CMEC starts building $610mn thermal power unit at Serbia's Kostalac

CMEC starts building $610mn thermal power unit at Serbia's Kostalac
Prime Minister Ana Brnabic at the groundbreaking ceremony for the new unit at Kostolac.
By bne IntelliNews November 21, 2017

China Machinery Engineering Corporation (CMEC) has started construction works for a new block (the third) at Serbia’s Kostolac Thermal Power Plant, the Serbian government announced on November 20. The construction of the 350MW unit will cost $613mn, while the whole project is estimated at around $716mn.

The project will be the largest investment in the energy sector in Serbia in the past three decades, Prime Minister Ana Brnabic said at the groundbreaking ceremony. Currently the two countries have joint projects worth $6bn, according to official figures, and Belgrade is actively seeking to increase economic cooperation. 

Brnabic also said that she will meet with the prime minister of China in Budapest and will sign two new contracts, one on the construction of the Obrenovac-Belgrade heating plant and others on the construction of Corridor 11 Preljina-Pozega.

The Kostolac project is being implemented on the basis of the interstate agreement between Serbia and China on economic and technical cooperation in the infrastructure field, signed on August 21, 2009.

Building block B3 at Kostolac is part of the second stage of a project that also includes increasing production at the Kopa Drmno mine from 9mn to 12mn tonnes of coal a year to provide sufficient quantities of coal for the new block. The expected annual electricity generation of the new unit is about 2.5TWh.

In the first phase of the upgrade project at Kostolac, revitalisation of blocks B1 and B2 was completed. The two units now have an installed capacity of 700MW. 

Chinese Exim Bank provided 85% of the funding for the new unit, and the remaining 15% is from Elektroprivreda Srbije (EPS). The repayment period for the loans is 20 years, including a grace period of seven years, with a fixed interest rate of 2.5%.

Kostolac B3 will be “the most modern plant according to the highest ecological standards,” Minister of Mining and Energy Aleksandar Antic commented, according to the government statement. 

There are also hopes the new power plant will boost electricity generation in Serbia, where disappointing figures recently were one of the reasons for the European Bank for Reconstruction and Development (EBRD) decision to lower its GDP growth forecast this year to just 1.8%, down from 2.9% previously forecast. 

However, environmental groups have objected to the new unit, saying it will add to air pollution in a region where numerous new coal fired power plants are planned.

Chinese banks have become virtually the only option for governments and state power companies in countries from the region hoping to find backers for investments in coal capacity, after multilateral development banks decided in 2013 to stop financing new coal-fired power plants. The lack of economic viability of many of the projects has made it difficult to obtain funding from commercial banks.