Pljevlja II lignite power plant, Montenegro

Although the project is at an early stage of the permitting process, several issues have already emerged.

In October 2016 it was reported that the Czech Export Bank and export credit agency EGAP had decided not to finance the project. It now remains unclear who is ready to take on such an uneconomic project in a town with a heavy environmental legacy. Pljevlja needs a just transition to a cleaner economy, not another coal plant.

Economic only with creative accounting – threat of stranded assets

In summer 2016, the Montenegrin government published an analysis purporting to show that Pljevlja II would be an economic investment. However, even a brief examination of the document showed that this is extremely unlikely:

If Montenegro somehow manages to delay the implementation of the EU Emissions Trading Scheme until 2026 and
If electricity prices more than double by 2040 and
If CO2 costs are 10% lower than projected and
If Pljevlja mine manages to reduce production costs from 24.21 EUR/tonne to 17.5 EUR/tonne within the next ten years and
If no VAT is paid for the EPC contract,
Then the Pljevlja II power plant might just turn out economically viable.

As well as the general unlikelihood of all the above coinciding, there is no real overall need for a new coal plant in Montenegro. The future of Montenegro's largest electricity consumer, the Podgorica Aluminium Factory (KAP) is in question and it seems unlikely to function in the medium-long term, which will make a significant impact on demand.

In addition, official documents are unclear on whether the rehabilitation of the existing Pljevlja power plant is planned. If it is, the new unit is almost certainly unnecessary. If it isn’t, Montenegro can cover its demand with additional energy efficiency, wind and solar within a few years if it steps up its level of activity in this field.

Montenegrin decision-makers often highlight the idea of exporting electricity, however an analysis by the University of Groningen and consultancy The Advisory House has shown that for the next ten years at least, there is likely to be a surplus of electricity in the EU, thus it is questionable whether there will be a market for potential electricity exports from Montenegro and other Balkan countries.

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Stranded assets in the Western Balkans - report on the long-term economic viability of new export capacities
Study | March 19, 2015

Insufficient economic lignite reserves for the lifetime of the plant

Official documents related to the 254 MW Pljevlja II lignite power plant count all lignite reserves in the Pljevlja area as being available for the use of the plant. However they do not take account of the fact that some of the deposits have been already found to be uneconomic and that the existing power plant will still use up more lignite before the end of its lifetime.

Confronted with this issue, in 2016 EPCG changed its tactic and commissioned Fichtner to come up with a study on how to make the mine deposits economically feasible. Fichtner found that the Pljevlja mine would have to reduce production costs from 24.21 EUR/tonne to 17.5 EUR/tonne within the next ten years, and that one of the ways to do this would be by reducing the number of employees from 872 in mid-2016 to somewhere between 520 and 544 by around 2025. It is unclear whether this can be achieved or not. In addition, the government is in denial, promising new jobs with Pljevlja II while in reality the number of jobs will shrink, whether it is built or not. There is no plan how to carry out this reduction in a socially responsible and inclusive manner.

Read more
Deceptive promises of new jobs in the coal sector don't help workers, communities or the climate
Blog post | November 14, 2016

The environmental situation in Pljevlja will be further worsened

As Montenegro plans to join the EU around 2020, all new investments need to be in line with EU standards. However Pljevlja already suffers from serious air pollution [Montenegrin language] which is far away from EU ambient air quality standards.

The town is situated in a depression at around 720 m above sea level, and is prone to temperature inversion and smog. Thus the existing power plant has a disproportionate negative impact on local air quality.

While the new plant is claimed to be less polluting than the existing one, the Montenegrin government has not made any commitment on when it will close the existing plant and in various documents has mentioned 2018, 2025 and 2030. In the latter two cases, the existing plant would run parallel to the new one, thus worsening air quality even further.

In addition to the air quality problems mentioned above, the existing plant has left other serious legacies which pose risks for local people and the plant and mine owners.

The most visible is the massive Jagnjilo spoil tip, consisting of an estimated 70,000,000 tonnes of marl waste dug out from the lignite mine which causes dust to blow around on windy days. Local people report that in 2005-2006 – presumably due to the pressure caused by the weight of this tip – a 5-m wide rift in the ground downhill from the heap opened up, which has now been filled in with rock waste.

The Maljevac ash pond serving the existing power plant is within just a few metres of the nearest houses and the ash is often not adequately covered with water, so that it too blows around in windy weather. People in Pljevlja complain of a high rate of illness, especially in the village of Zbljevo next to the ash pond, and there are concerns about the stability of the earth bank around the landfill. EPCG is currently attempting to obtain agreement from the Ministry of Environment to expand the landfill upwards.

Non-standard tender process

Instead of conducting a formal tender process for the main contractor in the Pljevlja II project, the Montenegro government chose a company through an informal selection process that lacked clear deadlines and specifications.

Several companies submitted preliminary offers for plants ranging between 220 and 350 MW and three companies – China's CMEC and Hubei-Powerchina and the Czech Skoda Praha - were shortlisted. A contract was signed with Skoda Praha in September 2016, which reportedly included an obligation for Skoda to find financing for the project. After the Czech Export Bank declined financing in November 2016, Skoda Praha’s future in the project is now uncertain.