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Taking the chill off Romania’s residential buildings

In Romania, the potential for energy efficiency improvements in buildings is vast.  Most residential buildings from the second half of the twentieth century lack specific thermal requirements for the envelope, which leaves a lot of room for improvement.

Average energy consumption per year (kWh/m2)

Investing in thermal rehabilitation

Since the early 2000s, legislative frameworks and different funding opportunities have helped spur thermal rehabilitation works in the housing stock.

In Bucharest, the rehabilitation works were carried out through these programmes:

Through the national programme for energy performance improvements for housing blocks the Ministry approves local budget allowances for municipalities, towns and communes, and Bucharest districts, based on local programmes and funds allocated from the state budget.

The other programme financed through government-guaranteed loans facilitates access by homeowners’ associations to contract bank credits with subsidised interest rates for thermal rehabilitation.

According to the District 3 city hall, since 2012, 922 apartment blocks were thermally rehabilitated through the local programme. The Court of Auditors report states that in the 2010-2014 EU Budget period, a total of 2 248 housing blocks were rehabilitated, or 28 per cent of the blocks in Bucharest.

How it works

  1. Housing blocks are identified and owners’ associations are notified about registration in the programmes.
  2. If an owners’ association decides to register, a decision of the general meeting of the owners is required to sign a mandate contract. This contract mandates local authorities to carry out intervention works and sets out other relevant obligations and clauses.
  3. The design and execution of intervention works start.
  4. At the final reception, an energy performance certificate is issued together with a three-year performance guarantee period.

What seems like a simple procedure may actually stretch over a long period of time: not all owners in the association might agree on the works, administrative bottlenecks might obstruct the process, contracting processes sometimes get stuck.

One community’s experience

The administrator of one of Bucharest’s owners’ associations detailed his experience with the local thermal rehabilitation process. The apartment block he manages is 22 years old, and since its construction there has not been any other rehabilitation works.

He explained: “Things ran smoothly with those in charge at the city hall. Although they initially said that the association would bear 20 per cent of the total costs, till now, two years after the intervention works have finished, the administration has not charged us anything.”

In practice the owners’ association pays 20 per cent of the total cost of the rehabilitation works and the remaining 80 per cent is provided by the state through local budgets. This 20 per cent is shared among all owners according to their individual share of ownership, but if an association or one or more owners cannot pay their share, the local city hall may partially or fully take over the costs and decide later how to recover the money.

The design of the intervention works is where issues begin to arise. He complained, “The design is done in the office and nobody comes to see the situation on the site. Everything is based on pictures and even if unforeseen situations occur during work, they still send someone to take a picture and send it back to the design office.”

Overall, the association was satisfied with the work done: “They changed the buildings’ envelope, all the hot water pipes in the basement, and now the pipes are all new, insulated, and from this point of view it is good because those were about 20 years old. They also insulated the roof and they did it quite well, as we never have leaks.”

The authorities, however, never conducted the final reception. Legally this means that the energy performance certificate of the building was not issued, which would have highlighted the specifics of annual energy consumption for heating. But according to the owners “it is indeed warmer than it used to be and heating bills have also fallen.”

In 2014, media reported a case where an apartment block rehabilitated in 2010 was approved to undergo the same rehabilitation works four years later. Of course these works never started because they were already done, but this did not stop the city hall from expensing the funds anyway. This unresolved case highlights the need for more transparency in the work of local authorities.

Who is footing the bill?

These large-scale programmes require massive injections from the state budget. Across some districts of Bucharest, the local administration also contracted the European Investment Bank loans for additional funding.

District 1: 220million (EUR)
District 2: 88million (EUR)
District 3: 38million (EUR)
District 4: 70million (EUR)
District 5: 12.3million (EUR)
District 6: 177million (EUR)

EIB Thermal Bucharest projects in Romania 2009 – 2018

District 1: 52%
District 2: 35%
District 3: 41%
District 4: 75%
District 5: 51%
District 6: 69%

The share of loans in thermal rehabilitation payments, 2010-2014 (Court of Auditors’ report)

The loans represent an important source of financing for local programmes, but they also significantly increase the rehabilitation expenses borne by the local budget, the report concludes. These credits are contracted in a foreign currency, with a floating rate, meaning there are bigger risks that they cannot be repaid in the event of unfavourable developments in the exchange rate.

European funding is also available through Priority Axis 5 of the Regional Operational Programme 2014-2020 which supports the increase of energy efficiency for public and residential buildings. According to the Ministry for Regional Development and Public Administration, District 3 received from the Regional Operational Programme 2014-2020 EUR 11 million and District 4 received almost EUR 16 million.

Way forward

Between 2009 and 2018, the EIB financed EUR 605 million worth of energy efficiency projects. Although such investments carry some risks, the EU bank should continue deploying investments in the energy efficiency sector, instead of supporting uneconomic, unsustainable fossil fuel projects. To minimise currency fluctuation risks, the EIB should preferably provide loans in the local currency. A transparent system of the apartment owners’ contribution should also increase the efficiency of public funds use. The program should aim at complex and high quality energy efficiency measures works which should be monitored and confirmed by a certificate of energy performance.

With a wide range of financing sources available, these energy efficiency interventions for residential buildings could be carried out in a simpler, more transparent manner. Instances where a contracting process of rehabilitation works is obstructed by dubious mechanisms of public procurement or administrative delays must not become a habit, because authorities have all the means for making thermal rehabilitation a success.

EU enlargement reports show increased concerns on Chinese financing and hydropower sustainability

Back in 2004, the then EU External Affairs Commissioner, Chris Patten, cautioned that EU accession “cannot be a question of the countries pretending to reform and our pretending to believe them.” But here we are in 2019, albeit with different candidate countries, and this is certainly what it feels like.

Reading through the 2019 EU Enlargement Package, there are a lot of familiar faces: among others corruption, the judiciary, meaningful parliamentary oversight, media and civil society freedom, lack of progress on improving air quality and waste management, and lack of adequate control of State aid.

On environment, one of the most stark examples of “pretending to reform” is the fact that already in 2005 all the Western Balkans countries with coal power plants signed the Energy Community Treaty, committing to bring them into line with EU pollution control legislation by 1 January 2018. Yet nearly 14 years later, none of them have actually done it, resulting in thousands of premature deaths annually in the region and beyond.

This level of negligence has not gone unnoticed by the EC, which has for several years criticised the lack of progress on air quality and industrial emissions, but the situation has still not improved, indicating that stronger measures are surely needed. Introducing the latest pollution control and air quality legislation into the Energy Community Treaty would be a start, as would opening dispute settlement cases against the countries failing to implement their existing commitments under the Treaty.

In addition to the chronic ongoing issues, some points been given increased prominence in this years’ reports.

The most obvious one is Chinese influence in the region. The Commission’s Communication on EU Enlargement Policy points out what we have been saying for some time now:

“It is key to strengthen the resilience of the region to ensure the full adherence of any foreign–funded economic activity to EU values, norms and standards, notably in key areas such as the rule of law, public procurement, environment, energy, infrastructure and competition.

China’s business and investment activity in the Western Balkans has been on the rise and can in principle offer opportunities for the region; however, these investments very frequently neglect socio-economic and financial sustainability and EU rules on public procurement, and may result in high levels of indebtedness and transfer of control over strategic assets and resources.”

A key area of concern is in the energy sector, where Bankwatch has documented a whole range of legal violations in Chinese-financed and potentially Chinese financed coal power projects, ranging from illegal subsidies to selecting companies without a tender process to inadequate environmental assessments.

Chinese loans for coal are gaining attention because they are the most widespread – 3.5 GW of new capacity is planned in southeast Europe with support from Chinese state banks – but Kosovo’s controversial planned Kosova e Re lignite plant received a distinct warning too. Nevertheless, compared to the absurdity of the project’s contract, it is still rather mildly worded:

“As regards the new Kosova e Re coal-based power plant project, (…) It may have a major impact on public finances, tariffs and the environment and this must be carefully assessed. The contractual framework for the construction of the new plant, which involves designating a single buyer of the electricity it produces, could negatively impact the opening of the market.”

The Commission has also increased its warnings about the need for better protection of the region’s biodiversity including its rivers, reminding Montenegro, Serbia and North Macedonia that any further development of hydropower should be in line with EU environmental legislation, and unpacking a whole slew of issues with hydropower in Albania, including poor environmental assessments, the need for public consultations, vulnerability to climate change and lack of diversification of energy sources. Had Bosnia-Herzegovina had a full report devoted to it, rather than just an Opinion, it surely would have received similar comments.

This reflects the growing public resistance to the hydropower sector all across the region, which represents one of the bright spots in the last few years as communities band together to defend their rivers and expose legal violations in decision-making processes. The battle is far from won but there are clear steps forward, with Montenegro halting the issuance of new concessions and new subsidies, and several successful court cases against individual projects across the region.

This year’s Enlargement Package may still have an air of plus ça change, but governments cannot keep up their pretences forever. The EC must not pretend to believe them, and neither must we. We need to expose incompetence, corruption and authoritarianism every step of the way until we get the change we want.

Czechs are turning greener ahead of the EU elections – will it show at the polls?

But this trend seems to be reversing. March saw the first major student protests in the Czech Republic, which are now held regularly and stirring the political discourse. Furthermore, after a dry winter, the topic of water scarcity has made headlines, with many people experiencing the impacts of long-term drought first-hand.

These developments are part and parcel of increasing Czech sensitivity towards environment issues, finds a recent opinion poll from Ipsos MORI and commissioned by the European Climate Foundation. Four out of five potential Czech voters see protection of the environment as one of their main priorities.

Unlike their counterparts in other surveyed European member states (including Slovakia and Poland), the Czechs don’t see climate change as such an important topic; it is a priority for 69  per cent, while the EU average is 77 per cent.

At the same time, more tangible environmental problems such as water scarcity, air pollution or unsustainable agriculture all score higher amongst the Czechs. In fact, some of them even score above the European average, with making agriculture more sustainable the top concern among 83 per cent of potential Czech voters (the EU average is 80 per cent). Protection against extreme weather should be a priority according to 70 per cent of Czech respondents (the EU average is 68 per cent).

Among the top ten most important topics of the European elections for Czech potential voters, three are related to the protection of the natural environment.

The gap between older and newer Member States in terms of public engagement on environmental and climate topics appears to be slowly closing. At the same time, European elections generally do not draw many voters, and those who are likely to vote are also more like to be active in other aspects of pubic life, such as taking a stance against the destruction of our environment and climate. It is possible then that the survey numbers might not be so green after all.

But there are reasons to be hopeful that the active part of the public will keep growing and its calls will be answered by more politicians as well, as the Czech Republic urgently needs to step up its ambition to play its part in Europe’s energy transformation.

EBRD tightens standards in response to Balkan hydropower boom

The Dabrova Dolina 1 hydropower plant is one of the hundreds of projects that the EBRD has financed in the last few years via commercial banks, in this case via Privredna Banka Zagreb (PBZ), part of Intesa Sanpaolo. Though small in volume, these projects can nevertheless cause disproportionate damage. The project is sited on the beautiful blue-green Mrežnica river in Croatia, which is home to a range of species including dice snakes, stone crayfish and otters. More than ninety tufa barriers have gradually formed along its course by calcium carbonate being continuously deposited in the river. Tufa barriers are one of the two habitat types for which the whole river is protected as part of the EU’s Natura 2000 network. The highest of these is the Šušnjar waterfall.

The Šušnjar waterfall dried out in the summer of 2017, in part due to improper operation of the water intake at Dabrova dolina 1 during the dry season.

Increasing transparency in the policy, compared to the draft published in January 2019, was one of the main requests that civil society groups put forward in a joint letter in March 2019. The EBRD’s shareholder countries can take part of the credit for the positive outcome. Credit should be also given to the Management of the bank, which listened to the diverse comments on the initial draft and took steps to improve it.

Šušnjar waterfall before and after Dabrova Dolina 1 started operating

This is just one example why civil society groups around the world asked the EBRD to strengthen its environmental, social and public information standards for intermediated lending.  

And it worked. During its Annual Meeting in Sarajevo on 8-9 May, the EBRD launched its revamped Environmental and Social Policy and new Access to Information Policy. Both include more comprehensive requirements for intermediated financing, that reached over EUR 3 billion — 34 per cent of the bank’s overall investments in 2018.

Better checking of projects

According to its new Environmental and Social Policy, the EBRD will require its financial intermediaries to refer all high-risk sub projects back to the EBRD’s in-house team for additional checks. The list of projects with high environmental and social risks includes all hydropower projects. Importantly, these projects will also have to meet higher environmental and social standards, not only compliance with national legislation, which is often deficient.  

These changes are a clear sign that the EBRD acknowledges the risks inherent in developing small hydropower projects. The bank has also developed a guidance note on small-hydropower projects that clarifies its requirements for direct financing as well as intermediated lending.

More comprehensive disclosure

Even more importantly, the EBRD will require that financial intermediaries publicly disclose information on the environmental and social risks of any sub-project referred to the EBRD and the proposed mitigation measures to address project risks.

This effectively means that the public will finally know whether public money —  the EBRD’s intermediated credit lines — has been used to fund controversial projects such as hydropower plants or any construction works in areas of high biodiversity value.

Had the EBRD had this provision back in the 2008 or 2014 versions of its policy, local communities and civil society organisations might have had a chance to warn the bank and the wider public about publicly-financed damaging projects before the harm was done. The disclosure will still be a subject to “applicable regulatory constraints, market sensitivities or consent of the sponsor of the sub-project” – a provision we hope will not be invoked to limit public access to environmental information but rather to protect legitimate commercial interests of the parties involved.

Good practice: two hundred and eight project-related documents pertaining to two credit lines for a total amount of USD 1.1 billion to two Turkish financial intermediaries are available on the World Bank website (example taken from the Open Books report by Oxfam)

Why this has happened

The breakthrough happened due to sustained pressure from the civic groups. Last year, the Blue Heart of Europe campaign together with Patagonia collected more than 120 000 signatures globally, asking the EBRD, European Investment Bank and International Finance Corporation to limit financing for hydropower plants in the Balkans. Since most of the hydropower plants in the Balkans are small, they are more likely to be funded by intermediated credit lines. The EBRD recognised this trend and co-organised a first-of-its-kind summit on hydropower with the Blue Heart campaign in March. Representatives of commercial banks including Erste, Unicredit and Societe Generale attended the event. This was a prelude to the policy changes that were adopted in late April and presented in Sarajevo.

Increasing transparency in the policy, compared to the draft published in January 2019, was one of the main requests that civil society groups put forward in a joint letter in March 2019. The EBRD’s shareholder countries can take part of the credit for the positive outcome. Credit should be also given to the Management of the bank, which listened to the diverse comments on the initial draft and took steps to improve it.

One of the most important perceived barriers to enhanced transparency of the intermediated lending are banking secrecy laws. A report published by BankTrack in March 2019 showed that this is mainly a myth. Client confidentiality is not an absolute legal requirement in any of the world’s major banking centres. It can be to a large extent overcome by asking client’s consent to publish project-level information.

Next steps

The EIB will consult the public with a draft of its new Standard on Financial Intermediaries this year. Some first steps to listen to public opinion were taken by the bank in February 2019, when representatives of various EIB departments met with NGOs in Luxembourg to discuss intermediated operations.

Indeed, the EIB policy already requires an intermediary or fund manager to publish environmental and social information on specific loans. However, in reality, the EIB does not include this requirement in financing contracts, and it is not done in practice. That’s why Bankwatch has submitted a complaint to the EIB’s Complaints Mechanism (CM), asking the bank to implement its own rules.

Since a significant portion of the EIB’s portfolio is channelled via commercial banks and other intermediaries — EUR 23 billion or 32 per cent of its entire lending in the EU and EUR 23 billion or 36 per cent of its entire lending in third countries —  it is important to strengthen provisions on financial intermediary transparency. We will be closely looking how the lessons learned by the EBRD could be used to strengthen policies in intermediated lending in other banks.

Indigenous communities in Georgia threatened by a major hydropower project financed with European public money

The European Investment Bank (EIB), which approved a USD 150 million loan for the project in January 2018, keeps refusing to acknowledge this.

The project area is home to the indigenous people of Svans, whose rights to the lands are protected by EU commitments, such as the Council Conclusions on Indigenous People recognising the rights of indigenous peoples, and the EIB’s own standards. Instead of acting on them, the bank works hard to find new creative ways to deny the Svans their  status.

Unique heritage on the line

The Nenskra hydropower plant is located in Upper Svaneti, a region in Georgia known for its glorious natural beauty and the unique culture of the Svan people, who continue to cultivate their traditions and pass the Svan language down generations.

https://vimeo.com/236049433

It is estimated that Svans constitute approximately 1 per cent of the Georgian population.

Nenskra is not the only hydropower project threatening to sweep this culture away. Over a thirty other projects are looming around.

Setting the appropriate benchmarks for the Nenskra project could put the Georgian government’s entire hydropower plan on the right track.

EIB backtracks on its own standards

The EIB’s social standards are intended to protect indigenous peoples and their cultures even if they are not recognised as such by their own countries’ legislation, exactly as in the case of the Svans in Georgia.

The bank’s standards rely on the International Labour Organisation’s Indigenous and Tribal Peoples Convention and set a number of characteristics of indigenous peoples to help the bank’s staff and project promoters to identify them when they could be affected by projects supported by the EIB.

Svans have all the characteristics of an indigenous population and therefore should benefit from the EIB’s framework for protection of their rights to self-determination.

On 4 March 2018, in reaction to massive infrastructure development plans, a traditional Svan Council meeting, Lalkhor, demanded to recognise Svans as ancient, indigenous, aboriginal, autochthonic people with appropriate rights for customary and community property in Svaneti.  Yet, the EIB’s decision not to trigger the standard effectively puts vague political interests over the rights of Svans.

In response to our information request the bank claimed its decision was consulted with “respected and highly qualified Georgian anthropologists” but it refused to disclose further details on the content and the identities of these advisors on the grounds of “protection of the public interest as regards international relations”.

This argumentation raises questions about the EIB’s project due-diligence process. The bank openly admits it may not disclose information due to the current geopolitical situation in Georgia and the sensitivity within the political debate of the status of the Svan population, however it fails to specify what this actually means.

Therefore, we had no other choice but to address this issue to the European Ombudsman.  Last month we submitted our complaint, requesting to investigate the non-disclosure of documents and information related to the Nenskra hydropower project, and were subsequently informed the European Ombudsman office is in contact with the EIB to resolve it.

Lost in translation

The EIB’s understanding of “indigenous peoples” is truly puzzling.  The bank overlooked the fact that the environmental and social impact assessment (ESIA) for the Nenskra project has found that Svans do consider themselves a socially and culturally distinct group and are recognised as such by others.  Normally, this would satisfy the main characteristic of indigenous peoples according to the EIB’s standard.

Instead, it argues that Svans have not been identified as a national minority as per the definition under the Framework Convention of the Council of Europe, even though such identification is not even relevant for the legal determination of indigenous peoples.

The EIB’s assessment unreasonably contends that the Svans cannot be treated as indigenous peoples because they were not colonised or annexed by Georgia.

The bank also claims, contrary to the ESIA findings and scientific sources, that the Svan language is merely a dialect of Georgian.

In reality, the Svans face new forms of discrimination from the Georgian state and the political establishment – their traditional land tenure is not formally respected and their language is not recognised as a separate, regional language.

Although UNESCO defines Svan as a “definitely endangered language“, it is not legally protected in Georgia, whereas languages such as German, Armenian, and Polish fully benefit from the immunity under the European Charter for Regional or Minority Languages.

Instead of thoroughly evaluating the Svan case against indigenous peoples characteristics, the EIB chooses to focus on finding arguments that disprove the Svans’ legitimate status.

It is unfortunate that the EU’s bank prefers to surrender to the Georgian government’s arguments about a “sensitive political debate on the Svans’ status” in the interest of ambiguous “international relations” rather than firmly upholding its own standards.

Five reasons why EBRD should pull out of the controversial Nenskra hydropower project

The Georgian government is nowadays promoting the construction of over 30 new hydropower plants throughout the country’s mountainous regions, with the billion dollar Nenskra hydropower plant in the Upper Svaneti region being the most grandiose project. Despite a remarkably poor track record – not least with the Dariali and Khudoni hydropower plants – the overzealous Georgian government remains intent to realise this project, counting on international financiers to cover up to 75 percent of the project’s construction costs.

Nevertheless, as the realisation of the project keeps dragging on, it is becoming increasingly difficult for the EBRD, and all international financial institutions involved, to justify their engagement.

1. A major fiscal liability

A February 2018 World Bank analysis that looked into the fiscal costs of power purchase agreements for Georgian hydropower projects and their potential impact on energy tariffs in the country casts serious doubts over the viability of the Nenskra project. The report concluded that by 2041 Nenskra’s fiscal costs would reach over EUR 1.8 billion, which would mean this gigantic project is set to become a unbearable burden on Georgia’s public coffers. These findings echo a September 2017 report by the International Monetary Fund that warned the Nenskra project is a threat to Georgia’s very fiscal stability.

2. A hot potato for investment banks

Even though a number international financial institutions have agreed to consider supporting the Nenskra hydropower project, in reality the project hasn’t received any money so far. In February 2018, after several delays, he European Investment Bank approved a USD 150 million loan, but the loan contract has not been signed since. The Asian Development Bank and the Asian Infrastructure Investment Bank are yet to decide about their own contributions of USD 214 million and USD 100 million, respectively. In the meantime, in January 2018 the EBRD approved a USD 214 million loan to but announced it is “pausing the process” less than nine months later, after the project’s Italian constructor Salini Impreglio abandoned it.

3. A desperate Georgian government cutting corners

To meet the requirements set out by international financial institutions, the project promoter has introduced a range of technical and technological modifications to the plans for the Nenskra hydropower plant. But despite the dramatic changes to the project design and even location, Georgia’s Agriculture and Environment Ministry decided in February 2019 to waive the legal obligation to prepare a new environmental impact assessment for the revised project. In response, two Georgian NGOs have filed a court case against the ministry the following month.

4. Local communities protesting the project

Members of local communities, concerned the Nenskra hydropower plant would deprive them of their livelihoods, have been objecting the project since several years. The indigenous Svan communities residing in the vicinity of the dam site have staged numerous demonstrations in the region and in the capital Tbilisi to protest the devastating impacts of the project as well as the very process they feel sidelined their legitimate interests. In addition, complaints submitted by local residents to the grievance mechanisms of the ADB, the EIB and the EBRD are still to be resolved.

5. History repeating

The EBRD has already had to withdraw from several problematic hydropower projects over the past decade. Plans for a 1.24 MW hydropower plant on the Iliina river in Bulgaria with the support of the EBRD-administered Kozloduy International Decommissioning Support Fund were eventually scrapped. In May 2013, the EBRD decided to cancel a EUR 123 million loan for the dubious Ombla hydropower project in Croatia which was meant to be built underground, next to a cave considered a natural habitat of global significance. In January 2017, the EBRD had to cancel its EUR 65 million loan for the controversial Boškov Most in North Macedonia, which was planned to be built inside the country’s largest and oldest national park, following an intense civil society campaign. Moreover, the EBRD has agreed to revisit its standards on hydropower investments in response to a major international campaign led by Patagonia last year. Focused on development finance enabling harmful hydropower projects on pristine rivers the western Balkans, the campaign generated the largest energy petition the EBRD has ever received.

As the Georgian government is struggling to implement this shady undertaking, the EBRD would be wise to take these all into consideration and revisit its engagement with a project whose benefits – if it is ever even realised – are questionable at best. It is not too late to acknowledge the Nenskra hydropower project is a toxic investment that must be avoided.