Generation projects

There are several on-going generation projects in Serbia, but generally they are all marked with slow pro- gress and delays. For some large projects, documentation was made 40 years ago, but due to sufficient generation in that period, there was no need for their urgent implementation. Since 1991, there were no in- vestments in new large power plants or additional units, except modernization and extension of operational life in existing power plants.

EPS has 100% share in all large generation capacities, i.e. no joint venture agreements were made in the past, except investment with Croatian power utility HEP in one unit in TPP Nikola Tesla A. EPS planned to invest 9 billion EUR in a period from 2010-2015, but only small portion of this amount was actually invested. Some 3.5 billion EUR are to be be provided from company’s income, 2 billion EUR would be invested by strategic partners, while 3 billion EUR would be provided from loans. Investments are aimed to support sustainable development of the company, where 1 billion EUR should be invested in ecological projects. This amount does not include investments in renewable energy sources. Some 5 billion EUR would be invested for new facilities, i.e. 2.5 billion EUR for thermal capacities, 0.6 billion EUR each for hydro capacities and coalmines and 0.7 billion EUR each for new electricity meters and new distribution networks. Remaining funds would be invested in rehabilitation and renewal of existing generation capacities. However, till today, only small portion of planned funds was invested - again, mostly in maitenence of existing infrastructure.

In mid-December 2012, Minister of energy, development and natural protection Zorana Mihajlovic present- ed the list of priority projects in energy and environment sectors in Serbia. Overall worth of the projects is estimated at 7-12 billion euros.

The most important priority projects for electricity generation are: TPP Nikola Tesla B3 (700 MW), Radljevo coalmine, CCGT Novi Sad (450 MW), TPP Kolubara B (700 MW), pump storage plant (PSP) Djerdap 3 (1,200 MW), TPP Kostolac B3 (350 MW), TPP Novi Kovin (700 MW), HPP Velika Morava (150 MW), HPP Ibar (100 MW), HPP Middle Drina (320 MW) and TPP Stavalj (300-350 MW).

The biggest investments started by EPS in last two years are the purchase of coal mining equipment for Kol- ubara Coalmine (181 million euros worth), renewal of hydropower plant (HPP) Zvornik (70 million euros) and renewal of Kostolac power plants and construction of new unit in TPP Kostolac B (unit 3). Also, EPS has been preparing the feasibility study for construction of pump storage plant (PSP) Bistrica (4x170 MW).

5.2.1 Generation projects of Oil Industry of Serbia (NIS)

Oil Industry of Serbia (NIS) is, along with EPS, backbone of energy sector in Serbia. NIS is majority owned by Russian Gazprom Neft, which purchased 51 % stake in NIS in 2008 for 400 million euros in cash and 500 million euros in investments. Currently, Gazprom Neft owns 56.2 % stake in NIS, while the government of Serbia owns 29.9 % stake.

As a part of Gazprom`s involvement in Serbia through South Stream Project, Serbia and Gazprom (through NIS) agreed to build four natural gas fired power plants with overall power output of 450 MW in upcom- ing period. The potential locations are near Belgrade, Novi Sad, Zrenjanin, Kragujevac, Nis, Subotica and Sremska Mitrovica. New gas fired power plants will be entitled to natural gas at preferential prices ena- bling them to produce electricity at competitive prices (NIS has 95 natural gas wells in northern Serbia). Although NIS is not directly involved in construction of South Stream pipeline through Serbia, its larg- est shareholder is Gazprom, which has 51% share in “South Stream Serbia AG”, joint venture formed by Gazprom and Srbijagas, for the purpose of constructing South Stream Pipeline through Serbia.

In addition to gas fired power plants, NIS is also looking in coal generation and renewable generation. Company plans to install 14 cogeneration facilities with overall output of 25 MWt till the end of 2014. Beside on-going “Plandiste” wind project, NIS is also involved in geothermal electricity generation project “Kikinda”.

According to NIS, the company has invested more than 500 million euros during 2013, where investments during 2014 should be maintained on the same level. NIS posted net profit of 416 million euros in 2013, which was 2.5 % higher compared to 2012. During 2013, NIS paid overall amount of 1 billion euros for the taxes, which was 30 % higher compared to 2012. The particular amount of taxes amounted to 14 % of the state budget.

NIS is the most successful company in in Serbia since 2011, according to Serbian Business Registers Agen- cy (SBRA).

5.2.2 Combined Heat and Power Plant Pancevo

Although it was discussed earlier in 2013, first official announcements from NIS for construction of com- bined heat and power plants (CHPP) power plant in Pancevo, near NIS refinery, came in May 2013. Beside electricity generation, power plant will supply heat and steam to the NIS’s refinery in Pancevo and Petro- chemical factory.

In the end of September 2013 in Moscow, General Manager of NIS, Kiril Kravchenko and Director of Gazprom Energoholding Denis Fedorov signed the Memorandum of understanding for construction of natural gas fired CHPP in Pancevo, with 208 MW output. According to MoU, Gazprom Energoholding will own 51 % stake in the project, while NIS will own the rest (Gazprom Energoholding is 100 % owned by

Gazprom). The cost of the project is estimated at 182 million euros. According to the officials of NIS, the plant should be completed by mid-2016. The electricity and heat produced in the future power plant will be primarily used by NIS’s refinery in Pancevo and petrochemical plant Petrohemija. The rest of the electricity will be offered to domestic market, which will be 100 % liberalized from 2015. NIS said that the project would reduce expenses for purchase of electricity for Pancevo refinery and Petrohemija.

5.2.3 Combined Heat and Power Plant Novi Sad

Idea for construction/modernization of CHPP Novi Sad exists for some time, and activities related to this project were intensified in recent years. Although there were many interested parties, it seemed that high- est chances for the project to succeed were when NIS expressed interest during April 2013. For Ministry of Energy, this is one of the priority projects. Beside refinery in Pancevo, NIS also owns refinery in Novi Sad. In recent months, it seems that focus has been placed on power plant in Pancevo – but idea for power plant in Novi Sad is not abandoned. NIS plans to invest 100 million dollars in modernization of Novi Sad Refinery. Project for CHPP Novi Sad envisages modernization of existing and construction of new unit in existing CHPP Novi sad. In the beginning of 2009, the government announced it would publish a tender for construction of a new CCGT power plant in Novi Sad. EPS expected that the project will be jointly developed by EPS, mu- nicipality of Novi Sad and foreign strategic partner, which will have the majority stake in the project. EPS will invest existing facility, while municipality will provide land and necessary infrastructure. Strategic partner should invest 250 million EUR for construction works.

On July 6 2009, EPS and municipality of Novi Sad have signed a contract for establishment of a joint venture company called Energija Novi Sad (ENS). According to the contract, ENS will be involved in modernization of CHPP Novi Sad and construction of a new unit. ENS will be an independent company and it will sell electricity to EPS and heat to city of Novi Sad.

On October 8 2009, ENS has published public invitation for letters of interest for this project. At that point, the cost of the project was estimated at 250 million euros. ENS, EPS and municipality of Novi Sad will invest existing CHPP Novi Sad in new joint venture, while future strategic partner will acquire a majority stake through recapitalization. The future partner, apart from providing funds for the project, should have experi- ence in managing and building similar facilities. The deadline for letters of interest was set in December 1, 2009 and 9 companies expressed their interest for this project.

On April 24 2012, joint venture company Energija Novi Sad (ENS), on one side, and the consortium of Greek Metka, Slovak Grafobal Group Energy (GGE) and Optima Energostroi from Russian Federation, on the other side, signed the Protocol on starting the negotiations for signing the joint venture agreement for moderniza- tion of CHPP Novi Sad. The protocol referred to reconstruction of existing facilities in CHPP Novi Sad (200 MW) and construction of new CCGT unit. The modernized CHPP Novi Sad would have electricity output of 450 MW and heat output of 300 MW. The cost of the project was expected to reach 320 million euros. The efficiency of the new plant will be 80 % compared to the current rate of 30 %. By original plans, the plant was to be built in cooperation with strategic partner by 2012. The future unit should produce some 3 TWh of electricity and some 840 GWh of heat energy for the city of Novi Sad (some 80 % of the city’s needs). The plant should be connected to an existing natural gas network. The studies showed that construction of a new unit should last three years. But, project went into standstill.

During April 2013, CEO of NIS, Kiril Kravchenko, had a meeting with Minister of energy, development and natural protection Zorana Mihajlovic and GM of EPS, where the main topic of a meeting was the restart of the project for construction of the CHPP Novi Sad. Earlier in April, NIS has asked for help from the Minister in reaching the agreement with Power utility of Serbia EPS regarding the development of the project. Details were not disclosed, and since then, there were no official announcements related to this project.

But, in the beginning of January 2014, EPS and consortium of METKA (Greece), Grafobal Group Energy (GGE, Slovakia) and Optima Energostroy (Russia) signed the protocol on negotiations for reconstruction of existing units in CHPP Novi Sad and construction of new CCGT unit. Modernized CHPP Novi Sad should have 400 MW of electricity output and 300 MW of heat output. The overall cost of the project, which will be developed in two phases, should reach 320 million euros. The head of EPS said that the first phase of the project, with estimated cost of 220-240 million euros, could be completed in period of 20-24 months.

The representative of the consortium said that NIS, who has already signed agreement on strategic partner- ship in the project, should take part in the project if the outcome of negotiations is positive. NIS is expected to provide both the funds and fuel supply for the future plant.

The existing Combined Heat and Power Plant (CHPP) Novi Sad has 200 MW of electricity output. The study made by Energoprojekt showed that construction of a new power plant on the same site is more profitable than modernization of the existing one. But, since the existing plant is vital for providing the heat for the city of Novi Sad and cannot be out of operation for two years construction period, EPS recently decided to upgrade the existing one.

5.2.4 Thermal Power Plant near Kovin

During September 2013, President of Serbia Tomislav Nikolic met the General Manager of NIS and discussed future projects of NIS. During that occasion, plans for construction of 700 MW thermal power plant near Kovin were also discussed.

Old TPP Kovin project refers to construction of 300-600 MW power plant and lignite mine with estimated reserves of 276 million tons and exploitable reserves of 176 million tons. The project is planned to be devel- oped through public private partnership, and it is listed within 15 generation project with highest priority by Ministry of Energy, Development and Environmental Protection. The project is the part of Strategy of energy development of Serbia related to Vojvodina province.

The project in Kovin has been initiated by the government of Serbia 15 years ago by opening of the experi- mental underwater mine. In 2007, the company Energy Consulting & Engineering has won lignite exploration contract and the company has estimated abovementioned lignite reserves.

In the first week of May 2010, in the premises of Chamber of commerce of Serbia, Energy Consulting & Engi- neering and LMBV International signed a Memorandum of Understanding regarding environmental projects related to the construction of lignite mine and TPP near the city of Kovin. One of the important parts of the project is environmental protection, having in mind that future lignite mine should be spread near the pro- tected natural resort Deliblatska pescara, Danube River and sources of drinking water.

The company LMBV International, owned by Federal Ministry of Finance of Germany, has already cooper- ated with EPS in several projects. One of the goals of the abovementioned MoU is turning the wasted lignite into commercial products. Problems in the project could be related to exploration and exploitation rights. NIS and one Bulgarian company, which made the study on coal reserves in Kovin coalmine, were granted approvals for starting the exploration works.

The coalmine and the future TPP will be located near sources of fresh water, within the defensive belt be- tween Kovin and Danube River. However, some experts said that water pollution would be minimal. Kovin Coalmine is unique in the World in terms of coal production, having in mind that coal is being excavated 40 meters under the level of Danube River. In this moment, Kovin Coalmine produces some 180,000 tons of coal per year through the special underwater technique. The coalmine should be enlarged on the surface, where the TPP should be built.

5.2.5 Thermal Power Plant Kolubara B

The project should be jointly developed by EPS and Italian Edison. TPP Kolubara B will be lignite-fired plant and it will be replacement capacity for several older TPPs in Serbia. New power plant will have 750 MW out-

In the beginning of May 2012, government handed over the letter of support to EPS and Italian Edison for the development of the TPP Kolubara B. Project finance manager of Edison said that the next step in the project would be establishment of joint venture company and preparation of the feasibility study, in order to start the project during 2013. According to original plans, the TPP Kolubara B should be put in service in 2017. European Bank for Reconstruction and Development (EBRD) has entered the final phase for approving the 400 million euros loan for the project.

Partly constructed TPP Kolubara B is located around 40 km southwest from Belgrade. It was predicted to be a combined cycle power plant, producing both thermal and electric energy. Thermal energy was planned to be delivered to Belgrade and be used for district heating. By original project, power plant would have two 350 MW units.

The plant is constructed in the close vicinity of the open-pit-mine Tamnava-West Field, from which it will be supplied with coal. The construction started in 1988, and a part of the equipment has been contracted and partially delivered (95% of the imported boiler (Canadian Combustion and local Minel Kotlogradnja), steel supporting frame, generator transformers and generators). Civil and design works are also partially contacted and implemented. About 40% of the estimated investments have been implemented. By that es- timation, 300 million EUR have been spent into construction and equipment. For completion of this project it is necessary to invest additional 540 million EUR for construction completion and around 200 million EUR for coal mine. According to some estimation, TPP will have a closed cooling system. The problem lies in the fact that the delivered equipment is considered as old fashioned, and that the part of already invested 300 million EUR must be reinvested. Power plant is expected to be finished in 2017 at earliest, and would be built in accordance to EU standards that will be in power in 2016. The TPP will have older technology so its efficiency will be 35 %

During September 2013, several media announced that EBRD is not interested in funding the construction of TPP Kolubara, although official announcement has not been published by EBRD. Commenting the recent news, deputy Minister of energy, development and natural protection Dejan Trifunovic said that the Minis- try questions the profitability and sustainability of the project, especially in terms of price of electricity and environmental risks.

It is estimated that TPP Kolubara B will need at least 6 million tons of coal for one year of operation.

5.2.6 Thermal Power Plant Nikola Tesla B, new unit

Project envisages construction of new, 3rd unit in existing TPP Nikola Tesla B, with 700 MW output. But, dur- ing tender procedure in 2011, none of the eligible candidates submitted bid. Government later announced that the project could be developed through interstate agreement, i.e. without publishing the tender, in or- der not to waste time. During January 2013, Minister Mihajlovic stated TPP Nikola Tesla B3 project as priority project in 2013.

In the end of October 2011, EPS and consortium of Chinese companies, the China Environmental Energy Holdings (CEE) and Shenzhen Energy Group (SEC) have signed Protocol for development of projects in en- ergy sector in Serbia. The protocol particularly refered to development of unit 3 (700 MW) in TPP Nikola Tesla B and opening of the Radljevo coalmine. Overall cost of the project was estimated at over 2 billion EUR. In September 2012, EPS and German RWE have signed Memorandum of Understanding on strategic co- operation. Part of the MoU referred to the development of TPP Nikola Tesla B3. According to MoU, in 1.2 billion euros would be invested in new unit (700 MW) in TPP Nikola Tesla B. Several days after signing the MoU, Minister of energy, development and environmental protection confirmed that RWE should build unit 3 in TPP Nikola Tesla B and it should develop Radljevo coalmine. In return, Serbia should deliver the part of electricity produced by the future unit to the RWE, Minister said.

According to current situation, the construction works in TPP Nikola Tesla B could hardly start in 2014. The construction works should last 4-5 years. The new unit should be independent electricity producer and it will sign electricity sale agreement with EPS.

Existing TPP Nikola Tesla B has two 620 MW units, with available output of 1160 MW and annual generation of around 7 500 GWh. TPP Nikola Tesla B is located near the older TPP Nikola Tesla A, which has 1500 MW