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North Macedonia: coal exit welcome, but no excuse for ecosystem destruction

Its new draft Energy Strategy is the first in the Western Balkans to put a clear date on phasing out coal – all the more surprising considering that lignite has been responsible for over half the country’s electricity generation in recent years.

That two out of three scenarios consider a coal phase-out by 2025 to be the least cost option show just how much of a liability coal has become in the last few years. Oslomej, the country’s smaller plant, is rarely used even now, while the much larger Bitola plants requires sizeable investments to bring it into line with pollution control standards.

Adopting a phase-out by 2025 as official government policy will put the country in a leading position among its peers in the region and provide a positive and clear signal about the country’s future energy direction.

In line with recent price trends for solar and wind, the draft Strategy sees significant increases in these sectors, especially for solar, where there is more potential.

However there are some areas where the draft Strategy still needs work. 

In the power sector, this mostly relates to hydropower. In all three scenarios, modelling selected up to 775 MW of new large hydropower plants and 223 MW of small ones. 

We welcome the fact that the notorious Boškov Most and Lukovo Pole hydropower plants planned in the Mavrovo National Park have been excluded from the Strategy, but we also find it highly unlikely that all the remaining candidates will be built. 

Harmonisation with existing EU environmental legislation will almost certainly put some of these projects out of bounds, while others have been stalled for years due to lack of economic justification or interest from investors. 

Veles, Gradec and Chebren are all encroaching on future Natura 2000 sites and they are also in conflict with Emerald Sites, Important Plant Areas and Important Bird Areas, and previous tenders for Chebren have failed to attract investors. All these issues, together with the 15 km-long Tenovo to Kozjak hydropower plant tunnel that is planned right underneath a newly constructed gas pipeline, could seriously undermine the implementation of the Strategy.

The figures on new small hydropower development are mixed and unclear, so it is difficult to follow what exactly is planned, but it is clear that 223 MW of new hydropower cannot be built in the country  without serious damage to protected areas and other valuable watercourses. Already now, with just 96 small hydropower plants built and operational, the situation is untenable.

We say this not only because we have witnessed how uncontrolled hydropower development is destroying the Balkans’ main asset – its natural beauty and biodiversity – but because it is generally unwise to put all one’s eggs in one basket. As the latest data from the Energy Community Renewable Energy Coordination Group shows, the country is in danger of not meeting the 2020 renewables targets due to the impact of hydrology, among other things, so diversification is of utmost importance.

If the Strategy has three scenarios, there need to be different scenarios of hydropower development too, to answer the question of what are the trade-offs needed and what is plan B in case some of the projects fail?

The other issue that the Strategy struggles with is decarbonisation outside of the power sector. 

It expects high levels of diesel usage to persist in transport, without really explaining why and what the alternatives could be. Considering that diesel not only has climate impacts but is also harmful from an air quality perspective, alternatives really need to be presented. The country is an air quality blackspot on a global scale, and continuing the status quo is not an option.

A large increase in the use of gas in industry is expected in the Strategy, which is counterintuitive considering EU decarbonisation ambitions and the fact that all gas in the country is imported. Again, it needs to be explored what the alternatives are and to what extent there is a danger of stranded assets if this expected rise in consumption does not materialise.

Energy savings and demand-side efficiency are given a reasonable amount of attention in the Strategy, but we cannot underline enough the need to use the opportunities in this field to the maximum extent possible. This is the key to reducing the country’s import dependency as well as reducing the need for new energy infrastructure. 

Overall, the draft Strategy is a large step forward from what we have previously seen in the region, and with some more work on the issues above, it can lay the ground for a real transformation of the country’s energy sector and become a guiding light for the rest of the region. This is a great opportunity, but also a great responsibility. 

Getting it right can encourage investors, prosumers, and our neighbouring countries to get involved in the energy transition. Getting it wrong can put others off of trying and ruin the whole image of the energy transition, just as we are currently seeing with the small hydropower boom across the region. We hope the Government will understand this when considering public comments and take them on board to make it a Strategy we can all get behind.

Nenskra: new players, new risks

According to South Korean media, Hyundai Engineering & Construction (Hyundai E&C) and Limak have won a USD 737 million tender  to realize the Nenskra project.      

This mega-project has been on the cards since at least five years, during which it has seen fierce opposition from local communities, and has become notorious for countless issues – from its environmental impact to its shady economics (see here for the full rundown). 

However, the scale and number of financial and corruption scandals connected with Hyundai E&C and Limak do not give it a lot of hope. Hyundai E&C had been accused several times of misconduct, and in May the company admitted it had bribed a politician to stop local protests over a coal power plant in Indonesia.

Limak was one of the main defendants in Turkey’s famous “Blue Line” investigation in 2008 that uncovered rigged tenders, bribery and money laundering. 

The way the new Korean contractor was declared  also adds to the ambiguity of the process: only two weeks before the news emerged, Hyundai E&C was not even among the pre-qualified candidates for the Nenskra project’s tender in the official list published by the European Bank for Reconstruction and Development, one of the project’s main public financiers. 

Only a week after the news emerged, and after being approached by journalists multiple times, did Nenskra Hydro, the project promoter, confirmed it had contracted Hyundai E&C and Limak for the project. 

Nevertheless, once the contractor is on board, it does not necessarily suggest that construction is the next step. The introduction of a new  contractor would likely require additional time for reviewing and adjusting — possibly even re-creating — the project’s technical documentation.

Hyundai E&C and Limak were reportedly awarded a USD 737 million contract, substantially higher than Salini’s USD 575 million contract. This increase could, in turn, entail a changes in the guaranteed power purchase agreement, and with it a rise in electricity prices in Georgia. In such case, the agreement between the government and Nenskra Hydro would likely need to be reviewed.

The project’s financial feasibility has long been questionable. Now that its costs have increased, Nenskra Hydro, as well as its international financiers and the Georgian government, would need to explain how continuing to pursue this hefty project is in the public’s interest.

Who are the new players?  

No less concerning is the shady legacy of Nenskra’s new builders. In April 2018, police raided the headquarters of Hyundai E&C construction in Seoul as part of an investigation into alleged bribery. According to media reports, the company had allegedly bribed owners of properties for which it had bid to gain the sole rights for housing reconstruction.  

South Korea’s former president Lee Myung-bak, who was recently sentenced to 15 years in prison for abuse of power and embezzlement, was a former head of Hyundai C&E, “where he was nicknamed “Bulldozer” for his ruthless business tactics.” Lee’s name was associated with another, Korea’s famous “Four River” corruption scandal, where Hyundai C&E with 14 other companies were accused of fixing prices which, according to the local prosecution, cost taxpayers a total of USD 3.57 billion.   

In 2008, Nihat Özdemir, the chairman of Limak Holdings, was convicted for corruption with prosecutors seeking a sentence of 30 years. In Turkey’s scandal “Blue Line”, which was investigated after one of the corrupted company’s CIO committed suicide, Limak was said to be among major players. The company  was accused for being part of a corruption scheme concerning gas pipelines, water channels, and other large-scale infrastructure projects. 

Asked  about the checkered legacy of its new partners, Nenskra Hydro told journalists that the qualifications and reputation of the tender participants “had also been agreed with the  international financial institutions which finance the project.”  

Problematic history aside, the corruption history of Hyundai E&C is longer. So is its Turkish partner’s. Plus, neither Hyundai E&C nor Limak none of them bring any outstanding experience in constructing large-scale hydro power plants. It is now up to Nenskra’s international financiers to explain  how they expect companies with such history and lack of relevant experience to finalize the troubled project which even Salini Impregilo, the world’s top hydro constructor, could not manage.

Dirty palms: European Development Banks need better due diligence and accountability to prevent human rights abuses

On Monday this week Human Rights Watch (HRW) released a new report detailing human rights abuses in the Democratic Republic of Congo committed by the palm oil company Feronia. The agribusiness company has received financial support from four European development institutions: the UK’s CDC, Dutch FMO, German DEG and Belgian Bio.

The report’s launch event, hosted by specialist law firm Leigh Day in London, started with a captivating account by the report’s author, Luciana Tellez-Chavez, and provided for a lively discussion on the need for better human rights due diligence and accountability of European development banks.

I was invited to present Bankwatch’s work on Multilateral Development Banks (MDBs), such as the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). MDBs are considered standard-setters in the world of development finance, as their policies represent the wide consensus among shareholding countries on how sustainable finance should safeguard people and the environment.

As both Bankwatch experience and the HRW report show, a lot more is to be desired with regards to development banks’ human rights policies and their implementation. After enjoying decades of immunity and obscurity, development banks now increasingly face the risks of reputational damage and legal challenges. By the same token, the ever more critical scrutiny of MDB’s effectiveness to deliver on their development mandates is now threatening the status quo in Europe’s development finance architecture.

Redress, accountability and immunity of MDBs

The discussion at the Dirty Palms launch event was going back and forth between the question of how to ensure redress for the palm oil workers and communities in DRC and the broader question of MDB’s accountability and immunity. What happens, if the rights of workers and communities are not properly safeguarded? Can public finance institutions be held accountable for the lack of proper oversight and prevention of human rights abuses committed by their clients? What are the contractual obligations imposed on clients and can they be strengthened to ensure due respect for human rights? Should MDBs’ legal immunity be lifted if they systematically fail to ensure that their investments “do no harm”? How to address the risk that if more responsible lenders tighten their standards, clients may just look to less scrupulous sources of finance?

MDBs have internal accountability mechanisms that should provide for both institutional lesson learning, as well as for justice and redress for harm done by their investments.

Some lessons are never learned though. For example, when it comes to the rights to information and participation of affected people. For decades, complaints about the lack of transparency and meaningful consultations have fallen on deaf ears. Banks and their clients continue to hide behind confidentiality excuses that often lack a real basis in law or could easily be circumvented by clauses in contracts on information disclosure. In this day and age, though, when affected people are increasingly aware of their rights and communication technologies are enabling information sharing far and wide, hiding human rights abuses has become close to impossible.

If MDB’s safeguards policies were implemented properly and their accountability mechanisms were effective, there would be no need to challenge their legal immunity in national courts by people whose rights were violated.

As it was pointed out by one of the speakers at the event, Simon Milnes of Twenty Essex, there were good reasons why immunity was granted to international organisations in the first place. Primarily, MDB’s immunity was meant to shield them from interferences of states and thus preserving their independence. Immunity was also needed to overcome a practical difficulty of subjecting MDBs to varying rules in the multiple jurisdictions where they operate.

Immunity was never meant to equate impunity. If MDBs are systematically failing to ensure adequate protection of human rights, they have to face the consequences. The US Supreme Court ruling in February this year on the Jam vs IFC case may come to be seen as a wake up call for MDBs. They can no longer hold on to anachronistic privileges of full immunity when causing destruction and dispossession under the banner of development. They have to reform the way they do business, respond to grievances, remediate destroyed ecosystems and restore livelihoods.

The future of the European financial architecture for development

The discussion organised by Leigh Day couldn’t be taking place at a better moment. The Foreign Affairs Council of the EU discussed the changes that are needed to the European financial architecture for development on the very day the HRW report was publicly released and media in the UK, Germany, the Netherlands and Belgium was airing its findings.

Earlier this year the EU Council has set up a high level group of wise persons, who in October produced the report “Europe in the World: The future of the European financial architecture for development”. The session at the Foreign Affairs Council this week saw the president of the EBRD, Suma Chakrabarti, argue that the EU must strengthen multilateralism not circumvent it, while the president of the EIB, Werner Hoyer, stressed the EU’s need to strengthen its strategic autonomy in development.

The two banks will follow up with additional argumentation and the EU’s Economic and Financial Affairs Council (ECOFIN) is expected to issue a decision on the way forward on its meeting on 5 December. Meanwhile, the EBRD is busy preparing a new five year strategy that its Board of Governors should approve at the bank’s annual meeting in London in May 2020.

This is not the first occasion on which the EU had tried to rethink its development finance architecture. In 2010, there was a proposal for merging the EBRD and the EIB, in order to avoid overlaps in geographical coverage and to improve the effectiveness of investments. This time around, however, Brexit is raising urgent questions about UK’s shareholding in the European MDBs. The EIB can see shrinking of its capital base with UK exiting, while the shareholdings of the EU and its member states at the EBRD will decrease from 64 per cent to little over 50 per cent.

Brexit is not the only motivation for the reform of the EU’s development finance. The MDB’s Billions to Trillions initiative to mobilise investment for the implementation of the Sustainable Development Goals by 2030 requires from development finance to be more effective. And last but not least, the climate crisis requires an urgent and just response by directing significantly more resources to a zero carbon transition, climate mitigation and adaptation in industry, cities, food production, supply chains etc.

Moreover, as MDBs have ventured into fragile states and conflict areas, the weaknesses of their human rights and environmental safeguard frameworks have become painfully obvious. The current state of affairs is very well exemplified by HRW’s new report: labour rights violations, extreme poverty, adverse health impacts, environmental degradation, lack of transparency, inadequate grievance handling and lack of accountability. That’s not what development looks like, is it?

Whatever option the EU Council will settle for eventually, the future European Development Bank and National Development Banks will need to be better equipped to protect people and nature. In the twenty-first century human rights, ecocide and climate chaos are no longer “the price to pay” for development.

When will the European Ombudsman’s decision on export credits come to pass?

Export credit agencies (ECAs) enable governments to support national companies and do business abroad, particularly in financially- and politically-risky parts of the developing world. According to statistics by the Berne Union – the most important association of ECAs globally – export and investment insurance by its members totaled approximately USD 1.1 trillion globally in 2018. This makes global ECAs much larger than many multilateral development banks and shows the significant role that these financial institutions play in shaping the global economy.

In December 2019, European Ombudswoman will review the steps taken by the European Commission towards meeting its recommendations regarding ECAs. Together with the newly appointed Commission and Parliament, there is space to improve transparency (to the public and within Regulation 1233/2011), begin qualitative reporting that will enable a proper analysis of performance and ensure that ECA policies are coherent with climate, environment and the human rights’ policies of the EU.

To this end, member of ECA Watch initiated a panel discussion in November 2019 with four MEPs – Martin Hojsik (Renew), Sirpa Pietikainen (EPP), Heidi Hautala (Greens) and Bern Lange (Chair of the INTA Committee, S&D). The panel was attended by representatives of DG Trade and the European Ombudsman and addressed mainly issues relating to the implementation of the Ombudsman’s recommendation regarding the need to improve ECA reporting.

The panel concluded that MEPs should undertake the following in order to contribute to the decarbonisation of ECAs:

  1. According to ECA regulations and the Ombudswoman’s recommendations, the Commission should produce an annual review for the Parliament based on the reports from Member States, including an evaluation of compliance with Union objectives and obligations. This needs to be done in-depth and cover issues like human rights and commitments of the Paris Agreement, and scrutinised more thoroughly by the Parliament.
  2. While a lack of compliance with EU law would be the responsibility of individual Member States, the failure to properly assess and report to the Parliament about such non-compliance is a clear shortcoming of the Commission. In cases of inadequate reporting from Member State ECAs, the Commission, in order to comply with its own obligations under EU law, must report to the Parliament that sufficient data were not gathered and thus the Commission is not able to assess whether there is compliance or not. At that point all European institutions should consider adequate measures to strengthen the law to achieve enforcement of rules for Member State ECAs.
  3. Functional and transparent mechanisms should be established at the EU level to effectively monitor ECAs and assess whether Member States’ export credits are in line with EU external policy objectives and with applicable environmental risk management regulations, priorities on global environmental challenges like climate change and biodiversity loss. These mechanisms should enable citizens of the EU to provide input, and should also contain a complaints mechanism. EU law requires reform to allow more public scrutiny over ECAs.
  4. The Parliament should ensure that oversight of ECAs will be reflected in the European Green Deal and the new EU development architecture.

It is clear that the introduction of functional and transparent mechanisms that effectively monitor the activities of ECAs and their coherence with national policies to meet environmental commitments will require greater participation by all stakeholders. 

Only in this way will the role of the Commission and the Parliament as its governing and supervisory be effective and help push out the dubious double-speak from European environmental discourse.

A walk on the wild side

Almost every person I’ve mentioned Belgrade to in the last few months has said the same thing: “they’ve dug up half the roads in the city” and “the public transport has got worse and worse.”

One of the roads being dug up is the so-called Green Boulevard, a 3 km stretch of road comprising the Kraljice Marije, 27. Marta, Dzordza Vasingtona (George Washington) and Cara Dusana streets. The project is taking place under the auspices of the EBRD’s Green Cities Framework, aimed at making urban areas more liveable in the bank’s region of operations. 

Now the Green Boulevard project has entered the construction phase and has become notorious among Belgrade residents due to its disruptive impacts, noise, dust pollution and poor construction practices. 

This has been particularly noticeable due to the extremely bad air pollution which has plagued Belgrade this autumn.

During a recent visit to Belgrade, we decided to take a look at this famous Green Boulevard to see what everyone is talking about. Sure enough, there was plenty to see.

Starting at the crossroads between George Washington Street and Despot Stefan Boulevard, we immediately encountered a safety hazard. There is no alternative routing for pedestrians set up, so they either have to walk in the road to cross George Washington Street, a busy road in the city centre, or cross the construction site through an open section of fence on the northern side.

Then, heading south, we encountered unfenced or inadequately fenced holes in the road, like the one in the gallery (click on the dots to scroll through).

Southern side – pedestrians have to walk in the road to cross George Washington Street

Northern side – pedestrians either walk in the road or cross the building site through a hole in the fence

Crossroads of Takovska and George Washington Street

In George Washington Street between Palmotićeva and Takovska there is hardly any pedestrian access to this section of the street at all, and certainly no disabled access

In some places it is hard even for two pedestrians to squeeze past one another. It looks like the emergency services can’t access this part of the road at all at the moment

The broken front step of a bakery which has closed temporarily due to the construction

Pedestrian walks on the sidewalk near the corner of Kraljica Marija and Karnegijev streets, next to the Faculty of Technology and Metallurgy

Pedestrians cross Kraljica Marija’s construction site

In George Washington Street between Palmotićeva and Takovska there is hardly any pedestrian access to this section of the street at all, and certainly no disabled access. Going southwards on George Washington Street, by the junction with Palmotićeva, pedestrians have to cross over the building site to the western side of the road because the eastern pavement is inside the building site and has been dug up. We were lucky to be there on a sunny day, not after rain.

Further southwards, the only remaining pavement – bearing in mind that the other side of the street is off-limits to pedestrians, is narrow and uneven – down to around 60-70 cm in some places. Pushchairs can hardly pass through, and wheelchairs don’t stand a chance.

In some places it is hard even for two pedestrians to squeeze past one another. It looks like the emergency services can’t access this part of the road at all at the moment.

Continuing up the street, where George Washington becomes Kraljica Marija, walking conditions remain perilous on the sidewalk and exposed dust on the ground and in the air increases.

Even though construction on this portion of the street began earlier, during the summer, it was not completed before construction began further down on the street. This has contributed, perhaps unnecessarily, to the traffic. 

In addition, the construction site itself is open for pedestrians in some parts of Kraljica Marija. Pedestrians freely walk through the site in this location near the Faculty of Mechanical Engineering – a reasonable action when the nearest pedestrian crossings and only safe way to get to the other side of the street are several blocks away in either direction.  

Streets for Cyclists have already attempted to secure improvements in this project through a problem-solving initiative at the EBRD’s Project Complaint Mechanism, which would have entailed mediation with the project promoter to reach agreement on how to proceed. But this was scuppered by the fact that the City of Belgrade didn’t even bother to answer the PCM’s letters.

This kind of negligent attitude is clearly reflected in the way the works have been set up. The EBRD’s Environmental and Social Policy is quite weak on issues connected to the environmental sustainability of transport projects, but it has several provisions on community health and safety, whose application is very hard to spot in this project.

The Green Boulevard is in danger of becoming a reputational headache for the EBRD. As the Bank ramps up its Green Cities programme, such visible urban projects will increase public scrutiny of its activities. It is therefore very much in the EBRD’s interest to take prompt action to improve this project, to put on hold the preparation of the Belgrade GCAP until the City shows preparedness to properly implement projects and to ensure it is able to properly enforce its standards in future projects.

Kenyan village burned down weeks after EIB withdraws from energy project planned at the same place

The 70MW energy project, envisaged as the first stage of a larger geothermal power plant is developed by the Akiira Geothermal Limited company and has been enjoying the backing of multiple European and American financiers.

Nevertheless, Bankwatch, the Narasha Community Development Group, independent researcher and scholar Dr Lotte Hughes as well as the International Accountability Project have been voicing concerns about the project and its environmental and social impacts.

Not least, it was the 47 families that make up the Lorropil community who would be directly affected by the Akiira project planned on the very same land they have been living on. And yet, the company has failed to engage the community in any meaningful way beyond ordering them to vacate the land.

In June, following a site visit and meetings with members of the local community, Bankwatch urged the EIB to look into the matter and ensure its client, Akiira Geothermal Limite, meets the bank’s requirements on stakeholder engagement.

On October 10th, the EIB informed Bankwatch it had decided to stop the appraisal of the project, “due to the fact that the EIB has seen no progress on the Akiira Geothermal Expansion project over the past 3 years”.

“The EIB has taken all the allegations extremely seriously and will make every effort to ensure that the EIB’s Environmental and Social Standards are respected throughout all of its projects,” the message from the bank stated. “The EIB informed the Akiira project sponsors that should any unlawful evictions have taken place, the project would have become ineligible for EIB financing.”

In a statement posted on Centrum’s website two weeks later, Akiira argued “no social nor environmental concerns have been brought to our attention as a result of our exploratory drilling activity.” The statement stands in contrast to the fact that concerns had been raised with the company by the International Accountability Project.

Local community brutally displaced

Despite the grave concerns over the adverse impacts on the Lorropil community, Akiira Geothermal remains intent to go ahead with the controversial project at any cost.

On October 30th, the Kenya News Agency reported that “the Nakuru County Commissioner Erastus Mbui Mwenda has ordered the arrest of bogus squatters who prey on land set aside for [the Akiira project].”

For Commissioner Mewnda, the village of Lorropil was simply part of “a trend where individuals erect temporary structures on land meant for mega projects and wait for compensation.”

It is unclear how long exactly the community has resided in this site, but in no way does it justify the violent and ongoing attack on them.

Moreover, the Commissioner’s order itself is in breach of Kenya’s Land Act which stipulates such order should be publicly announced in writing at least three months in advance. It was also in violation of the EIB’s social standards, which require resettlement assistance is provided in such cases, even for informal occupants of the land.

The families have already been threatened in June, when representatives of the company told residents they have just days to move away.

On the morning of November 3rd these threats materialized when the residents’ houses were set on fire, displacing the community in its entirety.

The day after the village was burnt to the ground, Bankwatch received reports that police arrived to the site to chase the residents away. The violent police action continued over the following days. The families were chased away, and their clothes and food were burnt.

The villagers, who claim to be descendants of the workers on the former colonial Kedong ranch at the same site, have already been living in abject conditions, in makeshift houses and without access to water.

Now, with nowhere to go, the community, and especially children, were left with no shelter and food. On request of local activists, Red Cross later came to provide emergency assistance.

International enablers urged to act

Akiira Geothermal Limited, domiciled in Mauritius, is owned by the Danish firm Frontier Energy, the American companies Ram Energy and Marine Power and the Nairobi-based Centum Investment Company..

The project is financially supported by the US government’s Power Africa programme as well as with European public money through the Global Energy Efficiency and Renewable Energy Fund of Funds (GEEREF), which is managed by the European Investment Bank (EIB). The EIB was also considering a EUR 155 million loan for the project.

The EIB has a long history financing geothermal energy in Kenya. The controversial Olkaria project, co-financed by the EIB, involved the uprooting of an indigenous Maasai community.

In its October 10 message to Bankwatch, the bank said it had decided to examine the situation in Lorropil “with a view to determine whether they should be considered project affected people under the Olkaria project currently being financed by the EIB.”

The situation on the ground has been fast deteriorating and Bankwatch has been reaching out to all of Akiira’s shareholders and financial backers to intervene immediately. They need to make clear that displacing communities is not acceptable, and help the villagers restore their livelihoods.