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To meet the growing energy demands of Serbia and Montenegro, the European Bank for Reconstruction and Development (EBRD) is providing €60mn to help rehabilitate the countrys coal mining sector.

The 15-year loan to state-owned power utility Elektroprivreda Srbije (EPS) will enable the company to modernise its coal production and double the amount of lignite extracted annually from the Tamnava West mine to 12mn tonnes. The loan will also help EPS upgrade its existing communications systems. And it will support Serbia&’s plan to become part of an integrated electricity market expected in southeast Europe by 2005, and eventually join the European Union’s electricity market.

Serbia requires a cost-effective and reliable supply of fuel if its fragile power sector is to continue its recovery, believes Tony Marsh, EBRD director for power and energy utilities. Lignite is an important resource in the country, fuelling the thermal power plants which produce around two-thirds of the electricity used in Serbia and Montenegro, and the bank’s loan will help increase and stabilise production from the Tamnava West mine. The project will also offset depleting amounts of lignite from other mines.

The EBRD loan will be divided to meet two of the company’s priority needs: €47mn for components to expand the lignite production, including a new bucket wheel excavator, a belt conveyor system and a power supply system; and €13mn to help upgrade the company’s communications network to a digital system, which will improve efficiency, and help restore links to UCTE, which co-ordinates the interests of transmission system operators in 20 European countries, which were severed in the 1990s.

The project was prepared with the support of the European Agency for Reconstruction and the Canadian International Development Agency, which provided funds for feasibility studies to check the viability of the project. The project is expected to be cofinanced by the Swiss State Secretariat for Economic Affairs, Germany’s KfW, and the European Investment Bank.

With nearly 56,000 employees, EPS is the largest company in Serbia. It has 24 subsidiaries operating electricity generation, distribution and transmission networks, as well as lignite and hard coal mines. The loan builds on a €100mn loan provided to EPS in 2001, which helped finance a series of priority investments to improve the reliability and efficiency of electricity generation and distribution in the country.

The EBRD is the largest investor in Serbia and Montenegro, with more than €400mn invested in 17 projects.