BELGRADE - As part of a 1.25-billion-dollar agreement, Serbian and Chinese officials signed a 344-million- dollar contract for the first phase of work to upgrade the outdated Kostolac thermal generating plant, on Wednesday in Belgrade.

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Dragomir Markovic, general director of the Electrical Power Company of Serbia (EPS), Dragan Jovanovic, director of the Kostolac thermal generating plant and Jin Chunsheng of China National Machinery and Equipment Import and Export Corporation ( CMEC) signed the agreement at a ceremony before the Serbian Minister of Mining and Energy Petar Skundric and the Chinese ambassador Wei Jinghua.

The Kostolac B plant is located east of the capital Belgrade, near the Romanian border. The scheduled upgrades are expected to bring the plant to its full capacity of 700 megawatts, to prolong its useful life by a decade, and to bring the coal-powered thermal generating plant in line with European environmental standards, with the construction of a desulfurization facility, according to EPS director Markovic.

Markovic also told reporters that the project scope encompassed railway and port facilities on the Danube River, for the movement of limestone for the desulfurization system and transportation equipment. Approximately 220 million dollars is to be financed through China Eximbank with the remainder to be raised by EPS itself. Work is expected to begin in three months once funding comes available.

"This is a project of extreme importance for our economy," said Minister Skundric, stressing the strategic significance of Serbian and Chinese interstate cooperation.

Chinese ambassador Wei said that this agreement represented the beginning of bilateral cooperation in the energy sector and paved the way for further cooperation.