Blog entry

Latvia considers a risky nuclear energy development path

Inadequate power generation capacities and the search for solutions

In 2023, Latvia experienced a positive year in terms of electricity generation, mostly due to favourable conditions for hydro energy generation, coming from large hydropower plants built in the previous century. Local generation in Latvia covered 88.3 per cent of the country’s electricity consumption (an increase of 21 percentage points from the previous year), which is the highest proportion since 2017. The remaining amount of electricity was imported from neighbouring countries. 77.6 per cent of the electricity produced in Latvia was generated from renewable energy sources, including energy from hydropower plants that cannot be seen as sustainable by today’s standards.

Even though the overall balance for 2023 shows a rather positive picture, Latvia is in need of more renewable and sustainable resource-based power-generating capacities for several reasons. Not every year is as generous for hydro energy as was 2023, and Latvia still relies significantly on fossil gas-generated power and heat. In 2023, 22.4 per cent of all generated electricity in Latvia came from fossil gas, which is a costly source of energy not only for our wallets, but also for the climate. In future, it is expected that electricity consumption will grow due to the electrification of heating and transport, as well as of industrial processes, which is much needed in order to reduce greenhouse gas emissions. This indicates two important needs: one is for more local renewable energy generation, and the other is for energy balancing, storage solutions and new interconnections with other EU regions. These would help decarbonise our energy sector, as well as bring down electricity costs.

The Ministry of Climate and Energy is responsible for finding solutions to these needs. Various projects are in progress or are planned. For instance, REPowerEU funds are financing the establishment of one of the most powerful electrical energy storage battery systems in Europe for energy balancing needs, which will be especially crucial when the Baltic states disconnect from the power grid with Belarus and Russia at the beginning of 2025.

However, the Ministry is also exploring opportunities for developing nuclear capacities. In a recently prepared informative report on nuclear energy development opportunities in Latvia, the Ministry identified two possibilities for nuclear energy development. One is to cooperate with Estonia in nuclear energy project development (either as an active developer or as an investor). The other is to develop small modular nuclear reactors (SMRs) in Latvia, independently from Estonia. The report concludes that the most desirable direction for Latvia seems to be cooperating with Estonia in one way or another, if the parliament decides to proceed with nuclear energy development at all. The presentation of the report to deputies on 12 March initiated discussions in the parliament. At the same time, discussions have just started in the Estonian parliament, where the creation of power-generating capacities is even more crucial due to the planned phase-out of oil shale. Estonian climate minister Kristen Michal stated that there are plans to prepare a nuclear energy law within the next five years pending parliamentary support.

The many risks of nuclear energy and incompatibility with climate crisis challenges

Despite objections from EU-level environmental organisations, the European Union’s Sustainable Finance Taxonomy delegated act on the environment and climate deem investments in nuclear energy as environmentally sustainable economic activities. However, there are various serious arguments as to why this cannot be considered environmentally sustainable and why choosing nuclear energy development in Latvia, as well as in Estonia, would be too risky.

From the point of view of energy system security, having electricity production in many smaller, geographically dispersed stations, rather than in one large complex, provides greater resilience in the event of natural disasters and military or terrorist threats. This is well illustrated by the Ukraine example, where Zaporizhzhia nuclear power plant has been used as a strategic object for Russian occupants, creating ongoing nuclear safety crises, and where the sabotaging of the Kakhovka dam has created a large-scale humanitarian, environmental and economic disaster.

Investing in SMRs would also be a great economic risk at the moment, as the total costs of such projects are not yet known. There is not yet any such station operating for commercial purposes anywhere. SMRs could be even more expensive than conventional nuclear power plants because they are less efficient due to reduced economies of scale, and because of the costs of deploying first-of-a-kind technologies; yet they still have similar challenges, such as safety requirements and the storage of radioactive waste. In the end, this could mean high electricity costs, a burden on society.

Another problematic aspect is the large time scale required for the implementation of nuclear energy projects. For conventional reactors, it is typically 15 to 20 years. In the case of SMRs, the industry claims that this period of time may be shorter, but one should be careful with the information provided by the industry itself, as its main goal is to sell this technology. In its estimates, the Ministry mentioned that the development of SMRs could take 15 years for Latvia, due to the extensive preparatory work that must be done, including the development of a regulatory framework and workforce preparation. However, this too may turn out to be an optimistic assessment.

The main problem with such a long development period is that we already need new renewable power-generating capacity now. If we allocate financial resources to a solution that will only come in 15 to 20 years, we divert investments away from the development of other technologies, which would provide the needed energy much more quickly; for example, wind, solar energy projects, industrial heat pumps, energy storage technologies, the creation of interconnections with other EU regions, and promotion of demand side flexibility. This delay would result in higher electricity prices, which, of course, would not improve Latvia’s competitiveness. However, more importantly, any delay in the transition to renewable resources contributes to global warming, which requires solutions now. Latvia also runs the risk of failing to meet the greenhouse gas emission reduction target, which would result in the need to purchase expensive emission quotas from other EU countries as 2030 approaches.

In addition, creating radioactive waste that must be handled under controlled conditions for up to tens of thousands of years is an excessive, unacceptable burden for future generations, given that we have other technologies available. Radioactive and toxic waste, which is created in large amounts in all stages of nuclear fuel cycle, from mine to reactor, is already creating serious environmental pollution and hazard to public health.

As a small country with limited financial and administrative resources, lengthy nuclear energy development from scratch seems a very daunting path, especially given the fact that Latvia already has a relatively high proportion of renewable energy and has great potential for the further development of this sector.

Bern Convention: Skavica dam in Albania contradicts the Balkan Lynx Recovery Programme

The Skavica dam has already been in the spotlight in Albania and beyond for more than two years. Local communities have been protesting against the planned flooding of 41 villages in the Dibra valley and damage to their livelihoods.

And while the Environmental and Social Impact Assessment of the dam prepared by Bechtel has still not been published, the project has suffered a major blow – the Bern Convention on the Protection of European Wildlife and Natural Habitats has decided to accept a new complaint filed by Earth Law Center – USA & Earth Thrive – UK, on behalf of several Albanian groups: Opposition to Skavica Dam-OSD, Group of Rural Activists of Dibra-GARD, North Green Association, and GLV Integrimi.

The Bureau of the Convention, in its report published this month, was

‘concerned with the plans for developing the Skavica hydropower plant (HPP) on the Black Drin River, which may affect a possible candidate Emerald Network site, numerous protected species from the Convention’s appendices and resolutions, notably the critically endangered Balkan Lynx and its migratory corridors.’

The decision of the Bureau is very important as it gives a clear signal to development finance institutions and commercial banks that the Skavica project is a highly risky investment. The US Development Finance Corporation, UK Export Finance and HSBC have all been mentioned by the Albanian government as possible lenders to finance the ever-rising costs of the dam, though none of them have confirmed this.

Besides all the social impacts, Skavica could lead to the extinction of one of the rarest cats in Europe by completely isolating the last two reproducing population nuclei of the Balkan lynx – in Mavrovo National Park (North Macedonia) and on Munella mountain (Albania). The dam would be located on the only corridor that links the two population nuclei.

Interestingly, as the Bureau underlines,

‘Albania had been one of main proponents for listing the Balkan Lynx as a strictly protected species in the Convention on Migratory Species appendices, and yet this project clearly seemed to contradict this good initiative, and the work of the Balkan Lynx Recovery Programme.’

The aim of the programme is to restore a viable population of the Balkan lynx by reducing its main threats: illegal killing of lynx and prey species, habitat loss and fragmentation, unsustainable hunting and forestry systems.

With fewer than 30 Balkan lynx remaining in the wild, any further isolation of the populations would lead to inbreeding, reduced genetic diversity and higher risks from illegal killing and the construction of the dam would lead to habitat loss.

Skavica dam location, expected flooding with two different dam heights and the most important corridor for the Balkan lynx. Source: Balkan Lynx Recovery Programme

Last but not least, the Bureau accepts that the Black Drin river should be protected in the Emerald Network, the network of Areas of Special Conservation Interest launched by the Council of Europe in 1989 to ensure the long-term survival of species and habitats of European importance.

The upper Black Drin, the last remaining free-flowing part of the Drin, was proposed by scientists and NGOs as one of the 88 priority river stretches to be included in the Emerald Network in Western Balkans. The list of rivers results from the Emerald Green seminar organised by CEE Bankwatch Network in December 2022, where participants provided scientific data on fish species and habitats.

The Bern Convention’s preliminary findings come as yet another confirmation that Albania should stop focusing on the Skavica plant. Instead, it should protect the upper Black Drin and concentrate on reversing its over-dependence on climate-vulnerable hydropower. Carefully-sited solar and wind, together with increased use of heat pumps and solar thermal for heating, can help the country diversify without resorting to the use of fossil fuels for power and heat generation.

Art as a balm in the just transition: Inspiration from Poland and Romania

In January 2024, CEE Bankwatch Network hosted an event called ‘Planet Konin’ in the city of Konin in Eastern Wielkopolska. The aim of the event was to bring together stakeholders from Jiu Valley and Eastern Wielkopolska, and to provide them with a platform for sharing experiences and approaches to bringing about a just transition.

The first part of the event focused on discussing the challenges of implementing the Just Transition Fund. Representatives from Petroșani mayor’s office, Konin’s Regional Development Agency, and Bankwatch highlighted potential solutions that can be implemented locally. For instance, Romania’s territorial just transition plan allocation for small and medium-sized enterprises was identified as a progressive strategy for supporting regional economic growth. There were also presentations by local authorities, regional businesses, science institutions, trade unions and non-governmental organisations. Common topics were the huge potential of the Just Transition Fund to meet local needs and the essential role of dialogue between authorities and other stakeholders.

The second part of the event focused on the important role of art in shaping local identities during the complex process of just transition. It kicked off with a screening of Planet Petrila, a documentary that tells the story of an ex-miner-turned-artist who uses his work to prevent the local authorities from demolishing the infrastructure at the recently closed mine in his hometown of Petrila in the Jiu Valley. As a result of his efforts, a non-governmental organisation bearing the same name succeeded in saving the mine. Uniting both strands of the story, the artist and star of the film, Ion Barbu, and urbanist and activist, Mihai Danciu, were both present. They shared their experiences of using art and activism to bridge the gap for local people as they adjust to a new reality. Ion and Mihai, along with their colleagues, have organised a number of events including plays, concerts, art exhibitions and a permanent museum dedicated to the miners that have the role of saving the others during accidents.

The documentary served as a springboard for the second part of the discussion, which focused on exploring how local non-governmental organisations can make a difference in the just transition. In addition to Ion, who spoke at greater length about his work in Petrila, representatives from several local Polish non-governmental organisations also took the floor. Grzegorz Przebieracz, a foreman and member of the Engineering and Coal Mining Technicians Society, explained the efforts he and his colleagues took to save ‘Dolores’, an enormous lignite extraction machine with special meaning for Konin residents.

The salvation of Dolores is a symbolic victory for local activists in Konin, who see it as an opportunity to preserve and promote the heritage of the region. They even invited Ion to help them with ideas for harnessing the cultural significance of the machine to drive tourism in the region. Adam Jaroński, a photographer who has taken many a picture of Dolores, captures the beauty and legacy of the coal mining tradition in Konin. Dolores is the lead actress in his documentary, which showcases the legacy of mining in Eastern Wielkopolska. The work of Konin Dance Theatre, another important organisation in the cultural landscape of Konin, is also strongly rooted in the regional history and cultural landscape of the town. The dance group’s leader Katarzyna Łapaj-Strzykowska announced their new programme entitled ‘A Very Personal Identity’, which showcases the unique perspectives of dancers on the just transition.

The event closed with a debate between Bankwatch’s Miłka Stępień and Adina Vintan and Mihai Danciu of the Jiu Valley Association (Valea Jiului Implicata). The discussion revealed the enormous positive effects coalitions such as the Jiu Valley Association can have on their local environments and on strengthening local civil society. Inspired by their Romanian counterparts, local organisations in Eastern Wielkopolska have already begun exploring opportunities for establishing a similar coalition.

The importance of cultural identity and art in smoothing what can often be a traumatic transition for local communities is often overlooked. As the people of Jiu Valley and Eastern Wielkopolska have shown, a truly just transition is about creating an atmosphere of hope and trust in a process that leaves no-one behind.

Reform and growth, or spray and pray?

This Monday, the European Parliament’s Foreign Affairs Committee will debate the draft Regulation on the Western Balkans Reform and Growth Facility, made up of EUR 2 billion in grants and EUR 4 billion in loans for the 2024 – 2027 period.

The fund is modelled on the EU’s Recovery and Resilience Facility, making disbursements conditional on reforms agreed between the Commission and governments.

The idea is reasonable in principle. But there is also a threat that the Facility replicates the downsides of the EU recovery funds. Adopted in a hurry, with extremely tight deadlines, public participation and transparency were sorely lacking during planning and monitoring in many countries, in some cases resulting in damaging projects being funded.

Never mind the procedures

The new Western Balkans Facility hasn’t started well. With a haste that has become all too common, the Commission failed to carry out an impact assessment, due to ‘the political urgency of the proposal’.

This is a rather lame excuse. The European Court of Auditors (ECA) has previously found that EU funding in the Western Balkans through the Instrument for Pre-accession has had ‘little overall impact on fundamental rule of law reforms’, despite the rule of law being one of the priority sectors, so there is every reason to be cautious.

In February, the ECA’s opinion on the new Facility identified several flaws, but the lack of impact assessment limited its ability to issue a fully informed opinion.

Now a public consultation on the draft Regulation is ongoing, but the proposal is in the Parliament already, rendering the consultation rather pointless. Not exactly the example that the EU should be setting to accession countries.

Part of a strategy or instead of a strategy?

New ideas on how to drive forward fundamental reforms in the Western Balkans are welcome. But a dose of realism is needed on what EUR 6 billion can achieve. Such sums can at most complement proactive and consistent EU action in the region.

The Commission must send much clearer public messages and impose penalties for governments which do not follow the rule of law or implement the EU acquis, with clearer rewards for those who do. The EU’s overly diplomatic approach in the region currently gives most governments the impression that they can do whatever they like.

Unless it forms part of a wider and clearer strategy, a new fund looks like a substitute for real progress with EU enlargement in the region instead of a contribution to it.

What is the money actually for?

How the Facility will lead to fundamental reforms is far from clear. The proposals concentrate on gross domestic product growth much more than rule of law or human wellbeing, and the process of agreeing priorities with the governments is untransparent.

The Commission’s Communication has seven ‘Priority Actions for Integration into the EU’s single market’, but no explanation of how they were chosen. And the draft Regulation doesn’t explain what their role is in the process.

In any case, they need to be changed. There are too many of them, they are too wide and they can only achieve tangible results if they are narrowed down.

Fundamental reforms, or just roads and mines?

Two of the priorities are also entirely inappropriate for a fund that should improve rule of law and ‘do no significant harm’.

We might be in a rapidly accelerating global climate emergency, but, shockingly, one of the Communication’s priorities is ‘facilitation of road transport’.

The EU and its public banks have pumped billions of euros into motorways in the Western Balkans in the last two decades – see e.g. Corridor Vc – leaving its rail network in a parlous state. And their focus on cross-border networks leaves urban public transport neglected, despite its potential to improve the lives of millions of people on a daily basis. If the EU wants to fund transport under this Facility, it really needs to prioritise rail and urban mobility.

Another priority, on ‘integration into industrial supply chains’, also rings alarm bells. Although part of it is important – relating to critical medicines – it also includes critical raw materials, including mining. This entails a major risk of the Western Balkan countries mining strategic raw materials for the EU while failing to apply EU environmental standards or achieving appropriate community benefits.

This should be adjusted to cover only critical medicines and processing/recycling of raw materials. Using EU money for extraction and exploration in the region is not currently appropriate with such low levels of environmental governance.

Public participation and the partnership principle are key to proper use of funds

The draft Regulation contains no requirements for public consultations on the Reform Agendas that are to be submitted to the Commission by Western Balkan governments, nor for civil society involvement in the monitoring of funds.

The Reform Agendas must be publicly consulted. And this must be a clear condition for Commission approval. Where they entail significant impacts, Strategic Environmental Assessments (SEAs) must be carried out as well. Yet only three months are proposed for the countries to submit their drafts. This is insufficient for even a basic public consultation.

The Partnership Principle must also be extended to all EU funds, including in the Western Balkans, in order to ensure appropriate monitoring, including by civil society.

Do no significant harm and leave no-one behind – but how will this be ensured?

The Facility is to mainstream climate change mitigation and adaptation, biodiversity and environmental protection, human rights, democracy, avoid stranded assets, and be guided by the principles of ‘do no harm’ and of ‘leaving no one behind’. This is welcome, however the draft Regulation must specify how this will be ensured.

A positive feature of the draft is its clear exclusion of fossil fuels and other activities or measures that cause significant adverse effects on the environment or the climate. This is very welcome and crucial to specify from the outset.

But the experience from the EU Recovery and Resilience Facility shows that the do no significant harm (DNSH) assessment has often been done as a superficial tick-box exercise behind closed doors, with no public input. It has often taken place before the exact nature of the measures has been established, making it hard to assess their impacts.

And ‘leave no-one behind’ is even less clear, as no such assessment is applied even within the EU. This could have been mitigated somewhat by stipulating the use of part of the funds for just transition of carbon-intensive regions, but this is not one of the priorities named in the Communication, despite the obvious needs.

Biodiversity target must be separate

Another relatively positive aspect is that at least 37 per cent of the grant component should contribute to climate objectives. However, the experience from the EU Recovery and Resilience Facility shows that biodiversity funding needs to have a separate allocation percentage, otherwise it is crowded out by other sectors’ climate action funding.

Excessively concessional terms may encourage irresponsibility

The loans are to have a maximum duration of 40 years and the background text states that repayment starts in 2034. This seems designed to encourage irresponsible borrowing, as most of the governments in the region will no longer be in power by that time.

Clearer transparency and disclosure requirements needed

It needs to be clear to the public what is planned, what has been spent and what is still to spend, who is responsible for publishing this information, and in what format. This is not currently the case with any EU funds in the region, which are extremely difficult to track and as a result, the public does not have confidence that they are being used to the best effect.

The EU’s financial interests are not adequately protected

The draft Regulation relies excessively on the beneficiaries to self-report fraud and corruption, and is very laissez-faire about the Commission’s monitoring and enforcement obligations. This is part of a worrying wider trend of an under-resourced Commission trying to offload its responsibilities, hoping that countries will adhere to EU law by themselves.

The recipient countries are also only obliged to report irregularities to the Commission after a primary administrative or judicial finding. This can take many years, and is much too late.

Major overhaul needed

Members of the European Parliament have already put forward amendments to the draft Regulation, which could help increase transparency, public participation, and oversight.

But it remains to define more clearly how the money is to be used, how priorities will be set, and what the exact goals of the Facility are. It is unclear whether this can be done effectively through parliamentary amendments. It might be wiser to suspend the process until an impact assessment has been done and the public consultation has been completed.

Obviously the Commission is in a hurry, but without clearer goals and oversight, there is a major risk of EU public money once again having ‘little overall impact on fundamental rule of law reforms’ in the Western Balkans.

Bar’s battle: Montenegrin town rising against LNG project

In recent months, a proposal for the construction of a liquified gas (LNG) terminal in the port town of Bar has ignited a fierce debate within the local community. In May 2023, the Montenegrin government signed a memorandum with US companies Enerflex Energy Systems and Wethington Energy Innovation to develop an LNG terminal and gas power plant, raising concerns about the potential adverse climate, environmental, and safety impacts for the local area and Montenegro as a whole.

The project has long been advanced without ever consulting neither the local authorities nor Bar residents. The first time members of the public get to have their say is in the public consultations on Montenegro’s draft 2040 Spatial Plan, which includes the LNG project and runs until 29 April.

Gasification from zero makes no sense

Although dependent on coal for around 40 per cent of electricity generation, Montenegro is not connected to international gas networks and consumes negligible amounts of the fuel. It also has a population of only around 620,000 and its electricity consumption is gradually declining due to the demise of its heavy industry. The Montenegrin government has already committed to phase out the use of fossil fuels by 2050. So, investing in fossil gas infrastructure would necessarily endanger climate goals and decarbonisation efforts.

The construction of the terminal and infrastructure itself would take five to ten years. With an operational life of maximum 15 years, dependence on imported gas, and the inevitable introduction of a more meaningful carbon pricing system in Montenegro, it is evident that the project cannot be financially feasible without massive public subsidies.

Local people fear for their safety

What worries local people most is the high risks of accidents and health and property damage, given that the project is planned in the most seismically active area of Montenegro, with an intensity of IX degrees on the MCS scale, only 500 metres from residential areas and close to warehouses of other dangerous chemicals. Their concern is substantiated by past accidents at LNG terminals, such as Skikda, Algeria (2004), when more than 20 people died and hundreds were injured.

Local authority seizes the initiative

The relevant local authorities hardly had any information about the government’s intentions so, on the 1st of February 2024, the Municipal Assembly of Bar held a public debate to discuss the ecological, economic, and social consequences of the project. Those present concluded that it is not in the public interest.

Moreover, on 16 February, the national Parliamentary Committee on Tourism, Agriculture, Ecology and Spatial Planning made a decision to hold a hearing involving the ministers of spatial planning; tourism; ecology, sustainable development, and northern development; internal affairs; and mining. The objective of this hearing is to investigate potential legal breaches in the public participation process, as well as failures to demonstrate the public interest and to disclose the environmental and social impacts of the proposed construction of the LNG terminal and associated gas projects.

These projects, valued at approximately a billion euros, with up to EUR 250 million designated for the terminal alone, have been advanced through international political agreements by government representatives without adequate national discussions on their economic viability. After a hearing in parliament, potential outcomes range from legislative and policy adjustments to excluding gas projects from policies and plans, accountability measures for government representatives, and monitoring the implementation of recommendations to address identified issues.

Counterproductive messages from the European Commission

The European Commission has long advocated for gasification in the Western Balkans, failing to understand that we are already deep in a climate emergency and the region cannot afford to undergo two energy transitions in the next two decades.

In October 2023, Enlargement Commissioner Oliver Varhelyi, made a troubling promise of EU financial support for the LNG terminal in Bar. In response, 27 Montenegrin civil society organizations urged the European Commission to shift its focus towards genuine transformational investments, such as energy efficiency and the development of sustainable renewable energy . However, the Commission’s response in December 2023 failed to acknowledge the unsustainability of an LNG terminal for Montenegro. This is a missed opportunity to prioritize energy transition and societal resilience.

No more space for fossil-fooling around – Montenegro must cut to a clean future

The debate over the proposed LNG terminal project in Bar, Montenegro, highlights critical concerns about its environmental, economic, and social impact. Montenegro’s commitment to phasing out fossil fuels by 2050, coupled with the financial and safety risks of the terminal, underscores the need to prioritize renewable energy sources and energy savings, for example by decreasing distribution network losses and using heat pumps instead of electric heaters. Only this way can Montenegro align with EU and global efforts to address climate change and ensure long-term environmental sustainability and economic stability.

Soft landing: New high-level EIB ‘revolving door’ revelations suggest systemic issue persists

For the million or so Budapest residents living in the shadow of Hungary’s largest international airport, unbearable noise and choking air pollution have been a reality for far too long. Turbulence and intense vibrations from landing and departing flights have also caused damage to many homes in nearby neighbourhoods. The prospects of the airport expanding with millions in EU public money from the European Investment Bank (EIB) got many worried residents up in arms, but the Bank, the airport operator and the Hungarian authorities have mostly shrugged off their concerns.

On Thursday (Feb 29), Politico revealed that Vazil Hudák, the EIB Vice President who signed a EUR 200 million loan for the airport operator in December 2018, joined the Budapest airport’s board of directors mere three months after leaving the Bank and during his cooling-off period mandated by the Bank’s code of conduct. According to Politico, the EU’s anti-fraud office OLAF is currently investigating the connection between the EIB loan and Hudák’s positions as Vice President and then member of the board of the Budapest Airport company.

The EIB loan is meant to enable the expansion of the Budapest airport to allow a 50 per cent growth in passenger traffic by 2030. Bankwatch and Friends of the Earth Hungary (MTVSZ), together with local activists from the Association for Civilized Air Transport, have for several years been warning that an unchecked rise in the number of flights will only mean an increase in greenhouse gas emissions, heightened noise and air pollution, and additional damage to neighbouring homes. The project’s environmental price tag will be even higher if the airport expansion goes ahead without ensuring it is fully in line with EIB standards and EU law – and without engaging local communities. As we have told the EIB’s board, this project is in breach of the Charter of the Fundamental Rights of the European Union.

In fact, it has now been more than two years since the EIB’s Complaints Mechanism acknowledged that the preparation of the airport expansion project was fundamentally flawed. The Mechanism’s report confirmed concerns raised by civil society that the EIB had failed to properly evaluate the project’s compliance with the Bank’s own policies and to inform the public about the project and its ramifications. Among others, the Mechanism’s inquiry revealed that, despite legal requirements, the project had not undergone an environmental impact assessment.

The fact that both the EIB and the airport operator have continued advancing this problematic project while failing to implement the Complaints Mechanism’s recommendations in itself casts serious doubts about their public integrity.

In fact, the Bank told Politico it intends to continue disbursing the loan “as long as conditions attached to our contracts are fulfilled.” Yet, standard contract conditions require EIB-funded projects to comply with environmental law. And this project, as the Complaint Mechanism ruled, does not.

The revelation that the EIB Vice President who signed off this dubious loan subsequently became part of the Budapest Airport leadership is set to deepen the lack of trust in this EU institution among those affected by this project, and likely well beyond.

Precisely at a time when the rule of law is under assault in Hungary and Europe more widely, the EIB as a public institution must reaffirm its commitment to upholding EU law and especially to communities affected by projects it supports.

It is therefore crucial that the EIB now acknowledges the gravity of the conflict of interest uncovered by Politico and publicly explains how Hudák’s appointment to the Budapest Airport board influenced the expansion project he had signed.

We understand that the airport operator has recently submitted to the EIB a revised Stakeholder Engagement Plan, as stipulated by the Complaint Mechanism’s recommendations. In early February, in response to our inquiry, the Bank informed MTVSZ and Bankwatch that its client will publish the finalised documents on its website. But the airport operator has never shared the draft plan with the neighbouring communities affected by the project, as is mandated by EIB policy.

Deciding about public engagement without engaging with the public is absurd and outrageous and further erodes the already shaky trust of affected communities in Budapest Airport and the Bank. In fact, even if the documents are made public, it has already been two wasted years to even start the process. It also remains the EIB’s responsibility to ensure ‘public engagement’ does not end with documents, but is followed by genuine, inclusive action on the ground.

Public money should not be used for the expansion of climate-damaging air traffic at all, but rather for improving more sustainable transport. But at the very least, if the enlargement of the airport is to be completed, it must be brought in line with EIB standards and EU law, chiefly by assessing all of its environmental impacts.

Now, the EIB and its client, the Budapest Airport company, must urgently implement the Complaints Mechanism’s recommendations in full and prioritise engaging the local community in a meaningful way.

A chronic issue of revolving doors at the EIB

Politico’s story also raises serious concerns about recurring cases of revolving doors at the EU’s financial arm. In November 2023, the European Ombudsman Emily O’Reilly concluded her latest investigation into a former EIB Vice President who made an unorthodox career move.

In this case, Dario Scannapieco, after leaving his EIB post went to head Italy’s state lender Cassa Depositi & Prestiti SpA (CDP) that often works with the EIB as a financial intermediary.

Concluding that the way the Bank had handled this case was “inadequate and constituted maladministration,” the Ombudsman reiterated her recommendations to allow the Bank’s Ethics and Compliance Committee “to impose measures to mitigate any potential conflicts of interest risks it identifies” and to make decisions on such measures public shortly afterwards.

In fact, soon after launching this inquiry, the European Ombudsman concluded another one into high-level revolving doors at the EIB. In this case, Emma Navarro went to work for Spanish energy company Iberdrola in January 2021, just three months after having left her position as an EIB Vice President, where she signed loans worth billions of euros to the same company.

“The EIB did not properly manage the risk of conflicts of interest, which arose from the request of the former VP to take up a position with the company during her cooling-off period,” the Ombudsman’s decision reads. To prevent future cases, she recommended the EIB takes “a more robust approach to revolving door moves of the members of its Management Committee to private sector jobs related to matters on which they worked while in the service of the EIB.”

These cases should not have been allowed to happen. Even the changes later introduced to the Code of Conduct for the Management Committee are not likely to substantially address the issue, as they mainly lengthened the cooling-off period.

Already in July 2016, Xavier Sol, then director of public finance watchdog Counter Balance, wrote: “For the EIB to work in the interest of European citizens, the EU bank needs to adopt stricter provisions to prevent conflicts of interest and ‘revolving doors’ practices by its high-level staff.”

His comments came after Ombudsman O’Reilly had written to then EIB President Werner Hoyer specifically about the need for the Bank to address the risk of conflicts of interest in its governing bodies. “The EIB should not only continue to work towards preventing conflicts of interest, but also appearances of conflicts of interest, and should continue to be proactive in identifying and managing risks before, during and after the term-of-office of governing body members,” O’Reilly’s letter stated.

In April 2017, the European Parliament joined the call for the EIB to tackle the risk of conflicts of interest. Its members (MEPs) were “strongly concerned with the identified shortcomings in the existing EIB mechanisms to prevent possible conflicts of interest within its governing bodies” and urged the Bank to consider the Ombudsman’s recommendations and revise its Code of Conduct “as soon as possible.”

Nearly four years later, in June 2021, MEPs again called out the issue of conflicts of interest in the EIB, noting that “several former vice-presidents have taken up employment at entities associated with the EIB without respecting a cooling-off period”. They condemned “the fact that such practices are not strictly regulated and prohibited by the EIB’s code of conduct”. The European Parliament reiterated its call for the Bank to tighten up its post-employment policy to bring it into line with that of the European Commission and similar institutions.

Two months later, the EIB introduced a new Code of Conduct for the Management Committee. This iteration prescribes a 24-month cooling-off period, during which EIB Vice Presidents “shall avoid all situations which may give rise to an actual, potential or apparent personal conflict of interest. If they cannot be avoided, these situations should be adequately and cautiously mitigated.”

Yet, the three revolving door cases indicate that the issue might not be just the length of the cooling-off period, as the Vice Presidents involved all took up new posts within four months of leaving the EIB. Rather, it is the enforcement of the rules on conflicts of interest per se. The board’s Ethics and Compliance Committee must ensure that the cooling-off period is strictly observed, particularly among departing Vice Presidents. The rules should also be strengthened, so that members of the EIB Management Committee are not allowed to take up jobs in companies and institutions which benefit from the Bank’s financial support in regions and countries these Vice Presidents were responsible for.

There is a direct line between the EIB’s failure to adhere to its environmental and social standards and EU law in the development of the Budapest airport project, and the failure to uphold critical ethics safeguards. Both endanger the Bank’s integrity.

It is high time for the EIB to step up its efforts to eliminate conflicts of interest, particularly within its leadership. Nadia Calviño, the Bank’s President, has to ensure the European Ombudsman’s recommendations are followed to stem the phenomenon of revolving doors. EU finance ministers, in their role as EIB governors, need to see that this remains a priority if the Bank is to maintain public trust.

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