Bosnia energy: China sees potential

June 28, 2012 6:12 pm

A substantial new Chinese loan deal for a Bosnian power plant indicates the progress that the country is making in realising its potential as an energy exporter. In a region in which several countries have a power deficit, Bosnia is leveraging its competitive advantages and drawing international investment to the electricity sector.

Energy Financing Team, a UK-based company active in Balkan energy markets, has secured a €350m deal with the state-owned China Development Bank (CBD) to construct a 300MW coal-fired plant in Stanari, northern Bosnia.

EFT, founded by its chairman, controversial Serbian businessman Vuk Hamovic, said in a announcement last week that construction was due to start within three months, and power production should begin in 2015 or early 2016.

China’s Dongfang will provide equipment and build the plant, and coal will be supplied from the nearby Stanari coal mine, in which EFT secured a majority stake in 2005.
Bosnia’s economy is, by European standards, poor and weighed down by complex administration. Unemployment runs at around 40 per cent, and the country’s division into two ethnic “entities”, after the war of the mid-1990s, hampers government decision making.

But the energy sector is a rare bright spot. Bosnia is one of the few power exporters in south east Europe (Romania and Bulgaria being two others in recent years), capitalising on its location at the heart of the region and its power resources, most notably water for hydroelectricity, and coal.

Bosnia exported 2329GW hours of electricity in 2011, according to government figures. The official Foreign Investment Promotion Agency suggests that this could be boosted considerably, and it estimates that only 35 per cent of Bosnia’s 6000MW hydro potential is being utilised.

The Stanari plant is one of several major energy projects taking shape in Bosnia. In May, state-owned power firm Elektroprivreda BiH (EPBiH) announced that it was seeking partners for the construction of two new coal units with total capacity of 750MW, with contracts expected to be worth $1.66bn, while it is undertaking the BAM125 overhaul of another 215MW unit to increase output and prolong its lifespan. In 2010, EFT won a €100m contract for a 35MW hydro plant in Southern Bosnia.

This year’s bitter winter laid bare the need for greater electricity capacity in South Eastern Europe, as consumption reached record highs. Bulgaria and Bosnia both temporarily halted exports in order to ensure domestic demand was met, and Romania was unable to meet some of its supply contracts. But merely building more power stations will not be enough. The Warsaw-based think-tank Centre for Eastern Studies has suggested that the power crisis highlighted several weaknesses: Over-reliance on hydroelectric, the performance of which is affected by the weather; the low capacity of transmission infrastructure; and the lack of a single energy market. Diversification, investment and market reform would all be beneficial, particularly to an exporter like Bosnia.
EFT director of communications Nenad Savic said that the Stanari plant would target exports to Hungary and Greece, where liberalisation means that prices are set by the market, and that Bosnia could easily export more power to its closer neighbours Serbia and Croatia were they to ease subsidy regimes.

“This is a flagship project and an asset for future trading,” he told beyondbrics. “Bosnia is a rare energy exporter in the region, and it’s an area in which the country has competitive advantages. There is a regional energy deficit, and in the long term more sources of energy are needed to sustain economic growth. Bosnia has every opportunity to be part of that.”