“Miners don’t say good day, we say good luck,” says Hata Muratović Hasanspahić, standing at the door to a concrete elevator shaft that carries her 300 metres below ground each day. Hata is a coal miner in the central Bosnian mountain town of Breza.
It is hard work but Hata hopes her son will continue the family tradition. Working in a mine is still considered a good job in Breza as you’re sure to be paid, and on time, too.
Jobs are scarce and coal is plentiful in Bosnia and Herzegovina, which is how the Balkan country finds itself in the midst of a building boom of Chinese-funded coal-fired power stations. At least six power generation projects are underway, backed by Chinese loans linked to the country’s Belt and Road Initiative (BRI).
Bosnia and Herzegovina relies principally on coal and hydropower for its energy needs and has been slow to adopt low-carbon technologies, such as solar and wind power. The country has significant lignite coal reserves of 1.3 billion metric tonnes. This type of coal is too polluting to export to the European Union (EU), which has regulations banning its use. At Breza, mine director, Ćamil Zaimović, confirmed the bulk of his mine's annual output (700,000 tonnes) is for domestic consumption.
Bosnian politicians have embraced new coal projects as a way to create jobs in a country that is suffering from acute unemployment. In 2016, this stood at 25.1% according to the World Bank.
But many voices are warning of significant environmental risks and questionable economic benefits: the projects have been widely opposed, not least by civil society groups, academics, and environmentalists.
Six large coal-power projects are planned or underway in Bosnia, at an estimated total cost of more than 2 billion euros (US$2.44 billion), according to the research and activist network Bankwatch, which focuses on the use of public finances. It has found that for several projects, Chinese state banks are understood to be providing financing. And Bosnia’s politicians are happy to accept the loans. When visiting the Kreka coal mine, Bakir Izetbegovic, the Bosniak member of the tripartite presidency, expressed his support for new coal-fired generators and the jobs they will create. Similarly, Erdal Truhulj, former federal minister of energy, mining and industry, in 2014 stated that the new coal plant in Bugojno, would create about 1,000 jobs.
“They are selling this narrative to the electorate that this as the biggest investment in the country since the war, but this is a loan,” warned Denis Žiško, a coordinator with the Centre for Ecology and Energy in Tuzla (CEET), a non-governmental organisation.
Žiško does not believe state energy firm Elektroprivreda can repay the loan. “It is us, the citizens of Bosnia and Herzegovina that will have to pay it off,” he says of a coal power plant in Tuzla.
According to a Bosnian government budget for 2018-2020 the project will cost 1,622 million Bosnian marks (US$1 billion).
“There probably should be more caution, but at this moment in time the policymakers are burdened with the fact that economic recovery hasn’t really come,” said political scientist and former Serbian diplomat Vuk Vuksanovic.
“Most [politicians] are concerned about re-election and opinion polls. The strategists think three months in advance, and the politicians don’t think past next week,” he added.
Countries across the Western Balkans have been warned of the risks of borrowing from China by the World Bank and International Monetary Fund, according to a January report from the UK House of Lords International Relations Committee. The report notes that the burden of one Chinese loan to Montenegro (equal to approximately a quarter of the small country’s GDP) increased by 25% due to currency fluctuations.
The coal plants may also result in fewer jobs than hoped. As of 2016, there were 8,571 people employed in Bosnia’s mines, according to the Federal Employment Bureau. Some loans for coal-power plants specify the use of Chinese workers during construction, said Mirza Kušuljgić, a professor at the University of Tuzla and an expert on energy planning. He added that 80% of the workforce on the Stanari coal plant, for example, which has been operational since 2016, came from China.
Gateway to the EU
However, China’s lenders may be looking for more than financial returns from the projects.
“Because these are policy banks [providing the loans], they’re less interested in the feasibility of the projects than they are in the political capital they generate,” said Bankwatch researcher Pippa Gallop.
For China, the Western Balkans are another link in its Belt and Road Initiative, a massive network of infrastructure and connectivity projects.
“China’s long-term target is the European Union, and the Balkans are a gateway to it, and may someday even be EU members,” said Vuksanovic. In February 2018, the European Commission reiterated its hopes that six Balkan nations will join the bloc, including Bosnia, ahead of a summit on regional engagement in the Bulgarian capital of Sofia in May.
In 2013, China initiated what has become a US$13 billion line of credit for infrastructure projects in central and south-east Europe, which governments are eager to utilise. China’s loans offer “alternatives to leaders who wish to avoid the stipulations of international financial institutions”, said Kurt Basseuner, co-founder of the Democratization Policy Council, in written testimony to the UK’s House of Lords International Relations Committee.
While the EU is unwilling to provide financial support to lignite coal projects, and is demanding greatly reduced carbon emissions in new power stations, Chinese firms are sometimes less fussy.
The EU’s membership criteria stipulate convergence on “six flagship initiatives”, including the rule of law, transport, and energy connectivity. As part of their effort to join, countries in the Western Balkans are bound by anti-pollution regulations, albeit less stringent than those within the EU.
The Balkan states are signatories to the Energy Community Treaty (ECT), which seeks to integrate non-EU members into the common market for energy. Serbia and Bosnia signed up in 2005, and its stipulations for the reduction of carbon emissions come into force this year. The Serbian government has little understanding of its treaty obligations, according to Gallop. China’s first coal project in Serbia was the refurbishing of pollution control equipment in a plant in Kostolac, which are expected to fall short of ECT requirements.
A forthcoming Bankwatch report notes that China is officially committed to ensuring projects in the Western Balkans meet EU and host country laws, but queries the “capacity or interest in independent due diligence on compliance with EU law”.
The report highlights the role of local governments. “The primary reason these projects exist is local decision makers”, says Gallop. “It’s a case of inertia. Historically, the whole regional infrastructure has been built on hydro and coal [power]. It’s the only system they believe in.”
Kušuljgić, the energy planning expert, thinks China’s less stringent approach to lending also suits regional authorities.
“China doesn’t have any requirements in terms of democratisation of the market, respect of the environment, and so on. Their only requirement is to have a state loan guarantee,” he said.
However, in emailed remarks, Zijada Kovac, head of communications at the Central Bank of Bosnia and Herzegovina, told chinadialogue, “Chinese investments are still at the point of preliminary deals and announcements. The realised [Chinese] investments are still pretty low.”
Given Western timidity when it comes to investing in Bosnia – foreign direct investment fell by nearly half from 2015 to 2016, according to the US International Trade Administration – the promise of a Chinese loan is better than nothing.
China is not alone in funding coal projects in the Western Balkans. In late 2017, Kosovo, whose sovereignty is still unrecognised by China, signed a deal with US energy firm ContourGlobal for construction of a 600-megawatt coal plant. Located close to the capital Pristina, already one of the most polluted cities in the world, it could increase the city’s annual public health costs by up to 352 million euros (US$436 million), according to Belgian NGO Health and Environment Alliance. Nonetheless, the project has been warmly endorsed by the US embassy and received a partial risk guarantee from the World Bank.