FINANCE:

U.S. on both sides of new battle over assistance to 'ugly' coal-fired power plant

Coal plants don't come much dirtier than than Kosovo A.

Situated in the village of Obilić (population 21,000) a few miles outside of Kosovo's capital city, Pristina, the Soviet-designed, 1960s-era plant spits out 2.5 tons of dust every hour. The plant and its nearby cousin, Kosovo B, serve as the country's two electricity generators. In Obilić alone, 30 percent of the town suffers from chronic respiratory diseases.

But the U.S.-backed solution -- shuttering Kosovo A and building a new, 600-megawatt lignite-fired power station financed through the World Bank -- has provoked outrage in the environmental community.

It also has sparked renewed consternation within the World Bank, which recently suffered a public relations nightmare for helping the South African utility Eskom build a 4,800-MW coal plant. Meanwhile, managers are scrambling to find support for a controversial new policy -- pushed upon it by the United States -- to phase out coal lending to middle-income countries.

"On the one hand, the U.S. is taking a very strong, and we think very positive, stance on coal lending in the World Bank. And then on the other hand, they are pushing the bank to invest in this coal project that is controversial within Kosovo and also directly contradicts what their own coal guidance says," said Justin Guay, with the Sierra Club's International Climate Program.

So nervous are World Bank officials about being -- in the words of one person with knowledge of the project -- "left hanging out to dry" that managers made clear they would need explicit written support from the Obama administration before bringing it to the board.

"The World Bank itself doesn't want to do this project," Guay said. "They know they just had Eskom. They just had this bruising [board] fight around coal. Why have another fight over a project, especially one that is just so bad?"

The answer, sources say, lies in a complicated mix of geopolitics, a sincere desire to help a poor, energy-needy country with few export options, and entrenched bureaucratic interests in a project that began years before the United States seriously debated coal. Europe wants it, and for the World Bank, the plant represents a lending opportunity in a country with a small portfolio.

Kosovo regards former President Bill Clinton as a hero for launching NATO's air bombing campaign to drive Yugoslavian troops out of the Serbian province in 1999. Pristina boasts an 11-foot bronze statue in his honor. These facts have no small bearing on Secretary of State Hillary Rodham Clinton's agency's strong support for the project, several people involved with it said.

Plans for the power plant are marching quietly but steadily forward. Last week, the World Bank's executive director for Kosovo, Konstantin Huber, assured Kosovo's deputy prime minister that an agreement will come "very soon," according to the Gazeta Express.

Meanwhile, few officials in either the World Bank or the Obama administration are willing discuss the plant publicly. Said one World Bank source, "Everybody wants it, but they want it to go away at the same time."

Europe's poorest country needs more juice

Everyone agrees that Kosovo needs help. Once the poorest region of the former Yugoslavia, Kosovo today is Europe's poorest country. Unemployment hovers around 45 percent. About as many people live on less than €45 per month. The country's largest export is scrap metal from abandoned cars.

Energy remains a particular challenge. While Kosovo A is outdated and the largest point source of air pollution in Europe, Kosovo B -- built in the 1980s -- is poorly maintained. Together, the plants have a combined installed capacity of 1,487 MW, but both are run far below installed capacity. Power outages are frequent, propelled by years of underinvestment, neglect and wartime damage to the country's transmission and distribution systems.

There are also what U.N. reports gently refer to as "non-technical losses": that is, meter tampering, widespread non-payment of bills, and rampant electricity theft through illegal connections to distribution networks.

Plans to address Kosovo's power situation began nearly 10 years ago and originally envisioned a 2,000-MW lignite plant that would allow the country to export energy to its neighbors. Over the years, political and investment setbacks caused the plant to be scaled back in size.

Representatives from the State Department and U.S. Agency for International Development, which are leading the energy work in Kosovo, declined to discuss the project. But a five-part State Department strategy obtained by ClimateWire describes the plan as such: to close Kosovo A by 2017, rehabilitate Kosovo B to meet E.U. standards and develop a new 600-MW lignite-fired power plant.

It would also privatize the distribution system and assess the ability for alternative energy development in Kosovo. Not laid out in the strategy is another element: a new lignite strip mine.

The World Bank's role would be in providing partial risk guarantees for private-sector investments and financing of the power generation.

"We believe the World Bank engagement is needed to ensure implementation of a desperately-needed program for Kosovo to provide energy security and shut down a highly-polluting coal plant," said Natalie Wyeth, a spokeswoman from the U.S. Treasury, in a statement. Treasury is the only federal agency involved in the project to explain the U.S. interest in it.

Wyeth noted that the Communist-era electricity system and years of neglect have led to not only continued blackouts but the need to import pricey electricity from Serbia. "The lack of a reliable power supply not only creates a significant drain on the public budget but is also a major constraint to private investment and greater private sector-led growth. The project is essential for sustainable economic growth in Kosovo, which is Europe's poorest country and still dependent on donor support."

Meanwhile, she said, the project will have environmental benefits including the offsetting of C02 emissions by shutting down Kosovo A and ending the use of about 150 MW of backup diesel generators throughout the country.

'No real alternative' to brown coal

Yet to power the new plant, Treasury and World Bank officials say lignite coal is Kosovo's only option.

Often referred to as "brown coal," lignite is considered the dirtiest of all fossil fuels. And Kosovo has tons of it. More than 14,700 metric tons, in fact, the world's fifth-largest proven reserves.

"Of course, if you hear lignite, you think the Middle Ages. Why would we do this? The thing is, they [Kosovo] don't have money for anything," said one high-level World Bank official. When it comes to renewable energy, the official said, "these guys have nothing. I think they could cover 1 percent of their electricity needs with hydropower. Solar and wind? Forget it. ... But lignite? They're sitting on it."

Wyeth wrote that Kosovo went through a detailed process to determine that the proposal is the right approach for the country. While the World Bank's private investment arm is exploring hydropower development as part of the restructuring effort, she said analyses concluded that for now, Kosovo has "no real alternative" to lignite for needed baseload power.

Environmental groups don't believe it. At the very least, they argue, the State Department and World Bank have conducted insufficient studies to back up their claims that Kosovo is a renewable energy wasteland. Moreover, they maintain that end-use, industrial and transmission/distribution efficiency fixes deserve more attention than they are currently being given.

"Since World Bank has not yet done an alternatives study ... it is difficult to say what other sources can Kosovo utilize to develop alternative projects," said Nezir Sinani, who coordinates Kosovar and international nonprofit groups on energy issues. But, he noted, different private companies have found that wind and solar offer "a real opportunity" in Kosovo.

"Knowing this, we do believe that a study is necessary to be done before pushing forward the lignite-based power plant," Sinani said.

Added Guay, "This project has been going on for a long, long time. So it has all this momentum behind it. I think the [U.S.] government looks at it as a nation-building exercise, and that, I think, is what is trumping more than even the question of what type of energy is best." He argued, "The people pushing this have an outdated way of looking at the energy sector."

Green groups push for cancellation

Environmental groups have urged the World Bank to allow Dan Kammen, who was hired with much fanfare last year to be the bank's chief technical specialist for renewable energy, to do a special assessment of Kosovo's options. That's something Kammen did successfully in Malaysia, which canceled a proposed coal-fired power plant after a team Kammen commissioned at the Malaysian government's request examined the country's alternative energy options.

Jakup Krasniqi, the president of Kosovo's Assembly, issued a personal invitation to Kammen, citing his "great knowledge and experience with renewable energy issues." But the World Bank declined on Kammen's behalf, noting that many studies of hydropower and other alternatives in Kosovo have already been conducted. Their expert, they said, has "scheduling conflicts and other engagements."

In a statement to ClimateWire, a World Bank spokesman noted that the institution has not taken a decision on financing, and that an independent panel of experts is being tasked to determine if the project meets the bank's coal guidelines.

Those guidelines are at the heart of the fight. Currently, there is a standoff among members of the World Bank's board of directors over a proposal to eliminate coal financing for all middle-income countries. That insistence comes directly from the United States, which two years ago vowed to push the World Bank to phase out coal lending in light of climate change considerations.

Obama administration and World Bank officials point out that under the proposed energy strategy, coal lending is permitted for the poorest countries. Kosovo fits into that category. But while the coal plant might meet the letter of the energy strategy, many note it does not meet the spirit of it.

"It's an ugly project, and these are difficult choices," one World Bank source said. But, he noted, it comes down to a decision to provide Kosovo with an imperfect yet cleaner energy source or stand on principle regarding climate change. "That will be a tough choice for the owner governments, and it's a choice that the owner countries of this institution will have to make."