Blog entry

Fears revive in the villages of Shuakhevi as one of Georgia’s biggest hydropower plants starts operation

Locals have started raising concerns that the malfunction of the plant’s derivation tunnels, which pass through their villages, has already caused massive water leakages and is ‘dangerous for life’ – particularly for those living in landslide risk areas.

In March 2020, India’s power company Tata Power (one of the shareholders in Shuakhevi) announced ‘the start of commercial operation of the 178 MW Shuakhevi Hydro Power Project (Shuakhevi HPP) located in southwest Georgia’. It is one of the largest of the 140 hydropower plant projects currently under development in Georgia.

It is also among the most controversial power plants, mainly because of the geological threats it poses to local communities. CEE Bankwatch Network raised a red flag about this in 2019.

Since its construction commenced in 2013, the Shuakhevi project has been met with a number of demonstrations, lawsuits and complaints to the international financial institutions (IFIs) funding the HPP as the affected communities tried to find solutions for their cracked houses, decreased crops, disappeared drinking water and water leakages. They complain that these are the direct consequences of the construction.

The people of Shuakhevi have been living with the constant fear of deadly landslides, which are a likely risk in the area because of its geological structure and the type of heavy construction being undertaken there. These protests, however, did not stop Shuakhevi’s promoters from launching the project in 2017. But after just two months, Shuakhevi failed: the tunnels of the USD 420 million hydro power plant collapsed at eight different spots.

Three international financial institutions, the Asian Development Bank, European Bank for Reconstruction and Development and International Financial Institution, are among the funders of Shuakhevi HPP. The IFC is also a shareholder in Adjaristsqali Georgia LLC (AGL), the special purpose vehicle established for developing hydropower in this region, along with Tata Power and Clean Energy Invest (Norway).

‘It is a well-known fact that we live in a landslide risk area. These springs of water which started leaking about a month ago here are dangerous, as it could move the land and one day all of us might be taken down to the river and we might not survive, like other villages once could not’, said Madona Tavdgiridze, a local of the village Golkhanauri. She is referring to the two villages in the municipality that were taken down by a landslide decades ago.

The official website of the Georgian Electricity Market Operator states that Shuakhevi HPP has already been operating since the beginning of March of 2020. This time coincides with when the communities of Golkhanauri and Makhalakidzeebi recall the reappearance of massive amounts of water less than a kilometer from their houses.

Golkhanauri is situated in the municipality of Shuakhevi, right below the plant’s 17.8 km long tunnel, one of the three of its water diverting structures. Years ago, after the drilling for tunnel construction kicked off, several water springs disappeared, including drinking water springs in both villages.

‘Later, when the plant became operational and derived water through the tunnel, some areas of the village were full of leaking water. Then the water outflows disappeared soon after the plant was shut down 3 years ago’, said Tavdgiridze. This is why she and her villagers believe Shuakhevi HPP is the reason for the water-saturated lands which they have to live on and which they fear are a threat to their lives.

Another water leakage showed up in the village of Makhalakidzeebi as well. Locals said the water is leaking exactly along the area where the tunnel passes, from 100 to 150 metres from the settlement. In addition to the cracks in the walls of village houses and falling stones, which have continued since the explosions for tunnel construction near the village, locals fear the water leakage could cause erosion, or even a landslide ‘that will result in something bad’.

Photo picturing the water leakage in the village of Makhalakidzeebi

Makhalakidzeebi has been part of a mediation process with the Shuakhevi HPP company since 2018. The process is facilitated by the accountability mechanisms of the EBRD and IFC, in order to solve problems between the community and the company. Its results have yet to be disclosed.

The company itself has not engaged most of the project-affected villages in a dialogue about the fate of the project, its impacts and measures it has taken to address people’s fears. Instead, information has mostly been available from locals working on the reconstruction of the tunnels, but not from official and reliable sources.

The company carried out a number of Corporate Social Responsibility projects before the tunnel collapse in 2017 and has continued with support for some educational activities in villages. However, these are a poor substitute for transparency and public consultations on issues, such as damage to subsistence agriculture and geological risks, that keep people awake at night.

The villages are not the only places where Shuakhevi’s renewed operations have raised questions. Georgian media outlet Batumelebi recently spread a video taken on 10 April at the Didachara dam and reservoir of the Shuakhevi HPP, which shows a flaw that is allowing a significant amount of water to leak out of this 52 metre high concrete dam. Adjaristsqali Georgia replied that ‘such leakages are common’ due to temperature changes and the company is ‘working to fix it’.

‘The local communities have been complaining about project impacts for years, as the construction process of Shuakhevi hydro showed it creates a clear threat for their safety and livelihood. Since its failure, the company has spent enormous money to fix the project; however, till now no responses have been given to communities who have experienced damages’, Manana Kochladze, representative of CEE Bankwatch Network said. ‘Now the project is supposed to become fully operational, and fears among communities are back. At the end of the day, nobody takes responsibility for the failure of the project in 2017, no remedies have been put in place to address the concerns of the communities’.

Although the collapse of the power plant tunnels in 2017 was later officially attributed by Adjaristsqali Georgia to ‘unpredictable geological processes’, the company’s official website does not disclose any updated environmental or geological studies conducted after its failure.

Locals of Golkhanauri said representatives of the company have been to the spot and seen the soaked lands at the tunnel areas but have not yet officially confirmed its cause. In 2019, CEO of Adjaristsqali Georgia Prashant Joshi told Georgian independent outlet Batumelebi that the company does not take responsibility for the problems in Golkhanauri.

The company stated in its press release published on 30 March: ‘AGL will be soon commissioning the 9 MW Skhalta Hydro Power project which is also a component of the overall Shuakhevi Project scheme’.

In full swing ahead but with a daunting past, Shuakhevi still has to prove that it will not fail again. After a decade of controversial history, with three influential financial institutions involved, Shuakhevi remains a project that has put communities living in landslide areas at risk, with a lack of water and ability to participate in the agricultural activities that give them their livelihood, and without a clear answer about who is, or will be, responsible for their damage.

Moving beyond oil shale in Estonia

While most of Europe has shut down to stop the spread of COVID 19, governments continue to prepare territorial plans in order to be eligible for the new Just Transition Funds.

In Estonia, one of the leading nations in digital governance, high-level virtual meetings have been held in recent weeks between environmental organisations, public sector officials in charge of planning the territorial plans and stakeholders affected by the transition.

The groups discussed a new study commissioned by a coalition of NGOs including Bankwatch member Estonia Green Movement that analyzed the different European and Estonian funds in place or under development that could be useful for the transition, the existing plans Estonia has in place and policy recommendations from international best practises.

The report finds that Estonia is facing a challenging task in planning a proper just transition for its oil shale region and pointed out the importance of consulting a wide range of stakeholders. It also offers a possible step-by-step planning process and a number of policy recommendations, stressing the importance of starting with a clear vision and goals for the region.

Another policy recommendation is to conduct an analysis on the effects of an oil shale phase out on the local workforce, as without this data it is difficult to construct concrete plans regarding a just transition.

Given the current raport, ministries can continue building their capacity with further concrete studies on which decisions can be made to contribute to the EU-wide commitment to a climate-neutral future.

As was clear from the online discussions, Estonia must decide the fate of its fossil shale oil sector. Will the phase out be swift, just and controlled, or uncertain, drawn-out and costly? Bankwatch and other environmental NGOs will continue arguing for the former. The study is supported by EUKI.

How to start a just transition in Gorj, Romania

Hundreds of people are losing their jobs every year and the company that produces coal energy has debts of hundreds of millions of euro. Just transition must be hastened in order to mitigate any further negative impacts on workers in the region.

According to the report, the number of employees in Gorj County in the energy field decreased sharply between 2007 and 2016, with 4 639 people laid off in multiple waves at the Oltenia Energy Complex (OEC). Another 4 000 layoffs are foreseen due to the planned closure of some lignite mines and power plants. OEC is the largest employer in the region, so its downfall will affect the entire community.

Another concern is the financial condition of the company. It still has to pay off hundreds of millions of euro in loans, and for 2019 has to acquire 11 million EU Emissions Trading System (ETS) allowances at an average price of EUR 25 per unit. The Romanian government granted a six-month aid loan of EUR 251 million to cover these allowances. If the company is not able to pay the debt, it is required to start a restructuring process.

Together with the fact that Best Available Techniques (BAT) derogations will expire soon and OEC will have to upgrade its power plants, some of which are more than 42 years old, to reach new pollution limits, it is obvious that the company and the region cannot afford to count on coal in the medium and long term.

Financial resources

To avoid the negative impact the possible collapse of the company may have, it is urgent to plan for a just transition of Gorj. The report shows which financial resources will be available to achieve just transition in the region and analyses the previous implemented European Programmes for regional development and human resources.

Through the Just Transition Mechanism, the EU has made EUR 757 million available to Romania, part of which can be used for the development of Gorj County. The prerequisite for accessing the funding is drafting a territorial just transition plan (valid until 2030) in line with the transition towards a climate neutral economy. Romania can also mobilize funding for Gorj from the InvestEU scheme, Cohesion Policy funds or European Investment Bank (EIB).

Learning from the past

Before planning, authorities need to consider the impact of previous implemented European programmes. In analysing the period from 2007 to 2013, Bankwatch Romania found no clear correlation between the programmes that were implemented and an increase in jobs or drop in the unemployment rate, which remained constant after the 2010 recession. Furthermore, the number of permanent migrants, those who left the region seeking a more stable economic life, increased significantly after 2010.

Most business development projects supported by these programmes were focused in Târgu-Jiu, the region’s main city. However, these projects had no clear outcomes in terms of the number of businesses they supported or the viability of those businesses. In smaller towns, projects focused on sustainable development by regenerating certain urban areas, developing infrastructure and public utilities or financing investments in the public transport.

With these findings in mind, Bankwatch Romania urges authorities to ensure that the implementation of the future Just Transition Fund is more successful. In the next financial framework, proper consultation with the local community should be undertaken to identify priority projects and sectors to achieve a fair economic development. Any current or future strategy must be devised with the energy transition in mind, and Oltenia Energy Complex should be included as an integral part of this strategy.

See the full study here: https://bankwatch.org/publication/financing-a-just-transition-in-gorj-romania

Status update on the Nenskra hydropower plant project

Almost two years after Salini Impregilo, a major construction company, mysteriously abandoned the Nenskra hydropower plant (HPP) project before construction had even begun, activity on the project remains at a standstill. Salini Impreglio’s replacement has still not been selected: official sources have yet to confirm media reports about the selection of Hyundai Engineering & Construction (Hyundai E&C) and Turkish Limak as winners of the USD 737 million tender for the Nenskra Engineering Procurement and Construction (EPC) contractor.

Once the selection of the EPC contractor is concluded, the new company will almost certainly propose changes to the project design, including changes to the locations of project components such as the dam wall and the derivation channel. The conclusions of ongoing studies on the impact of climate change on the Nenskra project should be taken into account when these changes are designed. The project site is located under glaciers, so climate change poses severe risks to both the project and, importantly, to local villages that have experienced regular floods in recent years.

Project financiers have informed Bankwatch that the costs of the project are expected to increase and no progress is expected before autumn. Nenskra Hydro clarified in media interviews that the Memorandum signed with the Georgian government will be changed and all the major parameters, such as tariffs and project costs, will be agreed in negotiations with the EPC contractor.

As we speak, the Nenskra project’s costs continue to grow and to pose a threat to the fiscal stability of the country. Electricity purchase prices are fixed in US cents in the Nenskra project contract, and the depreciation rate of national currency is extremely high. Thus, the project is expected to drastically increase electricity prices and create energy security problems in Georgia, even worse than was previously predicted in 2018 by a World Bank study.

Meanwhile, the preparatory construction works have stalled and the project is significantly behind schedule. According to the project documentation, the main construction period was planned to start in March 2018 and last for four years until 2022. Power generation itself was planned to start in 2021. Despite the proposed schedule, the so-called ‘early works’ are still far from finalised and have not moved the project closer to the main construction phase.

Works on the ground

The Nenskra HPP project schedule is expected to be even further delayed, as Georgia announced a state of emergency due to the global COVID-19 pandemic in March 2020.

Yet just a few days before the state of emergency was announced, the project company tried to end the project’s long standstill by organising a public meeting with the affected community. The public protested in view of health and safety concerns, so the meeting was cancelled.

Invitation by the project company for a public meeting to the affected community

Cancellation of the meeting after reactions from activists

However, Nenskra Hydro requested from the Georgian government to be included among the companies that can continue their economic activities during the state of emergency.

In the first days of April, the company announced that ‘as [Nenskra is] one of the major infrastructure projects it will not stop even under [the] general quarantine announced in the country’ and that the active process of construction is ‘underway at several locations at the same time in Chuberi: six bridges with a capacity of 100 t; widening of the road and arrangement of rock layers; preparing the foundation for the pipe-bridge; excavation of fundamentals of the so-called Residential Buildings for Operators Village, etc.’ According to the statement, up to 300 people are employed on the project. 130 of these employees are local, and they all work in full compliance with the sanitary-epidemiological norms, in accordance with WHO recommendations and regulations established by the Government of Georgia.

However, according to local sources, until now almost all preparatory works have been stopped, with few expectations. In addition, there are concerns that the company owes local employees at least three months of salaries. Some works have been restored only after they received a promise that salaries will be fully covered in the beginning of April.

The Prime Minister of Georgia promised that after the COVID-19 emergency, Nenskra Hydro would be one of the priority projects, together with other planned hydropower projects. Meanwhile, the EBRD announced that it is stepping up cooperation with Georgia during the crisis, as it is ‘working to support the upgrade of the electricity grid to further support the renewable energy generation sector’.

Stakeholder engagement in times of lockdown

As Nenskra project promoters appear determined to unblock the project, questions arise about the legitimacy of a possible project restart at a time when there are significant challenges to proper public participation. In the current emergency situation, the Georgian Government has decided that the scoping and public hearings for Environmental Impact Assessments will not be conducted as required by national law (and international standards), but will instead be substituted with electronic communication. In response, Georgian civil society promptly demanded that all decision-making on environmental matters that is not urgent in nature be suspended.

In a rapid response to the crisis, international financial institutions are issuing solidarity support loans that undergo streamlined procedures of approval. This situation provokes additional concerns about lack of transparency, inadequate due diligence and ability to closely oversee project appraisal and implementation in line with their safeguard policies and good governance standards.

In the case of the Nenskra HPP project, no corners should be cut. To avoid doing harm to local communities and their unique culture and environment, all comprehensive studies and public consultations should be conducted to the highest standard of compliance with the policies of its international financiers. Before a new project design is considered, a comprehensive study of project alternatives is needed, among other additional studies, to justify the safest and most economically feasible option – both for Georgia and for the local communities.

Ukrainian activists taken to court by longstanding EBRD client after sounding the alarm on impacts of planned wood processing factory

The charges against Ecoclub were filed by ‘TECHNOPRIVOD INVEST GROUP’ LLC, which is owned by Kronospan, an Austrian company with a particularly controversial track record. The first court hearing is scheduled for Monday, April 13.

Kronospan has enjoyed generous financial support from the European Bank for Reconstruction and Development (EBRD). Although the planned Horodok facility is not financed by the EBRD, over the past 17 years, the bank has awarded Kronospan more than a billion euros for at least 11 other projects in Romania, Russia, Belarus and Ukraine. Many of these projects have been associated with environmental pollution and the suppression of local civil society.

In 2019, the EBRD issued a statement that it will not tolerate retaliation or any type of coercive practices of its clients against project affected people and stakeholders. Indeed, the facility in Horodok is not financed by the EBRD, but the numerous investments in Kronospan raise questions about the company’s corporate policies with regards to stakeholder engagement.

In addition, it calls into question the effectiveness of the EBRD’s due diligence process for corporate clients. This process is supposed to assess the ability of potential borrowers, let alone a long standing strategic partner such as Kronosopan, to live up to the bank’s social and environmental standards, including policy requirements concerning public participation.

The EBRD has agreed with Kronospan Ukraine to invest EUR 75 million in the company’s facility in the Volyn region, and EUR 41 million for the company’s balance sheet restructuring. At the same time, Kronospan is planning to invest EUR 200 million from foreign direct investment in the Horodok wood processing factory, its second in Ukraine.

In February 2020, the regional authorities approved the Horodok facility’s environmental impact assessment (EIA), but an analysis released by Ecoclub found Kronospan’s factory could exceed the allowed levels of formaldehyde concentration in the air. The environmentalists also raised concerns that toxic waste from the plant could be sent to local municipal landfill and that the EIA lacks a study of alternatives.

During a meeting with the representatives of the company and authorities, local people questioned the land acquisition for building the plant as well as its timber supply. In addition, they argued that public consultations preceding the construction have been flawed. For example, the meeting invitations were published in unpopular local media and people were asked to vote at the meeting, which is not required at public consultations in Ukraine.

Protestors at a February rally in Rivne, Ukraine against Kronospan Credit: Vladislav Martynchuk

Controversial track record

Kronospan is operating in 24 countries, and it is far from the first time its operations have been associated with problematic practices. A 2018 report published by the NGO Earthsight revealed that Kronospan and Swiss-Krono ‘have continued to purchase large volumes of timber from Ukrainian State Forestry Enterprises whose top officials are the subject of ongoing criminal corruption probes’.

In 2013, Kronospan started the construction of a facility in Ufa, Russia, without public consultations and without obtaining permission. In February 2020, 30 residents from the region Egorievsk, home to another Kronopsan facility, took the company to court over the plant’s alleged environmental pollution.

Kronospan was also fined for polluting the Viliya river in Belarus in 2015-2016. In Romania, the company was fined multiple times between 2004 and 2015 for breaching environmental regulations. In addition, Kronospan’s formaldehyde production plant in Sebes was built without an EIA and prior permit, in breach of EU law, according to a warning issued by the European Commission in 2010.

Kronospan’s activities have also been harming the environment in the UK, Poland, Bulgaria and the Czech Republic. And many of these cases – which involved manipulation of emissions calculations, the use of outdated technologies, corruption and illegal logging – have been uncovered by local activists.

In one case after another, Kronospan’s environmental offenses were met with public outcry including petitions, blockades and pickets. Most recently, in January 2020, residents of Horodok, Obariv and Rivne staged a demonstration to protest the company’s plans to build the wood processing factory in Horodok.

Similarly, the lawsuit against Ecoclub isn’t the first time Kronospan has sued its critics. The company lodged similar lawsuits against environmental defenders in Romania, but dropped it later.

Thus, we call on the EBRD to address the risks of human rights violations resulting from the operations of Kronospan Ukraine, and to ensure the strict implementation of its non-retaliation policy framework. Affected communities in Ukraine have a right to safely raise their concerns, and the EBRD has committed to provide the space for this through its investments.

“Kronospan wants to make money by polluting our air and consuming our forests. However, when we simply compare the expected pollutant levels taken from the EIA Report with the safe concentrations, Technoprivod Invest Group went to court trying to collect money out of Ecoclub ‘due to damage to business reputation’. Local residents who will breathe formaldehyde from the planned enterprise expect completely different behavior from a responsible investor.” – Andriy Martynyuk, Executive director of Ecoclub

Green Agenda for the Western Balkans – time to plan for a resilient and protective future

These days, more than ever before, we find ourselves reflecting on what the future will look like: what measures are the governments taking and will they be good enough to safeguard our health and wellbeing, how will the economy revive itself, what will our supply chains be, whose support can we count on, how will our mobility needs change and, ultimately, what role can each of us play. The Western Balkan countries, together with the EU, have the opportunity to make a bold decision about moving forward alongside the block towards a sustainable decarbonised future and reap the region’s potential for a healthier environment.

In December 2019, the European Commission launched its flagship policy: the European Green Deal. Its achievement would take Europe to climate neutrality by 2050 and see European Union economies producing net zero carbon emissions by that date. In other words, flatten the business-as-usual curve, and re-design a growth that is mindful of our environmental limits.

The EU also understood that to maximise the impact of the European Green Deal for the whole continent, it should make the Western Balkans a part of this deal and ensure the countries are given equal opportunities and weight. This way, the EU can guide the region towards the 2030 and 2050 targets while benefiting from the added value the Western Balkans could offer, and that’s how the “Green Agenda for the Western Balkans” emerged.

While responding to the global health crisis, the European Commission is determined to pursue the design and adoption of this policy in the Western Balkans and today a group of 16 civil society groups, including Bankwatch, have presented their position on what the Green Agenda for the region should focus on to deliver the best outcomes.

The proposed policy for the Western Balkans is centered around five pillars: decarbonisation, circular economy, pollution reduction, sustainable farming and biodiversity and will be counting on coordination with international financial institutions as well as civil society organisations, but the key for its success will be that any commitments to the Green Agenda take a legally binding form. Too often we have witnessed that the countries of the region are rather reluctant regulations followers, despite the ecological and health benefits of EU environmental legislation.

Therefore the Energy and Transport Community Treaties, as well as the EU accession process need to become key implementation tools. The process must include a legal climate commitment from all Western Balkans countries as well as robust monitoring and sanction tools must be used to achieve full implementation.

The Green Agenda must be based on sustainable decarbonisation of the Western Balkans’ economies by 2050, in line with the Paris Climate Agreement and EU climate and energy policies. All countries need to commit to climate and energy targets by 2030, in line with the EU’s ambition. These must be complemented by concrete implementation measures, support and financing, and reflected in the National Energy and Climate Plans (NECPs) and Nationally Determined Contributions (NDCs).

The circular economy must be used as a tool for delivering part of the 2050 decarbonisation agenda, and adopting the circular economy package is the place to start. In financial planning of this pillar, budgets should be allocated only for measures which contribute to the circular economy, especially waste prevention, recycling, and composting. They must not be used for waste incineration, which locks in cities, financially and materially, for decades.

Reducing the pollution in the Western Balkans will not be an easy task, considering how long the countries’ heavily coal reliant economies have been damaging the air, water and soil, but decarbonisation of the electricity, heat and transport sectors have immense potential in that respect. It is also one of the pillars already having legislation in place, and the immediate focus should be on compliance with existing obligations under the Energy Community Treaty – the Large Combustion Plants Directive – with fines for polluters high enough to be dissuasive and proportional to the health damage caused.

The Western Balkans is also well-known as a global biodiversity hotspot. It is home to hundreds of unique freshwater and terrestrial species, many of which are under risk of extinction because of infrastructure development. Therefore, mainstreaming biodiversity safeguards across all economic activities needs to guide the EU’s and national governments’ political and financial decision-making. Adoption of the Water Framework and Birds and Habitats Directives, together with enforcement of Environmental Impact Assessment and Strategic Environmental Impact Assessment Directives in the region must be seen as a precondition for further sustainable infrastructure development.

We’ve all heard too many times that going beyond business-as-usual economic development models is costly and the countries of the Western Balkans are too cash-strapped to afford the luxury of rethinking their future in sustainability terms. Truth be told, much of the apparent difficulty in finding public financing in the countries is the result of mis-prioritisation and wasteful spending, rather than an overall lack of funds available.

The next round of EU funds for pre-accession as well as the European Investment Bank, or the “EU climate bank” as it now likes to present itself, will be playing a key role. Their funding priorities should however be coordinated with those of other actors such as the EBRD, World Bank/IFC, KfW and others. As we expect a shift in the development of coal mining regions, with a decrease in coal jobs and need for reskilling, more funds will be needed for a just transition of mining regions, which could take the form of grant-based co-financing for local development measures, plus a public sector loan facility by the EIB.

Therefore, in gearing up for the challenging times ahead of us, we strongly recommend governments of the region to stop building infrastructure which is not in line with a decarbonised, efficient, circular economy. This would free up funds for measures that are. No more coal or gas capacities! Ambitious results need bold decisions at the right moment. Now certainly feels like the right moment and the countries of the Western Balkans can count on the EU’s and NGOs’ support if their will is in the right place.

¹The Energy Community is an international organisation established in 2006 which brings together the European Union and its neighbours in the Western Balkans, Moldova, Ukraine and Georgia to create an integrated pan-European energy market. While entering the EU energy market, the participating countries need to apply selected environmental legislation.
The Transport Community is an international organisation established in 2017, which brings together the EU and the six Western Balkan countries aimed at the development of the transport network between the European Union and the South East European Parties and applying selected environmental acquis.

²Commitments that governments have agreed, under the Paris Accord, to devise to tackle the climate crisis and periodically submit to the UN.

« Previous Page

Blog entry

Works on the ground

Stakeholder engagement in times of lockdown

Footer

Get in touch with us