Blog entry

Cancellation of Serbia’s Kolubara B coal plant opens space for decarbonisation

On Monday, Serbian media reported that the Ministry for Mining and Energy had sent a letter to state-owned utility Elektroprivreda Srbije (EPS) asking it to halt activities on the planned Kolubara B coal power plant.

This is not the first time the plant has been shelved. Construction of the plant was started in the late 1980s but halted in 1992 while Serbia was under international sanctions. The plans were revived in 2012 when the EBRD briefly considered financing it, but did not go ahead.

For several years, Kolubara B appeared to be history. Then in 2018, the project was again revived and in early 2020 a preliminary construction agreement was signed with PowerChina. However, it did not pass the spatial planning stage before this week’s cancellation.

While legally and administratively easy, halting Kolubara B was nevertheless politically courageous and hugely symbolic in a country where coal supplies around 70 per cent of electricity.

For years, EPS has largely defined the state’s energy policy, rather than the other way round, while successive governments have depended on electoral support from its more than 27,000 workers, their families and those who benefit from sub-contracts to perform works for the company.

Only a year ago, prior to parliamentary elections, President Vučić was, irresponsibly telling miners at Kolubara that the government would invest EUR 500 million in the mine and that it would supply coal for the next sixty years.

But since the new Minister for Mining and Energy, Zorana Mihaljović, took office in October 2020 it has been obvious that she would take a different approach and try to address the numerous problems plaguing Serbia’s energy sector. In the last few months, she has repeatedly vowed to move Serbia’s energy transition forward and has overseen the adoption of several new laws, including on energy efficiency and renewable energy.

Cancelling Kolubara B is a strong step towards coming out into the open and stating clearly that Serbia needs to decarbonise. Taking this step was certainly not easy, but it needs to be followed up promptly.

The Minister has emphasised in a statement that energy transition is not about closing coal plants overnight, but about investments and opening new workplaces and that planning up till 2050 is needed. This is right, and Serbia has a lot to do to catch up for years of inaction, for example in developing a National Energy and Climate Plan and starting a participatory process to plan the just transition of Serbia’s coal mining regions.

It is clear that Serbia is finally starting to do more to increase investments in solar power, for example, but still some difficult decisions need to be taken quickly to stop carbon lock-in closing the space for future maneuvering.

A particularly burning example is the 350 MW Kostolac B3 lignite power plant, which is currently under construction by the China Machinery Engineering Corporation. Very little information is publicly available on how it is progressing, but in March, Minister Mihaljović announced that neither the speed nor – worryingly – the quality of the equipment was up to scratch.

The project’s own feasibility study found that it would generate losses with a carbon price of just EUR 5 per tonne. Today’s price in the EU is around EUR 50 per tonne.

Serbia may not have carbon pricing in place today, but it will need to introduce it in the next few years as a prospective EU member. Failure to do so may also see it hit by the EU’s planned carbon border adjustment mechanism, aimed at preventing imports from countries with no carbon pricing from undercutting EU producers.

A combination of falling renewables prices, higher pollution control standards and carbon pricing has made coal uneconomic in the EU.

Around a decade ago, despite warnings from NGOs and others, Slovenia made the mistake of starting to build the Šoštanj 6 lignite unit, which ended up twice as expensive as planned, with 12 people being charged with offences including money laundering.

The unit started commercial operations in 2016, and every year since then, the Šoštanj plant has made huge losses. In April it was reported that this year’s losses may top EUR 150 million if carbon prices remain high.

Greece failed to learn this lesson and started building the Ptolemaida V lignite plant several years ago. Despite having spent EUR 1.4 billion on construction so far, coal is now so unviable that the Public Power Corporation has decided to phase out all coal use by 2025, leaving the plant’s future uncertain.

All this means that the Serbian government needs to seriously examine whether it is still worth going ahead with Kostolac B3. It is clearly a more complicated case than Kolubara B due to its more advanced development. But given the Minister’s comments on the speed and quality of the works, it may pay off to stop digging right now.

Last call for EU bank to uphold UN treaty on transparency

Transparency practices at the EIB have been lagging behind many other development finance institutions. In the 2020 Aid Transparency Index the EIB ranked 28 out of 47 institutions.

But that’s not all. According to a Politico report earlier this month, the secretariat of the Aarhus Convention contends that the EIB’s draft transparency policy “isn’t fully in line” with the UN treaty.

The Aarhus Convention Secretariat’s position, submitted in March as part of the public consultations on the EIB’s next transparency policy, states that “the European Union is a Party to the Aarhus Convention, and its institutions and bodies, including the European Investment Bank, are legally bound to ensure access to information, public participation in decision-making and access to justice meeting the requirements of the Convention in the context of their activities and operations.”

It goes on to point out issues in the EIB’s draft transparency policy and, among others, repeatedly warns against “too sweeping” use of so-called commercial interests as grounds for refusing access to information.

The Secretariat also referred to the provision insinuating that sometimes the Bank would not be publishing on its website summaries of projects it considers financing, and suggests the new policy clarifies under which circumstances this could happen.

In addition, the Secretariat expressed concern about proposed amendments to the policy which stipulate that information about some projects would not be published before they are approved by the EIB’s board of directors or even until after the loans are signed “in order to protect justified interests.”

The Secretariat’s comments also stressed that “it is important that EIB makes a clear and visible commitment to publish environmental impact assessments whenever they exist for its financed projects.”

A legacy of opacity

Bankwatch shares much of the concerns expressed by the Aarhus Convention Secretariat about the draft new policy, not least after encountering the EIB’s poor transparency standards on multiple occasions.

The EIB, which is co-financing the Nenskra hydropower project in Georgia, had turned down Bankwatch requests to disclose an expert report into the status of the local communities affected by the project. The EIB argued that making the report public could compromise international relations.

In 2020, in response to a Bankwatch complaint, the European Ombudsman requested that the EIB discloses information from that report.

In many other cases of questionable projects, even the involvement of EIB money is not public. As Bankwatch has shown, between 2010 and 2014, the EIB provided over EUR 22 million through financial intermediaries – mostly commercial banks – for the construction of at least 19 small and mini hydropower plants in Bosnia and Herzegovina, Croatia, Macedonia and Serbia. Some of these projects are even situated inside protected nature areas.

When a project is supported through financial intermediaries, information about them is often effectively hidden behind the curtain as it falls under the EIB’s exemption to information disclosure.

Landmark ruling reaffirms public oversight

The EIB has so far failed to recognise the Aarhus Convention as an important component of its institutional framework. But even before the Aarhus Convention Secretariat filed its comments, in January, the EU’s Court of Justice had ruled that the EIB must revisit its financing decisions when it receives a lawful request regarding breach of its own policies or EU environmental law.

This case was brought by ClientEarth after the EIB refused its request to review a EUR 60 million loan to a biomass project in Spain. But in an important precedent, the court overturned the Bank’s decision, confirming that the Bank is legally bound by the Aarhus Convention which grants civil society the right to request that decisions by EU bodies are reconsidered.

This landmark ruling, together with the position of the Aarhus Convention Secretariat, should compel the EIB to acknowledge the applicability of this treaty to its operations and ensure its new transparency policy is finally aligned with it.

It is not only about the EIB’s credibility. At the end of the day, transparency is a condition for accountability of a public institution in a democracy. This might sound like a truism, but in reality the EIB has too often been preventing public oversight of its operations and the way it uses European public money.

It is not just failing to voluntarily put information that is in the public interest in the public domain. In more than one case the Bank has either been slow to respond to requests for information, disclosed just part of it, or rejected such requests altogether.

This needs to change. As the EIB is now reviewing its transparency policy, it has an opportunity to turn the page and show it is indeed an EU institution that is accountable to the public.

Czechia, Greensill and why more openness is needed from its export agencies

Export credit agencies emerged after the first World War, when the first ECAs were established in the UK, Belgium, Denmark and other European countries. Their role has changed over time, but the basic goal remains the same: to help domestic export companies succeed in the international market.

Czechia’s export agencies – the Export and Guarantee Insurance Company (EGAP) and the Czech Export Bank (ČEB) – began in the 1990s and have since experienced their share of controversial investments, most recently through their enhanced role in addressing the economic fallout from the coronavirus pandemic.

EGAP has supported domestic exporters affected by the pandemic, notably through loan guarantees to the air carrier Smartwings (CZK 2 billion), the global airline broker Kiwi (CZK 1.2 billion) and the steel manufacturer Liberty Steel (CZK 2 billion).

Liberty Steel in Ostrava has featured in the news recently, as it is a recipient of funding from Greensill, the bankrupt UK financial firm at the centre of controversy. We can only assume that Greensill provided a loan that EGAP guarantees. Czech media speculates that the loan to Liberty has not been drawn, but no one knows where the CZK 2 billion from EGAP is to be found. The Czech political opposition (STAN and Piráti) has asked to investigate this guarantee.

Police are also investigating whether EGAP was defrauded by an organised crime network through its involvement with its steel business. Our requests for more information from EGAP have not been answered.

Liberty Ostrava decided at the end of April to sell a billion crowns worth of EU emissions allowances to a sister company in Romania, in spite of promises made to Czech politicians not to do so. The Gupta steel group, which includes Liberty, is now in a difficult financial situation and is struggling for survival. Without these emissions allowances, its Galati unit in Romania could no longer continue production.

While EGAP should publish information on its website about investments with significant environmental risk, none of these transactions are listed on the pages, and EGAP did not justify why this is the case in response to our information request.

Far less can be heard about the Czech Export Bank. Loans with ČEB participation have been declining, totalling CZK 7.6 billion in 2019 and CZK 1.1 billion in 2020. According to CEB, its strategy is to finance industries that have limited access to finance due to the corporate policies of commercial banks, especially in the energy, aviation and the security and defense industries.

CEB has particpated in suspicious transactions, including its loan of CZK 12 billion for the unfinished Turkish lignite power plant at Adularya. The Czech state lost money in funding the project that posed great environmental risk in Turkey, but no one was found culpable.

According to the OECD, CEB should survive without state subsidies. Yet In 2016, CEB’s capital was increased by CZK 1 billion to a total value of CZK 5 billion. At present, the state holds an 84 per cent share and EGAP 16 per cent. In November 2016 the government approved a request from CEB for a subsidy of CZK 3.82 billion to cover losses from in the fourth quarter of 2015 due to the failure of the Poljarnaja combined cycle gas power plant in Russian. So, if the government wants to subsidise the agency and has no legal grounds for doing so, there is nothing easier than changing the law.

The Czech export agencies are required by EU and national legislation to report on the projects they financed. On the websites of CEB and the EGAP all mandatory data like annual reports can be found . EGAP also publishes news of its operations in a magazine, which features projects that are positive, such as hospitals in Ghana .

Seven European countries have recently committed to stop ECA funding for fossil fuels. Why does the Czech Republic stay behind? As long as export agencies continue to spend money to support unsustainable projects, there will not be enough money for projects in the public interest

New Bankwatch publication: Eight steps for a just transition in the Western Balkans

The European Commission has committed to making Europe climate neutral by 2050, and most EU countries are now either coal-free or have set targets to phase out coal by 2030. Yet in nearby Western Balkan countries, key decision makers still make the argument that a fast transition to clean energy sources is too difficult.

That is no longer the case. A critical mass of international bodies have now committed to assisting non-EU Member States in the region with expertise and cash to make the energy transition work. The Energy Community Secretariat is committed to the goal, and a new Platform for Coal Regions in the Western Balkans and Ukraine was set up in 2020 to help coordinate the process. The Energy Community, the European Commission, the World Bank and the European Bank for Reconstruction and Development, among others, are also involved.

Civil society groups, Bankwatch included, can share their valuable experience of working with local communities in coal regions and show similar communities in the Western Balkans how to make sure their voices are heard by the international actors with the power to push the money where it’s needed.

Where we’re at in the region

In November 2020, the leaders of Western Balkan countries signed on to the Green Agenda for the region, thus committing to decreasing pollution and decarbonising their economies by 2050, as the EU block. Effectively, this would mean stopping all plans for new coal units and determining closure dates for operating ones.. To realise this pledge, countries in the region have to adopt ambitious national energy and climate plans (NECPs).

The six countries in the Western Balkans are currently working on NECP draft development, with North Macedonia – a clear frontrunner – already submitting its document to the Energy Community.

North Macedonia, although making progress towards a more substantial deployment of renewables, is nevertheless counting on gas to make the switch away from coal. The country’s leaders, and other leaders in the region too, need to understand that relying on gas as a transition fuel is a trap: it means building new gas infrastructure and relying on imports, all of which will end up as stranded assets only a few decades from now. The momentum created for just transition in the region today must be fully used to transform energy systems towards those based solely on fully renewable sources.

Serbia, meanwhile, has adopted both a climate change law and an energy legislation package with provisions concerning renewables, energy efficiency and mining, including measures to unbundle electricity and gas transmission system operators. However, there is still a contradiction between Serbia’s declarative commitment to decarbonisation and the government’s actions. Alongside Bosnia and Herzegovina, it is the only country in the region still actively planning to bring new coal capacities online, and its Spatial Plan covering the period 2021-2030 – which was under public consultation in April – foresees no less than 2.1 GW of new installed capacity from four new lignite power plants.

At the same time, Kosovo’s newly appointed government has reassured its international partners about its intentions for climate neutrality and is looking for support with short- and medium-term reforms in this direction.

The good news from the region is that several governments have understood the need to drop plans for new coal units, which were still being considered as recently as one year ago. Sadly, the closure of existing plants is mostly being postponed. Gas is also cropping up as a transition fuel too often in planning. Leaders of Western Balkan countries need to be more ambitious when it comes to conceptualising the transformation – the resources and expertise are there.

Crucially, support for a just transition among communities in coal regions is growing by the day. In Pljevlja, Montenegro, a Just Transition Platform was created by locals. The Platform is both popularising the concept and pushing for its implementation in the region, with the involvement of local communities.

The guide

For both national leaders and interested local communities, the Bankwatch Eight steps for a just transition guide is a source of hands-on knowledge, derived from the experience of other communities in the EU confronted with a similar process. The publication lays out what needs to be done, at the national, regional and local levels, for the just transition process to be kicked off in the right way: from clarifying the concept of just transition, to clarifying the potential of the region, getting decision-makers on board and involving the local communities, to finding sources of financing. Case studies show how, for each of these aspects, communities in other countries have made it work.

The guide can serve as a starting point for anyone working on just transition in the Western Balkans. More in-depth materials are available from Bankwatch and other partners.

Drina dam “groundbreaking” event met by scepticism and protests

Plans to build the Buk Bijela dam on the river Drina have been around since the 1970s, when a larger version of today’s project threatened to flood Montenegro’s legendary Tara canyon. The project was stopped then but revived in the early 2000s. After strong opposition and a highly critical report by a UNESCO delegation, the project was again shelved, but Republika Srpska began work on planning a smaller version of 93 MW, whose reservoir would supposedly not encroach on Montenegrin territory.

The project is planned in BiH’s Republika Srpska entity a few kilometres upstream from the town of Foča. Its reservoir would stretch right up to the Montenegrin border, where the river Tara and river Piva join to form the Drina.

An environmental impact assessment process was carried out between 2011-2013 but after the then investor pulled out, the project again lapsed until 2018, when Elektroprivreda Republike Srpske tried to renew its environmental permit.

Currently, a company 49 per cent owned by Elektroprivreda Republike Srpske (ERS) and 51 per cent owned by Elektroprivreda Srbije (EPS) is not only planning to build Buk Bijela on the upper Drina, but also Foča and Paunci. Together, these three would have a total capacity of around 180 megawatts.

Water sports tourism and endangered Danube Salmon under threat

Despite the fact that the three dams would turn the crystal-clear Drina into a series of stagnant reservoirs with a total length of around 30 kilometres, each of these projects is being treated as separate, with individual permitting procedures, presumably to play down their environmental impacts.

But what they all have in common is that they would destroy the most important remaining habitat for the globally endangered Danube Salmon (Hucho hucho) and wipe out the area’s burgeoning outdoor sports tourism.

Nature Lovers Montenegro showed their opposition to the Drina dam plans today.

The latest in a long line of premature groundbreaking ceremonies

Another thing the dams have in common is that they are nowhere near ready to be built, so today’s groundbreaking ceremony is premature, to say the least. This is not the first time that such ceremonies have been organised for energy projects that are nowhere near ready in Republika Srpska – a foundation stone was laid for the Gacko II coal plant in 2007 and Mrsovo hydropower plant in 2014, but to this day neither of the plants have been built.

In July 2017, a memorandum on construction of Buk Bijela was signed with the China National Aero-Technology International Engineering Corporation (AVIC-ENG), but no final construction contract appears to have been signed. The only building permit issued for the project so far is for preparatory works.

Neither has any loan contract been signed, so the source of financing remains unclear. And no feasibility study has ever been published. In 2018 it was revealed that none existed at the time, but if any has been carried out in the meantime, the results are unknown to the public. Dams are particularly vulnerable to the Balkans’ increasingly erratic rainfall patterns, so updated hydrological studies and feasibility studies are crucial.

Legal challenges

Despite the fact that the Drina forms part of BiH’s border with Montenegro and Serbia, no consent has been sought from the BIH state institutions to build the plants, a fact that was today reiterated by BiH’s Minister for Foreign Affairs, Bisera Turković.

In December 2020, 24 members of the House of Representatives launched a constitutional court case against Republika Srpska’s decision to issue a concession for the construction of the upper Drina hydropower plants, as they state that decisions regarding state property such as rivers on international borders can only be taken at the state level.

The Aarhus Center in Sarajevo has also submitted two cases to the Republika Srpska high court on the Buk Bijela and Foča plants. The first is challenging the Ministry for Spatial Planning, Construction and Ecology’s 2019 decision to allow ERS to rely on a poor quality environmental impact assessment of Buk Bijela written a decade ago, instead of requiring a new study when it applied for a new environmental permit. The second challenges the Banja Luka District Court’s failure to quash the environmental permit for Foča even though ERS breached the legal deadline for requesting its renewal.

A case is also pending at the Espoo Convention Implementation Committee due to Bosnia and Herzegovina’s failure to consult Montenegro about the transboundary environmental impacts of the upper Drina hydropower plants. A group of NGOs submitted a complaint to the Committee in May 2020, as did the Montenegrin government in December 2020.

Buk Bijela’s outdated environmental assessment claims that there would be no transboundary impact from the plant, but it provides no evidence. In fact, according to scientists, damming this section of the Drina would disrupt the migration of the endangered Danube Salmon from the Tara upstream, where steep cliffs protect the river from human influences but do not offer many suitable spawning grounds.

In addition, there is a dispute about whether the reservoir would enter Montenegrin territory. If the reservoir reaches up to 434 metres above sea level, as claimed in the environmental assessment, then it would encroach on Montenegro’s territory, as the border is at 432.37 metres.

Rafting regata participants from Serbia and BIH showed their opposition to the Drina dam plans this weekend.

Endless limbo for local inhabitants

Local people have been told for more than four decades that Buk Bijela will be built, and during this time they have not been able to properly invest in their land or businesses. The road from Foča to the Montenegrin border has been woefully neglected, waiting to be fixed as part of the dam project that never arrives.

Yet the Drina’s natural beauty has increasingly been recognised by tourists visiting for rafting, kayaking or angling trips and facilities to accommodate them have been built above the river. These have not been taken into account at all during the project development process, being seen as a temporary phenomenon that will simply be erased when the dam is built, rather than a source of income-generating local development.

Protection needed, not destruction

Within Montenegro, the Tara is part of the Durmitor National Park and UNESCO World Heritage Site. But when it reaches the BiH border and becomes the Drina, it is at the mercy of those who see rivers only as sources of electricity, ignoring their myriad of other crucial roles for the survival of various species.

In fact, the environmental impact assessments for the three dams are of such poor quality that we do not even know which species live in and around the upper Drina, but the presence of the Danube Salmon alone is enough to warrant legal protection for the whole remaining stretch of the Drina and its tributaries. Together, these make up around 500 km of free-flowing rivers – a stretch longer than anywhere else in the southeast European region where this majestic fish lives.

Instead of role-playing groundbreaking ceremonies it is high time to give up on the dams and get serious about protecting the upper Drina’s natural riches. Careful development of the region needs to be enabled so that local people can finally break out of their decades-long limbo and plan their future with their river intact.

EU Ombudsman launches probe into assessment of priority gas projects at EU’s doorstep

In October 2020, the Ombudsman criticized the Commission for approving a list of priority gas infrastructure projects in the EU without assessing their greenhouse gas emissions. Recently the Ombudsman opened a similar inquiry against the Commission concerning its role in the emissions assessment of priority gas projects in the EU’s southern and eastern neighbours, the Energy Community countries.

The list of priority energy infrastructure projects in the region, including 12 gas projects, worth at least EUR 2 billion, was adopted by the Energy Community Ministerial Council in December 2020. This status – known as Projects of Energy Community Interest, or PECIs – grants privileged access to construction permits and public financing.

Yet, our complaint, filed in February 2021 following discussions with the Commission and Energy Community Secretariat, contends it lacked a sound sustainability assessment.

The evaluation they did undergo was based on a methodology similar to the one that was to be used for projects in the EU, during the so-called 4th Projects of Common Interest (PCI) process, but was later abandoned due to its deficiencies. The Commission, even though aware of the issues with the sustainability assessment methodology in the PCI process, failed to require that the assessment of PECIs properly accounted for their greenhouse gas emissions.

The cards are stacked in favour of gas

Every two years, under an adapted version of the EU’s TEN-E Regulation, the Energy Community Ministerial Council selects a list of gas and electricity energy infrastructure projects which receive preferential permitting and financing treatment. These so-called Projects of Energy Community Interest (PECI) and Projects of Mutual Interest (PMI) correspond to the EU’s list of Projects of Common Interest (PCIs).

The EC has a significant role in the adoption process as coordinator of the Energy Community activities and has to cast an affirmative vote in order for the PECIs and PMIs lists to be adopted. The current list of gas PECIs and PMIs was adopted in December 2020.

The key problem with the project assessment was that it assumed all gas projects would reduce CO2 emissions and not increase them. The idea was that gas would replace coal and that demand would not increase, so it would not cause additional emissions compared to today. These assessments overlooked the very likely scenario where gas would actually end up displacing other energy sources like renewable electricity or wood in some regions.

In fact, even the consultancy company that prepared the assessment warned that the methodology assumes that gas crowds out only fossil fuels. They mentioned that this might not be the reality, as in countries with high hydropower penetration increased gas-fired generation may replace hydropower, thus resulting in increased emissions.

Albania, for instance, generates all of its domestic electricity from hydropower but the assessment for new gas projects foresees a reduction in emissions. This appears to be due to the fact that the assessment included the Vlora oil-fired power plant, which in reality does not work due to technical problems.

No proof that gas would replace coal

Gas projects like the Ionian Adriatic Pipeline and Zagvozd-Posusje-Travnik (branch to Mostar) show the methodology’s assumptions are unrealistic.

The proposed Ionian Adriatic Pipeline would be displacing not only coal, but rather wood fuel and electricity for heating purposes, and at least some hydropower in Albania, Montenegro and Croatia.

The Zagvozd-Posusje-Travnik gas pipeline project in Bosnia and Herzegovina also risks increasing, rather than decreasing emissions. Most of the area it would serve currently receives electricity which is fully sourced from hydropower and wind power, while heating is mostly provided by electricity and wood. So, introducing gas in these areas would mostly displace these sources, not so much coal.

We are now asking for the removal of the gas projects from the PECIs and PMI lists on the grounds of lack of credible data on sustainability. Likewise, the adoption of any new lists must be postponed until the revised TEN-E Regulation with an upgraded greenhouse gas assessment methodology, which is currently being discussed in the EU, is adopted at the Energy Community level.

The Energy Community countries, like the rest of the world, need to decarbonise their energy sectors by 2050 at the latest. Greenlighting gas projects now undermines any efforts. New gas infrastructure may well result in the displacement of renewable energy rather than more polluting fossil fuels. There is also a real risk of locked-in investments and stranded gas infrastructure for the already depleted financial capacities of these countries. What needs to be prioritized are energy efficiency and sustainable renewable energy projects, not gas.

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