Blog entry

SLAPPd: the Armenian activists fighting a mining multinational’s lawsuits

The truth is born of argument. Healthy debate underpins good governance, democracy and social cohesion. The rights to free speech, public participation and petition are enshrined in international law and the constitutional acts of democratic states. But what happens when these human rights interfere with corporate rights and business attempts to override democratic decision making?

SLAPP stands for “Strategic Lawsuit Against Public Participation” and refers to a lawsuit filed in retaliation for speaking up or organising public opposition against a business activity. SLAPPs are usually brought up by developers against activists who oppose their projects. The claims range from defamation, reputational or moral damage, to accusations of corruption, interference in business relations and material damages amounting to thousands or millions of dollars.

SLAPPs are rarely intended to compensate project promoters for damage, because those accused do not have the financial means, cases can get stuck in the legal system and often fail to conclude, legal and staff costs invested by the company in a lawsuit can significantly exceed the money collected as a result of it. The purpose of SLAPPs then is to intimidate activists, force them to “measure their words” by preoccupying them with lengthy and expensive court cases, and ultimately to silence and paralyse public criticism.

One instance in which SLAPP suits are being deployed is the case of the Amulsar gold mine in Armenia, a project backed by the European Bank for Reconstruction and Development. Here, Lydian international has attempted to stifle criticism from lawyers, civil society and local communities speaking out against the damages wrought by the project. Lydian has filed no less than 15 suits against dissenting voices, largely as an attempt to silence criticism. In spite of the clear malicious intent of the complaints, the EBRD, which has a mandate to promote democracy, has refused to intervene in support of the right to free speech.

We interviewed several members of the fight to protect Amulsar who are currently tied up in litigation with Lydian, and they shared their experiences in navigating the precarious territory of SLAPP suits.

A fight I will continue to the very end

Nazeli Vardanyan is a lawyer and the head of Armenian Forests NGO. She was assigned by the government to write a legal analysis of all the suspected violations related to the Amulsar project, which would then be sent for discussion to various stakeholders. During a public presentation of the document, Vardanyan raised one example of suspected corruption related to the Lydian’s Jermuk foundation that operates in the town near the mine. In December 2018, Lydian brought suit against her for criticising the Amulsar project and accusing it for dealings with authorities.

Vardanyan says the suit has been especially difficult because as the lawyer responsible for others facing suit from Lydian, she has been restricted in what she can and cannot disclose about the cases, effectively tying her hands.

She believes the suit is frivolous and is a direct result of her work in defending many other activists involved in the movement against Amulsar. On 11 June 2020, the Court of First Instance upheld the lawsuit filed by Lydian against Vardanyan. Yet Vardanyan is confident the suit will be dismissed eventually, so long as the Armenian judicial system adheres to its principles. She has said she is prepared to appeal the case for as long as possible to ensure a fair outcome.

I have sacrificed my time, my job, my life

Tehmine Yenoqyan is a journalist from the village of Gndevaz, which sits just opposite the Amulsar mine. She has long supported the blockade of access to the mine, and because of her dissent, she has been the subject of abuse and harassment.

Yenoqyan filed a second complaint to the police in September 2018 about video and photos along with abusive comments that circulated on Facebook. She alleged that the materials were captured by a neighbour employed by Lydian to surveil and discredit her. Though the court eventually ruled in her favour, she appealed to a higher court because compensation for the damages from the SLAPP suit were not commensurate with the difficulties she had faced. Yenoqyan believes the case was meant to sow division in the communities and detract her from her work as a journalist.

This is not an environmental campaign. It is an assertion of community rights.

Levon Galstyan believes the battle over the Amulsar mine has entered a new phase since Lydian began its strong arm tactics. The movement has gone beyond simply trying to prove that the mine is damaging: instead, winning these court cases is putting the whole integrity of the Armenian judiciary on the line. He was charged with defamation by Lydian in August 2018 for interviews he’d given with the national outlet Civilnet.am, some of his Facebook posts and articles that had appeared on the site of partner organisation ArmEcoFront.

He believes he has been targeted by Lydian because he has been a vocal critic of the project since 2011. The financial difficulties and the hurdles placed on people in having to attend court hearings are but a few of the problems associated with fighting Lydian, but Galstyan is confident in the end he will prevail.

His trial is ongoing.

Eventually there is justice, right?

In spring 2019, Gagik Grigoryan was charged with defamation by Lydian for questioning their operations in a Facebook post and during a public gathering. Like the others, he is being asked to pay a fine of one million Dram in damages. But he says he has yet to receive any court documents, so the litigation has not started.

In addition to these suits, in 2018 Lydian filed a claim against the Armenian Environmental and Mining Inspection Body. The inspection body had identified a range of violations related to mine’s operation and obliged the company to stop certain activities in the Amulsar area. In particular, the body noted the presence of red-listed species, project deviations during construction works, the inappropriate land use, unauthorized atmospheric emissions, failure to draft and approve hazardous waste passports during construction, the storage of hazardous wastes without a license and failure to pay environmental taxes for dust emissions. In 2019, the company also filed a lawsuit against two Armenian media sources – Lragir and Skizb – for defamation.

How to better apply the law to small hydropower in the Energy Community?

In the EU, a whole series of Directives govern whether a small hydropower plant can be built at a particular spot, including the Water Framework, Habitats and Birds Directives. Public consultations take place at different stages under the Strategic Environmental Impact Assessment (SEA) Directive and Environmental Impact Assessment (EIA) Directive.

As a result, only in very rare and exceptional circumstances can hydropower plants be built in locations where they will decrease water quality or damage Natura 2000 protected areas. When properly applied, this EU legislation ensures a high level of protection.

The Energy Community Treaty, which applies in the Western Balkans, Ukraine, Moldova and Georgia, currently includes only a limited range of EU environmental legislation. The EIA and SEA Directives are the most relevant for small hydropower plants.

This leaves precious natural areas, including many of the Western Balkans’ stunning rivers, terribly under-protected. In the coming years, therefore, the Energy Community needs to adopt all the remaining Directives mentioned above to provide the same level of protection to its rivers as those in the EU.

The pristine upper Neretva is threatened by eight hydropower plants. Photo: Amel Emric

But a lot of damage could already be prevented if the existing rules were properly applied in the Energy Community. It is this that the Secretariat has been consulting the public on for the last few weeks, with its new draft guidelines on small hydropower plants.

In recent years, Bankwatch has unfortunately witnessed numerous breaches of the EIA Directive and State aid legislation in the region. Below we cite some of the most frequent problems emphasised in our input for the consultation.

Small hydropower is driven by an outdated and imbalanced incentives system

Small hydropower has disproportionately benefited from feed-in tariffs in the Western Balkans, receiving 70% of renewable incentives in 2018, while generating only 3.6 per cent of electricity. Solar and wind have been subject to restrictive quotas on how many plants can receive incentives, but small hydropower plants have had much higher – and in some cases unlimited – quotas.

In North Macedonia, solar and wind must now undergo auctions, while an unlimited amount of small hydropower can still benefit from feed-in tariffs. This provides an unfair advantage for hydropower, especially as the level of support has not changed since 2007.

Likewise in the Republika Srpska entity of Bosnia and Herzegovina, small hydropower is practically the only form of renewable energy that can still receive support, since wind incentives were suddenly cut in 2019 and solar has always had a very low quota.

Feed-in tariff schemes are no longer allowed for renewable energy plants of more than 500 kW in the EU (though wind has a higher threshold) under the EU’s Energy and Environment State Aid Guidelines (EEAG), but some of the Balkan governments are dragging their feet about changing their incentives systems.

Importantly, the EU rules also contain sustainability criteria, requiring incentives only to be provided for plants which are in line with the Water Framework Directive and other EU environmental legislation. Such criteria are mostly absent in the national legislation in the Balkans.

Lack of strategic planning and assessment

Strategic planning in the Western Balkans suffers from a lack of continuity, a lack of meaningful public debate, and a tendency to carry old projects over into new plans ad infinitum without reconsidering whether they are still relevant.

Strategic Environmental Assessments are still not regularly carried out in some countries, and where they are, there is usually no real attempt to critically analyse the situation or take public comments into account. Sometimes they are carried out after the plan or programme they are analysing is already finished, so they cannot impact on choosing more environmentally acceptable options.

This results in a situation where planning is in reality stipulated by the development of a collection of individual projects, rather than projects being defined by the overall plan. In the case of small hydropower plants, this has resulted in “death by a thousand cuts” as concessions and permits have been distributed individually without considering the overall consequences for the region’s rivers and the people and animals who depend on them.

Small hydropower too often exempted from environmental impact assessment

Experience shows that even very small hydropower plants can cause serious damage when sited in sensitive areas, especially if several are built close together.

The EIA Directive aims to take this into account by making sure that large plants are always subject to environmental impact assessments, while smaller hydropower projects are screened according to criteria laid out in Annex III of the Directive.

But this second requirement is often ignored in the Western Balkans. In some countries, hydropower plants below a certain capacity threshold are automatically exempted from environmental impact assessments. In other countries, screening to see if an EIA is needed is required in theory, but is often mis-used in practice.

Country	EIA exemption threshold for small hydropower plants
Albania	None
Bosnia and Herzegovina	2-5 MW (Federation of BIH) N/A (Republika Srpska)
Kosovo	None
Montenegro	1 MW
North Macedonia	None
Serbia	2 MW

Serbia has not even transposed the Annex III criteria into its domestic legislation. Others like the Republika Srpska entity of Bosnia and Herzegovina have reasonable criteria in theory, but screening decisions like the recent one for Phase 1 of the Upper Neretva plants show that they are not used for decision-making in reality. Even within the same country, decisions on similar projects are often inconsistent with one another.

One of the issues the draft guidelines need to emphasise more is that potential cumulative impacts with other planned or existing plants must trigger an EIA. This issue is very often ignored in the Western Balkans, for example in the case of Jošanička Banja in Serbia, where 14 small hydropower plants have been built in a very small area.

In the EU, even in cases where no full EIA is needed, under the Habitats Directive there is a requirement to carry out a so-called Appropriate Assessment in cases where projects are sited in Natura 2000 areas or could impact protected species. This option is missing in most of the Energy Community countries, because the Habitats Directive has not yet been transposed. It is therefore especially important to take a precautionary approach and require a full EIA even when the domestic legislation is ambiguous on whether it is needed or not.

Common problems with EIA studies for small hydropower

One of the areas where the draft guidelines could be more explicit is about common mistakes made in developing EIA studies. Bankwatch’s experience shows that EIAs for small hydropower plants, where they are carried out at all, usually suffer from the following issues:

Baseline data is missing. Biodiversity fieldwork is needed in locations that are not well-researched – ie. most of them. For too many EIA studies the authors have needlessly spent time and resources measuring the air quality in pristine mountain regions (eg. for the Ulog and Upper Neretva plants in Bosnia and Herzegovina) but failed to do biodiversity fieldwork. This makes it impossible to assess the real impacts.
The use of old data eg. for hydrological measurements and biodiversity is extremely common and must be avoided as it tells us nothing about the current situation. Guidance from the Energy Community on what constitutes sufficiently updated data would also be useful.
The cumulative impacts of existing and planned projects must be analysed. We have observed a trend of mentioning the word “cumulative” in EIA studies without actually analysing what other projects are planned or existing and what impacts these would have all together.
Project alternatives need to go beyond claiming that there is no alternative and seriously examine the options.
Maps need to be clear and show in detail what land is affected.
Mitigation measures need to be realistic, effective, and enforceable (see below). If no such measures exist, the project should not be allowed to proceed.

Public excluded from decision-making

In cases where no EIA is carried out, there is often no public consultation on the project level at all (eg. North Macedonia, Serbia). This is a risk for local people, the environment and the investor, as it often leads to unpleasant surprises later, ranging from public resistance to landslides and floods damaging the projects.

Even where there is an EIA process and public consultation, this does not take place when all options are still open as required by the Aarhus Convention. Instead of truly consulting the public, it is carried out as a pro forma procedure. Where public hearings are held, local people often do not know. Sometimes they are only advertised on the Ministry’s website, or in obscure publications, or not at all or only specific people are invited. Sometimes they are held far from the project site.

Deadlines for commenting on EIA studies are often too short (ie. often 20 days in Serbia) and not clearly stated on the consultation announcement. Announcements are commonly made just before the summer or Christmas holidays when people are least likely to notice them.

Public comments are hardly ever really taken into account. Even when comments are “accepted”, they do not lead to reconsideration of the project or real improvements in the project design. At best they lead to some text being added to the EIA, without any change to the overall conclusions.

The draft guidelines therefore need to underline the need for decision-makers to lose their fear of truly consulting the public. They also need to emphasise the need to duly take public comments into account, and the need for all options – including no project – to still be open when public participation takes place.

Lack of public participation often leads to protests – in this case at Bukovica, Montenegro. Photo: Katja Jemec, Balkan River Defence

Access to justice

Given all the above deficiencies, it is frequently necessary to challenge permitting decisions for small hydropower plants. The EIA Directive, following the Aarhus Convention, is supposed to ensure access to justice on environmental issues. But in the Western Balkans there are two main problems with this:

becoming aware of a decision on time to mount a legal challenge and
the judiciary’s lack of independence and knowledge about environmental law/issues.

Screening decisions on whether an EIA is needed are not always available to the public, so it is very hard to challenge them. E.g. in Republika Srpska the law requires publication only 30 days after the decision is made, and in reality not all decisions are published. Decisions on whether EIAs are needed after changes in projects are not required to be published at all.

In Serbia, poor legislative wording enables construction permits to be issued before EIA decisions are made, thus prejudicing the outcome of the EIA process and any legal challenges made afterwards. Appeals can be made against EIA decisions, but are unlikely to be successful if a construction permit has already been granted.

Going beyond the hydropower sector, in Bosnia and Herzegovina, access to justice provisions were clearly violated in 2019 when a legal challenge against an environmental permit by a Sarajevo-based NGO on a coal power project in Tuzla was dismissed, based solely on the organisation’s address.

Construction permits often cannot be challenged in court because the deadline is too short to really allow this and it is not known on time that they have been issued. In Serbia, they can be challenged in theory, but unsuccessful challenges can lead to the complainant having to pay damages and lost profits to the investor, thus representing an implicit threat against those considering such action.

Mitigation measures, monitoring and inspection

The guidelines need to be strengthened with regard to mitigation measures, monitoring and inspection. Too often EIAs and environmental permits for small hydropower plants prescribe unrealistic, ineffective or harmful mitigation measures, while implementation is not monitored and violations are not penalised.

Too often fish passes are prescribed as a mitigation measure despite the lack of evidence that they can be effective. Stocking is also a commonly stipulated measure, despite its ineffectiveness and negative impacts on the genetic structure of autochthonous fish populations, while requirements for how much residual flow needs to be left downstream from the water intake are usually woefully inadequate across the region.

High-jumpers-only fish pass at Vladići small hydropower plant in Serbia. Photo: Pippa Gallop, Bankwatch

Monitoring is very difficult given the locations of most small hydropower plants, and the use of ad-hoc measures such as blocking fish passes with boards. Operators can also install automated systems to increase the residual flow when someone approaches. This has to be taken into account when deciding whether the impacts of a project will be acceptable. If it is impossible to ensure that a project can be monitored to the extent needed to keep its impacts at a reasonable level, it should not go ahead.

Fish pass at Klupci hydropower plant Serbia, blocked by a board to direct water towards the turbines. Photo: Pippa Gallop, Bankwatch

Enforcement is key

The issues above result from lack of knowledge on environmental issues and legislation by government bodies and courts, coupled with corruption and a lack of political will to properly implement existing legislation on environment and State aid.

The Energy Community’s guidelines on small hydropower can therefore play a role in educating relevant actors but need to be coupled with continued enforcement efforts. The Energy Community Secretariat is playing an active role through its dispute settlement mechanism and activists across the region are stepping up the pressure on national authorities to do their job. There is still a long way to go, but it can and must be done. The region’s unique rivers depend on it.

EBRD’s Green Economy Transition must not be a fig leaf for fossil fuels investments

The EBRD is currently in the process of renewing its commitment to facilitating environmentally sustainable economies through its Green Economy Transition (GET) strategy. At the same time it is also considering over EUR 700 million in financial aid to coal-based energy utilities and gas infrastructure projects from Tunisia to Kazakhstan, at least in part in the context of the COVID-19 response. The EBRD has argued that crisis recovery is an opportunity to “tilt to green”, but can the bank kick its own fossil fuels habit?

Introduced in 2015, the EBRD’s GET initiative was intended to enable an increase in financing for projects that facilitate the energy transition to up to 40% of the bank’s annual portfolio by 2020. To a large extent, this approach was meant to embody the EBRD’s commitment to the 2015 Paris climate accord.

A new Bankwatch analysis finds that in the period 2010-2019, of the EBRD’s total energy-related lending of EUR 51.4 billion, 23% went to renewables, primarily in the EU. Countries in southeastern Europe, where coal remains a major source of energy, have seen the smallest share of the EBRD’s renewables investments – though rather due to lack of interest from governments than from the bank.

Nevertheless, although investments in renewables kept growing after 2015, when GET was introduced, this strategy has done nothing to curtail the EBRD’s fossil fuels spending.

Over the same period, the hottest decade on record, 41% of the EBRD’s energy-related lending went to the fossil fuels industry. The bank has been extending public money to various oil and gas projects across eastern Europe and the Caucasus, Central Asia and the Mediterranean. The main beneficiary, receiving a total of USD 1.7 billion in EBRD support, was the controversial Southern Gas Corridor, a chain of gas pipelines from Azerbaijan to Italy.

EBRD financing for fossil fuels seems to have peaked in 2018 at EUR 1 billion, the same year the Intergovernmental Panel on Climate Change warned that humanity has until 2030 to halve its emissions to avert the worst impacts of a runway climate breakdown. Last year, the EBRD’s support for fossil fuels was surpassed by investments in renewables for the first time. With fossil fuel lending still so high at the EBRD, GET risks serving as merely a fig leaf.

This needs to change. At least eight of the countries holding EBRD shares, as well as the European Union, have already declared a climate emergency. It is high time that the EBRD takes a page from the European Investment Bank, itself an EBRD shareholder, which in November 2019 decided to cease support for fossil fuels by end of 2021.

We are now at a turning point. Top economists – including Joseph Stiglitz and Lord Nicholas Stern – have argued that the best way out of this pandemic is a green stimulus, stepping up investments in energy efficiency and renewable energy. In the wake of the COVID-19 pandemic, electricity utilities in at least three Western Balkans countries could be benefiting from EBRD support. Among them is Serbia’s coal-reliant EPS, which has been enjoying generous EBRD funding for nearly two decades, despite the fact that it is expanding lignite mining and building new coal power capacities.

The COVID-19 emergency must not become an excuse for the EBRD to double down on financing for fossil fuels.

In fact, the EBRD’s own economists have said much the same thing: ‘Governments – while protecting their citizens medically and economically in the short term – must also look to the long term; they should not be seduced into supporting fossil fuel use due to the currently low oil prices,’ they wrote in a report published in early April. ‘Governments should put climate action and resilience at the core of economic stimulus packages and prioritise support towards green firms. This will ensure that public spending helps address both the current economic crisis and the ongoing climate crisis.’

The EBRD also needs to ensure that projects under its renewables portfolio are in line with the EU’s climate mitigation and adaptation taxonomy criteria. The bank needs to avoid funding unsustainable projects such as hydropower facilities that damage natural habitats, or waste incineration projects, which conflict with circular economy goals.

Business as usual is no longer an option. If the EBRD is serious about enabling a genuine transition and sustainable recovery, the next generation of the Green Economy Transition strategy, currently being prepared, needs to ensure that the bank’s investments facilitate not just a low-carbon transition, but actual decarbonization and energy, water and materials savings. At this point, anything else would be plain greenwashing.

The missing link: Green recovery and energy transition in Hungary and CEE

Today, Europe is grappling with how to reconstruct the economy and societies after the COVID-19 crisis. More than one million Europeans and thousands of civil society organisations and companies believe that a sustainable and crisis-resistant recovery serving European people has to be green and just.

In central and eastern Europe (CEE), it is especially crucial for economic recovery to go hand in hand with energy transition. Czech, Slovak, Polish and Hungarian leaders called for a ‘fair’ EU recovery fund during their first Visegrad-4 (V4) meeting after the lockdown on 11 June in Lednice, Czech Republic. Based on their announcements, this ‘fairness’ is more about the allocation of money per country than about the contents of the plan.

In order to ensure that their countries get the maximum proportion possible from the funds, the V4 wants to change the main criterion of allocation (the Czech Republic wants it to be based on the GDP slump for each member), the balance between loans and funds (Hungary would prefer exclusively funds) and payments (Poland states that sources of additional payments have to be fair and progressive; richer countries need to pay more and there should be no rebates for them in the EU budget).

But besides the allocation and methodology debates, Member States also need to agree on the content principles of this recovery fund. Otherwise, this EUR 750 billion fund will be spent on lost causes, bringing Member States closer to new crises instead of towards a crisis-resilient energy transition.

Partly to encourage a national debate on the content, Friends of the Earth Hungary (MTVSZ), in its petition for a life-affirming society and economy, demands the reduction of fossil fuel dependency and resource use, private and community access to clean energy and the strengthening of local economies.

The following assessment of the European Commission’s budgetary and recovery package focuses on these principles and examines to what extent the package corresponds to the Green 10 call for a green, healthy and just recovery, consistent with the European Green Deal (EGD) and the EU and Hungary’s commitment to transition to carbon neutrality by 2050.

Unfortunately, the EU proposal does not meet the needs of green and just economic recovery, nor the principles of the EGD: it does not exclude support to fossil fuels, tends to rely on technological fixes, is not socially just enough and is brown rather than green.

The failures of the recovery after the 2008-2009 financial and economic crisis, when EU funds were used to reconstruct the pre-crisis polluting, health-damaging economy dependent on assembly-based manufacturing, should not be repeated. The devil is the details; let’s take a look at them.

I. The Next Generation EU recovery package – old-style, with some techno-fixes

The new, two-year Next Generation EU package of EUR 750 billion supplements the regular seven-year EU budget of EUR 1 100 billion for the 2021-2022 period (to be spent by the end of 2024). One of its key elements is the EUR 560 billion Recovery and Resilience Facility, providing grants (EUR 310 billion) and loans (EUR 250 billion) for investments and reforms to support recovery. Member States will be able to access these in accordance with their national recovery plans, which must be tailored to their National Energy and Climate Plans (NECPs), Just Transition Plans, Partnership Agreements and operational programmes.The quality of recovery, and its climate ambition, thus continues to depend on member states.

The Next Generation EU package from a climate and energy perspective

1) The Commission intends to raise new funds to cover the 2021-2022 package from green or digital taxes. A better solution would be the fair and revenue-based distribution of burdens (e.g. the introduction of a fossil fuel consumption quota system as proposed in ‘For a life-affirming economy’), but the Commission’s proposal fails to address this.

2) The use of EU and domestic funds is not conditioned on the exclusion of fossil energy and polluting industries. Beneficiaries are not obliged to reduce their harmful emissions and environmental footprint. Meanwhile, several technological fixes (e.g. hydrogen and carbon capture and storage (CCS)) are supported or serve corporate interests instead of social ones.

3) The package intends to help double the annual average 1% energy efficiency renovation rate through the Renovation Wave, by doubling the financial loan budget of InvestEU. It is unknown whether any support schemes are planned to help low-income, low-credibility families obtain access to deep, complex renovation of residential buildings.

Hungarian plans are no better: there is no targeted state programme for the complex renovation of residential buildings (i.a. the serial-fabricated 800,000 10m2 x 10m2 single family houses built between the 1950 and 1980s). The Residential Energy Efficiency Loan programme, which offers residents a 0% rate on their loans, will run out shortly and has not proven to be suitable for this. The energy efficiency Obligation Scheme proposed under the NECP does not make complex renovation of residential buildings attractive to energy companies; the system has to be adapted to this.

4) As regards renewable energy, the Commission’s proposal treats renewables and techno-fixes like CCS and hydrogen similarly, which is rather worrying. Hydrogen-based technologies are underdeveloped and risky. Most hydrogen now originates from fossil sources and increasing its use would thus aggravate dependence on fossil fuels, as would CCS. Hydrogen can only play a marginal role in the energy transition. The EU Taxonomy on sustainable investments can thus be crucial in developing a sustainable energy mix.

Hungarian plans for renewables are just as concerning. The low target of 21% of renewables in gross final energy consumption (as stated in the NECP) is problematic mainly because the gross final energy consumption is expected to increase, and because an unsustainably high share of biomass is maintained in the strategy for achieving this target.

II. Where they smell money… the seven-year EU budget and Hungary

Lessons from the past – to what extent was Hungarian spending climate-friendly?

More than half of Hungarian public investments (55% between 2015 and 2017) were covered by EU cohesion policy funds. Between 2014 and 2020, Hungary was eligible for EUR 29.64 billion in cohesion money and spent about 13% of it (EUR 4 billion) on climate action (adaptation and transition to a low-carbon economy).

Source: authors’ graphics based on data from https://cohesiondata.ec.europa.eu/

Although according to EU budget rules, Member States should have spent 15-20% of funds on climate action, Hungary only used 12% for climate and energy (renewable energy systems, energy efficiency, electricity infrastructure, gas infrastructure and research and innovation in climate).

Moreover, the scale and impact of climate-friendly investments supported is much smaller than that of investments without a climate focus (e.g. education, employment, economic development, social infrastructure). Due to the lack of proper safeguards, conditions and monitoring, these investments have often supported the use of fossil energy (e.g. road development), thereby contributing to the destruction of the climate.

However, both the 2014-2020 Hungarian operational programmes and the NECP adopted in January 2020 failed to address several climate-friendly goals supporting energy transition. One such goal is the energy efficient reconstruction of residential buildings, which in Hungary are responsible for 24% of primary energy consumption.

Against this background, it is important for the climate-friendly emissions-reduction measures of current operational programmes not to be sacrificed to crisis-management reallocation.

How can EU funds be spent on energy transition and green recovery by 2030?

According to government estimates, the implementation of the 2030 goals of the Hungarian NECP would cost EUR 44.5 billion (EUR 3.2 to 3.4 billion annually, or 2-2.5% of the annual GDP), which is ten times the amount spent on climate protection from EU funds in Hungary since 2014. By comparison, the EUR 25-28 billion post-COVID economic crisis management package will require EUR 6 billion from the state budget, i.e. 4.55% of Hungary’s GDP this year.

Of course, climate action cannot solely be covered from EU and national funds (grants and loans); considerable private capital needs to be mobilised accordingly. However, it is in our common interest that EU funds (or loans) cover a high percentage of climate-friendly, crisis-resilient investment across central and eastern Europe. For this, smart planning of the new EU budget is needed.

Source: authors’ graphics based on data from https://cohesiondata.ec.europa.eu/, the HU NECP and the National Clean Development Strategy (national long-term strategy for 2050)

Obviously, the current level of support for the energy transition falls very short of what is needed to reach carbon neutrality. The 2021-2027 operational programmes of Cohesion Policy that will be elaborated in the coming months could fill this gap.

Therefore, MTVSZ – Friends of the Earth Hungary, along with many other Hungarian and European NGOs, proposes to devote 40-50% of the 2021-2027 EU budget to climate- and environment-related purposes (climate mainstreaming), for the sake of a green and just recovery.

The Hungarian and other CEE governments should therefore support more transparent, climate- and environmentally-friendly planning and use of EU funds through strong support for the European Green Deal and green recovery, and apply the same principles to the development and implementation of domestic and EU-wide budgetary and recovery plans.

Friends of the Earth Hungary, just like other Bankwatch member groups, follows domestic Cohesion Policy planning (including for the Partnership Agreement and operational programmes) and related public participation processes closely to help integrate the above aspects in line with the long-term interests of our societies.

Cities for citizens

Michelle Bachelet, UN High Commissioner for Human Rights, has called COVID-19 ‘a colossal test of leadership [that] demands decisive, coordinated and innovative action from all, and for all’. With 55% of the world’s population and 74% of Europe’s population living in urban areas, the leadership and governance of cities has been put to the test.

Cities are undergoing unprecedented changes as lockdowns are being lifted and citizens are learning how to live with the novel virus in crowded urban centres. The recovery process is adding new challenges to city infrastructure and municipal services, yet with those challenges come new opportunities. For example, some cities are ‘clamping down on cars’ and people are turning to cycling, not only as a more climate-friendly mobility option, but also as a way to avoid crowded public transport.

With the new challenges and opportunities comes billions in public money to be invested in new safer, more sustainable and resilient urban infrastructure. Transparency, public participation and accountability must be the building blocks of urban recovery and transformation.

A new briefing from Bankwatch presents the results of mapping sustainable municipal infrastructure investments made by the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) in the Western Balkans and the Eastern Neighbourhood from 2016-2019. Our findings show that the public questions the green credentials of these investments, as the sector is underpinned by a lack of transparency, accountability and participatory decision-making at the local level. These are important lessons for the COVID-19 recovery, as well.

Governance gaps in CEE cities

Much-needed infrastructure investments in Eastern Europe’s big cities tend to be surrounded by too many controversies. Lack of transparency in tendering, low quality for high cost, corruption scandals, and political resignations are part and parcel of the current governance model.

For example, in Sofia, Bulgaria’s capital, #NiceButNotReady and #ReadyButNotNice trend on Bulgarian social media in relation to urban infrastructure projects characterised by delays and dissatisfaction. ‘Repairs of repairs’ are what people call the repairs of flaws made during infrastructure renovation works. Of course, the ‘repairs of repairs’ are not done for free, but come out of the city’s budget, i.e. out of the taxpayer’s pocket.

The questionable value for money goes hand in hand with mixed results for city-dwellers’ quality of life. The affordability of municipal services, the safety and accessibility of infrastructure and services for vulnerable groups or those with special mobility needs, impacts on local businesses’ operations: these are all issues that need to be discussed at the early stages of designing urban projects, well before discussing contract terms with construction companies and municipal service providers.

Unfortunately, after thirty years of transition, transparency and participatory decision-making are still not practiced in our region. Popular ‘revolutions’ still fight to overturn corrupt governments in some parts of the Balkans and Eastern Neighbourhood, and autocratic regimes still rule other countries that lack political pluralism and free democratic elections.

The EIB and EBRD investing in cities

This governance vacuum is the political context in which the EIB and EBRD operate. Like most multilateral development banks (MDBs), the EIB and EBRD are keen on stepping up their investments in the municipal and environmental infrastructure sector (MEI) with the aim of making cities more inclusive, resource efficient and resilient to climate change impacts. They have increased both their emphasis on the sector and their funding for it over time, recognising its importance for climate change mitigation and adaptation goals, and claiming positive impact with regards to greenhouse gas emissions reductions.

Between 2012 and 2018 the EIB invested nearly EUR 150 billion in urban areas, as about 30% of our total annual lending is dedicated to the EU Urban Agenda. Within the EBRD’s municipal and environmental infrastructure sector, there have been 505 operations to date totalling EUR 9 billion, in areas such as energy and energy efficiency, solid waste, transport and water and wastewater.

Banks know all too well that governance is a challenge in the sector, so they attempt to address governance weaknesses with various forms of technical assistance. For example, many of the EBRD urban projects are paired with grants from dedicated donor funds set up by the banks’ shareholders. These technical assistance grants are used for various studies and assessments and for providing additional expert capacity for municipalities.

In addition, the EBRD provides policy advice and support for city-wide planning. The Bank has pioneered the flagship Green Cities initiative, which helps cities achieve their green financing goals through the development of Green City Action Plans. The EBRD has partnered with the Green Climate Fund to co-finance the Green Cities Framework.

Bankwatch has tracked the developments in the MEI sector, recognising the opportunities and the challenges. Bankwatch’s study covers two regions in which the EIB and EBRD finance municipal projects, the Western Balkans and Eastern Neighbourhood, during the period from 2016 to 2019. During this period of analysis, the EIB financed EUR 1.73 billion for 24 different operations and the EBRD financed EUR 919 million for 50 different operations. Included in these totals are 24 separate framework loans, 10 approved by the EBRD and 14 by the EIB.

Public perceptions of green MEI projects

The reported energy efficiency and greenhouse gas reductions of these projects can indeed be impressive. Unfortunately, given the aforementioned governance gaps in the countries where the two European banks operate, it is no surprise that some of the projects and initiatives have run into trouble.

At the end of 2019, Bankwatch conducted 16 structured interview surveys with representatives from environmental organisations in the Western Balkans and Eastern Neighbourhood. The aim was to collect the views of civil society working in municipalities that have been the site of one of EIB’s or EBRD’s investments and to understand how they perceive IFI-funded infrastructure projects and strategic plans. In addition to the survey data, in-person participant observation and interviews, as well as desk research, were conducted to develop case studies of three cities (Belgrade, Skopje and Tbilisi).

According to our respondents, international financial institutions (IFIs) are not able to hold local authorities accountable for ensuring transparency, public participation, strategically-guided development, the implementation of the most sustainable technology, and in some cases local laws or the terms of the projects. CSO representatives pointed out that as a result, authorities may misuse IFI funding, failing to adequately plan and implement projects that are environmentally-friendly and support human rights.

One reason for these problems is that municipal projects are frequently categorised within the banks’ system as projects that have limited risks and impacts on their surroundings (as were 63 out of the 74 projects analysed for this study), and thus are subject to less stringent requirements and monitoring. Our analysis raised the following key issues.

The EIB and EBRD do not publish sufficient information on these projects and rely to a great degree on their clients – municipal authorities or service companies – to disclose information locally and to consult in a meaningful and culturally appropriate manner with people who will be impacted by the project. This is justified by the assumption that clients have better means to reach the public, for example in local media, in the local language etc. The practice, however, shows that local decision-makers lack the capacity to consult design choices and decisions with the public, or that perhaps the policy of doing so has not been well established. Therefore, projects sometimes lack social license and face broad public criticism, protests and legal challenges.

For example, during our interviews, we heard that in Mariupol, Ukraine, an EBRD project resulted in protests due to more expensive tickets on the newly purchased trolleybuses. The decision did not take into account the affordability concerns of the public and people complained that the cost increase was not related to improvement of the quality of the public transport services. Affordability concerns were raised in an EBRD-financed district heating project in the city of Banja Luka in Bosnia and Herzegovina, as the controversy reached the Constitutional Court. In Tirana, Albania, the heavy construction required to construct new water pipes for the city, funded by an EBRD loan, has contributed to the city’s already intense construction, adding dust, noise pollution, safety risks and traffic to the streets. In Serbia, the EBRD-funded Green Boulevard in Belgrade has had similar construction impacts, and is not expected to reduce air pollution or increase green spaces in the city.

These examples clearly show that the EIB and EBRD cannot rely on disclosure by their clients. They need to disclose all studies on environmental and social impact, but especially those developed with technical assistance grants that sometimes equal the size of the loan.

Green investments in cities risk getting a bad name if the EBRD and the EIB will not address the governance gaps through more capacity building at the local level. In addition, the banks need to set an example of transparency by disclosing more project information themselves and requiring meaningful public participation at every stage of designing and decision-making on projects.

These concerns have become increasingly relevant in the current context. The COVID-19 pandemic has shifted urban development priorities and has changed our perceptions of safe personal and public space. It has increased our awareness of sustainability and resilience, of social interdependencies and social responsibility with regards to the protection of high risk and vulnerable groups. The physical distancing will require new technologies, but also new models of communication, public consultation and stakeholder engagement.

The way our cities invest in sustainability and resilience is not simply a matter of efficiency, nor about return on investment. More than ever, it is test to democracy and, ultimately, a matter of survival.

For more information, please read our new briefing on the EBRD and EIB’s sustainable municipal infrastructure funding.

The Balkans are decarbonising, why aren’t Serbia and Bosnia?

This year’s World Environment Day sees cleaner air in many countries, courtesy of their responses to COVID-19. This issue is crucial for the Western Balkans, whose 16 lignite power plants in 2016 emitted as much sulphur dioxide and dust as all the EU’s 250 coal plants together. Read our new briefing on the Western Balkans’ two-speed energy transition here.

Montenegro and North Macedonia are prioritising renewable energy, scaling up solar and wind power. Hydropower-dependent Albania is also diversifying, mainly with solar.

Kosovo is in flux after its government fell earlier this year, but the collapse of the Kosova e Re coal power project in March has opened up space for alternatives.

The Western Balkans’ neighbours are also upping their game. Hungary and Greece will phase out coal power within the next decade, even though Greece’s Ptolemaida V coal plant is still being built.

In Slovenia, the loss-making and corruption-riddled Šoštanj unit 6 was completed in 2014, while Croatia and Romania have both abandoned plans for new coal power plants.

Where once it was a resource, coal is now a liability. But Serbia and Bosnia-Herzegovina are still pinning their hopes on it.

The China Engineering and Machinery Corporation is building a new unit at Kostolac B in Serbia. Its chimney is nearly complete, like an obelisk standing in defiance of environmental and economic logic.

This initially looked like the last gasp of new coal in Serbia, based on deals signed a decade ago. But in March this year, state-owned utility EPS signed a preliminary agreement with PowerChina to resurrect the long-dead Kolubara B coal power project.

Construction at the plant started in the 1980s, and was halted in 1992 by sanctions against Serbia. In 2013, a resuscitation attempt failed when the European Bank for Reconstruction and Development decided not to back the project. But instead of letting sleeping dogs lie, the Serbian government has revived it.

Bosnia-Herzegovina, too, is bucking the trend. The infamous Tuzla 7 plant is financed by a China Eximbank loan backed by an illegal state guarantee, and the authorities are planning at least four more new coal plants.

The drivers for these plans – at a time when most of Europe is planning coal phase-outs – are manifold. Resistance to change and scepticism about variable renewables play a role, as does fear of job losses in the lignite mines. But plans for new coal only persist because the public energy utilities are willing to tolerate financial losses.

No new coal plant is likely to be profitable, but the Kostolac and Tuzla 7 feasibility studies underestimate carbon pricing and coal prices in order to conceal this. China’s state banks, among the few sources still willing to finance coal, are unconcerned as long as they can obtain state loan guarantees.

For as long as the countries can access affordable loans and do not pay for carbon emissions, coal projects will divert resources from sustainable alternatives. But take one of these factors away, and the situation changes quickly.

Click on the dots to view more graphs.

This was the case in Montenegro. A few years ago the government presented the Pljevlja II power plant as an imperative. But after the Czech Export Bank declined to finance the project, the story changed, and the future turned renewable.

North Macedonia too, has moved away from new coal plans, becoming the first country in the region to put concrete coal phase out dates on the table earlier this year.

The region’s transition has a long way to go, and is paved with potential pitfalls. The countries are learning the hard way that renewable energy is not always sustainable energy, as their rivers are carved up by numerous small hydropower plants. And gas, which has not been widely used across the region so far, threatens to be an expensive and climate-damaging distraction.

The important thing, however, is to decide and declutter. If an energy-efficient economy based on sustainable forms of renewable energy is the goal, then decades-old projects that devour resources and prevent transition have to go.

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