Letter to the EBRD regarding the procurement notice for the Stanari thermal power plant project

Banja Luka, November 16 2007

Center for Environment

European Bank for Reconstruction and Development
Procurement and purchasing department
Maurice Lepage, Director of department

Dear Mr Lepage,

We are writing in relation to the EBRD procurement notice on the Bank's website relating to the Stanari thermal power plant project in Bosnia-Herzegovina.

It is of great concern to us that the EBRD is considering a loan for Energy Financing Team (EFT), a company which is under continued investigation by the UK Serious Fraud Office (SFO) regarding its activities in Bosnia-Herzegovina. This investigation was launched based on a series of convergent facts and reports, in particular a special audit report of the Republic of Srpska power utility. We believe that for the EBRD to publicly associate itself with the company, even by posting a procurement notice and stating that the company may apply for an EBRD loan, sends out a message that being under investigation for possible corruption is no barrier to receiving public financial support. After years of attempts by various actors to improve public and corporate governance standards, this is exactly the opposite message that the EBRD ought to be sending out.

Therefore we request the EBRD to clearly and publicly state that no loan will be considered for Energy Financing Team until the investigation is concluded and EFT is either cleared or found guilty.

In addition to the ongoing SFO investigation, we also have other concerns about potential EBRD support for EFT the Stanari Thermal Power Plant project.

Firstly the regulatory framework for investment and operation of energy facilities is at an early stage and although there is an entity-level law, the state level is still lacking coherent and comprehensive legislation and strategy documents, thus the licensing procedures appear to be rather unclear. It appears that there was no open tender procedure for the Stanari project won by EFT, which if true, would be contrary to the rules of fair competition enshrined in the EBRDs Procurement Policies and Rules. Can the EBRD confirm that EFT won the contract for Stanari as a result of open and transparent tender and licensing procedures?

It appears that the plans for the Stanari thermal power plant have not been examined adequately in relation to other planned energy investments. This is firstly due to the current situation where there are no energy strategies, either on entity or state level, and moreover the project does not appear in the current energy strategy of the Republic of Srpska Power Company, adopted in 1998. The only project mentioned in the strategy is a 150 MW cogeneration thermal power plant near Banja Luka, which will now not be built, and instead the Stanari project was created, which at 410 MW is a significant increase.

Thus, this lack of coordination, since there are capacity constraints on the national grid as well as on interconnections, may complicate the investment planning of BiH Elektroprenos, (the company in charge of grid maintenance and investment), and eventually disturb transmission and trade for existing and future operators, including EFT. We would like to know how the EBRD plans to ensure that the project forms part of a coherent energy strategy approved by all relevant bodies at both the entity and state level?

EFT, as an offshore energy trader, has a complicated structure and reportedly also a highly concentrated ownership and it is not clear how the proceeds generated by a loan to the company would result in meaningful benefits for the local or national economy. What are the expected economic impacts on the region and the country? What is the planned profitability of EFT on this project? Does the EBRD already have some idea what are the concession and tax payments to be paid by EFT?

Finally, concerning environmental impacts, while we are aware of EFT's claims that the project will meet EU environmental standards, we do not believe that the EBRD and other public financing institutions should be supporting coal power generation and especially not the construction of new capacity. According to the project EIA the yearly CO2 emissions from the power plant would be 2 841 000 tonnes, constituting a significant new source of emissions in an era when significant reductions are needed.

We look forward to hearing your responses on the points raised above.

Yours sincerely,

Miodrag Dakia
Vice President

On November 29, 2007 the EBRD responded to this letter. Download the response as pdf here.