* Agreement is part of a $1.25 bln deal
* Life span of Kostolac plant to be prolonged by 10 years
* Further cooperation with Chinese companies expected
(Adds details, quotes, background)
By Ivana Sekularac
BELGRADE, Dec 8 (Reuters) - Serbia and China signed a $345 million deal on Wednesday to upgrade the Balkan country’s second largest coal-fired power plant and extend its life span for another 10 years.
The agreement between officials of the Kostolac thermal plant and China National Machinery and Equipment Import and Export Corporation (CMEC) is part of a $1.25 billion upgrade project that will also help boost output at the 700 megawatt facility and make it more environmentally friendly.
The two countries last February agreed the deal that highlights China’s growing interest in the energy sector of the Balkan region.
“This is a project of extreme importance for our economy,” Petar Skundric, Serbia’s energy minister said at the signing ceremony in Belgrade.
Skundric said his government planned greater cooperation with Chinese energy companies but gave no details.
The Kostolac plant is part of state-owned utility EPS, which has a monopoly on power production and distribution in Serbia.
“In this first initial phase we will build a desulphurisation system as well as the necessary infrastructure for that,” said Dragan Jovanovic, the plant’s general manager.
“At the end of the whole project the life span will be extended, and we will be able to work at full capacity, using all 700 megawatts.”
Due to outdated technology, the plant’s two blocks of 350 megawatts each operate at below full capacity.
Serbia produces 70 percent of its power from coal-fired plants and the rest from hydropower. It urgently needs to upgrade its ageing energy infrastructure, which was damaged and then fell into disrepair during the Balkan wars of the 1990s.
Chinese investors are increasingly targeting energy projects in the Balkans, boosting their presence and showing a willingness to take bigger risks than European rivals on a potentially lucrative market with links to the EU.
In Bosnia, Britain’s Energy Financing Team was the first to seek a partner among Chinese companies and signed a $415 million deal with Dongfang Electric Corp (600875.SS) to build and equip its 300 megawatt coal-fired plant Stanari.
Representatives of Guodian Corporation, one of China’s top five power generation groups, visited Serbia in July looking to invest in a range of energy projects in Serbia and Bosnia, including a 1,680 megawatt hydro power plant.[nLDE66S0GL] (Reporting by Ivana Sekularac; editing by Michael Kahn and Anthony Barker)