You’ve travelled extensively in the EBRD’s countries of operations since taking up office this summer. What do you think are these countries’ main challenges at the moment? And what added value can the EBRD bring to its areas of operations, compared to other international financial institutions (IFIs)?

Suma Chakrabarti: I’ve visited many EBRD countries of operations already and I plan to keep doing that throughout my time as president. I think it’s very important for any president to get out and about and work on the ground, not just stay in London in the bank’s headquarters.

The EBRD is quite different from other international organisations. Obviously, there is the focus on private sector development, that’s the most important thing and this is fundamentally different from other organisations, and this gives us value added in our niche. Secondly, some of the challenges that are currently faced by the countries in our areas of operations are things that we can help tackle in a very significant way.

First of all, in our traditional area, central and eastern Europe, there is a big crisis in terms of getting growth and recovery going, so we have now been working on a growth and recovery plan with other IFIs (the European Investment Bank and the World Bank) and have announced that this isn’t just about money: money doesn’t buy you everything, as the old song goes. I think it’s very important to talk about policy reform and it’s very important, as we lend to these countries, to lend particularly to the real economy to get growth going. We also talk very frankly with the governments about the need for policy reforms. That’s what I am seeing and pushing during my visits.

Second, when it comes to the new area of operations, the southern and eastern Mediterranean, we just got started with the first loans for Morocco, Tunisia and Jordan and I am hoping that the first loan for Egypt will be approved by the end of this year as well.

It’s very important that the EBRD does a really good job in trying to help consolidate the Arab Spring gains, and that means particularly working on issues to do with youth unemployment, small and medium scale enterprises, and gender issues, particularly ownership and participation by women in private sector development – all of this we are working on. And my trips give me a very good perspective to push this agenda.

As it moves into the southern and eastern Mediterranean region, is the EBRD reassessing the economic model it promotes (privatisation, liberalisation and commercialisation) after the global economic crisis and also to respond to the demands of the Arab Spring?

S.C.: I think fundamentally the EBRD is all about open market economies, that is actually in one of the articles of the charter establishing the bank, so our economic model is one that tries to develop the market economy approach. We do that partly by the development of the private sector, that means in some cases liberalising markets to help the private sector grow but it also means doing business ethically, properly. It may sometimes mean privatisation as well.

We have supported that and I will continue to support good privatisation strategies, but they have to be good strategies. There have been also privatisations, not that the EBRD supported them, that in some countries have not gone well – so it’s very important to support good privatisations, not bad ones.

But, at the same time, for an open market economy to really flourish you have to have very good state institutions. I don’t think what our model is suggesting is something like a night-watchman state; the state has to be there as a regulator, and with institutions of governance that help economies grow – that has been the case in every successful economy. So we’re not just headbangers of the private sector only: we have to have a balanced approach on that, though fundamentally we are about private sector growth.

In central and eastern Europe, corruption remains a huge problem still affecting the size of public coffers and the quality of publicly funded projects. Some of the EBRD financing in our region has gone to projects where the management has been at least suspected, and sometimes investigated, of corruption (the most high profile cases currently are Kolubara in Serbia and Sostanj in Slovenia). Why doesn’t the EBRD publicly distance itself from projects where such serious breaches are noted? How can due diligence at EBRD be improved to make sure public money is not wasted in such ventures?

S.C.: I won’t talk about the particular projects, just about the general approach. I think that the EBRD is recognised internationally, and certainly among our government shareholders, for having a very good track record on these issues, partly because we have a really strong compliance function and very strong procedures designed to detect corruption in our projects. One of the things that struck me when I came to the bank was how strong the due diligence at the bank is, much stronger than I imagined.

I’ll just give you an example: when I came to the bank, I was given a list of people I should meet in some of our countries of operations. I brought this list with me to the EBRD and I was told that at least five of the people on that list I should not meet, because of due diligence. And that just shows you how tough and upfront our colleagues are on these issues.

Now, what do we do when we hear about corruption allegations on projects: I think there is always a judgement call for any institution about whether you distance yourself completely, to get out, do nothing, to avoid being involved, etc, or you help to try and actually find out, first of all, if the allegation is correct, and in case it’s correct you may help sort it out. And I think any decent institution that is committed for the long term to a region has a responsibility to try and help the countries clean up their act. Just running away every time there is a corruption allegation would be a pretty odd thing for an institution like the EBRD to do.

So, first thing: get the due diligence right before you get into a deal; when you’re in a loan, if there is an allegation you have to investigate it thoroughly and see whether it’s right to withdraw or to stay there and try to improve practices by using the example to actually achieve systemic change.

But if you are already committed to the loan, what kind of instruments do you still have at your disposal to affect the behaviour of corrupted parties?

S.C.: By being involved in the company there are internal mechanisms and external ones. Internally, when we’re involved with a project (whether it’s an equity stake or a loan) we would make our feelings very clear and look for improvements in management practices. Potentially in some cases we would be looking for changes in management, depending on how serious the case is. But you also take action externally – it’s very important for us to work with anti-corruption NGOs in fighting this whole cancer of corruption and I think it’s also very important to talk openly about corruption because it’s very bad for the business climate and, for our own purposes, private sector development.

It’s something I feel strongly that we should talk more about – we have to create a climate whereby corruption is regarded as something you just cannot do. In the long term, we hope to create cultures in companies, sectors and countries that eradicate corruption. That means compliance and good procurement trainings really matter, and good regulations matter, and EBRD has been doing a lot of that though it does not get so noticed.

When you took office, you expressed a strong commitment to a solid dialogue with civil society on EBRD activities. Yet, at Bankwatch, we were deeply unsatisfied with the consultation process over the recently published mining policy. None of our significant comments were included. The strategy also did not refer at all to the EU’s resource efficiency agenda, and did not show how the bank will sufficiently minimise the environmental and social problems caused by the mining sector.

From what you have seen so far, how could the bank improve its policy consultation processes to ensure that stakeholder input is more seriously taken into account?

S.C.: My objective is for the EBRD to feel it’s done a good job in consultations and that all interested parties feel like they’ve been taken notice of. But as I’ve always said to NGOs, that doesn’t mean that we will always agree. So the test for a good consultation is not whether all your comments were taken on board or we feel that we’ve gotten our way, but rather that we had a solid process.

I want NGOs to be consulted earlier on in the process, and I want to see a really intensive dialogue. We don’t agree on anything, but that’s okay – we come from different perspectives. At the end of the process, I don’t sit there looking at how many NGO comments were taken into account, that’s not the test, but I want you to be satisfied with the process.

If you look at the mining policy review process, if I remember well, we invited about 1,500 NGOs to comment; we had public meetings in five cities, over 120 contributions were submitted. This was just unbelievably intensive in my view – we have over 200 pages of transcript that we have to go through. And many issues, such as resource efficiency and many of other comments were taken on board as far as I understood. But in the end, we’re not going to agree on everything.

So even if the policy has a dedicated section on environment, health, safety and social issues – and now we see these go through into projects as well, we’ll be seeing that in all mining projects – I can well understand that you may not be satisfied with not seeing all your comments taken on board, and I may well feel that not all I wanted was taken on board. But it’s a process of dialogue and we have to pay attention to strike the right balance. So I would say that we can do better, but I don’t think that we should judge each other on whether everything was taken on board or not.

Certainly we were not expecting that all our comments be included, but we have expressed concerns about the process itself.

S.C.: Yes, we’re always trying to improve the process. As you probably know, we are at the beginning of revising our Energy Operations Policy at the moment and we are going to do something new, that is, we will follow a two-stage approach. So this is in response to, when I arrived, NGOs saying they were being consulted too late in the assembly line. We have recently sent out invitations for NGOs to comment [on the existing energy policy], and we’ll see how that works, so let me know what you think about it.

Numerous studies have shown the economic benefits – in terms of savings and job creation – of investing in renewables and energy efficiency. A recent study by Greenpeace and the European Renewable Energy Council shows that EUR 99 billion euros would be needed to decarbonise the EU by 2050, which would then generate EUR 3 trillion in fuel savings. If such transformation is possible and beneficial, what steps is the EBRD taking to phase out investments into coal, oil and gas, that also comes with infrastructure lock-in effects?

S.C.: At the end of the day, I am always going to be someone in favour of a balanced energy mix. I think it’s also very difficult for many of our countries, given their natural resources base, to immediately switch away from fossil fuels. But that’s what we’ve been trying to slowly push with the push on renewables.

We also want these countries to address the challenges of energy security, decarbonisation, competitiveness, affordability, all these issues. But the biggest push has been on renewables and energy efficiency in general: nearly EUR 450 million in renewables in 2011 alone, that has been extraordinary in changing the energy mix already for many countries, and will continue.

In terms of energy efficiency, we’ve always been regarded as though we possess the gold standard among international organisations. We’ve been very committed to reducing energy intensity in our region – eastern Europe having very, very high energy intensity – as well as CO2 emissions.

We’ve been pushing that very hard through our Sustainable Energy Initiative (SEI), and very recently the EBRD has now reached a cumulative financing under the SEI of EUR 10 billion, which is fantastic for an initiative started six years ago. We have many great examples, we have a new example in Ukraine, where we’re developing a sustainable lending facility worth EUR 70 million, with EUR 50 million coming from the EBRD, and EUR 20 million from the Green Technology Fund, designed to provide local companies with funds for investing themselves in renewables – and that’s the sort of innovation that I think will make a difference in the long term for our region.

The reason why we always ask institutions like the EBRD and the EIB to do more is because we expect these public institutions to be drivers of markets and not followers, and because following the national choice of energy mix can lead us down a dangerous path. That’s why we keep pushing for more.

S.C.: And you’re pushing at an open door. We want to see the energy mix change over time, particularly with climate change in our minds, but we have to be realistic about the pace given the natural resource endowment of the countries. You know, it isn’t an accident that Poland is dependent on coal-fired generation – Poland has enormous coal reserves and it’s difficult for them to change overnight.

Sometimes, though, fossil fuels are a specific choice of these countries, which, including Poland, have significant renewables and energy efficiency potential but choose not to pursue it out of comfort or lobby pressure.

S.C.: I recognise what you say, but you should also look at what the EBRD is doing. In Poland, the EBRD has just approved another loan for a wind farm, so essentially we’re trying to help Poland reduce coal dependency, and the Polish authorities are actually trying their best on it. But we’ll have this debate soon on the energy policy work and we’ll receive your comments then.

What is the EBRD’s vision for agricultural development in the countries of operation? The EBRD is currently evaluating a possible guarantee for Monsanto and it has repeatedly expressed the view that large-scale, export-oriented farming is a development direction for some countries in the region. Yet over the past years we have learnt a lot about the negative effects of over-reliance on industrial farming and long-distance transportation of food for both food security and the climate.

What is the EBRD doing to support greater agricultural diversity and localisation of food supplies, both of which are necessary for climate change adaptation, as well as strengthening employment and local economies?

S.C.: Any economy should be trying to diversify. Take the case of Ukraine, that has enormous potential for both agriculture and for agriculture exports – it could feed a big chunk of Europe. At the same time, it’s always dangerous for a country to be too dependent on one sector, so we’re also trying to develop other sectors as well.

What the bank is really trying to do in the agriculture sector is to secure a more efficient and sustainable production, and sustainable is a very important part of that. We want some countries that are dependent on food imports to try and reduce their dependency. But we also want countries that can export to countries that are not managing to be self-sufficient to be able to do so.

The EBRD can play an important role to improve food security globally. Russia, Kazakhstan, Turkey, many of these countries, can be major players in achieving food security and making sure that we never return to the sort of crisis that we had in 2008.

To do that I think we need to first of all work on the policy in many of these countries, which often does not help not only the big farmers, it doesn’t even help the small farmers in these countries – and things like crop insurance are very important because if you’re a small farmer you’re taking a very big bet. We’re also directly financing a number of farming and agro-processing companies, involving lots of SME financing instruments, helping with the investing environment, and I’ve also spoken to the governments of Turkey, Kazakhstan and Russia about the policy.

In the case of Monsanto, the intention really is to provide financing to farmers to help them adopt better technologies. Again, this is a system of risk-sharing that we’re trying to push with Monsanto. Farmers often can’t access working capital at the right time of the year to buy seeds and fertilizers, and we hope this risk sharing is a way to help these farmers get access to financing that they otherwise can’t get. It’s quite an innovation if we can pull it off, and if the scheme works we can invite other production companies with their local or international branches to take up such financing.

If the scheme is targeted at farmers, why does it have to be done with Monsanto?

S.C.: If anything, I know the problem is Monsanto – the name, the red flag comes up immediately – but Monsanto has been quite innovative. We don’t know whether it’s going to work at all, it’s just a pilot. But it is worth trying this risk sharing approach to see if we can help farmers access the financing they need.

This is a project that is in the design phase and as we are designing we are listening to the voices of NGOs like yours, and we always do that. But I think that we should be clear that the project is not providing financing to Monsanto but rather sharing the risk that Monsanto is taking on the financing they are providing to their customers.

Editor’s note: The EBRD would like it to be noted that – as we go to press – no decision has been made to proceed with the Monsanto project. Further, if the EBRD decides to explore the project further, as with any other potential investments, it will conduct an in-depth analysis of the project’s compliance with EBRD requirements, including financial, legal, technical, environmental, social and integrity due diligence. As part of this process, if the EBRD decides to proceed, it will also consult with a variety of stakeholders in line with its Environmental and Social Policy and Public Information Policy.