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Another case of alleged corruption in a CEE energy company


UPDATE Sep 17, 2012: The text has been revised to clearly reflect the relation between the company in line for EIB and EBRD loans – ENEA Operator – and the company facing corruption allegations – ENEA S.A.

We have seen a number of cases recently, where clients of the European Investment Bank and the European Bank for Reconstruction and Development have allegedly been involved in serious cases of corruption. (See for example Alstom in Slovenia and EPS in Serbia.)

Now a similar case has developed in Poland, where the company in line for loans from the EIB and the EBRD – ENEA Operator – is a fully owned subsidiary of ENEA S.A., which has come under official scrutiny now. (The EIB has approved but not yet signed a loan to ENEA Operator, the EBRD will decide on October 30.)

The story first became public in the Polish parliament in March this year, when Polish MP Jan Cedzyński issued his first parliamentary question, alleging the CEO of ENEA S.A., Poland’s majority state-owned energy company, of serious irregularities.

Since then, ten more parliamentary questions have been issued, three state institutions have started investigating irregularities into ENEA S.A. and the public prosecutions office in Poznań opened a corruption investigation (details below). In all these cases, ENEA’s CEO Maciej Owczarek would be deeply compromised if the allegations turned out to be true.

CEO and state representative under corruption investigation

As in each Polish state-owned company, the Ministry of Treasury is represented in the company by an official representative who informs the ministry and represent state interests in the company. In case of ENEA S.A. the representative is chairperson of the company’s supervisory board.

A parliamentary question from May 23, 2012 which claimed [doc, PL] that the state representative was bribed by ENEA CEO Maciej Owczarek has led the local prosecution office in Poznan to open an investigation into the case.

Ironically, although the MP who issued the parliamentary question had informed both the government and ENEA, and the company is investigating the case, the accused remains in his position and thus supervises the investigations that concerns himself.

Irregular payment of PLN 1 million to lobbying organisation

The public prosecutions office in Poznań is investigating the (incomplete) privatisation of ENEA S.A. during 2010-2012 [PL]. Under investigation are among others payments in March 2011 and February 2012 of altogether PLN 1 million from ENEA S.A. to Central Europe Energy Partners (CEEP), a Brussels based lobbying organisation of energy companies.

According to another parliamentary question [doc, PL] from April 2, 2012 these payments have been made in the sole discretion of ENEA CEO Maciej Owczarek, without the legally required authorisation by the company’s board of directors.

Irregular tender procedure

The most recent case is an investigation by the Supreme Audit Office (NIK) [PL] into the tender procedure for a new billing system.

After the company ASSECO Poland bid with the cheapest offer, Owczarek decided to cancel the tender, which was followed by a second one, constructed (by the CEO) in a way that excluded ASSECO from participating. The final winning tender was an offer several times more expensive than the original one by ASSECO. (Source [doc, PL])

It is highly unlikely that these cases will be sufficiently clarified until the EBRD approves its loan to ENEA Operator. To stay clear of controversies as the one in Sostanj and Kolubara, the bank should at least wait until official investigations have been concluded.

Another success against Czech incineration, government in blissful ignorance


Earlier this month, the Czech Republic’s handling of municipal waste came under criticism from the European Commission, when it was identified as one of several EU member states not doing enough to recycle and actually infringing European legislation.

Of these failing waste states, the Commission press release notes:

    “Failings include poor or non-existent waste prevention policies, a lack of incentives to divert waste from landfills, and inadequate waste infrastructure. Heavy reliance on landfilling means that better waste management options such as re-use and recycling are consistently underexploited. The outlook is accordingly poor.”

This outlook will remain poor if the Czech Republic doesn’t start reconsidering its love for waste incinerators.

Bankwatch has campaigned – often successfully – against several such projects. The most recent success came earlier this month in the Czech Republic with the announced abandonment of plans to develop the GBP 185 million Karvina municipal waste incinerator with support from EU funds allotted in the current EU programming period (2007-2013).

But while the project will not be moving forward at this stage, it’s not unlikely that Karvina will get another chance for EU funding support in the forthcoming programming period 2014-2020, since the current Czech government still proposes to favour incinerators over recycling [CZ].

The Karvina incinerator, officially called the Regional integrated centre for recovery of municipal waste in the Moravian-Silesian Region (in north-east Czech Republic), had been intended to be ready for operations in 2015. The promoter company is KIC Odpady, whose shareholders are the region and municipalities of Ostrava, Karviná, Havířov, Opava and Frýdek-Místek.

The project financing was heavily reliant on public money, in particular on EU Cohesion Policy money, a loan from the European Investment Bank, and regional and municipal budgets. Earlier this summer the European Commission deemed that it could only provide a 20 percent subsidy under Cohesion money for the project, while the promoters had been relying on a 40 percent figure – the CZK 1 000 000 000 shortfall has been a major factor behind the spiking of the project for now.

Another contributing factor has been a legal action brought by environmental groups, including Bankwatch member group Hnuti Duha, related to the planning of the incinerator. In January this year the Ostrava Regional Court has issued a preliminary verdict that undermines the validity of the zoning and planning decision for the proposed incinerator site because a rare dragonfly species lives in the vicinity. Since a valid zoning and planning decision is necessary for the construction permit and also for the application for EU funding, the decision posed a serious roadblock for the project.

There are also wider issues and question marks about the Karvina incinerator’s suitability that we have raised and that continue to dog the project:

  • The choice of incineration as a waste management option in the modified Czech National Waste Management Plan and the Regional Waste Management plan for the Moravian-Silesian Region has been controversial particularly as mechanical-biological treatment (MBT) of municipal waste has been identified in numerous studies as a more effective option. Indeed, the construction of a waste incinerator is viewed by some experts as a potential ‘lock-in’ option, preventing the development of separate collection and recycling.
  • NGOs and experts are concerned about the quality of the project’s environmental impact assessment process, particularly over the insufficient assessment of alternatives and the coherence of the Karvina incinerator project with the waste management hierarchy.
  • Moreover, the very design of the project includes the option of significantly scaling up its annual waste burning capacity of 192,000 tons per year. This potential expansion in the future contradicts the project’s environmental decision that stipulates that the capacity of an individual incinerator within a specific region or territory must not exceed half of the total annual production of municipal solid waste in that area.
    One major concern is that EU funds could thus be being lined up for future expansion of the Karvina incinerator, for which there is not and will not be sufficient waste, with the associated fear that waste would then have to be imported from abroad.

If the Czech government realises its plans to prioritise waste incineration over recycling, Karvina and similar projects will continue to be put forward for EU funding. My hope is that the European Commission is quite clear about its priority for waste prevention and recycling when it meets with the Czech Ministry of Environment in September to discuss the country’s waste management performance.

UPDATE 30.08.2012: The title has been changed to convey that this story, despite the mixed outlook, is about a successful campaign after all.

Money lost, safety postponed: On the mismanagement in Ukraine’s energy sector


In our attempts to promote the development of renewable energy in Ukraine, we constantly hear from officials: “We’re a poor country, we have no money for renewables”.

That this is just a weak excuse confirmed a recently leaked official letter by the State Financial Inspection of Ukraine (SFIU). The letter, presenting results of their operational audit of nuclear power plants operator Energoatom shows how the company has used public funds inefficiently, costing Ukraine millions and millions hryvnias.

How the dismissal of Energoatom’s president two days ago is related to this audit has so far not been established. But what the audit shows is that it is not simply a lack of money but the systemic mismanagement of public funds that drains resources away from important investments in Ukraine.

The letter notes that an SFIU audit from January to May 2012 revealed “numerous legal violations” which led to almost EUR 123 million losses (1 229 million hryvnas). The majority of these – according to the letter, “systemic” – violations concern laws on public procurement.

The letter also says that most of the auditors’ recommendations and demands were not taken into consideration by Energoatom and “in the majority of cases are being openly ignored: biddings are not cancelled, contracts continue to be made in violation of the tendering law”. (See page two of the SFIU letter at the end of this article [ukr].) The few recommendations that were taken into account during the time of the audit, amounted to only 5 per cent of total violations found (or 56,9 million hryvnas).

Energoatom’s losses versus nuclear safety – public money to the rescue

EUR 123 million are no peanuts for Energoatom. They could account for forty per cent of a EUR 300 million loan that the company is seeking from the European Bank for Reconstruction and Development (EBRD) to finance the planned Nuclear Power Plants Safety Upgrade Programme (SUP) – a project that Bankwatch has a thing or two to comment on, most importantly that it will factually help keeping outdated nuclear reactors running. Together with a potential EUR 300 million loan by Euratom, European institutions would provide a bit less than half of the entire project costs of EUR 1,45 billion.

Besides the questionable appropriateness of the SUP project for EBRD funding, there are also those remaining doubts over the outcome of an earlier Energoatom project financed by the EBRD and Euratom in 2004: Eight years after approval of the controversial K2/R4 reactor modernisation, we still see a number of unfulfilled commitments (pdf) made by Energoatom and Ukraine, and the EBRD management has not allowed public access to their assessment of K2/R4 achievements.

Moreover, the results so far of the SUP project point in a similar direction: during a board meeting of Ukraine’s Nuclear Regulatory Inspectorate in March this year, the State Nuclear Regulator stated [ukr] that targets for the SUP for 2011 were not met as not all safety measures were implemented as planned.

I wonder whether the money and time lost over the manipulation of tendering procedures would have been enough to complete the most pressing safety measures. Would it still be necessary to further increase the company’s debt (already at EUR 470,9 million, according to the SFIU letter) by as much as EUR 600 million?

That much public money could be put to better use. Ukraine has a great potential to meet its electricity needs by reducing our intensive energy use and developing renewable energy sources. Promoting and supporting this promising green energy sector in Ukraine, and helping Ukraine with shutting down old nuclear reactors would achieve a much safer and more sustainable environment at Europe’s eastern border. This is what EU and EBRD money should focus on.

Granting, instead, a loan to Ukraine’s nuclear energy monopolist with fraudulent managerial practices leaves practically no chances for taking us that far.

Read more on the Nuclear Power Plants Safety Upgrade Programme

The devil in the details: Europe’s low-carbon economy dream


In 2009, former British Prime Minister Gordon Brown heralded the beginnings of a “green revolution” that would be comparable in impact to the Industrial Revolution. The green revolution, said Brown, would lead to a new Ecological era in which the carbon footprint would be the basic criterion for assessing any human activity.

This epochal statement coming from the leader of one of the most carbon-intensive countries in the world is a clear sign that the need to take determined action against climate change has become mainstream. Political discourse has consequently shifted to reflect this new reality, with decision-makers including the concept of “low carbon economy” more and more often in their public interventions. And it is likely that, with the looming threat of climate change upon us, the low carbon economy will remain a top political goal for decades to come.

That is what fossil fuel industry lobbyists encourage us to do, celebrate marginal efficiency improvements while ignoring the fact that dirty production methods persist and might even expand.

The popularity of the low carbon economy among decision-makers is not only caused by environmental imperatives, but also because it is a framework which allows looking at issues such as climate change mitigation, energy savings, efficiency and rational resource use from an economic perspective.

In times of both economic and environmental crisis, politicians like to hear that you can, at the same time and using the same means, fight climate change and environmental degradation on the one hand and solve the problems of a collapsing economy on the other.

Thus, the low carbon economy has become a priority in numerous political programmes including the European Union’s new Europe 2020 growth strategy, which includes a set of binding targets for a low-carbon economy. Furthermore, the European Commission has elaborated a Roadmap for moving to a low-carbon economy by 2050 and decarbonisation priorities have been included in separate strategies for the energy and transport sectors. Additionally, the EU’s new Cohesion Policy (regional funds) will have as one of its main priorities “supporting the shift towards a low-carbon economy in all sectors” (pdf).

Individual members of the Union too are slowly becoming acquainted with the concept. For example, in recently elaborated documents, Slovak authorities have started including the concept of an “economy of green growth”, although for the moment the expression seems to be used in a marginal and rather clumsy manner. But the government has announced it would come up with a “Low-carbon strategy for development until 2030” to be prepared by the Ministry of Environment by the end of this year.

Other countries too, even in Central and Eastern Europe, are slowly jumping on the low-carbon bandwagon, partly to fulfil commitments to the EU and secure European resources.

But a great risk lies in this growing popularity: the concept of a low-carbon economy may become diluted as more and more actors adapt it to their needs. The success of the low-carbon vision will naturally depend on what ends up being categorised as low-carbon.

For instance, the EU gas lobby has been trying to push for having gas included among the low-carbon fuels to receive European subsidies. The coal lobby too has been arguing that carbon capture and storage (CCS) and coal combustion technologies be considered low-carbon measures under the oxymoronic label “clean coal”. Worryingly, the advocates of coal and gas have found support among EU decision-makers and hence there is a real risk that fossil fuel investments could be paid for with EU low-carbon budget funds.

Needless to say that nuclear advocates too present ‘their’ type of power as core to the low-carbon vision, because of its low greenhouse has emissions, regardless of its huge environmental and health hazards.

These examples show what is the danger here. The crux of the matter will be how we measure the carbon intensity of a specific project: if we concentrate only on chimneys and exhausts but neglect the whole production cycle we can come to a grossly distorted picture of what contributes to carbon emissions reductions and in what way. That is what fossil fuel industry lobbyists encourage us to do, celebrate marginal efficiency improvements while ignoring the fact that dirty production methods persist and might even expand. And, for this reason, the European Union and national authorities need to be very careful with how assessments of the carbon footprint of projects are completed, to make sure the entire real impact of the operations is taken into account.

The planning of a low-carbon transition in the EU has started. Despite of still lacking clarity over the concept and its implementation, more and more actors are rallying behind it.

And this is precisely why we should always remember that the problem with new concepts backed by huge amounts of money is that everyone learns fast how to use them – soon, everyone will declare their contribution to a competitive low-carbon economy, and we will be running the risk to make the concept meaningless or even dangerous. It is therefore important to keep a close eye on the evolution of this low-carbon vision and always remember that the devil is in the details.

What goes around, comes around: Portugal’s debt boomerangs back on public-private partnerships


Many reactions to the solutions proposed by Europe’s political leaders to the deepening and spreading eurozone crisis seem to revolve around two things: scepticism towards their effectiveness and increasingly harsh criticism of the so stubbornly pursued approach – carrots (bail-outs) for banks and sticks (austerity) for the people.

It is more than a reasonable suspicion (which, after Corporate Europe Observatory appealed to the EU Ombudsman, has even tainted Mario Draghi) that corporate interests have powerful influence on these and other political decisions.

Yet, apart from ‘revolving doors’ or outright corruption, there are also other ways in which the public interest can be outwitted to the benefit of big business. One of them opens up when public-private partnerships (PPP) are used to build public infrastructure, for example by poorly allocating investment risks, which mostly end up on the public’s shoulders.


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

This has happened also in Portugal. But as irony has it, the government’s efforts to cut public spending – as part of its bail-out deal with the EU and the IMF – have now boomeranged back on the private companies themselves.

Portugal has signed about 30 PPP contracts, mostly for the construction of transport infrastructure, which, according to Reuters, “contributed to the economic imbalances that forced Portugal to seek an international bailout”. Apparently, and no novelty for a motorway PPP, the concessionaires “used overly optimistic projections for traffic volumes, interest rates and profitability”, which force the state – and eventually tax payers – to pay unrealistic usage fees for several decades.

In 2010, Carlos Moreno, a former judge of Portugal’s Court of Auditors and author of a book criticising PPP schemes, estimated that “Portugal will have to pay some €48 billion in PPP liabilities between now and 2049, […] almost twice the €28 billion in liabilities recorded by the government.”

In the same year, the Portuguese government started considering renegotiations of its PPPs, and just a few days ago, it successfully negotiated a cut in payments for a motorway PPP called Pinhal Interior with concessionaire Ascendi (a joint venture between a Portuguese bank and a construction company).

Bankwatch has collected similar examples of failed PPPs on the website Overpriced and underwritten – The hidden costs of public-private partnerships, which also includes information on why this and other costly blunders appear time and again under PPP schemes.

In spite of the increasingly negative evidence, however, PPPs continue to be suggested as a means to help mitigate the economic and fiscal crisis, most recently as part of the EU’s project bonds initiative. And, again ironically, the European Investment Bank, which extended a loan to the very Pinhal Interior PPP renegotiated in Portugal will have a key role to play in it.

This looks like a serious case of making the same mistakes over again and expecting different results. A disputed source once said that this is a sign of insanity. At the very least it is a sign of corporate influence at European level that is prevailing over evidence-based decision-making and needs to be urgently tackled.

Spot the difference: Alstom in Indonesia and Slovenia


Remember this game kids used to play in which you had to find differences between two very similar pictures? I was reminded of it few days ago, when reading news about the latest corruption scandal involving Alstom at a coal plant in Indonesia.

A few days ago, the Indonesian Corruption Eradication Commission announced that opposition politician Emir Moeis was suspected of having taken a USD 300 000 bribe for favouring the Indonesian subsidiary of French company Alstom for delivering and erecting two 100 MW coal-fired boilers at the Tarahan coal-fired power plant in Lampung (Sumatra). Moeis is a former member of the parliament’s energy commission. He admitted having contact with Alstom’s employees and accepting the company’s invitation to Paris, but he denied to have helped the firm win the project tender.

While Alstom refuses to comment on the bribery allegations, the anti-corruption body raided the Indonesian Alstom offices and the FBI has reportedly got involved in the investigation due to the involvement of US-based subsidiary of Alstom in the project.

Why did this case trigger childhood memories in me then? Because, when it comes to the construction of a new 600 MW lignite plant at Šoštanj in Slovenia, we have seen strikingly similar things: earlier this year, the Slovenian State Commission for the Prevention of Corruption announced that there were serious concerns about corruption and conflicts of interests in the granting of the contract to Alstom (in 2007). These are primarily linked to the fact that Slovenian business partners of Alstom were members in both the commission organising the public procurement for the new plant and in the body negotiating the final contract with Alstom. As in the Indonesian case, the tender was managed by the state-owned company owning the plant and similiarly the project was backed by state owned banks, this time European ones. The European Anti-Fraud Office (OLAF) found the concerns important enough to start an official investigation into the case.

Certainly, Alstom is no stranger to corruption scandals. Contracts won by the company in Zambia, Tunisia, Latvia, Brazil or Malasya have raised eyebrows and in fact led to official investigations and fines – which, however, are merely comparable to what Alstom allegedly paid in bribes for some of its contracts. The World Bank has even temporarily blacklisted Alstom subsidiaries for allegedly paying bribes to Zambian officials to gain a power-plant contract.

There are plenty of such cases all over the world, yet Alstom continues to win power plant contracts and post rising profits. Therefore, besides fines and blacklisting, more should be done to ensure regular and fair investments.

At Šoštanj, half of the construction costs (EUR 1.3 billion) are to be financed by two European public banks (the European Investment Bank and the European Bank for Reconstruction and Development). Both banks are at the moment conducting internal investigations into the corruption allegations before disbursing the money. As European institutions, accountable to EU citizens, they should as well pay heed to the OLAF probe.

These banks – who often depict themselves as promoters of both democratic and sound business practices – can take consequential action here. They need to conduct thorough investigations, make the information resulting from the investigations available to public scrutiny, and if they find signs of malpractice (as the Slovenian State Commission clearly indicates there are) discontinue their financial commitments towards TEŠ 6. It will not be enough to issue a small fine, or to receive assurances from Alstom. Such things have not prevented the company from further wrong doing in the past.

Determined action is needed here and we expect European public institutions to take such action.