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Author: Pippa Gallop, Research Co-ordinator, CEE Bankwatch Network
In April this year, the EU proved that whatever difficulties it might be going through, it can still make momentous decisions. It approved new pollution control standards for power stations, entitled the LCP BREF (1) The name might sound obscure, but the results should be concrete: The new standards are projected to save up to 20 000 lives annually across the EU.
On the EU’s doorstep in the Western Balkans, however, you would hardly know the LCP BREF existed. Almost all the countries in the region are planning to build new coal power plants, and there has been virtually no mention of the need for them to comply with the new standards.
This is strange, because not only is compliance with the new LCP BREF necessary for EU accession, but most Western Balkans already stipulate it as part of their domestic pollution control legislation (2). This means that as soon as the standards enter force in the EU this year, they also enter into force in most of the region.
Let’s be clear here: the LCP BREF is not a panacea. It limits emissions of SO2, NOx, PM10, HCl, HF and mercury, so it makes a great contribution to reducing coal’s health impacts. But it can’t do anything about the biggest problem with coal: CO2 and its contribution to climate change. There is no filter that can stop CO2 emissions, and if we are to limit climate change to 1.5-2 degrees, no new coal plants can be built. Unlike climate science, BREF is legally binding, and attempts to ignore it will likely backfire even sooner than attempts to ignore climate science.
Whether you have to comply with the LCP BREF right now or in a few years, it’s not something you want to ignore. With power stations lasting 40 years and more, they need to be designed in line with the very latest technical and environmental standards, and their promoters need to anticipate the rules coming up within the next few years. Failure to do so means additional and potentially expensive retrofits just a couple of years after a plant has opened.
With the chances of new coal plants being viable already at rock bottom, such additional costs could easily increase the risk of stranded assets. Only very few EU countries are planning new coal plants, because of low electricity prices, the growth of renewable energy, CO2 costs, and pollution control legislation that is gradually making polluters, instead of the public, pay the health costs of coal.
Yet governments and utilities in the Western Balkans are not doing their homework about recent trends and new legislation that awaits them in the next few years, with the result that their planned projects are dangerously out of date.
Earlier this year we revealed that none of the planned coal power plants seem to have properly taken the costs of CO2 into account in their financial planning. Now we’ve crunched the numbers for the LCP BREF and found that none of the plants has proven compliance with the new standards either.
There are eight units currently being actively planned in the region. Out of these, five would violate the new standards while for three there is insufficient information available. Kostolac B3 in Serbia, Pljevlja II in Montenegro, and the Oslomej reconstruction in Macedonia have been designed in line with the older Industrial Emissions Directive (IED) Annex V standards, but not the new BREF. Tuzla 7 and Banovići in Bosnia-Herzegovina don’t even go this far: Tuzla 7 is bound only by the even more outdated local legislation while the environmental permit for Banovići is unclear about what standards are relevant. For the remaining three units, Ugljevik III units 1 and 2, and Kosova e Re, the information about likely emissions is still unclear.
Kostolac B3 in Serbia is the only plant for which the new BREF has even been mentioned in its official documentation. It is currently undergoing an environmental impact assessment process, in which local groups have commented on the need for the plant to comply with the BREF. The only reaction so far is an amendment in the study stating that the plant would be an existing plant under the BREF and thus allowed to pollute more than new plants. Even if some retrofits are necessary, the study argues, this is a normal procedure after running a plant for a few years, and thus nothing to worry about.
Neither of these claims is true: Any plant receiving its integrated environmental permit after the LCP BREF enters force in the EU is a new one, according to the BREF definitions, and has to stick to the highest standards. As for undertaking retrofits, the study authors should really check the plant’s feasibility assessment, which shows that the plant will be unviable even with a low CO2 price.
The story is not dissimilar with Pljevlja II in Montenegro. Despite being hailed – like all the plants – as being in line with EU standards, it turns out that it is in line only with outdated ones. Local NGOs pointed out during the environmental assessment process that the plant must comply with the new LCP BREF, but they have received no reaction from the authorities as yet.
Montenegro and Serbia may seem like the most alarming cases due to being ahead of others in EU accession, but Bosnia-Herzegovina is if anything a more worrying case, due to the number of projects planned. The Stanari lignite power plant which started commercial operation last September is already out of date compared to the Industrial Emissions Directive and will now be out of line with the BREF as well. If Ugljevik III, Tuzla 7, and Banovići are all completed and all out of line with the BREF, the country will end up with a significant burden on its hands.
If the Balkans electricity utilities really ran on commercial lines, as they are bound by the Energy Community Treaty to do, they would never risk these projects. The new LCP BREF is but one more indicator that coal is an increasing liability, and the Balkan countries should be looking much more carefully at what’s going on around them. After all, the region has ample potential for wind, solar and energy savings combined with a relatively small population, so if this region can’t make a transition to sustainable energy, who can?
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Albania is the largest exporter of crude oil in the Energy Community and is home to the largest onshore oil field in Europe (i.e. Patos Marinza). A number of foreign investors have already entered this market, yet regulation of the upstream sector is based on old and not comprehensive legislation from 1993 (amended several times), which does not reflect the latest development of the sector related to exploration and production of hydrocarbons in Albania.
In respect to this oil and gas sector, regulatory and policy developments have long been underway and discussed with relevant stakeholders as part of the overall state energy strategy. However, new amendments to the existing law no. 7746 / 1993 “On Hydrocarbons” (exploration and production), as amended (the “Hydrocarbons Law“) have only been adopted on 2 Feb 2017, striving to regulate the activity of exploration and production of hydrocarbons in Albania.
The governmental objective introduced in these latest amendments, is to negotiate the terms of the Petroleum Agreements in the oil industry [the most common type of which used in Albania is a Production Sharing Agreement (“PSA“)] in a fair, transparent and competitive manner, to protect Albanian natural resources (inland and offshore) which are state owned, by guaranteeing the country’ national security, in line with the principles of Directive 94/22/EC of the European Parliament and of the Council “On the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons”. Based on this principles, the execution of new PSAs or share transfers in existing Petroleum Agreements can be rejected by the relevant authorities in case there is any indication of Albanian national security infringement.
Whilst the right of explorations have remained unchanged, that means that can be conducted for a period of 5 years (subject to further extension up to the utmost period of 7 years), exclusive rights to exploit hydrocarbons now can be extended up to 5 years in maximum following the initial period of 25 years. Appraisal period has been definitely separated from the exploration period.
New changes give the possibility to contractor to benefit from fiscal stability clauses, up to 12 years from production of hydrocarbons, by keeping tax liabilities at same level during the 12 years’ period.
Along with the Natural Agency for Natural Resources (“AKBN“) which was created back in 2006 to deal, inter alia, with hydrocarbon activities on behalf of the Albanian state and operating as a specialized institution dealing with the negotiations of the PSA, the monitoring of petroleum activities and policy-making, the new legislative amendments aim to establish a new authority in charge of all technical consultancy services, scientifically speaking. The Scientific Hydrocarbon Institute will be responsible for conducting all studies, analysis, providing consultancy services and acting as a technical opponent of proposed projects in this sector, monitoring the implementation of relevant production sharing agreements during the exploration and development of hydrocarbons in Albania, on behalf of relevant state authorities (not only in the hydrocarbon sector but also in relation to the refining, transport and trade of hydrocarbons and its by-products). In light of above changes, the competences of AKBN will be revisited and a new agency responsible for hydrocarbons (currently operating as a department of the AKBN) will be in charge of some of competences performed currently by AKBN.
While this amendments have been introduced to facilitate incoming foreign direct investment in the hydrocarbon sector, it remains to be seen whether the new rules and newly established structures will contribute to promote more exploration opportunities in Albania during 2017.
“Pennine” is pleased to announce that it has signed a Production Sharing Agreement (“PSA”) with Albpetrol Sh.A (“Albpetrol”) for the exploration and development of the Velca Block in Albania.
The finalized PSA contains a license agreement signed by Pennine, Albania’s Ministry of Energy and Industry, and Albpetrol, the country’s state-owned energy firm, for a six(6)-year exploratory lease-convertible to a 25-year production lease, upon discovery of oil and/or natural gas accumulations.
“This is a very exciting day for Pennine. Albania has a long history of oil and gas development dating back nearly a century, and Pennine is excited to bring its expertise to this region” says Chief Executive Officer N. Desmond Smith.
“Albania has mature energy infrastructure, established legislation and regulations, and a recent history of significant foreign investment for the development of its energy sector,” adds Mr. Smith. “We look forward to working in the Republic of Albania, providing value to Pennine shareholders, and bringing prosperity to the people of Albania.”
Pennine intends to initiate a Technical Report in the next 60 days, and with existing data, identify potential drilling targets within the Velca Block.
Pennine is currently working with industry experts from Albpetrol and the Ministry of Energy and Industry in an advisory committee, with Pennine acting as operator.
“Our understanding and experience with Albania has enabled us to develop a partnership with the Albanian government and Albpetrol through a new production sharing agreement. We believe this agreement provides a balanced risk-and-reward contract for the exploration and development of the Velca Block-and, we hope, many other opportunities in Albania,” says Pennine chairman Richard Wadsworth, who led Bankers Petroleum Ltd. in re-developing the Patos Marinza oilfield as its president from 2004 through 2008.
“We look forward to a seamless integration of Pennine into Albania’s oil and gas exploration and development landscape.”
The PSA consists of an Exploration Phase and a Drilling Phase. Under the Exploration Phase, Pennine and Albpetrol will conduct an examination of all currently existing geological, geophysical and well data on the Velca Block, and conduct any processing or re-processing of data to select drilling targets. The Drilling Phase will consist of a commitment to drill a minimum of two (2) wells, to a minimum depth of 2,500 metres.
Pennine will recover all exploration and development costs from 90% of the net operating revenue, after the state’s 10% royalty tax, then subject to an R-factor revenue sharing with Albpetrol, ranging from 2% to 15% of net operating revenue, depending on the multiple of cost recovery to the project. After payout of all costs, the interest in the revenue stream is shared, with 50% earmarked for the Albania Ministry of Energy and Industry and 50% for the participants of the PSA (a 100% working interest before payout and a 50% working interest after payout).
Main terms and conditions of the Velca Block PSA were signed in February 2016. Pennine and Albpetrol agreed in April 2016 to the terms of the PSA and submitted the document to Albania’s Ministry of Energy and Industry for approval. Pennine reviewed the License Agreement, an integral component of the PSA, in December 2016.
In connection with this transaction, Pennine will pay a finder’s fee to an arm’s-length entity through the issuance of up to 7,000,000 common shares subject to TSX Venture Exchange policy.
Interestingly enough, the gas sector once played an important role in Albania and the country was a relatively large gas producer. In 1982, gas production amounted to one billion cubic metres but has now dropped to mere 0.01 billion cubic metres. It is worth noting that Albania and Kosovo are the only countries in the Western Balkan region which are not connected to international natural gas networks.
The existing oil network, which is 498 km long, is not in a good shape, either. It connects all the existing sources of oil, with the exception of the pipeline that connects the natural oil wells in Delvina with the Ballsh pipeline (the latest one being renovated), but it is no longer functional. Most of it is corroded and defective which makes its use unviable. Consequently, a new oil transmission and supplying system is needed.