Yugoslavia`s interest in lignite-water fuel (LWF) stems from its involvement in an unusual power project at Kovin in northern Serbia. In the early 1980s, Electric Power of Serbia (EPS) proposed constructing a 600-MW power plant that would be fueled by lignite found in deposits along and under the Danube River. Trial underwater mining at Kovin proved that the dredging operation is feasible. The dredging method produces a coal slurry containing 85% to 90% water. Plans included draining the water from the coal, drying it, and then burning it in the pulverized coal plant. In looking for alternative ways to utilize the wet coal in a more efficient and economical way, a consortium of Yugoslavian companies agreed to assess the conversion of dredged lignite into a LWF using hot-water-drying (HWD) technology. HWD is a high-temperature, nonevaporative drying technique carried out under high pressure in water that permanently alters the structure of low-rank coals. Changes effected by the drying process include irreversible removal of moisture, micropore sealing by tar, and enhancement of heating value by removal of oxygen, thus, enhancement of the slurry ability of the coal with water. Physical cleaning results indicated a 51 wt % reduction in ash content with a 76 wt % yield for the lignite. In addition, physical cleaning produced a cleaned slurry that had a higher attainable solids loading than a raw uncleaned coal slurry. Combustion studies were then performed on the raw and physically cleaned samples with the resulting indicating that both samples were very reactive, making them excellent candidates for HWD. Bench-scale results showed that HWD increased energy densities of the two raw lignite samples by approximately 63% and 81%. An order-of-magnitude cost estimate was conducted to evaluate the HWD and pipeline transport of Kovin LWF to domestic and export European markets. Results are described.