28 April 2018, 09:28

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EPS: Irresponsible to detriment of citizens

Over the last 10 years, EPS had to pay almost €15.8 million for its delay in utilization of 13 international loans. This also includes the most valuable project of Serbian electric power industry, construction of the desulphurization plant in the Nikola Tesla Thermal power plant in Obrenovac, which was delayed for five years although Serbia took the loan from Japan back in 2011


 

By: Anđela Milivojević and Ivana Jeremić

Foto: Termoelektrana

Foto: Termoelektrana "Nikola Tesla" u Obrenovcu (preuzeto sa sajta www.tent.rs)

Announced as the most expensive project of Serbian electric power industry, the desulphurization plant for the Thermal power plant Nikola Tesla (TENT) was to start operating in June 2018. Although construction of this plant was announced as a priority, its implementation was five years late, while the year 2022 was determined as the new deadline for completion of all works.

The contract with the contractor which was to be engaged for the plant construction was signed only in September 2017, while due to the delayed realization, Serbian Electric Power Industry (EPS) is paying so-called commitment fee – fee for non-withdrawn funds.

By 31 March 2018, EPS paid more than €449,000 of fee for this project.

TENT is located in Obrenovac, close to Belgrade, and is the largest generator of electric power in Southeast Europe, producing more than 50% of all energy in Serbia a year.

With the construction of the desulphurization plant in TENT, emissions of sulphur-dioxide (SO2) and PM10 particles (so-called fine particles), which exceed the permitted limit at the state level, are supposed to be decreased.

Air pollution caused by emissions of these gasses considerably affects the environment and health of local population. Among other harmful effects, PM10 particles cause asthma and other respiratory diseases, while exposure to high concentrations of SO2 causes respiratory and cardio-vascular diseases.
 

With the construction of the desulphurization plant in TENT, emissions of sulphur-dioxide (SO2) and PM10 particles (so-called fine particles), which exceed the permitted limit at the state level, are supposed to be decreased. (Photo: www.tent.rs)

In 2006 Serbia joined the Energy Community, committing itself to minimize SO2 and PM10 particle emissions from thermal power plants by the end of 2017; however, the deadline was extended till mid-2021. If standards are not fulfilled, thermal power plants should be closed down, or the state will pay large penalties, which is why the desulphurization project in TENT was marked as urgent.

In November 2011, Serbia concluded a loan with Japan International Cooperation Agency (JICA). With this loan, the amount of about €226 million was granted for the period of 15 years.

The contract stipulated that Serbia would be exempt from payment of installments and 0.6% interest over the period of the first five years as of the signing; however, in this period, the project hardly even started.

EPS did not accept to provide Center for Investigative Journalism of Serbia (CINS) with the reasons why the project is delayed, or information on the activities taken by EPS and TENT so far.


Deadline extension


Following the signing of the contract with JICA in the end of 2011, EPS stated construction of the plant for wastewater treatment as one of the prerequisites for initiation of the desulphurization project. The project implied treatment of different kinds of wastewaters generated in the course of TENT operation, among others, wastewaters generated in the process of desulphurization of flue gasses.

This plant was constructed only in the end of June 2016.

In the beginning of 2012, business was contracted with the Japanese consulting company Tokyo Electric Power Service Co (TEPSCO), which was supposed to work on preparation of tender documentation. TENT issued information that the completion of the pre-qualification procedure in the tender preparation was envisaged for the end of November of the same year, while completion of the tender was expected in the end of 2013. This was to be followed by the first works aimed at construction of the new plant the completion of which was planned by 2017.
 

In 2016, the period of the first five years in the course of which Serbia did not have to pay installments and interest for the loan expired, while the works on the plant had not even started.

In December 2012, EPS announced a pubic call for pre-qualification for the plant construction. By July 2013, there were five eligible foreign companies, but the call for selection of the contractor was published only in February 2014. This is when a meeting was held with the interested bidders where they were informed about the technical details of the thermal power plant with a visit of the construction site.

According to information from TENT, the deadline for companies to file their bids was May 2014, while evaluation and final selection of the contractor was announced for January 2015. EPS postponed the evaluation and selection four times, the last time for September 2015.

In 2016, the period of the first five years in the course of which Serbia did not have to pay installments and interest for the loan expired, while the works on the plant had not even started.
 

Signing of the contract in the premises of the Serbian Government - Milorad Grčić, acting EPS manager and Yasuo Fujitani, executive vice-president of Mitsubishi Hitachi Power Systems, with Aleksandar Antić, Serbian minister of mining and energy.

This is why the Japanese agency JICA started collecting commitment fee. In the course of 2016, EPS paid more than €231,000, while in the following year the additional amount of somewhat more than €109,000 before the final signing of the contract with the contractor for the purpose of construction of the plant.

EPS refused to reply to the CINS journalist why the deadlines had been rescheduled and why the contract was signed only in September 2017.

The agreement on construction of the plant was signed in the premises of the Serbian Government by Yasuo Fujitani, executive vice-president of Mitsubishi Hitachi Power Systems and Milorad Grčić, acting manager of EPS.

The consortium which is to implement the project also comprises Japanese corporation ITOCHU, Germany-based Mitsubishi Hitachi Power Systems Europe, and the domestic company Montažno proizvodno preduzeće Jedinstvo from Sevojno.

The signing of the agreement was also attended by Aleksandar Antić, minister of energy, who stated that this project will contribute to a decrease of SO2 emissions by nine times – from about 74,000 tons to 7,800 tons a year, which is in line with all obligations and directives Serbia has committed to implement.

“So far, Serbia has invested some €200 million in projects to resolve the issue of emissions and considerably improve the environmental situation; however, the main issue is ahead of us, as in the period between 2017 and 2025 we need to invest about €900 million in resolving the remaining issues the most important of which are desulphurization and de-nitrification (elimination of nitrogen)”, said Antić.

An additional fee due to delay in utilization of the loan was also collected following the contract signing – €104,000 by the end of 2017, while in the first three months of 2018 there were no additional collections.


Irresponsible use of loans


CINS research indicated that over the last 10 years EPS had to pay almost €15.8 million of fees for non-withdrawn funds from 13 loans granted by several international banks and agencies. Out of this amount, more than €449,000 was paid for the desulphurization plant construction project at TENT.

From 2001 to 2014, EPS assumed 13 loans: five loans from European Bank for Reconstruction and Development (EBRD) and German Development bank (KFW) respectively, two from the Chinese Export-Import (Exim) bank, and one from the Japanese agency JICA.

This fee is accounted for irrespective of regular interest, mostly depending on the amount of loan and dynamics of its use, because it is paid based on unused funds. If the loan is not used in a timely manner, more needs to be paid.

CINS collected data from the Public Debt Administration on the amount of money allocated by EPS from its budget for payment of irresponsible use of these loans from 2008 to the end of March this year.


Data indicates that not only the TENT project is delayed, but other projects as well – mostly the Chinese loans for two projects in Kostolac.

A loan exceeding €224 million, aimed at revitalization and minimization of sulphur emissions from the existing blocks of Kostolac B was granted in 2011 and was to be used until 2017. However, due to the delay, EPS paid more than €4.2 million in commitment fees, while the while the whole operation was to be prolonged till the end of this year.
 

Consequences of SО2 and PM10 particle emissions

According to the report of Health and Environment Alliance (HEAL), Brussels-based non-profit organization, in 2013 four out of the ten largest generators of SO2 emissions in Europe were located in Serbia : TENT 1, TENT 2, Kostolac A, and Kostolac B. The desulphurization plants in Kostolac and TENT should improve the situation in this area and minimize harmful emissions.

SO2 concentrations released in the air by TENT at the time of signing the contract with JICA considerably exceeded the national standard which amounts to 400 per normal cubic meter (mg/Nm3). The description of the desulphurization project states the highest recorded SO2 emissions in the period from 2005 to 2009 which amounted to between 2,121 and up to 2,700 mg/Nm3.

With the construction of the desulphurization system, SO2 concentrations in the air should be decreased by more than 10 times, that is, to 200 mg/Nm3 or less, as prescribed in the Directive on industrial emissions the implementation of which started in 2016.

SO2 has harmful impact because, together with nitrogen oxides, it results in occurrence of acid rains which destroy forests, have harmful impact to flora and fauna, and accelerate corrosion of materials. Exposure to high SO2 concentrations causes respiratory and cardio-vascular diseases, with children, the elderly, and persons with asthma and chronic pulmonary diseases as the most vulnerable categories.

Besides SO2, thermal power plants also emit PM 10 particles which are among the most harmful air polluting substances, and which jeopardize human health by causing respiratory diseases.

A similar situation is happening with the second Chinese loan for construction of a new block within Kostolac B thermal power plant and extension of the Drmno opencast which EPS assumed in 2014, and the value of which amounts to almost €487 million; the project was to be completed in May 2022. Even though the deadline has not expired yet, EPS is delayed with this project, which is why it had to pay the Chinese bank €3.1 million of fee for unused funds.

The EBRD loan for modernization of coal production and environmental protection in the Mining basin Kolubara is on the third position according to the amount of fees paid; the €80 million worth loan was granted to EPS in 2011, and completed in the beginning of 2017. In these six years, the amount paid from the EPS budget due to the delay in utilization of this loan amounted to almost €1.6 million.

Besides payment of commitment fee for these delays, the implementation deadlines for these five loans have also been rescheduled.

EPS did not reply to CINS about the reasons for such delays and money spent for the purpose.

The Fiscal council filed CINS journalists the opinion according to which €15.8 million in the course of ten years does not represent an overly large amount for EPS, having in mind that the annual income of the company amounts to about €2 billion.

„However, this is a good example of poor investment management on part of EPS, which we pointed to in our reports” reads the written reply of the Fiscal Council to CINS.

The Council has been issuing warnings about problems in EPS for years, while the last Fiscal trends report for 2017 and recommendations for 2018 points to necessary reforms of this company, the poor business operations of which jeopardizes the whole energy system.

„We estimate that the drop in electricity production in the beginning of 2017 was a consequence of the poor company management – poor production planning and long-term deficiency in investments – and not so much due to unfavourable weather conditions which were given in public as reasons for poor results of EPS”, noted the Fiscal council.


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