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Tragedy or comedy, what is the Nabucco pipeline really?


During the past couple of years, discussions over the mega Nabucco gas pipeline, meant to transport natural gas from the Capsian sea via the Caucasus and Turkey into Europe, evoke more associations with an opera than an international infrastructure project. “Work on Nabucco is about to start!”, “Nabucco is dead!”, we’ve heard it all. And still there’s always something new to say, for example that German shareholder RWE is now reconsidering its involvement in the project.

So maybe the new year will show what Nabucco, furiously defended by EU Energy Commissioner Gunther Oettinger and by numerous governments, really is: a tragedy or a comedy?

If you ask me, more than anything, Nabucco is a farce. And here’s why:

Gas suppliers or investors, who gives up first?

A well known cause of doubt over the feasibility of Nabucco is the lack of guaranteed gas supply to fill the pipeline. Supplier countries are interested in diversifying their export routes and therefore hesitate to sign final agreements over the enormous quantities of gas needed by the pipeline. (Azerbaijan for instance has at least five pipelines lined up for its Shah Deniz II gas fields. BP, part owner of the field, is not part of Nabucco and logically favours its own pipeline project.)

Willingness to send gas to Nabucco might be stronger if the project’s financial backbone would stand firm, but investors and public banks are equally reluctant to commit without secured gas supply, because lack of gas would render the project economic nonsense. In fact, for now, that’s exactly the case.

The situation is like a text book prisoner’s dilemma: no side can trust the other, hence no one commits to cooperation. Sooner or later the involved parties have to realise there’s no win-win situation here. Maybe RWE will be the first, who knows, or maybe the Kurdish regional government, one of the potential suppliers.

Exploding costs (but not officially!)

Another serious obstacle is the sheer size of construction costs. While the Nabucco consortium’s official sum is 7.9 billion euros, BP estimated 14 billion euro. Sure, BP is an opponent of Nabucco and interested in making it seem more expensive. But then again, a recalculation of the production costs, promised by the Nabucco consortium a long time ago, has never appeared.

Finally, in October last year, Hungarian Minister of National Development Tamas Fellegi declared that the pipeline could cost as much as 24-26 billion euro, making Nabucco the world’s most expensive gas pipeline. (The consortium denied but didn’t reveal their own calculation.)

Come hell or high water, Hungary remains committed

The Hungarian government and the (partially state-owned) energy company MOL have long been champions of the Nabucco cause (and are known to get along very well with each other). No wonder that after the statement on Nabucco’s costs by Fellegi last year, the Hungarian government must have thought it necessary to balance such detrimental news about the pipeline project.

This, in fact, may have been behind Hungarian president Pal Schmitt’s Caucasian business trip last November. The president visited Azerbaijan, Turkmenistan and Uzbekistan having friendly meetings with these countries’ tainted leaders. The president of course did not go alone but was accompanied by businessmen, among them MOL representatives, seemingly there to further negotiate supplies for Nabucco.

Celebrating the Turkmen visit, the president’s official webpage stated rather vaguely that a free Turkmenistan has an important role in creating peace, security and stability in the region (Hungarian). (More details from the trip (list of participants, agreements signed, etc.) have not been published.) Turkmen leader Gurbanguly Berdimuhamedow, in his turn, sounded more pragmatic: he declared that the focus of the talks with the Hungarians was European energy supply and Turkmenistan’s need to diversify energy exports away from its Soviet-era master Russia to Europe, China and Iran.

How committed are European public banks?

Several international financial institutions have indicated their willingness to finance the Nabucco pipeline with combined up to 4 billion euros, among them the European Investment Bank (EIB) (2bn alone), the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC).

Just a couple of weeks ago, the EIB Board of Director’s had its first ever meeting with civil society groups. There we learnt that the EIB is always looking for ways to create win-win situations and contribute to a zero carbon society through improved energy efficiency and renewable energy use.

The EIB seems to consider Nabucco – a gas pipeline! – as a part of this win-win scenario. To me, nothing could be further from the truth. Nabucco is actually “lose-lose” if you will: It not only poses serious threats to the environment and well-being of people in communities nearby its drilling sites and routes, it is also extremely costly and it will foremost take valuable resources away from truly sustainable projects.

Irrespective of the Nabucco’s economic viability, if the project will benefit anyone it will mostly be the companies in the consortium and the authoritarian leaders in supplier countries.

As for us in Europe, we will be locked in a fossil fuel dependant future. That, after all, would be a tragedy.

Read more detailed arguments against the Nabucco gas pipeline on our website.

Deja vu for Vienna II – a sustainable recovery is needed for the CEE financial sector


Yet while Europe’s previous coordinated initiative to avert crisis in CEE mobilised close to EUR 33 billion for the region’s hampered financial sector, questions remain about the long-term effectiveness of the “Vienna I” initiative and whether IFI lending to the financial sector is delivering the supposed value-add for the real economy expected of public institutions.

Let’s have a look at the evidence so far:

SME lending at the European Investment Bank

A Bankwatch analysis produced at the height of the crisis to examine EIB lending via financial intermediaries for small and medium sized enterprises – its so-called ‘global loans’ – found that by the end of 2010, only four of 30 global loans examined between 2008 and 2009 in the Czech Republic, Slovakia, Hungary and Poland had been fully allocated to SMEs, another four remained completely untouched and some were even spent outside the country for which they were signed.

Overall global loans reached only 0.001 percent of all SMEs in the countries of focus – a rather modest result compared to the scale of the current crisis. Additionally only one targeted, ‘specialised’ global loan was signed across the four CEE countries for key areas like micro enterprises, R&D or renewable energy, although many such facilities were signed in the western Europe.

It seems that apart from providing western European commercial banks with additional capital reserves, the benefits for the real economy of the CEE region in time of crisis were doubtful.

SME lending at the European Bank for Reconstruction and Development

Similarly, an EBRD Evaluation Department report noted (pdf) that the bank’s SMEs lines “must be judged as delivering less than expected,” as some of the credit lines were made available too late when commercial banks already had access to cheaper sources of funding and consequently did not disburse the loans.

Furthermore it criticised the “controversial” pricing of the loans – considered by many of the borrowers to be too expensive – and concludes that the EBRD SME credit lines did not prevent a credit crunch, particularly for small businesses.

Looking ahead – Vienna II

Given the mixed results of the IFI’s past SME lending, any further support for the CEE financial sector should be aimed at specific and measurable goals and conditioned on transparent assessment and reporting of the results. IFIs must develop more targeted financial support to key sectors – including micro enterprises, R&D and renewable energy – tighten contractual obligations and compliance of financial intermediaries with bank standards, reduce the time given to intermediary banks to encourage faster disbursement of money to SMEs and publish qualitative results of lending.

If there are no immediate and significant changes to IFI lending through financial intermediaries, the emerging Vienna II initiative will likely result in the reinforcement of bank capital reserves while small businesses in the CEE region will continue to suffer from a lack of available financing.

To be continued…

Prison netbook – Russia and the arrest of an environmental activist


Yaroslav was wrongly imprisoned for expressing solidarity with a prominent member of the Russian opposition movement who has been the subject of harassment by authorities.

After his release on 4 January, Yaroslav described his experiences Bankwatch. We came to know Yaroslav through the campaign to defend Khimki forest where he just visited last weekend. Fortunately at the moment things are quiet in the Khimki forest, with no more deforestation happening mostly because of the winter freeze. Khimki activists remain alert though, alternating watch at the forest camp they set up specifically for this purpose.

While things are quiet in Khimki, Moscow and other major Russian cities have been very loud since protests began after the December elections. According to Yaroslav, “Many people in Russia became active after the elections for the Duma; during the elections, people – who had been preparing to observe carefully how the elections took place – observed many violations, got very angry with the results and this is why tens of thousands took to the streets, building the current very big protest movement for just elections.”

Another mass demonstration is scheduled for 4 February. Yaroslav explains that, even though the Russian opposition is not currently united in its support for a common presidential candidate, many are convinced that United Russia and President Putin must leave power. This political change could have a positive impact for the Khimki forest as well, since close allies of President Putin have a direct interest in the destruction of the forest.

In such a pivotal moment for his country, when opposition leaders were systematically being abused by the police, Yaroslav did not stay away, and on December 25, he attended a rally in solidarity with Sergey Udaltsov, one of the opposition leaders that has been repeatedly arrested in recent months. “We were not allowed to go inside the court where Udaltsov was tried even though we have an open court system in Russia,” Yaroslav recounts. “After he was sentenced, we started to go home but the police came and arrested three of us; the other two were released, but I was detained for longer. I think I was arrested merely because I was towards the edge of the crowd – hence easier to seize – because I was doing nothing at the time, simply standing there and updating my Twitter account.”

After the arrest police employed a number of provocations, whose sole purpose felt to be the psychological breakdown of opponents of the authorities. For instance the police brutaly seized Yaroslav and left scars on his arms. Yaroslav later spent the night in the police station and slept in a very cold room with barely any cover. The most problematic obstacle was that his lawyers were not informed about the details of his court date the next day, and Yaroslav was unable to inform them because his phone and other property was confiscated upon arrest.

Recalling his court date, Yaroslav said, “It was bizarre. Even though the judge started out by asking me whether I had understood my rights, such as the right to a lawyer and the right to appeal, in the end I was not able to exercise those rights properly. The judge heard from two prosecution witnesses who declared that I was shouting and disobeying order, but failed to accept any witnesses speaking on my side. In the end, I was given 10 days of administrative arrest, with the judge arguing that ‘there is no reason not to believe what the police officers say’.”

Similar circumstances shrouded the following day’s appeal: “The day of my appeal, the higher court was full of riot police dressed in black on all floors, there were five inside the court room. At the same time, my own witnesses were not allowed to come in under the justification that there was not enough space. In the end, the initial sentence was upheld, under the similar reasoning that ‘there is no reason not to believe what the police says’.” Yaroslav added that for someone without any prior conviction, a ten-day sentence for disturbing order is inappropriate and points out that the appeal judge had had his name on the Magnitsky List.

After the absurd and tense trial, Yaroslav’s jail time was a rather peaceful period. “I received so much support from the outside. I am a vegan so people were bringing me parcels with food, as well as books to read. On December 31, many people gathered in front of the jail to show their support for me, and my lawyers passed me Christmas cards signed by many people.”

“Physically it was not so hard,” explained Yaroslav. “Mentally it is difficult. After a few nights, I started having bad dreams. It’s a big psychological pressure to be detained, and not only detention, but seeing how judges pass these absurd sentences, not taking into account any argument of the defence.”

Spending the new year in a low security prison after convicted of a ‘traffic and other small offence’ verdict and occasionally communicating with other inmates was an occasion for Yaroslav to draw conclusions about contemporary Russian society. “All those people in jail were much better than the prison guards. And the prison guards were much better than the police detaining us.”

On the day of his release, Yaroslav was again harassed similarly as to the time of his trials. While anticipating that family, friends and supporters would be waiting for him upon release, Yarolsav was moved to another location just a few hours before being let go and set free from there. One final psychological blow, a portent of the absurd things that can happen for disturbing those in power.

Yet Yaroslav, like many Russian citizens and civil society groups, will continue their struggles. “Ours is not a justice system, but a system to punish and humiliate people. I will certainly continue to be an activist, to attend meetings, so of course it is possible that they harm me, temporarily, again. But we will continue.”

You can connect with Yaroslav on Twitter at @ynikitenko and on Facebook.

The new EIB transport policy: not yet ready for sustainability

On December 13, the EIB’s Board of Directors is about to approve the institution’s new Transport Policy. This new document constitutes an upgrade of the older 2007 Transport Policy of the bank which tries to incorporate the EU’s progressive agenda on the prevention of climate change (documents such as the “Europe 2020 Strategy” and the “Roadmap for moving to a competitive low-carbon economy in 2050”). The EU’s determination to move towards decarbonising the transport sector (the EC goal is to reduce emissions from transport by 60 percent by 2050 compared to 1990 levels) is very welcome, considering that transport is the only sector in the European economy whose emissions have been growing in the past years. Transport alone accounts for about a third of Europe’s emissions.

The EIB Transport Policy has been up for public consultation throughout this year. Contributions by NGOs – including Bankwatch — and businesses, as well as the final draft of the Transport Policy resulting from this process are available here.

In its contribution, Bankwatch noted that most of EIB lending for transport between 2006-2009 went to carbon-intensive modes of transport such as air and road to the detriment of more sustainable forms of transport: out of 67.6 billion euros lent to transport by the EIB in this period, 45 percent went to road-based transportation and another 9 percent to aviation. In its recommendations to the bank, Bankwatch argued that rail, urban public transport and inter-modal transport should make up the vast majority of the EIB’s investments in each country and suggested the means to achieve this end.

Nevertheless, upon seeing the final draft of the new Transport Policy, it seems this goal has not been fully taken up by the bank in spite of rhetorical commitments to climate action and sustainability. Despite good intentions by the bank, the new transport policy fails short of constituting a real leap forward towards financing primarily sustainable transport. Transport sector is the largest lending sector in EIB however the Policy does not establish any target for sustainable transport investments, vaguely referring to a general highly unambitious Climate Action indicator set by the Bank on 25 percent level . Applied to transport lending will cause that merely a quarter of EIB transport projects will be classified as “sustainable transport” investments. This makes the EIB commitments towards EU long term climate policy far too weak.

The new policy contains some notable improvements compared to the 2007 text but also areas where it falls well below expectations. Here are the main elements of the new policy and their pluses and minuses according to Bankwatch:

– The policy paper tries to reflect for all areas of operation the need to follow the long term climate agenda of the EU; importantly, it lists a number of priority areas of investment, selected as most important by virtue of being “Climate Action projects”; in addition, the bank has established a Climate Action indicator, included in the corporate operational plan, and the number of accomplished Climate Action projects will count towards the calculation of this indicator. The Climate Action indicator has been established on a rather symbolic level of 25 percent giving EIB a huge flexibility in financing of projects which may undermine the positive outcome if its Action, like road sector.

– The most positive change in the new policy is that projects in public transport, rail, inter-modal and waterborne transport are accepted for financing by the EIB with lower rates of return relative to projects in the roads and aviation; this positive discrimination approach could indeed help to encourage sustainable investments.

– The EIB’s careful attitude to bio-fuels is worth putting on the positive side of the balance, with the policy paper reading, “The EIB… will continue to follow a very prudent approach in relation to bio-fuels, by adopting strict screening criteria covering environmental, social, economic, financial, technological and legal dimensions of the project proposals submitted”

– Good long-term intentions included in the policy document are, however, mixed with support for polluting large-scale infrastructure, such as planned massive investments into TEN-T schemes, including motorways and dozens of big airports

– The great weakness of the policy is the lack of target for sustainable transport projects, so called “climate action projects”. Thus the policy, contrary to what it says, does not “orient portfolio towards more support for the intrinsically more environmentally sustainable modes”. A reference to a general Climate Action indicator (25 percent) gives EIB enormous flexibility in financing for transport sector. Transport sector is the biggest EIB’s lending sector thus contributes significantly to EIB’s 25 percent Climate Action target. It also means that the new policy orient merely quarter of this sector lending towards sustainable transport projects.

– Hence up to three quarters of the bank’s transport lending could potentially go to support unsustainable transport modes like roads, automotive and aviation sectors.

– Unfortunately the automotive sector (production of small cars) still stays among those eligible for financing in Convergence regions despite the fact that EU policy referred to aims at phasing out cars from urban transport by 2050.

– Support for inland water transport is considered to be pro-environmental, but the need to take into account the environmental impacts of such projects when deciding about financing is not included in the policy; so the devil can still be hidden in the details.

The struggle for a green Cohesion Policy has only just begun


When it comes to the future Cohesion Policy, we’ve been arguing that green objectives and tough controls are necessary to make sure that national governments do not any more waste money on harmful projects such as motorways and incinerators.

The European Comission’s proposal for the future Cohesion Policy takes this into account (through the concentration of regional funds around 11 objectives, earmarking for low-carbon investments and requirements to comply with EU environmental legislation) but already faces opposition from Member States.

Only, without progressive regulations and a continued climate-focus in the national Operational Programmes, Member States could continue to use the money in the usual ways, ignoring the urgency of addressing climate change and the potential of green investments for job creation and the overall economy.

To make sure this won’t be happening, and with high-level meetings on the future Cohesion Policy around the corner, a coalition of green NGOs, including Bankwatch, organised a conference to discuss how to make use of the “green potential” of these EUR 336 billion, give or take. Appropriately, the event was hosted and co-organised by the Committee of the Regions, the EU advisory board that seeks to represent regions’ interests.

What I heard during the conference didn’t exactly comfort me. Climate advocates have reasons to approach their campaigning on EU funds with even more caution and strength during the legislative process next year.

Earmarking of funds: straightjacket or necessary guidance?

For one, we heard from Constanze Krehl (MEP, S&D group), who is preparing a parliamentary report on the European Commission’s proposal, that

    “EU Cohesion Policy has to serve more objectives than those of the Europe 2020 strategy and the new legal proposal should take into account the specific needs of the regions while simplifying the procedures”

What this statement in fact means is the following: while the Commission has been proposing to “earmark” a certain minimum amount of EU funds to invest into renewable energies and energy saving measures, the European Parliament might undermine this approach.

The reference to simplification made by Krehl threatens the proposed framework of environmental safeguard mechanisms. Giving up these so called “ex-ante conditionalities” would mean a dramatic step backwards compared to the Commission’s ambitions.

I am especially worried about what governments in central and eastern Europe will choose to do in the absence of any such earmarking and environmental safeguards. Without such mechanisms, there will be no way to actually prevent Member States from doing what they have been doing in the current budget period, i.e., using precious EU Funds to build roads and more roads in our region.

Member States expected to backtrack even more

The second chilling message came from one of our allies in the European Parliament, Elisabeth Schroedter, German Green MEP member of the working party on future Cohesion Policy of the REGI Committee:

According to Mrs. Schroedter, we might better brace ourselves for a fight to preserve the regulation as it is today, as proposed by the Commission, because it will come under severe attack by Member States, some of which find the regulation imposes too many demands on them.

    There are few areas where we can hope the regulation can be improved, Schroedter said. One of them could be the introduction of better sustainable development indicators in the legislative texts.

Coming from someone who is a friend of green causes and who understands Brussels politics well, this statement gives me cause to be cautious but also not to give up in our struggle to make the next budgetary period one in which Cohesion Policy contributes more to saving our climate than it has done so far.

I continue to believe that the regulation texts can be improved, especially when it comes to ring-fencing of funds for serving the climate goals set out by the Commission. Bankwatch and I will continue campaigning for it in the months to come.