BELGRADE, Dec 14 (Reuters) - Serbia and China will sign a deal worth more than $600 million next week to add a new unit at the Kostolac coal-fired power plant, the first major investment in more than two decades in Serbia’s ageing energy infrastructure, the plant’s manager told local media.
The agreement will be signed on the sidelines of a summit of leaders from central and eastern Europe and China on Dec. 16 and 17 in Belgrade, Dragan Jovanovic told Pink Television.
Chinese investors are increasingly targeting energy projects in the Balkans, boosting their presence and showing a willingness to take bigger risks than European rivals in a potentially lucrative market with good links to the European Union and scope for price rises.
The project will include the construction of a new 350 megawatt (MW) unit and expansion of nearby Drmno coal mine. It will take five years to complete, said Jovanovic.
He said that China will finance the project via a $608 million loan to be repaid over 20 years. It will include a seven year grace period and fixed annual interest of 2.5 percent.
The Serbian government and the state-run utility Elektroprivreda Srbije (EPS) will provide the remaining $107 million.
EPS is already undertaking a $1.25 billion upgrade at Kostolac, mainly financed by Export-Import Bank of China and using China Machinery and Engineering Corp. .
Due to the outdated technology the plant’s B1 and B2 units operate below their full capacity and the upgrade is designed to boost their output, extend life span and reduce greenhouse gas emissions.
Serbia generates two thirds of its electricity from ageing coal-fired plants and the rest from hydro power. It urgently needs to upgrade its energy infrastructure to meet rising demand.
Its energy sector has been under severe strain since major flooding in May this year inundated a mine supplying Serbia’s biggest power plant and forced the country to import power and coal to meet its energy shortfall. (Reporting by Maja Zuvela; Editing by Rosalind Russell)