Consequences of the construction of small hydropower plants in BiH (3): Austrian SHPPs, co-financed by BiH citizens, operate at a loss

At the end of last year, the Vienna Audit Office informed the Austrian public that the small hydropower plants owned by Wien Energie, which had been built in Bosnia and Herzegovina and Northern Macedonia, produced an operating loss of more than € 11 million. What are the reasons for the losses in the Austrian power plants whose operation is subsidized by the citizens of Bosnia and Herzegovina with their own money?

Written by: Predrag Blagovčanin

Energy Eastern Europe Hydro Power GmbH has been a company fully owned by the Wien Energy GmbH holding since 2015. Through its subsidiaries, this holding manages twelve small hydropower plants in Bosnia and Herzegovina and Northern Macedonia.

This holding company operates through local subsidiaries in Bosnia and Herzegovina. In FBiH through the EBH Ltd. company and in the RS through the subsidiary of ERS MHE Ltd. These two companies own a total of six small hydropower plants, four of which are located in the Federation of BiH, built in the Gostović River basin, and two operating in the Republic of Srpska in the Rudo Municipality location, which are built by means of long-term loans from the Austrian shareholders.

According to Wiener Zeitung, the findings of the Vienna Audit Office were the cause for the alarm: In their article, NEOS Liberal Party leader Christoph Wiederkehr emphasized that the City of Vienna and Energy Eastern Europe Hydro Power GMBH must reflect on the economic sense and purposefulness of their investments abroad – “Losing money in small hydropower plants abroad is certainly not in the interest of the Austrian taxpayers.”

Furthermore, the “Freedom Party” parliamentary deputy Georg Fürnkranz called the city deputy Ulli Sima accountable to “immediately restore the order in the corporate network of Wien Energie GmbH.”

BiH loses 4 million KM due to subsidies

According to data from the analysis on economic justification of the concession fees and incentives for small hydropower plants by M.Sc. Damir Miljević, due to the established system of concession fees and incentives for small hydropower plants, BiH annually has a loss of 4 million Convertible Marks. Austrian-owned hydroelectric power plants are also co-financed by the citizens of Bosnia and Herzegovina.

Nestor Ruiz from Center for environment considers that the money citizens pay for the incentives for renewable energy through the electricity bills is not justified by any public interest.

“Bosnia and Herzegovina does not profit from small hydropower plants. If we look at the available data for the Austrian companies EBH Ltd. and ERS MHE Ltd. we can see that in 2017 they paid a total of 57,327.57 KM of the concession fees, while they received 589,298.63 KM from the Renewable energy sources incentive levy. For 2018, these companies paid a total of 74,964.44 KM of the concession fees, while they received 761,570.17 KM from the incentives. How can that be profitable for this country?”

At the same time, the hydropower plants are operating at a loss. To whom is then their construction and survival profitable?

The money is not invested out of love but out of interest.

Adnan Halilović, director of the EBH Ltd., the Austrian branch in the FBiH, points out that the data about the 11 million euro loss, which was published by the Austrian media, is not realistic. He emphasizes that the projections are that the EBH Ltd. will operate positively this year thanks to the production beginning of the fourth hydroelectric power plant, “Kamenica”, in the Gostović River basin.

“This information is not realistic. EUR 11 million has been invested, with losses ranging from EUR 100,000 to EUR 200,000 per year. The financial accumulated loss is about EUR 1 million if we look at the period over the past five years. I consider – it makes sense that if you invest into something you will be at a loss. We hope to operate positively this year thanks to the construction of the fourth power plant, “Kamenica” in the Gostović River basin. We couldn’t make a profit because we had been building that power plant in the past. This is the policy of the company, I wish we were constantly on the plus side, but it is not like that.”

He sees the reasons for the negative business in the fact that this company complied with all legal regulations, unlike some local companies engaged in identical activities.

“You are aware of the situation with the bureaucracy in BiH. This is why there is 15 years of delay. We wait one year for each document. We are not an investment country and everyone is aware of this. Our company is not the only example. No one comes to invest money out of love but out of interest. You need to get over 60 different permits for the construction of one facility. Regarding the Kamenica SHPP, environmental permit was rejected a long time ago, so we were in court and the process lasted about five to six years. In general, we got it in court and we have all the documentation we need. There are companies that go off course. We are an Austrian company and we do everything by law. Each facility was the subject of a public call sent by the state and I often say “We unfortunately applied …”.

Climate change contributes/impacts/leading to bad business

Unlike the EBH Ltd., the other company operating in Bosnia and Herzegovina – ERS small hydro power plants based in the RS, according to director Miroslav Divčić, closed the last year with a positive business balance. However, in Divčić’s opinion, this year will be negative given the effects of climate change.

“As for the ERS’s small hydropower plants company, we closed the last year with a positive business balance. We will close this year with a loss that is not big. You also saw what the year was like and that there was no rain. Climate changes, which have occurred only in the last seven to eight years, have had a rather bad impact on the operation of the small hydropower plants. Hydropower plants are cost-effective, but the question is in which time period. We have a concession period of some thirty years and these are all plants that are paid out for some longer time periods. ”

Divčić points out that precisely because of the biological minimum, the hydropower plants owned by the ERS have not been operational for the last four months. Similarly, like his Sarajevo counterpart, Halilović emphasizes that this company complies with all laws prescribed by the competent authorities in BiH.

“When you have these facilities that make huge sums of money in a short period of time, something is not right. Either a power plant that does not fit that river profile has been constructed or environmental regulations have not been observed. We have not been working at all for the last four months because we respect the biological minimum. Therefore, we are fully responsible towards the nature at the expense of profit. Two and a half years is the period of time that passes from the discovery of a watercourse where a hydropower plant can be built until the construction permit is obtained and the question arises as to how come some can build a hydroelectric power plant within half a year. The legal framework cannot be complied within such a short time.”

Multimillion-euro losses, according to Divčić, are the investments that should to be paid off through the concession contracts.

“With regard to small hydropower plants, there would be no concessions in the duration of 20 to 30 years if these were facilities that would be paid off in seven or eight years. The EUR 11 million is in principle the investment that is to be paid off in the concession period ahead. These facilities, which have been built, have their own value and have been built according to the Austrian standards to be able to operate for 100 years. They will eventually be taken over by the state. There is a chase after small hydropower plants and there are cases where this is justified, but there are 80% of people who do the job responsibly concerning the nature. Why do we have to put up with the pressure now because of some others who are favoured by the inspectors?” Divčić wondered.

Only taking over the whole river is profitable?

Center for environment points out that it is obviously not cost-effective to build and operate small hydropower plants if the laws and regulations, interests of the local community are complied, and if the business is conducted in a sustainable manner concerning the nature and environment. As Nestor Ruiz points out, the question is who would make profit in this country at all if they were to comply with biological minimums, if concession fees were more realistic, and if subsidies for small hydropower plants were to be abolished, given that it is the technology that is not being developed anymore?

“In the case of the SHPP in the Gostović River basin, we can see that the project was cost-effective only in the system of four hydroelectric power plants and that is why it was pushed so much to be built. So it is only profitable if, as in this case, a whole river is taken over”, Ruiz explains.

He points out that the taking over the whole river could become a dangerous and established practice.

“We are concerned that this might become a practice to exhaust all the potentials of a river by adding new SHPPs, especially when looking for a cascade/accumulation effect, like it was done in the Gostović River with the “Rujevica-ušće” and the “Botašnica-ušće” sHPPs. This might still happen in the Gostović River with the addition of a new hydroelectric power plant “Sađevica-ušće”, which has been planned, but a concession has not yet been granted.”

How to do business in BiH – hire Bičakčić

Admir Bajraktarević from the Atom Association emphasizes that the hydropower studies on the Gostović River basin were done in the 1980s and granting concessions for the construction of small hydropower plants started in the 2000s.

“In a public consultation, I think in 2002, the “Elektroprivreda” B-H power company presented three options, one option was with a dam, the other with some two accumulation power plants and the third option was small hydropower plants. Small hydropower plants were presented as some small mills. Only four of us were against construction, but the option of building small hydropower plants was accepted there. At that moment we started fighting to protect at least the site of the waterfall, because it is Zavidovići’s cultural treasure and a place where generations have spent summers, knowing that we cannot stop the construction of all they had planned.”

When the local community realised that the construction of a small hydroelectric plant would endanger the waterfalls, according to Bajraktarević, the municipal council as well as the mayor of the municipality at that time, Izet Bašić, did not give consent for the construction. A petition was also signed against the construction of Kamenica sHPP.

“We were against it, together with the municipal council and the mayor of the municipality Izet Bašić, as well as the local community. We also signed a petition. After these pressures, the Minister at that time, Nermin Mandra rejected them (the sHPPs) completely, to our general surprise. Later, a lawsuit was initiated over an environmental permit for the investor to obtain, most likely because of lobbying by Edhem Bičakčić.”

According to available data, former federal Prime Minister Edhem Bičakčić was involved in the construction of the hydropower plants in the Gostović River basin. His company Bičakčić Ltd. cooperated with the Austrian company through a contract on consulting, on the development of the main design for the Čardak SHPP and Kamenica SHPP and for the supply of hydromechanical, electromechanical and electric power equipment for the Čardak SHPP and Rujevica SHPP owned by EBH Ltd.

Furthermore, Edhem Bičakčić’s company provided the identical equipment together with the GRP pipeline to the other Austrian subsidiary ERS MHE Ltd. for small hydropower plants Sućeska 1 and Sućeska 2.

The controversial Kamenica hydropower plant owned by EBH Ltd. has been put into operation. Bajraktarević stresses that this construction destroys the tourist potentials of the Tajan monument of nature.

“The problem with the Kamenica Hydro Power Plant is that it is located in the centre of the recreational area, which in the summer period is visited by 5000 people from Zenica, Žepče, Doboj and the whole region. The problem is that the water for this facility is taken from the flow that feeds the waterfall, which is both a symbol and a tourist attraction. Everybody profits from tourism, everybody makes some money, somebody sells bread, someone rents an apartment and the money stays in that area. Smart countries function like that, and here are the natural resources given to the investors who, by the destruction of nature, derive material benefits for themselves.”

As we can see the construction of the small hydro power plants is not a cost-effective business if the laws and regulations are complied. In this context, announcements of the construction of over 400 hydropower plants in 244 rivers in Bosnia and Herzegovina represent an unprecedented nonsense. However, the reasons for these aspirations can be seen through the fact that regardless of whether a domestic or a foreign company operates positively or negatively, its work will be co-financed exclusively by the citizens of this country.

This article is part of a series of articles in cooperation between Center for Environment and the journalist Predrag Blagovčanin, as part of the campaign „Save the Blue Heart of Europe”