October 26, 2016 / 12:33 PM / 4 years ago

UPDATE 1-Financing for Montenegro's new power plant falls through

* Time ran out to secure Czech export credit

* New OECD rules will ban state financing of coal technology

* Project still on, other forms of financing sought

* Big project for power-short Montenegro (Adds detail, background)

By Petar Komnenic and Jan Lopatka

PRAGUE/PODGORICA, Oct 26 (Reuters) - Financing for a major new coal-fired power plant in Montenegro has collapsed and alternative funding is being sought, local power utility Elektroprivreda Crne Gore (EPCG) and the Czech project contractor said on Wednesday.

Skoda Praha, a unit of Czech power firm CEZ, signed a deal last month with EPCG to build the 254 megawatt (MW) unit at Pljevlja at an estimated cost of 324.5 million euros ($354 million).

Montenegro, like other Balkan countries, faces an acute need for new power sources after decades of underinvestment. The power plant is a huge project for the west Balkan country, and would account for about 8 percent of its gross domestic product.

CEZ had sought financing from the state-owned Czech Export Bank (CEB) and the Czech state export credit insurance provider EGAP. CEZ gave no reason why the arrangement was not completed.

Sources close to the deal said the reason was that EPCG would not manage to complete preparatory work for the project by the end of this year, before restrictions introduced by the Organisation of Economic Cooperation and Development (OECD) on public export financing for coal-fired power plant technology come into force.

A spokesman for EPCG said CEB had recently asked it to give some form of Montenegrin state guarantee which had not been a condition of the tender. He said the firm would meet Skoda Praha this week to discuss alternatives.

CEB and EGAP said they had no comment.

CEZ said the project continued and EPCG was seeking other funding.

“It prefers a customer loan and it is ready to finance a significant part from its own resources,” a spokeswoman for CEZ said. She added Skoda Praha would favour delivery schemes, where sub-suppliers can secure support and financing from their home export loan agencies for materials and equipment, for example from Poland.

The Montenegrin government holds a 57 percent stake in EPCG while the Italian company A2A owns the remainder.

Environmentalists have long opposed the plant and say energy efficiencies and solar potential have hardly been tapped.

EPCG, operates around 870 MW of installed capacity and its net profit dropped 69 percent to 10.8 million euro in 2015. (Additional reporting by Maja Zuvela in Sarajevo; Editing by Greg Mahlich and Alexandra Hudson)

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