The European Bank for Reconstruction and Development (EBRD) granted Croatia on Friday a 123.2 million euro ($163 million) loan for the construction of a hydro-electric plant.

The syndicated loan of up to 123.2 million euros was granted to the state-run electricity comapny HEP to finance the construction of the Ombla hydro plant near the southern Adriatic town of Dubrovnik, the EBRD said in a statement.

The construction of the country's first underground hydropwer plant, with a capacity of 68 MW, "will help Croatia to improve its energy security and also diversify its energy supplies" as well as to increase the supply of potable water to Dubrovnik, it said.

The financing includes the 80 million euros portion for the EBRD and the remaining 43.2 million to be syndicated to commercial banks.

Local environmental groups have repeatedly protested against construction of the facility, warning on high risks for the environment.

The EBRD said it has "acknowledged the environmental challenges that were raised" as well as other issues voiced by the non-governmental organisations.

"The proceeds of the EBRD loan for the construction works will not be disbursed until a satisfactory (biodiversity) study and biodiversity management plan is agreed with HEP," the statement said.

Croatia imports some 20 percent of electricity.

So far the EBRD has invested more than 2.5 billion euros in various sectors in the Croatian economy.