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Czech coal mining communities are under threat


All over the world, people living near fossil fuel deposits often face pressure to make room for more extraction. Whether it is shale gas in Argentina, oil in Albania, coal in Mongolia or lignite in Serbia, local residents may lose their homes or livelihoods. If they protest, they are too easily portrayed as being in the way of progress, as opposing the national development and – even worse – the nation’s energy security.

An ongoing debate over coal mining limits in the Czech Republic shows that also in countries of the European Union local communities are facing similar struggles. It also illustrates how “securing energy supply” has become a catch-all argument even when the energy demand in no way justifies it.

Coal mining limits in the Czech Republic

Since the early 1990s limits to coal mining are protecting dwellings in the North Bohemia against demolition. A government decree from 1991 guarantees to the towns and villages that are situated on coal deposits that they will not be pulled down to make room for mining.

Yet this might change soon. In July the Czech government is to decide on a possible extension of mining. As part of its Energy and Raw Materials Strategy, the Czech Ministry of Industry and Trade opened (once again) a discussion about lifting the coal mining limits. The Ministry has prepared four scenarios of resolving the issue of mining limits – an entire lifting of the limits, their entire preservation and two options with a partial lifting of limits (of which one would have an effect on populated dwellings and one would not).

While a majority of Czechs, local inhabitants, environmental NGOs and part of the political establishment are opposing the plans, energy companies who own the mines and the miners’ trade unions are for lifting the mining limits. Their arguments are that the Czech Republic will need more coal for its energy demand (mainly heating) and that hundreds of miners would face unemployment if the limits remained.

Feeble arguments

The arguments of the plans’ proponents are as predictable as they are weak. While it is always difficult to argue against securing miners’ employment, it is worth pointing out that the villages and cities under risk by the mines employ more people than the mines themselves.

In particular the reference to energy demand, however, can hardly be taken seriously. The Czech Republic currently exports 16 million tons of coal annually in the form of electricity. And even the Czech Republic’s new draft energy strategy (pdf) confirms that the country does not need the coal behind the mining limits. According to the Strategy, coal consumption will drop by 73% until 2040, even though the Strategy does not take into account the whole energy savings potential.

Rather than just digging out more dirty coal, investments in energy efficiency would be a reliable way to moderate the energy demand. The Czech economy is among the least efficient in the EU (pdf, see page 11). The sole energy saving potential of residential houses is bigger than the amount of energy that could be extracted by lifting the coal mining limits.

Climate impacts and stranded assets

In case of an abolition of the limits, the Czech Republic would extract coal until the year 2120. This is in sharp contradiction with the goal of the EU´s Low Carbon Roadmap (pdf) to reduce greenhouse gas emissions by 80 – 95% until 2050.

A 2015 UCL study published in Nature concluded that Europe must leave 89% of its coal deposits underground if the world is to limit global warming to below 2°C. The latest IPCC´s assessment report (pdf) recommended reducing global emission to zero during the second half of the century and emission from fossil fuels even sooner.

If the government lifted the coal mining limits now it would itself stand in the way of progress – a progress towards a more climate-friendly future. More and more institutions are divesting from fossil fuels, not only for moral reasons, but because investments in fossil fuels may soon become stranded assets.

To not fall behind, the Czech Republic needs a targeted and long-term plan on how to achieve a low carbon economy. Taking decisive action on energy efficiency measures would be an easy and effective first step – also for providing employment.

Energy Community countries so rich they can afford to eschew climate action?


Thinking of Ukraine, Bosnia-Herzegovina, Serbia and other countries in the Energy Community, ‘bounteously wealthy’ is not the first phrase that comes to mind. Yet one of the things which most struck me about the new report produced for Bankwatch by Change Partnership is how much money these countries are throwing away in their energy systems.

Even more scary is how much more they are going to throw away in the coming years if they continue to ignore the need for climate policies to transform their energy sectors into efficient, sustainable renewables-based systems.

Coal in the Balkans

Find out more

In Bosnia and Herzegovina, for example, coal accounted for 69% of electricity generation in 2012 with the remaining 30% emanating from hydropower. It is estimated that the external health and social costs of NOx, SO2 and particulate matter (PM) by 2014 were EUR 2.2 billion per year. That’s EUR 2.2 billion being paid by ordinary people that is not showing up on their electricity bills but rather in health care costs, lost work days and other damage.

In addition to this, the countries are wasting vast amounts of electricity in transmission and distribution losses.

Kosovo is estimated to lose 1859 GWh or around EUR 82.7 million annually due to electricity losses in transmission and distribution – not much less than the 2000 GWh generated by the highly polluting Kosovo A plant each year! While some of this may due to theft rather than absolute losses, it does not include wasteful usage and poor insulation, yet Kosovo backed by the World Bank and others plans to build a new 600 MW power plant rather than addressing these losses first.

If CO2 prices are taken into account and added to coal construction costs, wind energy is on average 25% cheaper than new coal capacity across the region.

Read more

Climate change: time for the Energy Community to take action
Study | March 10, 2015

South eastern European countries must take climate action or face hefty bills, says new report
Press release | March 10, 2015

Serbia is another one of Energy Community countries that plans to move even further into the use of coal, with 2.85 GW capacity to be added during the next decade or so. Construction costs alone are estimated at EUR 6.7 billion. Yet within the next 10-15 years it can be expected that either the Energy Community will introduce a price on carbon through an Emissions Trading Scheme or carbon tax, or that Serbia will join the EU and thus participate in the EU Emissions Trading System. In either case CO2 emissions will need to be paid for, at an estimated cost of between EUR 69 and 419 million per year for the new units alone, depending on the carbon price, and having a coal-heavy electricity fleet will become a liability.

People are often prone to ask whether the Energy Community region can afford renewable energy. Yet it turns out that if CO2 prices are taken into account and added to coal construction costs, wind energy is on average 25% cheaper than new coal capacity across the region. Wind and solar costs are also falling, while coal is increasing.

So instead it might be more pertinent to ask: Can the countries afford to throw away so much electricity. And can they afford to delay taking climate action?

Our definitive answer would be no. But most of the governments are showing no signs of realising this by themselves. The EU and Energy Community need to take a strong lead and help to show that climate action isn’t just about obligations. It’s in all of our interests to start now.

NGOs demand transparency in negotiations over Plomin C coal project in Croatia

Croatian electricity company HEP on Monday announced that it had signed an exclusivity agreement to conduct further negotiations with Japan’s Marubeni – a company which has been implicated in several corruption scandals.

This ‘news’ seems to have mainly been aiming at showing some signs of life in the controversial Plomin C coal project, but has rather shown that the negotiations are going slowly.

It has been answered by a press release [hr] from Greenpeace, Zelena Istra and Zelena akcija (Friends of the Earth Croatia) demanding more transparency about what is being discussed, including the publication of the expected production and sales prices of the electricity, as well as public oversight of the negotiations.

Coal in the Balkans

Find out more

HEP plans to sign a long-term power purchase agreement with the joint project company, which apart from raising questions about state aid, also threatens to bring high electricity prices for Croatian electricity consumers.

Toolkit for coal campaigners in Turkey and the Balkans

KINGSOFCOAL.ORG

There is a threat of Croatian electricity customers paying more than necessary due to deals conducted behind closed doors, and since Marubeni is now in exclusive talks with HEP there is no excuse to avoid publishing information about the price of electricity from Plomin C, as there are anyway no competitors who may benefit from the information.

Information from the Croatian media so far has suggested that electricity from Plomin C would be sold for more than 70 EUR/MWh, whereas on EU markets it is currently around 30-45 EUR/MWh. In case of an unfavourable contract, the difference would be made up by Croatian electricity customers.

In neighbouring Slovenia, the newly constructed Sostanj 6 unit is expected to run up losses of around EUR 80 million annually at least for the first few years of operation, while the original investment price was EUR 602 and has today more than doubled. The situation could have been avoided if the project preparation had been conducted transparently and its lack of economic feasibility discussed before construction started.

Greenpeace, Zelena akcija and Zelena Istra are therefore calling on HEP to publish information on the conditions being offered to Marubeni in order to avoid potential later accusations of fraud and corruption.

Polish companies lack guidance on social responsibility in the Global South


This blog post is part of our work on the European Year of Development. It has also been posted on the official EYD2015 website. Find out more here.

Development declarations after the Millennium Summit in 2000 almost inevitably included demands for a more active and wise involvement of the business sector (the Monterrey Consensus , the Paris Declaration, the European Commission Communication “Agenda for Change”, a document summarising the Rio+20 Conference “The future in want”, etc.). Many donors opened business programmes that aim at establishing public-private partnerships (PPP) and business to business (B2B) partnerships.

In 2013, foreign direct investments (FDI) in developing countries were six times higher than the official development assistance (USD 778 billion compared to USD 134.8 billion respectively).

Challenges for corporate responsibility

While acknowledging the importance of non-state actors, including businesses, in developing countries, civil society organisations have often warned of being too optimistic about the impact of investors who are not rooted in the recipient country and whose primary interest is by definition commercial profit.

Problematic aspects like tax avoidance (pdf) by multinationals, the socialisation of risks through PPPs, and not least social and environmental devastation especially in the wake of extractive industries projects seem to confirm doubts about the contribution that foreign private capital can make to an inclusive and sustainable development.

At the same time, different international fora started promoting responsible practices for doing business in the Global South. Recognising the need for businesses to at least have no negative social impacts, regulations were introduced also at European level, for example on financial transparency and on supply chain certification for (some) conflict minerals.

The problem with many of these initiatives, however, is their implementation. The OECD Guidelines for Multinational Enterprises, for example, provide a set of rules and standards (from human and labour rights to transparency and taxation) for doing responsible business abroad. Yet, the National Contact Points that function as oversight and complaint mechanisms for the OECD’s framework have recently come under fire for being ineffective (similar to other grievance mechanisms (pdf)).

Also the European Commission’s communication from May 2014 “A Stronger Role of the Private Sector in Achieving Inclusive and Sustainable Growth in Developing Countries” confirms a wish to involve the private sector in efforts to promote sustainable development and recognises the associated challenges. But it is only an incentive for more responsible action, not a clear definition of rules associated with the support of the private sector through public funds.

All in all, while businesses already play an increasing role in development finance, commitments to social responsibility remain only commitments and the mechanisms to hold them to account remain too weak. (Many civil society watchdogs therefore emphasise the need for corporate accountability rather than just responsibility.)

No guidance for Polish companies in the Global South

Also in Poland private businesses are encouraged to invest abroad. Through several publicly funded initiatives Polish companies are supported in their activities in the Global South.

Corporate social responsibility, however, is not only taking a back seat in these initiatives – it is virtually playing no part in them.

None of the schemes includes obligations or incentives for companies to follow best international practices such as those mentioned above. There is also no link to EU or national legislation on policy coherence for development.

The GoAfrica programme, implemented by the Polish Information and Foreign Investment Agency, is a case in point. Equipped with money from the Polish Ministry of Economy GoAfrica aims at promoting Polish companies as reliable partners in selected African markets and supports those companies interested in investing there.

GoAfrica’s budget of EUR 260 000 in 2014 (EUR 230 000 in 2013) is not insignificant compared to the whole Polish Aid Programme for Africa (about EUR 2.9 mln / PLN 12.36 million in 2013 (Source: Polska Pomoc (pdf)). Interestingly though, the choice of African priority countries for the Polish economy – Kenya, Mozambique , South Africa, Angola, Algeria, Nigeria – has no connection with Polish Aid priority countries.

Neither does the list of the participating businesses indicate that the priorities of the Polish Aid programme are being considered – for eastern Africa these are environmental protection and renewables. In 2013, GoAfrica organised three business missions (to Nigeria, Zambia and South Africa). The biggest group of participants were from extractive industry companies and even the arms industry was represented. This is a worrying sign for the kind of business that Poland wants to bring to Africa.

A close look at GoAfrica’s programme in 2013 reveals no educational activities that would allow Polish entrepreneurs to learn what development cooperation and policy coherence for development is, what best practices the UN and OECD promote for working in Southern countries, etc.

In its given shape, the GoAfrica programme does not include any elements that would help implement international standards for the private sector investing in the Global South. This can not only reduce the programme’s potential but may likely be detrimental to efforts by the Polish Aid programme – especially in view of the extractives and arms industries’ involvement.

Other Polish financial schemes of this kind look similar, including the Polish Export Credit Agency and its corresponding bank (Bank Gospodarstwa Krajowego), or Greenevo, a cyclical competition for Polish companies run by the Ministry of Environment that focuses on the transfer of Polish sustainable technologies to foreign markets.

Conclusion

Without guidance and enforceable standards, private businesses are likely to overlook or undervalue the local context in a country they invest in and the impacts they may have on local communities.

As part of its support for Polish companies investing abroad, the Polish government must provide a framework that ensures that the activities of the private sector in the South do not interfere with the development of these countries – e.g. that it does not eliminate local firms from the market, destroy the environment, or channel its profits through tax havens – and that it optimally supports this development.

One element of this is to ensure that companies willing to invest in countries of the Global South, especially when supported by public money, follow the existing standards of the OECD and the UN, and existing legal obligations under EU law regarding transparency and accountability.

Agro business shooting star in Ukraine turns into nightmare for investors


On January 20, the name of Mykola Huta, the co-owner of the defaulted Mriya Agro Holding, was placed on the Interpol’s list next to the former President Yanukovych and other top government officials wanted for embezzlement. Huta is sought by the Ministry of Interior for fraud committed “on a large scale or in an organized group”. Huta is suspected of defrauding over USD 100 million from foreign investment funds. The decision came after creditors and the company’s owners had failed to agree on ways how to restructure the company and avoid insolvency.

Interpol’s warrant for Huta is only the pinnacle in a long story of fraudulent appropriations on the side of the company and insufficient assessment on the side of enchanted investors and creditors. The case also provides a curious example of how investors have been rushing to invest in Ukraine’s agricultural sector while overlooking the risks associated with their investments. And while investors are likely to be most concerned about financial risks, a range of negative environmental and social impacts have been associated with the expanding agro business in Ukraine as well.

Steep rise …

But coming back to Mriya: For years, Mriya stood as a text book case of a success story of a family-owned business that turned into one of the largest agro holdings in Ukraine. From owning 50 hectares of arable land in 1992, Mriya grew to operate 320 000 hectares growing mostly wheat and corn on the rich black soil in the country’s west. [1]

Mriya’s explosive growth attracted the attention of international public creditors who treated the company as a reliable partner worthy of generous support. Since 2010 the World Bank’s International Finance Corporation (IFC) has provided Mriya with three loans amounting to at least USD 175 million that helped Mriya finance the commodities, land lease rights, storage capacities, and working capital. [2]

The European Bank for Reconstruction and Development (EBRD) supported Mriya’s pre-harvest and post-harvest production with a EUR 18 million loan (USD 24.1 million). Additionally, export credit agencies such as the Export-Import Bank of the United States and Danish EFK have provided credit and guarantees for Mriya to purchase machinery and equipment from the US and Danish companies.

… and not so sudden decline

On August 1, 2014 Mriya surprised the market when it reported its failure to make bonds interest payments. The total amount of Mriya’s debt to commercial banks, investment firms and international financial institutions was later estimated at USD 1,28 billion.

Yet, apparently clear signs of Mriya’s troubled stock could have been observed years before the default.

In July 2012 the Ukrainian investment house MillenniumCapital published a report on Mriya’s business activities entitled “Too good to be true”. Warning against high default risks, the report presents evidence for the company’s financial mismanagement. The analysts note that since 2008 the company reported unusual cost reductions, used inflated production numbers, was involved in questionable land lease acquisitions, had dubious relationship with affiliated sugar mills and operated a commercial bank with capital of unknown origin.

Surprisingly, the fact that the company was historically manipulating numbers went unnoticed by its creditors. Only six months prior to the default, the IFC’s board of directors authorised a USD 65 million loan for Mriya to finance crop production. As a result of wrong project assessment, the IFC is currently Mriya’s largest bank creditor. The EBRD was more far-sighted or luckier with its debt recovery as Mriya repaid its loan to the Bank in January 2014.

It is a matter of speculation, what role Hans Christian Jacobsen, the Danish national and Mriya’s former director, played in sealing financial deals with the individual IFIs. Coincidentally, Mr. Jacobsen had worked as the Director of Agribusiness at the EBRD for 15 years. After a five year grace period he accepted the position with Mriya where he stayed from March 2011 until he left the boat at the verge of sinking in August 2014.[3]

Conclusions

The Ukraine government treats Mriya as a case which might decide about the trust of foreign investors to support the recession-hit economy. Agribusiness is a vital cash bearer for Ukraine, accounting for about ten per cent of GDP and 20 per cent of total exports.

On the other hand, the growing land concentration and the increasing number of agro companies with international ownership demonstrate that foreign investors and international creditors are ready to take high risks when tapping the potential of the “global breadbasket”.

This is all the more lamentable when these risks are taken with public finance, when they happen under dismal due diligence and when the direct project impacts – including bad labour conditions, land use without the owners’ consent, biological waste pollution, etc. – trigger fierce opposition by locals.

Notes:

1. Mriya Agro Holding’s parent company HF Asset Management Limited incorporated in Tortola Virgin Island is ultimately owned by four members of the Huta family.

2. In addition to the three primary agriculture loans, the IFC signed an investment project for energy efficiency at Mriya’s sugar plants in 2012. The size of the loan is not specified and it is unclear whether the project went ahead.

3. Hans Christian Jacobsen led the Agribusiness team at the EBRD from 1991 to 2006. From March 2011 to June 2013 Mr. Jacobsen had a directorship with Mriya Agro Holding. From June 2013 he served as an Independent Non-Executive Director Mriya Agro Holding resigning on August 13, 2014.

EU priority gas pipeline faces fierce opposition in Italy


Cross-posted with kind permission from the Counter Balance blog.

The Southern Gas Corridor, a gas pipeline that has to bring gas from Azerbaijan all the way to Italy and which has been prioritized by the European Commission has come under serious pressure because of strong opposition from local communities where the pipeline enters the land.

Marco Potì, mayor of the town Melendugno in Southern Italy explained why the pipeline which he considers “useless and non-strategic” threatens the security of his citizens on Italian national television earlier this week.


Link to video: https://www.youtube.com/watch?v=yONPBkcbyH0

Read also

Pipe Dreams: Why the Southern Gas Corridor will not reduce EU dependency on Russia (pdf)
Study | January 21, 2015

European Investment Bank confirms plans to finance Trans-Adriatic Pipeline
Blog post | February 4, 2015

He challenged the national government for excluding the local administration from the decision making process and fears the pipeline “will have a devastating impact on our environment, on our landscapes and agricultural land.” But more than that, Potì speaks as a mayor responsible for the safety of his citizens and demands a full assessment of the industrial risk of the plant, as required by the Italian and EU law.

He assured the regions of Lecce and Apulia and a coalition of local mayors will do whatever it takes to stop it: “We are fighting [the project] on all fronts”, Potì said.

In addition to local opposition also the Ministry of Cultural Affairs and Landscape have stepped in denouncing a violation in the procedure of the environmental assessment which the Italian authorities are currently investigating.

The political opposition against the project follows massive popular protest in the region which increased in the last years. It included various demonstrations, and a huge music festival last year where singers and artists expressed their opposition against the project.

The local opposition and the different ongoing procedures against the project suggest that final approval may be delayed significantly and may undermine the timely completion of one of EU’s top priority projects in the framework of its energy security agenda. It raises serious questions about how “priority” projects are identified by the European Commission when the people and local authorities are de facto being excluded from the decision making process.