Many small hydropower plants are illegal, auditors in North Macedonia find

The State Audit Office of North Macedonia identified serious omissions with regard to concessions for small hydropower plants. The report confirmed the national development strategies for energy and the use of renewable sources, based on which most concessions have been issued, were developed without a strategic environmental impact assessment.

The State Audit Office published a report entitled Exploitation of Water Resources in Electricity Generation for the period from 2012 to 2021. As of last year, there were 96 small hydropower plants in North Macedonia with a preferential producer status and another 13 such facilities without it. There are also eight large hydropower plants.

Numerous irregularities regarding the issuance of concessions, construction, and operation of small hydropower plants were noted in the document. Moreover, the operators of the units didn’t pay all the obligations to the government even though they were privileged with incentives, the authors said.

They pointed out the tender commissions have failed to conduct the legally prescribed concession studies and the preliminary environmental impact assessments. For some of the tenders, there was no feasibility study or a final decision on the implementation of the tender procedure.

Permits were issued without an environmental impact assessment

The auditors determined the concession procedures were performed based on outdated hydrological data. Due to weaknesses in the planning and selection of locations, concession agreements haven’t been signed for about 65% of the selected sites.

The competent ministry’s data on the applications for the issuance of the permits and on the issued permits are incomplete. The plants received permits without field inspections that were prescribed by law. Ineffective control by the competent institutions allowed in some cases the use of water even without a water permit, the report says.

Use of water was allowed without permit

As the production price wasn’t determined, the fee for the use of water of 1% was calculated for most small hydropower plants on the same basis as for the concession fee, the report notes. The audit determined that EUR 375,000 or about 41% of the total calculated fee amount was collected.

Consumers paid high tariffs small hydropower plants

Small hydropower plants in 2020 participate with 4% in total domestic electricity output. Last year they produced 195.7 GWh of electricity. In the period 2012-2021, operators of small hydropower plants collected EUR 90 million, or EUR 41 million more than the market value of the electricity they supplied, the audit says, due to preferential tariffs provided by law.

According to the report, consumers in North Macedonia paid EUR 81 per MWh of small hydroelectric power plants instead of EUR 44 per MWh, the market price in the period.

The report was welcomed by Eko-svest and the Macedonian Young Lawyers Association

“The State Audit Office report confirms what we have been repeating for years, that the process of construction of small hydropower plants neglects the legal obligations for environmental protection. This leads to them being permitted without proper determinination of their environmental impacts, with catastrophic consequences for the environment, and the local population,” said Gjorgji Mitrevski, coordinator for community support in Eko-svest.

Investors rarely adhere to the prescribed environmental measures, and the environmental inspectorate lacks capacity, as determined by the audit.

The government is expected to review the legality of small hydropower plants

Bojan Trpevski from the Macedonian Young Lawyers Association explained that awarding concessions without conducting an environmental impact assessment prevents the effective implementation of the public participation principle.

“We will continue to use all available legal mechanisms for environmental protection. But based on the State Audit Office’s findings, we expect the government to review the legality of the existence of the small hydropower plants and determine responsibility for this deliberate neglect of the legal provisions for the protection of our rivers,” Trpevski said.

In order to overcome the identified shortcomings and omissions, the auditors recommended to complete planned projects for the construction of large hydropower plants; consider the possibility for market adjustment of privileged tariffs; adopt a methodology for determining acceptable minimum water flow rate; set up registers for issued permits and granted concessions, and complete the collection of fees.

In addition, the certified state auditor pointed out that for some assigned locations there was a delay in the procedure that cannot be attributed to the concessionaire, and that some of them are located in a protected area in a national park. Therefore, the contracts are expectd to be terminated, with possible fiscal implications for the budget, the report said.

The motive for investing in small hydropower plants in state incentives

In June, Prime Minister Zoran Zaev promised most concessions would be canceled, regardless of possible lawsuits. He added small hydropower plants are not a threat if they are built according to regulations, prompting criticism from environmental organizations.

The Center for Economic Analysis and Eko-svest said in a recent report that the main motives for investments in small hydropower plants are incentives. They referred to the recommendation of the Energy Community Secretariat not to subsidize such facilities.