Blog entry

Reform and growth, or spray and pray?

This Monday, the European Parliament’s Foreign Affairs Committee will debate the draft Regulation on the Western Balkans Reform and Growth Facility, made up of EUR 2 billion in grants and EUR 4 billion in loans for the 2024 – 2027 period.

The fund is modelled on the EU’s Recovery and Resilience Facility, making disbursements conditional on reforms agreed between the Commission and governments.

The idea is reasonable in principle. But there is also a threat that the Facility replicates the downsides of the EU recovery funds. Adopted in a hurry, with extremely tight deadlines, public participation and transparency were sorely lacking during planning and monitoring in many countries, in some cases resulting in damaging projects being funded.

Never mind the procedures

The new Western Balkans Facility hasn’t started well. With a haste that has become all too common, the Commission failed to carry out an impact assessment, due to ‘the political urgency of the proposal’.

This is a rather lame excuse. The European Court of Auditors (ECA) has previously found that EU funding in the Western Balkans through the Instrument for Pre-accession has had ‘little overall impact on fundamental rule of law reforms’, despite the rule of law being one of the priority sectors, so there is every reason to be cautious.

In February, the ECA’s opinion on the new Facility identified several flaws, but the lack of impact assessment limited its ability to issue a fully informed opinion.

Now a public consultation on the draft Regulation is ongoing, but the proposal is in the Parliament already, rendering the consultation rather pointless. Not exactly the example that the EU should be setting to accession countries.

Part of a strategy or instead of a strategy?

New ideas on how to drive forward fundamental reforms in the Western Balkans are welcome. But a dose of realism is needed on what EUR 6 billion can achieve. Such sums can at most complement proactive and consistent EU action in the region.

The Commission must send much clearer public messages and impose penalties for governments which do not follow the rule of law or implement the EU acquis, with clearer rewards for those who do. The EU’s overly diplomatic approach in the region currently gives most governments the impression that they can do whatever they like.

Unless it forms part of a wider and clearer strategy, a new fund looks like a substitute for real progress with EU enlargement in the region instead of a contribution to it.

What is the money actually for?

How the Facility will lead to fundamental reforms is far from clear. The proposals concentrate on gross domestic product growth much more than rule of law or human wellbeing, and the process of agreeing priorities with the governments is untransparent.

The Commission’s Communication has seven ‘Priority Actions for Integration into the EU’s single market’, but no explanation of how they were chosen. And the draft Regulation doesn’t explain what their role is in the process.

In any case, they need to be changed. There are too many of them, they are too wide and they can only achieve tangible results if they are narrowed down.

Fundamental reforms, or just roads and mines?

Two of the priorities are also entirely inappropriate for a fund that should improve rule of law and ‘do no significant harm’.

We might be in a rapidly accelerating global climate emergency, but, shockingly, one of the Communication’s priorities is ‘facilitation of road transport’.

The EU and its public banks have pumped billions of euros into motorways in the Western Balkans in the last two decades – see e.g. Corridor Vc – leaving its rail network in a parlous state. And their focus on cross-border networks leaves urban public transport neglected, despite its potential to improve the lives of millions of people on a daily basis. If the EU wants to fund transport under this Facility, it really needs to prioritise rail and urban mobility.

Another priority, on ‘integration into industrial supply chains’, also rings alarm bells. Although part of it is important – relating to critical medicines – it also includes critical raw materials, including mining. This entails a major risk of the Western Balkan countries mining strategic raw materials for the EU while failing to apply EU environmental standards or achieving appropriate community benefits.

This should be adjusted to cover only critical medicines and processing/recycling of raw materials. Using EU money for extraction and exploration in the region is not currently appropriate with such low levels of environmental governance.

Public participation and the partnership principle are key to proper use of funds

The draft Regulation contains no requirements for public consultations on the Reform Agendas that are to be submitted to the Commission by Western Balkan governments, nor for civil society involvement in the monitoring of funds.

The Reform Agendas must be publicly consulted. And this must be a clear condition for Commission approval. Where they entail significant impacts, Strategic Environmental Assessments (SEAs) must be carried out as well. Yet only three months are proposed for the countries to submit their drafts. This is insufficient for even a basic public consultation.

The Partnership Principle must also be extended to all EU funds, including in the Western Balkans, in order to ensure appropriate monitoring, including by civil society.

Do no significant harm and leave no-one behind – but how will this be ensured?

The Facility is to mainstream climate change mitigation and adaptation, biodiversity and environmental protection, human rights, democracy, avoid stranded assets, and be guided by the principles of ‘do no harm’ and of ‘leaving no one behind’. This is welcome, however the draft Regulation must specify how this will be ensured.

A positive feature of the draft is its clear exclusion of fossil fuels and other activities or measures that cause significant adverse effects on the environment or the climate. This is very welcome and crucial to specify from the outset.

But the experience from the EU Recovery and Resilience Facility shows that the do no significant harm (DNSH) assessment has often been done as a superficial tick-box exercise behind closed doors, with no public input. It has often taken place before the exact nature of the measures has been established, making it hard to assess their impacts.

And ‘leave no-one behind’ is even less clear, as no such assessment is applied even within the EU. This could have been mitigated somewhat by stipulating the use of part of the funds for just transition of carbon-intensive regions, but this is not one of the priorities named in the Communication, despite the obvious needs.

Biodiversity target must be separate

Another relatively positive aspect is that at least 37 per cent of the grant component should contribute to climate objectives. However, the experience from the EU Recovery and Resilience Facility shows that biodiversity funding needs to have a separate allocation percentage, otherwise it is crowded out by other sectors’ climate action funding.

Excessively concessional terms may encourage irresponsibility

The loans are to have a maximum duration of 40 years and the background text states that repayment starts in 2034. This seems designed to encourage irresponsible borrowing, as most of the governments in the region will no longer be in power by that time.

Clearer transparency and disclosure requirements needed

It needs to be clear to the public what is planned, what has been spent and what is still to spend, who is responsible for publishing this information, and in what format. This is not currently the case with any EU funds in the region, which are extremely difficult to track and as a result, the public does not have confidence that they are being used to the best effect.

The EU’s financial interests are not adequately protected

The draft Regulation relies excessively on the beneficiaries to self-report fraud and corruption, and is very laissez-faire about the Commission’s monitoring and enforcement obligations. This is part of a worrying wider trend of an under-resourced Commission trying to offload its responsibilities, hoping that countries will adhere to EU law by themselves.

The recipient countries are also only obliged to report irregularities to the Commission after a primary administrative or judicial finding. This can take many years, and is much too late.

Major overhaul needed

Members of the European Parliament have already put forward amendments to the draft Regulation, which could help increase transparency, public participation, and oversight.

But it remains to define more clearly how the money is to be used, how priorities will be set, and what the exact goals of the Facility are. It is unclear whether this can be done effectively through parliamentary amendments. It might be wiser to suspend the process until an impact assessment has been done and the public consultation has been completed.

Obviously the Commission is in a hurry, but without clearer goals and oversight, there is a major risk of EU public money once again having ‘little overall impact on fundamental rule of law reforms’ in the Western Balkans.

Bar’s battle: Montenegrin town rising against LNG project

In recent months, a proposal for the construction of a liquified gas (LNG) terminal in the port town of Bar has ignited a fierce debate within the local community. In May 2023, the Montenegrin government signed a memorandum with US companies Enerflex Energy Systems and Wethington Energy Innovation to develop an LNG terminal and gas power plant, raising concerns about the potential adverse climate, environmental, and safety impacts for the local area and Montenegro as a whole.

The project has long been advanced without ever consulting neither the local authorities nor Bar residents. The first time members of the public get to have their say is in the public consultations on Montenegro’s draft 2040 Spatial Plan, which includes the LNG project and runs until 29 April.

Gasification from zero makes no sense

Although dependent on coal for around 40 per cent of electricity generation, Montenegro is not connected to international gas networks and consumes negligible amounts of the fuel. It also has a population of only around 620,000 and its electricity consumption is gradually declining due to the demise of its heavy industry. The Montenegrin government has already committed to phase out the use of fossil fuels by 2050. So, investing in fossil gas infrastructure would necessarily endanger climate goals and decarbonisation efforts.

The construction of the terminal and infrastructure itself would take five to ten years. With an operational life of maximum 15 years, dependence on imported gas, and the inevitable introduction of a more meaningful carbon pricing system in Montenegro, it is evident that the project cannot be financially feasible without massive public subsidies.

Local people fear for their safety

What worries local people most is the high risks of accidents and health and property damage, given that the project is planned in the most seismically active area of Montenegro, with an intensity of IX degrees on the MCS scale, only 500 metres from residential areas and close to warehouses of other dangerous chemicals. Their concern is substantiated by past accidents at LNG terminals, such as Skikda, Algeria (2004), when more than 20 people died and hundreds were injured.

Local authority seizes the initiative

The relevant local authorities hardly had any information about the government’s intentions so, on the 1st of February 2024, the Municipal Assembly of Bar held a public debate to discuss the ecological, economic, and social consequences of the project. Those present concluded that it is not in the public interest.

Moreover, on 16 February, the national Parliamentary Committee on Tourism, Agriculture, Ecology and Spatial Planning made a decision to hold a hearing involving the ministers of spatial planning; tourism; ecology, sustainable development, and northern development; internal affairs; and mining. The objective of this hearing is to investigate potential legal breaches in the public participation process, as well as failures to demonstrate the public interest and to disclose the environmental and social impacts of the proposed construction of the LNG terminal and associated gas projects.

These projects, valued at approximately a billion euros, with up to EUR 250 million designated for the terminal alone, have been advanced through international political agreements by government representatives without adequate national discussions on their economic viability. After a hearing in parliament, potential outcomes range from legislative and policy adjustments to excluding gas projects from policies and plans, accountability measures for government representatives, and monitoring the implementation of recommendations to address identified issues.

Counterproductive messages from the European Commission

The European Commission has long advocated for gasification in the Western Balkans, failing to understand that we are already deep in a climate emergency and the region cannot afford to undergo two energy transitions in the next two decades.

In October 2023, Enlargement Commissioner Oliver Varhelyi, made a troubling promise of EU financial support for the LNG terminal in Bar. In response, 27 Montenegrin civil society organizations urged the European Commission to shift its focus towards genuine transformational investments, such as energy efficiency and the development of sustainable renewable energy . However, the Commission’s response in December 2023 failed to acknowledge the unsustainability of an LNG terminal for Montenegro. This is a missed opportunity to prioritize energy transition and societal resilience.

No more space for fossil-fooling around – Montenegro must cut to a clean future

The debate over the proposed LNG terminal project in Bar, Montenegro, highlights critical concerns about its environmental, economic, and social impact. Montenegro’s commitment to phasing out fossil fuels by 2050, coupled with the financial and safety risks of the terminal, underscores the need to prioritize renewable energy sources and energy savings, for example by decreasing distribution network losses and using heat pumps instead of electric heaters. Only this way can Montenegro align with EU and global efforts to address climate change and ensure long-term environmental sustainability and economic stability.

Soft landing: New high-level EIB ‘revolving door’ revelations suggest systemic issue persists

For the million or so Budapest residents living in the shadow of Hungary’s largest international airport, unbearable noise and choking air pollution have been a reality for far too long. Turbulence and intense vibrations from landing and departing flights have also caused damage to many homes in nearby neighbourhoods. The prospects of the airport expanding with millions in EU public money from the European Investment Bank (EIB) got many worried residents up in arms, but the Bank, the airport operator and the Hungarian authorities have mostly shrugged off their concerns.

On Thursday (Feb 29), Politico revealed that Vazil Hudák, the EIB Vice President who signed a EUR 200 million loan for the airport operator in December 2018, joined the Budapest airport’s board of directors mere three months after leaving the Bank and during his cooling-off period mandated by the Bank’s code of conduct. According to Politico, the EU’s anti-fraud office OLAF is currently investigating the connection between the EIB loan and Hudák’s positions as Vice President and then member of the board of the Budapest Airport company.

The EIB loan is meant to enable the expansion of the Budapest airport to allow a 50 per cent growth in passenger traffic by 2030. Bankwatch and Friends of the Earth Hungary (MTVSZ), together with local activists from the Association for Civilized Air Transport, have for several years been warning that an unchecked rise in the number of flights will only mean an increase in greenhouse gas emissions, heightened noise and air pollution, and additional damage to neighbouring homes. The project’s environmental price tag will be even higher if the airport expansion goes ahead without ensuring it is fully in line with EIB standards and EU law – and without engaging local communities. As we have told the EIB’s board, this project is in breach of the Charter of the Fundamental Rights of the European Union.

In fact, it has now been more than two years since the EIB’s Complaints Mechanism acknowledged that the preparation of the airport expansion project was fundamentally flawed. The Mechanism’s report confirmed concerns raised by civil society that the EIB had failed to properly evaluate the project’s compliance with the Bank’s own policies and to inform the public about the project and its ramifications. Among others, the Mechanism’s inquiry revealed that, despite legal requirements, the project had not undergone an environmental impact assessment.

The fact that both the EIB and the airport operator have continued advancing this problematic project while failing to implement the Complaints Mechanism’s recommendations in itself casts serious doubts about their public integrity.

In fact, the Bank told Politico it intends to continue disbursing the loan “as long as conditions attached to our contracts are fulfilled.” Yet, standard contract conditions require EIB-funded projects to comply with environmental law. And this project, as the Complaint Mechanism ruled, does not.

The revelation that the EIB Vice President who signed off this dubious loan subsequently became part of the Budapest Airport leadership is set to deepen the lack of trust in this EU institution among those affected by this project, and likely well beyond.

Precisely at a time when the rule of law is under assault in Hungary and Europe more widely, the EIB as a public institution must reaffirm its commitment to upholding EU law and especially to communities affected by projects it supports.

It is therefore crucial that the EIB now acknowledges the gravity of the conflict of interest uncovered by Politico and publicly explains how Hudák’s appointment to the Budapest Airport board influenced the expansion project he had signed.

We understand that the airport operator has recently submitted to the EIB a revised Stakeholder Engagement Plan, as stipulated by the Complaint Mechanism’s recommendations. In early February, in response to our inquiry, the Bank informed MTVSZ and Bankwatch that its client will publish the finalised documents on its website. But the airport operator has never shared the draft plan with the neighbouring communities affected by the project, as is mandated by EIB policy.

Deciding about public engagement without engaging with the public is absurd and outrageous and further erodes the already shaky trust of affected communities in Budapest Airport and the Bank. In fact, even if the documents are made public, it has already been two wasted years to even start the process. It also remains the EIB’s responsibility to ensure ‘public engagement’ does not end with documents, but is followed by genuine, inclusive action on the ground.

Public money should not be used for the expansion of climate-damaging air traffic at all, but rather for improving more sustainable transport. But at the very least, if the enlargement of the airport is to be completed, it must be brought in line with EIB standards and EU law, chiefly by assessing all of its environmental impacts.

Now, the EIB and its client, the Budapest Airport company, must urgently implement the Complaints Mechanism’s recommendations in full and prioritise engaging the local community in a meaningful way.

A chronic issue of revolving doors at the EIB

Politico’s story also raises serious concerns about recurring cases of revolving doors at the EU’s financial arm. In November 2023, the European Ombudsman Emily O’Reilly concluded her latest investigation into a former EIB Vice President who made an unorthodox career move.

In this case, Dario Scannapieco, after leaving his EIB post went to head Italy’s state lender Cassa Depositi & Prestiti SpA (CDP) that often works with the EIB as a financial intermediary.

Concluding that the way the Bank had handled this case was “inadequate and constituted maladministration,” the Ombudsman reiterated her recommendations to allow the Bank’s Ethics and Compliance Committee “to impose measures to mitigate any potential conflicts of interest risks it identifies” and to make decisions on such measures public shortly afterwards.

In fact, soon after launching this inquiry, the European Ombudsman concluded another one into high-level revolving doors at the EIB. In this case, Emma Navarro went to work for Spanish energy company Iberdrola in January 2021, just three months after having left her position as an EIB Vice President, where she signed loans worth billions of euros to the same company.

“The EIB did not properly manage the risk of conflicts of interest, which arose from the request of the former VP to take up a position with the company during her cooling-off period,” the Ombudsman’s decision reads. To prevent future cases, she recommended the EIB takes “a more robust approach to revolving door moves of the members of its Management Committee to private sector jobs related to matters on which they worked while in the service of the EIB.”

These cases should not have been allowed to happen. Even the changes later introduced to the Code of Conduct for the Management Committee are not likely to substantially address the issue, as they mainly lengthened the cooling-off period.

Already in July 2016, Xavier Sol, then director of public finance watchdog Counter Balance, wrote: “For the EIB to work in the interest of European citizens, the EU bank needs to adopt stricter provisions to prevent conflicts of interest and ‘revolving doors’ practices by its high-level staff.”

His comments came after Ombudsman O’Reilly had written to then EIB President Werner Hoyer specifically about the need for the Bank to address the risk of conflicts of interest in its governing bodies. “The EIB should not only continue to work towards preventing conflicts of interest, but also appearances of conflicts of interest, and should continue to be proactive in identifying and managing risks before, during and after the term-of-office of governing body members,” O’Reilly’s letter stated.

In April 2017, the European Parliament joined the call for the EIB to tackle the risk of conflicts of interest. Its members (MEPs) were “strongly concerned with the identified shortcomings in the existing EIB mechanisms to prevent possible conflicts of interest within its governing bodies” and urged the Bank to consider the Ombudsman’s recommendations and revise its Code of Conduct “as soon as possible.”

Nearly four years later, in June 2021, MEPs again called out the issue of conflicts of interest in the EIB, noting that “several former vice-presidents have taken up employment at entities associated with the EIB without respecting a cooling-off period”. They condemned “the fact that such practices are not strictly regulated and prohibited by the EIB’s code of conduct”. The European Parliament reiterated its call for the Bank to tighten up its post-employment policy to bring it into line with that of the European Commission and similar institutions.

Two months later, the EIB introduced a new Code of Conduct for the Management Committee. This iteration prescribes a 24-month cooling-off period, during which EIB Vice Presidents “shall avoid all situations which may give rise to an actual, potential or apparent personal conflict of interest. If they cannot be avoided, these situations should be adequately and cautiously mitigated.”

Yet, the three revolving door cases indicate that the issue might not be just the length of the cooling-off period, as the Vice Presidents involved all took up new posts within four months of leaving the EIB. Rather, it is the enforcement of the rules on conflicts of interest per se. The board’s Ethics and Compliance Committee must ensure that the cooling-off period is strictly observed, particularly among departing Vice Presidents. The rules should also be strengthened, so that members of the EIB Management Committee are not allowed to take up jobs in companies and institutions which benefit from the Bank’s financial support in regions and countries these Vice Presidents were responsible for.

There is a direct line between the EIB’s failure to adhere to its environmental and social standards and EU law in the development of the Budapest airport project, and the failure to uphold critical ethics safeguards. Both endanger the Bank’s integrity.

It is high time for the EIB to step up its efforts to eliminate conflicts of interest, particularly within its leadership. Nadia Calviño, the Bank’s President, has to ensure the European Ombudsman’s recommendations are followed to stem the phenomenon of revolving doors. EU finance ministers, in their role as EIB governors, need to see that this remains a priority if the Bank is to maintain public trust.

Kyrgyzstan’s crackdown on civil society: Are international development banks doing enough?

If approved by the country’s parliament in its upcoming third and final hearing, both draft laws will impose firmer control on the registration and continuing presence of non-governmental organisations and media outlets. This will have implications for the ability of many Kyrgyz organisations to access financial support from international donors, otherwise unavailable locally. The proposed laws, which infringe on the rights of freedom of expression, association and assembly, also impose heavy penalties and sanctions, including prison sentences of up to five years.

Kyrgyz journalists have also come under increasing pressure, reporting persistent persecution and reprisals, with several independent media outlets facing criminal proceedings. In a ruling last year, the Kyrgyz court ordered Radio Azattyk to cease operations. In January 2024, further legal actions were brought against local media outlets along with the arrests of several prominent journalists previously involved in anti-corruption investigations. And in February, the same court issued a ruling to liquidate Kloop Media.

In its pursuit of further economic development, Kyrgyzstan has heavily relied on international investment for many years, receiving millions of euros in financial assistance from major European and Asian development institutions. According to recent reports, last year’s borrowings from international financial institutions rose by USD 258.5 million.

No accountability without civil society

Civil society is crucial for reducing the risks of implementing investment projects. Public engagement ensures transparency and builds trust among communities. The participation of civil society in monitoring these investments helps identify potential issues early on and find alternative solutions. Public engagement minimises conflicts and fosters a sense of ownership among community members. All of this contributes to the overall success and sustainability of investment projects.

At the end of 2023, Bankwatch sent a formal letter to three major development banks active in the country – the World Bank, the European Bank for Reconstruction and Development (EBRD) and the Asian Development Bank (ADB). In a letter to the banks’ management, we raised concerns about the situation unravelling in Kyrgyzstan. We strongly advised the banks to reinforce their joint efforts in signalling to the Kyrgyz government that the proposed laws jeopardise the country’s democratic direction and future economic development. In particular, we urged local authorities to take the following steps:

encourage all development partners and donors to coordinate efforts to signal that the current legislative crackdown on non-governmental organisations runs counter to the spirit and principles of development assistance to the Kyrgyz Republic;
revitalise the existing Development Partners’ Coordination Council (DPCC) by jointly developing and adopting specific proposals and recommendations for the Government of the Kyrgyz Republic, including clear conditions for their implementation;
facilitate greater systematic engagement between international donors, partners and local civil society, such as organising multi-stakeholder platforms involving government, donors, civil society, business and other groups with the aim of encouraging open discussions and inviting feedback on government policies and decisions.
develop and communicate specific positions on the enactment of repressive legislation in bilateral discussions with government, sharing these positions with national civil society and publicising where possible.

Will the banks follow through on their commitments?

In their response to our letter, the World Bank and the EBRD acknowledged that they were monitoring the situation and confirmed their commitments to democratic values. The ADB has yet to formally respond.

Speaking at the launch of the World Bank’s new Country Partnership Framework (CPF) with the Kyrgyz Republic in October 2023, Tatiana Proskuryakova, the World Bank’s Regional Director for Central Asia, announced that the bank’s investments would ‘focus on the key priority sectors of energy, water and agriculture to create a better and more sustainable future for the citizens of the Kyrgyz Republic’.

But as the World Bank’s commitments in Kyrgyzstan reach USD 1.1 billion, public involvement in these investments – a major tool of accountability and due diligence – is at serious risk. It is difficult to imagine how the bank will ensure its objectives bring about a brighter future for the country’s citizens amidst intensifying reprisals against citizens themselves.

These financial institutions should confirm their positions on the potential risks that the present situation poses for international investments in the country. They should convey to the Kyrgyz government the necessity for coordinating investment project objectives with the needs of citizens and insist that meaningful public participation with a strong civil society is crucial for successful project implementation. The World Bank in particular should monitor risks associated with the new proposed laws and introduce effective measures and procedures to assess and mitigate such risks and impacts to ensure project compliance with its Environmental and Social Standards.

Safeguards for green initiatives should not overshadow social risk assessments

Since 1992, the EBRD has invested around EUR 900 million in Kyrgyzstan through projects that support the private sector, the transition to a green economy, and sustainable infrastructure. Like other development banks, the EBRD seems to have steadily increased its focus on green projects in recent years.

It is true that Kyrgyzstan currently faces significant environmental challenges. But the country is also blessed with a large number of non-governmental organisations that are determined to share their knowledge and expertise to help the country resolve these issues. These and other representatives of Kyrgyz civil society, as well as media outlets, are under immediate existential threat as a consequence of the proposed legislative changes and recent surge in persecution.

What’s important to remember is that the EBRD’s political mandate stipulates that its countries of operations should maintain their democratic course. In her response to Bankwatch’s letter, the EBRD’s Regional Director Aytem Rustamova assured us of the EBRD’s intent ‘to address the issues relating to recent political developments in Kyrgyzstan in its new Country Strategy’, which is currently being developed.

Bankwatch will continue to keep a trained eye on these developments. Hopefully, both environmental and social risks will be reflected with equal importance, reinforcing the bank’s commitment to achieving its objectives and helping Kyrgyzstan return to its democratic path.

New study offers reality check on fossil gas in North Macedonia

In 2021, the whole Western Balkans used less than 1 per cent of the fossil gas used by the EU. But North Macedonia has ever-expanding plans to increase its consumption, in households, industry and power generation.

Plans to form a circular main gas pipeline and distribution network have existed for years but are moving very slowly. The Skopje-Tetovo-Gostivar pipeline was reported to be 53 per cent finished in November 2019, but more than four years later, it is nowhere near complete. It is unclear whether the problem is expropriation, landslides or something else.

The government is now focusing on building a gas interconnector from Greece, with an initial capacity of 1.5 billion cubic metres per year. In 2021, North Macedonia’s highest gas-consuming year so far, the country used 426 million nm3, less than a third of the planned pipeline’s capacity. Considering that the existing gas pipeline from Bulgaria will also continue to operate, this raises a considerable risk – either of stranded assets or of locking in increased fossil gas use for decades to come.

The European Investment Bank and Western Balkans Investment Framework approved financing for the project back in 2021, just before Russia’s full-scale invasion of Ukraine once again drove home the folly of relying on imported fossil fuels. Yet not only have neither of them reconsidered the project since then, but the European Bank for Reconstruction and Development is now also considering financing it.

As none of these institutions, nor the North Macedonia government, have published information to the public on the feasibility of the pipeline or expected gas demand projections since the energy crisis (the latest EBRD study was in 2020), Bankwatch member group Eko-svest commissioned a study by the REKK consultancy to look into what has changed and the impact this would have on households.

Higher network costs render conversion unfeasible for households

Not only have gas prices in recent years become highly volatile, but pipeline construction costs have also risen. REKK estimates that an increase of at least 35 per cent is to be expected compared to the government’s plans, leading to a total construction cost of EUR 791 million to 1.086 billion for the gas network, without land use costs and additional compressor investments.

Assuming that system users pay for the development and operation of the network, this would have a major knock-on effect on consumers, with an estimated network tariff of 12-26.6 EUR/MWh. Current gas network tariffs applicable for households make up 6 EUR/MWh, so the tariffs would be 100 to >300 per cent higher than now.

According to current regulations, network costs are under-estimated. But if network users have to pay for the network development – which would be only fair – the end-user price of gas may be 55-79 EUR/MWh depending on the gasification scenario.

Based on a detailed model of household decision-making, REKK’s modelling revealed that if households and other users are to pay the total cost of investment in the network, the network tariffs would be so high that none of the households would switch to gas.

High costs make household conversions unlikely

North Macedonia’s gasification plans assume high connection rates of households to gas For example the EBRD’s 2020 study assumed rates of 55-105 per cent (105 per cent meaning all existing buildings plus some not yet built), depending on the municipality. But this was based on the experience from Thessaloniki in Greece, not on North Macedonia’s own experience, and it was also noted that many of these connections were enabled by waiving the connection fees for households, though the costs were subsequently recovered via system use tariffs.

In North Macedonia, on the other hand, by 2022, it had taken more than 12 years to connect only 503 customers directly to the gas distribution network in Skopje, Kumanovo and Strumica. This is mainly because people find it expensive.

REKK also confirmed that the heating equipment and installation may be prohibitively high for many households in North Macedonia, and considered a range of conversion scenarios based on the income levels of people who would be able to switch. The result had a significant impact on demand, so is important to predict accurately: if 20 per cent of households switched to gas, demand would reach at most 0.5 TWh/year at low relative gas prices (so even lower at high prices), while in the unlikely event that 80 per cent switched, it would reach 2 TWh/year.

Although REKK noted that this can be influenced to some extent by subsidies, this is in our view a very poor use of public money. If incentives are to be provided to households, these must be for non-fossil technologies such as heat pumps and solar thermal.

Gas costs remain unpredictable but have a strong impact

REKK found that the relative prices of fuels were crucial for the outcome of the modelling. The price of gas skyrocketed in the energy crisis, but the price of regulated electricity for households in North Macedonia did not follow. So only a low cost of gas compared to electricity and/or firewood would drive households to switch towards gas.

According to REKK’s research the cost of gas in Bulgaria, Greece and North Macedonia closely follows the Dutch TTF wholesale price, which is predominantly determined by the global LNG market, followed by the influence of European demand. Although this is vulnerable to large fluctuations, previous research by Eko-svest suggests that potential household gas consumers in North Macedonia may not be aware of this and believe fossil gas is quite cheap. Still, due to the connection costs cited above, this would not automatically result in a large number of households connecting to the network.

All of this casts major doubts on claims by the EBRD and others that gasification will significantly decrease air pollution from household heating.

Wiser uses of public money

REKK also looked at what else could be done with the money expected to be spent on the gas network. It found that, with a scheme covering 90 per cent of costs and leaving 10 per cent to households, 49 per cent of detached and semi-detached houses could be provided with 3 kilowatt solar photovoltaic installations, 40 per cent with air-to-air heat-pumps or 15 per cent could have their building envelope insulated.

With such urgently needed options on the table, it is more than high time for North Macedonia to reconsider its pursuit of fossil gas and upgrade its energy plans to be fit for the coming decades. And if the European Commission and European public banks want to do good for the people of the region, they must support this turnaround immediately.

Why Samarkand’s Green City Action Plan alone is not enough

In November 2023, the second in a series of stakeholder engagement workshops was held in Samarkand as part of preparations for the GCAP. The two main questions on the agenda: How do people see Samarkand in 20 years? And what goals should the plan achieve? The workshop saw EBRD representatives, government departments, universities, civil society organisations and the media come together to discuss and exchange their views on the project.

Samarkand has the chance to lead by example

In his opening remarks, Nozir Ibragimov, assistant to Samarkand’s governor on local industrial development, emphasised Samarkand’s international importance. He referred to the city’s rapid development as a ‘tourist gateway to the new Uzbekistan’, which has recently hosted global leaders on prominent state visits.

‘Samarkand serves as an important bridge for world civilizations. The authorities of this region and, of course, its residents are dedicated to ensuring that the city, with its rich ancient history, is a liveable city that attracts investment projects in order to develop its social, transport and utility infrastructure and build a sustainable economy,’ said Ibragimov.

According to Hiroyuki Ito, co-ordinator of the EBRD’s Green Cities Action Plan, these workshops help to translate the results of monitoring at the local level into the goals of the Action Plan. He stressed the importance of involving all interested parties to help them claim ownership of the plan:

‘We want to see Samarkand become a leading city in the field of environmental protection while prioritising socio-economic inclusion as part of its development, thus serving us a successful model for other cities in the country.’

Samarkand might be the first EBRD Green City in Uzbekistan, but there are more than 50 cities of its kind around the world. Ever since the Green Cities project was first launched in 2016, several GCAPs have been implemented. However, their execution in cities such as Yerevan and Tbilisi has left a lot to be desired. Samarkand should take note.

Human rights and the environment top the list

Participants at the workshop shared their visions for the city’s future and listed priority issues that the Green City Action Plan should address. For example, activists from non-governmental organisations Ezgulik, Zarafshan, Hayot and Save Samarkand stressed the need to uphold human rights and laws, promote sustainable development, preserve the city’s historical heritage, create conditions for a green and liveable environment, and improve the well-being of its residents.

After months in the works, a group of consultants led by Aecom and IKS Consulting recently presented their technical report to the local authorities. The report, which was discussed at the workshop, contains data on seven sectors and 110 indicators; for instance, PM10 particles are proposed as a key indicator of air quality. The authors expressed their concern that decisions made in relation to the GCAP and its targets for each sector are largely dependent on the accuracy of the data available, which can often prove challenging to gather.

Anvar Nasritdinov, operational manager of Samarkand’s GCAP, explains the process: ‘To obtain data on each indicator, we contact the relevant authorities such as the Hydrometeorological Service of Uzbekistan. We compare the indicators with publicly available data from open sources. If they match or are close, we add them to our database. But when discrepancies arise, we ask for an explanation and then seek out more reliable data.’

The GCAP needs to be part of an integrated approach

According to Nasritdinov, the plan will be the property and responsibility of either the city or the Samarkand region: ‘The document will be adopted by the authorities tasked with implementing it. This means it won’t become just another report that gets shelved. In our experience, in all cities where we develop the GCAP, it’s accepted as an official binding document.’ However, Samarkand residents and activists warned that this cannot be taken for granted.

According to the EBRD Green Cities website, the development of Samarkand’s GCAP will contribute to ‘Uzbekistan’s goal of carbon neutrality by 2050’. However, it’s hard to reconcile the financing of the GCAP’s environmental ambitions with the fact that each winter almost all of Samarkand’s educational and healthcare institutions, including hospitals, schools and preschools, still run on coal heating.

A long-standing problem of the ancient city is the failure to adopt a general urban plan to guide its strategic development, a topic that has been regularly discussed in the media since 2018. Yet, Uzbekistan’s Cabinet of Ministers has still not given its approval.

Without a general urban plan in place that lays out the city’s long-term development objectives, the opportunities for Samarkand’s GCAP to falter increase. That’s why having a general urban plan in place is important because it ensures the integration of all urban systems. Samarkand’s GCAP has no such plan to consult. Inevitably, this casts doubt on whether the timelines and geographical contexts for the projects proposed are viable.

Saša Jovanovic, Cities campaign leader at Bankwatch, urges caution:

‘Unfortunately, in many cities today, some of which are also EBRD Green Cities, we see a situation where new general urban plans are being delayed for long periods of time. This results in development running ahead of the strategic framework, which often favours private rather than public interests.’

Without a holistic, strategic planning document that aligns with Uzbekistan’s planning and development laws, there’s a real risk that the GCAP will end up as a vague set of guidelines that never gets implemented.

Now that these concerns have been brought to the attention of the EBRD’s representatives, it’s up to them to make sure Samarkand’s GCAP becomes a truly integrated document that brings about real change.

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