Blog entry

The EIB’s double standard for human rights in Ukraine and Egypt

Reacting to the bloodshed in Ukraine, the European Investment Bank announced to freeze its lending in the country last week (while the European Bank for Reconstruction and Development only paid half-hearted lip service). Yet, Mika Minio-Paluello from Platform rightly points out that the EIB’s determination to uphold human rights seems to have a huge blind spot in Egypt.

Mika’s blog post was orginally published on Thursday 20 on the Platform blog and is cross-posted here .

Western governments threatened sanctions and the President of the European Investment Bank (EIB), Werner Hoyer, announced a halt to activities in Ukraine, “I think it would be completely the wrong signal to appear as being the ones who do business as usual in Ukraine while the people on the streets of Kiev, by whom and whyever, are being slaughtered.” The sentiment seem solid – the state crackdown in Ukraine has escalated horribly.

Yet it’s tempting to wonder how much EU geopolitical interests contributed to the rapid decision-making, rather than just the violence in the streets.

Not least given that EIB President Hoyer has no problem conducting “business as usual” in Egypt, where over 1,300 have been slaughtered – “by whom and whyever” – since July. Close to 1,000 were killed on a single day in August. Since then, there have been repeated massacres by state forces. On the third anniversary of the revolution, police attacked those marking the anniversary, killing at least 64 and hounding protestors through the streets. The jails are full with thousands of prisoners, with intense torture becoming routine. The “virginity tests” used to abuse women revolutionaries in 2011 have begun again. Political party members were arrested for displaying “No” signs prior to the constitutional referendum, and schoolchildren imprisoned for making handsigns or carrying the wrong ruler.

What is the EIB’s response to this? Rather than freeze lending, the bank made loans worth €392 million to the Egyptian power, air traffic and banking sector, just since December.

I looked for statements by Hoyer or other EIB officials on Egypt and human rights, democracy – or even just explaining what sig nal they think they’re sending by working closely with a military-appointed government and signing deals in the absence of a Parliament. All I found was the EIB Vice-President’s claim that “Our aim is to support the new Egypt’s social and economic transition by financing projects encouraging growth and employment.”

Which sounds like “business as usual” despite a context where 26 people being killed on one day is so routine that it is barely news anymore. Quite literally. A friend who works for a British paper here in Cairo was told by the editors that stories of massacres in Egypt would only be run if more than 25 people were killed.

Is it just simple racism? Does the EIB weigh up deaths on the scale, and calculate white lives in Ukraine as counting more than brown lies in Egypt? 40 times more?

Or is it also the geopolitics – that the EU is taking a stand to limit Russia’s role in Ukraine? After all, President Hoyer last summer explained that “the European Investment Bank is not a development bank, it is an investment bank designed to support EU policies, including external action.” Hoyer said that just days after the military took power in Egypt.

While in Ukraine, EU foreign policy priorities mean standing up for democracy protestors, in Egypt the protestors are sacrificed on the altar of business as usual. Hoyer explained that he didn’t want to lend in Ukraine “because we need to know in what political environment we are going to be able to move in the future.”

In contrast, in Egypt the political environment is very clear – the military aims to continue running matters from behind the scenes, with some semblance of democracy. The political takeover by General Sisi and the military doesn’t threaten EU business and energy interests. Quite the opposite – Sisi is promising a return to “stability”, albeit enforced by extreme violence.

It’s not surprising that the EIB is comfortable in this environment. The bank was relaxed co-operating with the Mubarak regime right up until the 2011 revolution. Sometimes too relaxed, with evidence that the EIB invested in shadowy private equity funds connected to Gamal Mubarak. So we shouldn’t be too surprised by the bank’s hypocrisy.

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None of this is to invalidate the intense violence that is taking place in Ukraine, or to imply that the EIB should ignore the crackdown. Instead, we should hold Hoyer to his new-found commitment to human rights, and his aversion to people being slaughtered in the streets, while challenging the noxious combination of EU’s structural racism and business-driven foreign policy priorities.

In Albania, oil’s history casts long shadows over locals

I first visited Albania in 2007. I went there to dig a bit more into a thermal power plant financed by both the World Bank and the European Bank for Reconstruction and Development near the coastal town of Vlore, a popular tourist destination. In spite of fierce opposition from locals and formal grievances lodged with the investors (pdf), the power plant was constructed anyway, and now sits unused, collecting cobwebs and interest on the country’s outstanding debt repayments.

Things have changed rapidly though in and around Vlore: haphazard construction continues unabated, with once towering beachfront hotels demolished to make way for equally large yet apparently unused condominiums. The shift, I’m told, coincides with the shifting political landscape and the subsequent patronage to the favoured property developers of the moment.

But the more things change, the more some things stay the same. Fast-forward more than half a decade, and both the EBRD and IFC are at it again, financing another controversial energy project near Vlore: the extraction of oil at the Patos Marinza fields by the Canadian company Banker’s Petroleum.

Patos Marinza is one of the largest, and oldest, onshore oil fields in Europe. Oil was first discovered in 1928, and because of this long history of extraction, the area around Patos Marinza suffers from heavy pollution. That’s why a portion of the loan from the banks is intended to clean up the area (and typical of the EBRD, its loan is called the ‘Patos-Marinza Environmental Remediation and Development’ project, even though just USD 6 of 100 million extended to the company is to be used for remediation, and hardly any of that has even been drawn).

Our visit highlighted that while Banker’s had done quite a bit to improve its facilities for extracting oil, it wasn’t immediately clear what was being done to benefit both the environment and the locals living in the immediate proximity of the oil wells.

Making the unseen visible

Just as in the case of the power plant at Vlore, locals have lodged a formal complaint at the World Bank, alleging among other things that Banker’s drilling activities have led to increased seismic activity. An investigation by the IFC’s Compliance Advisor Ombudsman is ongoing, and in the meantime, a formal working group has been established to investigate the source of the increased seismicity.

But what struck me most about the attention being paid to issues happening underground (and for the most part, unseen) was the conditions it created for inaction on the very visible unemployment and pollution blighting the residents of Patos-Marinza, issues that residents repeatedly raised during the trip. And if Banker’s security had had its way, the issues would have remain unseen, as shortly after arriving, we were unwelcomingly escorted out of the area by a caravan of security vehicles.

Unemployment

Prior to the heavy-handed guards removing us from the villages, we spoke with about twenty residents in the nearby village of Kallmi, all of whom were unemployed. A former employee of the state-owned oil company Albpetrol, from whom Banker’s is taking over the oil fields, explained that men who had technical training and worked in the fields could not find work with Banker’s, complaining that ‘hundreds’ had sent CVs not only to Banker’s but also the different subcontractors building things like roads.

When it was noted that Bankers has a hiring policy in place to give preference to former Albpetrol employees, the man dismissed it, reiterating that he knew not one of his former colleagues that was now employed by Bankers. Another migrant worker explained that upon returning from Greece, he had nowhere to send his children because the school was in such disrepair.

These types of investments – roads, schools and the like – came up often as the kinds of social programmes that Banker’s should support. As one man put it, social programmes ‘that made sense.’ He referred to his arrangement with Banker’s, where he rents the company land of oil extraction, and they in turn teach him how to care for tomatoes. The programme is of little use however, since the man already knows how to care for tomatoes, and he no longer has any land on which to grow the tomatoes. Along with other projects like the recently-constructed health centre and a programme for pruning trees, what the community wants and what why company constructs are entirely two different things.

Slideshow

There is no god that could live here

Even after just a few hours on site at Patos Marinza, the effects of breathing polluted air were noticeable: discomfort in the throat, a slight irritation resulting in eyes watering. For those who call the area home, the situation is taking its toll. Locals in Kallmi complained that there are significant amounts of air pollution, particularly early in the morning, and in the neighbouring village of Jagodina, others confirmed that ‘heavy’ air in the mornings, leading to problems with breathing. Locals say that an inoperable pipeline leaks methane, and the slag pits evaporate in the summer, further deteriorating the air quality. When asked about the conditions of the slag pits, one man alluded to an Albanian saying, ‘There is no god that could live there’.

Lessons learned for the future policy

This week in Sofia, the EBRD will hold its penultimate public consultation about the future of its safeguards policies. Colleagues from Albania who were present during our trip to Patos Marinza will present the mission, and we hope that this case will provide some lessons learned for the bank as it moves forward in revising in its safeguard policy. Otherwise it is possible that the next trip to Albania will be to visit another environmentally and socially-destructive EBRD energy investment.

Quantity over quality in EBRD food security initiative – Evidence from pig farms in Ukraine

Over the last years, the EBRD has put increasing attention to food security. In 2010 it adopted an agribusiness sector strategy (pdf) – which unsurprisingly focuses primarily on the private sector – followed by the launch of the Private Sector for Food Security Initiative to lead the bank’s operations in the sector.

While the second annual report (pdf) of the Initiative, published two weeks ago, praised the bank’s achievements in the agricultural sector, the bank’s focus on quantity and volume turns a blind eye on the quality and sustainability of food provision.

In its work, the bank frequently grants support not to small and medium private farms, but to industrial farms. Such agricultural giants, in their strive to harvest high profits, tend to leave people and the environment behind, especially in transition countries where landownership and consumer rights are traditionally less pronounced. Their intensive farming results in higher resource depletion and significant social impacts and thwart efforts towards secure and sustainable food production.

The sow stall of Europe

One of the recent examples for said pitfalls can be found in the EBRD’s operations in Ukraine. The country that is often referred to as one of the milestone countries for food production received USD 238 million in 2013 for agriculture-related projects. [1]

Among the EBRD beneficiary companies was Danosha, with a loan over EUR 35 million approved last year. The company, a subsidiary of the Danish Axzon Group, has been focusing on industrial pig farming in Ukraine since 2004. It owns five industrial pig farms in the Ivano-Frankivsk region with a total capacity to host 128 500 pigs. Two additional pig farms are under construction at the moment. Danosha’s crop production, mostly for pig fodder, is part of its full-cycle pig breading.

However, the operations at Danosha’s pig farms are associated with adverse environmental and social impacts. Local communities, suffering under Danosha’s farms have started organising themselves. (Read for example the unlikely story of 83 year old retired teacher Maria Vasylivna Antoniv.) Their long list of complaints regarding the company’s performance includes:

Danosha does not publish environmental information, in particular environmental impact assessments of its facilities even though these should be disclosed upon request.
Danosha did not implement adequate mitigation measures to protect the health of locals who still complain about headaches, loss of appetite and malaise which they say are caused by gases from the farms.
Danosha did not pay for lease agreements in time. In the village Sivka-Vojnyliska Danosha leased around 200 ha of lands from around 50 farmers in 2005-2012. Lease agreements are terminated at the moment, but Danosha still has not paid land use compensations to the owners.
Danosha’s manure management system is feared to be unsafe and may result in manure leakage. This is most worrisome in the case of Danosha’s Lany farm, located only a few metres from to the Galuch national nature park with extremely sensitive wetlands that is habitat to a number of endangered species.

For a complete list of concerns, see NECU’s letter to the EBRD (pdf) from February 5, 2014.

Danosha’s Lany farm (left) and just across the small glade the territory of National Nature Park begins (where the trees start on the right).

Like in many EBRD projects that Bankwatch monitors, the bank was informed in a letter from November 27, 2013 (pdf) about problems with Danosha’s performance before the loan was approved (December 17) – to no avail. The EBRD decided to finance Danosha’s activities regardless. And sure enough, just one month after the loan agreement was signed, locals affected by the impacts of Danosha’s farms filed a compliant to the independent recourse mechanism of the International Finance Corporation, another multilateral funder of Danosha. (Find more information in the letter from February 5 (pdf).)

Instead of targeting its efforts towards more sustainable small and medium scale farms, the bank finances farm factories that may secure food supply at a faster rate, but that result in significant social and environmental problems in the future. (The Danosha loan is not an isolated case. In October the EBRD approved support for another Ukrainian client that causes similar distress – MHP. Again, the EBRD had been informed beforehand.)

Avoiding responsibility

Not only does the EBRD prioritise private agribusiness giants involved in unsustainable operations, the bank also poorly acknowledges its responsibilities towards affected communities.

The EBRD filed the Danosha project under the environmental category B, claiming that “potential impacts are site specific and readily identified and addressed through mitigation measures.” This, however, is not the case when it comes to factory farms.

The EBRD’s reasoning for this classification (pdf) is that the loan’s purpose is not the construction of pig farms, but other activities – increase in feed mill capacity, agricultural machinery, construction of two bio-gas plants, etc. Yet, all of these activities are an integral part of Danosha’s bigger investment plans for Ukraine that aim at the expansion of activities and include the construction of the two mentioned factory farms. Had the company asked directly for a loan for the expansion of its facilities – each farm factory under construction will host more than 10 000 sows – the project would have been be classified as A, the highest category of environmental risk, and treated by the bank correspondingly.

Instead of acknowledging these connections, the EBRD washes its hands clean of the significant environmental and social impacts of Danosha’s factory farms and does not assume adequate responsibility.

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With the EBRD’s preferred support of large agribusiness corporations I expect the development of large factory farms only to pick up speed. Unfortunately, striving for food security with unsustainable business practices will inevitably lead to increased environmental and social insecurities and will in the long term likely result in damages to the soil that made Ukraine the breadbasket of Europe.

1. This number includes a project to increase debt exposure to the Ukrainian MHP group which involves operations in Ukraine and Russia and is therefore classified as a regional project.

EIB commits to review tax haven policy

This article first appeared on the Counter Balance blog and was cross-posted with the author’s permission

Compared to 2013, when the EIB’s energy policy dominated the meeting, a wider number of cross-cutting issues were raised by civil society organisations during this year’s discussions. The bank’s accountability and transparency, however, quickly emerged as central themes – topics on which the EIB showed only limited progress in the recent years.

The EIB repeated its commitment to a high level of transparency in its operations, including via the announcement of the revision of its transparency policy in 2014. However, the civil society organisations were adamant that the EIB needs to more seriously tackle the issue of its lending though financial intermediaries. The different sessions especially saw Dotun Oloko – whistleblower in the Ibori case – highlighting the poor due diligence of the EIB when operating through private equity funds and its lack of seriousness in dealing with fraud and corruption allegations.

Faced with calls for more accountability and taking into account the recommendations from its own Complaints Mechanism, the bank remained elusive. The vice-president Pim van Ballekom noted that the EIB is asked by EU institutions for more transparency, monitoring, evaluation, democratic scrutiny and a zero tolerance on tax and fraud issues, but that ultimately it is up to the bank to strike a balance. Indeed, testimonies from local activists – such as those fighting the Castor Project in Spain – demonstrate that the way the EIB strikes this balance does not testify for a genuine consideration of public participation and greater inclusion of affected communities in its activities.

Also lacking was the bank’s vision on the social impacts of its operations. At the first meeting of this kind in 2011, former president Philippe Maystadt openly put forward the willingness to place human rights consideration at the heart of the bank’s lending – without concrete results though. Three years later, the EIB did not take any commitment in this regard and avoided most critical views.

However, the EIB explicitly proved ready to pursue its way on a green path via strengthening its Emissions Performance Standards and launching a public review of the climate impact of its lending portfolio in 2014.

Finally, a disappointing note was the minimal involvement of the Directors of the EIB in the meeting which was largely monopolised by the management of the bank. Opening discussions with the governing board of the EIB – despite diverging views – is crucial if the bank wants to become a fully accountable institution.

GMOs, water grab and ice cream for the masses – the EBRD gets involved with Nestlé Egypt

Update: The EBRD clarified in its correspondence with Baby Milk Action that its loan will not be used to finance infant nutrition.

The EBRD’s board of directors yesterday approved a USD 20 million loan for the expansion of Nestlé Egypt food production company. Leaving aside the question whether Nestlé – one of the world’s largest companies from one of the world’s richest countries – really qualifies for multilateral development finance, there are several reasons why this decision is problematic.

Nestlé is the largest artificial baby milk producer with 40 per cent of global market share and has been operating almost everywhere in the world under the label of “good food, good life”. But what about the highly questionable practices Nestlé has been implementing across the world for the past decades?

GMO

Nestlé openly acknowledges the fact that it uses genetically modified foods. Since 2009, Egypt has banned the import and export of GMOs.

While the country is seeking a way out of a difficult transition period, the regulatory framework on the use of GMOs or products deriving from GMOs has been the subject of a court order (released all in Arabic) and grassroots organisations have been fighting the work of GMO giants such as Monsanto for a few years. How can the company ensure that it is only using ingredients allowed for sale in Egypt? Does it even label products containing GMOs?

Let them eat ice cream

According to the EBRD,

“The operation will enable the Company to finance foreign currency working capital needs and investments into the expansion of the Company’s food production capacity (ice cream, confectionery) to meet the growing demand […]” (emphasis added)

But what sort of priority is that? The majority of Egyptians cannot afford to buy the Nestlé and Movenpick ice cream produced by the company. Only the upper middle and high classes can afford this luxury whereas most Egyptians struggle just to afford bread, eggs or drinkable water.

If the EBRD can’t do better than financing Swiss multinationals in its new countries of operation, I’m not sure that the people of Egypt are going to be too convinced about its development impact.

Artificial milk

Nestlé, who has been operating in Egypt for more than a century, has been repeatedly criticised for unethical marketing practices of its infant formula milk. In addition, the artificial Nestlé milk sold in emerging countries is so expensive that mothers dilute it with water usually unfit for human consumption to make the artificial milk last longer. Unfortunately, these practices have led to fatal diseases and malnutrition when mothers should be supported and encouraged to breast feed their babies whenever possible. The baby milk scandal created such an uproar that a network was created in response to this, the Baby Milk Action who called for a boycott on Nestlé’s products “because it contributes to the unnecessary death and suffering of infants around the world by aggressively marketing baby foods in breach of international marketing standards.”

Water grab

Unfortunately, there is something much uglier about Nestlé and its practices, and it has to do with one of the most basic human rights, the right to water. Surprisingly, Peter Brabeck-Letmathe, Chairman and former CEO of Nestlé has on numerous occasions declared that “one opinion, which I think is extreme, is represented by the NGOs… As a human being you should have a right to water. That’s an extreme solution.” According to him, water is a commodity, just like any other commodity such as food, and therefore should have a market value. Nestlé is the biggest producer of bottled water worldwide so it seems obvious that the company has a major interest in privatising water supply. I suggest you watch journalist Abby Martin debunk Nestlé’s water rhetoric as it is quite edifying.

It is clear to me that Nestlé puts the profit of the world biggest food producer before basic human rights and basic health. I would be very curious to know what are the EBRD’s views on this specific topic and the EBRD’s true motivations to assess Nestlé as a suitable candidate to benefit from such a loan.

Georgian hydro projects are a test case for the EBRD’s good governance policies

Yesterday in Tbilisi, during a public consultation on the good governance policies of the European Bank for Reconstruction and Development, an unexpected thing happened.

A Georgian activists movement staged a protest action against two potentially harmful hydropower projects, the Dariali and Shuakhevi HPPs, which had appeared in the EBRD’s project pipeline. The activists held banners asking the bank not to fund the two projects for they would destroy the gorges of Dariali and Adjaristskali.

The activists specifically referred to the case of the Paravani hydropower plant (HPP) as a reminder for the bank’s management not to repeat the mistakes made earlier. The 87 MW Paravani HPP includes a 14 km derivation tunnel to divert water from the Paravani river to the Mtkvari river upstream of the village of Khertvisi. In some periods this would leave only 10 percent of water in the Paravani river – inadequate to ensure the survival of downstream flora and fauna – while at the same time, the project creates a significant risk of flooding Khertvisi.

Beyond exemplifying what can go wrong in small hydro projects in Georgia, the Paravani case also clearly illustrates the shortcomings of the EBRD policies that were under discussion yesterday. As Bankwatch reported in January, the EBRD’s Project Complaint Mechanism concluded (six months after we filed our complaint (pdf)) that three sections of the EBRD’s Environmental and Social Policy had been breached. The current review of the bank’s policies can be an important turning point to avoid similar debacles and strengthen independent control mechanisms.

Pleasantly EBRD staff agreed to listen to the activists’ concerns which were presented by one activist and which I summarise below these images from the action.

Shuakhevi HPP

The Norwegian company “Clean Energy Invest” plans to construct a cascade of three HPPs on the Adjaristskali river in the Autonomous Republic of Adjara. The cascade includes the 185 MW Shuakhevi HPP, the 150 MW Koromkheti HPP and the 65 MW Khertvisi HPP. According to the project information of the EBRD, the Bank plans to fund the first HPP from the cascade Shuakhevi HPP.

The project includes the construction of a 22 metres high Skhalta Dam with a flooding area of 19 hectares) and the 39 metres high Didachara Dam (16.9 hectares) as well as three diversion tunnels. The project envisages leaving only 10 percent of the average annual water flow of the Adjaristskali river downstream from the dam.

Dariali HPP

The Dariali hydro power plant (HPP) project envisages the construction of a derivation type hydro power plant with an installed capacity of 110 MW on the river, in the Kazbegi municipality, close to the Russian-Georgian border.

The project would divert the greatest part of Tergi’s water, about 90 percent, leaving an approximate eight-kilometer section of the Tergi River without water. This would result in the landscape being radically changed on the eight-kilometer section of the Dariali gorge with a total length of 11 kilometers. As a result of the water diversion, the Gorge will additionally lose its historical cultural-ethnographic values and tourism importance.

In additional to causing environmental damage, the project would also harm the historical and cultural heritage as well as the local economy. The Tergi river was a source of inspiration for famous Georgian writers and poets like Ilia Chavchavadze, Alexander Kazbegi and Grigol Orbeliani. The river and its adjacent landscape are also attracting tourists, who would inevitably stay away, if the Dariali HPP project were implemented in its current form, resulting in adverse effects on the incomes of locals engaged in the tourism industry.

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