Blog entry

EBRD funds channelled to Kremlin affiliates: Why the purchase of Tbilisi metro cars from a Russian company should not proceed as planned

Links with the Kremlin and Russia’s defence industry

Metrowagonmash is part of Transmashholding, whose shareholders Russian oligarchs Iskander Makhmudov and Andrey Bokarev – are closely linked with the Kremlin and its defence industry. In 2015, Bokarev and Makhmudov became two of the largest government contractors in Russia. Until 2017, they, along with Russia’s current deputy defence minister Alexei Krivoruchko, also held shares in JSC Kalashnikov Concern, which manufactures around 95 per cent of Russia’s guns.

After leaving Kalashnikov, the partners continued to provide engines for Russian warships through Metrowagonmash’s sister company, as evidenced in the company’s 2018 and 2019 annual reports. In 2021, Transmashholding tried to expand its capabilities in motor production by acquiring Bergen Engines from Rolls-Royce. Citing security risks, the sale was blocked by the government of Norway. In a statement issued on 23 March 2021, the Ministry of Justice and Public Security of Norway said: ‘The engines they [Bergen Engines] produce would have had great military strategic importance for Russia, and it would have strengthened Russia’s military capabilities in a way that would clearly be at odds with Norwegian and allied security policy interests.’

Notably, Andrey Bokarev was among the billionaires and tycoons that met Russian president Vladimir Putin on the day Russia attacked Ukraine. After the invasion, both Makhmudov and Bokarev were sanctioned by Ukraine, the United Kingdom and New Zealand.

The unexplained backtracking of the EBRD and Tbilisi City Hall

The Tbilisi Metro Project, which is co-financed by the Green Climate Fund, received finances from the EBRD in 2020 and the Russian supplier was selected in a two-tier tender in 2021. Russia’s invasion of Ukraine changed the context and stalled the official procurement procedures with Metrowagonmash.

In March 2022, the EBRD suspended a transfer to the Russian company due to the risk of sanctions. In November 2022, the mayor of Tbilisi announced that the municipality and the EBRD had decided to terminate the contract and were in contact with alternative suppliers. Yet in February 2023, a Tbilisi City Hall representative said that Metrowagonmash would remain on as the supplier, as it provided the most affordable tender proposal. The mayor of Tbilisi also stressed that he was forced to keep the existing agreement to avoid the imposition of fines and financial sanctions on the state – although it is not clear who would impose these. The company has agreed to supply 44 wagons (11 sets) at a cost of EUR 49.2 million. According to City Hall, the original agreement was renegotiated with an added provision that payment to the company will only go ahead once the metro cars are received.

We urge the Bank to terminate the contract with Metrowagonmash and find an alternative supplier for the project.

Despite our multiple attempts to obtain more information, the EBRD has not yet responded to our queries about the project.

Bankwatch and Green Alternative call on the EBRD to clarify:

why it reversed its decision to suspend payment to Metrowagonmash;
why it stands behind its decision to retain Metrowagonmash, whose sister company supplies engines to Russia’s Ministry of Defence and whose parent company’s shareholders are sanctioned by the UK, as a supplier for the project;
whether it has assessed the risks associated with the project’s main supplier and with the supply chain in accordance with EBRD’s Environmental and Social Policy;

whether it has fully considered the direct or indirect involvement of the main supplier in the armed conflict through its activities and connections and, furthermore, how this might increase environmental, social and human rights risks;
whether it is aware of any financial losses, sanctions or fines likely to be imposed on Tbilisi City Hall if the contract is to be terminated and by whom.

Let us not forget that in April 2022, the EBRD Board of Governors decided to deny the Russian Federation access to the Bank’s resources with immediate effect. In addition, the Bank noted that it ‘avails itself of all rights to suspend or cancel further disbursements of funding on existing projects’.

The EBRD prides itself on the support it provides to Ukraine amid the war. But actions that might enrich Russia’s wartime coffers undermine and taint this effort. They also cast doubt on the EBRD’s commitment to Ukraine and call into question the future status of ongoing projects with Russian suppliers.

Providing metro cars to Tbilisi should not present a moral dilemma either for Tbilisi residents or for European taxpayers.

How renewable energy could reinvigorate Romania’s slumbering district heating sector

The inefficiency of the old district heating systems raises a different set of concerns among different stakeholders. For residents, it’s the lack of heat and hot water, caused by frequent system breakdowns, not to mention the ever-increasing bills. The inhabitants of cities with heating systems such as Bucharest, Timișoara, Craiova etc. frequently run out of hot water and heat. For us environmental activists, it’s the increase in CO2 emissions and other pollutants, despite district heating being less polluting than individual heating units taken together. And for debt-laden municipalities unlucky enough to administer a coal or gas-based thermal power plant, it’s the high prices of CO2 emission allowances and the losses they have to cover with money from the public budget. But a range of modern technologies based on renewable energy, already proven throughout Europe, could breathe new life into Romania’s district heating systems.

Over the past 30 years, the number of district heating systems in Romania has been decreasing. According to Challenges and opportunities for the centralised thermal energy supply system in Romania, back in 1996 and 1997, 308 Romanian communities were connected to district heating networks. By 2021, this number had fallen to 50.

This decline can be linked to inefficiency due to the hot water losses in the heat transportation grid, which it is itself the result of a lack of modernisation of these systems; economic problems associated with the non-payment of bills by some consumers; and frequent breakdowns resulting from, in most cases, technologically outdated facilities.

The Romanian governments decided, during the past three decades, to allocate funds to ensure the continued operation of district heating systems. Only recently, a sum of RON 41.3 million (EUR 8.39 million) was earmarked for 2020 and RON 310.4 million (EUR 63.09 million) for 2021.

Evolution of the number of homes connected to district heating systems

	Year
Region	2017	2018	2019	2020	2021
North-East Region	90,078	81,073	78,261	72,246	69,061
South-East Region	121,393	105,005	99,079	90,105	77,213
South Region	82,248	79,703	79,220	78,185	76,837
South-West Region	123,147	119,726	119,018	116,990	113,271
West Region	96,740	95,577	94,087	89,085	78,231
North-West Region	95,527	94,128	93,272	94,172	93,266
Central Region	12,279	11,271	16,326	15,932	15,591
Bucharest/Ilfov Region	562,027	561,213	561,058	559,861	558,738
Country	1,183,439	1,147,696	1,140,321	1,116,576	1,082,208

Source: National Authority for Energy Reglementation (ANRE), Raport privind starea serviciului public de alimentare cu energie termică în sistem centralizat pentru anul 2021

The disappearance of the district heating systems combined with the increasingly low quality of existing heating services has led to the mass disconnection of households from this district heating source. Many people have been forced to find quick solutions based on what they can afford and without necessarily weighing up the pros and cons of their choices. While some have switched to individual heating fuelled by wood-fired boilers, unfortunately most have opted for fossil-gas boilers.

Bucharest, Romania’s most crowded city, has the largest number of active district heating systems. However, they are not available in all areas, and the resulting differences in air quality are evident. For instance, Bucharest’s Sector 1, where a significant number of properties and buildings are not connected to a district heating system, has recorded three times more carbon monoxide pollution than Sector 3 has.

Modern and efficient heating systems, especially those that rely on renewable energy sources (geothermal systems, photovoltaic panels, solar panels, heat pumps, etc.) come with many benefits. Unlike individual heating systems, those supplied by clean energy sources run more efficiently, reduce pollution, maintain a secure supply and help cut down on total costs.

Yet, so far, Beiuş is the only city in Romania heated exclusively by geothermal sources. Since 1998, a nearby thermal plant has been providing geothermal water extracted from depths of 2,500 to 3,000 metres. This district system distributes a thermal agent for heating as well as hot water for consumption, supplying 103 apartments in condominiums, schools, kindergartens, churches and public institutions.

Indeed, there is a vast, untapped potential for sustainable district heating throughout the country. The town of Motru is one promising example. According to a November 2022 study commissioned by Bankwatch Romania, a lignite-fired plant that has been feeding the local district heating system could be replaced by heat pumps powered by solar panels. Of all the scenarios examined, heating based on renewable sources proved the most sustainable.

In Bucharest’s City Hall, studies on the feasibility of installing heat pumps that would serve homes connected to the district system in the north of the city are being discussed.

Last year, in 2022, the local council of Sector 1 advanced a ‘heating from the sun’ solution, which would see solar panels and heat pumps installed in blocks where heating services are not up to scratch. Although the formal proposal by the mayor of Sector 1 was not adopted, the administration of Sector 3 subsequently announced their intention to launch a similar initiative.

Bucharest City Hall is responsible for heating the city of Bucharest. As such, it should consider the use of renewables like solar, geothermal and wind energy as realistic options, and should initiate feasibility studies to find the best sustainable solutions. The continuous development of the municipality and the increasing distance of consumers from sources of production can only result in further technological heat losses. Priority must be given to the diversification, improvement and augmentation of renewable thermal energy production. How efficiently these goals are met will depend on the rehabilitation and modernisation of the heating grid.

Overall, Romania still has a decent number of functioning district heating systems. But it is very important that these systems not only remain functional, but also switch to production from renewable energy sources.

Feasibility studies for the modernisation of district heating systems should also be encouraged in order to determine the most sustainable option, whether it be heat recovery from industrial systems, photovoltaic panels, heat pumps, geothermal sources or wastewater heat.

Responsibility also falls on international financial institutions that finance these district heating projects to invest in renewables to the highest extent possible. Even with a minimum 20 per cent output, a district heating system will supply hundreds of thousands of inhabitants while delivering positive benefits for the environment and people’s health.

Successful renewables acceleration needs more public participation, not less

2022 was a record year in both the solar and wind sectors in the EU, with fifteen gigawatts of new wind capacity installed – a third more than 2021. Solar fared even better, with 41.4 gigawatts installed – no less than a 47 per cent increase compared to the previous year.

These successes show that the EU is capable of ramping up renewables installation, but continuous efforts are clearly needed to overcome its fossil fuel addiction and achieve sustainable decarbonisation.

In addition, the increases are patchy. In the not-overly-sunny Netherlands, solar generation grew by 51 per cent in 2022 alone, making up 14 per cent of electricity generation. Meanwhile in Croatia, it languished at 0.43 per cent.

There are many reasons why solar and wind deployment is not going fast enough in some countries. Obstructive spatial rules are still a problem for wind power in Poland and Hungary. Many countries lack enough administrative staff for permitting procedures, and support schemes have not always been consistent, resulting in stop-start development. Failure to adequately consult the public about project plans also results in resistance and lengthy court battles in some cases.

Using a sledgehammer to crack a nut

Pushed by Russia’s full-scale invasion of Ukraine to speed up renewables deployment, in May 2022 the European Commission put forward its REPowerEU package, which included controversial changes to the Renewable Energy Directive.

But Directives take time, so, using a fast-track procedure that bypasses the European Parliament, on 22 December, the Council adopted Council Regulation (EU) 2022/2577 to speed up renewables permitting.

The Regulation includes useful provisions to speed up small-scale solar and heat pump deployment, but these are seriously undermined by gratuitous clauses which breach EU environmental legislation and circumvent public consultation requirements.

For example, if Member States have defined specific renewable energy zones, individual renewable energy projects – even highly damaging ones such as hydropower and forest biomass plants – can move forward without undertaking project-level environmental impact assessments, as long as a more general ‘strategic environmental assessment’ has been undertaken.

This clashes with the EU’s existing rules on environmental impact assessment and means that the public won’t have to be consulted about individual projects in renewable energy zones, which is both illegal and counterproductive.

Not only EU law, but also the Aarhus Convention guarantees the right for the public to participate in decision-making on projects that may have significant environmental impacts. A strategic environmental assessment can in no way be a substitute for a project-level assessment, as it contains much less detail.

This won’t end well. EU law is already flexible enough to ensure that projects with low impacts do not undergo an environmental impact assessment. So this change will benefit projects with more serious impacts.

Our experience shows that there is nothing more guaranteed to irk people than the feeling that decisions are being taken behind their backs – a fact likely to increase legal challenges against renewable projects, rather than speeding them up.

Environmental safeguards and public participation must be improved, not bypassed

The Regulation leaves a lot of flexibility to Member States in how and whether to apply certain parts of it. The sections on small-scale solar and heat pumps are a must, but other sections are not necessarily. We have therefore produced a position paper providing our views on how the Regulation should be implemented.

Member States must not weaken their environmental standards. Even before the Regulation was adopted, environmental safeguards were not properly applied in many countries and need to be improved, not further eroded.

The Treaty on the Functioning of the EU specifically states that EU environmental law does not prevent Member States from maintaining or introducing more stringent protective measures, as long as they are compatible with the EU treaties. So governments surely cannot be penalised for merely upholding existing EU environmental law.

At the same time, unnecessary delays caused by political obstruction, lack of administrative capacity or having to submit documentation on paper, instead of electronically, urgently need to be tackled – issues which the Regulation does not address.

The biodiversity and climate crises must be tackled together

A balance must be struck between speeding up sustainable forms of renewable energy, applying EU environmental law and preventing legal uncertainty.

Increasing the share of renewable energy cannot come at the cost of action to protect our increasingly beleaguered nature, otherwise we have achieved nothing. Biodiversity is not an optional extra, we need it for everything: for clean water, food, oxygen and climate regulation, medicines and much more besides.

Using renewable energy can help us to protect nature, but only if done thoughtfully. We have to use low-impact technologies and locations, carry out appropriate environmental assessments and properly include the public in decision-making if we want to make a success of the sustainable energy transition.

Read more: Our position paper can be found here

Illiberalism alert: draft law to shut down civil society awaits vote in the Romanian senate

I’m writing this text as I return from a meeting of lawyers specialised in environmental law from across central and eastern Europe. The irony! While countries like Bulgaria are preparing a dedicated climate law, with vibrant participation from non-governmental organisations (NGOs), and in the Czech Republic civil society won a court case against their government for not having ambitious enough climate change mitigation targets, in Romania politicians can’t think of enough ways to restrict NGOs’ rights to justice and even free association.

The draft law submitted at the end of November 2022, ironically initiated by a group of members of parliament from of the liberal party, aims to amend the law on the functioning of associations and foundations and would add restrictive conditions to NGOs’ otherwise legal right to challenge an administrative act in court (for example, environmental or construction permits) by:

Introducing the financial liability of the members of the board of directors for any damage caused to third parties if the action is rejected by a final court decision. It is worth noting that there is no individual liability of a representative of the public administration, for example, in the case of a final decision that finds an administrative act illegal.
New conditions are introduced for an organisation to be ‘entitled’ to challenge an administrative act in court: the organisation must be at least two years old, it must prove that ‘the association has actively pursued the goals mentioned in the statute that are related to the contested administrative act’ and it must put forward a deposit (like a guarantee) of one per cent of the investment value (maximum RON 50 000 / EUR 10 000).
The draft law also suggests prohibiting a person from being a member of the board of directors of an organisation if in the last five years they were a member of the board of an association that was dissolved by court decision.
The draft law proposes that these measures have a retroactive effect, in the sense that they also apply to pending cases in court.

The proposed changes cover any court action that organisations take, including bringing authorities to court for breaches of the law, such as failing to comply with regulations on transparency and public participation.

The proposal raised serious concerns with the Economic and Social Committee and the Superior Council of Magistracy, neither of which gave a favourable recommendation for adoption.

However, this hasn’t stopped the members of the senate from introducing even further amendments that, if adopted, would mean nothing else than the dissolution of hundreds if not thousands of NGOs. Concretely, the project initiator perfected his assault on civil society by introducing an amendment (number 7 on the list) by which the organisations which receive funding through the ‘3.5 per cent income tax mechanism’ must disclose the names of the individual private donors, under the sanction of dissolution. This sponsorship mechanism allows any employee to choose where to direct 3.5 per cent of their 16 per cent tax on income every year. If they don’t choose, the state takes it anyway and distributes it totally non-transparently to the church, the army or some unknown NGOs of public utility. The problem is, the receiving beneficiary (i.e. the NGO who was chosen as recipient of the funds from this 3.5 per cent tax) has no control over the source of money, as the fiscal authorities transfer the funds from the state budget to the NGO’s account, providing only the town where the individual donor was based. So, in practice, meeting this requirement alone would be impossible and hence reason to dissolve an organisation.

The proposed changes are a clear attempt to weaken the ability of civil society to exercise its mission to protect the public interest and are closer in line with totalitarian regimes than with European democracy and the rule of law.

When the draft law was first submitted to the parliament, 160 organisations and groups of citizens wrote to the initiators of this law and requested that they withdraw their signatures from this document. To no avail.

Today the law was up for a vote in the plenary of the senate (the first chamber of the parliament), but they voted for the proposal to be sent back to the committee dealing with judicial matters for further analysis. It will feature on the plenary’s agenda again in a week. Once the law passes the Senate, it will go for further debate and a final vote in the second chamber. This can last as little as a month. During this time, the ombudsman, the president or any political party can (and should) bring this law to the Constitutional Court and challenge its flagrant breaches of constitutional principles.

Attempts to intimidate civil society are not new, neither in the region nor in Romania, although Romania’s parliament is displaying an energetic escalation in such efforts as of late. From the not-so-veiled accusations that environmental NGOs are to blame for the increased price of electricity and gas in late 2021, to blunt attempts to dissolve them altogether, many politicians appear determined to do whatever it takes to clamp down any form of public scrutiny. But this is only making us more united and more determined to fight any threat to a clean environment and a sustainable future.

EBRD: Everything is peachy, just trust us!

In January, Bankwatch published a blog post about the North Macedonia Regional Gasification Project, which involves building a major new fossil gas import pipeline from Greece. We also sent comments on the environmental studies for the project published by the EBRD, seeking a justification for the substantial expansion of fossil gas consumption for a country that has, fortunately, so far not been heavily dependent on large imports of gas – unlike many central European countries.

The EBRD was quite swift in its response (see document). They are very confident, stating that ‘expectations are that gasification will lead to significant reductions in air pollution, and GHG emissions, by enabling the switch to cleaner fuels in populated industrial areas of the country‘ and ‘[c]arbon lock-in risks have also been assessed from technical, economic and institutional perspectives. Overall, our conclusion is that these gas investments are unlikely to displace low carbon alternatives or to prevent or delay the introduction of renewable energy or low carbon solutions.’

However, none of these claims were substantiated by any figures or verifiable data.

Following this letter, this week we had a meeting with EBRD representatives, in which they reassured us that a more detailed justification would be disclosed in the Board Report that is available for the project after its approval by the Bank (however, only for public sector projects like this one).

Those familiar with the Aarhus Convention (which the EBRD refers to in its Access to Information Policy) know that environmental information should be disclosed before a decision is made, not after it, so the public has a chance to engage in meaningful dialogue.

But is the EBRD disclosing such information? We have looked at how the Bank handled the disclosure in a previous similar case.

In 2020, the EBRD approved an EUR 80 million loan for a liquefied natural gas (LNG) Floating Storage and Regasification Unit (FSRU) in Cyprus. Still, in the Board Report they redacted nearly all environmental information. The only such information that remains is the project’s direct CO2 emissions, which are expected to be 15 to 20 kilotonnes of CO2. This emissions estimate does not include emissions produced by actually burning the gas, just those created by running the plant as well as by gas leakages. The rest consists of general statements about the climate and other benefits of the project. But for the public, there is no way to verify this, as they have not disclosed their baseline data, targets or deadlines.

Extract from the EBRD’s Cyprus LNG FSRU Board Report

This is a ‘smart’ way for the EBRD to avoid accountability and make sure that it can continue to promote its Paris ‘alignment’ while actually financing fossil fuels, without anyone outside the bank being able to verify or monitor the actual implications of its investments.

Bankwatch has already approached the EBRD to request data and information that would substantiate its bold claims. If it comes up with something, we will be happy to share it – most importantly with the public in North Macedonia, as they will be the ones paying for this project in the end.

Conditionality mechanisms and the green transition: the case of EU funding for Poland

The current EU budget for 2021 to 2027 is unique not only because it has been boosted by the NextGenerationEU facility, which aims to speed up the post-pandemic recovery of EU economies in a sustainable and just way. For the first time, this funding structure also includes conditionality mechanisms designed to ensure compliance with the rule of law as applied by the European Commission.

For years, experts and media have claimed that this could lead to the suspension or even removal of EU funds for countries such as Poland and Hungary, a prophecy that has indeed been fulfilled in both cases. Let us look at the Polish example – has Poland definitively lost hundreds of billions of euros from the cohesion policy? And if so, can programmes aimed at scaling up the green transition still be implemented in spite of this?

Stories about EU funds have flooded Polish media in recent months. The public is slowly getting used to headlines like ‘There will be no recovery money!’ and ‘EU funds will not come to Poland!’, although decision makers in Warsaw and Brussels aren’t happy about this messaging.

This is a topic of conversation not only for politicians, journalists and local government officials, but also for many concerned citizens who either want to apply for EU co-financing for their planned activities or want to see investments implemented in their neighbourhood. The conflict between the Polish government and EU institutions over the country’s violation of the rule of law is escalating, hence the emergence of theories about how this will affect EU payments to Poland.

The most important question remains: will the flagship FEnIKS (European Funds for Infrastructure, Climate, Environment) programme rise from the ashes like its mythical namesake and make sure investments go where they should?

Suspension of funds

In the eyes of the European Commission and the EU courts, Poland has violated EU treaties by undermining the judiciary’s independence in several reforms adopted since 2015.1 This has significant consequences, and not only in terms of fines that the Polish government has to pay for not respecting the European Court of Justice’s rulings, although these fines already amount to nearly EUR 400 million. This amount could fund 100 new windmills or 35,000 heat pumps to replace old coal boilers.2 But this is still a tiny percentage of the money Poland could lose if it does not comply with the rulings.

Independent courts are crucial for protecting investments and competitiveness. It’s especially important for them to remain independent to ensure that EU funds are spent properly. The national recovery and resilience plan and structural funds from the Cohesion Policy amount to almost EUR 112 billion (an additional EUR 22.7 billion can still be requested from the loan part of the recovery plan, with the chance of an extra EUR 2.76 billion in grants under the REPowerEU programme).

Conflict around the judiciary structure was one of the reasons why the European Commission delayed approving the recovery plan. Once it was finally greenlighted, the president of the European Commission, Ursula von der Leyen, assured the concerned European Parliament that no funds from the recovery fund would flow to Poland until the rule of law milestones were fulfilled.

Soon after the approval of the recovery plan, the European Commission and Poland agreed on the country’s Partnership Agreement – a roadmap for spending over EUR 76 billion in funding under the cohesion policy. However, in early October, Marc Lemaitre, director general for regional policy at the European Commission, announced that Poland would not yet receive these funds either. This is because Poland failed to meet the horizontal enabling condition regarding the efficient application and implementation of the Charter of Fundamental Rights. Enabling conditions are critical features of the legal and policy environment in each Member State that must be fulfilled before any disbursement can be made.3 Among them are those concerning fundamental rights, as well as the adoption of sectoral strategies, such as building renovation. The withholding of all cohesion policy funding (except for a small pre-financing figure of around one per cent) is unprecedented in Poland’s time as a member of the EU.

Is the alarm pure exaggeration?

The current situation, however, does not necessarily imply that funds allocated to Poland have been irreversibly lost, nor that the planned investments must be thrown away. Both recovery and cohesion funding rely on refinancing expenditures that investors must make first. The beneficiaries receive funding from the Polish administration, then the government requests refinancing from the European Commission, which is conditional upon fulfilment of the previously agreed-upon criteria (milestones and targets for recovery funding, enabling conditions for the cohesion policy). To date, Poland has received only a pre-payment for administration and technical assistance purposes.

Considering the rules of settling expenses from EU funds and the government’s declarations that ‘work on meeting the enabling conditions is ongoing, and the matter will be settled quickly’, alarmist critiques saying that these funds have already disappeared are exaggerations. The EU programmes for Poland have been approved; the money is ready to flow, but will only do so once the government meets the required conditions.

All formal steps related to implementing the programmes should now be carried out. First and foremost, monitoring committees should be appointed in line with the partnership principle. They should include representatives of independent non-governmental organisations, which will prepare the first calls for proposals alongside the authorities and other stakeholders. This partnership framework is one of the safeguards in place to ensure the funds are not misused.

The appointing procedure of the monitoring committees guarantees the representation of at least one environmental organisation on each committee. To date, most of the committees of national programmes have been appointed in a transparent and inclusive process, with only minor violations reported. However, significant violations of the partnership principle have been observed at the regional level, where as of January 2023, the selection procedure remains ongoing. Work on calls for proposals must begin shortly so that the implementation of investments financed from the EU budget for 2021 to 2027 can start in full in 2023.

‘All quiet on the Western Front’?

While the problem is by no means unsolvable, there are multiple reasons why the messages from the European Commission about withholding EU funds for Poland shouldn’t be underestimated.

First, the trajectory of reforms in the Polish judiciary suggests a significant risk that the enabling conditions won’t be met in the next few years. Although the government’s recent actions offer some hope that violations of the rule of law will be at least partially remedied, Poland’s failure to apply the Charter of Fundamental Rights is broader and goes beyond the judiciary (it also concerns the discrimination against minorities). Tensions within the ruling right-wing coalition raise concerns about whether the issue can be resolved. If the government fails to meet the conditions, expenditures have already been incurred from cohesion policy programmes and the recovery plan may not be reimbursed. And if the EU doesn’t pay, then those funds will come from the state budget, which is funded by Polish taxpayers.

Second, there are concerns of a ‘chilling effect’ among potential beneficiaries. Confidence in the stability and predictability of EU funding has been undermined. Some potential beneficiaries who would like to implement projects with EU funding may withdraw from these plans for fear that they will not be reimbursed. Another issue is that banks that offer cheap bridge loans for EU funding beneficiaries (which allow beneficiaries to cover expenditures until they’re eligible for reimbursement) may become stricter due to the increased risks. Therefore, some investors may be unable to gather sufficient funding for their investments.

Third, focusing on the public debate around European funds by asking whether there will be EU funding shifts attention away from an equally important question: what will be financed? What will Poland spend over EUR 110 billion on?

What is at stake?

Cohesion policy funds, with their required climate allocation of no less than 30 or 37 per cent (depending on the source) are vital for Poland’s green transition. Billions of euros have been earmarked for increasing energy efficiency, deploying renewables and adapting to climate change.

From the beginning, Polish Green Network has been involved in preparing the EU’s largest operational programme, FEnIKS, in which the EUR 24.2 billion budget focuses on the green transition. The first drafts of the programme raised many objections: transformative ambition was low, and the business-as-usual approach prevailed (spend a lot and quickly, preferably on large infrastructural projects). Huge sums were earmarked for highways and fossil gas investments, with very little dedicated to biodiversity protection.

However, the programme was significantly improved thanks to the involvement of civil society partners in the programming process. Polish Green Network and Fridays for Future Poland jointly submitted nearly 50 comments to FEnIKS as part of official public consultation process, with dozens more submitted within the working group and sent directly to the Ministry of Funds and the European Commission. As a result, the allocation for biodiversity protection and restoration was doubled and support for energy communities and climate educational measures was included in the programme.

In the latest version of FEnIKS approved by the European Commission, over EUR 2 billion has been allocated to increasing energy efficiency, mainly through the flagship Clean Air programme. Alongside this, almost EUR 540 million has been earmarked for renewable energy sources and EUR 310 million for the protection of biodiversity. Further billions for the green transition have been reserved in 16 regional programmes prepared by provincial governments.

What needs to be improved?

However, improvements to FEnIKS and other cohesion policy programmes are still needed. Support for any investments harmful to the climate and the environment should be dropped entirely. These include river regulation (up to EUR 200 million earmarked) and gasification of the energy and heating sector (district and individual heating), with over EUR 900 million planned for gas investments.

Even if this is improved, assessing the impact of Poland’s main programme for EU funds on its contribution to meeting EU climate objectives would be difficult due to poor indicators. There is, for example, no indicator for the overall reduction of greenhouse gas emissions as a result of the programme’s implementation. More specific output and result indicators also need to show improvements in energy efficiency, adaptation to climate change and biodiversity protection. Those currently included in the programme4 do not allow for a thorough assessment of the quality of climate-related spending.

The 2021 to 2027 budget – fortified with the recovery funding – is likely to be the last that of its size, especially if EU economies do not improve their sustainability and resilience. As such, it should be spent responsibly and efficiently. The challenges posed by the worsening climate and energy crises require a change in how public investment priorities are considered.

Poland desperately needs EU funding. Without reducing the demand for energy in the building sector, installing new renewable energy sources and climate education activities included in FEnIKS projects, the distance between Poland and western Europe will increase. Vast emissions of greenhouse gases will also deepen the impacts of the climate crisis on human health and biodiversity, as well as negatively impacting several economic sectors, making Poland a pariah among developed countries and forcing citizens to pay horrendous energy bills.

This is why the flow of EU funds to Poland and ambitious climate spending must be ensured. It is a challenging but not impossible task.

Withholding EU funds for Poland serves as a lesson for the entire EU. We already know that conditionality mechanisms work and that the European Commission is determined to apply them when deemed necessary. But we still need to learn how they will affect the green transition in one of the largest and most delayed EU Member States.

For more information on the EU funds for Poland, see our previous publications: ‘European Funds for Climate. Partnership in the programming of European funds for 2021-2027’ (in Polish), ‘Assessment of Poland’s operational programmes’ and ‘On the (long) road to recovery: Poland’s plan greenlit’.

An earlier version of this opinion piece was originally published on the Gazeta.pl portal in December 2022.

1 The Commission took action against Poland for a number of violations of the EU principles on the judiciary. This concerned, among others, the Constitutional Tribunal reforms and the independence of judges.

2 With the approximated price of a three-megawatt (MW) onshore windmill of EUR 4 million and the cost of a new heat pump of EUR 11.5 thousand

3 As explained in art. 2 of the Common Provisions Regulation: ‘’enabling condition’ means a prerequisite condition for the effective and efficient implementation of the specific objectives’; Annex III to this regulation contains a list of horizontal enabling conditions for cohesion policy funds.

4 See European Funds for Infrastructure, Climate, Environment for 2021-2027, pages 32-33, 40 and 55.

« Previous Page