Bosnia: State aid case Tuzla 7, 450 MW lignite power plant

23. September 2015. / SEE Energy News

In July 2014 the parliament of the Federation of BiH published a paper on the progress with the project prepared by project promoter JP Elektroprivreda Bosne i Hercegovine.

The paper provided some basic details about the project and the offers that had been received during the tender. In April 2014 when the final offers were due, only the Gezhouba consortium submitted an offer. Gezhouba offered two options, of which one involving a Preferred Buyer’s Credit, at a cost of EUR 785.7 million, was considered economically viable by EPBiH. The plan is that the China ExIm Bank will provide a loan of EUR 667 802 500 (85% of the Engineering, Procurement and Construction (EPC) contract of EUR 785 650 000). Little is known about where the other 15% of the financing will come from as it is said in the EPBiH document that it will come from the company’s own resources. The EPC contract was signed with Gezhouba in late August 2014, while a Memorandum of Understanding was signed between the Federation of BiH entity and ExIm Bank at a China-CEE summit in December 2014.

Two issues arise from the EPBiH document which may raise state aid issues, according to the Bankwatch report:

– Possible state guarantee for the planned loan from the China ExIm bank by the government of the Federation of BiH entity. No information is given about whether EPBiH will have to pay for the guarantee or what percentage of the loan would be guaranteed. The parts of the document which explicitly mention a sub-sovereign guarantee are:

p.9: “The government will consider ensuring a guarantee for the financing of the project. The necessary guarantee will be considered when the financial structure of the project is defined”.

p.16: Guarantee for the payment of the loan: Sub-sovereign guarantee of the Government of the Federation of BiH or sub-sovereign borrowing plus mortgage on unit 7, escrow account for income from PPA and guarantee by JP Elektroprivreda BiH d.d. – Sarajevo.

– The prices of the EPC contract on p.18 and 33 of the document are quoted without Value-Added Tax (“bez PDV-a”). No further information confirming whether the project is to be exempted from VAT is available so far. However BiH’s Law on Value-Added Tax (Official Gazette of BiH, 09/05, amended by 35/05 and 100/08) Part 4 on exemption from VAT does not list energy generation facilities among the activities that may be exempted from VAT.

– Some financial services are exempt from VAT (Article 25), so there may be some elements of the EPC contract which are not subject to VAT, but these should be relatively minor compared to the overall size of the contract. VAT in BiH is set at 17% so if this was applied to the whole cost of construction of unit 7 (EUR 785 650 000), the value of the exemption would be EUR 133 560 500.

The question of breach of EU policies on state aid was the subject of the analysis which was conducted by environmentalist experts, transmits Serbia-energy.eu

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