Blog entry

Bitola’s heating future: a pipeline to nowhere or solar solutions?

Both district heating and individual heating systems in the Western Balkans heavily rely on burning fossil fuels and using wood as a heating source. 97 per cent of the district heating systems in the region are based on fossil fuels, and only 3 per cent on renewable energy sources. They are mostly quite old and operate with high network losses which makes them inefficient, while significantly contributing to air pollution and greenhouse gas emissions.

In North Macedonia, currently Skopje is the only city with a district heating system, and that one is operating on fossil gas. The southern city of Bitola unfortunately aspires to follow in its footsteps to use fossil fuels for heating, using the coal-fired power plant for now, with a prospect of replacing it with gas at some point in the future.

The infamous 40-year-old idea for a district heating system in Bitola

At the beginning of November 2023, representatives of the Government, the state-owned ESM utility and the Toplifikacija Bitola district heating company held a press conference to mark the completion of the construction works on the pipeline connecting the largest thermal power plant in North Macedonia, REK Bitola, to the city. The introduction of a central district heating system for the city of Bitola by using thermal energy from REK Bitola is an idea that has been around for four decades, since REK Bitola was built.

The first phase of the project to bring the pipeline to the city was realized with a EUR 40 million loan from Germany’s KFW Bank, signed back in 2015, as well as an additional EUR 7 million of ESM’s own funds. It was also part of the Single Project List 2022 of North Macedonia’s ‘strategic’ investments.

The construction of the pipeline, as the Director of Toplifikacija, Bitola Kozarov, recently claimed in the media, ‘will continue along the streets of Bitola and in the next 18 months, 10.5 kilometres of pipeline is planned to be built’. The district heating project is anticipated to provide thermal energy of 100 megawatts (MW), first connecting 35 state-owned facilities detected as the largest polluters using solid fuels, such as municipal buildings, schools, kindergartens etc. It also includes the old heating network that used to be connected to eight heavy oil boiler rooms, and used to supply about 3,000 apartments in the city. The system is planned to be put into operation during the heating season 2025/2026 and in parallel the pipeline is to be extended to heat residential buildings in Bitola as well.

A slight catch – what happens when the coal plant closes?

North Macedonia’s National Energy and Climate Plan (NECP) foresees a coal phase-out in 2027, with the possibility of a delay until the end of 2029. That’s six years from now. Quite why ESM decided to build a district heating system based on a coal plant that will close so soon is anyone’s guess, as is why the government and KfW decided to support it.

One reason might be ESM’s plans for a gas power plant at the site. Building a new gas plant is a costly idea that will only create dependence on another fossil fuel, while renewable energy sources are becoming much more affordable and accessible. And it currently appears to be at a very early stage.

North Macedonia’s energy strategy says between 0 MW and 245 MW of new gas plants will be built in the country, depending on the scenario, but does not specify the location.

But the draft energy strategy implementation programme – which is supposed to implement the energy strategy, not re-write it, and which was never officially adopted – says the country should build 450 MW of new gas power plants in any case. It mentions plants in both Negotino and Bitola. A few months before the draft programme was published, plans for an 800 MW plant in Bitola were also announced in the media, but don’t appear in any strategic documents.

Although the gas plans for Bitola are often presented as a ‘conversion’ of the existing coal plant, this is misleading. It would entail most, if not all, of the important parts of the plant being replaced by completely new facilities.

As anticipated by ESM, unit 1 will be shut down in 2026 and meanwhile the gas power plant will be built, independently from the operation of REK Bitola, for production of both electricity and heating. However, this seems optimistic to say the least.

In 2021, media reported on the preparation of a feasibility study for a cogeneration gas power plant with a capacity of 250 MW at Bitola. Consequently, a public procurement process took place for a feasibility study for Bitola and ‘Energetika’ Skopje, published by ESM on 29 July 2021. However, a few months later it was annulled due to unforeseen changes in the budget of the contracting authority.

To be, or not to be?

The most recent claims by the Government confirm their plans for a new gas cogeneration power plant at Bitola, but this time, it would be able to operate on hydrogen in future, too – opening a whole new range of problems.

The government’s revised Single Project List 2022 even admits that construction of a new 250 MW cogeneration gas power plant in Bitola is indeed a non-mature project. So far it seems to have no feasibility study, no environmental impact assessment, no gas pipeline actually reaching the site, and no financing – not very promising for a project that is supposed to supply Bitola with heat starting in a little over two years’ time.

If the coal plant really does close, the pipeline will simply end up leading nowhere.

New fossil fuel-based infrastructure is a thing of the past

Yes, indeed, investments in renewable energy sources will bring the country closer to its decarbonization goals, but investments in capacities and infrastructure that push further dependence on another fossil fuel – gas – certainly will not.

Giving up on old ideas that are not relevant and feasible today is necessary for the country to move towards investments in renewable energy sources, for both heating and electricity production, which will bring greater security and independence of the energy sector.

Fresh proposals for Bitola

For instance, an Analysis of alternatives to coal-based central heating in the Bitola Region developed by Vanja Dzinlev, Energy Researcher at the Federal Institute of Technology in Zurich, examines the current heating situation in the Bitola Region, covering the municipalities of Bitola, Mogila and Novaci. It offers alternative solutions using decentralized systems. The findings of the analysis suggest that the most feasible option for heating would be photovoltaic systems coupled with inverter air conditioners for both apartments and houses. The options provided in the study are both economically and environmentally sustainable alternatives for individual heating.

Additionally, it offers specific recommendations for multi-apartment buildings and municipal institutions to form so-called energy communities to lower their heating and energy expenses, and in future, even generate some income.

The analysis was recently presented to university students at the Faculty of Information and Communication Technologies in Bitola, as well as at the IT Crowd co-working space with young professionals from the IT industry. Students and young IT professionals can play a key role in the energy transformation of the Bitola region. Renewable technologies in the energy sector, especially those related to the development of community energy, are inevitably connected to the development of new technological and software solutions for energy and heat production.

In addition, other district heating systems incorporating sustainable renewables can be found in different countries around Europe, such as Denmark, Sweden, Hungary etc. Such examples are becoming reality in the Western Balkans region as well, with the approval of the district heating project in Prishtina worth EUR 23.2 million, co-funded by EU as part of the Western Balkans Invest Framework (WBIF), with KfW as the lead financial partner. 30 MW of solar capacity including storage is planned, with up to 38,000 residents who will directly benefit from being connected to Pristina’s district heating system.

Investments must be directed towards clean heating solutions based on sustainable renewables

Continuing to pour money into fossil fuel-based power and heating infrastructure directly contradicts the green energy transformation and decarbonization goals that the leaders of the Western Balkan countries committed to achieve by 2050 by signing the Sofia Declaration. Thus, both governments and international financial institutions must turn their full focus and investments towards clean and modern heating solutions offering greater sustainability and security for the region. Such action will unlock the potential for new types of jobs and businesses related to renewables and smart systems, as well as for young people to become an active part of the green transformation by working on modern heating solutions.

Why the Bulgaria-Turkey gas deal could be a Russian Trojan horse

Bulgaria used to be heavily dependent on Russian fossil gas. In the beginning of 2022, before the Putin regime’s invasion of Ukraine, Russia supplied around 90% of the gas consumed in Bulgaria. After in April 2022 Bulgaria became one of the first countries to be cut off by Gazprom, the Bulgarian government, led by then Prime Minister Kiril Petkov, took a hard stance against paying for Russian gas in rubbles and announced that other sources of gas will be sought.

In the beginning of 2023, it emerged that the Bulgarian caretaker government had signed a deal with BOTAŞ, Turkey’s state-owned gas monopoly. President Rumen Radev announced the ‘historical agreement’, but no details of the deal were made public. All that was known, was that Bulgaria will have access to Turkey’s gas infrastructure and more importantly, to liquified gas (LNG) terminals – indeed, a first, as Turkey had refused to provide such access so far. In the beginning of the year, when the deal was first announced, the only clear parameters were that Bulgaria will receive 1.5 billion cubic meters (bcm) of gas a year via Turkey, and the gas will be transported via the old Trans-Balkan pipeline particularly through long-term contracts,.

As details about the deal started surfacing in recent months, it became increasingly clear that the deal is benefiting BOTAŞ a lot more than Bulgartransgaz, the Bulgarian gas transmission operator. Bulgarian news outlet Capital published an article outlining these details which they obtained through a leaked private and confidential government document. According to this article, Bulgargaz doesn’t actually get access to the Turkish transmission network, but only the right to unload tankers at a specific terminal and to receive the same amount of gas at its border. At the same time, BOTAŞ is given access to the Bulgarian gas transmission network and can even supply end consumers. The Turkish energy giant will be able to sell gas on the Bulgarian market to third parties without coordination with Bulgargaz, and to deliver to other states without specifying the origin of the gas in question.

Finally, the reserved capacity of the deal is 1.85 bcm rather than the announced 1.5 bcm; considering the low gas consumption in Bulgaria (2.7. bcm), any increase in the gas imports may risk a push towards consuming more. If Bulgarian policymakers are serious about their commitments to transition the country’s energy away from fossil fuels, rather than looking for additional ways to increase gas imports particularly through long-term contracts, the more logical trajectory remains to reduce consumption.

What is of particular importance about this deal though is the elephant in the room – there is no specific mention about where the gas will be coming from.

In December 2022, Russian news agencies circulated that Presidents Vladimir Putin and Recep Tayip Erdogan discussed the possibility to create a ‘regional gas hub’ in Turkey with Russian gas. Russia’s economic interest in this hub is obvious, as at that point – in the end of 2022 and beginning of 2023 when the deal was signed – Russian gas exports to Europe have nearly been eliminated since the beginning of the war in Ukraine. Putin’s Russia has an interest in regaining its strong position in Europe, by using another route – via Turkey. Commenting on the hub, Putin says can it be used as a “regional supply hub for Russian gas exports to European countries” given Europe’s reluctance to buy gas directly from Gazprom.

It is unlikely that all of these factors are a coincidence – the talks between Turkey and Russia to create a ‘hub’ for Russian gas, the ambitions of both countries to dominate the energy sector, the fact that Turkey has never been really open to giving access to its LNG terminals before, the fact that the deal was made by the interim caretaker government – the one that was willing to resume talks with Gazprom in the summer of 2022 in order to have access to cheaper Russian gas.

Even Turkey’s energy minister, Fatih Dönmez, described the deal with Bulgaria as a “stepping stone” in establishing the new hub. While the Bulgarian government stated that Bulgaria will have access to all gas ‘from all global producers’ through this deal, there is hardly any way to know the origin of the gas; it is highly likely that Russian gas would make its way into Bulgaria’s gas grid, considering that around half of the gas Turkey imports is Russian.

In general, this potential turn towards Moscow is inexplicable against the backdrop of the war in Ukraine and the sudden and unlawful disruption of supplies by Russia. The deal with Turkey still carries geopolitical risks as well the risk of working with unreliable partners, which is a concern that should be especially valid with regards to long-term contracts, as this one.

The European Commission itself has concerns about this deal and its transparency and in October 2023 even opened an investigation. Putting aside the question of whether the caretaker government even a right had to make such long-term fossil fuel deals, the more important thing to consider is that long-term contracts with such high economic and political risks are doing more to hinder Bulgaria’s energy security than to promote it.

Crunch time for European development bank’s fossil fuel spending

For this year’s UN climate summit, the EU has chosen to champion the call for phasing out fossil fuel subsidies. Yet, on Thursday, December 14, barely two days after COP28 is scheduled to conclude, the board of directors of the European Bank for Reconstruction and Development (EBRD), where EU governments and institutions collectively own over half the shares, could be greenlighting a policy that allows public money to continue enabling fossil gas projects.

The board will be deciding on a new energy lending strategy to guide the Bank’s investments and policy initiatives for the next five years. But the draft strategy published for consultation in July 2023, shows that the Bank still refuses to rule out financing fossil gas, even after fossil energy companies have posted record profits.

The draft leaves the door open for midstream and downstream gas investments, i.e. gas pipelines and power plants, subject to a long list of conditions. The sheer number of conditions may look impressive at first glance, but some are simply requirements of the EBRD’s environmental and social standards that anyway apply to any project supported by the Bank, while others are vague and open for interpretation.

The EBRD has been boasting that since January 2023 it is in ‘full alignment’ with the Paris Agreement. Yet, instead of finally ending all financial support to fossil fuels, the draft strategy’s complex and vague criteria only expose the poor reasoning behind it.

The case against new fossil fuel infrastructure is clear. The scientific consensus indicates that there is no room for new gas if we aim to stay below the 1.5-degree Celsius target set in the Paris Agreement.

In recent years, the EBRD has increased its renewables investments and decreased its support for fossil fuels, but this is no longer enough. Since its exit from coal in 2018, the EBRD has continued to finance carbon-intensive fossil fuel projects.

Despite its mission to promote environmentally sound and sustainable development, from 2018 to 2021, the Bank invested EUR 2.9 billion in oil and gas, averaging EUR 741 million per year, compared to EUR 5.6 billion invested in clean energy during the same period—an average of EUR 1.4 billion per year. Some of the projects funded since 2018 include a liquified gas terminal in Cyprus, facing constant delays in its construction, and the 1500 MW Syrdarya gas-fired power plant in Uzbekistan.

Currently, the Bank is mulling support for a gas pipeline between Greece and North Macedonia, with other projects also under consideration. The pipeline’s alleged ‘Paris alignment’ rests on the idea that it will be ‘hydrogen-ready,’ based on a technically and economically unproven theory that renewables-based hydrogen will eventually become an affordable fuel to replace fossil gas.

Not counting the greenhouse gas emissions from burning the gas transported by the pipeline in the project’s environmental assessment may have helped to support this bizarre conclusion as well. Hiding behind such methodological sleights of hand also ignores the fact that solar and wind power are already cheaper and readily available.

The EBRD’s lack of climate leadership sends the wrong signal to the Bank’s countries of operation about how the energy transition should look.

As one of Europe’s most influential state-owned investors in the energy industry the EBRD holds significant sway in development of its countries of operation. Its investments span central and eastern Europe, the Caucasus and central Asia, Turkey and, more recently, parts of north Africa and the Middle East. Many of these countries are heavily reliant on fossil fuels for energy and are among the most vulnerable due to climate change.

The EBRD has an opportunity and an obligation to speed up a just energy transition that is genuinely sustainable. Investments in power grids and heating technologies – from heat pumps to geothermal energy to solar thermal – are desperately needed throughout the EBRD’s countries of operation and are particularly crucial if the Bank is to address deepening energy poverty.

The EBRD must prioritise energy efficiency, both on the policy and project level. Investing in insulation and retrofitting residential buildings — thus significantly cutting energy consumption and energy bills — instead of channelling money to fossil fuels, should be a no-brainer.

Continued EBRD financing of fossil fuels at this stage of the climate emergency is indefensible. 2023 has so far shattered all climate records, bringing increased storms, floods, droughts and wildfires in Libya, Canada, South America, the Bay of Bengal, Greece, the Horn of Africa and beyond.

Fossil fuel subsidies are still a massive elephant in the room that needs to be tackled yesterday. The EBRD’s next energy strategy is a chance for the Bank to join the right side of history. When they vote on the new energy strategy, EBRD board directors representing EU governments must heed the EU’s call to halt fossil fuel subsidies and ensure the Bank is finally part of the climate solution, not the problem.

New elections in Poland offer one last chance to solve the Oder River catastrophe

The dark summer of 2022

One year ago, toxic golden algae eradicated over 200 million fish, mussels and other river life in the lower section of one of the most precious rivers in Europe. Intriguingly, these algae are typically found in saline environments and were able to thrive in the freshwater only because of the high level of pollution in the river.

According to the newest report’s estimations (a report prepared by independent experts and scientists from different organisations and published in the Science of The Total Environment), well over half of the fish population in the Oder was killed in this horrific catastrophe. Some protected species, like the spined loach and the European bitterling, were virtually eradicated. Only 3 per cent of their populations survived.

The population of the duck mussel, a native species of mussel that is an excellent filterer of river water, has been severely affected by the disaster. Without it, the Oder will find it even harder to cope with the existing pollution. Experts have estimated that as much as 95 per cent of the population of this bivalve mollusc has died in the lower Oder. This species will likely be replaced by an invasive species, the Chinese pond mussel, which has proven to be more resilient to the effects of the disaster. This is a harbinger of doom to the aforementioned European bitterling, listed in Annex II of the Habitats Directive. The reproduction of the fish is closely related to the presence of mussels in the river. Females lay eggs in the gill cavities of the mussel, and both the fertilisation of the eggs and the development of the larvae take place inside of it.

The above is just one example of how the river’s biodiversity has been seriously jeopardised. Moreover, it is estimated that at least 147 million aquatic snails have been found dead on land – indicating a population decline of 85 per cent. As we read in the study results, these invertebrates are an essential food source for other organisms and play a key role in nutrient cycling and decomposition.

However, the toxic prymnesin produced by the algae was only a murder weapon, not the culprit. That bio-crime was man-made. The algae that thrive in brackish water would not have proliferated so much if not for the pollution in the river. Salty mine wastewater is discharged into the Oder. A Greenpeace report and other researchers prove this beyond any doubt. Discharges are often done lawfully, in broad daylight. Sometimes, though, they are also done covertly, with waste flowing secretly from pipes hidden in the bushes. The high salinity (for which not only mines but also industrial plants discharging into the Oder are responsible), the hot summer, high water temperatures, and low flows created the ideal conditions for a disaster of this magnitude. Such a catastrophe and so much loss of life in the river have never been documented before in this part of Europe.

One year later: death by neglect

The high salinity levels of the Oder River have persisted. The golden algae is still there. In recent months, the river water in some places has had twice the level of salinity as the Baltic Sea. However, by sheer luck, a repetition of the full-scale disaster was avoided this year, but not without many local calamities. In October, the operation of the thermal power plant in Szczecin was suspended due to the salinity of the water. The conductivity of the Oder River in Szczecin had been exceeded for many weeks, and the plant’s water filters could not cope.

Although the outgoing government presented a report in March of 2023 in which it stated that ‘the transformation of the Oder riverbed and its long-standing pollution had led to the decline or extinction of [protected mollusc species]’ and confirmed the golden algae claim, it took no concrete action to avoid a similar disaster in the future. Not only that, but the Minister of the Environment, Anna Moskwa, seemed to disregard the salinity of the river water, arguing that, after all, life thrives in salt water, too. The mining and heavy industry also shrugs off responsibility for the disaster, arguing that it discharges wastewater into the river legally and in an environmentally safe manner. Unfortunately, the reality is that permits for discharging sewage into the Oder are plentiful, and the limits are high.

What are the politicians doing in light of this gloomy situation? Instead of increasing the river’s resilience to similar events in the future, they are taking actions that weaken the river.

The Oder River Special Act: the final nail in the coffin?

Environmental organisations proposed solutions for restoring the river very quickly after the disaster. In the White Book of Polish Rivers, non-governmental organisations analysed the legal incoherences and harmful policies that led the Oder River ecosystem to collapse and recommended the changes in water management that were needed to ensure real river protection. These included stopping the construction or reconstruction of regulatory structures (such as dams, barrages, weirs, and groynes), improving monitoring, starting restoration, and implementing solutions to minimise run-off and saline water discharges from industry plants and mine shafts.

The government decided to respond and, shortly before the October elections, pushed the Oder River Special Act through the Parliament. It could have been an excellent opportunity to rectify bad policy and restore the river. Unfortunately, though, this legislation is incompatible with the Water Framework Directive, and to make the situation even more troublesome, it goes against the government’s recommendations in its own report on the disaster. According to expert analysis, the proposed solutions would neither contribute to the restoration of the river and the natural environment, nor would they improve flood safety or combat the effects of drought.

‘The Oder River Special Act contains some 160 hydro infrastructure investments destroying the Oder and its tributaries, the implementation of which will exacerbate the water crisis. It does not provide any restoration measures to strengthen the Oder’s pollution resistance or self-purification capacity. This is a death sentence for this river.’, says Majka Wiśniewska from Greenmind Foundation (a member of the Save the Rivers Coalition and the coalition Time for the Oder), one of the organisations that prepared the analysis.

As if that wasn’t enough, the most bizarre provision of the Oder act is the creation of a Water Inspectorate, a new monitoring institution. Establishing a new institution will only exacerbate the already considerable chaos in water management in Poland. According to the law, the Water Inspectorate will be able to use direct coercive measures, and inspectors will carry guns, batons and gas. The new ‘water police’, armed and with unclear competencies and jurisdiction, are probably the last thing the suffering Oder needs right now.

According to Krzysztof Smolnicki from the Foundation for Sustainable Development (a Save the Rivers Coalition and Time for the Oder member), ‘The Oder Special Act is economically and socially harmful to nature. It poses a threat to the unique natural values of the Oder valley. It imposes unreasonable costs under the dubious pretexts of flood protection and combating pollution. As a law which has not been the subject of a broader public debate, it takes no account of the public interest.’

The Oder act avoids the main problem – the river’s high salinity level caused by pollution – by a wide margin. Instead, the bill contains harmful investments like weirs, water steps, and other river regulations. Salt discharge fees have remained low, not motivating mines and industrial plants to implement desalination systems. The important polluter pays principle does not apply under this law. Instead, the legislator gives priority to retention and dosing systems. The reduction of the fee for entities retaining brine for five days, as mentioned in the law, is actually a reward for discharging salt into the Oder.

New elections bring new hope: what can the new government do?

So what should be done? First and foremost, the protective umbrella for plants discharging salt into rivers should end. Charging mines for water from mine dewatering, setting upper limits for chloride and sulphate concentrations in the wastewater released by these facilities, increasing fees for salt discharges, and relief for entities able to halt brine discharge for a minimum of 30 days are the most important recommendations of the legal analysis prepared by the Frank Bold and Greenmind foundations for the Save the Rivers Coalition. The experts also propose a meticulous study of cumulative impacts before issuing water permits for discharging wastewater to rivers.

‘The cost of eliminating the threat of saline rivers probably shouldn’t be placed solely on the mining industry. Access to clean water is the responsibility of the whole state. Therefore, the possibility of implementing financial mechanisms to support mines in solving the problem of saline water should be considered, just as industrial plants and local governments are supported in building sewage treatment plants’, emphasises Jacek Engel of the Greenmind Foundation.

The amendment of the Oder River Special Act should be on the list of priorities for the new government. Without the solutions mentioned above, this law, based on pouring more tonnes of concrete into rivers, regulation, and establishing the absurd water police is pointless and harmful.

‘We expect the new government to urgently bring about the novelisation of the Oder River Special Act and, above all, to work immediately on a law that will reduce the river salinisation problem generated by industry and mines’, says Majka Wiśniewska.

This expectation is underpinned by the coalition agreement signed by parties that have so far been in opposition, but their electoral result indicates that they will create a new government. In the agreement, the parties write about ‘implementing permanent monitoring of rivers and pursuing river restoration’ and a ‘programme for the restoration of marshes and peatlands’. Some of the money needed to pursue that goal will be found in EU funds, including the – hopefully soon to be unlocked for Poland – Recovery and Resilience Facility funds, although the allocation for biodiversity included there should be significantly higher. The problematic question may be whether or not everyone in the broad party coalition understands ecological restoration and solutions supporting nature in the same way.

A change of government is a political opportunity to stop the fragmentation of Poland’s rivers and to stop flooding them with concrete. It is high time that taxpayers’ money was finally channelled into protecting waters and restoring their ecological health. This will benefit us all, and our rivers will finally breathe a sigh of relief.

EU’s massive loan for Split: showdown between tourist paradise and residents’ needs

Following the EIB’s approval of the loan in June, Split’s City Council met in July to decide whether to support the loan agreement. The arrangement was given the green light in one vote, which puts under the spotlight further actions to implement the planned projects (starting with the signature project – the Žnjan beach). It also sets the scene for two other Croatian cities, Zagreb and Dubrovnik, to follow in Split’s footsteps and pursue EIB’s framework loans.

The role of public finance

Public finance plays a crucial role in helping cities transform to meet the needs of the growing urban population and bridge the gap between the existing and needed urban infrastructure. However, filling the infrastructure gap shouldn’t be measured only by the quantity, but also by the quality and effectiveness of the investments. From the qualitative perspective, urban infrastructure should be seen as a tool for minimising the social gap, improving the well-being of all people, especially those who face barriers to access to urban infrastructure and services. To justify the use of public funds, urban infrastructure upgrades should lead towards providing equal and safe access to services and equal protection from the risks for all citizens, while prioritising the most vulnerable ones, such as people with disabilities, the elderly and women with children.

Both development banks as providers of financial resources, and municipalities as beneficiaries, are accountable to the citizens for the results of public investments. Therefore, public participation should start at the investment planning phase and continue throughout project implementation and evaluation. Although international finance institutions acknowledge these principles, they often transfer the full responsibility for informing and consulting the public to their clients – national and local institutions or project implementing companies.

Framework loan: a “mix and match” finance opportunity

Framework loans are not a new financial product of the European Investment Bank. They’ve been on offer for over two decades. However, due to the urgency of climate action and pressing rates of urbanisation, they are being increasingly pursued by cities needing to overcome the lack of finance possibilities.

This type of loan provides additional flexibility – it can be used to finance multiple projects, usually belonging to the same mid-term investment plan, provided that they satisfy the Bank’s selection criteria. Furthermore, projects being presented and planned at the time of loan approval can relatively easily be replaced at some point by other projects that meet the same criteria.

Unfortunately, the projects tend to range from those that are undoubtedly socially beneficial, such as new kindergartens, to those that set the ground for commercial activities with potentially negative socio-economic implications, such as land, property and services price increases, which push local residents out of city centres. Split, like many other tourist cities, is facing a significant decline in residential property in central areas. Citizens are rightly concerned that public investment in urban infrastructure is creating the conditions for private profit-making developments catering to short-term visitors, rather than improving the livelihoods of long-time residents, all while being paid back out of their pockets.

Lack of information leaves room for manipulation

We could say that framework loans are a perfect fit for municipalities. How favourable they are for the citizens depends on the level of transparency and meaningful public participation, which is in most cases unsatisfactory. In the case of Split, the public has not been presented with any project-specific details, except for a joint, rather generic, data sheet published by the Bank. Furthermore, no documents confirming the feasibility of the proposed projects and sufficient capacity level of the implementing organisations have been presented to the public in Split. Such documents would not only serve as a means of control over public spending, but also as a prerequisite for citizens’ support and ownership.

The debate over the EIB’s framework loan to Split showcases what happens when the public is not properly informed and consulted in the process. The loan to be paid off by taxpayers turns into an arena for the battle of political opponents in a never-ending campaign. Both the overly enthusiastic statements of the mayor and the overly negative statements of the opposition have been unconvincing, while the detailed results of the due diligence performed by the EIB remain unavailable.

The City of Split has published a list of projects to be financed from the first tranche of the loan, dominated by energy efficiency improvements and newly built public buildings. On the opposite end of the commercial value spectrum, is the development of Žnjan beach: a project that has been around for years, never lacking in high ambitions and controversy. The ruling party claims that it will put an end to the past misuse of this valuable public coastal land, turning it into “the best beach in Croatia”, while their opponents question the feasibility and readiness of the project.

Answering the right questions

What both groups fail to address are the growing concerns of citizens over how such investments affect their livelihoods. People want to know how this loan will help them cope with the climate change that affects the Mediterranean region severely. And even more, how is it going to help them cope with the cost-of-living crisis further deepened by Split’s ambition to grow tourism?

The fact that the Žnjan project introduces new green areas doesn’t really address the climate resilience concerns of many. The fact that the beach will offer new recreational areas doesn’t tackle the affordability problems of Split’s residents either. And the political debate surrounding the case makes them wonder if they need Žnjan to be developed at all, especially if they are the ones paying for it.

News about all tender proposals for the execution of works on Žnjan significantly surpassing the budget, and the urgency of delivering the project by the next tourist season, just add fuel to the fire… But the debate still doesn’t provide answers to the existential concerns of Split’s inhabitants.

It is yet to be seen how the EUR 150 million loan for Split is going to unfold. Will the project list remain unchanged? And if it gets changed, how are Split residents going to learn about it? Will smaller, less commercially viable projects fall victim to the future “best beach in Croatia”? One thing is certain – the citizens are about to be burdened with paying the loan off, but they may not necessarily be the ones to benefit from it the most.

Western Balkans decarbonisation is urgent: but the EU enlargement package is still sending mixed signals

As the European Commission published its annual enlargement package this week, all eyes were rightly on its recommendations to open accession negotiations with Ukraine and Moldova and grant candidate status to Georgia. It’s no exaggeration to call this a unique opportunity to inject much-needed dynamism into the enlargement process and honour the enormous efforts the people of these countries are putting into joining the EU.

For the Western Balkans, it felt more like Groundhog Day. Still, despite slow or no progress, the reports for each country represent rare opportunities to get beyond the PR visits and handshakes to see what the Commission really has to say to the governments. And a careful look shows that the messages differ considerably, including on decarbonisation.

Some messages are relatively consistent across the board, for example the need to adopt or update National Energy and Climate Plans, adopt carbon pricing, speed up sustainable renewables development and properly apply EU environmental law. But the coal phase-out only seems to be really taken seriously for Montenegro and North Macedonia. And on gas infrastructure, the Commission fervently encourages projects like the Greece – North Macedonia and the Croatia – Bosnia and Herzegovina Southern Interconnector pipelines, only occasionally remembering to sound notes of caution.

Albania

The Commission rightly underlines that hydropower-dependent Albania needs to continue diversifying its renewables supply and improving its grid interconnections with neighbouring countries, but sounds overly supportive of Albania’s intentions to become gas-dependent by connecting the Vlora thermal power plant with the Trans-Adriatic Pipeline (TAP) and an LNG terminal – a move it says would ‘improve energy security for the country and the region.’

It’s unbelievable that in 2023 the Commission is still supporting new gas infrastructure in a country that is so far gas-free. Albania is uniquely placed to leapfrog straight to electrification of heat and transport – and gas will only hinder this process.

The Commission does note that these plans have raised concerns from civil society. But it only mentions the protection of Vlora bay as an issue, not the myriad other reasons to avoid gas dependence.

Bosnia and Herzegovina

The Commission is clearly critical on coal: ‘Measures to improve security of supply of electricity need to be redirected from coal to renewables,’ and Tuzla 7 ‘may increase the country’s security of supply, but might also significantly prolong dependency on coal which is not in line with the country’s commitments to decarbonisation.’ It also mentions the illegal lifetime extension of Tuzla 4 and Kakanj 5. But it still does not mention Republika Srpska’s continued attempts to push the Ugljevik III and Gacko II new coal plants, nor the need to plan for a phase-out and a just transition for coal-dependent communities.

But on gas, the Commission is extremely supportive of building new pipelines from Croatia – the northern and southern interconnectors – despite admitting that this fossil fuel makes up only three per cent of Bosnia and Herzegovina’s energy supply. In particular, it beseeches the Federation to ‘accelerate the adoption of the law and permit procedures on the Southern Gas Interconnector project, one of the flagship projects of the EU’s Economic and Investment Plan, that will contribute to strengthening the integration into the European gas market and increasing the security of supply.’

The Economic and Investment Plan actually says ‘…the Commission will examine the costs the benefits and the impact of the following priority investment flagships and their corresponding project proposals with a view to taking them forward actively and expediently.’ But no such assessment has ever been made public for this pipeline. The Commission has jumped straight to lobbying for it without providing any evidence that it makes sense. The Commission laments Bosnia and Herzegovina’s heavy dependence on ‘carbon-intensive infrastructure’, but proposes to build some more.

Kosovo

The Commission rightly criticises Kosovo’s coal plants for their failure to comply with the pollution ceilings under the national emissions reduction plan, but its recommendations on coal are quite weak. It recommends continuing the upgrade of the Kosova B thermal power plant and decommissioning works for non-working parts of Kosova A, but doesn’t comment at all on the Energy Strategy’s overblown plans to renovate one or two of the three ancient Kosova A units at a cost of EUR 120 million per unit. It also doesn’t comment on the fact that Kosovo has only set a closure date for one of the Kosova A units (2026), despite the fact the newest one is 48 years old.

Just transition is notably absent from the Commission’s assessment for Kosovo, which is strange because the need for coal will almost certainly decrease before 2030 with the gradual demise of Kosova A, so presumably there will also be a need to support workers and the communities around Obiliq.

On gas, the report notes that Kosovo’s new energy strategy does not foresee new gas infrastructure, but this wise move does not attract any recognition from the Commission. On the flip side, the Commission does not comment on Kosovo’s plans for joint gas power plant projects beyond its borders with Albania, North Macedonia, and/or Greece – they are just mentioned in passing, without any warnings on the risks.

Montenegro

The Commission’s clearest messages on coal are aimed at Montenegro:

‘…the ecological reconstruction plan for the Pljevlja coal power plant will not address the core issues. Montenegro needs to step up its efforts to permanently close the plant to meet EU emission standards. Montenegro needs to plan for a just transition in the region, by providing economic alternatives to the communities that will be affected the most by the coal phase-out.’

Such clear language is a rarity in EU enlargement reports, but is much needed as Montenegro has wasted years with ill-advised plans such as Pljevlja II, the Pljevlja reconstruction and the Komarnica hydropower plant, and has needlessly delayed several large-scale solar and wind projects. The longer it procrastinates, the narrower its options become.

But on gas the Commission sends mixed signals. Despite Commissioner Varhelyi’s recent controversial pledge that the EU will help Montenegro build a liquified gas (LNG) terminal at Bar, the project is thankfully not mentioned. In fact, the Commission takes a relatively cautious tone on gas in general, with a reminder that all infrastructure investment needs to ‘comply fully with the EU standards on public procurement, State aid and environmental impact assessment’ and that investments need to ‘address changing strategic priorities, decarbonisation, digitalisation and resilience of transport and energy networks, including prior cost-benefit analyses carried out in line with EU best practice.’

This appears to suggest, in very diplomatic language, that building gas infrastructure in a so far gas-free country might be a bad idea. But this needs to be said much more clearly, especially since the report also mentions the advancement of the Ionian-Adriatic Pipeline, implying that this is somehow a condition for EU accession – which it isn’t.

North Macedonia

Montenegro and North Macedonia are the only countries where the Commission makes recommendations on a just transition for carbon-intensive regions:

‘The Government adopted a Just Transition roadmap and a coordination mechanism for governing and monitoring, in June 2023. The transition towards clean energy should include measures mitigating the negative social and economic impacts of the planned phase-out of coal-fired power plants in the concerned regions.’

This may be reflective of the imminence of the countries’ coal phase-out, but is inconsistent given that coal use will also decline in Bosnia and Herzegovina, Kosovo and Serbia in the next few years because of the age of the coal fleet, coal availability problems and pollution control legislation.

If I were the North Macedonian government, I would really not know what to make of the Commission’s messages on gas. On one hand it is peddling the outdated and evidence-free idea that ‘the distribution of natural gas is advancing, as an intermediate step in the decarbonisation process…’, and praising the oversized Greece-North Macedonia gas pipeline project:

‘The development of a natural gas interconnector between North Macedonia and Greece, a flagship project in the Economic and Investment Plan (EIP) for the Western Balkans, is a priority to enable security of gas supply in North Macedonia and is progressing well.’

In 2021, North Macedonia’s highest gas-consuming year so far, the country used 426 million nm3, yet the pipeline’s initial capacity would be 1.5 billion cubic metres per year. Thus it clearly encourages the country to massively increase its gas use, particularly as the existing pipeline will also continue to operate.

But – finally! – the Commission also remembers to say that ‘As the energy crisis has demonstrated, North Macedonia needs to accelerate its transition towards green energy and reduce its dependence on gas and coal.’ (Our emphasis).

How it can do this by building a pipeline that encourages it to more than triple its gas consumption is not explained.

Serbia

In the energy sector, the emphasis – perhaps expectedly – is reducing dependence on Russian gas. But as works on the new Bulgaria-Serbia pipeline are quite advanced, this short-term focus seems to excessively detract from the longer-term perspective, and decarbonisation is mentioned only very generally, and with no deadlines e.g.:

‘(…) Despite coal shortages which continued in 2023, due to mild winter conditions and winter rainfall, electricity imports ceased. Significant investments in new renewable capacities are needed in order to take forward the decarbonisation of the Serbian economy. (…).’

Some important issues are mentioned, such as the need to remove the new coal plants from Serbia’s draft spatial plan, to improve environmental inspection and law enforcement and increase capacity to manage integrated permitting processes. The need for carbon-pricing instruments in light of the forthcoming Carbon Border Adjustment Mechanism and phasing out coal subsidies are also underlined.

But other issues such as the closure of the subsidy-guzzling Resavica coal mines, the need to close the illegally-operating Morava power plant, and the need for a clear coal phase-out timetable overall are not even mentioned. Just transition is barely mentioned, with acknowledgement of the ongoing work on a Just Transition action plan due to be adopted by December 2023. No further recommendations are provided on how to ensure support for workers and communities in mining regions, despite the urgency of dealing with Resavica.

Sustainable and just decarbonisation is urgent

Reading the reports, one gets the impression that the Commission doesn’t really believe in decarbonisation in Bosnia and Herzegovina, Kosovo and Serbia, and this is why it doesn’t push them to decide on closure dates for illegally-operating plants or to properly plan an overall coal phase-out and just transition measures. Or it might be that the governments lobby to water down the reports and muddy the waters about their commitments.

But whatever the reason, the time for mixed messaging and diplomatically skirting around issues is over. Decarbonisation is urgent. Due to coal supply issues and technical problems at coal plants, there is an increasing threat that it will be an uncontrolled process, which must be avoided.

It is high time to stop being distracted by gas and concentrate hard on energy efficiency, heat pumps, improving distribution grids and building suitably-sited solar and wind.

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