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First major project in Egypt reveals transparency oversight by European public banks


Cross-posted from the Platform blog.

Based on core values of solidarity, creativity and democracy, Platform combines art, activism, education and research to achieve long-term systemic goals.

Egypt’s largest refinery – squeezed between the densely-populated Shobra, Mostorod and Ain Shams districts – is to be enlarged. The public-private mega-project brings together every type of banker in Egypt: Mubarak-regime era financiers at EFG-Hermes, slick Citadel private equity investors based out of the Four Seasons Hotel, public banks like the European Bank for Reconstruction & Development and Western high-street banks like HSBC.

While the bankers made their deals, nearby residents in Mostorod and Shobra vehemently opposed the refinery extension due to pollution, diversion of water sources and planned evictions – demanding that it be moved to an uninhabited area.


Not a silver bullet for public infrastructure. Our website Overpriced and underwritten exposes the hidden costs of public-private partnerships.

Examining the impact assessments for the project, the Egyptian Initiative for Personal Rights (EIPR) was highly alarmed to discover that what is presented by the public banks as the Arabic language (pdf) “Non-Technical Summary of an Environmental & Social Impact Assessment”, is in reality merely a public relations document. It is not a translation of the English non-Technical Summary (pdf), but a much more superficial project overview, lacking even basic maps of the refinery. The discrepancies extend into the details. The English document has a section on “Resettlement/ Rehousing” examining the resettlement of 107 individuals and the economic displacement of informal workers who will lose their livelihoods. In contrast, the Arabic “version” makes no mention of resettlement at all – bar one paragraph denying the “removal of any houses or structures outside the complex”.


The two documents on the EBRD’s website – presented as merely different translations

The inferiority of the Arabic materials reveals a level of laziness, as well as a lack of commitment to communicating with the poor communities of Shobra and Mostorod crowded tight around the refinery. It begs the question of how any feasible consultation is possible, when local residents are provided with PR materials that say “look how great this project is” – not with real assessments based on due diligence.

Reem Labib of EIPR explained that “In effect, ERC [Egyptian Refining Company] has failed to supply an Arabic ESIA. If the EBRD goes ahead with funding the Mostorod refinery, this will make a mockery of the bank’s rhetoric of development, best practice and improving governance, by rewarding a dangerous combination of lazy documentation and forced displacement.”

The EBRD is currently considering a $40 million loan to the refinery mega-project. It plans to join other financial institutions including Citadel Capital, EFG Hermes, the World Bank’s IFC and the European Investment Bank. The impact assessments were disclosed by the EBRD on 17 October and the board will make its decision two months later by 18 December.

International finance institutions have been expanding their operations in Egypt since the revolution started in January 2011. This is despite repeated calls by social movements to stay away, with civil society pointing to the contradiction between their neoliberal intentions to privatise and deregulate, and the revolutionary mobilisation which has social justice at its core.

The EBRD – initially created in the 1990s to expand market economies across post-Socialist Eastern Europe – is in the process of expanding its mandate so that it can lend to corporations in Egypt, Tunisia, Morocco and Jordan.

While the bank presents its role as supporting democracy and improving governance, the fact that it has chosen the Mostorod refinery as its first target betrays its true intentions. Producing impact assessments in the language of the local community is not essential. Irrelevant are some of the highly controversial existing shareholders: $462 million of equity was provided by the private equity fund EFG Hermes, which is embroiled in corruption allegations involving Gamal Mubarak.

Presumably bank officials also didn’t consider the public opposition. Reports have been circulating in Cairo of many people being evicted for the construction work and not being satisfactorily rehoused. Concerns over air pollution causing lung cancer and asthma led to local public opposition. The company is also set to consume an enormous amount of water from the Nile and the Ismailia Canal. Processed water will apparently be pumped back into the Canal – raising fears over the impacts on fish and cattle. Hence the popular campaign called for the refinery expansion to be moved to uninhabited areas.


Excerpt from the ERC website – claiming that a Non-Technical Summary of the ESIA “is available in both Arabic and English Languages”

The impact assessments in question were not produced by the public banks. This is the responsibility of the operating company – the Egyptian Refining Company and the project management company – WorleyParsons. The banks then examine the documents, to see whether they meet their lending criteria, and upload them to their website so that stakeholders can submit comments or responses. Somehow the IFI staff monitoring the project documentation, either didn’t notice or weren’t bothered with the contradictions between the English and Arabic documents.

Production of the Environmental and Social Impact Assessments was outsourced to the Welsh Huckbody Environmental Ltd. The documents were then scrutinised by ERM, contractors working for the European Investment Bank. ERM have a controversial history, including producing some of the highly flawed impact assessments for BP’s Baku-Tbilisi-Ceyhan pipeline. One village was supposedly consulted despite the residents all having fled fighting, while another – still present – was erased from project maps and documents.

The refinery is widely known as the “Citadel Refinery”, and Ahmed Heikal’s private equity firm based in the Four Seasons on the Corniche has sourced the $3.7 billion for the expansion. Shareholders in the refinery include Qatar Petroleum (27.9%), Egypt General Petroleum (23.8%), Citadel Capital (11.7%) and the Inframed Fund (7.5% – itself controversially owned by EFG Hermes and European Investment Bank). “Development” lenders also bought stakes: the World Bank’s IFC (6.4%), the Dutch FMO (2.2%) and Germany’s DEG (2.0%). Other financiers include the African Development Bank and the Japanese and Korean Export Credit Agencies. HSBC, Credit Agricole, CIB, Bank of Tokyo-Mitsubishi and Sumitomo were also involved.

Public-private partnerships in the EU at lowest level for ten years, but more blood transfusions from project bonds coming soon


The EIB has recently published a market update for public-private partnerships (PPPs) in Europe for the first half of 2012 showing that during this period, the European PPP market recorded its lowest volume for 10 years. Only seven EU states closed PPP deals during the first six months of this year, with the UK signing most contracts (16) but France, with 11 projects worth a total of EUR 2.9 billion, remaining the largest PPP market in terms of value.

Instead of properly diagnosing the problem with public-private partnerships, the European Commission and the EIB prefer to keep administering more and more blood infusions, this time in the form of project bonds.


Not a silver bullet for public infrastructure. Our website Overpriced and underwritten exposes the hidden costs of public-private partnerships.

Not being great fans of PPP models of infrastructure financing here at Bankwatch, we weren’t too sorry to hear that more and more EU governments are deciding not to ‘build now and pay heavily later’, but it does raise the question of what is going on and why there are fewer PPP projects being signed at the moment?

Is it just because of the crisis? Or have governments finally started to take heed of the warnings that have been issued by PPP critics for well over a decade now? Unfortunately the EIB’s update itself does not offer any answers whatsoever.

However, another recently published EIB document does comment that:

“Since the onset of the financial crisis, commercial bank debt has become more difficult to secure and lending terms (e.g. pricing, tenors, loan volumes) have deteriorated significantly, affecting the bankability and value for money of PPP projects.”

It is true that the crisis did heavily affect PPPs, as the example of the M25 motorway widening in the UK showed. The UK National Audit Office found that the price of the contract increased by around EUR 826 million to around EUR 4.25 billion between the time when Connect Plus became preferred bidder and the contract letting in May 2009. Financing terms were much more expensive than before the credit crisis and accounted for 67 percent of this price increase. While this project did – controversially – go ahead, many other PPP projects caught by the crisis did not.

One of the answers, according to the European Commission, is the Project Bonds Initiative, in which the EIB will play a role by guaranteeing bonds issued for PPPs in EU member states. Today, Commissioner Olli Rehn and EIB President Werner Hoyer will be presenting project bonds at an event marking the signing of the cooperation agreement between the EIB and the Commission establishing the Pilot Phase of the Initiative.

But project bonds are the answer to the wrong question. Instead of asking how to finance more PPPs and helping private companies to transfer even more of their risks onto the public sector, the EU institutions should be focusing on asking whether to finance more PPPs at all, and if so, under what conditions.

The Commission and EIB have not shown any inclination to undertake this kind of in-depth and critical evaluation of PPPs so far, although around the EU the evidence is getting stronger and stronger that PPPs are a risky model for governments to follow and can result in huge, long-term budget burdens. Just look at Hungary, Portugal and the UK as examples. Instead of properly diagnosing the problem, though, the Commission and EIB prefer to keep administering more and more blood infusions, this time in the form of project bonds.

The hidden costs of public-private partnerships
Read more on our website ‘Overpriced and underwritten’

That’s what they call sustainable. The EBRD’s 10 billion for sustainable energy


The EBRD announced yesterday that since 2006 it has invested no less than EUR 10 billion in sustainable energy under its Sustainable Energy Initiative (SEI).

Part of me wants to say “Well done, chaps!”, knowing that the bank – even according to Bankwatch’s figures, which use more stringent criteria than the bank’s – has ramped up its lending for new renewables (= renewables excluding large hydro) and power sector energy efficiency significantly since 2006.

  • New renewables lending has been increased from only EUR 6.8 million in 2006 to 271.9 million in 2011 and
  • power sector energy efficiency from EUR 73.9 million to EUR 394 million over the same period.

However shockingly low the bank’s starting point, and however much more investment is needed, the improvements must be recognised. Yet how a new lignite unit can constitute sustainable energy in the 21st century is beyond me.

Another positive trend is that the bank has started to support new renewables outside of the EU in countries like Ukraine which have so far been a difficult environment for such projects.

At the same time, the devil, as always, is in the detail. And the detail that most shocked me so far about the Sustainable Energy Initiative is that the 2011 list of SEI projects includes no other than the new block 6 at the Sostanj lignite power plant in Slovenia. How a new lignite unit can constitute sustainable energy in the 21st century is beyond me.

Sostanj is not the only project raising eyebrows about the EBRD’s Sustainable Energy criteria. There’s the so-called Kolubara environmental improvement project too, which will (maybe) save 200 thousand tonnes of CO2 per year but will allow the mine to expand, thus opening the way for about 500 million tonnes of CO2 emissions from burning the lignite from the EBRD-financed fields.

These are just two recent examples, but when reviewing the SEI our calculations showed that around 1/3 of the total SEI investments are questionable (pdf, see page two).

It’s not only fossil fuels causing problems, either. The bank has pumped up its Sustainable Energy figures by throwing in some large hydropower plants too.

After years of not financing new large hydropower plants, in 2011 the EBRD suddenly financed three, and decided they were all Sustainable Energy. We disagree:

So, with its EUR 10 billion for Sustainable Energy, the EBRD has proved it can do quantity. For the next EUR 10 billion, let’s hope it pays more attention to quality.

Crunch time at Sostanj


Last Friday, in the latest exciting episode, Alstom, the French company contracted to provide the main equipment for the plant, stopped works on the site, fed up with constant delays on due payments from the TES management (154 million euros were supposed to be paid to Alstom by October 30). They’ll get back to work, they say, if they’re paid the due amounts. However, if they leave and stay away for just 2 months, additional 30 million euros could be added up to an already exploding bill for the new plant, which has reached over 1.3 billion euros by now.

The Slovenians, of course, didn’t have the money for this plant in the first place. That’s why around half of the costs are to be covered by two European public banks, the European Investment Bank and the European Bank for Reconstruction and Development. And here’s where it gets interesting. The European Investment Bank wants a state guarantee for its loan (not only is the EU’s house bank financing a dirty coal plant that should not be built in the first place, but it’s asking the Slovenian tax payer to commit to covering the eventual losses).

Slovenian decision-makers are not able to offer this state guarantee just yet: even though earlier this year the Slovenian parliament passed the state guarantee law (with an awesome 29 out of 90 votes!), the government still needs to assess if the new investment plan for TES 6 is in line with national legislation and with the conditions authorities set out for the guarantee.

As a matter of fact, the foot dragging is happening because it is really doubtful whether the investment plan meets these conditions. An internal rate of return of 9% is required, but is totally unrealistic, as is guaranteeing lignite costs at EUR 2.25/GJ. It has been quite clearly proven that the TES management has overestimated the profitability of the plant and with all these delays the profitability of the plant can only be going down, not up. The project promoters also hasn’t assessed the CCS-readiness of the plant, as national legislation demands.

On top of that, all eyes are on the Slovenian government not to mess up this decision: earlier this year, a state commission for the prevention of corruption claimed that conditions of corruption existed (pdf) at the time of awarding the contract to Alstom and that national public procurement legislation may have been breached. Investigations are ongoing both in Slovenia, as well as at European level (the European Anti-Fraud Office is looking into the corruption allegations and so are internal investigators at the EIB and EBRD).

Last week, the Slovenian finance minister told national media that there are still unresolved issues around the state guarantee. We don’t know precisely which issues he meant, but certainly there’s no lack of problematic points, we mentioned only a few.

So now we’re waiting. We’re waiting to see how the Slovenian government is able to pull this one off. Under public scrutiny, how to figure out a way to pay 1.3 billion euros for this plant, much of it to a company that is under suspicion of having conducted corrupted acts to get the contract?

We’re also waiting (since spring) for the results of the internal investigations at the EIB and the EBRD. The banks are now saying that they won’t pay their half of total costs unless the Slovenians pass the state guarantee. As if that were the only criterion. The banks have promised to thoroughly look into the corruption allegations themselves as well as co-operating with the OLAF investigation. Let’s hope they don’t suddenly forget about this when under pressure to come up with the money.

If they all manage to pull it through by the end of November, we’ll have a proper state guarantee, some money paid to Alstom, a resumption of works, and the EIB and EBRD getting ready to pay their due. In that case, our thriller will have turned into a predictable romantic comedy: the sides kiss and make up, putting on fake smiles to persuade us all that there was no dirty dealing in the awarding of the contract, that this coal plant is really necessary for the Slovenians, and that European public banks are safeguarding the interests of European citizens.

Meanwhile, while waiting to see how the plot develops, we’ve nominated Alstom for the Public Eye Awards, a competition of the world’s least ethical companies. Because, as you may remember, allegations of corruption around Alstom are not appearing for the first time: we’ve heard about them across continents, types of business, and despite fines and investigations. Keep an eye on this blog to see whether Alstom wins, despite tough competition from other corporations around the world.

‘Comments noted’, business as usual continues. The marginal public influence on the EBRD’s new mining policy


Those who have followed our work on the EBRD’s mining activities are aware of our discontent about the bank’s performance in the mining sector – with problems ranging from deepened commodity export dependence and the exacerbation of environmental problems to negative impacts for local communities.

Read more:

Our commentary on the policy

The EBRD’s draft Mining Strategy (pdf)

The final EBRD’s Mining Operations Policy (pdf)

The EBRD’s report on the invitation to the public to comment on the Mining Operations Policy (pdf)

Now with the mining policy approved we remain similarly unhappy: Compared to the draft version from April (pdf) (subtitled “Supporting Responsible Mining”), the final policy (pdf) did not change much (the subtitle disappeared, though). Most notably, the policy fails to incorporate the obvious links between its support for coal mining activities and the climate impacts of burning coal.

A host of other important issues, including the protection of important natural areas (like glaciers), the diversification of export oriented economies, and the strengthening of transparency, participation and revenue sharing in mining activities have been postponed to the revision of other policies and strategies. (Read more details in our commentary on the new mining policy.)

Despite the bank’s bold claims of an exhaustive consultation process the outcome does not sufficiently “incorporate differing views”. Bankwatch’s extensive and sound comments on the draft policy have hardly found their way into the final document – without so much as an explanation.

This mining policy is decidedly failing to lay the groundwork for less harmful EBRD mining operations. It hardly describes anything else than an expanded business as usual. Neither does it offer a vision to align the interest of local people and the environment with the commercial benefits for mining corporations.

EU budget update: Are Europe’s leaders serious about taking the green shirt off all of our backs?


These are negotiations, if you recall, that got underway in summer 2011 when the European Commission proposed that 20 percent of future EU budget spending should go to ‘climate mainstreaming’ measures – that is, for the approximately 1 trillion euro EU budget over seven years to comprise a good chunk of projects and initiatives, from across the budget’s entire range, aimed at tackling climate change.

Scandalously, we are now staring down the barrel with only one month – seemingly – of frantic shuttle-diplomacy to go in order to decide on whether to make the future EU budget environmentally progressive. Or instead to add it to the EU’s growing list of botched compromises – compromises that let EU leaders smile for the cameras, but that do nothing for people living in Europe, or for the environment.

If the budget negotiations are grinding remorselessly on (though look out for some ‘real’ budget figures to be announced, it is rumoured, by the Cypriot EU presidency on Friday this week), a gathering storm is being played out in the media – and for EU budget bloodlust, you can always rely on Twitter. The current, short-term focus is on the extraordinary summit called by Herman van Rompuy, president of the European Council, for November 22-23, aimed at thrashing out agreement on the shape, and size, of the EU budget for 2014-2020.

Van Rompuy is pinning a lot of hope on the November summit. Not only is he scheduled to do a tour of 27 EU countries in five days in early November, he recently tweeted that the summit could be the first ‘three shirter’ under his presidency (‘three shirter’, in Brussels parlance, means that the scheduled two day summit could easily become a three day job, requiring a third shirt to be pulled from diplomatic baggage in order to secure a deal). This kind of wardrobe flexibility should not, however, be regarded as heroic: let’s bear in mind what is at stake, the length of time taken to reach where we are now, and a certain English language idiom.

‘Taking the shirt off someone’s back’ means to take payment from a certain other, as a payment or a punishment. The shirt in question could well end up being Europe’s collective ‘green shirt’, namely the environmental impetus put forward by the Commission last year. How the environment is deserving of this punishment from European decision-makers remains a mystery.

Yet, with all to play for, green spending within the EU budget is not getting a look in – in spite of Bankwatch and our partners, Friends of the Earth Europe and WWF, last week launching our map and video of ‘Well Spent’ EU Cohesion fund spending.

Also last week, Bankwatch’s EU Funds coordinator in Slovakia, Miro Mojžiš, set out in the European Voice how Europe’s member states could – credibly and urgently – come together on the future EU budget with a collective championing of increased green spending for the 2014-2020 spending. Not only shared EU 2020 commitments on climate change can be realised. There are further additional ‘green’ dividends to be unlocked via targeted EU spending, including massive job creation in times of economic precariousness, as well as greatly reduced fuel bills for European households via EU funding support for obvious energy efficiency measures.

As Miro warns, “We are now at a dangerous moment, and bellicose posturing has to be replaced by constructive negotiations focused on areas of mutual concern and benefit. It is time for both advocates of better spending and cohesion to abandon haggling over cuts and actually discuss the quality of spending and cohesion.”

To achieve this ‘win-win-win’ scenario via green EU spending, we believe that any EU budget deal should involve not just 20 percent climate mainstreaming but, given the climate and economic challenges facing the member states (especially in eastern Europe), 25 percent going to green spending.

More shirtiness

Not only is the green shirt being removed from our backs, if the latest reporting from the Financial Times is to be believed, we are now entering a new period of ‘shirtiness’ (read it as you will, but the English language equates ‘being shirty’ or ‘shirtiness’ with ‘being difficult’ – who are we to argue, but Brussels press corps, you got the November summit headline here first) as regards the EU budget.

Chancellor Angela Merkel is apparently intent on squaring up to UK threats of vetoing the EU budget in November, threatening from Germany’s end to cancel the November summit completely if David Cameron’s government doesn’t soften its stance. This kind of FT headline needs to be taken with a certain amount of sel – ‘Merkel to warn UK on EU budget veto’ has certainly attracted more online comments (mostly from what appear to be a UK Daily Mail readership) than I can previously recall for an FT article. But, unmistakenly, it does illustrate the bankrupt contours of opinion regarding the EU budget that are emanating from Europe’s key capitals.

Unmistakable, too, in the latest brouhaha is the lack of talk about green spending, even with one month to go.

Get ready to find yourself without a shirt, green or otherwise, in the upcoming Budget negotiations – even though our leaders appear to be measuring up for EU budget hairshirts.