The document that the Government of Montenegro published in order to “prove” that the Pljevlja II project is cost-effective, proves the opposite, according to the comments made by non-governmental organizations CEE Bankwatch Network, MANS and Green Home, which were presented today to the European Commission and other relevant addresses.
The Government’s document together with the Deloitte analysis is below
http://www.gov.me/ResourceManager/FileDownload.aspx?rId=244860&rType=2
The Parliament of Montenegro initiates a discussion regarding the decision on the agreement with Czech Republic, which would legitimize the process of selecting Skoda Praha as the most favorable bidder, without the standard tender. The decision would provide conditions for further development of the Unit II project, although the final price of construction has not yet been agreed between EPCG and Skoda Praha. (1)
The Deloitte study assumes price of €321 million for the construction, although Skoda Praha offered the best price at €329 million. It means that everything needs to be recalculated once the final price is known.
Deloitte also assumes that Montenegro will manage to postpone the payment for CO2 emission at least by 2026. Since it has not been practice to postpone such payment after the EU accession, there are no grounds for such assumptions. The price of CO2 must be included from the beginning of the project.
The production price of electricity form the Unit II has not been mentioned, and the wholesale prices in the study are extremely high – €97/MWh by 2040 without inflation or €143/MWh with inflation. If such projections are compared with the current price of €38/MWh in Montenegro, (2) there is clearly a danger the income will be significantly lower than expected, due to potentially lower electricity prices.
Moreover, in order to keep projections of the electricity prices “moderate”, Deloitte reduced the price by 10 percent in its calculation, justifying such price with 10 percent lower cost of CO2 emission. Lower cost of CO2 are not a risk for the project, nor something that can affect the project in a negative way, so this looks more like manipulating figures than a “moderate” scenario.
Even in case of such a manipulated calculation, in case the wholesale price of electricity is 20 percent lower than expected (as well as the cost of CO2), the Deloitte study allows that the Pljevlja II project is not cost-effective. Having in mind difficulties of projecting a price, that is not an implausible scenario. Therefore, if the CO2 cost is as expected, and not 20 percent lower, the cost-effectiveness of the investment will be even more sensitive to electricity price.
In order for the Pljevlja II project to be cost-effective, production costs in the coal mine in Pljevlja would have to be decreased from €24.21/ton in 2015 to €17.5/ton around 2027. It is not certain whether such decrease will be implemented at all, and in case it will be, the number of employees would be halved. Until now, there has been no plan on how to implement the decrease in a proper manner.
“Therefore, if the price of construction is €321 million, if Montenegro postpones the CO2 payment until 2016, if the electricity price increases significantly, if the CO2 cost increases slower than expected, if the coal production price decreases to €17.5/ton in the next ten years and if VAT is not paid for the equipment and construction, than Pljevlja II might be cost-effective. One has to be a huge optimist to believe that all those circumstances will fall into place”, says Pippa Gallop, researcher of CEE Bankwatch Network.
“Few days ago, while being on a talk show Akcenti, a representative of EPCG admitted that the existing thermal power plant is on the brink of cost-effectiveness, as the production cost is €45/MWh, while the selling price is €39/MWh. How can anyone think then that the new unit, with all the construction and financing cost, would be a profitable investment at the moment?” wonders Diana Cavor of Green Home. (3)
Contacts:
Ines Mrdovic, MANS, ines.mrdovic@mans.co.me +382 69 446 096
Diana Milev Cavor, Green Home, diana.cavor@greenhome.co.me +382 67 668 817
Pippa Gallop, CEE Bankwatch Network, pippa.gallop@bankwatch.org, +385 99 755 9787
Additional information:
(1) Montenegrin government is in a hurry, as at the end of the year, new rules of OECD will come into force. After that, the Czech export bank must no longer finance coal thermal power plants in the category of “supercritical”, such as Pljevlja II, in developed countries, such as Montenegro.
(2) Source of actual prices: http://www.ragagen.co.me
(3) Source of production price from the existing unit and the selling price: http://www.rtcg.me/tv/emisije/informativni/Akcenti/135558/akcenti-18072016.html
