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There is a light at the end of the EIB tunnel


Yesterday, quite a few Bankwatchers and many colleagues from other organisations, such as Counter Balance, Amnesty International, WWF, Transparency International or Eurodad, attended a meeting with the Board of Directors of the European Investment Bank (EIB) in Luxembourg.

Why is this important? Because the EIB tends to be very uptight when it comes to public scrutiny. So this meeting with non-governmental organisations (NGOs) was a great chance to present our views on the bank’s activities and to hear what its high level representatives would answer.

The meeting was organised in three panel discussions on the topics of climate and energy, lending to small and medium-sized enterprises (SMEs) through financial intermediaries and development finance. The unifying theme of the NGOs’ messages was “Do No Harm!”: No more coal investments, no more loans for projects that displace local populations, no more wasting of scarce financial resources by giving them to untrustworthy financial intermediaries.

Much was left unsaid, many questions from NGOs remained unanswered, and during many exchanges there was a strong sense that the bankers and civil society groups are engaged in parallel discourses: Activists were asking the bank for responsibility and commitment to the EU goals of climate change mitigation, development and human rights. The EIB staff one the other hand insisted that their institution is primarily an investment bank and can therefore put “bankability” above many other considerations.

Yet, on the whole, in spite of such differences, there was also a clear sense that the EIB is acknowledging the impossibility to continue without opening up more to civil society inputs and, also, that it may learn from these groups.

We’ve outlined our positions on the three topics last week on the Bankwatch blog, so I’ll just give you a short summary of how the three panel discussions went:

Climate and energy

Regarding our call to shift the EIB’s energy investment portfolio significantly towards measures addressing the challenge of climate change, the bank certainly refused to commit to phasing out coal lending in spite of repeated calls from NGOs to do so. It did, however, admit the need to start discussing the review of the bank’s energy policy next year – a discussion Bankwatch is looking forward to.

Additionally, the Board repeatedly announced its intention to support more investments in energy efficiency projects in central and eastern Europe, an area of investments that Bankwatch has been highlighting for years as a necessary priority given the huge energy savings potential in the region.

Financial intermediaries and SMEs

NGO presence on the panel was limited and, contrary to the other panels, panelists in this session (including the NGO member) did not represent the critical views shared by the wider NGO community. Therefore, critical remarks could come only in the form of questions which may or may not be answered.

Nevertheless, EIB representatives did give hints that the bank is considering publishing country by country reports of the impact of the bank’s loans on SMEs. Other than that though, little progress was envisaged by the bank. It tends to congratulate itself on the great job it has done during the financial crisis, choosing to ignore that in reality its SME loans had little positive impact at least for central and eastern European SMEs.

Development finance

Finally, regarding the EIB’s lending in the Global South, the bank did acknowledge the need for a better screening and monitoring of their investments and also showed some openness to cooperation with local civil society groups.

The EIB representatives additionally promised to impose World Bank-like standards for assessing the tax regulations in countries where projects are implemented – to make sure EIB money is not siphoned off to tax havens (a lesson learned from the problematic Mopani copper mine).

Throughout the discussion, the EIB tried to defend itself by claiming it is not a development bank. But while that may be the case (and luckily so), some of the EIB’s lending is clearly development lending and therefore needs to come with the associated safeguards and conditionalities.

UPDATE 20 October 2011: This article was amended to clarify the composition of the SME panel.

A historic event, the European Investment Bank opens its doors (a bit)


Next week will witness a historic event: the first meeting exclusively between the European Investment Bank’s Board of Directors [1] and civil society organisations.

The meeting is a sign of how the notoriously inscrutable EIB is very slowly opening up and discussing its activities with civil society. It is also a result of the ongoing efforts of Bankwatch and other organisations to make the EIB accept that it is a European public institution and as such accountable to the public.

Three big topics will be discussed, the EIB’s activities under the climate action programme, the EIB’s development impacts in the Global South, and the bank’s lending through financial intermediaries. Let me shortly outline these topics and Bankwatch’s position on them:

Climate action at the European Investment Bank

The EIB likes to point out that in 2010 it used 21 billion euros (or 20% of its overall lending) for climate action, namely investments to support “innovative clean and climate-resilient technologies” for both mitigation and adaptation measures – mainly inside the EU.

21 billion is an impressive figure indeed, but the EIB’s lofty self portrayal as a financial leader in climate action comes crashing down when we have a look at the actual investments:

  • Shockingly, two thirds of the EIB’s research and development component of climate action have gone to the European car industry. Certainly, the automotive sector should quickly develop less carbon intensive engines, but is this really the best use of a public finance institution’s money?
  • Even more absurd is the fact that even lending to coal power plants (yes, coal power plants!) is considered climate action by the EIB.
  • While the EIB’s support for energy efficiency measures and renewable energy has indeed increased in 2010 , its lending for fossil fuels has increased as well reaching a number of EUR 5 billion.

One can’t say the EIB exhibits “climate inaction”, but in fact a lot of its action is fueling climate change instead of mitigating it.

The EIB’s role in supporting development objectives

When financing projects outside the EU – including the Southern Mediterranean, where EIB activity is planned to be increased following the revolutions there – the bank is instructed by EU policy and by its mandate to achieve social and environmental goals beyond the financial bottom line.

Much can be and has been said about the EIB’s worrying track record in the Global South. Here only a few aspects:

  • Human rights and inclusive development at best play a secondary role for EIB investments in countries with a lack of democracy. EIB investments have time and again benefited Western companies and/or prioritised EU energy security concerns.
  • At the same time, local communities are usually not informed properly, let alone involved in decisions on planned infrastructure projects.
  • When investing outside the EU, the bank’s Environmental and Social Principles and Standards are not seldom secondary to a focus on economic growth, resulting in unsustainable development.
  • Too often, EIB investments in the Global South pursue private sector development and economic growth too naively, trusting in the shallow promise of “trickle down effects”. The EIB lacks a clear strategy, well-defined indicators and the staff to measure them in order to systematically foster inclusive and sustainable development, and benefits for local people.

As it looks so far, the EIB is not fit for development.

EIB lending through financial intermediaries

Lending through financial intermediaries or ‘global loans’ are a form of funding which, unlike the EIB’s standard project financing, is provided to third party intermediaries (predominantly commercial banks), who then lend out the funds along with their own contribution to borrowers.

The EIB’s ‘global loan’ lending (representing more than 20% of its overall lending) has the aim to help support the small- and medium-sized enterprise (SME) sector. However,

  • At least in central and eastern Europe, intermediary banks were very hesitant to pass on the EIB’s money to enterprises and apparently preferred to consolidate their balance sheets, while SMEs were struggling to find credits.
  • A more fundamental problem is the lack of transparency of the global loans lending. Information about benefits transferred to SMEs, details on financed projects, their impacts and financial data are usually hidden under a veil of commercial confidentiality. It is basically impossible for the public to verify that EIB money did not support for example weapons production.
  • In fact, by extending global loans also to banks that have no ethical standards whatsoever and provide financing in questionable sectors (Erste Hungary for instance), EIB money could indirectly contribute to these.
  • The EIB has to impose stronger conditions on the financial intermediaries to make sure its money is supporting the right things and that benefits are passed on to SMEs – specifically also in the under-financed energy efficiency and renewable energy sectors.

These are some of the points we will raise on Monday. I’m looking forward to it and I appreciate the opportunity to discuss with the EIB’s directors.

We’ll write another blog post after the meeting, so do stay tuned if you want to know how it went.

UPDATE: Read the blog post after the meeting here.

Notes

1. The Board of Directors is the EIB’s decision-making body deciding about EIB involvement in projects.

Did the glimmer of gold blind the EBRD?


It really sounds like a bad joke: Among the reasons for the European Bank for Reconstruction and Development (EBRD) to acquire a stake in GV Gold, one of Russia’s biggest gold producers (announced on August 31) was the company’s “willingness to meet the Bank’s environmental and social requirements“.

How the EBRD comes to this assessment is unfathomable to me, because without too much digging, one can find out about Gold Minerals, a company partly owned by GV Gold, that is mining gold in a national park in Russia with World Natural Heritage status. The territory of the mine is located inside the Yugyd Va National Park and in the Virgin Komi Forests World Natural Heritage site.

The UNESCO World Heritage Committee has repeatedly protested against these plans and urged the Russian government to enforce an immediate halt to mining activities which pose a threat to the site’s Outstanding Universal Value. To continue mining is therefore a violation of Russia’s obligations to protect World Cultural and Natural Heritage under the UNESCO Convention.

Notwithstanding this, detonation works have now begun and Greenpeace Russia has reported signs indicating disturbances to the area’s natural balance.

None of this seemed to make any difference to the EBRD’s decision. So I’m struggling to find a plausible explanation: Either the EBRD’s standards are so low that open cast gold mining in an internationally recognised and protected natural park does not pose a problem; or the bank’s examination of prospective clients is so superficial, that even a row with the UNESCO World Heritage Committee does not appear on its radar.

In any case, no explanation can clear the EBRD of being involved in a violation of the UNESCO Convention regarding the Protection of the World Cultural and Natural Heritage, nor of violating its own Environmental and Social Policy (pdf). [1] This is why Bankwatch supported Greenpeace Russia in urging the EBRD to demand that GV Gold Company abandons its support for the activities in the Virgin Komi Forests or – if this demand is not met – to immediately withdraw its investment in the company.

With the EBRD’s new mining policy under preparation and examples of the EBRD’s controversial involvement in mining operations in Kazakhstan, Armenia and Kyrgyzstan, I think it’s time the bank had a deep think about the impacts of its lending in the sector.

The policy preparation has been dragging on for two years now and it is still not clear if the EBRD is on the right track. Last year Bankwatch proposed to the EBRD ways to ensure real benefits for communities, avoid environmental and social harm, reduce CO2 emissions and prevent countries’ dependence on commodities.

Read more:

Notes:

1. Article 9 states: “The EBRD will not knowingly finance projects that would contravene country obligations under relevant international treaties and agreements related to environmental protection, human rights, and sustainable development as identified during project appraisal.”

Image by Greenpeace

Potocnik says green economy, European public banks say black coal


European Commissioner for the Environment Janez Potocnik is currently in New Delhi, India discussing ways to allow for a Green Economy and Inclusive Growth with other high level officials and experts.

Certainly, the challenge is not exactly new, but it remains a major obstacle in international climate negotiations: How to enable further economic development, food and energy security for emerging economies and the Global South, while limiting the depletion of natural resources and the use of carbon-intensive energy?

Less developed countries rightly expect support in this challenge by those countries that have created it in the first place, the EU countries among them. And – at least in my optimistic interpretation – Potocnik suggest in one of his frequent twitter updates from India that the EU is willing to reach out to offer support.

This would be laudable, but as we all know, large amounts of this kind of support are channeled through multilateral development banks – and herein lies the problem!

No doubt, energy security and green economy are very high on the EU’s agenda as well (pdf). But if the European public banks support the same kind of “green economy” in the Global South that they allegedly support in their own backyard, then we’re in for a very dark shade of green, a carbon black one in fact.

The European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) continue to invest European public money in coal power plants both in Europe and elsewhere:

These are only a few examples for a deeply rooted lack of commitment within these financial institutions to roll up their sleeves and firmly support renewable energy. They should finally become a part of the solution of the global climate challenge instead of locking energy sectors into fossil fuel schemes.

Original image courtesy of flickr user framboise – released under a creative commons licence.

Right track, weak attitude. The EU’s Resource Efficiency Roadmap.


It’s no secret that the European Union can be ambitious in its plans only to be brought back down to earth when it comes to realising them.

In the same vein, the Resource Efficiency Roadmap that the European Commission published this Tuesday includes all kinds of right recommendations for Europe to become a renewable based, resource efficient economy. The reality check, however, will follow swiftly when the spending priorities for the next EU budget (2014-2020) will be announced in October.

For now, though, I want to focus on the roadmap itself.

It has been rightly criticised for focusing exclusively on material consumption while not taking other resources like land and water into account. But as someone who’s campaigning for many years now for recycling, waste reduction and generally a more efficient resource use, I can’t deny that I was pleased to see how the roadmap indeed points in the right direction.

Its main goal is to move towards an economy based on reuse and recycling, and residual waste close to zero. More practically, it also aims to ensure that public funding and particularly EU funding supports the move up the waste hierarchy, by offering financial support for recycling plants rather than incinerators. That’s an ambitious yet reachable goal and it’s something Bankwatch has been pushing for a long time.

On the downside, while the European Commission seems to have understood what environmentalists have been telling for years, it doesn’t yet recognise that wider, more fundamental changes are necessary to meet the Europe 2020 climate objectives and to avoid runaway climate change.

In my opinion, the roadmap’s overarching pro-market orientation shows a very uncritical and insufficient attitude in the face of our current climatic and economic challenges. More concretely, the Commission’s roadmap gives a prominent role to investment banks and innovative financial instruments which are at least controversial.

Examples are the core role envisaged for public-private partnerships (PPPs) and for the European Investment Bank (EIB). Experiences with PPPs show they will hardly be a useful instrument for ecosystem and natural resource conservation. They are also associated with high costs, low risk transfer to the private sector, difficulties in contract enforcement, and lack of transparency. (See a Bankwatch research into public private partnerships in central and eastern Europe.)

As for the EIB, I’m not the only one doubting its ability to be a spearhead promoter of communal recycling measures and ecosystem services. The bank is specialised in large, mainly infrastructural projects of over 25 million euros, hardly the kind of investments envisaged by the roadmap.

The Resource Efficiency Roadmap is clearly a step in the right direction, but it has to reflect and be part of a more comprehensive approach that stronger emphasises the green in economy.

 

Original image courtesy of Jennifer Miller – CC 2.0 licence

Greenwashing nuclear expansion in Ukraine, with EU support


“The EU (…) should aim at faster integrating Ukraine into the Energy Community,” writes the European Commission in its September 7 communication on the security of EU energy supply. If you wonder what this means in practice, I can tell you that one of the communication’s implications is financial support for the Ukrainian national energy strategy to turn the country into a coal and nuclear exporter for EU markets.

Ukraine’s plans

In 2006, the Ukrainian Ministry of Fuel and Energy prepared the Comprehensive Strategy for Harmonisation of the Ukrainian Energy Sector with the EU Internal Energy Market. The document identifies how and when the Ukrainian market of electrical energy will be integrated into the European energy market and what steps are to be taken to implement this.

The Strategy has two main goals:

  1. to strengthen the inner-Ukraine joint energy system, and
  2. to increase export of electricity to Ukraine’s neighbouring countries (up to 11.8 billion kWh in 2010, out of which 4.700 million kWh to Europe).

The Ukrainian Harmonisation Strategy among others contains three core directions of investment needed: safety upgrades at existing nuclear facilities, improvements in the system of transmission lines, and upgrades of hydro power plants. European public money managed by the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) are being channelled in all these three directions.

European public money for … what exactly?

The latest instalment in this saga is the EBRD decision to invest 200 million Euros (Ukrainian language) into the upgrade of 21 hydro power plants along the Dnieper River in central Ukraine. [1] (Almost USD 166 million have been provided by the World Bank, another EUR 200 million from the EIB are expected. The total project costs are EUR 690 million.)

Both the EBRD and the EIB like to point out that the project supports renewable energy sources in Ukraine. In my view, this is not only euphemistic – large hydro power unlike small hydro plants, have little to do with sustainable and really environmentally friendly energy – but a dangerous misrepresentation of the real scope of the project.

Because what the banks make little noise about (except for some whispers from the World Bank) is that this project is part of a larger programme to rehabilitate assets of Ukraine’s national energy company, which would eventually allow for electricity exports to the EU. Ukraine’s Harmonisation Strategy (see above) tells us what kind of electricity we’re talking about here: The planned electricity sources for export are coal and nuclear. One cannot find a single word on renewables in the whole document. [2]

Everything but renewables

The EBRD, EIB, and the World Bank are putting money into hydro power plant upgrades. The EBRD also invests in safety upgrades at Ukrainian nuclear power plants.

Furthermore, the EIB in collaboration with the EBRD finances the construction of high-voltage transmission lines in Ukraine. And there’s no doubt that these will transmit nuclear power: Renewable energy sources do not need 750Kv lines of the type the EIB sponsors in our country.

In sum, these banks are financially supporting the three core elements of the Ukrainian national strategy to turn the country into a coal and nuclear exporter for EU markets. It is possible that the banks simply cannot see the long-term consequences of their investments in our country. It is also possible that they entirely support the idea of the Ukrainian government to become the largest exporter of nuclear energy to Europe.

Be that as it may, the effect will be the same: more nuclear, less renewable energy – in Ukraine and in Europe.

Notes

1. A final decision is scheduled for today during the EBRD’s board of directors meeting.

2. To offer a short technical explanation as to why these investments in the upgrade of hydro power plants (HPP) and pumped storage plants (PSP) are needed for Urkaine’s nuclear strategy:
While demand for electricity never stays constant, the production levels at nuclear plants are constant – they cannot produce more if there is more demand or less when demand decreases. This is where the HPPs and PSPs come in. To operate safely and effectively, nuclear reactors need a so-called buffer or manoeuverable capacity. During daytime, when consumption is higher, hydro power stations increase their production to “help” nuclear reactors meet the demand; at night, when demand decreases, the excessive electricity from nuclear units is transmitted to hydro pumped storage plants which pump the water into upper reservoirs, to be flushed down again in daytime to run the turbines and produce electricity again. This process is called load balancing. Without functional HPPs and PHPs, there can be no nuclear production in the Ukraine.