Cities for citizens

Michelle Bachelet, UN High Commissioner for Human Rights, has called COVID-19 ‘a colossal test of leadership [that] demands decisive, coordinated and innovative action from all, and for all’. With 55% of the world’s population and 74% of Europe’s population living in urban areas, the leadership and governance of cities has been put to the test.

Cities are undergoing unprecedented changes as lockdowns are being lifted and citizens are learning how to live with the novel virus in crowded urban centres. The recovery process is adding new challenges to city infrastructure and municipal services, yet with those challenges come new opportunities. For example, some cities are ‘clamping down on cars’ and people are turning to cycling, not only as a more climate-friendly mobility option, but also as a way to avoid crowded public transport.

With the new challenges and opportunities comes billions in public money to be invested in new safer, more sustainable and resilient urban infrastructure. Transparency, public participation and accountability must be the building blocks of urban recovery and transformation.

A new briefing from Bankwatch presents the results of mapping sustainable municipal infrastructure investments made by the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) in the Western Balkans and the Eastern Neighbourhood from 2016-2019. Our findings show that the public questions the green credentials of these investments, as the sector is underpinned by a lack of transparency, accountability and participatory decision-making at the local level. These are important lessons for the COVID-19 recovery, as well.

Governance gaps in CEE cities

Much-needed infrastructure investments in Eastern Europe’s big cities tend to be surrounded by too many controversies. Lack of transparency in tendering, low quality for high cost, corruption scandals, and political resignations are part and parcel of the current governance model.

For example, in Sofia, Bulgaria’s capital, #NiceButNotReady and #ReadyButNotNice trend on Bulgarian social media in relation to urban infrastructure projects characterised by delays and dissatisfaction. ‘Repairs of repairs’ are what people call the repairs of flaws made during infrastructure renovation works. Of course, the ‘repairs of repairs’ are not done for free, but come out of the city’s budget, i.e. out of the taxpayer’s pocket.

The questionable value for money goes hand in hand with mixed results for city-dwellers’ quality of life. The affordability of municipal services, the safety and accessibility of infrastructure and services for vulnerable groups or those with special mobility needs, impacts on local businesses’ operations: these are all issues that need to be discussed at the early stages of designing urban projects, well before discussing contract terms with construction companies and municipal service providers.

Unfortunately, after thirty years of transition, transparency and participatory decision-making are still not practiced in our region. Popular ‘revolutions’ still fight to overturn corrupt governments in some parts of the Balkans and Eastern Neighbourhood, and autocratic regimes still rule other countries that lack political pluralism and free democratic elections.

The EIB and EBRD investing in cities

This governance vacuum is the political context in which the EIB and EBRD operate. Like most multilateral development banks (MDBs), the EIB and EBRD are keen on stepping up their investments in the municipal and environmental infrastructure sector (MEI) with the aim of making cities more inclusive, resource efficient and resilient to climate change impacts. They have increased both their emphasis on the sector and their funding for it over time, recognising its importance for climate change mitigation and adaptation goals, and claiming positive impact with regards to greenhouse gas emissions reductions.

Between 2012 and 2018 the EIB invested nearly EUR 150 billion in urban areas, as about 30% of our total annual lending is dedicated to the EU Urban Agenda. Within the EBRD’s municipal and environmental infrastructure sector, there have been 505 operations to date totalling EUR 9 billion, in areas such as energy and energy efficiency, solid waste, transport and water and wastewater.

Banks know all too well that governance is a challenge in the sector, so they attempt to address governance weaknesses with various forms of technical assistance. For example, many of the EBRD urban projects are paired with grants from dedicated donor funds set up by the banks’ shareholders. These technical assistance grants are used for various studies and assessments and for providing additional expert capacity for municipalities.

In addition, the EBRD provides policy advice and support for city-wide planning. The Bank has pioneered the flagship Green Cities initiative, which helps cities achieve their green financing goals through the development of Green City Action Plans. The EBRD has partnered with the Green Climate Fund to co-finance the Green Cities Framework.

Bankwatch has tracked the developments in the MEI sector, recognising the opportunities and the challenges. Bankwatch’s study covers two regions in which the EIB and EBRD finance municipal projects, the Western Balkans and Eastern Neighbourhood, during the period from 2016 to 2019. During this period of analysis, the EIB financed EUR 1.73 billion for 24 different operations and the EBRD financed EUR 919 million for 50 different operations. Included in these totals are 24 separate framework loans, 10 approved by the EBRD and 14 by the EIB.

Public perceptions of green MEI projects

The reported energy efficiency and greenhouse gas reductions of these projects can indeed be impressive. Unfortunately, given the aforementioned governance gaps in the countries where the two European banks operate, it is no surprise that some of the projects and initiatives have run into trouble.

At the end of 2019, Bankwatch conducted 16 structured interview surveys with representatives from environmental organisations in the Western Balkans and Eastern Neighbourhood. The aim was to collect the views of civil society working in municipalities that have been the site of one of EIB’s or EBRD’s investments and to understand how they perceive IFI-funded infrastructure projects and strategic plans. In addition to the survey data, in-person participant observation and interviews, as well as desk research, were conducted to develop case studies of three cities (Belgrade, Skopje and Tbilisi).

According to our respondents, international financial institutions (IFIs) are not able to hold local authorities accountable for ensuring transparency, public participation, strategically-guided development, the implementation of the most sustainable technology, and in some cases local laws or the terms of the projects. CSO representatives pointed out that as a result, authorities may misuse IFI funding, failing to adequately plan and implement projects that are environmentally-friendly and support human rights.

One reason for these problems is that municipal projects are frequently categorised within the banks’ system as projects that have limited risks and impacts on their surroundings (as were 63 out of the 74 projects analysed for this study), and thus are subject to less stringent requirements and monitoring. Our analysis raised the following key issues.

The EIB and EBRD do not publish sufficient information on these projects and rely to a great degree on their clients – municipal authorities or service companies – to disclose information locally and to consult in a meaningful and culturally appropriate manner with people who will be impacted by the project. This is justified by the assumption that clients have better means to reach the public, for example in local media, in the local language etc. The practice, however, shows that local decision-makers lack the capacity to consult design choices and decisions with the public, or that perhaps the policy of doing so has not been well established. Therefore, projects sometimes lack social license and face broad public criticism, protests and legal challenges.

For example, during our interviews, we heard that in Mariupol, Ukraine, an EBRD project resulted in protests due to more expensive tickets on the newly purchased trolleybuses. The decision did not take into account the affordability concerns of the public and people complained that the cost increase was not related to improvement of the quality of the public transport services. Affordability concerns were raised in an EBRD-financed district heating project in the city of Banja Luka in Bosnia and Herzegovina, as the controversy reached the Constitutional Court. In Tirana, Albania, the heavy construction required to construct new water pipes for the city, funded by an EBRD loan, has contributed to the city’s already intense construction, adding dust, noise pollution, safety risks and traffic to the streets. In Serbia, the EBRD-funded Green Boulevard in Belgrade has had similar construction impacts, and is not expected to reduce air pollution or increase green spaces in the city.

These examples clearly show that the EIB and EBRD cannot rely on disclosure by their clients. They need to disclose all studies on environmental and social impact, but especially those developed with technical assistance grants that sometimes equal the size of the loan.

Green investments in cities risk getting a bad name if the EBRD and the EIB will not address the governance gaps through more capacity building at the local level. In addition, the banks need to set an example of transparency by disclosing more project information themselves and requiring meaningful public participation at every stage of designing and decision-making on projects.

These concerns have become increasingly relevant in the current context. The COVID-19 pandemic has shifted urban development priorities and has changed our perceptions of safe personal and public space. It has increased our awareness of sustainability and resilience, of social interdependencies and social responsibility with regards to the protection of high risk and vulnerable groups. The physical distancing will require new technologies, but also new models of communication, public consultation and stakeholder engagement.

The way our cities invest in sustainability and resilience is not simply a matter of efficiency, nor about return on investment. More than ever, it is test to democracy and, ultimately, a matter of survival.

For more information, please read our new briefing on the EBRD and EIB’s sustainable municipal infrastructure funding.