Blog entry

Information is crucial – Villagers in the way of infrastructure in Ukraine need early support

In a media release from last month, the European Bank for Reconstruction and Development highlighted its role as facilitator in a conflict between Ukrainian state energy company Ukrenergo and a local community. As a Ukrainian campaigner who knows Ukrenergo’s heavy-handed way of dealing with people, I appreciate how the EBRD helped bring Ukrenergo to its senses. The story however also illustrates how important it is that locals have sufficient information about their rights and confidence in demanding them to be respected.

What had happened?

The originally planned route that the EBRD had approved by-passed the village. Yet, facing obstacles with the planned routing, Ukrenergo built the transmission line along an already existing line going through the village. Instead of dismantling the old transmission line that had irritated people for a very long time, Ukrenergo came and added new, much bigger pylons. Understandably, villagers were outraged and decided not to tolerate the state company’s disregard of their interests.

Between August and November 2009, locals blocked the construction site and prevented workers from building the transmission line for almost three months, before regional authorities decided to bring in police forces. On November 16, more than 100 policemen – from other districts, to avoid sympathisers among them – arrived to break the blockade, leading to violent clashes between the two groups.

In a brutal struggle that involved the beating of elderly people and women the police secured the construction of a transmission line that should had never been there. (Ukrainian TV news reported from the site showing the violent clashes. See the video on YouTube.)

The EBRD’s role

Even though, related to another Ukrenergo project, the EBRD had been warned that Ukrenergo paid little attention to public consultations, it was not until the beginning of November 2, 2009 that it learned about the change of route, after the National Ecological Centre of Ukraine (NECU) started monitoring the situation in Usatovo. Two villagers approached EBRD representatives at a public hearing on another transmission line to be financed by the EBRD (they covered the costs of the 450 km trip on their own).

In the following weeks, intensive communication and investigations led the EBRD to publicly urge Ukrenergo (pdf) to halt the construction of the transmission line through Usatovo and threatened to suspend the loan for the project. The EBRD’s pressure eventually led to a six-party agreement, signed in June 2010, about the relocation of the transmission line and one has to appreciate the EBRD’s Environment and Sustainability Department who did a good job in solving the situation and facilitating between Ukrenergo and Usatovo villagers.

What if locals hadn’t protested?

The crucial lesson to be learned from this is that even though the EBRD reacted swiftly and did not shy away from investigating Ukrenergo’s misconduct (this time at least), it was the local villagers’ commitment that made it happen in the first place.

In a post-Soviet country like Ukraine, local communities and landowners are often not aware of their rights vis-a-vis a state company that’s intent to realise an infrastructure project on the path of least resistance. There may be cases like in Usatovo, which simply went unnoticed because locals didn’t dare to protest or didn’t think it would make a difference.

The EBRD financing also two other transmission lines in Ukraine – Rivne-Kyiv and Zaporizhya-Kakhovska – and has expressed its interest in two more – Novoodeska-Artsyz and the Second Backbone HUV corridor. There are also other projects where locals are likely to be negatively affected by large industry investments.

For these reasons, NECU prepared a leaflet for local communities so they don’t have to face police violence and have proper knowledge and means to demand their rights. The leaflet instructs villagers how they can learn about the projects to be constructed in their village; what kind of documents should they have for their land parcels; what kind of rights they have and how to protect them; where to complain if the compensation was unsatisfactory and how to communicate with international financial institutions.

The leaflet will be distributed to villages where other Ukrenergo transmission lines are being planned. We’re hoping that this will help locals to protect their rights and that the EBRD will again be helpful with solving such issues.

Funny business as usual in the Czech Republic – one of the biggest fines in EU funds history handed out to Prague metro project

Don’t get me wrong – it’s not that I find it funny that one of the biggest ever infrastructure fines in EU funds history, according to the top Czech news site Aktualne.cz, has just been dished out to the Prague Public Transport Company (DPP) as a result of its violation of the Czech Public Procurement Act, related to a project to extend the Prague metro system.

Nor is it funny, or indeed surprising, that these violations came to light following an investigation by the Czech police’s organised crime division into why a car being driven by one of the project’s auditors, who were inspecting the metro extension’s construction, was rammed by a car with an illegible registration plate on the D11 highway.

This is the Czech Republic after all, where the handing over of ‘fish’ in motorway service stations has taken place in connection with football match-fixing. And where the powerful, majority state-owned energy utility CEZ has relied on gun-toting militia to demand payment from customers (pdf).

What is serious is that Czech ‘funny business’, also known as blatant corruption, is still so prevalent, and seems to prey on EU-related money, among other sources.

We may be part of the EU, yet it seems that abuse – ‘mismanagement’ in the jargon – of EU money, whether from the EU funds or from the European Investment Bank, is about as inevitable as the toppling of a Czech government in scandalous circumstances.

In the case of the Prague metro, as reported in Aktualne.cz last week, ostensibly we have a CZK 4.2 billion (or over EUR 170 million) fine imposed due to DPP being revealed to have manipulated the tender for the extension – involving 6.1 kilometres of new track and four new stations – of the Czech capital’s Metro A line.

While details of the legal violations remain scarce, the fine imposed on DPP has been confirmed by the Czech ministry of transport, responsible for European transport subsidies. Out of the EUR 660 million sum allocated for the project from the Czech Republic’s Operational Programme for Transport, 25 percent will not now be disbursed to DPP.

According to Aktualne.cz (translations my own),

“The ministry verdict means not only the biggest fine in EU history but also implies that the transport company violated its contract with the European Investment bBank (EIB) which is funding the construction on the subway A-line between the stations Dejvicka and Motol. That is to say, the investor committed to adhere to the Public Procurement Act.

“In practice, this means that besides the 4 billion crown fine money, Prague may also lose CZK 11 billion long-term EIB loan money. Out of this loan, the Transport Company has already spent CZK 8.5 billion for the subway construction, with the bank ready to disburse the remaining amount. But now it is possible that the bankers will decide they want the loaned money back.”

Aktualne.cz journalist Petr Holub further speculates that DPP could ask the European Commission for ‘forgiveness’ in this case, but that a bigger ‘threat’ may come from the EIB:

“Unlike the EU politicians and clerks, the bank cannot close its eyes that easily to the fact that there was a legal and budget rules violation in the subway construction which it is funding. For instance, if the EIB does not reclaim the loan money back, it can be blamed for bad management by its shareholders – the EU states – or can possibly lose its trustworthiness on the financial markets where it borrows money itself.”

On the face of it, then, blame in this case would appear to lie with the DPP and its sharp tendering practices. Yet surely, indeed, the EIB’s project management should be attracting concern from its own shareholders.

A EUR 350 million loan for this particular Prague metro project ought to have necessitated scrupulous due diligence. Moreover, since 2002 the EIB has helped finance three other Prague metro projects, all involving large sums – one might think that it would have got to know its client rather well over such a time period, though perhaps such familiarity has lead to complacency.

Yet leaving aside the legal violations and apparent lax oversight, the very justification for this hugely expensive Metro A extension is dubious.

According to my colleague and fellow Prague resident Pavel Přibyl, a transport specialist at Bankwatch member group Czech Friends of the Earth, the current extension project has a very real whiff of ‘white elephant’ about it. And while the initial investment and subsequent running costs are feared to be exorbitant, glaring gaps persist in the development of real sustainable transport in Prague – for one thing, new tram lines are not getting built, in spite of requiring ten times less money per kilometre in the construction phase, having substantially cheaper operating costs, not to mention better serving populated parts of the city thanks to closer walking distances.

Another recent startling case where EIB due diligence appears to have been sorely lacking is the Castor project in Spain, mothballed last month due to work on the project site triggering seismic activity and deep concern from local residents. The first ever so-called ‘Project Bond Initiative’ project, the way in which Castor has metaphorically blown up in the EIB’s facea> has already lead to misgivings on the financial markets.

With a recent hefty increase in its capital sanctioned by the EU member states, the EIB is being called on to do more, in more and more places, both within and outside the EU. Clearly corruption, especially in major infrastructure projects, is a perennial problem, but the EIB has been in the project finance game for over half a century now – it knows what often goes on. Is it simply spreading itself too thinly, and being caught out increasingly in cases like Prague metro, or in the tendering debacle that took place recently in a new lignite power plant in Slovenia that has received hundreds of millions of EIB and EBRD loan money?

For now, according to Aktualne.cz, an EIB spokesperson has commented that the Prague situation is serious and is being solved in Prague:

“The EIB is monitoring the development of the situation and will analyse in detail all important information. It will react appropriately if it turns out as a necessity.”

A standard bank holding statement – I only hope that serious questions are being asked about the EIB’s own oversight and performance in this mess.

Cough4Coal: New campaign video sets the scene for climate negotiations in Poland

With the COP19/CMP9 around the corner, this year’s host of the event, the Polish government, is coming under close scrutiny by climate campaigners and other stakeholders. This hasn’t stopped the Polish organisers from being quite vocal about its opposition to any ambitious climate action, though.

One of the controversial advances is the International Coal and Climate Summit, organised by the World Coal Association and hosted by the Polish Ministry of Economy in parallel to the COP19. The announcement of the event has met strong criticism for transforming the COP into a lobbying opportunity for dirty coal.

Yet, civil society is intent on making its protests heard, even though it is being held at arm’s length by the Polish COP organisers, who prefer to discuss climate change with businesses that have a vested interest in opposing effective restrictions on CO2 emissions: Cough4Coal, a campaign that focuses on the health impacts of coal, has invited to the ‘People before Coal’ protest against the WCA’s summit on November 18.

Judging from the promotional video this promises to be a noteworthy and entertaining statement against the influence of coal on our health and on global climate legislation.

For more details, follow the campaign on facebook:
https://www.facebook.com/cough4coal

Same old, same old – No signs yet that Bulgaria is getting real about how to spend its future EU budget money

Summer 2013 will be remembered in Bulgaria for the growing cacophony of anti-government street protests. Thus, as I read throughout the summer a string of accounts from Bankwatch EU Funds colleagues about how the programming processes for 2014-2020 EU Funds were panning out in their countries (and feeling a bit frustrated at my own lack of updates), not surprisingly – and chiefly due to the protests – very little was happening with Bulgaria’s own ‘efforts’ to get ready for the end of year programming deadline.

During the period April-August, practically nothing structured took place, or at least nothing was visible to civil society groups ‘engaged’ in the EU Funds programming process.

The working groups that are supposed to elaborate the new operational programmes, and that involve NGOs, had no meetings. From time to time, of course, came news of high ranked people in the state administration – people responsible for the EU Funds – being fired. But this is to be expected when governments change in a country like Bulgaria.

A single event, aimed at presenting our country’s draft Partnership Agreement (PA) with the European Commission came almost by surprise in June – NGOs were, needless to say, invited to take part in it a day or two in advance. The invitation found most organisations unprepared to react or participate, and no discussion materials were sent in advance.

Then in August, again suddenly, a new draft of the PA was submitted to the Commission. Of the previous, first draft, the Commission had had difficulties to mention anything positive, but this August update was duly accepted as the basis for the current ongoing negotiations.

My interpretation is that there has been some progress in the PA text, but there is still a lot to do. Meanwhile, for many of the involved people at the state administration level, the ‘acceptance’ of the PA text seems to have delivered the message: “It’s a fine document – the work is over”.

What’s in the Bulgarian Partnership Agreement for EU Funds 2014-2020?

The PA document does, notably, begin by presenting a relatively good analysis of the problems and deficiencies that have to be targeted in the country – including numbers that have never been systematically presented to the public before, and tending indeed to confirm that Bulgaria is still anchored to the bottom of the EU member state league table for economic and social development or environmental legislation.

For example, the analysis reconfirms the critical, debilitating mono-centric development of the country (the ‘Sofia-and-all-the-rest’ model) that has seen our capital city alone benefitting from political and budgetary steroids for decades.

Also, serious structural discrepancies are pointed out such as the over-reliance on electricity for the heating of homes, 40 percent compared to the EU average of 11 percent – a number that should be enough to ring bells about how Bulgaria urgently needs to promote not large new capacities in electricity and instead take the path of small scale, decentralised renewable energy.

A good overview of the problems connected with the national rail network and services is followed by a rather more artificial analysis of the critical situation surrounding Bulgarian roads. The upshot is that Bulgaria will continue to ask for money from the European budget for all classes of roads, even though this is at odds with the strong declaration from the Commission that roads are no longer to be a focus of infrastructure development, and that instead much more EU money is to be invested in clean transport modes – especially railways.

Desperately seeking solutions

Then comes the second part of the document that sets out to elaborate necessary solutions via the forthcoming injection of new EU money – and here the PA draft loses coherence. An overall lack of systematic and strategic thinking via-avis targeting the problems of the country quickly becomes apparent.

Roads – despite EU sentiments broadly against ‘more roads’ – as a priority for Bulgaria is stated even more categorically. On this point, I have to say that in the working group for the development of the Operational Programme ‘Regions in Growth’ – the programme that deals with the urban environment – I have yet to receive the list of priority roads, despite officially requesting such on several occasions.

The second half of the document, moreover, is full of wishful statements – there is (be assured!) everything one would like to hear when it comes to sustainability, environment and low carbon economy.

Concrete measures are not evident all the time, but it is very apparent that where there are listed measures there are generally no targets – for example, no aspired to CO2 savings in the ‘low carbon economy’ thematic objective, no quantitative impact in any area. The impulse being set in place – one that is very familiar from previous EU Funds experience – is that projects will be dreamed up and conceived because funds are available, not the other way around: funding is to be found, and provided, in order to reward good, verifiably beneficial projects.

The listed national priorities do not even mention climate change never mind low carbon economy. And the five listed priorities of the Bulgarian 2020 strategy have tried to shoehorn in all of the 11 thematic objectives of Europe for 2014-2020 – thus there is a definite lack of ‘thematic concentration’.

Еven though rail transport is a top priority for the 2014-2020 period, there is an envisaged reduction in the rail network to “reasonable size” – and this reform fails to identify examples of rail sections that have to be cut. This term instead opens the door for disasters. When it comes to sustainable urban mobility, bike transport is mentioned only once in the entire document, leaving the impression that it is little than an after-thought – bike paths are not mentioned at all. The problem of rising car numbers is recognized, yet not a single measure to take people out of their cars by providing them with better public transportation services has been listed.

Other stand-out problems associated with Bulgaria’s PA document as it currently stands are briefly noted in turn below.

Green jobs – there, but not planned

“Putting the cart in front of the horse” is what Bulgarians say in situations such as this. Green jobs do not seem to be envisaged under the PA and in the Operational Programmes. At the same time it is to be welcomed that in the next programming period hundreds of millions of euros will be invested into the low carbon economy – yet little thought has been given as to how to tackle the lack of qualified people to implement all of these projects.

Just one example from the current EU budgetary period illustrates what can happen – low quality insulation was poorly installed in kindergartens and other public buildings, resulting in insulation falling from walls. If skilled workers are not available, quality work cannot happen and the entire push towards greater energy efficiency and renewables may be undermined because of such inauspicious starts. It is clear that Bulgaria and the eastern bloc countries as a whole are trying to escape the ‘planned economy’ – but no planning at all may be just as counterproductive.

Gas – the green-labelled fossil fuel lurking on the sidelines

The analysis alludes to the fact that the penetration of gasification in Bulgarian households is very low. I keep my fingers crossed that no instrument to support gasification in residential and public buildings will be supported, as this decade should be all about writing no new subsidy cheques to support fossil fuels.

However, as a result of energy efficiency argumentation and when changing the fuel base, gas often gets in and leaves the door closed for small scale renewable heat solutions. It is incomprehensible that companies enjoying such huge profits – like the gas companies – are still entitled to pursue EU public money.

The need to improve energy efficiency in buildings – as the greatest untapped potential for energy savings – is, it has to be said, well established and iterated in the PA document. This, though, is somewhat undermined by the lack of specific targets for such measures.

Waste management targets – unreachable

The PA document acknowledges that Bulgaria continues to landfill most of its domestic waste – with a five percent increase in recycling between 2010 and 2011, the country has started to recycle seven percent of its domestic waste. Nevertheless, very few municipalities have adequately structured plans and systems for the separation of waste and waste prevention and recycling.

At the same time the 2020 target is 50 percent recycling of domestic waste, with interim targets of 25 percent by 2016 and 40 percent by 2018. This hoped for scenario seems impossible as the project for waste management in Sofia (one quarter of the country’s total population) threatens to achieve only 7 percent recycling. If the project in question goes ahead, the rest of the regional projects around Bulgaria will have to compensate for Sofia and achieve over 50 percent recycling.

Compounding this is that the PA completely fails to recognise the target for construction waste recycling which is 70 percent by 2020 – in the entire document this target is completely absent.

A development model that continues to freeze out the acutely suffering regions

As is being proposed, and this is a phenomenon blighting the future EU funding programmes in other central and eastern European member states too, many of Bulgaria’s economically backward regions that are afflicted, post-crisis, with shockingly high unemployment rates (especially youth unemployment), look set to be once again pretty much frozen out from receiving an equitable share of EU money that would be highly welcome in such tough times.

Meanwhile, some of the country’s bigger urban areas are engaging in their traditional lobbying fight aimed at securing as much of the Brussels pie as possible. With such budget battle lines drawn, it is inevitable that attention will be focused on sorting out these high level debates – Bulgaria’s less developed regions don’t stand a chance, and will be left with crumbs once again.

Green public procurement – the unwanted child

Green public procurement does receive a few mentions in the PA – as an instrument that will be used considerably to reach sustainability goals in the new programming, and to turn the spending of the EU money into a model process. Yet, at the same time, Green public procurement rules have not been adopted as obligatory, or even as highly recommended, in any of the operational programmes, despite a number of attempts from NGO coalitions that have pushed for such.

Community Lead Local Development (CLLD) – only in rural areas

Unfortunately CLLD is not being envisaged for urban areas, the reason being – disappointment with the approach from past experience in rural areas. This is a strange logic given that the cities concentrate much more developed human resources and capacity to manage projects, and cities are exactly where the approach can be implemented much more successfully.

A work very much in (slow) progress

Overall, the PA is thus far only a basis for talks, and a lot more work is crying out to be done.

As things currently stand, the relevant Bulgarian authorities have barely covered half of the required ex-ante conditionalities – the published table in Annex 3 of the PA shows that 36 ex-ante conditionalities have been covered, while 33 remain to be covered.

With much negotiating emphasis seemingly being placed on budgetary items such as roads, it appears that most of the progressive ideas remain out of sight for the new programming period. Bulgaria, as far as I can see so far, is determined to keep repeating, if not multiplying, its old EU Funds programming mistakes.

And then there is the almost universal unpopularity of the current government administration…

How embarrassing: EBRD transparency ranked ‘poorest’ among multilaterals

The 2013 Aid Transparency Index came out last week and confirmed my suspicion that the EBRD was starting to seriously lag behind other multilateral banks in various areas. For starters it has not escaped the attention of some observers that the new Energy Strategy of the EBRD – about to be approved in November – may not measure up to higher climate standards introduced by the EIB in its new energy policy. And now the Index rating should give the EBRD a push as it drafts its new Public Information Policy (PIP).

The new Aid Transparency Index makes a comparative assessment and ranking of 60 donor organisations, among which are 17 multilateral organisations. The EBRD is the worst among the multilaterals, plain and simple. To quote the report (emphasis added):

“Multilaterals: Multilaterals as a group do well in the Index, with 13 of the 17 placed in the very good, good or fair categories. The average overall score for multilaterals (53%) is significantly higher than the overall Index average (33%). […] The EBRD is the lowest ranking multilateral, scoring only 24.5%, reflecting the lack of comprehensiveness in the publication of organisation and activity-level data. The EBRD is the only multilateral agency that does not publish any information systematically in machine-readable formats.”

So officially now, the EBRD is behind the European Investment Bank, with 24.5% and 26.6% respectively, although both European banks are keeping each other company in the ‘poor transparency’ category. It’s worth noting also that both are far behind the African Development Bank’s 63.7% in the ‘good’ category, raising some doubts about the standards they bring to the North African region.

The above ranking is not surprising considering that the EBRD’s Public Information Policy is more concerned with confidentiality than it is with transparency. What may be surprising though is just how low the institution has got. While other multilaterals have moved ahead, the EBRD has proudly clung to its ‘unique model’ of having a so-last-century ‘business-sensitive approach’ (see page two of the EBRD Public Information Policy (pdf)):

“with the majority of its operations in the private sector, the Bank must maintain the confidence and trust of its clients and co-financiers. A business-sensitive approach is necessary to allay concerns about the treatment of confidential information which, otherwise, could affect these partners’ willingness to work with the Bank.”

We have heard about the benefits of delegating responsibility of disclosure on clients – another major problem with the current PIP – apparently it improves their corporate and social responsibility (CSR). The problem is that once a project is approved and money is spent, if the CSR of a stubborn client does not get significantly improved, there don’t seem to be any repercussions. To start with, the impact of the investment on the client’s CSR are far from clear, as reporting on results of projects is practically non-existent: project summary documents contain little information and seldomly get up-dated once the project is approved, while evaluation of projects is anonymised or aggregated.

The problems of transparency and accountability of the EBRD are too deep and wide to cover in a blog post, but you can find more details on information disclosure and public participation in the EBRD’s operations in this Bankwatch briefing.

As the EBRD is preparing to publish the draft of its new PIP, the Aid Transparency Index ranking is a loud wake up call. The bank’s reputation is at serious risk and things need to change significantly and need to change fast, if the EBRD cares to do better in next year’s ranking.

Guest post: EBRD financed Ukrainian agribusiness causes local insecurities

Last week, Ukrainian Bankwatch member group National Ecological Centre of Ukraine (NECU) asked the European Bank for Reconstruction and Development not to go ahead with the credit expansion for the Ukrainian agroholding Myronivsky Hliboproduct (MHP) until the company improves its performance and openness. In an open letter (pdf) to the bank, singed by NECU, Voice of Nature, Public Centre for Environmental Control, and Ladyzhyn Civil Council, we outlined how the investments of MHP, one of the largest Ukrainian agricultural corporations, are resulting in a wide range of negative impacts on the local population and their environment.

Local residents and organisations in the Vinnytsia and Dnipropetrovsk regions in central Ukraine, have told us about their concerns with MHP’s facilities there, particularly related to working and labour conditions, the improper handling of biological waste and manure, land use without the consent of owners, failures made during environmental impact assessments, failures to address the needs of local population during the construction of new facilities and limited access to environmental information. (Details are described in a second letter (pdf) that was sent to the EBRD’s directors for Agriculture and Environment & Sustainability.)

The EBRD is currently considering to increase its support for MHP to USD 100 million for operations in growing and storing grain and capital costs associated with the purchase of agricultural machinery. The decision is expected October 29, 2013.

We ask the EBRD board to suspend increasing MHP’s credit before the problems have been resolved. The additional money would allow MHP to expand its operations in Ukraine, likely with additional negative impacts as have been reported so far.

Ukraine is one of the largest recipients of investment in the agricultural sector from multilateral development banks like the EBRD and the IFC. The bulk of this support, however, goes to large agricultural holding companies and industrial enterprises, like MHP, to expand their production capacities.

Even without a capacity increase, MHP is already a big player in Ukraine, but not only there. It is also one of the largest poultry producers in Europe with vertical integration of the entire production cycle, from grain and fodder production to livestock production and meat distribution. MHP’s poultry farm in Vinnytsa that is currently under construction will be one of the largest poultry farms in the world.

The increase of industrial farming seems to offer very limited economic benefit for the regional development and locals while burdening communities with unresolved environmental and social problems in Ukraine. The policies that allow the EBRD to contribute to such developments should be revised more generally.

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