“The Energy Community Contracting Parties have legal obligations regarding the prohibition of state aid that distorts or threatens to distort competition, which must be respected.(1) State aid authorities in the Contracting Parties systematically turn a blind eye to this obligation.”(2)
More than 18 months ago, the Energy Community Secretariat published a study(3) on direct and selected indirect subsidies in coal-based electricity production in the Contracting Parties of the Energy Community that make up the Western Balkans, namely Bosnia and Herzegovina, Montenegro, Serbia, Kosovo, and North Macedonia(4). The analysis covered the period from 2015 to 2017, and it drew attention to the alarming fact that the Contracting Parties of the Energy Community subsidized electricity production from coal with the amount of EUR 2.4 billion annually. The study further concludes that with the elimination of state aid and with the introduction of carbon pricing, not a single coal-based power plant in the region would operate without a loss, which is already the case for many of them.
The subsidies taken into the account are fiscal support, public finance support, and state-owned enterprises investment support.
The recent update of this study for the years of 2018 and 2019, finds that the Western Balkan Contracting Parties have steadily continued to support their coal-based electricity producers. Although direct subsidies are lower compared to the previous period, this is due to the lower interest rates and yields in the financial markets.
The Energy Community Contracting Parties have legal obligations regarding the prohibition of state aid that distorts or threatens to distort competition, which must be respected. State aid authorities in the Contracting Parties systematically turn a blind eye to this obligation.
There are many cases besides direct subsidies where state aid prohibition has failed. Contracting Parties in the Western Balkans have their domestic state aid frameworks. The reports so far have shown that the national bodies for enforcement of state aid rules are not fit for purpose. In most cases, such bodies lack the necessary structure, capacity, and most importantly, autonomy. These bodies have failed to raise or evaluate potential state aid cases, or have actually dismissed otherwise legitimate concerns. The state aid authorities in Bosnia and Herzegovina have cleared the state guarantee provided by the Federation for the loan of EUR 614 million from the Chinese Export-Import Bank to Elektroprivreda BiH. In June of this year, the Secretariat of the Energy Community referred this case to the Ministerial Council, the treaty’s governing body which is supposed to take a decision on the alleged breach of the Energy Community Acquis at the next Ministerial Council.
Another instance of a national state aid body turning a blind eye is the case of the Power Purchase Agreement between the Government of Kosovo and the coal-based power plant developer ContourGlobal LLC, for the electricity to be produced by the future Kosova e Re Power Plant. The plans for this power plant have failed, but regardless of warnings from the Energy Community Secretariat, the Kosovo state aid authorities failed to evaluate this case.
State aid is what’s keeping the outdated coal fleet alive in the Western Balkans. It distorts the market and limits the deployment of renewable energy, for which there is abundant potential in the region. State aid allows the state-owned utility companies to sell electricity below the real cost. Furthermore, it has hindered the decarbonization efforts of the region as well as undermined compliance with the Large Combustion Plant Directive, persistently keeping the region at the top of air pollution charts.
With the exception of Montenegro’s efforts this year to institutionalise its cap and trade system, the rest of the Western Balkans countries do not tax emissions from their coal power plants. The introduction of a carbon tax in these economies would yield EUR 1 billion on a yearly basis. Due to the fact that the utility companies in the Western Balkans are state-owned, these costs will in the end be borne by the citizens themselves, through the current state aid schemes.
Coal is dead. It’s time to pull the state aid plug!
Viktor Berishaj is the Energy Policy Coordinator for Southeast Europe at Climate Action Network (CAN) Europe
(1) Treaty establishing Energy Community, Article 18 https://www.energy-community.org/legal/treaty.html, Accessed on 10.07.2018.
(2) Analysis of Direct and Selected Indirect Subsidies to Coal Electricity Production in the Energy Community Contracting Parties
(4) Albania is not included since it does not have coal power plants
(5) Secretariat refers Tuzla 7 State aid case to the Ministerial Council, https://energy-community.org/news/Energy-Community-News/2020/06/29.html