Kosovo and London-listed power firm ContourGlobal said on Friday they had chosen a consortium of General Electric subsidiaries to build and equip a new 500 megawatt (MW)coal-fired power plant in the Balkan country.

Although sitting on more than 14 billion tonnes of proven lignite reserves, the fifth largest in the world, Kosovo is struggling with power shortages. The new plant is designed to meet nearly half of the country's power demand.

"The selection of GE as Preferred Bidder puts Kosovo one step closer to achieving a successful outcome of the process that began long ago with the support of so many international institutions," Kosovo's economy minister Valdrin Lluka said in a statement.

"Successful implementation of this project has the potential to reshape the overall economic perspective of the country," he added.

The other bidders for the project were China Machinery Engineering Corporation (CMEC), South Korea's Hyundai and a consortium of Turkey's ENKA, Japan's Mitsubishi Hitachi Power Systems and Spain's Tecnicas Reunidas.

The project is valued at $1.3 billion, with financing expected to come from a mix of the Overseas Private Investment Corporation (OPIC) and export credit agencies, ContourGlobal's CEO told Reuters in October.

Construction of the plant is expected to start later this year.

Currently around 90 percent of Kosovo's electricity is produced by two ailing coal-fired plants -- Kosova A and Kosova B -- which are among Europe's worst polluters.

Environmentalists have complained the new plant could lock Kosovo into a future powered by lignite - the dirtiest form of coal. However, the government said the new plant, which will replace Kosova A, would burn 40 percent less coal and release 20 times less emissions.

The World Bank last year said it would not back the project because it would use coal rather than renewable fuels.

The government has committed to buying the total output of the plant at a price yet to be determined.