Sostanj lignite plant: A mistake not to be repeated

December 2, 2014

Ljubljana -- A new briefing by Slovenian NGO Focus shows how misguided assessments of future viability and corruption led to TES6 lignite unit costing more than double the estimated amount, bringing annual losses of tens of millions of euros, and creating only a fraction of the number of jobs promised.

The briefing is available for download here:
http://www.focus.si/files/programi/energija/2014/mythbuster.pdf

A short version in English can be downloaded here:
http://www.focus.si/files/programi/energija/2014/myth_buster_short.pdf

The 600 MW new unit at Sostanj in northern Slovenia is meant to replace five expiring units in the same complex and be functional for 40 years. When the project emerged, the unit was estimated to cost 602 million euros, create 3,500 jobs and generate a profit.

In reality, the unit which is now already constructed, has reached a price tag of 1.43 billion euros, employs around 450 people (half of whom are expected to be fired in the near future because of the poor economics of the plant), and will, if the sales prices of electricity remain at the current level, produce annual losses of around 70-80 million euros.

“There is no other way to describe this project except catastrophic,” comments Focus’s Lidija Zivcic who has for years campaigned against the new unit. “Our authorities supported this project despite numerous warning signs such as an official corruption investigations, expert reports showing the plant is not economically viable and opposition from some of our politicians.

“And now it turns out it is us Slovenians who have to cover the costs. Literally, since the government is trying to soon introduce a special ‘contribution for TES6’ together with our normal electricity bills to cover the losses. It should not be the citizens who will pay with their money and health for the colossal mistakes in this project.”

According to the Focus briefing, which refers to contents of an ongoing police investigation, the whopping increase in the costs of construction has as one of main causes unduly gains of around 285 million euros made by main constructor, French Alstom. Earlier this year, Slovenian police announced that ten people had been charged with fraud in relation to the illegal gains made by Alstom.

In addition to corruption, another reason for the terrible economics of Sostanj is simply reckless economic sensitivity analysis on the part of the Slovenian project promoter TEŠ and authorities who should have checked TEŠ’s estimates. The economic viability of the project was calculated with the assumption of high electricity prices but these are currently very low and are likely to stay this way until at least 2020. If it operates at full capacity, TEŠ 6 will generate annual losses of 70-80 million euros, which in the end will have to be supported by the state budget since HSE, the owner of TEŠ, is a public company.

The new Slovenian Prime Minister has asked the Ministry of Finance and Ministry of Justice to study whether it would be possible to prepare a law on auditing the TEŠ6 project. The audit would establish the basis for prosecuting the ones that are responsible for the catastrophic picture of this project.