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Members of European Parliament call on EIB not to finance Slovene lignite power plant


Members of the European Parliament have called upon the European Investment Bank’s President Werner Hoyer to withhold the disbursement of EIB funds for the Šoštanj lignite power plant project in Slovenia.

A letter (pdf) from Claude Turmes (Greens), Alojz Peterle (EPP) and Kathleen van Brempt (S&D) was sent yesterday after Slovenian news reported on Monday that the European Investment Bank’s management is shortly expected to decide on the disbursement of EUR 440 million for the new lignite block at Šoštanj.

“It is not acceptable that the EU’s house bank should transfer funds for a project which is being actively investigated at all levels for corruption and noncompliance with EU law […] and whose economic feasibility is under such serious doubts.”

Claude Turmes, Alojz Peterle, Kathleen van Brempt

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Download the MEPs’ letter to the EIB (pdf)

Find more information on the Šoštanj lignite power plant in Slovenia

A positive decision would mean dishing out almost half a billion euros (the second tranche of a EUR 550 million loan) for one of the dirtiest projects in Europe – in many regards:

The project is well known for corruption scandals

In their letter, the MEPs specify the ongoing investigations against the project and its company (Termoelektrarna Šoštanj (TEŠ)) – among others by the Slovenian National Investigations Office, the European Anti-Fraud Office OLAF, the European Commission and the EIB itself. (Background on the investigations is here.)

The MEPs emphasise that with the investigations ongoing, a loan disbursement is unacceptable:

These investigations make it clear that there are serious reasons to believe the project can have a significant negative impact on the European and Slovenian economies and on the environment. For this reason, disbursing European public funds to this project before the listed processes are closed comes with enormous risks and should not be allowed to happen.

The project’s economic viability is highly questionnable

Independent studies have revealed (pdf) a number of flaws in the official assessments of the project’s economic feasibility.

As the MEPs point out:

Importantly, the doubts over the economic feasibility of the project coming from various sources should remain a high concern for the EIB. Several of the conditions related to the economic feasibility of the project set by the Slovenian government have not been fulfilled by the investor – that the State Guarantee has been offered by the Slovenian authorities may give the impression these demands points [sic] have been met but this is not the case. (emphasis added)

Rather, one can add, the Slovene government has tried to solve some of these problems by weakening these conditions.

The project is an enormous blemish for the EU’s climate targets and the EIB’s energy lending

By releasing approximately 3.1 megatonnes of CO2 (project promoter’s estimate) into our atmosphere every year, the Šoštanj lignite power plant would use up almost all of Slovenia’s carbon emission allowances by 2050 under the EU’s decarbonisation objectives.

Encouraging such dirty energy production with almost half a billion euros would fly in the face of increasing calls by other international bodies to de-carbonise our economies and end fossil fuels subsidies (most recently by the OECD).

The overwhelming urgency of avoiding irreversible climate change (highlighted for instance by the World Bank and the European Environment Agency) leaves no room for financing a lignite power plant. And the EU’s own climate targets should leave no room for justifying such an investment by the EU’s house bank.

With its energy lending policy currently under review, the EIB could already now prove its intention to be part of the solution, not the problem, by refraining from disbursing the second Šoštanj loan tranche.

Kolubara “mired in crime and corruption”


The investigations, carried out by a department within the ministry for energy, concern the expropriation of inhabitants. The minister claimed that financial abuses committed by the managers responsible for the Kolubara complex caused damages of millions of euros. All sorts of dirty dealings (Serbian) were conducted over the years, from paying high salaries to non-existent employees, to buying over-priced equipment, and using resettlement compensation to pass bloated amounts of money to people close to the management.

On this latter point, Mihajlović said that the board managing EPS (the Serbian state electricity company, which manages the exploitation of the Kolubara basin) paid 1.2 million euros in compensation to one of its own members, Radoslav Savatijević, whose house was apparently one of those properties in Vreoci municipality that needed to be relocated to make space for the expansion of mining operations.

The Kolubara lignite mine in Serbia

Read more on our project page

It turns out, however, that Savatijević’s property – which was not even in his name, by the way, and that is a condition for getting a resettlement compensation – was hugely overvalued in order to qualify for such a big payback. His house in Vreoci was estimated to have the same value as dwellings of a thousand square meters in the capital Belgrade. Furthermore, the EPS board member cashed this money while numerous other families, whose homes had been prioritised as first on resettlement lists, were still waiting to be offered fair alternatives and compensation.

A huge corruption scandal at Kolubara is hardly news any more (Serbian). What’s new now is that a minister is speaking out so firmly against it and also that corruption practices have been seen to affect the resettlement of communities on the mining perimeter – in a context in which locals have been for years complaining of abuse and mistreatment by the EPS management.

In spite of all this, the EBRD appears to remain unphased in its support for EPS. The Serbian electricity company is a long-term business partner of the bank. Last summer, the EBRD approved a 80 million euros loan to EPS for „environmental improvements” at the Kolubara mining basin, which is in fact money that will contribute to the expansion of extractive operations there – and, in turn, to the burning of more lignite. This was already the fourth EBRD loan to EPS since 2001, with a fifth approved subsequently and a sixth in the pipeline at the moment.

Last year, confronted with investigations for corruption opened against tens of former EPS managers, the EBRD declared itself satisfied that the company is doing the best it can to clean up its act. In the same vein, the EBRD seem to be persuaded that the EPS is trying to handle the resettlements as best as possible, but the strong position taken by the Serbian Minister of Energy last week shows that Kolubara corruption problems are far from sorted out and the real victims of EBRD support for coal have been ignored.

The EBRD sometimes argues that it prefers to stay involved with actors in Central and Eastern Europe, despite corruption allegations looming upon them, to exercise pressure for them to clean up their act. But in all these years of EBRD loans to EPS, it can hardly be said that the company has been improving its practices. Abuses regarding resettlement continue, and how can we be sure that some of the financial abuses uncovered have not already wasted European public money paid by the EBRD? The EBRD must withdraw from Kolubara now.

Read more on the Kolubara mine

Good news: EBRD drops controversial Monsanto project


You may remember that in November 2012 Bankwatch reported on the EBRD’s plans to undertake a USD 40 million ‘risk-sharing facility’ with none other than the notorious Monsanto. The EBRD was exploring a project to provide financing so that medium-large farmers and distributors in Russia, Ukraine, Serbia, Hungary, Bulgaria and Turkey could buy Monsanto’s seeds and agro-chemicals in installments, without Monsanto losing money if they got into debt.

Well, after a lively reaction from groups around the world, including a letter signed by 158 organisations, other individual letters, meetings with the bank, a protest in Serbia, and questions in the German and Slovene parliaments, we’re glad to be able to report that the EBRD has confirmed that the project is not going ahead. So has the EBRD admitted that Monsanto is an unsuitable recipient of European public development support? Not exactly.

Here’s an extract from the EBRD’s response to an enquiry on the status of the project:

“Please be advised that, in this particular transaction, the EBRD and Monsanto were unable to find a satisfactory project structure for financing. Each institution will continue to explore other opportunities in order to provide farmers and distributors with adequate and time-appropriate financing, which we recognize to be one of the key challenges to increase agricultural productivity in the Bank’s region of operations.” (Source: Email communication with the EBRD)

This highlights one of the problems for such a large institution as the EBRD, that it is difficult to reach individual farmers without intermediaries, because the bank does not have the on-the-ground infrastructure or local knowledge to provide thousands of loans for a few hundred or thousand euros. This is a problem that needs to be addressed by the region’s governments and farmers’ unions if the EBRD is not to pick such unsavoury business partners again in the future.

So, a great outcome for now, but we’ll be keeping our eyes and ears open in case the EBRD makes such ill-advised moves again.

Read more on the EBRD

Off on the wrong foot in Kosovo? A lignite power plant and the EBRD


Last week a delegation from the EBRD visited Kosovo – its newest member, admitted on 17 December 2012 – as part of the development of its investment strategy for the country. Following meetings with the EBRD, Prime Minister Thaci’s office stated that the bank has expressed its interest in supporting the New Kosovo (Kosova e Re) project, which involves the construction of a new 600 MW unit at the lignite power plant near Pristina.

For a bank mandated to promote sustainability in all its activities and which publicly claims to support a transition to a low-carbon society, this is a strange choice of project. 98 percent of electricity in Kosovo is generated from lignite, and that number isn’t going to get any smaller with a new plant. Kosovo has committed to meet a renewable energy target of 25 percent of total final energy consumption by 2020 as part of the European Energy Community. Reaching this goal with a new 600 MW lignite unit before that date seems unlikely.

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The EBRD is currently reviewing its Energy Operations Policy. Bankwatch and others call for an end to support for coal.

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Kosovo also currently loses up to 17 percent of its electricity in transmission and distribution as well as wasting an estimated further 30 percent due to inefficient usage. Energy efficiency is therefore a much more urgent priority than building large new capacities. Analyses conducted by the World Bank’s former chief clean energy specialist Dan Kammen show that building a new plant in Kosovo is more costly and creates fewer jobs than energy efficiency and renewable energy investments.

As well as the climate impact and high cost of the project, there are numerous other issues. For example, just as the EBRD delegation was in Kosovo the Bank Information Center published an analysis showing that there are numerous unresolved issues regarding the use of water for the project, which may compete with agricultural production and other uses.

Considering financing this project is not only a bad start for the EBRD’s operations in Kosovo, it is also a bad omen for the revision of the bank’s Energy Operations Policy, which is taking place this year. (I will post more on this soon).

The EBRD’s countries of operation desperately need serious investment in energy efficiency and sustainable renewable energy to bring them into the 21st century, yet here in 2013 is a European bank still planning to use public money to keep Kosovo stuck in the coal age.

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Other lignite projects with EBRD involvement are:

The worst company of the year – Vote for Alstom in the People’s Public Eye Awards 2013


It’s this time of year again, when the Public Eye Awards – a flagship campaign from Berne Declaration and Greenpeace Switzerland – is naming and shaming corporate scandals and bad business ethics among the biggest corporations worldwide.

Among the seven finalists is also Alstom, a company that has been nominated by Bankwatch and our colleagues from Focus Slovenia and SHERPA France for being involved in numerous corruption scandals across the globe.

To set the tone for Alstom’s nomination, we produced this “promotional” video:

Because Alstom and its subsidiaries repeatedly displayed dubious business practices, have faced or are facing corruption charges, fines, even debarment by the World Bank, the French energy and transport giant can now join the ranks of such lustrous figures as Shell, Lonmin and Goldman Sachs, other Public Eye Award nominees this year.

It is indeed a hard choice and whoever will receive the award, it will be well deserved. So if I may, please do have a look at this excellent initiative to stigmatise the world’s worst business practices and cast your vote.

We certainly hope you will vote for Alstom, who is also the construction company for Unit 6 at the Sostanj lignite power plant in Slovenia – yet another corruption case at Alstom’s heels and at the same time a disgrace for Europe’s efforts to mitigate climate change.

Make your move.

Vote now for the worst company of the year.

Financial alchemy in Slovenia’s energy sector still results in lignite, not gold


Last week the Slovene government gave the go-ahead for the signing of a state guarantee contract with the European Investment Bank on the TES 6 project (more background on the guarantee on this blog). This came after months of debate about whether the project meets the conditions the government set, such as setting a ceiling on construction costs, ensuring a stable lignite price from the nearby Velenje mine, achieving a certain level of profitability, keeping CO2 levels at a certain level etc.

In an attempt to convince everyone that these conditions will indeed be met, the Sostanj management had to come up with yet another investment plan (pdf), the fifth such document for the project.

Since the economics of TES 6 has never been convincing and are only likely to get worse with the long delays that have plagued the project, Focus and Greenpeace Slovenia have commissioned an analysis of the investment plan by economist Dr Aleksandar Kešeljević from the University of Ljubljana. The result shows, among other things, that:

  • A reduction in the electricity price by just 10 percent would cause the project to be unprofitable.
  • There is an increased risk of higher financing costs, because compared with the fourth investment plan an increased proportion of the loans for Sostanj 6 have now floating interest rates, i.e. that can change with the rest of the market.
  • A reduction in coal prices to the level planned in the fifth investment plan is difficult to achieve, especially as so far there has been no long-term coal supply contract concluded with the Velenje coal mine.
  • If the price trends for CO2 emission credits are in accordance with the EU’s long-term goals to reduce greenhouse gas emissions, the project value is strongly negative in all scenarios.
  • There is an unproven and unrealistic assumption of increasing efficiency.

In going ahead with the state guarantee, the Slovene government has recognised some of these problems and tried to solve them by moving the goalposts:

  • Where it previously said that the coal price must not go above EUR 2.25 per gigajoule (even though it already is), it has now signed a contract with the Sostanj management that says it must not go above EUR 2.73.
  • Where it previously said a discount rate of 9 percent must be used for project calculations, the contract says that there must be 9 percent capital return, which is quite a different thing.
  • And where the government previously said the total investment cost should be in line with the investment cost from the third investment plan (EUR 1,12 billion in constant prices / almost EUR 1,19 billion in current prices), the contract says it should be kept below EUR 1.3 billion.

The state guarantee contract still has to be approved by the European Investment Bank itself and ratified by the Slovene parliament, so it will be interesting to see whether either of these bodies is willing to accept the Sostanj management and Slovene government’s attempts to hide the mess they’ve created with the Sostanj 6 project.

However, one thing is for sure. As both the EBRD and the EIB are currently undertaking their energy policy reviews, they would do well to look at Sostanj and the trail of destruction – environmental and economic – and alleged corruption it is leaving in its wake and learn the lessons from it.

The EBRD, in particular, is planning to back at least two more lignite power projects in south east Europe, possibly more. Does it seriously believe that a close look will not uncover similar problems, perhaps even additional ones, to those at Sostanj?