs at such a big loss, the state guarantee may have to be cashed in - a worrying prospect for a country in recession with bleak growth potential, as the EBRD's own assessment from January 21 notes: "At the same time, growth remains well below potential and Slovenia is expected to remain in recession [...]". (3)

Slovenian media reported this month that the EIB too has sent a letter to the project promoter (HSE, which owns Termoelektrarna Šoštanj) asking for clarifications on the economics of the project and indicating that they could withdraw funding.

“NGOs have been for years warning about the dodgy economics of this project, appealing both to the government and to the EIB not to get into it, but to no avail,” says Lidija Živčič from Focus Slovenia. “Now it looks like Slovenian tax payers’ money will have to cover the damage of this project, in spite of an appeal to our coalition government to step out of the project now, before more losses accumulate, which was signed by a coalition of 17 NGOs.” (4)

“The amount of bad decision-making on this project, from Slovenian authorities and international financial institutions supporting it (the EIB and the EBRD), is staggering,” comments Bankwatch’s Pippa Gallop. “Although known as the ‘Switzerland of the Balkans’, Slovenia made a disastrous decision in regard to this project. While for the EIB and the EBRD a loss making coal plant in Slovenia won’t make a big difference – especially since it is state guaranteed – for Slovenia it can mean the difference between floating and sinking.

“Sostanj must serve as a lesson to its neighbours in the Western Balkans which are planning new lignite-fired power plants under the false impression that it is cheap. Lignite is dirty at the best of times, but plants such as Pljevlja II in Montenegro, Kostolac B3 in Serbia or Stanari in Bosnia and Herzegovina are not even planned to run in accordance with EU standards, which will run up additional costs in a few years' time when they have to be upgraded.”

Notes

(1) Read the Slovenian government’s statement in response to a brief about the state of the project (15.7.2013):

Point 2 of the conclusions states: “…the project does not ensure implementation within the time and financial framework set when the decision about this investment was made” (it also says that available data is insufficient to understand the reasons for such cost increase of the investment)

(2) TES 6 is estimated to cost around 1.44 billion euros at the moment, and estimates are rising all the time. Of this sum, the EIB has covered 550 million euros via a loan approved last year, of which 440 million are guaranteed by the Slovenian state. The EBRD too is supporting the project with 200 million euros, half a loan from the institution itself and another half as syndicated commercial banks loan.

(3)

(4) Link to the NGO letter: