Blog entry

District heating in the Western Balkans – we need clean, modern heating that works for everyone, for the long term

If you live in the city of Skopje, North Macedonia, it is likely that you will find yourself in an apartment in a block of flats built somewhere around the 1970-80s, with district heating that, during the colder half of the year, works between 6am and 10pm. It’s a “take it or leave it” service, with no possibility of regulating the temperature in your rooms, no option of turning on the heating on a cool September day, or turning it down when it is 15 degrees outside in January. This was my experience growing up here in the 1980s, and it still is today, in 2021.

The situation is largely similar throughout the Western Balkans. But it doesn’t have to be this way. In recent years, people have become more vocal about wanting quality heating in their homes, also because of the toll that outdated heating systems have been taking on their health. As soon as winter starts, the media is flooded with reports and warnings about alarming levels of air pollution exacerbated by heating. That is because coal, gas, heavy oil and wood are the main heating fuels in the region.

For example, the share of coal in district heating in Kosovo is 94%, and concerning individual heating, an estimated 62% of households in North Macedonia are using wood. In addition, many households across the region use old-fashion, inefficient electric heaters to warm their houses, which are costly and drive demand for electricity, including from the region’s heavily polluting coal plants.

While governments in the region are contemplating how to decarbonize their energy sectors and address air pollution, it seems they only mean electricity. The heating sector does not get the attention it deserves – either that, or they turn to fossil gas, as has happened in Serbia.

District heating needs to be part of the solution

In the Western Balkans, district heating is used in Bosnia and Herzegovina, Kosovo, North Macedonia and Serbia, and there are plans to build a district heating system in Montenegro. Indoor heating and hot water supply account for 43% of energy consumption in the Western Balkans. And of all district heating in the region, a staggering 97% is based on fossil fuels and only 3% on renewable energy. And even this renewable energy is mostly biomass, the sustainability of which is currently subject to vigorous debate.

Apart from their dependency on polluting fuels, district heating systems in the Balkans are characterised by outdated and leaky pipelines, and a distribution network serving buildings with poor energy efficiency performance. But instead of seeking easy short-term solutions to patch the systems, authorities should focus on leapfrogging into the most cutting-edge heating systems that integrate various solutions of different scales, adapted to individual locations.

Let’s take the Tuzla example, a city in Bosnia and Herzegovina, notorious for its polluted air due to a lignite power plant that provides heating to around 23,200 households as well as public and commercial buildings. The city has been making efforts to address the situation by providing subsidies for heat pumps and for external insulation of buildings, and by taking measures to reduce the costs for connection to the network in an effort to attract new customers.

However, what Tuzla actually needs is a systemic and long-term solution. And this should not be to construct a new lignite-fueled unit, with the excuse of providing heating to Tuzla residents. Rather, the city authorities should figure out how to provide clean, affordable heat by exploring the local potential for renewables and heat storage, while using the existing infrastructure and focusing on energy efficiency measures in buildings and the distribution network. It requires political will on all levels, and a recognition that, ten years down the line, coal will become way too costly, not just economically, but also in terms of health and environmental costs to be worth investing in in the first place.

A modern, clean heating system that starts operating in 10 years from now, needs to be planned immediately.

In locations where they already exist, like Tuzla, district heating systems are old, inefficient and polluting, and they are not consumer oriented. In communities where district heating is planned, the proposed systems often revolve around designs that were popular 40 years ago, like a single source central system, such as a gas or biomass plant.

The town of Pljevlja in Montenegro has been promised district heating since 1982. Instead, for the past four decades people have been suffocating on air pollution from a dozen lignite-fueled boilers feeding a local network that serves around 390 households in the centre of the town.

The authorities plan to convert the country’s only coal power plant into a co-generation plant which would supply heating to the town of Pljevlja. Replacing a number of small polluting boilers with one single polluting source could perhaps have worked in 1982, when the number of alternatives was limited. But technology has evolved so much since then.

District heating is a complex topic that requires progressive thinking how to modernise all aspects of the system – low-temperature, multi-source solutions on the supply side, such as the use of excess heat from industrial processes or data centers, local renewables potential like solar or geothermal together with heat storage, modern technologies like heat pumps, in combination with energy efficiency measures at the level of the network and on the demand side in order to bring down heat demand.

The localised nature of district heating systems means they should be transformed with a bottom-up approach. The initiative must come from the municipal authorities and local communities, but national and international stakeholders have an important role in integrating clean, modern solutions into national strategic and policy planning. Funding is already available for national and local governments willing to develop such projects, and there are „best practice“ examples from around Europe.

On the path to decarbonisation, which Western Balkan leaders have committed to achieve by 2050, district heating is too big an elephant in the room to be ignored. One of the reasons it has been sidelined for years, even by EU policymakers, is the absence of a „cross border dimension“ that would render it an issue of regional and Europe-wide interest. District heating by nature is primarily a localised, municipal service. But the effects of inefficient heating systems, in the form of air pollution, health and environmental hazard, economic and social costs, extend well beyond municipal and national boundaries.

No country can achieve the necessary emissions reduction targets without aggressive measures to make heating systems clean and smart. At the national level, the ongoing National Energy and Climate Plans (NECP) processes are the place to plan for heating related measures. Recognizing this as a regional concern, in late 2020 the Energy Community launched a heating and cooling platform, with the aim of mobilising the participating countries and stakeholders to exchange information and ideas around this topic.

As a district heating consumer, I often ask myself when can I expect to come back to a home where I can adjust the temperature, control how much I consume and pay at the end of the month, knowing that it is also safe to breathe outside in wintertime because Skopje is heated from clean sources?

Once a district heating project is planned, it would take several years to mobilise funding, secure building permits, carry out construction works, and actually put in place any new technology. That is why planning progressive, locally adapted solutions that work for citizens, for the economy, for the environment, and for the long term, needs to start immediately across all the Western Balkan countries.

When courts help cloak export credit agencies’ financial clout

In December 2020, following a lawsuit filed by environmental group Green Istria, Croatia’s High Administrative Court ruled, once again, that citizens have the fundamental right to hold the Croatian Bank for Reconstruction and Development (HBOR) to account and that the Bank must be transparent about the ways in which it uses public funds.

As obvious as it might sound, this ruling is a significant milestone in civil society’s quest to expose the decisive role export credit agencies like HBOR have been playing in enabling the fossil fuels industry and human rights abuses around the world. The Trans-Adriatic and the Trans-Anatolian gas pipelines, Indonesia’s coal industry, and liquified natural gas projects in Mozambique are just a few examples of controversial projects enabled by various export credit agencies.

The Croatian court case is important since in a number of instances in recent years, central European courts have sided with export credit agencies that insisted on withholding information on their operations.

Export credit agencies’ little-acknowleged impact

State-owned export credit agencies enable governments to support local companies in doing business abroad, particularly in financially and politically risky parts of the world.

Members of the Berne Union, the most important association of export credit agencies and investment insurers, collectively cover nearly USD 2.5 trillion in exports every year. That is 13 percent of the world’s transboundary trade.

This makes export credit agencies more powerful than many multilateral development banks. And yet, these financial institutions are as opaque as they are influential (see here for more).

HBOR’s vigorous – and, gladly, fruitless – insistence to deny public scrutiny is a case in point.

How many court cases one needs to see where the public money goes?

In 2015-2019, HBOR legally challenged no less than 31 decisions of the country’s Information Commissioner after it had ordered the country’s export bank to disclose information on its clients, projects it supports and other aspects of its operations. The Bank lost all 31 court cases.

The ruling from February 2021 was no different. Green Istria requested HBOR to disclose protocols of its board meetings from 2015-2018 related to projects it supported. HBOR, unsurprisingly, refused to grant access to this information. This time, the Information Commissioner decided to side with the Bank, so Green Istria filed a lawsuit at the High Administrative Court against the Commissioner’s decision.

Two years after the environmental group’s initial request for information, the court confirmed earlier rulings, according to which, HBOR disposes public money and therefore citizens have the fundamental right “to exercise control over the holders of power and over the spending of public funds”.

Like their Croatian peer, export credit agencies in Poland, Hungary, Czechia do not disclose their full portfolios on their websites, and they also resist requests for information.

Eximbank Zrt., the Hungarian export credit agency, had turned down a Friends of the Earth Hungary request for information on its loans, and made sure to appeal rulings by two court instances. In 2019, the Curia of Hungary accepted Eximbank Zrt’s banking secrecy claim.

But, the Freedom of Information Act, representing the public interest, should be superior to banking secrecy of a state-owned bank. So, Friends of the Earth Hungary, lodged a complaint with the Constitutional Court, and the case is still pending there.

Similarly, a 2019 ruling of Poland’s Supreme Administrative Court, concluded a three years long effort by Polish Green Network to reveal who enjoys the generous support of the Polish export credit agency KUKE S.A. Eventually, the court ruling upheld KUKE S.A.’s claim for insurance secrecy as a reason to reject the request for the complete list of the companies it had provided with publicly-backed insurances.

European Commission does little to end export credit agencies opacity

Bankwatch member groups and fellow NGOs have long been calling out this little known but influential class of public finance institutions for their contribution to human rights violations and to fueling the climate crisis.

But part of the problem is that even the European Commission refuses to adopt a proper benchmark to determine whether European export credit agencies’ operations are actually in line with the EU’s objectives and obligations.

Export credit agencies voluntarily follow the OECD’s Common Approaches guidelines for undertaking environmental and social due diligence. OECD members are supposed to report to the organisation about all projects supported by their export credit agencies that have a potentially ‘medium or high negative environmental or social impact’. Consequently, as can be seen in the newest information, covering 2016, this list omits an unknown number of projects that are supposedly less impactful.

Yet, this voluntary and mainly inadequate reporting has allowed the European Commission to downplay its own responsibility to properly scrutinize European export credit agencies’ investments.

Members States are legally obliged to submit annual reports on their export credit agencies’ performance. But to determine whether they are compliant with the EU’s objectives and obligations, the Commission’s yardstick is the inadequate OECD Common Approaches. The scope of the Common Approaches only covers a limited part of export credit agencies’ portfolios.

The application of the Common Approaches is entirely discretionary, and many of the standards the Common Approaches refer to are weaker than EU policy provisions. A more appropriate benchmark would be the body of EU laws, directives and obligations (see here for more).

It is high time export credit agencies come out of the dark. And the European Commission as well as the European Parliament have the authority to design appropriate, binding regulations. New rules can play an important role in strengthening the transparency and accountability standards of these public finance institutions. It doesn’t need to take countless legal battles to shine a light on what is being done with European public money, especially when it too often ends up bankrolling climate change and human rights violations.

Czech recovery plan a few steps away from being on the right path

The drafting of the Czech recovery and resilience plan has largely been going on behind closed doors. Civil society organisations (CSOs) were not invited to participate in the planning process and there has not been any attempt to inform the public about the most current version of the plan and the latest changes up until the end of March. Despite this lack of respect for the partnership principle, the plan has undergone several major positive modifications due to pressure from CSOs and the European Commission since the first draft was published in October. Harmful projects erased from the plan included investment in highways, re-financialisation of the newly legislated tax reforms and investments in LNG/CNG vehicles. With these harmful measures gone, the plan is largely going in the right direction, but there are still some noticeable missteps present. In official documents, the Czech government claims that 37 per cent of all measures included in the recovery plan contribute to the green transition – exactly the minimum share required by the European Commission. It also states that there is no breach of the ‘do no significant harm’ principle by any measure listed in the plan. While this sounds good, even if a little unambitious, the question is whether that’s really true. With around EUR 7 billion at stake, it’s crucial to get the answers right.

Less than a third of measures support the green transition

A whopping EUR 3.1 billion, almost half of the funds, is planned for a component with ‘green transition’ in its name. This definitely creates the illusion that the required 37 per cent share of green and climate measures is easily achieved. In reality, only around 30 per cent of the total budget can be considered green. Measures supporting biodiversity are below seven per cent of the total allocation.

There are several great and truly green measures proposed, such as the construction and electrification of railroads on a massive scale. More sustainable transportation (including railroads, but also biking and walking paths) will receive EUR 844 million.

Components of the Czech recovery and resilience plan:

Digital transformation (EUR 1.1 billion)
Physical infrastructure and green transition (EUR 3.1 billion)
Education and job market (EUR 1.57 billion)
Institutions, regulations and support of entrepreneurship in response to COVID-19 (EUR 0.56 billion)
Research, development and innovation (EUR 0.51 billion)
Health and resilience of the citizens (EUR 0.57 billion)

Another EUR 230 million will go towards energy efficiency measures, and almost EUR 200 million towards the development of photovoltaics. Another EUR 169 million will be used for revitalisation of the recycling infrastructure in order to bring us closer to the circular economy model. Although these investments contribute to environmental and climate goals, when taken together they still do not reach the 37 per cent mark. Furthermore, certain measures, such as investments in distribution networks for district heating (more efficient pipelines), highly efficient gas boilers and financial support for the Czech development bank (ČMZRB) are also problematically considered as fully contributing to the green agenda. Despite the fact that more efficient pipelines for district heating are needed they will still redistribute heat from fossil fuels. Although some environmental organisations consider gas boilers highly efficient and helpful in the short-term to alleviate air pollution, cleaner air, in this case, is the result of a false solution that relies on continued dependence on gas. And although support for small and medium enterprises (SMEs) is crucial for the development of more resilient local economies (which is the purpose of the ČMZRB), marking this measure as 100 per cent contributing to the climate objectives does not make sense. This measure is currently undergoing changes due to interdepartmental proceedings, and the Czech government has said that the necessary steps will be taken to ensure its full compliance with the climate objectives. Another problematic measure is the ‘digital transformation of enterprises’. This measure is supposed to contribute EUR 72 million to the green target (1 per cent of the total budget). The only rationale for this is that digitalisation may have secondary effects on the emission reduction target and will help to kickstart the circular economy. Although digitalisation can positively affect waste management and make work more efficient, counting it as a climate measure is highly opportunistic, because it may also negatively impact energy consumption.

Missing biodiversity and nature-based solutions

The allocation for biodiversity protection is nearly absent in the recovery plan and does not create any opportunity for reaching the goals set in the Biodiversity Strategy 2030 or the Farm to Fork Strategy. Although EUR 576 million is allocated to a component called ‘nature protection and adaptation to climate change’, most of the measures included there are problematic. Friends of the Earth Czechia (Hnutí Duha) previously raised concerns over this component. Measures for flood protection have to be allocated exclusively to dry polders, the restoration of wetlands, and the revitalisation and renaturation of riverbeds. Other important areas missing in the plan are the revitalisation of watercourses in the landscape and urban areas, meaningful improvement of the state of forest ecosystems (e.g. avoiding fast reforestation solely for carbon sequestration), implementation of land improvements aimed at stabilising the landscape, and the elimination of support for irrigation not supported by the European Commission. Up to now, none of these suggestions have been reconsidered and included in the plan, despite the fact that the Ministry of Industry and Trade constantly lists Hnutí Duha as their partners in drafting the plan.

A good example?

The Czech recovery plan has come a long way from supporting new highways and vehicles running on fossil gas. The overall feeling is that the plan is quite complex and takes into account different needs of the economy, society and climate. However, that does not mean that there are no problems with the plan. There are strong measures to support the country’s pathway to decarbonise and transition away from fossil fuel dependency. However, the plan’s neglect for measures in support of nature and biodiversity conservation and several questionable climate measures are serious cause for concern. If money from these and few other components was redirected towards more meaningful, environmentally friendly measures (e.g. more money for accelerating and preparation of the renovation of buildings), the plan would meet its 37 per cent climate objective and could be considered a good example for other countries.

NGOs expect Energy Community infringement procedure on Montenegrin coal plant

A group of NGOs active in the Western Balkans has today called on the Energy Community Secretariat to open an infringement procedure against Montenegro for failure to limit the Pljevlja coal power plant’s operating hours in accordance with a Ministerial Council Decision taken in 2016.

Under the so-called ‘opt-out’ regime, the Pljevlja coal plant, which provides around 40 per cent of Montenegro’s electricity, was allowed to work up to 20,000 hours between 1 January 2018 and 31 December 2023 without undertaking additional pollution control measures. After that, it has to either close permanently, or invest in equipment to comply with stricter pollution limits for new coal power plants.

These conditions have also been included into the plant’s integrated environmental permit issued in 2018, but the plant has long since exceeded the operating hours and is still operating now.

Health damage by the Pljevlja plant

In 2016, the Pljevlja plant caused, among others, an estimated 133 premature deaths, 2,894 asthma symptom days in asthmatic children, 68 cases of chronic bronchitis in adults, 106 hospital admissions due to respiratory or cardiovascular symptoms, and 39,686 lost working days, with health costs up to EUR 3 million. The impacts are most likely the same or even worse today, as the plant’s sulphur dioxide emissions were even higher in 2018 and 2019 than they were in 2016.

Complying with the Energy Community Treaty is therefore not merely a question of rules, but is imperative to improve public health in the Western Balkans and beyond.

A nasty surprise for the new government

Instead of spreading the available hours evenly over the whole period, the management of Elektroprivreda Crne Gore (EPCG), the plant’s owner, have used them up as quickly as possible. The Energy Community Secretariat has been warning since autumn 2019 that the Pljevlja plant looked set to run out of hours in less than a year, but its warning was not heeded.

After 30 years of the same ruling party, a new government took office in Montenegro in December 2020, and one of the first things that awaited them was the issue of what to do with the Pljevlja coal plant. It was already suspected by that point that it had used up all its hours, but this had not yet been confirmed, and EPCG was less than cooperative in clarifying the situation.

However, Montenegro has now reported its official 2020 operating data to the European Environment Agency as required under the Energy Community Treaty. The data shows that the Pljevlja coal plant operated 7,194 hours in 2020. Combined with the operating hours for 2018 and 2019, which amounted to 13,809 hours in total, this brings the plant well beyond the 20,000 hours allowed under its opt-out regime.

However, instead of taking a stance on closing the plant – at least temporarily, while decisions are taken whether to go ahead with modernisation – and on how it plans to support the workers, the new government has so far continued to peddle a fictional story about negotiating with the Energy Community for ‘additional hours’. However, neither the Energy Community Secretariat nor the European Commission have a mandate to grant this, as it would essentially mean re-writing the Large Combustion Plants Directive.

Modernisation mystery

Closing the plant after having used up its 20,000 hours is imperative, but is only the first step. The other question is whether to close it permanently or to retrofit it. In June 2020 Montenegro’s previous government signed a contract with a consortium led by China’s Dongfang (DEC International) to retrofit the plant to bring it into line with the so-called 2017 LCP BREF, which represents the EU’s latest standards for such plants.

However, EPCG has never publicly proven that such an investment would be economically justified, nor that the planned investments would be technically capable of bringing the plant into compliance. At the time of signing, it was also claimed that this investment would extend the lifetime of the plant by 30 years, which we seriously doubt because the planned works do not include reconstruction of the main parts of the plant, such as the boiler.

The prices for the bids for the modernisation varied very widely, leading both the media and one of the competing bidders, Hamon Rudis, to question whether the winning bid offers an inferior technological solution. Hamon Rudis requested that the selection commission check the compliance of Dongfang’s bid with the technical specifications in the tender documentation due to its much lower price than the other two bids.

The Decision on the selection of the best bid responds that no specification was included in the tender obliging the bidders to submit technical documentation – they only had to provide statements that their offer complied with certain parameters. It is therefore, conveniently, impossible to check the technical specifications of each bid. This leaves very little information on which to assess the technical quality of the winning bid and raises serious doubts as to the quality of the project.

Another issue is that the winning consortium includes BB Solar, a company half-owned by the President of Montenegro’s son, Blažo Đukanović, which, as the name suggests, specialises in solar rather than coal plants.

Therefore, in early April, the Ministry for Capital Investments asked the Public Prosecutor to investigate the tender process, as well as the fact that EPCG used up all its hours in three years instead of spreading them out until the reconstruction project was ready to start.

Modernisation or permanent closure?

Closing the plant is clearly a big deal for Montenegro’s electricity supply, as well as for the affected workers and the wider community in Pljevlja. Furthermore, no preparations have been made to ensure a just transition for Pljevlja, so it is not surprising that EPCG and both the previous and current governments are reluctant to act. But a decision has to be made, and it has to be made soon.

Roughly speaking, there are three options – to close down the plant and keep it closed, to close it down until the modernisation takes place and hope it turns out alright, or to cancel the modernisation contract and relaunch the modernisation project based on new specifications and a new tender.

None of these are easy options. The second one is highly risky for the reasons mentioned above – the modernisation might really not bring the plant into compliance – and the first and third both leave a significant gap in Montenegro’s electricity supply while additional generation capacity comes online and energy savings are made.

The decision needs to be based on a thorough analysis of supply and demand in the coming years, and depends on EPCG’s ability to deliver projects like the Briska Gora solar project and the Gvozd and Brajići wind farms. The data prepared for the forthcoming National Energy and Climate Plan should be of use in this respect.

Also key is the future of the ailing Podgorica aluminium factory (KAP), which in 2019 used 16 per cent of Montenegro’s electricity, as well as Montenegro’s ability to cut its transmission and distribution losses, which amounted to 14.5 per cent of electricity consumed in 2019. Another major factor is the use of inefficient electric heaters for domestic heating, though it is likely to take some years to replace these with heat pumps. If consumption can be cut and generation from solar and wind increased sufficiently, Montenegro may be able to avoid modernising the coal plant altogether.

Irrespective of which decision is taken, workers’ welfare needs to be guaranteed and planning for a just transition in Pljevlja needs to ramp up immediately. So far, discussions on this have been initiated by NGOs, but the authorities, at both the local and national level, need to step up their action to make the process as painless as possible.

Opportunities for biodiversity and environment missed in Bulgarian recovery plan

Next to no public participation

With only one public hearing in November 2020, civil society in Bulgaria awaits the third version of the Bulgarian recovery and resilience plan. After the government presented the first draft at a large event last year, the second version was published at the beginning of February. Concrete proposals for reforms and measures to transform Bulgaria’s carbon-intensive economy into one that respects the climate, biodiversity and innovation were ignored. The recent elections on 4 April further hindered the process as the government resigned without making clear the next steps. The Recovery and Resilience Facility offers a chance for Bulgaria, the poorest country in the EU, to progress with its part of the European Green Deal. With a budget of slightly over BGN 12 billion, or about EUR 6 billion, the Bulgarian recovery plan consists of four pillars: Innovative Bulgaria, Green Bulgaria, Connected Bulgaria and Just Bulgaria. The 34 per cent of the Green Bulgaria pillar allotted to the Low Carbon Economy, Biodiversity and Sustainable Agriculture components makes a good impression at first glance. However, a detailed look uncovers inefficient and business-as-usual measures.

No energy decentralisation, no energy independence

More than 57 per cent of the Low Carbon Economy component is planned for energy efficiency, with a focus on measures for residential, business, state and municipal buildings. Although necessary, the priority given to this measure shows low ambition for a rigorous green transition. All other measures, such as energy-efficient municipal lighting, digital transformation and the development of information systems, low carbon gas infrastructure, pilot projects for green gas and biogas, were given insignificant allocations of the total budget for this component, making sure that transformational change will be highly unlikely.

Deepening biodiversity challenges with Natura 2000

The biodiversity component of the green pillar envisages the development of site-specific conservation objectives and measures for the Natura 2000 network. As the deadline for establishing the conservation objectives expired in 2014, work on this issue is long overdue, especially given the fact that the European Commission has already started an infringement procedure against Bulgaria on the topic. Mapping and calculating the value of ecosystems, ecosystem services and green infrastructure within the Natura 2000 network is the second type of activity within the biodiversity component. It poses the question how efficiently is EU money spent. Mapping of ecosystem services was included in the EU Biodiversity Strategy 2020. Territories outside the network were mapped, with no public information on the benefits of the exercise. However, it is no longer included in the new EU Biodiversity Strategy 2030. The monitoring under the Habitats and the Water Framework Directives could be used to provide some of the information needed. Most importantly, funds could be used for more practical and much needed biodiversity related measures.

In total, biodiversity-related measures amount to only 0.72 per cent of the green pillar, which misses by far the significant funds envisaged by the EU Biodiversity Strategy 2030 for investments in biodiversity and nature-based solutions.

Harmful measures might destroy wetlands

The Green Pillar Sustainable Agriculture component allocates almost 20 per cent for the rehabilitation of state-owned irrigation systems. The refurbishment of pumping facilities, which have been out of use for a long time now, might lead to the drainage of wetlands, causing damage. This measure has no appropriate assessment with the Natura 2000 sites, an obligatory procedure aiming to avoid such risks. Furthermore, the measure is problematic from the point of view of good governance and efficiency: it is an investment without any reform. It is not in line with the strategic document on irrigation until 2030 which envisages an extensive reform programme with many legislative changes, none of which is carried out to date, in addition to the planned liquidation of the beneficiary, a 100 per cent state-owned company with low credibility.

The current version of the Bulgarian national recovery and resilience plan also does not envisage planting a single tree.

The technical guidance on the application of ‘do no significant harm’ under the Recovery and Resilience Facility states that ‘Complying with the applicable EU and national environmental law is a separate obligation’. Therefore, Strategic Environmental Assessment and Appropriate Assessment are necessary and the Commission as guardian of the EU law is expected to insist on it. As the Regulation for the Recovery and Resilience Facility states: ‘The Facility should support activities that fully respect the climate and environmental standards and priorities of the Union…’. We would therefore expect the national plan to support measures that are not covered by the operational programmes under the Multiannual Financial Framework 2021 – 2027 and which support the implementation of the EU Biodiversity Strategy 2030 and the Farm to Fork Strategy. In line with this thinking, Bulgarian NGOs have already proposed to the Ministry of Environment a list of measures that could be included in the recovery plan:

Increasing the share of strictly protected areas;
Connectivity between Natura 2000 sites;
River connectivity (removing unnecessary barriers, construction of fish passes);
Wetlands restoration in line with the measures of the river basin management plans and the National Plan for Conservation of the most important wetlands in Bulgaria 2013 – 2022;
Restoration of agricultural protection belts and riverine forests;
Capacity building in the structures of the Ministry of Environment and Waters and management authorities of protected areas and Natura 2000 sites;
Feasibility studies for biodiversity restoration projects;
Feasibility studies for afforestation, reforestation and improved management of forests to adapt to climate change;
Preparation of seedlings of autochthonous trees for future afforestation and reforestation;
Raising capacity for biodiversity monitoring with volunteers – extend the use of citizen science platforms for biodiversity monitoring.

With a third version of the plan on the way, civil society would expect a revision to the lists of potentially harmful projects, as well as the inclusion of nature-focused measures. This assessment is based on Version 1.1. of the Bulgarian national recovery plan released on 8.02.2021

Half green and half-blind on democracy. As the EBRD turns 30 the vision of its founders is still far out of sight

In the spirit of the time, EBRD shareholders included in the bank’s statute two unique mandates: First, a political mandate stating that the bank will only operate in countries which are ‘committed to and applying the principles of multiparty democracy, pluralism and market economics’ (Article 1, Agreement Establishing the EBRD); Second, a commitment to help its countries to promote environmentally sound and sustainable development in the full range of its activities (Article 2, Agreement Establishing the EBRD).

As the EBRD is celebrating its 30th anniversary today, it appears that the Bank still has a long way to go until it has fully implemented both its democracy and sustainability mandates.

Deterioration of freedom and democracy in EBRD’s countries

The EBRD was given a core mandate to promote a transition to market economy in former centrally planned economies, which was expected to go hand-in-hand with the democratisation of these countries.

Three decades down the road, the state of democracy, the rule of law and respect for human rights are deteriorating significantly in many EBRD recipient countries, whilst the Bank has done little to revisit its engagement. The EBRD conducts detailed political assessments and regular monitoring of the state of democracy in order to ensure compliance with its political mandate and to identify areas for responding to evolving developments in its recipient countries. It is unclear, however, how these assessments translate into investment priorities or investment conditions when the Bank operates in authoritarian and repressive states?

The recent expansion in the EBRD’s shareholder base as well as its growing portfolio in non-democratic countries have raised questions regarding the EBRD’s commitment to its political mandate. The fact that Turkey and Egypt regularly top the list of the largest recipients of EBRD funds in recent years clearly demonstrates the EBRD’s willingness to turn a blind eye to the appalling human rights record and undemocratic practices of governments in its recipient countries for the sake of business.

As the democracy situation in the EBRD’s countries of operation has deteriorated, the number of projects and investments in 2020 reached a record high. Bankwatch analysed the data from key freedom and democracy indices and juxtaposed it to EBRD investment data (see table).

Source: EBRD, Economist Intelligence Unit Democracy Index

Eight EBRD recipient countries, which are rated as Authoritarian Regimes by the Economist Intelligence Unit (EIU), have received more than two billion Euro in 2020. Eleven countries, rated by the EIU as Hybrid Regimes, have received nearly five billion Euro.

This means that countries with non-democratic regimes have received more than a half of the EBRD’s record high portfolio for 2020. While most of the EBRD’s financing has been to businesses in the private sector, businesses in authoritarian regimes regularly comply with the political system.

Out of the 39 countries of operation 19 saw an increase in investments in 2020 compared to 2019, however 16 out of these 19 countries saw a decrease in their democratic status in 2020 compared to 2019, according to the data published by the EIU.

Egypt

Egypt topped the list of recipient countries of EBRD investments in 2019 and dropped to second place in 2020 with more than one billion Euro annual investments. Meanwhile, the situation in Egypt has deteriorated drastically.

Egypt ranks among the worst countries in the world on the Economist Intelligence Unit Democracy Index. UN human rights experts have sounded the alarm on numerous occasions regarding human rights violations in Egypt.

A decade after the 2011 nationwide uprising, Egyptians are living under the authoritarian grip of President al-Sisi’s government. Unfree and unfair elections have characterised the rollback of democracy and of the separation of powers in Egypt. Moreover, Egypt’s 2019 NGO law prohibits independence in funding and international cooperation, the only permissible NGO activities are development and social work, in pursuit of social need as defined by the state. Violations of the new NGO law are harshly punished with travel bans and asset freezes of civil society leaders, raising the fear of repression and reprisals among rights defenders, journalists, and civil society groups. Security agencies clearly responsible for severe violation of human rights enjoy near total impunity.

Uzbekistan

Uzbekistan is another top destination of EBRD finance with nearly half a billion invested in the country in 2020. The former EBRD president, Sir Suma Chakrabarti, became an advisor to Uzbekistan’s President Shavkat Mirziyoyev on economic development, effective management and international cooperation.

Despite the reforms declared by President Mirziyoyev, the country remains among the world’s most authoritarian regimes. Freedom House’s Nations in Transit 2020 report gave Uzbekistan receives a Democracy Percentage of 2 out of 100. No genuine political parties operate legally in the country. Despite some releases, the government still holds numerous prisoners on political and religious grounds.

Civil society and the media continue to suffer from restrictions to freedom of speech and barriers to legal registration. For the last 18 years, only one domestic civil society group was allowed to register, while applications from other independent human rights organisations keep being rejected.

Bills seeking to restrict the right to peaceful assembly place excessive requirements on the organisers. Much of the media is still controlled by the government, and websites of independent media and human rights groups is blocked.

Moreover, human rights defenders and journalists continue to be under secret surveillance and are the target of sophisticated phishing and spyware attacks. Recently, the Uzbek Interior Ministry issued a statement threatening journalist with prosecution over LGBTQ reporting. Consensual same-sex relations between men continue to be criminalized in Uzbekistan, and the UN Human Rights Committee confirmed persistent inequality between men and women.

Apart from it, land confiscation, violation of labour rights, economic exclusion and corruption are rampant after the privatisation of the cotton sector in Uzbekistan, including by corporations like Indorama who have been enjoying generous support from the EBRD. Private property rights are largely ignored in the country as can be seen in multiple cases of illegal demolition of buildings, forced eviction and expropriation of houses from the most vulnerable groups.

Walking the walk

To realize its political mandate the EBRD should clarify how it applies the “more for more, less for less” approach in authoritarian countries, especially those which are the bank’s largest recipients. The EBRD should also continue policy dialogue efforts and remind non-democratic governments of the need to ensure safe space for civil society, remove barriers to the registration of non-governmental organisations, including human rights organizations. Lastly, the EBRD should operationalise its commitment expressed in safeguard policies to act in line with the international Human Rights law by improving participatory human rights due diligence for its operations in non-democratic countries.

Half Green

The EBRD’s new investment strategy for 2021-25 includes the Bank’s new Green Economy Transition approach that sets a target to invest more than half of its portfolio in climate action and projects with sustainability elements. The EBRD’s leadership has hailed this new strategy as an ambitious attempt to position the Bank as a green finance champion, although half of its investments will remain business-as-usual.

Half green and half business-as-usual means that the EBRD is roughly EUR 5 billion per annum short of implementing its ‘green mandate’ to promote sound and sustainable development “in the full range of its activities environmentally”.

The EBRD is still to disclose and consult with the public a methodology for alignment of its investments with the Paris Agreement. A fully formed climate strategy is expected no earlier than 2022. The EBRD risks becoming a laggard in comparison to the European Investment Bank that in 2020 declared that it is stopping investments in fossil fuels.

Meanwhile, the EBRD appears completely out of touch with reality by calling its EUR 80 million investment in natural gas in Cyprus “decarbonisation”, rationalising the project as “enabling the transition away from carbon-intensive fuels”.

Another EUR 243.5 million EBRD loan for fossil gas supply to households in Kazakhstan is promoted as a “drive towards a low-carbon and climate-resilient economy”.

The EBRD has also extended a USD 250 million loan for Egypt’s Alexandria oil refinery Green Project in Egypt, a USD 240 million loan for the 900 MW Talimarjan gas-fired power plant and a USD 200 million loan for the 1500 MW Syrdarya plant in Uzbekistan, under the guise of energy efficiency and climate resilience.

Calling oil and gas investments decarbonisation, sustainable and green is nothing short of delusional. It seriously undermines the green half of the EBRD’s portfolio and underscores the need for a robust set of criteria for finance that gets tagged as sustainable. A full fossil fuel exit would be a good start, to demonstrate commitment to climate action and to realize the Bank’s sustainability mandate.

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