While these cases would appear to be down to ‘bad apple’ individuals, of more systemic concern are indications that EBRD due diligence at the project level is having difficulty weeding out corrupted companies from its portfolio in central and eastern Europe. Two corruption scandals have broken out in the past year at EBRD-funded energy projects in Serbia and Slovenia, and while the bank is now investigating the cases, it is refusing to pull out of the projects.

For more than a year now, corruption allegations against the management of TES 6 – a new 600 MW lignite-fired power plant planned to be built at Šoštanj in Slovenia, and to which the EBRD is investing around EUR 200 million alongside the EIB – have been raised by both governmental and non-governmental actors (see Bankwatch Mail Issue 51). Earlier this year, a Slovenian state commission for the prevention of corruption declared that corruption conditions were created in the awarding of the contract for the construction of the new plant to French company Alstom, and that national lobbying legislation was also breached. The general prosecutor’s office and local police have opened investigations. The World Bank debarred two subsidiaries of Alstom in February this year following improper payments made by Alstom back in 2002 to an entity owned by a Zambian government official.

Last autumn, a huge corruption scandal broke in Serbia as 28 people belonging to the current and former management of state-owned energy company Elektroprivreda Srbija (EPS) were arrested over allegations of embezzelment of company funds.

EPS is a long-term beneficiary of EBRD loans. Most recently in 2011 the EBRD allocated EUR 80 million for investments at the Kolubara coal fields managed by EPS, which Bankwatch argues will actually be used to support coal mining expansion. Some of those arrested were in charge of managing EBRD loans. The managers have been accused of manipulating over EUR 8.5 million worth of funds.

In the case of the Slovenian corruption case, the EBRD is currently conducting an internal investigation looking into several features of the project – including the corruption issue – before it disburses the funds. In recent correspondence with Bankwatch on the Šoštanj case, the bank is keen to note that even though it will not disburse any money until the internal checkup is completed, it has not formally frozen the loan. Hard as it may be to make sense of this very fine distinction, what is clear is that the EBRD is finding it tough to say no to a project it deems to be profitable, with the risk of wasting public money because of corrupt management a secondary concern.

In the case of Kolubara, the reaction of the EBRD has been more striking. Despite an even stronger public outcry in Serbia concerning the suspected crimes, the EBRD is nonetheless reacting more weakly, dismissing even the idea of an internal investigation and instead declaring that it is content that EPS has already taken appropriate measures to clean itself up.

What the EBRD needs to do, however, instead of worrying about how to disentangle itself from such corruption scandals is to conduct proper check ups to begin with in order to avoid getting involved with dirty companies, with companies that have a track record of corruption, such as EPS and Alstom. This would require a radical revamp of the bank’s approach to its due diligence process. No more cosmetic airbrushes, but instead determined anti-corruption safeguards.

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Background information about the Šoštanj project is available at:
https://bankwatch.org/our-work/projects/sostanj-lignite-thermal-power-plant-unit-6-slovenia

Background information about the Kolubara project is available at:
https://bankwatch.org/our-work/projects/kolubara-lignite-mine-serbia