Electricity

Energy Community finds distortions of state aid rules regarding Kosova e Re power plant

Photo: Ministry of Economic Development Kosovo*

Published

June 18, 2018

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Published:

June 18, 2018

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The Energy Community Secretariat believes that several elements of the power purchase agreement signed between the Kosovo* Government and the US-based ContourGlobal for 500 MW Kosova e Re power plant constitutes state aid. In the meantime, Reuters reported that the World bank has not confirmed it will back the project as it announced earlier.

According to the Secretariat, in the conclusions of the Kosovo* Sustainable Development Week held in Priština at the beginning of June 2018, the Secretariat was called upon by the participants to issue a position on the compliance of the coal-fired power plant with the rules of the Energy Community.

The Secretariat recalled that it shared its prima facie concerns with the Kosovo* authorities by letter of 22 March 2018.

“The concerns relate to the contractual framework for the operation of the planned power plant, and most notably the power purchase agreement signed in December 2017. The Secretariat believes that several elements of the contracts signed constitute state aid,” Secretariat said.

The Secretariat will continue the discussions on the contractual framework applying to the Kosova e Re project with the Kosovo* authorities, the press release reads.

The Secretariat will have to ensure compliance with the Treaty establishing the Energy Community for the benefit of the citizens of Kosovo* and the region, the Secretariat said, adding that it will take that responsibility seriously.

“ContourGlobal enjoys a guaranteed and risk-free profit”

The Secretariat recalls that state aid is prohibited under the Energy Community law.

Under the Third Energy Package applicable to Kosovo* under the Energy Community Treaty, electricity markets should be open to competition and non-distorted. In cases comparable to the Kosova e Re investment in pre-EU-accession Poland and Hungary, the European Commission and the European Court of Justice found that power purchase agreements concluded there constituted state aid, the press release reads.

In the Secretariat’s preliminary view, ContourGlobal is shielded from commercial risks such as the production risk, the market risk, the operational risk, regulatory and tax risks, credit risk, etc.

The risks are borne by the government of Kosovo* through its public company – and ultimately translate into costs for suppliers and customers or direct and continuous subsidies by the Government – while ContourGlobal enjoys a guaranteed and risk-free profit, the Secretariat noted.

Other potentially critical elements in the set of contracts concluded in December 2017 include exemptions from taxes and customs duties, state guarantees, and the transfer/lease of land below market price.

World Bank hesitating

The World Bank said it has not yet decided whether to support the power plant in Kosovo, Reuters reported.

The World Bank said it was still “finalizing an options study” in the face of booming renewable energy technologies whose costs are declining.

“The pace of technology change in the energy sector is moving fast, especially in renewables, such as solar, wind, and storage, where prices continue to decline,” a World Bank spokesperson told Reuters.

According to Reuters, the World Bank initially said it would back the project with a loan.

* This designation is without prejudice to positions on status and is in line with UNSCR 1244/99 and the ICJ Opinion on the Kosovo declaration of independence.
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