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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.

Don’t let facts get in the way of a good EBRD Roma headline


For a few years, I have been monitoring the rights of Roma communities living in Belgrade, paying particular attention to the resettlements taking place in order to accommodate EIB and EBRD funded projects such as the Gazela Bridge, Sava Bridge and adjacent roads.

Belgrade authorities usually resettle Roma families without proper prior notice and consultation, separating families, relocating people to far away places and in improper conditions. Amnesty International has repeatedly condemned the manner in which such resettlements are done, claiming that Serbia is breaking its international human rights obligations.

Knowing this, I was seriously taken aback by a blog entry on the EBRD website in which the bank congratulates itself for its involvement in a recycling initiative offering Roma people employment in Belgrade. While the recycling initiative is certainly laudable, what is really striking in this bit of news is the EBRD claim that the project allowed Belgrade to “become a role model for Roma social inclusion”. Really now?

I wish it were true, but unfortunately I know it’s not. The recycling center is supposed to help the reintegration of Roma, including those that have been resettled because of the construction of Gazela Bridge, planned to be financed by the EIB with the resettlement technical assistance carried out by the EBRD. The Gazela resettlements were a huge human rights scandal and a recycling center – as welcome as it is – can only be the start towards providing proper solutions for the forcefully displaced people.

And if that’s not enough, here’s what else has been happening lately in Belgrade, this “role model for social inclusion of the Roma community”:

  • On 26 April this year, 100 out of more than 240 families forcibly evicted from Belgrade’s Belvil settlement (a community resettled because of constructions related to Sava Bridge) who were not Belgrade residents were bussed out of the capital and taken to towns and cities across the country. Five families that were returned to the southern Serbian city of Nis – 18 people in all, including children and a new-born baby – have had a particularly hard time. They’ve been living for a three months in an abandoned warehouse, with no proper sanitation or electricity and only a few days ago getting access to running water. For this, Amnesty International has accused the Belgrade authorities of breaking their international human rights obligations .
  • As a part of resettlement processes related with both Gazela and Sava, Roma people have been resettled in metal accommodation containers on the Belgrade periphery far from their income source of recycling activities. Furthermore they are not permitted to collect or store waste items they can recycle or sell at the sites.
    According to Amnesty International: “there is no work available near the container sites, which are far from the city centre, where many of the Roma collect and re-sell scrap or recyclable materials. Further, under the Gazela Resettlement Action Plan, Roma were prohibited from taking any of the scrap materials they had collected with them. In order to continue to collect and re-sell or recycle such materials, they now have to find somewhere in the centre of Belgrade to store materials. Many women who had worked as cleaners are now unable to find employment locally. Some adults have reportedly been offered work by the city authorities, but most still work collecting waste materials.“
  • In the case of the Gazela Bridge, 61 families were bussed to southern Serbia from Gazela Bridge in spite of already having emigrated from there due to the lack of income opportunities. Around 114 families from Gazela Bridge were bussed to the outskirts of Belgrade and given accommodation in metal containers.
  • Importantly, Serbia still lacks a national legal framework for resettlement, showing an appalling lack of political will to solve the problems of Roma and other vulnerable groups in Serbia. Belgrade still does not have an action plan for the inclusion of Roma, instead taking a piecemeal case-by-case approach, with standards depending on whether international financial institutions are involved or not (in cases where they are not, resettlement simply consists of eviction, with no alternative accommodation provided).
  • Finally, according to the Serbian government, “there are some 600 Roma settlements in Serbia and over 100 in Belgrade alone”. In Belgrade alone there are around 30 000 Roma who are continue to live in substandard unhygienic settlements without adequate, or in many cases, any services.

Against this background, the recycling centre highlighted by the EBRD near the Orlovsko Naselje container settlement in the Zvezdara district started operation in 2011, with about 30 informal waste collectors – mainly Roma – organised in a co-operative, able to make some earnings through the centre. In 2012 the number of collectors is predicted to rise to between 50 and 100. This is a good start and the initiative is praiseworthy.

But inflating this small ray of light into the idea that Belgrade has in general become „a role model for social inclusion of Roma” is not only dishonest but could also make it much harder to promote Roma rights in the city. And this is because the EBRD’s clumsy publicity has already resulted in a plethora of self-congratulatory articles in the Serbian media.

In the past, whenever challenged about its lack of respect for Roma rights, Belgrade’s authorities have been quick to point to abuses in Italy, France or Hungary in order to „prove” that Belgrade is not doing that bad after all. Now, due to the EBRD’s poorly thought out headline, they will have walls of newspaper cuttings helping them to justify their kicking Roma out of their homes and even less interest than ever in listening to human rights defenders.

A threatened growth package


In practice, half of this amount will come in the form of loans from the European Investment Bank (EU member states, EIB’s shareholders recently decided to increase the bank’s capital by EUR 10 billion, which will allow it to increase its lending volume by up to EUR 60 billion in the coming years), while the other half is nothing more than a reallocation of so far unspent EU Structural Funds. This means that the only new financial commitment of the growth compact consists of the EUR 10 billion for the EIB’s capital increase.

This is the second time since the outburst of the crisis in 2008 that the EIB has been called in to boost the EU economy. Like in 2009 and 2010 when the EIB launched its first crisis package (between 2007 and 2010, EIB lending to SMEs more than doubled, from around EUR 5 billion initially to over EUR 12.8 billion in 2010), the bank now too states that providing access to capital for SMEs is a top priority. The EIB says it will dedicate one fourth of the 60 billion for SMEs, the engines of our economy and major job providers.

At present, though, it is unclear to what extent the EIB loans from four years back have indeed stimulated European economies. The EIB is totally dependent on commercial banks to direct the large EIB loans on to SMEs. But commercial banks across Europe, short on reserve ratios, stay reluctant to borrow money.

Additionally, the interest rate scandal in the UK has shown the problematic role of banks in providing capital to the real economy. It is those same banks that the EIB relies on to distribute its large loans further to SMEs (Notably Barclays, RBS and Lloyds received credit lines from the EIB meant for SMEs, but such banks and others fail to clearly inform the public on how the money has been distributed invoking commercial confidentiality).

When it comes to EIB moneys specifically, a Bankwatch research (pdf) based on the first crisis package of the EIB has shown that loans to SMEs were more beneficial to the commercial banks disbursing them than to the cash-strapped SMEs they were supposed to help. Banks were very slow in disbursing the EIB’s ‘global loans’, and had a very poor penetration rate of 0.001 percent of all SMEs in the central and eastern European countries that were surveyed.

Another problem inherent to EIB’s credit lines is their complete lack of transparency. A recent European Parliament report on the EIB’s lending to SMEs points out that while the European Commission is obliged to publish a list of the beneficiaries of EU Funds, currently nothing is known publicly about where – and for what – these EIB SME loans are going. This lack of transparency makes it impossible to thoroughly assess the impact of the loans or to strategically prioritise certain sectors.

And, since the first crisis package, no clear measures have been taken at the bank to ensure the money intended to benefit SMEs is allocated transparently and efficiently and indeed benefits these economic actors and not commercial banks primarily.

EU leaders decided to increase the EIB’s capital without demanding of it to set measurable objectives, be more transparent and guarantee that the benefit of the loans will indeed accrue to SMEs. This approach takes away a crucial incentive that could make the EIB want to improve its future performance; worryingly too, it could threaten the effectiveness of the European growth package.

Bringing EU standards to third countries?


They’re public European banks, they should be adhering to European standards, and part of the reason we want them to be active in our countries in the first place is precisely to raise standards. The banks themselves on occasion like to point out that their financial investments pressure local partners into being more efficient, cleaner, neater.

But, of course, the reality is sometimes different than what we imagine. The Rivne-Kyiv high voltage project in Ukraine is a case in point. This high voltage line would link the Rivne nuclear power plant in north-western Ukraine with a substation near the capital Kyiv thus allowing the nuclear plant to work for full capacity.

The transmission line is, in effect, infrastructure supporting nuclear power. That, in itself, is a problematic thing: nuclear power comes with so many risks and has too many costs that it is getting increasingly hard to argument that it is a worthwhile investment. But apart of this fundamental issue, the construction of the Rivne-Kyiv high voltage line comes with a series of irregularities; loans to finance the TL have been agreed even though the route for it has still not been finalized and agreed upon by the local populations on the way.

Five years ago, the EIB and EBRD said they’d co-finance this almost half a billion euros worth investment. The most problematic component of this project, from our point of view, is the construction of two 60-km 330 kV transmission lines which is missing a proper environmental impact assessment – even though an EIA is mandatory for such a project according to EU law.

In the beginning of 2012 the National Ecological Centre of Ukraine (NECU) filed a complaint to the EBRD Project Complaint Mechanism (PCM) about the lack of a proper environmental impact assessment. We have been recently told that we would hear on the results of our complaint by the end of July, way after the 40 days the EBRD’s own internal regulations say it should take to judge the eligibility of any complaint.

The EIB is not doing much better: even though they committed to financing this TL in 2008, they are also missing a complete EIA and the information available about the project on the bank’s website has not been updated since. NGOs monitoring this project and local affected communities need to know the project stage, details about the project’s environmental impact and especially information regarding public consultations for the remaining parts of the project. Such information absolutely needs to be on the website if EIB wants to have any claim of transparency.

Apart of this major misgiving, the EIB, like the EBRD, has breached its own rules when it comes to the EIA for this project: an EIA was supposed to be finalised 30 days before the project was presented for approval to the board, which never happened according to our knowledge. For this breach, too, Bankwatch submitted a complaint, this time to the EIB.

Five years have passed since two European public banks committed to financing this project, but neither bank has managed to impose any kind of solid environmental and legalistic European standards on the Ukrainian partners; in fact, the two banks have actually managed to break their own internal rules in the process.

World to EBRD: Don’t finance the next Chernobyl


While Bankwatch campaigners continue their advocacy towards the European Bank for Reconstruction and Development, we’re happy to get a little help from people who are also concerned about Ukraine’s plans to continue operating its old and outdated nuclear power plants far beyond their designed lifetime.

A petition on the Avaaz.org community site is now calling on the EBRD not to “fund the next Chernobyl”.

Signatures from people all over Europe are coming in by the minute now. If you’re also worried about Soviet era reactors running way beyond their shelf life, then help us stop these plans and sign the petition here.