Blog entry

Resavica: Serbia’s canary in the coal mine

Resavica, a public company operating nine coal mines across Serbia, should have been the most obvious wakeup call. Employing close to 4000 people, it has struggled to pay salaries since 2005, with debts mounting to EUR 2 million, and triggering a chain of lawsuits from disgruntled employees.

Moreover, in January, Resavica’s general director was arrested on corruption charges.

At the same time, the company has suffered a shortage of workers, and after some employees retired, last month the economy ministry decided to recruit 200 miners to enable the mines to continue operations.

By more tragic circumstances, a number of employees have lost their lives in several accidents, most lately in December 2013 in the Rembas mine and then in September 2014 in the Strmosten mine.

The situation really couldn’t be more hopeless. An unnamed source told the Večernje Novosti daily, “we admit, for Resavica there is no solution in sight because employees earn only half their salaries. We will have to talk to international financial institutions because without state subsidies they will not be able to survive.” Resavica is already receiving nearly EUR 37 million from the Serbian state for wages and running costs – subsidies that are most likely incompatible with Serbia’s obligations under the Energy Community’s state aid rules.

The government has been trying to sell Resavica for over a year, and in late May it decided to suspend for a year the privatisation of the company, along with 16 other firms considered strategically important for the country’s economy.

“Those firms are ready to be privatised, but with Resavica we have a big problem because no one is interested in it and it is the only one receiving state subsidies, while the others have a potential to recover,” economy minister Željko Sertić was quoted as saying.

At this point, one would expect that a new direction might be in order. Studies have repeatedly shown that Serbia has much to gain – in economic, environment, health and social terms – from boosting energy efficiency and from expanding its still nascent renewable energy sources.

Other studies are unequivocal about the heavy price Serbians will be, and indeed already are, paying by perpetuating the country’s near total dependence on dirty coal.

Yet, instead of seeing Resavica’s poor performance as an opportunity to consider a more sustainable energy path, the Serbian government has dug its heels in. In a meeting two weeks ago with business association NALED, mining and energy minister Aleksandar Antić stated that a new mining law, designed to attract private investments, will be adopted in September.

Details about the bill are yet to be made public, but it would be fair to speculate that in its new version the law should make it easier for Serbia to privatise Resavica, possibly by lowering some standards to cut running costs.

Ivan Bošnjak, member of NALED’s Executive Board, said this law has already been amended three times in the past eight years. He also said NALED will be contributing to drafting the new law because of its potential to breathe new life into the mining sector.

“Our calculations [show] that five new mines could bring long-term investments of 4 billion euros, create 1,000 direct and 3,600 indirect new jobs in the sector offering salaries which are 2.5 times higher than the national average,” reportedly said Bošnjak.

This seems rather far fetched considering the state the global coal industry is currently in. The risk of investing in coal assets which could turn out unprofitable is ever higher and most development banks no longer invest in coal. Now Serbia has the choice between channelling new investments into a dying coal sector or into the promising prospects of improved energy efficiency and clean, cost-effective solar and wind power.

After Slovenia’s Sostanj coal power plant debacle, is any bank going to finance Croatia’s Plomin C?

This blog post is published jointly with BankTrack.

Slovenia’s newly built Sostanj 6 is expected to generate losses of around EUR 200 million over the next 3-4 years. This was the view put forward at a recent panel discussion in Zagreb by Blaz Kosorok, General Director of Holding Slovenske Elektrarne (HSE), Slovenia’s state-owned power generation company and the country’s largest company.

Given that Croatia’s Plomin C project shares some of Sostanj 6’s features – failure to really consider alternatives, a lack of transparency about costs, and failure to properly include the public in decision-making – could Croatia be about to repeat its neighbour’s mistakes? And how is the only major international financier involved in Plomin C to date – Crédit Agricole – viewing its own future in another looming Balkan coal power debacle?

Few people acknowledged what was happening until Sostanj 6 was half-built, leaving the government with the painful and expensive decision of whether to continue construction or to abandon the project.

In order to shed some light on the issue, on May 28 Zelena akcija/Friends of the Earth Croatia held a panel discussion in Zagreb. Kosorok, who became General Director of HSE only once Sostanj 6 was under construction, outlined the sorry story of how a small group of individuals, pushing the Sostanj 6 plant in order to maintain their own jobs, ended up dictating the direction of the whole country. Few people acknowledged what was happening until the plant was half-built, leaving the government with the painful and expensive decision of whether to continue construction or to abandon the project.

Lidija Zivcic from the Slovenian NGO Focus explained further during the discussion that Sostanj 6 was never part of a national energy strategy, but rather a wish-list of random projects. No alternatives were ever seriously considered, and the environmental assessment consultation was announced very discreetly, with mainly the communities nearest to the plant ever being consulted. Since the project was touted as safeguarding 3500 jobs (in the end it has maintained only 200), it was never likely that locals would criticise the project. It wasn’t until HSE requested a loan from the European Investment Bank (EIB) in 2007 that it even became clear that Sostanj 6 was progressing.

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The initial cost of Sostanj 6 mentioned in public – EUR 690 million in 2006 – more than doubled to EUR 1.4 billion by 2014. Key economic assumptions such as the price of lignite for the plant were clearly unrealistic, but objections made by Focus and others were not heeded. They have turned out to be correct.

In spite of the involvement of the EIB and later the European Bank for Reconstruction and Development (EBRD), Europe’s two multi-lateral development banks which like to believe they help to raise standards when they involve themselves in major infrastructure projects, Sostanj 6 has been hit hard by corruption allegations, for which ten people have been charged. The main contractor and equipment supplier for Sostanj 6 was Alstom, whose staff and subsidiaries have been found guilty of corruption offences in at least seven cases in seven years across different continents, and is under investigation for several more.

Alarmingly, Alstom is also the planned contractor for Plomin C, along with the Japanese consortium leader Marubeni, which has also been found guilty in two major corruption cases within three years, and was debarred from receiving loans from the Japan International Co-operation Agency for nine months from March 2014.

Bernard Ivcic of Zelena akcija also outlined how several of the hallmarks of Sostanj 6 are also true for the estimated EUR 800 million Plomin C, slated for development on the beautiful Istrian coastline. The project is touted as replacing the existing 125 MW Plomin 1 plant, but at 500 MW would in fact be four times larger.

Although in this case public consultations for the coal plant project’s environmental assessment have been better publicised, (in fact they’ve been marked by overwhelming public opposition to the project), the approach by Plomin C project promoter Hrvatska Elektroprivreda (HEP) to public comments throughout the process is similar to HSE’s in the Sostanj 6 case: to push the project along as if they didn’t exist. Among the issues raised by local people and NGOs have been the futility of replacing imported electricity with imported coal, the health risks, the worsening economics of coal, the project’s climate impact, the lack of consideration of alternatives and the clash with Istria county’s tourism industry. In March this year a local referendum resulted in 94% of voters delivering a clear “No” to Plomin C.

The lack of transparency sounds familiar too. HEP plans to sign a long-term power purchase agreement with Marubeni, which may well be incompatible with EU state aid rules. Negotiations are taking place without any hint of what HEP is offering Marubeni, but Croatian media reports suggest that Marubeni is requesting an electricity sale price double that of the current price on European electricity markets.

Plomin C differs, however, from Sostanj 6 in that the EBRD and the EIB won’t touch it with a barge-pole. As part of the global trend away from coal investments, in 2013 both banks virtually eliminated their lending for coal power plants. Notably, though, a senior bank source at the EIB has gone on the record to describe Sostanj 6 as “one of those projects that tend to haunt you”. The EIB almost never offers up such critiques of projects it’s been involved in – an indication of just how bad Sostanj 6 has been, and remains.

How exactly, then, has the Plomin C experience been for top French private bank Crédit Agricole, the only international bank to have involved itself in the project to date through the provision of ‘advisory services’ since September 2014? Have some of the project’s most egregious aspects, witnessed up close, started to haunt Credit Agricole yet? They certainly should have, and Friends of the Earth in Croatia and France, as well as Bankwatch and BankTrack, believe that the bank must immediately withdraw from the project.

For Crédit Agricole to carry on supporting new coal power plants would be inconsistent with its decision announced just last month to both end finance for new coal mining projects and stop all support to specialised mining companies. Moreover, not only do more than two thirds of fossil fuel reserves and more than 80% of coal reserves need to remain in the ground, but only zero-carbon utilities and infrastructure should be developed beyond 2017 since 80% of cumulative emissions allowable between 2010 and 2035 are already locked-into existing power plants, factories, buildings and services. Coal is the climate killer number 1 and, regardless of the technologies used, any new coal power plant would jeopardise global efforts to prevent a climate catastrophe.

If Crédit Agricole wants its decision to rule out support for the coal mining sector not to appear as a strategy simply for minimising financial risk in a dying sector, but instead to stand as a true commitment to fighting climate change, the bank must now end its support for all new coal power plant projects such as Plomin C and sign up to the Paris Pledge (pdf).

Azeri regime stifles criticism ahead of European Games. European lender must finally take measures.

UPDATE 1 12h CET 12 June 2015

Platform have taken to the streets of London to protest the opening of the European Games. See a video of the action below, and read more in their book published Friday, All that glitters, which explores how the European Games belong to the Aliyev regime and the British oil company BP and how sport is being co-opted in the service of a dynasty and fossil fuels.

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Yesterday afternoon, Emma Hughes, a friend and rights activist from the UK, was denied entry to Azerbaijan where she had gone to monitor Friday’s inaugural European Games.

Emma is a fierce critic of the Aliyev regime and its business allies in the oil and gas sector. In addition to the European Games, Emma planned to attend the appeal of imprisoned Azeri activist Rasul Jafarov, who is currently serving a six and a half year-sentence on trumped up charges.[1] She was detained at the airport Tuesday afternoon and deported on an early flight today.

Emma works for Platform, a campaign group that targets oil and gas giant British Petroleum (BP), one of the European Games’ official partners and the largest foreign investor in Azerbaijan. “The future of this country is imprisoned, yet BP still works hand in hand with this regime”, Emma said from detention.

The EBRD has in certain instances limited its involvement with countries where democracy is being stifled. The EBRD’s continued investments in Azerbaijan’s oil and gas sector are a blatant disregard of basic democratic rights and a violation of its own mandate.

This latest example of Azerbaijan’s intolerance for criticism (Amnesty International was also barred from entering the country today) should be another red flag for the European Bank for Reconstruction and Development (EBRD), an important financier of Azerbaijan’s Shah Deniz gas field, whose lead operator is BP.

In spite of its mandate to promote democracy, the EBRD has played a role in ensuring a steady stream of oil and gas revenues [2] for the authoritarian Aliyev regime. The bank approved in January 2014 its most recent loan to Lukoil operations at Shah Deniz, when the number of political prisoners was at its highest. A decision on another loan of USD 500 million for Shah Deniz is expected in July.

The development of Shah Deniz lays the foundations for the Southern Gas Corridor, a series of three import pipelines that are at the centre of the European Commission’s Energy Union. The EBRD actively promotes the pipeline, with bank officials publicly contemplating finance for this massive project.

Given this situation, the EBRD must immediately restrict lending to Azerbaijan’s oil and gas sector.

Indeed, such a move would be in line with its own country strategy and recommendations from the IMF.

The EBRD has in certain instances limited its involvement with countries where democracy is being stifled. In Belarus, Turkmenistan and Uzbekistan, the EBRD lends only to small-scale, private sector activities that do not provide significant support to the regimes.

With regards to Azerbaijan, however, the bank has so far avoided to show the same resolve.

With repression worsening in Azerbaijan and the Aliyev regime showing no sign of changing course, the EBRD’s continued investments in the country’s oil and gas sector are a blatant disregard of basic democratic rights and a violation of its own mandate.

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Continue reading
Will energy efficiency be sidelined in the Energy Union’s implementation?
Blog post | June 8, 2015

Pipe Dreams: Why the Southern Gas Corridor will not reduce EU dependency on Russia
Press release | January 21, 2015

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Notes

1. Rasul was arrested in August 2014 and charged with tax evasion, illegal enterprise and abuse of official power. In April 2015, following investigations and a trial full of shortcomings, he was sentenced to six and a half years in prison, even though reportedly all prosecution witnesses testified in favour of Rasul.

2. Where states do not rely on their citizenry for generating revenue, governments are more likely than others to use indiscriminate violations of personal integrity rights as a policy tool. A 2013 study examined this oft-observed “relationship between a state relying on oil and the violation of personal integrity rights” and found it to be “substantive and significant […] across all specifications and different indicators”.

Italian mayor stands up against EU priority gas pipeline

This blog post first appeared on the Counter Balance blog.

In an open letter [*] to the EU institutions an Italian mayor has voiced the local opposition to the Trans-Adriatic gas pipeline (TAP) in Italy. Civil society organisations and local authorities fear the pipeline will affect the environment and the safety of their communities and demand the EU not to finance the project.

The TAP will run from Greece to Italy via Albania and is part of the Southern Gas Corridor, a series of three pipelines which have to bring gas from Azerbaijan to Italy for the European market. The project is among the top priorities of the EU’s energy security strategy but faces fierce opposition.

The letter is signed by the Mr Potí, mayor of Melendugno, the town where the pipeline will enter Italian soil, and it reflects the positions of local civil society organisations and 40 other mayors from the region who have voted several motions opposing the project throughout the last years. The letter is addressed directly to the European Commission, the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) who are most likely to support the construction of the pipeline.

The EBRD is already financing the Shah Deniz II gas field that will supply the Southern Gas Corridor and has stated that it is interested in financing TAP. Also the EIB has recently been approached by TAP AG, the consortium behind TAP which is based in the Swiss canton of Zug, one of the world’s most secretive jurisdictions.

As the pipeline will be crossing dunes, pinewood, rural trials with olive trees and state roads, local administrators and residents fear that it will seriously impact the region which is mainly oriented towards tourism and agriculture. Safety is another concern related to a pressure reduction plant which will be built in the town of Melendugno where the pipeline enters land. An environmental impact assessment has still not been approved for the connection between the pressure reduction plant and the national gas network 50km further on in Brindisi.

For these reasons local authorities have negatively assessed every step of the project but their concerns have not been taken into account by the relevant authorities. The letter calls on the EU institutions and the Italian government to engage in an “open debate on alternatives to TAP” involving all regional stakeholders in order to overcome the “lack of democracy” which has marked the decision making process so far. The selection process for so called ‘EU projects of common interest’ should be revised to better integrate the views of EU citizens and impacted communities in the EU as well as from where the energy sources derive, it is argued.

Interestingly, the letter questions the energy security argument which the European Commission uses to justify the project. Can energy security be increased by depending on an authoritarian regime which doesn’t respect human rights, the letter asks rhetorically. Shouldn’t we focus on more sustainable and commonly owned sources of energy to secure our energy independence, is another such question.

TAP keeps on heating the debates in the South of Italy. In the upcoming local elections all candidates have already expressed their opposition to the project which is immensely unpopular with the local population.

But also outside of Italy the opposition rises in parallel with the doubts over the energy security potential of this project and the cost of it, not only financially but also in terms of human rights and the environment.

The arguments of local authorities and citizens show the incompatibility of the project with the EU’s own human rights and environmental policies. It remains to be seen how the EU will address this policy incoherence and whether it is willing democratise the decision making process and take into account the concerns from the affected people locally.

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* You can also read the Italian version of the letter (pdf)

Will energy efficiency be sidelined in the Energy Union’s implementation?

EU energy ministers are meeting in Brussels today to discuss the implementation of the Framework Strategy for the Energy Union, the EU’s five year energy strategy.

If the last six months provide any indication, then the Commission’s flagship framework for the energy sector is shaping up to be a large disappointment for those hoping it could help Europe make real strides towards decarbonisation, decentralisation, and the decrease of energy consumption in Europe.

Billions of euros are to be spent among others on the construction of mega gas pipelines, the so far commercially not viable carbon capture and storage technology, and on developing the still far from promising shale gas potential in Europe.

The energy efficiency no-brainer

In the beginning of June I shared a panel with the European Commission’s Vice-President for Energy Union Maroš Šefčovič at a conference in Riga which he joined as part of his Energy Union tour through EU countries. In his public appearances, Šefčovič continues to stress that “the cheapest, safest and most secure energy is the one not consumed”. This sentence had appeared in a leaked draft strategy for the Energy Union, but disappeared from the final version.

Energy efficiency has deserved the important role it has as one of the five dimensions of the Energy Union. Especially central and eastern European countries could benefit greatly from an Energy Union that focuses on fully exploiting the energy savings potentials. This is true not only in the housing sector, but as well in the transport and industry sectors, where the energy intensity is still much higher than in old member states.

Let’s be clear, though, that the benefits of decarbonisation are not limited to central and eastern Europe alone. A study published in October 2014 by the World Resources Institute and Ecofys shows that more investment in renewables and energy efficiency in three sectors (housing, industry and power generation) can cut natural gas imports to the European Union by 50% and CO2 emissions by 49%.

Reality defies rhetoric

Despite public reassurement of the importance of energy efficiency, decarbonisation and “remaining no.1 in renewables”, it is the energy security scare that yet again seems to be at the forefront of the EU’s plans. To secure supply, the European Commission and Member States seem only able to operationalise more fossil fuels projects instead of first working out solutions for reducing energy demand quickly.

The crown jewel in the plans so far is the Southern Gas Corridor, a system of mega-pipelines meant to bring gas to Europe from the Caspian region. Numerous arguments against the 35 billion euros project have been brought forward, for instance:

According to estimates by the Commission itself, under all scenarios, gas demand in Europe will decrease by 2050 (pdf), raising concerns that the Southern Gas Corridor will turn into a stranded asset.
Building such large and expensive infrastructure will therefore lock Europe into a dependence on fossil fuels way beyond a point when carbon emissions should be at a minimum already.
The gas planned to be transported by the Southern Gas Corridor will come from Azerbaijan’s Shah Deniz oil and gas field. Yet cutting gas deals with the country will only strengthen the increasingly oppressive Aliyev regime. Currently eighty political prisoners are behind bars in the country – more than in Russia and Belarus combined.

With that much focus on fossil fuels, Europe cannot hope to achieve a long-term decarbonisation, a decentralisation of energy supply and a decrease of energy demand in all sectors to meet its 2050 climate and energy goals. Other solutions are required for this.

New Member States playing ball

Member states play no small role in watering down the more sustainable aspects of the Energy Union strategy. Already in September and October 2014 and again in February this year, the Visegrad + 2 countries (Poland, Hungary, the Czech Republic, Slovakia plus Romania and Bulgaria) have successfully pushed against influence from Brussels on their domestic – dirty – energy mix.

New member state’s spending priorities are also becoming clear with a look at their plans for EU funding until 2020. While the relative increase in energy efficiency funding is significant, it still remains on a low level in absolute terms. And in spite of scaled up opportunities for funding clean and sustainable energy infrastructure, countries are planning to spend only very little on renewables. Instead they have slated significant amounts for gas pipelines and road constructions.

For instance, Poland’s share of fossil fuel support constitutes up to 25% of all energy infrastructure funding. The Czech Republic and Slovakia spend more than 50% of their transport funding on roads.

To make the Energy Union anything more than business as usual, the focus and with it the funding has to shift away from fossil fuels and towards renewables, energy efficiency and decarbonisation.

Transforming development finance? Europe’s multilateral lenders fail on aid transparency

On Wednesday the transparency watchdog Publish What You Fund launched its 2015 Aid Transparency Review (pdf). While Europe’s two multilateral development banks, the European Investment Bank and the European Bank for Reconstruction and Development have improved compared to last year, they both find themselves (again) in the lower half of the ranking.

Here are some thoughts from us on how both institutions stand in terms of transparency and accountability.

EBRD – few improvements in last decade

The EBRD has finally committed to publish information to the IATI Standard in 2015, however it still remains at the bottom of the Aid Transparency Index in the ‘Poor’ category (for the third year in a row). In spite of the declared internal political support for greater transparency and the half-hearted realisation that the D in the EBRD’s name stands for Development, the institution is well off track from meeting modern standards on transparency and quality information disclosure.

The Public Information Policy of the EBRD has undergone three revisions in the last decade without any significant improvements. As a result it is way off the mark, still more concerned with confidentiality and disclosure derogations rather than with transparency, and clearly putting corporate interest before the public interest. By placing the greatest share of responsibility for disclosure of project information onto the client and by miscategorising projects (pdf), the EBRD excuses itself from making the necessary steps to greater transparency.

Thus it would appear that the EBRD is gearing up to jump on the Financing for Development train with a forged ticket. If timely and detailed information on the bank’s projects would be an indication of the quality of its investments, then the EBRD should go a long way in order to demonstrate that it can deliver on the Post 2015 agenda and its own unique Sustainable Development mandate.

EIB – hiding behind policy

While we welcome the European Investment Bank’s improvement in its ATI score in 2015, the bank’s ranking as ‘Fair’ does not mean it is a poster child for transparency and accountability. On the contrary, it is way off track from meeting its aid transparency commitments.

The EIB made a small jump from a score of 24.6 per cent in 2014 to 46.3 per cent this year, because it began publishing to the IATI Standard in 2014. Yet, this is still not even half way to implement the IATI Standard in full, which the bank committed to do by December 2015.

As PWYF’s Road to 2015 website explains:

The end of 2015 is the deadline donors set themselves to fully implement the International Aid Transparency Initiative (IATI) Standard, an open data framework which allows for the publication of timely, comprehensive and comparable information on development finance. Donors agreed this target back in 2011, at the fourth High Level Forum on Aid Effectiveness.

And even more worries for the EIB’s transparency performance may be expected under its new Transparency Policy that was approved in March this year and lambasted by civil society and a European Parliament Intergroup. Before the new policy was finalised, the European Ombudsman had criticised the bank for failing to comply with its own (old) transparency policy by not providing information on an investigation into allegations of tax evasion in relation to the Mopani Copper Mine project in Zambia. Instead of taking the Ombudsman opinion into account, the EIB introduced a new exception for access to information in its new policy. This exception would allow the EIB to keep secret internal investigations into irregularities such as corruption and maladministration.

The EIB also keeps refusing other development related information. Typically, it does not disclose investment made through financial intermediaries such as commercial banks, even though this type of financing accounts for up to 40% of its lending outside the European Union.

And similar to the incomprehensive information that the EIB publishes to the IATI, the bank seems not to take its commitments to transparency standards very literally. Despite the fact that it subscribed to Extractive Industry Transparency Initiative (EITI), it refused to disclose information on the taxes paid to the Tunisian budget resulting from an EIB-financed gas extraction project in the South of Tunisia.

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