Natural riches aplenty

Near the historic Field of Blackbirds, scene of the epic 1389 battle at the heart of Serbia's modern claim to Kosovo, two vast coal pits puncture the hilly ground.

The miners here carry a burden from the more recent past: the former Serb-dominated regime, pressed by international sanctions in the 1990s, scraped out a few hundred tons of lignite each year without investing in maintenance or removing enough topsoil.

The result today is a looming danger of fatal collapses, as the ethnic-Albanian authorities who now operate the 50-year-old mines try to extract the last six or seven years of supply for Kosovo's aged lignite-fired electrical generating stations.

But the remaining work at these mines - like the portable generator sets that chug through the afternoon hours in nearby Pristina and other cities throughout the province - is only a stopgap measure, according to Lorik Haxhiu, mining director at the provisional energy and mining ministry, which manages power supplies under United Nations supervision.

Lignite, or soft brown coal, could give the mostly ethnic-Albanian province, which hopes to gain legal independence from Serbia around the end of this year, a sustainable source of electrical power for the next two centuries or more.

"This is the third richest lignite basin in Europe, after the reserves in Germany and Poland," says Mr Haxhiu, standing over the Mirash pit and pointing northwards, where the same lignite vein stretches for a further five kilometres.

A report by the International Monetary Fund (IMF) earlier this year added impetus to the "lignite initiative" and could help to secure the large-scale private-sector investments needed to transform Kosovo's energy sector from makeshift to state of the art.

Kosovo C, the planned 2,000 MW generating station for which construction is meant to start in 2008, will propel Kosovo into the age of "clean coal" power, produced in line with European Union standards, energy officials say.

The nearly Euros 1bn project, in conjunction with an upgraded Kosovo B plant and a few modest dams to generate hydroelectric power, will cover the new country's energy needs and leave spare capacity for exports around the region.

The station will also generate Euros 150m per year for the state budget and spur growth throughout the economy, says Ethem Ceku, minister of mining and energy.

In the meantime, however, the cash-strapped Kosovo Electricity Company (KEK) is floundering, and officials wonder how to set the ambitious lignite initiative in motion.

Today's funding shortfalls are likely to hold up the construction of Kosovo C. "We can't do it without more money," says Shefqet Avdiu, manager of KEK's power generation division.

Costly emergency repairs have restored less than half of nominal capacity at the existing Kosovo A and B plants, while energy imports from Bulgaria, Serbia and other neighbours are draining around Euros 30m per year from Kosovo's modest budget. This is nearly double the amount allocated, leaving donors to make up the rest, Mr Avdiu said.

In the seven years since Kosovo slipped from Serbian control, international agencies have reportedly pumped more than Euros 1bn into the energy sector without preventing power cuts or weaning towns and industries off portable generators. Electrical failures have become one of the local population's loudest complaints against the UN interim administration.

While Kosovo A should have been retired years ago, plans call for keeping Kosovo B alive at least until 2023, so that the proposed new Sibovc lignite mine will be vital "even to keep up with refurbishments", Mr Haxhiu says.

Opening the new pit - including buying land, resettling villagers, laying down roads and installing new bucket excavators - will cost Euros 237m, part of the ministry's Euros 1.2bn estimate for "immediate investments" prior to starting Kosovo C.

Future development plans all hinge on revenue from KEK bill collections, as would be expected from any normal electricity company. KEK, however, collects on barely 40 per cent of the bills it issues. This is a great improvement on the comparable figure of just over 30 per cent a year ago, but far from enough to address the state-owned power company's debts of more than Euros 200m from the past five years.

In December, the authorities introduced the "ABC" system, tying hours per day of electrical supply to each district's payment record. Despite the logic of "less payment, less service," the result has been collective deprivation for whole communities.

Kosovo's ethnic-Serb enclaves - which still largely refuse to accept KEK, treating it as an arm of the ethnic-Albanian provisional government - all fall into the "C" category for the worst payment record. Many Serbs, however, say that no one has brought them a power bill since 1999.

The authorities have set a target of 90 per cent collection by 2008, before "first fire" at Kosovo C.

Big paying customers such as the recently privatised Ferronikeli nickel works will help to stabilise KEK's revenues, Mr Haxhiu says.

Normal bill collection from the public, meanwhile, would put a brake on thoughtless energy consumption, so that KEK can ramp up the power supply at a steady 5 per cent per year after 2013, when the new plant comes on line, he says. But he adds: "If there's not 90 per cent collection by 2013, we don't know what to do."