Both multi-lateral development banks had committed up to EUR 25 million in the private equity fund, though it remains unclear if their funding remains with EnerCap.

Beset by problems over the last seven years, EnerCap’s withdrawal from the greenfield gas co-generation power plant now leaves the project’s future in serious doubt. Questions remain as to why the EBRD and the EIB chose to involve themselves in the first place.

The private equity EnerCap Power Fund was originally set up to promote energy efficiency and renewable energy in central and eastern Europe, with a specific remit to “support projects based on the use of mature technologies in the wind sector, as well as in the biofuel and other renewable energy sectors considered to be environmentally beneficial and contributing to the reduction of greenhouse gas emissions”.

Although the fund has invested in solar and wind energy in neighbouring countries, its involvement in Slovakia has been restricted to the construction of the COGEN gas power plant that would deepen the country’s dependence on fossil fuel imports and – according to local residents and campaigners – would impose a heavy environmental burden in the environs of Žilina, one of the country’s biggest cities.

Explains Irena Jencova, Bankwatch’s national coordinator in Slovakia,

“The COGEN project was very problematic from the outset. There was a lack of transparency from the Slovak authorities, a reluctance to conduct proper public consultations as well as a comprehensive environmental impact assessment, even though the exploratory assessment showed the threat of serious environmental risks. The cumulative environmental impacts of the plant, added to already existing sources of CO2 and dust pollution in the area, were never properly assessed.”

In addition, concerns have been raised about the undue haste with which the District Forest Office in Žilina changed its opinion about the need for an environmental impact assessment (EIA) process – in the space of ten days it moved from being in favour of an EIA to against. The project documentation also failed to take into account that the construction area for the power plant is located in a seismic and flood prone area, and that the planned level of noise produced by the plant would be 95 decibels (dB), exceeding the acceptable level for industrial zones by more than 20dB.

Local activists and Bankwatch have also repeatedly alerted both banks to uncertainty over the co-generation character of the proposed plant – despite seven years of planning the investor has yet to agree a contract with another entity for the heat consumption and there remains a serious threat that the produced heat will be wasted and hot water drained to the nearby River Vah, potentially causing further environmental problems.

The EBRD and EIB’s engagement in this fossil fuel investment have – remarkably – been justified as being part of initiatives aimed at supporting clean energy in Europe.

The involvement of the EIB in the EnerCap Power Fund has been classified under the EIB’s Climate Action programme, which is intended to “focus both on low-carbon investments that mitigate greenhouse gas emissions and on climate-resilient projects that improve adaptation to climate change impacts.” The COGEN project is neither of these things.

The EBRD invested in EnerCap Power Fund under its Sustainable Energy Initiative (SEI). According to the EBRD, the SEI is a focal point for helping countries from central Europe and central Asia to secure sustainable energy supplies and finance the efficient use of energy that will cut demand and imports, reduce pollution and mitigate the effects of climate change.

According to both bank’s project justification over several years, co-generation technology from natural gas has an energy efficiency component. However, COGEN is in fact a new fossil fuel plant and should not be categorised as an energy efficiency project as it will lead to increased consumption of fossil fuels through an increase of capacity for the industry.

“Instead of wasting taxpayer money and supporting fossil fuel infrastructure,” insists Irena Jencova, “the EIB and the EBRD need to be rigorous in ensuring that their own mechanisms created to support energy efficiency measures and renewables, such as the Climate Action Programme and the Sustainable Energy Initiative, are used properly, and not abused.”

The project delays have come about thanks to the tireless work of Považský Chlmec residents who founded a civic association, organised petitions, involved themselves in the permitting process for the project, provided input on documents, advanced legal processes, and have been consistently raising alarm about the environmental and social impacts that the construction of this power plant would bring to their community and environment.

Project collapse can generate lessons for the banks

• The EIB and the EBRD can contribute to a real change in the central and eastern European region, but this can only happen if both banks ensure that mechanisms created to support energy efficiency and renewables, such as the Climate Action Programme and the Sustainable Energy Initiative, are used properly and not to support unsustainable, climate-compromising projects.
• Private equity funds allow the banks to subcontract much of their due diligence work to the recipient fund, which may not possess either the skills or the interest to conduct proper environmental and social impact analyses.
• The EIB and EBRD should not invest in projects like COGEN in Považský Chlmec that would only intensify Slovakia’s dependency on fossil fuels, cause a further growth in CO2 emissions and are questionable from an economic and environmental point of view.

Find out more

Private equity investments made by the EIB and the EBRD feature in a new Eurodad report that examines how businesses based in tax havens continue to enjoy major development finance support, see: http://www.eurodad.org/goingoffshore

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