Bankwatch

Home > Archives for Blog entry

Blog entry

Fear and fossil fuels in Romania

A 3-page draft law initiated by former energy minister, Sebastian Burduja, last week sent shockwaves among coal dependent communities and climate activists alike. Accompanied by 50 pages of justification, wrapped in national security rhetoric and delivered with a side dish of geopolitical fear tactics, the draft law aims to derogate from the country’s Decarbonisation Law. It re-opens the possibility of building new coal power plants and operating new and existing ones alike, under vaguely formulated conditions. 

But strip away the alarmist language about Russian invasions and infrastructure attacks, and what remains is a cynical attempt to derail Romania’s energy transition, betray coal-dependent communities, and potentially defraud the EU of EUR 2.14 billion – Romania’s allocation under the Just Transition Fund. 

Manufacturing crisis for political gain 

The 50-page justification opens with the Russian invasion of Ukraine and the shock it delivered to EU energy markets. However, it omits to acknowledge that since then European energy markets have recovered and diversified. The EU’s response wasn’t to resurrect coal, it was to accelerate renewables. 

Romania itself has surpassed its renewable energy targets, adding more than 1,200 megawatts in 2025 and projecting between 2,500 to 3,800 megawatts this year. The energy landscape is transforming rapidly, but you wouldn’t know it from reading this law’s apocalyptic preamble. 

The justification then goes on, suggesting Russia might attack Romania’s electricity infrastructure, therefore reserve coal capacity is needed. This isn’t energy policy, it’s fear-mongering dressed up as strategy.  

Arguably, one of the most disturbing details is the law’s citation of a national security strategy from 2010, which indeed mentioned coal stockpiles for security reasons. In 2010, coal contributed roughly 20-25% to Romania’s energy mix. Now it is just 13.7% and keeps falling. Context matters. 

In 2025 it was renewables that supplied the largest share of Romania’s electricity mix: wind, solar and hydropower. Interconnection capacity with neighbouring countries has expanded, storage is catching up. The grid looks fundamentally different. Using 2010 data to justify 2026 energy policy is not only outdated, it’s deliberately cherry-picking a moment in time that supports a predetermined conclusion, while ignoring 15 years of transformation. 

The Just Transition Fund – taking the money but refusing the transition 

In 2022, Romania received an allocation of EUR 2.14 billion from the EU Just Transition Fund (JTF) specifically to support coal phase-out by 2032. This fund is designed to support almost 30,000 workers through retraining and to create approximately 11,000 new jobs. The whole logic behind the JTF funding is Romania’s commitment to transition away from coal. Without coal phase-out, there is no transition to fund. And who will be deceived at the end of this political theatre yet again? Coal-dependent communities, who are regularly given false hopes by politicians that lack courage to plan for the real future. 

The State aid paradox 

Oltenia Energy Complex, Romania’s main lignite producer, has since 2021 received hundreds of millions of euros in State aid specifically for closure operations. The country’s hard coal mine operator was also granted nearly EUR 800 million State aid for closure in 2024. This money has already been disbursed and spent, justified under EU State aid rules as compensation for the costs of phasing out uneconomic coal operations. 

State aid for closures is legal under EU rules precisely because it facilitates an orderly phase out of operations that would otherwise fail in the market. Closure is the key condition for the aid. 

Now, Burduja and thirty other parliamentarians want to put coal ‘back on the table and into production’. But what happens to the hundreds of millions in closure aid already received? If coal operations are to continue, that State aid becomes illegal retroactively. It was granted under false pretences. Under EU State aid rules, illegal aid must be recovered, with interest. This additional financial burden could very well destroy the industry they are trying to revive. And the law should explicitly stipulate the mechanism for returning this aid to the state budget. It doesn’t.  

So this adds another bill to the tab: EUR 2.14 billion in Just Transition Funds received under commitments this law would violate, and over EUR 3 billion for restructuring of Oltenia Energy Complex and closure of hard coal mines. This is over EUR 5 billion that is likely to be lost if this law is adopted. 

The communities politicians claim to protect 

Every year that politicians delay the inevitable coal phase-out is another year of distraction from genuine alternatives. Every legislative attempt to extend coal operations signals to potential investors that Romania isn’t serious about transition. 

The cruel irony is that this law, which will be used in political discourse as protecting coal workers, ensures their continued precarity and prolongs a structural limbo. For some, this has been going on for over a decade. It perpetuates dependence instead of facilitating transition. It offers the illusion of security while postponing the hard work of creating actual alternatives. 

Ruling by fear 

This coal revival law didn’t arrive in isolation. It was submitted to parliament on the same day as another Burduja initiative: a law to classify hydropower plants as military objectives of national security. Both laws invoke ‘national security’ to bypass environmental procedures in force, protected areas regimes and property law. Both weaponize fear of war, enemies, and sabotage. ‘National security’ has become a new catchphrase that short-circuits democratic deliberation, environmental protection, and transparency. 

What about ‘We need coal for grid stability’? 

Romania’s grid is already diversifying rapidly, renewable capacity is expanding by thousands of megawatts annually and interconnection with neighbouring countries has improved significantly. Grid stability doesn’t come from clinging to 20th-century baseload thinking, but from diversification, storage solutions, smart grid technology, and interconnections that allow for flexibility and resilience.  

The choice ahead 

The choice to phase out coal was made years ago, and is justified by economics, climate imperatives, and EU commitments that make this trajectory inevitable. The real question is whether this will happen in an orderly, just manner that supports affected workers and communities or whether politicians will delay until crisis forces chaotic closures without support systems in place. 

This draft law offers the illusion of security while guaranteeing instability. It invokes the protection of workers while blocking their access to transition support. It wraps itself in national security rhetoric while undermining Romania’s actual long-term energy security. Finally, it is financially reckless, facing the prospect of having to give back billions of euros in closure aid. If Romania is to stay on the path of prosperity and sustainable development, this law must be rejected. 

Empowering communities: Using digital innovation to drive Ukraine’s green recovery

Communities with populations of up to 30,000 people account for around 95% of all communities currently under Ukrainian control. Yet they often remain invisible to major investors, despite being the very places where the country’s resilience is forged.

Communities at the epicentre of change 

The Regional Centre for Economic Research and Business Support is a non-profit foundation that works with communities across Ukraine, and we have first-hand knowledge of the local investment and recovery challenges they face. Despite the war, these communities are increasingly taking the initiative. Rather than waiting for solutions from above, they’re independently seeking ways to achieve energy independence and environmental security. 

However, showing initiative doesn’t always translate into results. Our recent assessments of municipal capacity and investment readiness reveal a significant gap between the ambition of these communities and their current capacity to effectively prepare projects that meet the requirements of potential donors, particularly the demanding compliance criteria of commercial and international banks.  

This deficit is largely due to a critical shortage of qualified personnel and a lack of accessible tools. Local communities simply cannot afford expensive consultants, while state support mechanisms tend to prioritise large-scale infrastructure projects, resulting in local initiatives being overlooked. 

Driving results, not just spending  

Our view of the current state of public investment management reform in Ukraine is clear: the system must transition from a ‘patching holes’ model to one driven by data management. We welcome the development of Ukraine’s public investment management system – the Digital Recovery Ecosystem for Accountable Management (DREAM) – which represents a significant step forward in transparency. However, for a community project to be considered for inclusion in this ‘showcase’ and to attract investors, it must be technically and economically flawless.  

We’ve also identified another systemic challenge: state institutions don’t always have the time or resources to provide communities with high-quality methodological support. To address this gap, we’ve launched the ‘project navigator’ designed to level the playing field, providing communities with comprehensive training in effective project management.  

Advantages of an independent tool 

Community representatives from across the country are already using the project navigator to organise and guide their recovery projects. First, the tool provides direct access to expertise. Second, as a completely independent tool, it helps stakeholders resolve the problem of ‘information overload’ and filter out unreliable data. 

After entering their project data, communities can assess their compliance with basic sustainability requirements in a matter of hours. And the feedback has been unanimous: there’s a huge appetite for a digital solution that not only removes administrative burdens, but also pinpoints areas where projects can be improved. Some of its key advantages include:  

  • Independent and objective: With no political mandate, the tool provides an accurate reflection of a community’s actual readiness – one based on data rather than lobbying. 
  • Enhanced project readiness: Projects developed using the tool are primed to receive high scores in the DREAM system. The tool’s rigorous and transparent feasibility framework results in higher-quality project submissions that stand a much greater chance of being selected for the state’s public investment portfolio and securing funding. 
  • Impact monitoring: The tool enables donors not only to provide funding, but also to track the effectiveness of their investments through integrated monitoring modules. 

From strategy to investment 

This structured approach allows communities to develop their first green project portfolios. This means local waste management plans and energy strategies no longer just exist on paper; they become fully functioning roadmaps that serve as a credible foundation for securing project financing.  

Ensuring that Ukraine’s public investment management reform truly benefits communities requires a far greater collective effort – from the state, its partners, international financial institutions, civil society, and the communities themselves. The success of any recovery project – particularly in the case of Ukraine – should solely depend on the quality of its strategy and the transparency of its plans. 

Romania’s gas trap: Fossil fuel expansion threatens clean energy transition

These opposing policy directions have potential economic and environmental consequences. Increased gas consumption would result in higher energy costs for consumers and a rise in greenhouse gas emissions, while undermining government claims of improved regional energy security. Meanwhile, the expensive gas infrastructure currently being built in Romania with public funds will likely become ‘stranded assets’ in a future power market dominated by renewables. 

Fossil gas remains the weakest link 

The main reason the Romanian government is promoting higher fossil gas consumption is to offset the phase-out of the country’s coal-fired power plants. By 2030, the capacity of combined-cycle gas turbine (CCGT) power plants is expected to increase by at least 3.5 GW (1770 MW at Mintia, 850 MW at Ișalnița, 475 MW at Turceni and 430 MW at Iernut). Although no new capacity has yet been commissioned, some of these projects are already at an advanced stage of construction and could be operational as early as 2027. 

In 2020, Romania had close to 4 GW of installed coal capacity. The planned replacement is therefore almost a one-to-one swap, even though the new gas-fired power plants are more efficient and could, in theory, produce the same amount of electricity with almost half the installed capacity. Romania’s strategy does not view renewables as capable of replacing coal facilities. The reality, however, is quite different. 

After almost a decade of stagnation between 2014 and 2022 due to cancellation of the domestic Green Certificate scheme, renewables are growing again, albeit at a slow pace. The latest data shows that in 2023 the share of renewable energy reached 25.8% of final consumption, compared to 24.5% in 2020.  

While the government is targeting a share of 38.3% by 2030 – corresponding to up to 10 GW of new capacity – this remains below the European Commission’s recommended target of 41%. New capacity, particularly from photovoltaic projects installed in 2024 and 2025, is expected to increase the share of renewables in the coming years, though the rate of growth must accelerate to meet national targets. 

Romania’s national energy and climate plan sets a target for renewable power to account for 57.8% of consumption, up from 47.4% in 2023. However, the share of gas in the power sector is also projected to increase, from 20 to 24% by 2030.  

Since 2021, when the coal phase-out commenced, coal-based electricity production has declined by 4 percentage points, with wind and solar production increasing by 4.4 percentage points. Gas-fired power generation has remained largely stable, recording only minor variations of 1 to 2 percentage points and no change in installed capacity, with hydropower generation fluctuations dependent on water availability. 

The chart below shows that renewables are already replacing coal-fired generation without the need for additional gas capacity. This transition can continue in the coming years, particularly if accompanied by investments in storage and network improvements.  

Romania’s power consumption by source between 2010 and 2024 (data source: Transelectrica)

The national energy and climate plan foresees a 12% decrease in primary energy consumption by 2030 compared to 2020. However, it also projects a 60% increase in electricity usage, from 55 to 80 terrawatt-hours (TWh) per year. By contrast, Transelectrica’s network development plan assumes electricity consumption will rise to only 60 TWh by 2030. Therefore, the plan’s projections do not align with expected electricity demand at the transmission level or with overall energy consumption. 

If all the gas-fired plants are built and the targets for increasing renewable energy consumption are met, Romania may face overproduction relative to domestic demand. Theoretically, 3.5 GW of the gas-fired CCGT power plants operating at a 64% capacity factor could produce around 19.6 TWh per year, almost 50% more than the national energy and climate plan’s estimate of 13.5 TWh for all the installed gas capacity. 

If Romania achieves its renewable energy targets, gas-fired power plants risk operating below capacity and incurring losses, given that clean sources are likely to assume market priority amid an abundance of renewable electricity. In this case, the new gas-fired power plants would likely need to rely on exports to remain competitive or require state aid to remain operational. 

Romania has already invested over EUR 800 million from the EU’s Modernisation Fund in gas infrastructure, which risks becoming stranded assets. As a result, the country may increase its own emissions and use precious public funds to support decarbonisation elsewhere. 

Domestic consumption or export? 

The national energy and climate plan is also askew with projections from Transgaz, the national gas transmission system operator. While the plan foresees a small decline in fossil gas use, Transgaz estimates that consumption could double from 2027 onwards – an increase of over 10 billion cubic metres – under an optimistic scenario in which all gas projects are completed and operate at capacity. Besides electricity, Romania’s gas use in heating is also expanding significantly, with new district heating plants and distribution networks being supported with billions of euros in EU and national funds. Meanwhile, the government is encouraging industry to increase gas consumption, including gas extracted from the Black Sea.  

The Neptun Deep perimeter is estimated to produce 8 billion cubic metres per year, which suggests this output alone would not be enough to cover domestic demand. Under these circumstances, Romania would have to import additional gas. Romanian decision makers have promised that Black Sea gas will strengthen regional energy security, with the Commission viewing it as a potential replacement for some of the gas previously supplied by Russia. OMV Petrom has already signed two sales contracts: one with Energocom in Moldova and the other with Uniper in Germany. 

Romania evidently cannot double its gas consumption while securing gas resources for neighbouring countries. This raises questions about how Romania intends to honour national and EU commitments and whether it will ultimately become more dependent on gas imports in the future. 

A costly pro-industry transition 

Beyond the dilemma of ‘energy independence’, increased gas consumption would hinder decarbonisation of the energy sector and make the transition more expensive in the medium and long term, while also raising consumer energy bills. 

First, additional gas consumption means more greenhouse gas emissions and higher carbon-allowance costs. From 2029, a carbon tax on buildings and transport is expected to come into force, placing extra pressure on households reliant on gas for heating. At an emission factor of 1.9 kilogram of CO2 per cubic metre of gas, doubling gas consumption would result in an estimated additional 19 million tonnes of CO₂ emissions, roughly twice as much as coal-fired power plants produced in 2020. 

Second, gas drives up electricity prices because it often determines the marginal price in the power market. The goal should therefore be to reduce electricity generation from gas and decouple power prices from gas costs, rather than expanding gas-fired generation. 

From 2035 onwards, hydrogen is set to be used in Romania’s new gas-fired power plants and within the national gas network once domestic gas resources are reduced. However, a market for renewable hydrogen does not yet exist globally and may never emerge despite all the bold claims and ambitious targets. Additionally, renewable hydrogen is likely to be far more expensive than previously estimated, making it unrealistic to expect it will ever compete with gas on price. 

The broader costs of the transition must also be considered. Producing renewable hydrogen requires additional renewable energy capacity (currently not in place) as well as dedicated transport and storage infrastructure, on top of the investments already made in gas-fired power plants designed to consume hydrogen. This pathway is also highly energy-inefficient, given only one-third of the renewable energy produced would actually be consumed in gas-fired power plants. 

This approach would also incur significant energy losses and require substantially higher investment than a transition to an electrification-based renewable system, which must be developed in any case. More public funds –  impossible to estimate given the scale of investment required – would eventually be allocated to build hydrogen infrastructure and upgrade gas assets for hydrogen use. In practice, the public would end up subsidising the continued profitability of the fossil fuel sector at a much higher cost than a direct transition to sustainable renewables and electrification. 

Swift action required 

From a societal perspective, an energy transition based on fossil fuels is a losing proposition from the outset. High investment and operating costs, particularly in the context of a hydrogen-driven scenario, mean that gas-fired power plants risk failing to recover their costs, requiring repeated public bailouts. There is also a risk that operators will continue to run on gas, undermining the goal of reducing greenhouse gas emissions. 

Romania is over-investing in fossil fuel capacity, far exceeding its estimated consumption needs and renewable energy targets. This risks creating a market where production cannot be fully absorbed, leading to low returns on investment and a net loss for society. At the same time, the country’s push to increase consumption through Black Sea gas prevents the government from keeping its promises of regional energy security. 

Romania needs a bold and consistent energy strategy that focuses on renewables, electrification, storage, and reduced energy consumption. This represents a significantly cheaper, faster and lower-emission decarbonisation pathway than parallel investments in gas and hydrogen. 

Hungary’s energy transition at risk due to missed EU milestones

No matter how funds are juggled across recovery, cohesion and domestic programmes to give an impression of progress, the money lost due to delays and non-compliance will leave a serious gap in the national economy, slowing the country’s energy transition. 

Recovery and resilience plan under strain 

In late 2022, the Commission approved Hungary’s recovery and resilience plan, making disbursement conditional on the government meeting 27 ‘super milestones’ linked to the rule of law. However, implementation has been sluggish and, despite some progress, significant work remains if the government is to convince the Commission it remains on track to deliver the necessary reforms.  

At a June 2025 meeting of the Recovery and Resilience Facility monitoring committee – which is tasked with overseeing implementation of the recovery and resilience plan – the government reported most measures under the plan were still being implemented, while also indicating the need for potential modifications of measures that have yet to be launched, creating uncertainty over whether they will indeed proceed. 

In October, the government’s draft proposal outlining amendments to the plan was circulated among the monitoring committee for comment and made available for public consultation on the government’s website. Yet the proposed changes indicate that – even if Hungary were to meet all 27 ‘super milestones’ and immediately become eligible for funding under the Recovery and Resilience Facility – it would still be impossible to accomplish a considerable number of the planned reforms and investments by the August 2026 deadline. 

Cohesion policy funds on the brink  

In April 2022, the Commission formally notified Hungary it had triggered the conditionality mechanism under the Rule of Law Conditionality Regulation. 

In December 2022, following lengthy but largely unproductive negotiations with the government, the Council of the European Union decided to suspend 55% of the budgets for Hungary’s three largest cohesion policy operational programmes – Environment and Energy Efficiency (KEHOP Plusz), Integrated Transport Development (IKOP Plusz), and Territorial and Settlement Development (TOP Plusz) – totalling approximately EUR 6.3 billion. 

By late 2024, EUR 1 billion had already been lost permanently. Unless conditions are met, another EUR 1 billion risks being squandered by the end of 2025. 

Uneven cuts to energy efficiency 

The modification proposal cuts the recovery and resilience plan’s total budget of around EUR 10.4 billion by 33%. These reductions would not be spread evenly across the plan. Almost the entire budget would be slashed for the components on water management, sustainable transport, the transition to a circular economy, and the plan’s REPowerEU chapter. Additionally, the green energy transition component would lose around 41% of its budget. 

Within the energy component, the cuts mainly affect smart grid development, residential photovoltaic systems, and energy efficiency investments in public buildings. While the first two areas have already been partly implemented and could, to some extent, continue on a commercial basis, energy efficiency upgrades have long suffered from chronic underfunding. Under the modification proposal, funding for this purpose would be reduced by HUF 103.48 billion (roughly EUR 265 million), including the withdrawal of planned allocations from both the energy and REPowerEU components.  

Households are the most neglected aspect of Hungary’s energy transition, particularly those affected by energy poverty. The Home Renovation Programme – designed to improve residential energy efficiency and alleviate energy poverty, originally included in the REPowerEU chapter with a budget of around EUR 577 million – has so far been implemented to just 12%. 

However, should Hungary ultimately lose all access to Recovery and Resilience Facility funding, the costs of the Home Renovation Program are expected to be covered instead by the Environment and Energy Efficiency operational programme, leave it with less funding available for other priorities. If that happens, more than EUR 500 million earmarked for household energy efficiency under the Recovery and Resilience Facility would effectively be lost for good. 

Alternative funding options fall short 

Allocations had been made to improve the energy performance of various building types under both the recovery and resilience plan and the Environment and Energy Efficiency operational programme, with added potential to support such investments, such as hospital refurbishments, through the Modernisation Fund. 

However, the funds lost due to non-compliance with the conditionality mechanism have created a major gap in the energy transition budget that will be hard to fill. The Modernisation Fund alone cannot be expected to replace all of the lost schemes. 

Though several domestic programmes, including Otthon Start and the Family Home Creation Discount (CSOK), have been launched with support from the state budget, these programmes do not specifically target energy efficiency renovations and are therefore unsuitable for filling the gap. 

Other schemes, including the Energy Efficiency Obligation Scheme (EKR) and programmes focused on energy efficiency renovations, such as the Home Renovation Program, are mostly market-based or require starting capital in the form of initial personal financing. As a result, they primarily benefit middle-to-upper income households and remain out of reach for lower-income households. Specific schemes tailored to the needs of the most vulnerable are badly needed, yet none appear to be on the horizon. 

Unfortunately, planning under the national social climate plan – a potential long-term tool to support energy-poor households affected by the energy transition – seems to have stalled after some initial progress in 2024 and early 2025. 

Saving money at the expense of transparency 

Around 75% of the original components of the recovery and resilience plan have been cut to free up funds for two newly established components: InvestEU and a capital injection to the Hungarian Development Bank (MFB). The MFB injection is intended to support investments in economic development, a competitive workforce, the green economy, and affordable social housing.  

However, there are serious transparency and oversight concerns over the planned investments, as the policies guiding them will not be monitored or approved by the Recovery and Resilience Facility monitoring committee. Instead, oversight will be designated to separate ‘professional committees’ whose composition is not controlled by the monitoring committee. 

At a meeting of the Recovery and Resilience Facility monitoring committee held on 2 December 2025, several members representing non-governmental organisations voiced these concerns, emphasising the need for timely and adequate follow-up information on the new components, which the government and Commission are still negotiating. 

While these oversight concerns are significant, the more fundamental and urgent problem remains: numerous measures previously planned for a resilient, socially just and climate-neutral economic transition – designed through public and expert consultations – will face significant budget cuts or outright cancellation. This threatens to derail the energy transition that the MFB injection seeks to support. 

The Hungarian public, as well as the country’s affected sectors and industries, have long awaited these measures, carefully preparing for a predictable regulatory and financing environment as a precondition for ambitious decarbonisation investments. The future of EU public financing for Hungary’s energy transition hangs in the balance.

Kambarata hydropower project: greater scrutiny from international banks is needed 

However, recent public consultations on the project’s Environmental and Social Impact Assessment (ESIA) have revealed critical, unaddressed risks. The project is being presented as a national priority, but its current plan fails to adequately address serious seismic, social and environmental dangers.  

Kambarata HPP-1 is projected to have an average production of 5.6 TWh of electricity annually. Kyrgyzstan has a 34 per cent share of the project while Uzbekistan and Kazakhstan have 33 per cent each. To complete the project, around EUR 4-6 billion will be required. The EBRD is considering lending EUR 1.3 billion to support the project and the EIB another EUR 900 million.  

Experts from ‘Rivers without Boundaries’ made a detailed Cumulative Impact Assessment where they concluded that the project would result in unmitigated transboundary hydrological risks and would violate biodiversity safeguards. They’ve concluded that the project suffers from a severe deficit of good governance and public accountability and that the project will adversely affect thousands of locals in nine nearby villages.  

These risks and challenges were discussed during the second round of national consultations over the ESIA for the project, which was organised by the Ministry of Energy of the Kyrgyz Republic in Bishkek on 16 October 2025. Around 100 people – including locals, experts and NGO representatives – attended the meetings, and around 30 participated online.

The social concerns from local communities, who are dependent on cattle breeding, were mainly about the loss of their ability to continue this work if construction starts. They also expressed a need for the project to hire more locals.

The ESIA claims ‘only three households’ will be physically displaced. But it also indicates the reservoir will flood over 3,500 hectares of irreplaceable winter pasture land, threatening the livelihoods of over 1,000 households that depend on cattle breeding. Experts from ‘Rivers without Boundaries’ highlight that in the Cumulative Impact Assessment  (CIA) 50 km²  of ‘natural grasslands’ are currently left without biodiversity mitigation. Though the project’s management claims that the ‘aquatic river habitat’ and associated lands are not technically ‘lost’ but are simply being ‘converted into reservoir habitat’ and therefore do not require mitigation, experts from ‘Rivers without Boundaries’ call this a ‘blatant violation’ of the World Bank’s ‘no net loss’ requirements.  

The project will result in the destruction of over 80 kilometres of trails and 11 bridges, thereby severing access to remaining pastures. Authorities have announced plans to build an additional bridge and new roads for shepherds as well as to employ locals in the construction works, but locals did not seem convinced that these plans will actually happen. The ESIA states that construction is expected to create 600 to 3,000 new jobs  and that during the peak construction phase there will be about 7,000 workers onsite. The construction timeframe is estimated at 8.5 years.  

Another important concern comes from the Kyrgyz Republic’s National Academy of Sciences which has issued a serious warning. An active seismic fault is located directly under the proposed dam site. The institute insists that crucial seismic micro-zoning is necessary, but its experts report their warnings have been ignored by project consultants. 

Meanwhile, ecology experts from ‘Rivers without Boundaries’ have labeled the ESIA’s biodiversity section a ‘black box’. It lacks specific data about the project’s impact on the various potentially affected species. Most alarmingly, the ESIA proposes to determine if the area is a ‘critical habitat’ only after a decision has been made to implement the project.   

‘Rivers without Boundaries’ believe that this is a fundamental breach of international best practices, which require such assessments to be made prior to an implementation decision in order to determine if a project should be radically revised or abandoned. They state:

‘The ESIA does not provide a complete picture of the consequences of the hydropower plant construction for the most valuable natural aquatic habitats of the Naryn River. Consequently, the project has no mitigation plans to protect or restore habitat to compensate for degradation of a long stretch of natural river or 50 square kilometers of grasslands, and therefore fails to ensure that there is no net loss of biodiversity as required by the World Bank standards. Instead of habitat protection the largest budget item in the biodiversity management plan is devoted to building a fish farm for artificial breeding of native catfish and invasive trout’.  

In addition, the most well known impacts of the new dam are expected to occur in Uzbekistan, Tajikistan and Kazakhstan downstream of the Naryn Hydropower Cascade and reinforced by the new large Kambarata–1 reservoir.   

The Cumulative Impact Assessment attached to the ESIA explains that seasonal redistribution of flows may affect the whole Syrdarya River down to the Lesser Aral, degrade three Ramsar wetlands and affect irrigation systems important for millions of people. Specific impacts will depend on the flow management regime of the Toktogul and Kambarata-1 reservoirs, but this regime has not yet been agreed upon or designed.

‘Rivers without Boundaries’ also criticizes the ESIA for the absence of a sufficient environmental plan. ‘[The] CIA vaguely recommends designing such transboundary environmental flow management plan as the top priority. However, the whole ESIA does not include such a plan, or any further solid mitigation measures to avoid those negative impacts downstream, while its “environmental flow assessment” does not cover transboundary impacts and cascade regulation effects’.

What should potential financiers do now?  

Given these challenges, the World Bank, EBRD, EIB, Asian Development Bank and other potential financiers have a responsibility to stop overly relying on the developer’s ESIA. Before committing any funds, these institutions must conduct a rigorous gap assessment and ensure the ESIA process is sufficiently comprehensive and participatory to effectively assess all risks and impacts. These steps are vital to ensure the project aligns with their own policies and to avoid financing a social, environmental and economic disaster.  

International financial institutions must acknowledge the political climate. In these countries civil society organisations face reprisals and independent media is banned. Given this environment, international lenders must assess the risks and introduce mitigation measures to ensure transparency and meaningful stakeholder engagement. The international financial institutions must require the government to demonstrate cooperation with local activists and experts and to not threaten the activists. An independent, secure and anonymous grievance mechanism to protect stakeholder voices should be established to address these challenges.   

It is important for the banks to demand a realistic livelihood restoration plan. This should focus on the thousands of locals who are losing their pasture-based incomes. It must also provide specific, verifiable and fully-funded strategies for replacing lost winter pastures and access routes.     

All action points regarding offsets, transboundary monitoring and public safety must not merely be ‘recommendations’ in a plan but must be included as legally binding requirements in the Environmental and Social Action Plan (ESAP) linked to the loan agreement.  

The financiers should ensure that impact on all natural habitats degraded or modified by the hydropower project are dealt with in strict accordance with mitigation hierarchy and that ‘no net loss’ of biodiversity is truly achieved (e.g. by permanent protection of other similar rivers, where additional dams are now planned).   

Before the financing decision is made, potential critical habitats should be explored both upstream from the Kambarata-1 dam and downstream of the Naryn Cascade where the CIA highlights at least three wetlands of international importance dependent on the downstream water regime.   

To prevent conflict and environmental degradation, financial institutions must assert control over the project’s operational framework. They must mandate that the transboundary environmental flow regime downstream of the Naryn Cascade be designed during ESIA finalisation, not afterwards. This regime must be agreed upon and operationalised in binding reservoir cascade management rules, subject to full consultation with local communities in the three downstream countries. Without these binding guarantees, the lenders cannot claim to have mitigated the project’s transboundary risks.  

International banks now have a choice, either enforce their own standards to mitigate these risks or become complicit in funding a project with flawed foundations.  

The ‘do no significant harm’ principle revisited – lessons from Poland for the next EU budget

The Polish Green Network is a member of 15 out of the total 24 monitoring committees of EU funds in Poland. We chair the ‘do no significant harm’ working group at the monitoring committee of the EU’s largest programme (European Funds for Infrastructure, Climate and Environment for 2021-2027 (FEnIKS)) and we coordinated work on the application of the ‘do no significant harm’ principle in the Partnership Agreement Committee 2021-2027. This gives us a unique opportunity to look at the challenges of implementing the ‘do no significant harm’ principle from the perspective of civil society, beneficiaries and the central and regional administrations.

The EU taxonomy for sustainable activities and the  ‘do no significant harm’  principle were primarily designed to explain sustainability principles to investors and were not directly linked to EU funds.  However, this principle was introduced to the Recovery and Resilience Facility and the 2021-2027 Cohesion Policy as a horizontal principle (i.e., it applies to all investments under these instruments). This does not mean the EU taxonomy is fully applied in EU public funding; there is no obligation to demonstrate the positive environmental impact of an investment, but only to examine the risk of causing significant harm to the six environmental objectives.

Moreover, the application of specific  ‘do no significant harm’ criteria, as set out in the EU taxonomy, is not required for EU funded investments. This results in institutions and beneficiaries lacking a uniform understanding of the ‘significance’ of potential ‘harm’. The European Commission has also abandoned plans to publish dedicated  ‘do no significant harm’ guidance for the Cohesion Policy. All this has resulted in a lack of a single, coherent implementation approach to this principle across EU financial streams.

Explanation of the ‘do no significant harm’  principle is included in the Polish Partnership Agreement for 2021-2027 and in the Recovery and Resilience Plan. In practice, the recovery plan and each Cohesion Policy programme are accompanied by a  ‘do no significant harm’  assessment addressing its compliance at the level of types of projects, reforms or investments.  ‘Do no significant harm’ compliance for specific investments and projects is ensured by the adoption of relevant selection criteria and a requirement to produce specific explanations or evidence in the application for funding.

Lessons learnt on the effectiveness and implementation of the ‘do no significant harm’ principle

The introduction of the ‘do no significant harm’ principle raised awareness about EU environmental goals but revealed several weaknesses. Loopholes allowed fossil gas investments to slip through as ‘transition’ projects. Assessments lacked clear standards, resulting in uneven quality and weak verification. Political decisions have further weakened the principle, as some projects deemed essential for EU energy security were exempted from DNSH requirements under the REPowerEU Regulation.

Implementation in Poland pointed to broader regional challenges including unclear and incoherent rules, poor coordination among managing authorities and limited institutional capacity, as an analysis conducted by the DNSH Principle Task Force within the Polish Partnership Agreement Committee for 2021-2027 confirmed. It also confirmed CEE Bankwatch’s findings on this issue: the lack of clear EU guidance and different standards for the application of ‘do no significant harm’ in different financial instruments has led to difficulties in its application. Furthermore, monitoring and compliance varied widely, with insufficient training and expertise.

Despite the obstacles, some solutions in the 2021-2027 programming period showed promise. In Poland, the ‘do no significant harm’ principle was directly incorporated into the Partnership Agreement. As a result, environmentally harmful river regulation projects intended to enable inland navigation became not eligible for funding. The monitoring committee also demonstrated its potential as a forum for collaboration between administrative and non-administrative partners, including civil society.

How to approach the ‘do no significant harm’ principle in the EU budget

Building on the experience of implementing the ‘do no significant harm’ principle in Poland in the recovery plan and 2021-2027 Cohesion Policy, a complex, unified and transparent approach should be applied in the next Multiannual Financial Framework (MFF) for 2028-2034 to address current challenges. The ‘do no significant harm’ principle should apply across the entire MFF and be based on a single, universal guidance, as proposed by the European Commission in July 2025. However, more must be done to ensure the implementation of the ‘do no significant harm’ principle. As European CSOs and Polish organisations demand, this guidance should be supported by sectoral documents containing exclusion lists of investments that cannot be financed due to their clear DNSH non-compliance (this has also been proposed by the European Commission), as well as indicative lists of selection criteria to be used in calls for proposals and evidence to be presented by applicants and beneficiaries.

Designing specific solutions for the ‘do no significant harm’ principle in the next EU MFF for 2028-2034 requires conducting a systemic, in-depth evaluation and verification of the application of this principle in the 2021-2027 Cohesion Policy and RRF across the EU. Member States should be able to use the European Commission’s Technical Support Instrument (TSI) to further operationalise the principle to, for example, explore links between ‘do no significant harm’ and national legislation or to identify good practices. The ‘do no significant harm’ principle should be linked with the partnership principle such that the guidance and related documents are consulted with experts and partners, while working groups programming the next MFF and monitoring committees should be involved in all ‘do no significant harm’ related aspects of their plans and funds. In the next programming period, educational activities about the environment should be strengthened and should include a ‘do no significant harm’ component to build the capacity of institutions and beneficiaries and increase the public’s environmental awareness.