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Suspension or no suspension, the EBRD freezes disbursements for the Šoštanj lignite power plant


“Disbursements are suspended […]”

In spite of all the projects in which Bankwatch is challenging the involvement of international financial institutions, one hardly ever has the opportunity to read this expression in one of the bank’s responses to our letters.

It was all the more satisfying then to receive a letter from the EBRD’s president Thomas Mirow (pdf) declaring that the bank is suspending the disbursement of its loan for the lignite thermal power plant TEŠ 6 in Šoštanj, Slovenia. The letter referred to the bank’s internal preliminary assessment of corruption allegations in the tender process for TEŠ6 that Slovenia’s state commission for the prevention of corruption published in February. (See more details in our press release.)

Apparently, however, the situation isn’t that clear-cut in the EBRD’s view. One day after Mirow’s letter another letter from the EBRD (pdf) specified that the suspension does not have a formal character, but that nevertheless “no further disbursements are possible until the conditions precedent for such disbursements are met, and there are currently some material ones that are not being met.”

That is still good news, but not as palpable as a formal suspension resulting from an investigation by the bank itself, which would have more substantial influence on the project’s development.

What I do take from the EBRD’s communication, though, is that alleged corruption is not the only controversial aspect of the TEŠ6 project that the bank is concerned about. And sure enough, the corruption case has only been one of the many controversial aspects that we and our partners have been communicating to the banks for a long time already:

So, although the EBRD’s decision to freeze the loan disbursement cannot be understood as a final rejection of the Šoštanj lignite power plant project, it certainly goes a long way compared to the feedback we received earlier.

And I would like to think that our insistence on revisiting the loan decisions as well as the growing public pressure against financial support for coal from both public and private banks have at least helped in showing just how disputable the project is.

Khimki Forest activist wins Goldman Environmental Prize


Some good news and some bad news here at Bankwatch today: The good news is that Russian environmentalist Evgenia Chirikova is one of this year’s six winners of the Goldman Environmental Prize, often referred to as the Nobel Prize for environmentalism.

We’ve worked with Evgenia and the Movement to Defend the Khimki Forest since September 2009, and I can without a doubt say that this prize is extremely well deserved. These people are the epitome of indefatigable.

They’ve been campaigning since 2007 to stop destruction of the Khimki Forest, just outside Moscow, by the Moscow-St. Petersburg motorway PPP project which is being carried out by French construction company Vinci. (Worth mentioning, however, is that a study has shown an opaque web of offshore companies and oligarchs behind the project.)

As if it’s not enough to run a lively campaign for five years at the same time as trying to earn a living, they’ve endured repeated harassment and arrests by the authorities.

Brutal physical attacks by unknown assailants have also left activist Konstantin Fetisov with impaired speech and memory loss and local journalist Mikhail Beketov brain damaged and with a leg and several fingers amputated. And to add insult to near-fatal injury in November 2010 a court found Beketov guilty of slander in a case brought by the Mayor of Khimki, Vladmir Strelchenko after Beketov accused him of involvement in previous attacks in which Beketov’s car was set on fire and his dog killed.

Adding to this, today’s bad news is that just this morning Khimki Forest activist Alexei Dmitriev was attacked as he left for work and severely beaten. At the time of writing he is now in hospital with concussion and multiple wounds.

In spite of all the odds, the campaign has enjoyed some significant successes. Although a great deal of the forest has been cut down, the road is not yet built, and the relic oak grove, considered the most precious part of the forest, has not yet been destroyed. The European Bank for Reconstruction and Development and European Investment Bank, both initially involved in the project, did not in the end go ahead with financing, as the environmental and human rights problems were not resolved when the signing of the finance contract went ahead in April 2010.

Let us hope that this prize helps to keep the wind in the Movement’s sails and that in the end victory will be forthcoming. Congratulations to Yevgenia and the rest of the Khimki Forest activists, and a speedy recovery to Alexei Dmitriev!

Here is also a video summarising Evgenia’s bravery

Campaign asks UniCredit to ‘get out of coal’


For more than a year now, Bankwatch has been campaigning against financial support from the European Investment Bank and the European Bank for Reconstruction and Development for the climate damaging and also otherwise controversial Sostanj lignite power plant project in Slovenia.

Additionally to public loans, the project also depends on financing from commercial banks to whom both the EIB and the EBRD syndicate parts of their loans for Sostanj:

  • A consortium of five banks guaranteed the first tranche of the EIB loan of EUR 110 million. This tranche has been disbursed already.
  • Another consortium of five banks plans to lend EUR 100 million as part of the EBRD’s loan.

One of the three banks that appear in both consortia is the Italian UniCredit, which is now being targeted by the European Coal Finance Campaign, in which Bankwatch is involved.

‘UniCredit: get out of coal’ is the slogan under which UniCredit clients and anyone else can sign a petition asking the bank to stop lending to projects like the Sostanj lignite power plant.

It is certainly not only UniCredit that needs to reform its lending, which is exactly why the European Coal Finance Campaign came into being. It exposes the double talk of leading European banks that often advertise a green image, but continue investing in coal with little concern for social and climate justice.

For a humorous approach to the issue see the video below. And when you’ve finished watching, go sign the petition here.

Yet another bail-out package? A comeback to ‘The Vienna Initiative and financial stability in emerging Europe’


(Updated April 2, 2012 to correct the sources of the quoted paragraphs.)

In an entry on the EBRD’s blog this week, Ralph De Haas, Deputy Director of Research, and three colleagues assess the first Vienna Initiative from 2008 that mobilised close to EUR 33 billion in order to avert crisis in central and eastern Europe and to increase available funding sources for the “real economy”, small and medium-sized enterprises in particular.

Since central and eastern Europe’s financial sector is nowhere near the safe side, a sequel to the Vienna Initiative has been agreed upon recently. I have already criticised Vienna I and II here, but I think the EBRD’s blog post deserves a comment.

While the rather academic text is not exactly assertive in its statements, it still unmistakeably argues for a ‘bail-in of private-sector lenders’, and bases its conclusion on the experience from Vienna I:

    “Overall, our evidence suggests that participation in the Vienna Initiative may have helped banks to stabilize their lending. Importantly, we find no evidence of negative spill-overs to other parts of emerging Europe. Complementing public funds by a coordinated bail-in of private-sector lenders may not only have helped countries to close external funding gaps, but also to soften the inevitable deleveraging process in emerging Europe and to prevent a uncoordinated ‘rush to the exit’.” (emphases added)

The highlighted careful wording is significant, because it illustrates what is not being said: there is virtually no evidence for neither success nor failure of Vienna I. Equally significant is that the lack of evidence is clearly expressed in the same working papers that are referenced by the authors.

    “Domestic banks were better equipped to continue lending because of their greater use of deposits, a relatively stable funding source during the crisis. We conclude that while multinational banks may contribute to financial stability during local bouts of financial turmoil, they also increase the risk of “importing” instability from abroad.” (emphasis added)

    Source: http://www.ebrd.com/downloads/research/economics/workingpapers/wp0135.pdf

and in another paper:

    “Although a large-scale, uncoordinated withdrawal of banks from emerging Europe did not materialise – and the VI can therefore be considered successful stricto sensu – as yet virtually no empirical analysis has been undertaken to assess its impact. No evidence is available on the role played by banks that were part of the VI versus those that were not.
    Likewise, for those multinational banks that were part of the VI, no comparison has been made between their lending behaviour in countries where they signed commitment letters and countries where they did not. It also remains unclear whether signing commitment letters may have led to negative spillovers to other countries.” (emphasis added)

    Source: http://www.ebrd.com/downloads/research/economics/workingpapers/WP_143.pdf

So the EBRD has no clear evidence on the real impact of the Vienna Initiative, and its own analysis shows that domestic banks in central and eastern Europe are doing better than western European banks. Additionally, a Bankwatch analysis found that (for the European Investment Bank) lending in times of crisis through financial intermediaries has provided greater stimulation for the intermediary banks than for the ‘real economy’.

In spite of this, the EBRD promotes Vienna 2.0, referring to the Vienna I for supporting evidence.

But without better proof, initiatives like Vienna I and II can by no means be dubbed successful in supporting the real economy – at least in the shape they’ve been implemented so far. The lending through financial intermediaries by the EBRD and other international financial institutions needs a swift overhaul to produce results for SMEs. This should include tailoring loans not to the intermediary banks but according to the effects on the real economy and the needs of final beneficiaries. Based on these conditions, the appropriate intermediary institution should be found.

Otherwise, for all we know, Vienna 2.0 will likely do no more than reinforcing the capital reserves of western European banks’ subsidiaries.

Mining in protected areas, an update on Kumtor and Centerra Gold


After last month’s excitement, one might think things have settled around the Kumtor gold mine in Kyrgyzstan. But appearances are deceiving, because the integrity of the important Sarychat-Ertash natural reserve is being acutely threatened by the Kumtor gold mine’s expansion, as Bishkek’s Human Development Centre ‘Tree of Life’ together with three other international and Kyrgyz non-governmental organisations have highlighted recently (RU).

To quickly recapitulate what has happened earlier: In January, two reports recommended that the Kyrgyz government suspended operations at the Kumtor gold mine on grounds of ongoing water pollution, unstable waste water facilities, unclear provisions for use of land and more. (Only a few days later, but unrelated, miners at the Kumtor gold mine, whose owner Centerra Gold is sponsored by the European Bank for Reconstruction and Development (EBRD), went on strike over salary deductions.)

Now, while a Parliamentarian commission, established after the reports’ publication to further investigate the case, is struggling to find money and experts for its work (RU), the non-governmental organisations have added fuel to the fire. They protest against an allowance for Kumtor to expand its mining operations in what had before been part of the Sarychat-Ertash natural reserve:

    In a new agreement between the mine operator and the Kyrgyz government from April 2009, Kumtor received an expanded concession area. The agreement explicitly states that “no part of the Sarychat-Ertash National Park is, nor will […] be included in the Expanded Concession Area”.

    Two months later, in June 2009, the Kyrgyz government adopted changes to the reserve’s territory, putting aside 4080 ha that are now part of Kumtor’s concession area.

    Not only did this happen after granting Kumtor access to the same territory. The decision was also made illegally because an environmental impact assessment of the land transfer has not been conducted despite being an obligation – as has been confirmed by the official inter-agency commission’s report on Kumtor in January.

This case represents only one of the many irregularities I’ve seen at the Kumtor gold mine in the past. The most recent governmental decisions do offer a glimmer of hope for higher environmental standards at the mine. But while the new Parliamentary commission investigating the case struggles to find funding to continue its work, Kumtor remains highly profitable.

Moreover, the European Bank for Reconstruction and Development has granted Kumtor’s owner, Centerra Gold, further financial support, a big chunk of which is likely to be used for further expansion of Kumtor as well as Centerra’s mining operations in Mongolia.

More Centerra mining in protected areas

Centerra’s activities in Mongolia include those that, earlier this month, led a consortium of Canadian and Mongolian organisations to file a complaint over apparent violations of Mongolian law and international corporate responsibility guidelines by Centerra.

Centerra Gold has intentions to mine in a forested area in the headwater of the Gatsuurt River, where mineral exploration and mining operations are prohibited by a Mongolian law to protect forests and rivers. Although the licence for the Gatsuurt deposit has been revoked in 2010, the company has already completed extensive mine and infrastructure works over the last 2 years.

For more guidance from a development institution

The European Bank for Reconstruction and Development looks like a complete bystander in these events, but as an international financial institution, it really shouldn’t.

Bankwatch has been communicating the problems at Kumtor for years now, seemingly to no avail. It’s time for the bank to keep a much closer eye on the case instead of relying too much on the company’s own assessments.

More generally, with respect to mining in protected areas: among our suggestions for the bank’s new mining strategy, due to be finalised this year, is to agree on “no-go zones” for mining operations, including natural reserves, glaciers, UNESCO world heritage sites, and more.

Read more on the Kumtor gold mine and on the European Bank for Reconstruction and Development.

Corporate largesse meets scepticism at World Water Forum


Last week’s World Water Forum in Marseille, “the world’s largest meeting around water”, has been widely criticised by non-governmental organisation, most fundamentally for basically selling out a human right to business interests.

Among others, the corporate influence on the meeting was reflected in a focus on technology and investments as a means to solve the global water, energy and food crises. One solution that’s being more and more often suggested are dams – lots of them, and large ones.

But NGOs have repeatedly stated the problems connected to large dams – displaced local communities, devastation of natural habitats (pdf), etc. – and have pointed at alternative solutions for instance to secure water supply.

To highlight these issues and to expose the ‘greenwashing of dams’ for which the World Water Forum has been a platform, our colleagues from International Rivers, Friends of the Earth France and CRBM, have staged a massive action in Marseille with protesters from across the globe. (You can read more on International Rivers’ blog and see images from the action on flickr.)

But not only large dams can be destructive:

  • The Ombla hydropower plant project in Croatia, supported by the European Bank for Reconstruction and Development, threatens a site that has been designated for protection as part of the EU’s Natura 2000 network and whose extraordinary fauna has been covered by BBC’s Newsnight programme.
  • The Paravani and Khudoni hydropower plants, only two of 41 hydropower plants (including large dams) envisaged in Georgia, and also in line for EBRD support, pose risks to local ecosystems while their benefits for the Georgian population are questionable.

While access to water is not part of the justification for these projects, “securing energy supply” is all the more being put forward as an argument.

Whatever the reasoning, whichever good is being provided in the end, the decisions on these and similar infrastructure projects should be based on a do-no-harm principal in order to protect local people’s rights and natural and cultural habitats. By no means should they be biased towards economic interests.

This is what the protests in Marseille tried to make clear.