LONDON, March 8 (Reuters) - Europe's two biggest public banks agreed funding for a lignite-fired power plant in Slovenia, sparking criticism from pressure groups which have questioned the way the project was awarded and its pollution threat.
The European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) approved 650 million euros ($843.8 million) in funds for a revamp of the plant, which will lead to a 30 percent increase in the electricity it produces.
The EIB said on Friday it had "taken the necessary legal measures regarding its loan to ensure that the project is fully in line with the EIB policies," without providing further details.
But pressure groups slammed the move, saying the use of lignite, the most polluting form of coal, contradicts the EU's aim to move to low-carbon energy and saying the decision had been made before a probe by the European Anti-Fraud Office is complete.
"Despite the damaging climate impact, the embarrassing corruption scandal and the questionable economic viability of the project, the EIB and EBRD signed the deal with the Slovenians and couldn't see (themselves) ... pulling out," said Bankwatch, which monitors how European multilateral banks spend public money, and environment campaign group Greenpeace.
The EIB acknowledged that the project is being investigated by several EU and national agencies.
"The EIB is closely following these ongoing investigations and has taken the necessary legal measures regarding its loan to ensure that the project is fully in line with the EIB policies as well as with the national and EU legislation," the EIB said.
A Slovenian anti-corruption commission report, published in February last year, found a "high risk of corruption and conflict of interest" in the tender offer to revamp the Sostanj power station.
It added that a member of the technical commission appointed by Slovenian power company Termoelektrarna Sostanj (TES) worked for an energy engineering company partly owned by SOL Intercontinental, which acts as a distributor in Slovenia for French engineering company Alstom, which won the contract to build the power station.
This indirect link raised concerns that Alstom could have obtained information on competing offers, the 2012 report added.
Alstom reiterated previous denials of wrongdoing.
"The process was an open bid procedure, we do not see a possibility for competitors to have seen the competing bids," a spokeswoman for the company said. "No consultancy fees have been paid for the Sostanj project."
The decision by Europe's two largest multilateral banks to back the Slovenian project is the latest in a string of loans by the institutions to coal-fired power stations in Europe, partly to reduce their dependence on energy imports.
In recent years power plants in Bosnia, Bulgaria, Kosovo, Poland and Turkey, some of which have easy access to domestic supplies of coal, have been loaned money by the EIB or EBRD.
But climate campaigners claim the investments will lock in high levels of carbon emissions for decades.
The EU, which funds the EIB, has a goal to cut greenhouse gas emissions 20 percent by 2020 from 1990 levels, a target that could be deepened if other large emitters agree to slash carbon levels.
But even in Germany, the EU's richest member state, new lignite-fired generation has come online in the past year and will benefit from weak carbon prices in the bloc's emissions trading scheme. ($1 = 0.7703 euros) (Additional reporting by Marja Novak-Vogric in Llubljana; Editing by David Holmes)