Jury Out On Who Will Profit From Dams

After Montenegro’s parliament’s banned construction of Buk-Bijela dams in the UNESCO protected canyon of Tara River in 2004, the six-decade-old idea of exploiting hydro-power potential on Moraca River was officially re-introduced in the Montenegrin National Energy Strategy, which was approved in December 2007.

The plan suggested the construction of four cascade dams on a stretch of 40 kilometres upstream of the Montenegrin capital, Podgorica, at four locations: Andrijevica, Milunovici, Raslovici, Zlatica, generating a total power of 283MW.

Together with the Tara, the Moraca is one of Montenegro’s most powerful rivers, with a potential waterpower theoretically of 1,400 MW. The government deems hydropower “one of the key drivers of future economic development”, and says it has immense developmental prospects, as only 17 per cent of theoretical water potential is currently being exploited for electricity production.

The country’s existing dams have the total installed power of only 1800MW, while the theoretical estimate of Montenegro’s total hydropower is 10,000MW.

But while the government has high hopes for the Moraca dams, environmentalists are less keen, fearing that damage to the environment will far outweigh any economic benefit.

Plans for the construction of the dams have thus attracted fierce opposition from several environmentalist NGOs, both local and international, with the World Wildlife Fund For Nature, WWF, and Montenegro-based Green Home leading the anti-dams debate.

One major concern of the environmentalists is that the dams might damage the biodiversity of Lake Skadar, the largest lake in the Balkans and the biggest natural bird resort in Europe. Lake Skadar obtains 60 per cent of its water from the Moraca. Another concern is that the dams will mainly benefit the Italian concession companies rather than Montenegrin citizens.

As a result of this criticism, the government called on bidders for the recently failed tender to propose alternative, more environmentally friendly solutions than the one proposed.

The deadline for proposal submissions was initially set at April 15, but was prolonged until September 30 on the request of the bidders, who said they needed more time to come up with better solutions. Finally, the tender was closed unsuccessfully on September 30 after none of the previously qualified bidders submitted their offer.

Two bidders whose offers were expected until the last moment were the Italian companies, Enel and A2A. The latter has worked in consortium with Elektroprivreda Crne Gore, EPCG, of which A2A owns a 43 per cent share. It was widely believed that A2A would win the tender, but in the end it withdrew from presenting an offer.

A Memorandum that A2A had signed with the Montenegrin government in August mentioned the possibility of assigning the construction of dams on Moraca directly to EPCG in case of the tender failure.

This drew negative reactions from some members of the public, who claimed that the government was showing favours to A2A to the detriment of the public interest.

Media reports claimed that Montenegro’s former prime minister, Milo Djukanovic, negotiated the concession of the Moraca dams to A2A in 2009 as a key element of a strategic partnership in the energy field with the Italy of Silvio Berlusconi.

Both Montenegro and Italy have denied the existence of any such secret deals.  But according to local media reports, Montenegro openly favoured the bids of the Italian companies, thereby prompting the withdrawal of two other qualified bidders for the tender,Synohydro of China and Strabag of Austria. Neither company has officially confirmed such suspicions.

Italy’s Enel told local media that they withdrew because they “did not find it appealing enough”, but declined to comment on the government’s relations with A2A.

Official studies estimate the dams could yield an overall net benefit of up to 743 million euro in the best-case scenario [the lowest official estimate is 91 million euro]. But civil society groups question the studies done on the project, claiming that no proper cost-benefit analysis has been made, that the profit forecasts are unrealistic and that the overall development prospects are overblown. They claim the project will cost too much while the actual profitability is unclear.

Official studies estimate that construction of the four dams would last six years, with a total cost of 543 million euro. This figure includes 58 million euro for changing road routes, 57 million for land expropriation and 3 million for conservation of the Moraca monastery.

This estimate was made by Poyry Energetic Consulting, which was engaged to make an economic and financial evaluation of the project on behalf of the government. The estimated cost of the construction of the four dams is 390 million euro.

The solution proposed for financing of the project by the Energy Strategy is a public-private partnership. While it has been already announced that the government is to cover the expropriation costs, civil society groups complain that it is unclear how much public money will have to go towards the overall cost, especially if the government were to assign the project directly to EPCG in which it is still a majority shareholder.

There are also worries that most of the energy from the dams will be exported to Italy without addressing the issue of the domestic shortage of power in Montenegro. The government, for its part, says the Moraca dams will play an important role in tackling Montenegro’s own internal power shortages.

According to official data, in 2010 Montenegro produced 817GWh less electricity than it consumed (4,261GWh consumed compared to 3,444GWh produced), while the Moraca dams are expected to produce 721GWh of energy a year according to Poyry.

However, as it is expected that Montenegro and its neighbours will operate in a liberalized energy market by 2015, the energy from the Moraca dams is expected to be sold regionally, while Montenegrin consumers will buy energy from multiple regional sellers, meaning that not all the energy produced would be actually used to cover the internal deficit.

Italian investors were open about wanting to use lower production costs in Montenegro and export the energy produced by the Moraca dams to Italy, where they can sell power at higher prices.

The energy would be exported through the 750-million-euro high voltage undersea cable connecting Montenegro to Pescara, in Italy, by 2015. This is the project of the Italian energy distribution company, Terna.

Sceptics in Montenegro worry that Italian domination of Montenegro’s energy market could result in a rise in energy prices, without resolving the domestic power deficit, because Italian companies will clearly have more interest in selling energy in Italy where they can charge higher prices than in Montenegro.

Green Home, amongst other things, also says construction of dams on the Moraca will have negative economic effects on local communities around Lake Skadar, where fishing is the main livelihood of many families. The government dismisses these worries, saying the entire country has no more than 200 registered sweet-water fisherman. They are not prepared to countenance the claims of other, illegal, fishers on the lake.

Lake Skadar, the largest lake in the Balkans, bisects two countries. About two-thirds lies in Montenegro and the remaining third is in Albania. The Montenegrin section has been a National Park since 1983 and has been on the Ramsar list of protected wetlands since 1995.

The Albanian part has had the same designation since 2005. It is home to numerous protected species of birds and fish.

In addition environmentalists claim that the government’s project for dams on the Moraca is outdated because the studies were done decades ago. The government, on the other hand, maintained that all the necessary updates have been done to the project documentation.

The Montenegrin government recently told Balkan Insight that following the failure of the tender, the next steps will only be known after new expert analysis has been conducted, evaluating whether EPCG can bear the project on its own and, if so, under which conditions.