Harriet Salem in Belgrade -

In Belgrade city centre, protestors stand behind a dramatic black banner depicting the outlines of two fallen bodies: "2,100 dead in Serbia. EBRD coal kills," reads the bold yellow and red text. The protest is part of mounting pressure from environmentalists on the European Bank of Development and Reconstruction (EBRD) to cut lending to coal projects in Emerging Europe. Currently reviewing its energy strategy - scheduled for completion on September 30 - the development bank has held consultations with regional NGOs in Moscow, Istanbul and Belgrade.

Yet while the EBRD's recent decision to abandon plans to fund the completion of the controversial Kolubara B project - a 750-megawatt lignite-fuelled power plant - has been greeted with jubilation by green activists, critics say much more now needs to be done by the bank and the Serbian government to avoid an energy and economic crisis.

Speaking to bne on September 13, Axel Reiserers, spokesperson for the EBRD, confirmed that the bank had suspended its involvement in the Kolubara B and cast doubt on any future involvement. "Should it become active again, it will have to be assessed against the new energy strategy which has far more stringent rules and would make our possible participation in the current configuration very difficult," he said.

The confirmation follows a prolonged period of silence from all the parties involved. In 2011, the Serbian state-owned utility Elektroprivreda Srbije (EPS), which manages the Kolubara mining and power production complex located 60 kilometres south of Belgrade, and Italian energy company Edison signed a joint-venture agreement.

However, despite stating that the preliminary contract was a "foundation for joint activities that practically begin immediately," little progress has been made since, with the project dogged by what Bankwatch.org - an NGO monitoring the activities of international financial institutions - calls "corruption allegations, pollution at local level, [and] irregularities in resettlement of local populations."

Over the past few years there have numerous arrests connected with the Kolubara complex, with the latest coming on September 9, when police arrested several individuals, including the former director of the Kolubara Mining Basin Nebojsa Ceran and former financial director Ljubisa Nekic, on suspicion of fraud in land expropriation proceedings around the Kolubara mine.

Activists in Serbia hailed the EBRD's exit from the project, with Zvezdan Kalmar, project manager at the Subotica-based Centre for Ecology and Sustainable Development (CEKOR), calling it "one of the first serious NGO achievements in Serbia related to active citizens' advocacy against any sort of infrastructural project in energy."

Alongside Bankwatch, CEKOR has campaigned for over a decade to push green energy onto the agenda in Serbia, where burning fossil fuels accounts for 64% of domestic energy production and around 85% of total consumption.

However, given the timing, it's difficult not to think that the EBRD's retreat from the Kolubara B project may be little more than an PR exercise in demonstrating that the bank's draft energy strategy, which has so far received a less than warm response from the anti-lignite lobby, does have real reach and impact. Although produced under the "Sustainable Energy Initiative", the draft document goes significantly less far than the stringent environmental conditions for borrowing recently introduced by the European Investment Bank and World Bank, both of which have signaled a virtual end to their coal lending.

Few alternatives

Whatever the outcome, or reach, of the EBRD's final energy strategy, much of the damage in Serbia has already been done. Since the fall of dictator Slobodan Milosevic in 2000, the EBRD has lent hundreds of millions of euros to EPS for so-called "environmental improvement" projects in the Kolubara mining basin - including a €50m loan in 2003 for a mining pit expansion, and an €80m loan in 2011 for a coal excavator, spreader and conveyor system.

"These loans, which in the end have to be paid back, are effectively locking the country into a future of lignite dependency... and are undermining Serbia's target as a member of the European Energy Community to increase renewable energy to 27% by 2017," Kalmar tells bne.

That such projects can be classified as beneficial to the environment is "ridiculous," he adds. "Reductions in toxic emissions from these supposed efficiency projects are very small compared to [the] overall output."

Environmental concerns are not only the problem faced by policymakers. Serbia's energy sector is also teetering on the brink of a financial crisis. Earlier this year, state-owned EPS, Serbia's sole electricity provider, appealed to the government for a €300m loan to avoid bankruptcy. "Serbia's energy policy is unsustainable, economically and environmentally," independent energy expert Aleksandar Macura tells bne. "The situation is now a fire in the apartment."

EPS' burgeoning debts are at least partly attributable to the state's leverage over electricity prices, which are kept artificially low as a vote-winning tool. However, while subsidised electricity prices continue, government subsidies are drying up. EPS has the "indirect moral support" of the state, was the tepid response of then-finance minister Mladan Dinkic, to the company's February bailout request. "Everything else is in their hands," he said, neatly passing the buck.

The crisis is not limited to the upper echelons. Despite electricity prices being kept below market value, energy poverty remains a real issue in Serbia where the average wage is around €400 per month. "We have a situation where the service is not affordable from a living-standard perspective, but the price does not cover the real cost either," Macura says. "This is partly to do with wasteful patterns of consumption, much electricity in Serbia is consumed by private households not for the creation of GDP, but it also because of inefficient and out-dated technologies of production and distribution. There is a lot of waste in the system."

Unsurprisingly, the Kolubara mining basin - which generates around half of Serbia's electricity, or "lights one in every two light bulbs in Belgrade" as politicians often like to remind the public - has become a highly politicised topic, with the government keen to attract third-party investment to modernise the plant's technology, some of which dates from the 1970s.

The Kolubara B project - which was designed to replace four blocks at the out-dated Kolubara A plant, as well as increase total power generation capacities - remains a "priority project" for the government, a spokesperson from the Ministry of Energy, Development and Environmental Protection (MEDP) tells bne. "To our knowledge, activities in the project are [still] underway."

According to the ministry's spokesperson, EPS and Électricité de France (the French utility which has since acquired Edison) will work together to improve environmental standards of the plant's design in the hope of meeting the EBRD's new stringent loan conditions in the future.

However, environmental organisations say that both the EBRD and the state should stop backing Kolubara altogether, and instead look to more sustainable green alternatives. "The obsession needs to be 'Negawatts' not Kilowatts. Only after serious improvements in wasteful use and distribution should Serbia look to increase its generation capacities in sense of volume," says Kalmar. "The problem is that diversification is just seen as some sort of European Union extravaganza... de-carbonisation has not gained serious ground amongst Serbian technocrats."