Serbs Sign $716 Million Coal Plant, Mine Deal With CMEC

China Machinery Engineering Corp. (1829) signed a $716 million deal to build Serbia’s first new coal-fired power plant unit in 23 years and expand a mine as the Balkan state seeks to replace communist-era infrastructure.

The unit planned at Serbia’s Kostolac plant east of Belgrade and the expansion of the Drmno open-pit lignite mine will be 85 percent funded by the Export-Import Bank of China, Dragan Jovanovic, general manager of Thermal Power Plants and Mines Kostolac, said in Belgrade today.

“We expect parliamentary approval for the borrowing by the end of the year,” so construction may start in early 2014 and the Kostolac B3 unit may be commissioned in 2019, Energy Minister Zorana Mihajlovic said.

Serbia, which has scaled back borrowing by unprofitable state-owned companies, will offer Exim Bank a $608.2 million guarantee to be included in the draft 2014 budget that lawmakers are due to approve by mid-December. The 15-year loan has a 3 percent interest rate and a five-year grace period.

The Balkan European Union aspirant needs to add capacity to replace aging thermal coal plants that don’t meet the bloc’s standards and increase output to end costly winter electricity imports.

Adding the 350 megawatt unit will help Kostolac owner Elektroprivreda Srbije JP, the state-owned power company also known as EPS, phase out part of its almost 5,000 megawatt thermal-power capacity, some of which is more than 40 years old, said EPS Chief Executive Officer Aleksandar Obradovic.

ABB Ltd. (ABBN), the world’s largest maker of power transformers, and Germany’s Siemens AG (SIE), will equip the new plant along with Chinese manufacturers, CMEC president Zhang Chun said. CMEC is already engaged in an overhaul of Kostolac’s B1 and B2 units under a 2009 agreement between the governments based on a $344 million Exim Bank loan.

The Drmno coal field’s annual output capacity will grow to 12 million tons from 9 million tons, also with German mining equipment, Jovanovic said, without giving details.

Serbia has sought financing for some of its infrastructure projects from a $10 billion fund that China set up for 16 countries in central and eastern Europe.

To contact the reporter on this story: Misha Savic in Belgrade at msavic2@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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