Blog entry

Never mind the protected areas!

When the loan for construction of three small hydropower plants on the Mojanska River was signed in 2019, the Komovi Regional Park was already four years old.

Yet there is only one single sentence in the environmental impact assessments (EIAs) of Mojanska 1 and Mojanska 2 plants admitting that the plants are ‘located within the boundaries of the regional nature park’.

The only thing that follows is: ‘Therefore, it is necessary to apply all measures to protect all segments of the environment’. There is no explanation about the Park’s management regimes and no reference to the fact that part of the cascade is in zone 2 of the Park where only traditional and temporary construction is allowed. For Mojanska 3, the plant that was constructed deepest in the Park, an EIA was not even carried out because it is less than 1 MW, and an EIA was automatically not required according to the national legislation. EU law, on the other hand, at least requires such projects to be screened to check whether they need an EIA.

The hydropower cascade is financed by the European Investment Bank (EIB) – not directly but via the Investment and Development Fund of Montenegro (IDF). A third of the EIB’s lending is hidden behind such financial intermediaries. The fact that the EIB leaves project appraisal to the intermediaries means that environmental assessments are often not done properly, if at all. A lack of monitoring during construction and operation is also more than common for such investments.

Dry river bed

In 2020, the first year of operation of the Mojanska plants, the riverbed was left dry, leading to irreversible impacts to fish and other aquatic fauna. In a statement at the time, WWF Adria commented that: “It is very uncertain whether anything from the living world can survive. It is of special importance to point out that the Mojanska river has been declared a protected fishing area, as an area of the greatest importance for the spawning of brown trout. This means that this river was a natural breeding ground for trout before the construction of the small hydropower plants, while now the river is permanently damaged and it is most likely that this species will completely disappear in it“.

Our field visit on 1 October 2021 proved more of the same. The three plants, Mojanska 1, Mojanska 2 and Mojanska 3, had barely left any water in the river and completely block fish migration. The valley now looks more like an industrial site than a protected area.

Fish pass more suitable for kangaroos than for fish

According to the Montenegrin law that was in force when the Mojanska plants obtained their ‘water conditions’ permits, leaving only 10 percent of the annual average water flow in the river should be enough to support wildlife, whilst installing anything that the investor calls a ‘fish passage’ was considered enough to ensure fish migration. Doesn’t matter that the ones constructed on the Mojanska river are more suitable for kangaroos than for fish – the stairs are too steep and they would have to jump from stone to stone in order to get to the other side of the dam. Moreover the small amount of water in the river would make it unlikely that fish would even reach the beginning of the fish pass.

But even the best fish passages in the world cannot prevent negative impacts on aquatic animals. Numerous scientific studies show that more than half of fish cannot manage to use the fish passages, especially for species other than trout and salmon. In addition, every fish passage needs monitoring to ensure that it is operating as planned, and obstructions such as driftwood are regularly removed. Such regular monitoring is impossible in remote areas, and there is no incentive for the operator to ensure the fish pass is functional, as every litre of water in the fish passage means less income. Even if a fish passage is moderately functional, it does not replace lost habitat. For almost its entire length the Mojanska river now receives 10 percent of the water it used to have before the plants were built.

Wishful thinking on otter impacts

The Analysis of Impacts chapter further illustrates the poor quality of the EIAs. The otter (Lutra lutra) is the only animal for which actual fieldwork was carried out – one day for Mojanska 1 and one for Mojanska 2. Two fieldwork days for a cascade that costs EUR 5.9 million.

The conclusions completely ignore the fact that 90 percent less water in the river would mean less fish for the otter: “During the exploitation phase, the planned projects for the construction of SHPP Mojanska 1 will not have any special negative impact on otters, since the project envisages the construction of fish passages, which will enable the migration of fish.”

Inspectorate visits only after heavy rains

Immediately after our visit in October, WWF Adria’s partner in Montenegro, NGO Eco-Team, notified the national authorities and an environmental inspector visited the plants shortly after heavy rains. Unsurprisingly, on 12 October the inspectorate reported that:

“…the Mojanska riverbed is not dry after the water intake, that the water entering the Mojanska riverbed is flowing from the fish pass, that the flow is measured because the “limigraphs” are in operation (…). The flow reports are in accordance with the Law on Waters”.

It is not clear whether it was a coincidence that the inspectorate visited only a week after being notified and only after heavy rain, but this clearly weakens the inspection’s effectiveness. Such scenarios are played out time and again across the whole of southeast Europe, preventing the worst impacts from careless construction of small hydropower from being mitigated.

EIB environmental and transparency standards on intermediaries must be tightened

As with other small hydropower projects from Bulgaria, Serbia and Croatia, the financing of the plants via intermediaries meant that the public could not bring their concerns to the EIB before the damage was done, because they did not know it was involved. The EIB’s involvement in Mojanska was revealed to the public only in March 2020, after several information requests and a complaint to the EIB’s Complaint Mechanism by Bankwatch.

This case illustrates the inadequacy of the EIB’s environmental standards for intermediated projects. Neither the national authorities nor the Investment and Development Fund of Montenegro are equipped to ensure project assessment and operation in line with EU law – a situation worsened by Montenegro’s entrenched corruption, as highlighted by the US Special Representative for the Western Balkans last week.

The Mojanska River is not only located in a regional nature park, but also in an Emerald network site under the Bern Convention and a proposed Natura 2000 site under the EU Habitats Directive. There is probably not a single fish or otter left in the river, but the Montenegrin inspectorate can find nothing wrong. A project like this would never have been approved in EU member states.

The new EIB standards on Financial Intermediaries and Biodiversity proposed in summer 2021 unfortunately do not improve the transparency, due diligence and monitoring of projects like Mojanska. This must be changed if the Bank is to avoid causing more damage to rivers. The EIB also needs to introduce the concept of no-go areas for financing, such as national and natural parks, areas with many endemic species, free-flowing rivers, Emerald sites under the Bern Convention, proposed or actual Natura 2000 sites and pristine forests.

This publication was produced in collaboration with EuroNatur and RiverWatch in the frame of the Save the Blue Heart of Europe campaign, with financial support from MAVA Foundation.

A well-designed EU Carbon Border Adjustment Mechanism can help drive decarbonisation in the Western Balkans

This week sees the end of the European Commission’s public consultation on its proposed Carbon Border Adjustment Mechanism (CBAM), which aims to tackle the concept of carbon leakage.

The idea is that as the EU’s increasingly effective climate action raises the cost of fossil-fuel energy generation and consumption, more companies might be tempted to move production abroad to avoid paying a carbon price, so the CBAM would include this cost into certain carbon-intensive products imported into the EU, including electricity.

Carbon leakage is so far theoretical for most industries in the EU, and has been over-used as an excuse to subsidise carbon-intensive industries by allocating Emission Trading Scheme (ETS) allowances for free, bringing windfall profits.

But for the power sector, the import of carbon-intensive electricity from the Western Balkans and Ukraine is already ongoing every day, undercutting EU producers and belching out choking air pollution.

CBAM much-needed for the power sector

Electricity imports from Europe’s neighbours in the Western Balkans and Ukraine are not due to intentionally moving production outside of the EU, but rather make use of the artificially low prices in these countries.

Not only do most of the countries not apply any carbon pricing, but also all those who use coal have failed to comply with the provisions of the Large Combustion Plants Directive, which have been binding under the Energy Community Treaty since 1 January 2018.

Our recent report shows that between 2018 and 2020 coal power plants in the Western Balkans caused an estimated 19,000 deaths, with almost 12,000 of these due to non-compliance with the Directive. And in 2020, the Western Balkans’ 18 coal plants emitted two and half times as much sulphur dioxide as all 221 coal power stations in the EU combined.

On one hand the EU benefits from these deadly breaches – between 2018 and 2020 it imported around 8 per cent of the Western Balkans’ coal-based electricity. But it also pays a high price, as over half of the modelled coal pollution-related deaths took place in the EU.

Efforts are ongoing to introduce carbon pricing into the Energy Community Treaty, but this will take time. The CBAM has the potential to take effect much earlier, and this opportunity must be seized.

Free ETS allowances must end as soon as practically possible

The CBAM’s effectiveness depends very much on how it is designed. The European Commission’s proposals state that the CBAM will replace free allowances under the ETS, but allows a whole ten years starting from 2026 for this to happen.

It is unclear why it needs to take this long. A revision of the ETS is ongoing in parallel and needs to end free allocation in all sectors as soon as practically possible, not in 15 years’ time.

This timeline is anyway confusing with regard to the power sector, as free allocations for the EU’s less wealthy countries anyway have to end by 2030 at the latest, and the ETS revision needs to bring this forward significantly.

Revenues must be used for a just transition

Another key issue is the use of the revenues from the CBAM. So far they are destined to end up in the EU budget. If they are to add value, however, they really do need to be used for climate action.

In the case of power sector revenues, propose that they should contribute towards a Just Transition Fund for the Western Balkans and Ukraine, which is urgently needed but has not yet been set up.

At Bulgarian coal mine, a climate and human rights crisis unfolds

In October Bulgaria’s Maritsa East Mines celebrated a record 1 622 556 tonnes of lignite extracted. Rising gas and electricity prices at the start of winter have provided a boost to the inflated esteem of the coal industry as one of strategic national significance.

Meanwhile at COP-26 in Glasgow, the financier of this coal bonanza, the European Bank for Reconstruction and Development (EBRD) boasted of its climate action and alignment with the Paris Agreement. Negotiations at COP-26 resulted in the Glasgow Climate Pact’s call for accelerated phasing out of coal and subsidies for fossil fuels.

Since 2016 the Maritsa East mine has been expanding with grant support from the EBRD. At its edge the village of Beli Briag is still not fully resettled. Pressed by the mine coming, the last remaining people in the village are preparing for another winter in their abandoned village. Without fair compensation, they cannot move to another place or restore their standard of living.

So property owners in the village, together with civil society organisations, requested that the EBRD’s Independent Project Accountability Mechanism (IPAM) review the never-ending resettlement process for compliance with the bank’s policy requirements.

Failed mediation

The bank’s mechanism had previously facilitated a mediation between village complainants and the Maritsa East Mines company (MEM). The deadline for completing voluntary resettlement was December 2019. The dialogue between the parties stalled and the threat of forced expropriation loomed in the start of 2020. However, in the middle of a COVID lock-down in August 2020, when uncertainties for Beli Briag households were greater than ever, IPAM closed the mediation.

The main bottle neck in the mediation process was MEM’s claim that Bulgarian law was not compatible with the EBRD’s standards for resettlement and livelihood restoration. The company refused to discuss the details and possible options for what this might look like, so fair compensation was unattainable.

The bank’s legal counsel and independent third-party consultants also failed to provide guidance on how the EBRD policy could be reconciled with the provisions of Bulgarian law.

Importantly, MEM had agreed with the bank a Resettlement Action Plan (RAP) that committed the mining company to implement EBRD standards. These standards require restoration or improvement of living conditions.

Moreover, the Bulgarian Energy Holding (BEH), the parent company of MEM, also committed to implement the bank’s environmental and social standards as conditionality for two EBRD loans in 2016 and 2018 totalling EUR 180 million. The investments are a good example of EBRD support for coal-heavy utilities.

Beli Briag complainants repeatedly appealed to the Ministry of Energy and BEH to support a solution through the mediation process. These calls remained unanswered, suggesting that the EBRD loans came with no responsibilities attached. Did the EBRD expect BEH to play a role? Did the bank leverage the support of its client BEH to ensure fair resettlement of Beli Briag? These are questions IPAM is expected to look into.

The Bulgarian villagers’ chronic limbo over coal mine expansion continues unresolved. The remaining people in Beli Briag live with constant vibrations, noise and dust from the huge open pit mine. Their water supply and electricity are regularly interrupted. There are no shops or public transport. The village is overgrown and not maintained properly, so the remaining houses and farms are threatened by summer fires.

There is a suffocating sense of injustice that the subsidies to the coal industry are not only exacerbating the climate crisis, but they also result in violation of the basic human rights to housing and normal living conditions.

At the edge of the largest coal basin in Bulgaria the climate crisis is a human rights crisis. Now people are asking for justice. They expect IPAM to hold the EBRD and its clients in Bulgaria to account. The bank can still act to ensure an effective remedy through fair compensation for complainants.

A lifeline to a dying coal industry

The role of public finance in this crisis is evident. The EBRD presents itself as a climate action champion, as it masterfully obscures fossil fuels subsidies with new types of corporate finance, crisis recovery funds and projects for improvements of efficiency of fossil fuel infrastructure. These EBRD investments often result in capacity increases and lifetime extensions of potentially stranded fossil fuels assets. The role of the bank in the energy sector in Bulgaria is a case in point.

In 2016 the Maritsa East Mines company was desperately looking for money to buy new excavators. The project would be the first heavy equipment modernisation at the coal mine in twenty-six years. Half of the investment of EUR 25.8 million for the project was granted to MEM by the EBRD. The bank manages grants from a fund established by the European Commission to compensate Bulgaria for decommissioning old reactors at the Kozloduy nuclear power plant (the Kozloduy International Decommissioning Support Fund, KIDSF).

When a commercial loan was not possible, MEM implemented the modernisation project with its “own participation”. But it’s a mystery where the money came from. Who would lend to a dying industry that runs on debt and losses for years?

EBRD came to the rescue again. In 2016 the bank invested Euro 80 million of the Euro 550 million bond issue by the Bulgarian Energy Holding (BEH). This investment refinanced a bridge loan recently incurred by BEH, whose proceeds supported the commercial liabilities of BEH’s key subsidiary National Electric Company (NEC).

The EBRD loan through the bond issue enabled NEC to pay back its debt to the two privatised thermal power plants, Maritsa East 1 and Maritsa East 3. Once the plants received the money for electricity they sold to NEC, they could pay back their debt to MEM for the coal supply. Then MEM could pay back its debts, including EUR 65 million debt to BEH. And it could modernise the excavation technology at the lignite mines, so they could reach new records of extracting coal.

A mountain of debt to dig and burn more coal

The EBRD was not blind to the sorry state of the coal sector in Bulgaria. Its involvement was intended “as part of a comprehensive reform plan aiming to restore the financial viability of the electricity sector and to promote electricity market liberalisation in Bulgaria”. Then in 2018 the EBRD invested a further EUR 100 million in the seven-year EUR 550 million senior unsecured bond issuance, in order to support improving the financing structure for BEH.

The two BEH projects received derogations for full environmental and social due diligence from the bank’s board of directors. According to the agreements between BEH and the EBRD, however, the loan contracts included environmental and social conditions, committing BEH to EBRD’s safeguards policies. Furthermore, the EBRD funds could not be used for coal-powered plants or nuclear plants. Importantly, the limitation did not cover BEH’s coal mines.

At the time the EBRD could no longer invest in coal power, so the BEH loans are a curious example of fossil fuels subsidies that have shifted from direct project finance, to more obscure forms of corporate finance.

This was tried and tested also in the energy sector of neighbouring Serbia and in Central Asia. The pandemic only brought more opportunities for corporate level support to fossil-fuels heavy utilities, this time under the guise of recovery funds for existing clients.

The IPAM is not the mechanism that can hold the EBRD accountable on the hidden subsidies for fossil fuels, nor on the results of the energy sector reforms in Bulgaria. What it can do is to reveal the human rights violations that result from this type of hidden fossil fuels investments and to suggest an effective remedy.

IPAM’s investigation should remind decision-makers at the EBRD that corporate level loans for energy utilities are not exempt from the responsibility and commitments of the bank, its shareholders and its clients to safeguard people and the environment. If they can manage this, there’s hope for the climate, too.

Updated Renewable Energy Directive needs built-in biodiversity protection

This week sees the closure of the European Commission’s consultation on the draft revised Renewable Energy Directive (RED II), which proposes a new EU renewable energy target of at least 40 per cent by 2030 and slightly tighter sustainability criteria for biomass.

Renewable energy will play a crucial role in achieving the EU’s key target of reducing greenhouse gas emissions by 55 per cent by 2030. But tackling the climate crisis has to go hand in hand with tackling the biodiversity crisis.

And this is where a more joined-up approach is needed. No form of renewable energy is impact-free. Hydropower and bioenergy in particular have caused serious environmental damage, but also many other renewable energy projects built in biodiversity-rich areas.

Forest biomass subsidies are rightly receiving massive attention due to the climate and biodiversity impacts of burning trees. This is likely to continue as the Commission’s proposals are too timid to address these issues, and fail to prevent incentives schemes supporting primary woody biomass.

Europe’s rivers need renewed action

But neither do the proposed updates to the Directive address the environmental impacts of other types of renewable energy or take into account the goals of the EU 2030 Biodiversity Strategy.

Within the EU, by 2018, no fewer than 60 per cent of rivers had failed to reach good health, among others because of hydropower construction. The EU’s lakes and rivers should have reached ‘good status’ by 2015 under the Water Framework Directive, but more than half have been subject to exemptions – often with weak justification according to the European Parliament.

This has led to calls for renewed action, among others in the EU 2030 Biodiversity Strategy, which aims to restore 25,000 km of free-flowing rivers by 2030.

But while many EU countries seek to restore their rivers, some are still building new hydropower. In recent years, their trail of destruction has been particularly felt in biodiversity-rich southeast Europe, where around a third of hydropower projects planned or built since 2005 are in protected areas or internationally recognised areas of high biodiversity value.

Most of the projects are of small capacity, but high in damage due to their locations in pristine natural areas. Their rampant development has been driven by disproportionate support via feed-in tariffs – a form of subsidies that is now allowed only for the smallest projects in the EU.

Renewables incentives must be truly conditioned on EU law compliance

In the EU, renewable energy can in theory only be subsidised if it is in line with EU environmental law. But in practice, there are insufficient mechanisms to ensure this condition works. By the time any breaches of the Directive have been established, subsidies have usually long since been approved, and there is no mechanism to make sure they are discontinued.

Several projects in Croatia illustrate this problem. The Ilovac and Dabrova Dolina hydropower plant projects underwent design changes after their environmental impact assessments were carried out, causing more damage to the river ecosystems as a result. The Croatian authorities have been reluctant to act and the issues remain unresolved. Yet both plants are still receiving feed-in tariffs paid for by the public.

The country’s wind sector is also under scrutiny, with the European Commission sending a letter of formal notice in May 2020 for repeated infringements of the Habitats Directive resulting from the authorities’ failure to properly assess the effects of 11 wind farms along the Croatian coast on the environment. Even though the case is not yet resolved, the Croatian authorities are free to continue handing out incentives to these and other renewable installations as they wish.

A quick look at the list of nature-related EU infringement procedures currently ongoing shows that Croatia is far from unique. Several Member States are currently under investigation for failing to adequately protect Natura 2000 areas or properly assess environmental impacts of certain activities – failures which could certainly result in needless damage by poorly designed renewable energy projects.

As a result, Bankwatch is calling for the Renewable Energy Directive to explicitly link renewables support schemes with compliance with EU law. It makes no sense for the European Commission to open infringement procedures on one hand while countries can continue to pay incentives to the same sectors – and in some cases the same projects – which are under investigation.

No more subsidies for projects that make use of EU law exemptions

Even where countries are not in actual breach of the Directives, in a situation of biodiversity crisis it makes no sense to allow incentives for hydropower projects which have only been allowed to go ahead due to the exceptions provided for in the Water Framework Directive. Nor does it make sense to allow incentives for any renewable projects which have been allowed to go ahead only due to the exceptions allowed in the Habitats Directive. Incentives must be used sparingly, and only for those projects which truly deserve it.

The Renewable Energy Directive already prohibits incentives for the incineration of biodegradable waste in countries that do not meet their separate waste collection obligations – an excellent example of joined-up policy. Equivalent provisions for other forms of renewable energy would help to ensure appropriate project design and siting, increase public acceptability, and incentivise better application of the EU environmental law.

We don’t have time or money to waste on subsidising damaging projects and we certainly can’t afford the public backlash that this brings. Time is running out to tackle both the climate and biodiversity crises, so incentives schemes must be bang on target.

This publication was produced in collaboration with EuroNatur in the framework of the joint research and advocacy work on hydropower finance and subsidies.

Want to make cities climate neutral? Engage residents!

The cities we have nowadays were shaped by big industries and governments, with little concern for what citizens want their city to look like. We ended up with cities that are often polluted, unpleasant to live in and in total produce three quarters of global greenhouse gas emissions. Local residents care about what cities they and their children will live in and are often eager to get involved in initiatives to shape their cities’ public spaces. Yet municipalities and investors still fail to listen to citizens’ voices.

Kyiv is no exception. The European Bank for Reconstruction and Development’s (EBRD) Green Cities Facility funded the development of a Green City Action Plan (GCAP) in Kyiv which aims to help the city deal with environmental issues and adapt to climate change. This process is a chance for Kyiv’s residents to influence the way their city will develop in the upcoming 5 to 15 years, as the draft of Kyiv’s GCAP is available for public comments and contributions at different stages of the process.

Activists who united around Kyiv’s Osokorky Wetland Park are an example of how citizens can use the GCAP process to increase support for their cause and fight for green spaces in their cities.

The story began in 2015, when more than 300 residents of the residential districts Osokorky and Pozniaky united and established an NGO to fight against planned construction on a unique piece of untouched natural wetlands – Ecopark Osokorky. Soon after, ‘Save Ecopark Osokorky’ became one of the first successful petitions on the website of the Kyiv City Administration. The City said they were making steps to implement the demands of the petition, but in the end failed to stop preliminary construction works, endangering the park.

‘For activists, at some point, it became evident that reaching out to local and national level policymakers [was] not working to save the park from illegal construction. So, we started international advocacy’, said Anna Adamchuk from the organisation Ecopark Osokorky. Activists sent letters requesting support from international organisations and scientific communities that work to preserve natural resources and save biodiversity, such as the Wildfowl & Wetlands Trust and business associations, such as Widenmoos.

According to Adamchuk, Ecopark activists learned about the public survey on prioritising Kyiv’s environmental issues that was conducted during the drafting of the GCAP. ‘The information about the project was not easy to find in the public domain. Same went for the contacts to receive more information’, added Adamchuk.

In recent months, about 80 letters have been sent on behalf of the group to the EBRD, a team of GCAP consultants and the Kyiv authorities. As a result, the preservation of Osokorky Wetland Park was mentioned in the draft Kyiv GCAP as a measure that can mitigate the impacts of climate change in the city. In addition, thanks to Ecopark activists, ‘green zones’ became one of the GCAP’s priority areas. Conservation of wetlands was also added to the draft.

Activists have ambitious plans and ideas, such as establishing an Ecocenter and teaching children about natural resources and saving the environment. The Ecopark team says there are investors who are interested in the projects, but since the territory is disputed they have hesitated to make financial commitments.

Kyiv’s administration, however, is not hurrying to approve the spatial planning documentation that would formally establish Ecopark, and the construction company claims that it has a right to build on this area. Activists, however, say that the territory is not eligible for construction due to closeness to the wetlands and the risk of flooding.

Ecopark Osokorky is a great example of a citizen initiative to save urban green spaces, and inclusion of the park in the Kyiv GCAP would be another step towards saving the park. Would city authorities, the Bank or the consultants who drafted the GCAP even be aware of the parkwithout local activists? Activists see the preservation and development of the Ecopark not only as their right, but also as their duty as citizens, to take care of their public space for themselves and their children. If city authorities and international investors viewed engaging citizens in local decision-making as their duty, we would probably have much greener and much more climate resilient cities.

Have your say on the future development of Kyiv by commenting on and contributing to the draft Kyiv Green City Action Plan.

About Osokorky Wetland Park

Ecopark Osokorky is a unique natural and historical heritage site stretched along the entire left bank of the Dnipro River, from the mouth of the Desna River far to the south beyond the boundaries of Kyiv. This area is home to endemic animals, birds, and plants. From among 170 bird species inhabiting the Ecopark, 21 species are included in the Red List of Ukraine, three are listed on the European Red List (the greater scaup, the grey partridge and the northern lapwing), and one species (the corn crake) is included on the List of the International Union for Conservation of Nature (IUCN). Seven animal species and four flower species inhabiting this area are included in the Red Book of Ukraine, and many more are protected by the Bern Convention and are under special protection within the area of the city of Kyiv. Kyiv may obtain the Wetland City Accreditation of the Ramsar Convention if its urban wetlands are protected; most of these are located in Osokorky Wetland Park. Read more here.

EBRD Accountability Mechanism starts a compliance assessment of MHP projects

Two projects of Myrinivskyi Hliboprodukt (MHP), a Ukrainian industrial agribusiness company, financed by the EBRD will be assessed for a compliance review by the bank’s Independent Project Accountability Mechanism (IPAM). The compliance review is an independent investigation aimed to determine if the Bank has complied with its environmental and social policies in relation to the MHP projects. By 26 January 2022 the EBRD’s mechanism will conduct a preliminary evaluation whether the project may have caused harm to affected local people and if there is an indication that the bank may have breached its standards.

Compliance Advisor Ombudsman (CAO) of the IFC is expected to begin a similar process in the coming weeks to assess the need for a full investigation into the IFC’s financing to MHP.

The move towards compliance investigation comes three and a half years after local people from Olyanytsya, Zaozerne and Kleban, three villages in the Vinnytsya region of Ukraine, submitted complaints to the accountability mechanisms of the two banks. Between October 2018 and August 2021 the two mechanisms co-facilitated a confidential mediation process between representatives of local complainants and MHP. Ecoaction, CEE Bankwatch Network and Accountability Counsel advised local complainants in the mediation process with MHP.

IPAM’s public report from the mediation process provides a summary of the outcomes of the confidential mediation and the outstanding issues that remained unresolved.

Complainants were disappointed that despite their effort no agreement was reached with MHP. They hope that the compliance review will result in an effective remedy for the outstanding issues listed in the IPAM report, such as:

Road safety. To address the problem of heavy vehicle traffic through village roads, some progress was achieved in terms of road safety awareness raising. Yet concerns regarding heavy traffic going through the villages remain, as local villagers have noticed little change even after the construction of a long-promised bypass road.
Joint Fact Finding on damaged houses. Despite attempts by complainants and MHP to assess the damages on houses in Olyanytsya, which villagers believe are caused by increased traffic through the village, the pilot assessment did not take place before the process came to an end.
Farm Odours. Options to manage the odour from chicken farms, manure storage and the biogas plant were explored, such as the planting of trees throughout the perimeter. However, no agreement was reached on this issue before termination of the mediation.
Water supply. The issue of a piped-in water supply scheme in Olyanytsya and Zaozerne was discussed during the mediation process, but the concerns about local Water Quality were not addressed.

With regards to water quality issues, for example, the results of an Ecoaction study of surface & groundwater quality in the villages of Olyanytsya, Zaozerne, Vasylivka, and Kleban, four local villages located near MHP’s massive Vinnytsya Poultry Farm, significantly exceed a number of water safety parameters, especially those concerning nitrogen forms (ammonia, nitrites, nitrates) and in some cases phosphates as well. Water well testing during this citizen science project included both express methods and specialised lab analysis. They revealed that results from almost half of groundwater wells (19 wells checked) exceeded the safety norm for Nitrates (<50 mg/l). All water research measurements are available here whereas some extreme calculations on Nitrates (NO3) include the following numbers (in mg/l): 142,4 (water point in Zaozerne, 2.8 times exceeding safety norms), 150 (water point in Vasylivka, 3 times exceeding safety norms ), 124,3, 109,2 (two water points in Kleban, 2.5 times exceeding safety norms ), 200 (water point in Olyanytsya, 4 times exceeding safety norms).

Additionally to wells, the water quality was checked on the Southern Buh river, upstream and downstream from the underwater discharge pipe of MHP’s wastewater treatment plant. Downstream results show significantly higher numbers on ammonia (NH4), nitrites (NO2) and phosphates (PO4). As of June 2021, results are (in mg/l): NH4 – upstream 0,05, downstream 0,4; NO2 – upstream 0,02, downstream 0,5; PO4 – upstream 0,2, downstream 0,5. A second round of testing (October 2021) of the downstream water in the lab showed similar results: NH4 – 0,46; NO2 – 0,4; PO4 – 0,36.

“The Ecoaction citizen science initiatives conducted research on water quality in 14 communities of 10 regions (oblasts) of Ukraine. The results on nitrates compounds in ground water in the area that is the subject of the complaint showed the worst results. Taking into account the scale of intensive crop, fodder and livestock production facilities in the region, we believe that water quality and health risks concerns of the complainants are well grounded”, said Anna Danyliak from Ecoaction.

“The accountability mechanisms of the EBRD and IFC now need to conduct independent investigations into problems raised in the complaint that remained without solutions and agreements. IPAM and CAO need to review if the investments in the MHP projects by the public banks followed their standards for assessment, prevention and mitigation of negative impacts on local villages. We are hopeful that the compliance investigations may bring some long-awaited answers to questions about the real impacts of MHP’s operations,” said Fidanka Bacheva-McGrath from CEE Bankwatch Network.

“Despite the extensive time and energy that impacted villagers dedicated to the process, the mediation did not result in effective remedy for affected people. The compliance review can bring some form of justice to them by investigating major questions raised in the complaint, such as why the banks continued to assess that their investments in MHP would not present a high risk, even years after local villagers began raising concerns about their environmental, health and social impacts,” said Caitlin Daniel from Accountability Counsel.

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