China Eximbank provides $608.26 million preferential buyer’s credit for Phase 2 of the Kostolac B Power Plant Project (Linked to Project ID#42549, #66928)

On August 20, 2009, the Government of the People’s Republic of China and the Government of the Republic of Serbia entered into an Agreement on Economic and Technical Cooperation in the field of Infrastructure, which entered into force on June 25, 2010. Then, on April 26, 2012, the Government of the People’s Republic of China announced that it had set up a 10 billion U.S. dollar line of credit to support cooperative projects with Central and Eastern Europe. The credit line would be partially in the form of preferential loans and would fund projects in the infrastructure, technology and green economy sectors. Then, on May 29, 2013, the Government of the Republic of Serbia submitted a preferential buyer’s credit (PBC) application to China Eximbank for Phase 2 of the Kostolac B Power Plant Project. Then, on December 17, 2014, China Eximbank and the Government of the Republic of Serbia signed a PBC agreement [CHINA EXIMBANK NO. PBC (2014) 47 (341)] worth $608,260,000.00 for Phase 2 of the Kostolac B Power Plant Project. The loan (PBC) carried the following borrowing terms: an interest rate of 2.5%, a default (penalty) interest rate of 0%, a 7 year grace period, a 20 year maturity, a 0.25% commitment fee, and a 0.25% management fee. On March 20, 2015, the Government of the Republic of Serbia and Elektroprivreda Srbije (EPS) — a Serbian state-owned power company — signed an on-lending agreement [No. 48-1642/2012-2] for Phase 2 of the Kostolac B Power Plant Project. The proceeds from the on-lending agreement were used to finance 85% of the $715,600,000.00 cost of the commercial contract [number 127/26-13] between EPS, Termoelektrane i kopovi Kostolac d.o.o. (a project company and wholly owned subsidiary of EPS), and China Machinery Engineering Corporation (CMEC), which was signed on November 20, 2013. The loan’s (principal) amount outstanding was $122,456,000 as of December 31, 2018, $137,382,000 as of December 31, 2019, $175,619,000 as of December 31, 2020, $229,303,000 as of December 31, 2021, and $346,852,000 as of September 31, 2022. Phase 2 has two sub-components. The first sub-component involves the construction of a new 350MW power generating unit (B3) at the Kostolac B Power Plant. B3 is expected to produce 2.5 billion kWh of electricity annually, increasing the total output capacity of EPS by 5%. This subcomponent was originally expected to take approximately 52 months to complete. Phase 2 also involved the expansion of the Drmno Open Cast Mine from an annual output of nine to 12 million tons of coal. The expansion of the Drmno Mine consists of a rotary excavator, eight conveyors with 12 km-long conveyor system and a spreader with the capacity of 8,500 cubic meters per hour, as well as two new substations. This subcomponent was originally expected to take approximately 47 months to complete. CMEC was the EPC contractor responsible for implementation of both components of Phase 2. The PBC that supported Phase 2 went into effect on May 25, 2015 when China Eximbank informed the borrower that it had met all of the “conditions precedent” in the loan agreement. This ‘Notification of Effectiveness’ triggered an advance payment worth 25% of the project value ($178.9 million) from EPS to CMEC in June/July 2015. Then, an opening ceremony for the expansion of the coal mine then took place on January 23, 2017. Two construction permits for the B3 power generation unit — one for the chimney and one for the water treatment facility — were issued on July 14, 2017. Then, a formal Phase 2 commencement ceremony took place on November 20, 2017. A permit for construction of the B3 turbine, boiler, and generator was issued on April 15, 2019. Then, on May 15, 2020, CMEC successfully started concreting the boiler foundation. As of January 2021, Phase 2 implementation was still underway. The Phase II construction of the power plant B3 had a planned completion date of 2021, but the project was delayed and is now expected to be completed in late 2022. China Eximbank also financed Phase 1 of the project (see Project ID#42549), which involved the reconstruction of 2 existing power generation units (B1 and B2) at the Kostolac B Power Plant. It is expected that, upon completion, the entire power plant — including the two upgraded 350MW units from Phase 1 (B1 and B2) and the third 350MW unit from Phase 2 (B3) — will be able to provide about one-fifth of Serbia’s total electricity supply.

Additional details

1. This project is also known as Phase II of the 350MW Kostolac B3 Thermal Power Plant Project, Phase 2 of the Kostolac Mine Expansion and Power Plant Project, and Phase II of the Package Project Kostolac-B Power Plant Project. The Chinese project title is 科斯托拉茨电站 or 塞尔维亚科斯托拉茨电站项目二期工. 2. The Overseas Development Finance Dataset published by Boston University’s Global Development Policy Center in December 2020 identifies a $608 million China Eximbank loan for the Kostolac Thermal Power Plant and a $715 million China Eximbank loan to EPS for ‘Electric Power Distribution’. The latter appears to be an error (based on the $715 million value of the commercial contract that EPS financed with the proceeds from the $608 million China Eximbank loan). 3. The loan (PBC) agreement can be accessed in its entirety via https://docs.aiddata.org/ad4/pdfs/how_china_lends/SER_2014_439.pdf.

Number of official sources

42

Number of total sources

58