Kosovo power utility KEK will co-finance the project with 180,000 euro of own funds, the embassy said in a statement.
Once refurbshed, the excavator will be put into exploitation at the Sibovc mine, a new mine that will be opened in 2010 and will feed Kosovo's lignite-fired power plants, KEK spokesman Victor Buzhala told SeeNews
Kosovo has two coal mines - the Mirash and the Bardh mine, which feed its two power plants but are to be closed by 2010.
The refurbishment of the excavator is part of a bigger project worth 32.55 million euro, co-financed by KfW with a 21.5 million euro grant and by Kosovo’s state budget.
Under the project a 400/110 kilovolt (kV) power substation is to be build by the end of 2009.
Germany has granted Kosovo 68 million euro since 1999 to improve its energy sector.
Kosovo has the world's fifth-largest proven coal reserves, estimated at 12 billion metric tonnes, but due to outdated facilities and lack of funds for extraction it continues to suffer daily power cuts.
($=0.6997 euro)