By Joop Hazenberg On

In Uncategorized

A new coal plant is about to be built at Kostolac in northeast Serbia, with financing and technology from China. But what is meant as a crown jewel of Chinese investments in the Balkans looks more like a powder keg. Not in the least because of human rights neglected.

With four existing units at Kostolac lignite plant nearby, plus the Drmno open pit mine and the Ćirikovac ash dump, it is hard to imagine that inhabitants of Kostolac town and nearby villages live a healthy, happy life. And things are about to get worse.

A new 350 MW plant is planned to be added to the Kostolac complex, fueled by lignite coming from the expansion of the Drmno mine by half of the current production capacity.

In the Drmno village, where around one thousand people live, inhabitants are panicked. If plans of the state-owned Serbian energy company (Elektroprivreda Srbije, EPS), which manages the Kostolac coal complex, come true, then they will be besieged by coal from all around: already surrounded by a coal mine and an ash dump, a railway meant to bring coal from the Drmno mine to the new plant and a planned shipping dock would completely close in the village from the outside world.

“We already suffer because of mining: we inhale the dust from the coal deposited near our village, wind brings over ash and dust from the mine overburden, there is constant noise from the mining operations taking place day and night, and vibrations are causing our houses to crack,” says Slađan Perić Laki, a Drmno villager and activist. “The value of our homes has been completely downgraded. But, anyway, we could never sell them, no one wants to come live here.”

Kostolac cracks
Cracks in houses appearing because of heavy mining activities (Photo: CEKOR)

“And it will get even worse when they build the railway,” adds Perić. “We will be trapped from all sides. For hours in a row, we will not be able to get out of the village or return if we are out. It won’t be possible to live here any more.”

Most of the farmland in the village area has already been bought up by EPS to ensure that its mine expansion plans can go ahead without opposition. Ironically, locals have no job opportunities apart of the same company whose mining operations are destroying their houses and chocking their lungs. Most people just want out.

With the help of Subotica-based environmental organisation CEKOR (Center for Ecology and Sustainable Development), over 400 people from Drmno and nearby village Old Kostolac signed a petition asking to be resettled. According to Serbian national legislation, a 500 meter buffer zone should separate any mine from inhabited areas. Most of the village of Drmno falls within the buffer zone of the mine with the same name.

“In some places, we saw houses even at 50 meters from the mine. The situation of people is desperate,” says Nikola Perusic from CEKOR, who helped the villagers to collect the signatures. “This is a very politicised project and politicians often just want to make profits from it instead of watching out for the interests of citizens. People are really sick of this situation and they decided to take matters into their own hands.”


Over the summer of 2015, CEKOR submitted the signatures to EPS in the hope the company would agree to resettle the villagers. The company has a bleak track record when it comes to abiding by law concerning resettlement: in the vicinity of another mine, Kolubara, not far from capital Belgrade, inhabitants from Vreoci have been for years watching mining operations advance to engulf their gardens and homes without being moved to new locations.

According to CEKOR, there are more signs of illegality. Over the summer, representatives of the NGO spotted a chimney being constructed at the planned location of the new Kostolac plant. The ministry of constructions, however, says it has not issued a permit to construct any chimney.

There is no final Environmental Impact Assessment (EIA) to build the new plant either. Arguing that the EIA prepared by the Serbian state company for the new plant does not properly evaluate important impacts of mining such as expropriations, dust pollution or water use, CEKOR challenged the document in front of Serbia’s Administrative Court. A ruling is pending.

CEKOR team meeting with Drmno inhabitants
CEKOR team meeting with Drmno inhabitants (Photo: CEKOR)

Kostolac is located some 20 kilometers from the border with Romania, and yet the trans-boundary impact of expanding the mining complex has not been properly studied or presented to the Romanians. The Espoo Convention implementation Committee (the United Nations body which monitors the proper planning of projects with trans-boundary environmental impact) called on the Serbian Ministry of Environment to redo the EIA in order to include an assessment of the project’s environmental impact on Romania.

The construction of the new plant and associated mine expansion are to be executed by the China Machinery Engineering Corporation, according to an agreement signed by the Serbian government with the company in November 2013 (the company is also set to modernise two of the existing blocks at Kostolac).

85 percent of the roughly 700 million US dollars cost of the project will be financed via a loan coming from the Export-Import Bank of China (ExIm), while a state guarantee for the entire loan has been included in Serbia’s budget. However, a European Union Directive on state aid that Serbia must adhere to as a pre-accession country, prohibits state aid above 80 percent of the value of the project. Environmental NGO CEE Bankwatch Network has brought to the attention of the Energy Community, an EU-supported intergovernmental organization watching over the integration of the Balkan energy market with the EU’s, concerns that Serbia might be breaching the directive by guaranteeing a loan covering 85 percent of project costs.

“The economic viability of any coal project built today in the Balkans is questionable but all the legal issues around Kostolac add extra question marks,” says Ioana Ciuta, energy coordinator at Bankwatch. “Any delay caused by the legal challenges, the whole issue of resettlements, all will add to the final cost of the project. There is a real risk Kostolac will turn into a financial burden, like Sostanj lignite plant in Slovenia.”

Chinese state banks and companies have already committed to constructing other coal plants around the Balkans, while at Stanari in Bosnia and Herzegovina a new 300 MW block is already under construction.

Bankwatch warns that all coal plants planned in the region face similar problems to Kostolac, and that Chinese investors would better stay away from them altogether.

In those cases when they already committed to new coal units, Chinese investors and constructors would better establish good practices from the start, warns the NGO, or risk throwing money into doomed projects.

As a matter of fact, many good investment practices are already obligatory for Chinese policy banks such as ExIm by virtue of the “Green Credit Guidelines” enshrined in national legislation. For example, ExIm bank has, among others, to conduct ex-ante and ex-post screening and investigation of environmental and social impacts of projects it finances, make sure that projects it finances are in compliance with local legislation, disclose information about projects and engage affected communities via public consultations. In the case of Kostolac, according to a Bankwatch assessment, it appears the bank has failed to fully comply with these guidelines.

“With Kostolac just one of many proposed large-scale energy infrastructure projects likely to receive financing from Chinese institutions in southeast Europe and Turkey, Chinese financiers and developers must implement proper environmental and social due diligence measures from the start, as well as be transparent, make information about the projects available to the public, and engage with stakeholders,” says Ioana Ciuta. “Otherwise, both Chinese lenders and their European borrowers might find themselves struggling to cope with projects gone wrong when risks could have been minimized from the beginning.”