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Construction Contract for the “Kosova E Re” Power Plant

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Construction Contract for the “Kosova E Re” Power Plant Construction Contract for the “Kosova e Re” Power Plant Eight Agreements, three major impacts! April 2018 Contents Introduction ................................................................................................................................ 2 A financial fiasco ....................................................................................................................... 3 Loan financing .......................................................................................................................... 6 An Anti-European agreement .................................................................................................. 11 1 Introduction On 19 January 2018, the Ministry of Economic Development published an already signed contract for the construction of the “Kosova e Re” Power Plant with the operator Contour Global. The documents were published a month after its signature in an event rather highly promoted by heads of state. Eight contracts rounding up a giant project were published only after Kosovo had signed upon all obligations imposed. Hence, we dealt with the transparency not as means of improving decision-making, but as means to justify action ex-post. Kosovo Consortium of Civil Society Organizations for Sustainable Development (KOSID), and the Institute for Development Policies (INDEP) have analyzed these contracts, and we are convinced that this is the most harmful contract for Kosovo in all its modern history. The contract generates a twenty-year financial gap for the country, it isolates it from integration and electricity market liberalization, and extinguishes any hope for an energy system based on clean and environmentally friendly resources, and population health. If this contract is implemented, Kosovo shall assume unbearable and undeserved costs. The state budget shall be burdened further, and many projects vital to Kosovo will not be implemented due to the focus on covering costs of a billion-dollar project. Contour Global cannot be named an investor in any economic logic. Quite the contrary, it is only a contractor to operate on a contract with not a single risk against its venture capital. It is a company that will not engage in construction, and will not even manage the project, since it can sub-contract that too! A company that has negotiated every single line of the contract to the detriment of Kosovo, and will have a safe profit, twenty four hours, seven days a week, for twenty years on row! This contract damages the European future of Kosovo. Being a signatory party of the Energy Community Treaty, Kosovo is rendering itself a service to a private operator, and has largely violated all principles of market liberalization, European policy for market integration, domestic and European rules on free market competition, and EU legislation on state aid. The New power plant construction contract embodies an old policy of state subsidy to a certain company, thereby giving the operator an exclusive position in the market, and damaging the consumers’ interests for affordable energy. The new coal-fired power plant is being built with no environmental impact assessment, or a social impact analysis. The Constitution of the Republic of Kosovo clearly requires that all projects with environmental implications must guarantee citizens’ engagement in decision- making, and that the environmental impact is taken into consideration in decision-making. Article 52 Environmental liability 1. Nature and bio-diversity, environment and national heritage, are a responsibility for all. 2 2. Public institutions must engage in guaranteeing everyone a chance to influence decisions that are related to their living environment. 3. Implications on the living environment must be considered by public institutions in decision-making processes.1 The Government of Kosovo has negotiated a contract of billions, without considering environmental impacts and public health, and without engaging into proper public consultation processes. Ultimately, construction of a new coal-fired power plant has not taken into consideration Kosovo needs for market integration in regional and European markets. All planning, negotiations and finalization works in the contract were made under conditions of an isolated market, where the coal is “the only solution”, or the ideal solution to feed the system further. The Kosova e Re Power Plant construction contract is harmful because it is financially damaging, environmentally and socially unpredictable, and in EU integration terms, it is isolating and short-sighted. From a bad idea of constructing a new coal-fired power plant to a horrid contract for its implementation! Hereafter, we shall list all financial, environmental and EU integration issues justifying why this contract and this project must be rejected and stopped! A financial fiasco Despite many arguments against a new coal-fired power plant for Kosovo, in current conditions after contract signature, we have to deal with its financial terms. With this agreement, Kosovo locks itself into an obligation of purchasing coal-fired electricity from a private operator for the next twenty years. Furthermore, a rather large portion of prior investments will be taken by the Government of Kosovo, thereby paving the way for the private operator to return on its investment and its profits. Section 3.6 item a)2 of the Power Purchase Agreement obliges Kosovo to provide for water at a certain quality for the Power Plant. Specific requirements of water quality must be agreed with the GenCo (Contour Global). Under this section, Kosovo is technically bound to publish a tender for water supply with the quality required by GenCo. Such supply in all regards will require a water plant for the specific requirements of GenCo, and shall be a very expensive investment. This also does not comply with the introduction of a fully commercial operator in the market, since the operator is requiring conditions from the state, and does not seek for solutions in the open market for its own requirements. Also, this article obliges the Government of Kosovo to require approval of specifications of the tender dossier before publication by GenCo. 1 Republic of Kosovo, (2008), Constitution of the Republic of Kosovo, Article 52, Responsibility for the Environment, Prishtina: Official Gazette of the Republic of Kosovo. 2 Power Purchase Agreement, 3.6 a). 3 Section 3.73 of the Power Purchase Agreement obliges the Government of Kosovo to conduct an Environmental and Social Impact Analysis. In Western countries, such a plan would be prepared by the vendor, and then accepted or rejected by the Government, as part of the licencing process. This study requires technical specifications of wind analysis, stack height, emissions, etc. Only then can GenCo perform its own analysis, and this contract does not bind GenCo to findings and conclusions of the Kosovo’s analysis. Apart from massive investments in the coal mines (over 300 Million) and auxiliary infrastructure, studies required according to Section 3.8 of the Power Purchase Agreement, to be paid by Kosovo are: a) Seismic Study b) Meteorogical Survey c) Topo-Geographic Survey d) Flood Risk Assessment e) Geological and Geo-technical study f) Bomb Assessment Survey g) Underground Obstacles Survey h) Raw Water Analysis i) Reserves and j) Other studies or surveys reasonably necessary for EPC contractors to accept the risk for differing ground conditions. Section 3.9 of the Purchase Agreement provides that Contour Global shall conduct an international competitive tender for EPC (Engineering, the contract does not even Procurement and Construction) and LTM (Life Time bind Contour Global to Management). Or have two sub-contractors or a perform or manage combination thereof through consortia. This means that planning, construction and GenCo shall not have an executive operational role, but only project management, but that of planning and supervision.4 Such combinations enter into an agreement usually lead either to mismanagement of construction, with sub-contractors! because sub-contractors have incentives to non-lawfully reduce costs, or in the case we believe to be happening in Kosovo, in raising the price. Tender conditions are set by GenCo, under the approval of the Government of Kosovo. However, Kosovo would have to respond within 20 days upon submission of tender specifications for EPC/LTM, otherwise GenCo may proceed without Government approval. This option, left in the contract with Contour Global, for GenCo to proceed with the tender for Owner’s Engineer, which is a standard financial procedure for such contracts. However, there should have been technically two owner’s engineers, since both are owners 3 Power Purchase Agreement, 3.7. 4 Ibid, Section 3.9. 4 (Kosovo and Contour Global). GenCo will conduct the tender itself, and it is not known whose interests will GenCo defend. And then, if GenCo does not have a role of the Owner’s Engineer, why would one need GenCo? The Contract provides for at least five contractors: EPC – Engineering, Procurement and Construction LTM – Life Time Management O&M – Operations and Maintenance Contractor GenCo Connection Assets – for the interconnection contract from the feeder, and connection to KOSTT network Environmental Protection Contractor - (Optional) According to Article 10.1.2 NKEC (or MED, which represents the Government, according to the first page of the Contract), is bound to pay for all net electricity from KRPP. Also, item c of this Article According to Article
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