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Rio Tinto’s responsibilities in Mongolia extend beyond shareholders


Yesterday the Financial Times reported that the mining giant Rio Tinto recorded its biggest loss in its history, prompting its new chief executive to promise an “unrelenting focus on pursuing greater value for shareholders”.

An exclusive preoccupation with the bottom line, however, likely leads to other stakeholders’ interests being sidelined, particularly those of people living in the vicinity of mining operations.

A case in point is Rio Tinto’s Oyu Tolgoi mine in Mongolia, one of the largest undeveloped copper and gold deposits in the world and in line for financing by the World Bank and the European Bank for Reconstruction and Development.

The mining boom in Mongolia and the people it leaves behind

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The loan decisions by both banks are scheduled for the end of February (28th and 26th respectively). But letters signed by 39 organisations (pdf) that were sent today as well as a still active online petition are asking the two institutions to postpone their decision or include a number of expert recommendations as requirements in the loan agreement.

In order to be considered for financing by the banks, Rio Tinto had to submit an environmental and social impact assessment (ESIA) for the USD 13.2 billion mining project and the associated facilities (which also includes a coal power station). Yet, as an independent assessment of the ESIA has shown in December, the document is a non-starter and deeply flawed.

Not only does the ESIA omit crucial impacts on the local environment and communities, the included management plans also only cover the construction phase, which was over 94% completed at the time of disclosure (August 2012, production is expected to commence in the first half of this year).

The NGO letter to the two banks therefore points out that

“The late stage at which the ESIA has been released and the increasingly limited scope for making serious changes to significantly reduce the environmental impacts of the project […] raise questions about whether the EBRD/World Bank can offer environmental additionality in the project.”

The recommendations that the company needs to fulfil and ensure in the loan agreement include:

  • An examination of the cumulative environmental and social impacts of the associated coal power plant, including less carbon intensive alternatives. (Experts estimate the CO2 emissions during the construction phase with 1.35 million tonnes CO2-eq/year and during the operational phase (coal combustion (the major source) and diesel consumption from vehicles) with 1.85 million tonnes CO2-eq/year.)
  • The preparation of comprehensive studies of the local water reservoirs to establish beyond doubt that there is no risk of water scarcity as a result of the mine’s operations.
  • Improving the compensation and consultation framework for impacted herders in Khanbogd. In particular with regards to consultations on the diversion of the ephemeral Undai River that will flow through the waste rock and future open pit areas.
  • The development of a strong and long-term plan for biodiversity protection.

Even if mining operations and the Oyu Tolgoi mine in particular are seen as the future of the Mongolian economy, the negative impacts on local livelihoods can and should be mitigated. If Rio Tinto proves to be too relentlessly pursuing shareholders’ interests, Oyu Tolgoi must not receive public financial support. A company that big would surely be able to deal with it. It wouldn’t be the first time it found itself in a similar spot either.

Bogus logic in Ukraine: A nature reserve not worth protecting


The 330 kV electricity transmission line between the substations of Novoodeska and Artsyz is planned to provide a connection between the remote southern part of the Odessa region and Ukraine’s joint power grid, bypassing the territory of Moldova. (It should be added that the transmission line would be able to transmit power that exceeds the local demand several times over. The official rationale, to supply the Odessa region with secure electricity, only conceals the ambition (UA) to connect to an electricity export route.)

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The ‘Second Backbone Corridor’ – High voltage electricity transmission lines, Ukraine

Nuclear power plant safety upgrades, Ukraine

The current proposal by Ukraine’s state energy company Ukrenergo foresees construction through the “Lower Dnister” national park, an important territory for birds to breed and feed during migration. After 25 Ukrainian NGOs protested against these plans in May 2009 (pdf), the EBRD required the project sponsor to develop an alternative routing before it would further consider the project. Lacking feasible alternatives however, Ukrenergo preferred to focus its efforts on pushing the project through the national approval process.

In this quest, Ukrenergo seems to have found an important ally, for in the beginning of February the Council of the Odessa region has announced a decision to change the margins of the natural reserve “Dnister Liman”:

“To cancel the status of protected area of local importance for a number of areas in the territory of the natural reserve “Dnister Liman” […]”. (Source: Website of the Council of the Odessa Region, my own translation)

Whether this was just an extremely fortunate coincidence for Ukrenergo or was initiated by the company itself is so far unproven, but the decision is nonetheless dodgy.

It is based on a scientific justification prepared by the State Environmental Academy of Postgraduate Education and Management. Apart from containing a number of inaccuracies (in numbers, names of objects, etc), the document’s main rationale for withdrawing the natural reserve status is the already existing infrastructure (a road and an old transmission line) and the future harm from the planned transmission line:

“In the territory of the natural reserve ‘Dnister Liman’ the protected area along the route of the planned 330 kV transmission line will be exposed to negative impacts during and after construction of the transmission line”. (Source: [1], own translation)

To paraphrase that justification, it means that the nature reserve will suffer from the transmission line construction so badly that we need to cancel the status of nature reserve.

Excuse me? Then what exactly is the purpose of the status “nature reserve”?

This development is an evidence for the fact that lessons from other Ukrenergo transmission lines projects, in particular the one in the village of Usatove, have not been learned in Ukraine. Instead of looking for environmentally and socially sound alternatives that though might be more expensive or time consuming, problems are preferably solved on paper.

I only hope the EBRD doesn’t fall for Ukrenergo’s window-dressing now. After having already shown its respect towards international environmental agreements in 2009 by declining the routing of the Novoodeska-Artsyz transmission line, the EBRD should not consider financing the project based on a bogus solution.

Notes

1. State Environmental Academy of Postgraduate Education and Management, 24.11.2012, Scientific justification for changing of the margins of natural reserve “Dnister Liman” at the territory of Belgorod-Dnistrovsky district, #113.005/03

A mostly accommodating lion’s den – the second civil society meeting with the EIB Board of Directors


This week saw the second ever meeting between the European Investment Bank’s Board of Directors and civil society representatives. It may have been a less historical event than the first meeting in 2011, but it was still a welcomed chance for non-governmental organizations (NGOs) to discuss the EIB’s operations with the bank’s high level staff and directors.

The impression I got was that both NGOs and EIB appreciated the exchange and I’m glad the EIB committed to repeating and even intensifying similar meetings in the future.

At the session on climate action – more relevant than ever now that the EIB is reviewing its energy lending strategy – the EIB heard a loud and clear call from civil society organisations that it needs to more seriously tackle the European Union’s long-term de-carbonisation objective for 2050. As a starting point – an equally unanimous opinion among NGOs – the EIB should effectively stop its lending to coal, even if it is not a major part of its energy portfolio. Instead it should boost its investment in energy efficiency (highlighted also by Austrian Director Wolfgang Nitsche) and renewables financing, which can both still be improved.

I had a similar impression of general agreement at the session on promoting jobs and growth in Europe. NGO participants’ view that environmental sustainability and economic growth should not be seen as a trade off corresponded to EIB statements about the priority of long-term sustainability objectives. The admission by EIB staff that a too strong focus on GDP growth has its limitations rather unexpectedly concurred with the opinions from NGOs, who called for corrections in the EIB’s operations for example through the application of life cycle analyses.

A more articulate, almost fundamental rift however marked the session on growth and development. Faced with calls for much more accountability and the full inclusion of local communities, the EIBs vice-president Pim van Ballekom claimed there was no need because the EIB was fully accountable – after all projects need consent from the European Commission and hosting country governments. That this isn’t nearly enough in the practice of development finance was exemplified by Robert Kugonza from the Ugandan NAPE who invoked the case of the Bujagali Dam to underline the urgent need for more transparency and greater inclusion of affected communities.

Similarly, while the EIB staff regards its year old Results Measurement Framework (REM) as a “game changer” in measuring the EIB’s impacts outside of Europe (a long-standing call by civil society organisations), NGOs complained they had no chance to get acquainted with the methodology because it hasn’t been made publicly available.

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More on the European Investment Bank, the ‘EU bank’

Background, publications and news on the Šoštanj lignite power plant

Finally, the afternoon seminar with the Board of Directors saw Slovenian organisations calling on the EIB directors not to finance the Šoštanj power plant – a project facing several corruption investigations at the moment. That the EIB has always treated all fraud and corruption allegations very seriously, as Secretary General Alfonso Querejeta emphasised, hopefully means that no money will be disbursed until the investigations are resolved.

Debating differing views can be challenging – no doubt both for NGO and EIB personnel – but there is no alternative to open discussions if the EIB wants to be an accountable institution. Therefore I appreciate the chance to discuss with the EIB Board of Directors and I am willing to continue on future occasions.

Yet, more important than constructive discussions is the practical implementation of what is widely seen as the right way forward. It is now up to the EIB management and staff to follow-up on some of the so far only abstract accordance.

BREAKING: The EU budget important stuff takes place outside the Brussels negotiating room, and Europeans should have a say


EU leaders and their entourages are now inside the Justus Lipsius building, sitting down to negotiate the top agenda item of the latest European Council meeting: the EU budget for 2014-2020. Alongside dinner they are also tucking into European Council president Herman Van Rompuy’s latest multi-annual financial framework (MFF) ‘negotiating box’ – a fabled morcel that has been dished up several times now, only to be sent back by dissatisfied elite diners who have griped about its ingredients and the asking price for them and their creditors, namely national taxpayers.

Master chef Van Rompuy and his sous-chefs have been busy since the failed budget summit in November, taking extensive soundings about respective national budgetary palates and tastes. Not surprisingly, the views of the high-rolling bon vivants – chiefly Germany, France and the UK – have received most attention, with nouveau riche Poland also being invited to the top table. In the last week, among others the snubbed Italian guest has been attempting to make its presence felt.

An EU budget to exit the crisis

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But perhaps the challenge of squaring disparate tastes for fish and chips and Hungarian goulash explains Van Rompuy’s break out into another safer sector as a means of explaining all things MFF (multi-annual financial framework, the sophisticated way of describing the EU budget, and readily available here on Twitter via #MFF; see also #EUCO for all the summit deliberations).

A European Council Prezi on the MFF negotiating box released this week sought to present the labyrinthine process as a house. This all makes sense, and it’s worth having a look at, especially if you’re an MFF novice.

However, things take a turn for the worse in the closing slides when we get to the segment entitled ‘Around which architect’s plan should the house be built’ – a click on the arrow takes you to … a picture of a negotiating table, featuring mostly men, inside the Justus Lipsius building.

Assuming an MFF deal is reached in the next 24 hours or so – Twitter devotee and Finnish Minister for European Affairs and Foreign Trade Alexander Stubb has been assessing the chances of a deal this afternoon as 75 percent likely – whose architectural plan is going to win out?

The only clear indication for now is that the bottom is falling out of the EU budget property market. The cuts imperative is centre stage. But what are the foundations looking like for a budget that aspires to deliver for 500 million people living in Europe?

The research and development budget along with the Connecting Europe Facility infrastructure pot look to be in serious jeopardy of succumbing to the cuts agenda, clearly undermining the MFF’s jobs and growth potential. More positively, despite being the main promoter of cuts, the UK appears at least to get the low-carbon potential of the budget, if this recent letter to WWF (pdf) is anything to go by. It has to be hoped that, as laid out by the European Commission, a minimum of 20 percent of the MFF 2014-2020 will end up supporting real measures and projects aimed at tackling climate change.

But how to ensure this? How to make the MFF house actually habitable?

For those gathered in the Justus Lipsius building, here is some news – the MFF game even if resolved tonight (and let’s not forget the European Parliament’s role in all of this) is far from over. Assuming a deal is done amidst the glare of the western media’s flash bulbs in Brussels tonight or tomorrow, there are many more MFF hurdles to leap as we hopefully turn to the national level programming period for the rest of 2013.

But furnishing the respective national EU budget houses would be a somewhat peculiar process if it didn’t involve the people living under said houses.

The European Commission is aware of this. A response letter (pdf) to NGOs in recent weeks is pretty clear about the need for meaningful public governance over future EU spending.

Public glare, scrutiny and input will be essential to make this 2014-2020 budget deliver for the good of Europe, long after the negotiating box is finally sealed. It’s something well worth staying awake for.

Small shareholders protest price cap on lignite from Šoštanj’s mine


Of all the people you might expect to support the construction of the scandal-ridden Šoštanj unit 6 lignite plant in Slovenia, surely the shareholders of the Premogovnik Velenje lignite mine would be among them. After all, as lignite’s high water content renders it uneconomic to transport any significant distance, it is only the Šoštanj thermal power plant that keeps the mine going.

And sure enough, it is Holding Slovenske Elektrarne (HSE), the owner of Šoštanj power plant, which owns the majority of shares (77.3 percent) in Premogovnik Velenje to ensure that the mine’s operations are run in Šoštanj’s interest, ie. keeping lignite prices as low as possible. However that still leaves 22.7 percent of the shares owned by small shareholders, who, unsurprisingly, want to see a profit from their shareholdings.

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Background, publications and news on the Šoštanj lignite power plant

Disputes have been rumbling between HSE and the small shareholders for several years and now the minority shareholders, including MP Naložbe, Towra and Intertrade ITC (holding 9.3 % of the shares), have already taken legal action targeted at the company’s management over what they see as damage to the company and its shareholders. They claim that the mine has not been selling the coal at a profit, and that they have not seen dividends since 2008.

Now the Šoštanj 6 investment plant foresees lignite prices being even lower than the prices in recent years – at 2.25 EUR/GJ – based on which the Government has signed a state guarantee for a loan from the European Investment Bank on the project. If this indeed happens, the small shareholders would be squeezed even more.

They have therefore filed a complaint to the Slovene Parliament requesting the issue to be solved. However if this does not result in a solution they have threatened to approach the European Commission’s Directorate General for Competition. The shareholders see the planned price of lignite for future Šoštanj 6 as a dumping price, which creates an unfair advantage for HSE on the Slovenian and European markets.

Coupled with all the other reasons not to finance Šoštanj, most recently laid out by three MEPs in a letter to the EIB, the bank should make sure this threat to the state guarantee is addressed before considering disbursing the financing for the project.

Anti-coal campaign in Kosovo puts focus on health


We blogged last week about a new coal power plant near Pristina in Kosovo, that is due to receive support by the World Bank and may also be a project the European Bank for Reconstruction and Development is willing to get behind.

The vital opposition against developing even more coal capacities in Kosovo, a country that already now creates 98 percent of electricity from lignite, is now complemented by a newly launched ad campaign (see the image on the right). It highlights the extraordinary negative health impacts from coal combustion that Kosovars have to endure. (Interestingly, the numbers are taken from a study by the World Bank, the same institution that now could offer millions to perpetuate the situation.)

The campaign reminds us that environmental and climate impacts are not the only reasons to oppose energy production from coal. Neither are meteorological projections into the next decades always required to argue against coal. These health impacts are much more immediate and they bring very concrete and measurable distress for local populations.

The World Bank and the EBRD should heed these figures coming from their own ranks. Coal power does not belong to a future that is worth living in. Now is the time to phase out coal financing.

Here is also one of the three TV ads of the campaign:

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Read the campaign’s press release:
Why does Kosovo need a new coal-fired thermal power plant, when other clean sources for generating electricity are available?

See the campaign’s TV ads: http://www.kosid.org/multimedia