Coal finance

KfW’s coal financing in Serbia

Photo: Vreoci Coal Loading Station (Serbien), CEE Bankwatch on with CC licence.

The Heinrich Böll Foundation recently published an e-paper by Roger Moody for which the author used information available on From Money to Metal, a website that he has been furnishing with data about investment in mining for years. For the purposes of the paper, he evaluated the data specifically with regard to the activities of German banks and expanded it with further research.

The Business & Human Rights Resource Centre subsequently asked the banks named in the paper (KfW, DEG und Deutsche Bank) for a statement. All replied. However, only KfW’s response truly addressed the allegations in the report. The bank’s statements and the responses by Roger Moody and myself on behalf of the Heinrich Böll Foundation can all be found here.

The arguments regarding the financing of the Kolubara coal mine in Serbia by KfW Development Bank are particularly worth noting.

KfW writes:

“The financing of Serbian power generation pursues two goals: securing the power supply within Serbia and mitigating the environmental impact of power generation. It is not related to a possible export of coal to Germany. That impression, which is given on page 14 of the paper, is completely unfounded. The flood mentioned on page 31 was one of the worst natural disasters in the history of Serbia – one that claimed 57 lives. The flood also inundated Tamnava West, the most important coal mine in the Kolubara basin. As a consequence, it became necessary to import electricity to restore the power supply and increase production in unaffected coal mines. Extensive measures to drain Tamnava West will be complete soon, and the mine will be able to resume production at full capacity once the affected plant has been restored. There has been no evidence of contamination in samples of the water pumped out.”

“The financial cooperation projects in the Serbian energy sector backed by KfW Development Bank in the first years of this century represented concrete emergency aid in the wake of the war and were designed to secure Serbian energy production. They included financing for state-of-the-art open-pit mining equipment for the Tamnava West lignite field. Since the end of 2012, KfW Development Bank has also been financing a project to reduce emissions and increase energy efficiency through coal quality management in the Kolubara mine. The measures reduce fluctuations in the calorific value of the local coal, eliminating the need to co-fire large quantities of dirty heavy oil. This investment will therefore contribute significantly to reducing the negative environmental and climate impact of power generation in thermal plants, in particular by reducing CO2 emissions by around 700,000 tons per year. That corresponds to 1.7% of Serbia’s annual CO2 emissions.”

A lot can be said about this, and Roger Moody and I have done so here.

While KfW likes to point out the ostensible CO2 mitigation effects of their coal financing in Serbia, NGOs such CEKOR, CEE Bankwatch and urgewald have been criticizing precisely those projects forcefully for years. With regard to the CO2-mitigating plant, for example, urgewald has repeatedly noted that it is essential to enabling the exploitation of poor-quality coal fields (see urgwald coal briefing for KfW – in German). This results in significantly higher net emissions.

Coal of varying quality is mixed there to homogenize its calorific value, reducing the need to co-fire heavy oil. This technology is vital for the mine operator who wants to expand production even though the reserves of high-quality coal are gradually being depleted. Zvezdan Kalmar of the Serbian environmental organization CEKOR sums up the outcome of the KfW’s financing: “Thanks to the new system, exploiting poor-quality coal fields that previously were not economically viable has become attractive. This is not a means of increasing efficiency, but a ticket to burn even more lignite.” (More on the topic in the 2013 coal briefing).

The flood shows precisely why it does not make sense – especially for a development bank working with public funds – to continue financing coal, a fuel that drives climate change and will make such events more common in the future. In this respect, KfW is contradicting itself.

KfW is extremely hesitant to follow the lead of other banks that have long since dropped international coal finance from their portfolios. A damning indictment – especially for an institution that likes to portray itself as a green climate bank.

Lili Fuhr, Heinrich Böll Foundation