The construction of a new thermal power plant block in the north-east of Bosnia and Herzegovina (BiH) has again been called into question. The guarantee of the Government of the Federation of BiH (FBiH) for Chinese debt was deemed illegal.
Government of BiH entity, the FBiH, in November 2019, gave a guarantee to the Public Enterprise “Elektroprivreda BiH” to borrow from the Chinese Import-Export Bank (EXIM) in order to build Block 7 in the Tuzla Thermal Power Plant worth 700 million euros.
The Council confirmed to Radio Free Europe (RSE) that the guarantee, signed by FBiH Finance Minister Jelka Milicevic, is not in accordance with the Law on the BiH State Aid System.
Namely, the contract for the construction of Block 7 was signed in 2014 with the consortium of Chinese state-owned companies “China Gezhouba Group Company” and “Guandong Electrical Power Design Institute”, which were selected as contractors.
The Council points out that their decisions are binding for all providers of state aid in BiH. This includes the Government of the FBiH, that is, the Ministry of Finance of the FBiH, which granted a guarantee for the Chinese loan.
A guarantee is an insurance instrument in domestic and international business by which the bank guarantees the user that it will pay the amount covered by the guarantee, if the main debtor fails to fulfill its obligations.
In the last four years, the Council for State Aid has twice considered the issue of a loan guarantee for the construction of Unit 7 of the Tuzla TPP.
For the first time, in 2018, the Council gave the “green light” for the guarantee. At the end of June, the same body made a decision contrary to the original one, that is, that the guarantee is not in accordance with the law. The Council renewed the procedure at the insistence of the Energy Community, a body of the European Union (EU) established by the treaty, of which BiH is also a signatory.
On November 30th, at the request of the Energy Community, the ministerial council of this body declared the loan guarantee of the Chinese bank illegal.
After the last decision of the Council for State Aid, the Energy Community says that the government of the FBiH is now on the move, which is obliged to withdraw the issued guarantee.
“By adopting this decision, the Council eliminated the violation of the Treaty on the Establishment of the Energy Community and ensured compliance with the acquis of the EU,” the statement of the Energy Community states.
Dirk Buschle, head of the legal department at the Energy Community Secretariat, says the decision gives confidence that European law will prevail.
“By correcting its previous decision, the Council for State Aid imposed itself as a credible implementer of BiH and Energy Community regulations on state support,” Buschle noted in a statement.
At the same time, according to the EU rules on subsidies in the energy sector, a state guarantee can be granted in the value of up to 80 percent of the investment. In the case of Block 7, it was given at one hundred percent, plus interest and other related costs.
Speaking about the fate of the thermoblock construction in Tuzla, the director of Elektroprivreda BiH points out that the Government and the Parliament of the FBiH must give consent to all changes related to the possible extension, termination or amendment of the contract, RSE writes.