Blog entry

Price tag of Georgia’s Nenskra dam goes through the roof

Among the numerous concerns surrounding the Nenskra hydropower project (HPP) is a lack of transparency about the contract between the Georgian government and the project company. Its confidentiality has long been a source of speculation shrouding the controversial billion dollar investment.

The 280 MW Nenskra HPP would be built by JSC Nenskra Hydro, a joint venture between the state-owned Partnership Fund and the South Korean state company K-Water.

International financial institutions are considering financing three quarters of the project’s total costs at over USD one billion. These banks include the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), the Asian Development Bank (ADB) and the Asian Infrastructure Investment Bank (AIIB).

Without the full details of the contract available it is impossible to analyse the necessity of such a grand infrastructure project. Understanding the potential benefits and whether these outweigh the impacts is a crucial trade-off that has not yet been solved transparently. It is difficult to understand the rationale behind keeping confidential the contract information, since concealing such details feeds further speculation about the project’s impact.

The price puzzle

Also the recently published cost-benefit analysis contains gaps like a comparison with investments in energy efficiency as an alternative to the Nenskra dam. More importantly, it doesn’t really include an analysis of any costs.

Yet it did reveal a guaranteed price of USD 0.08532 per kWh at which the government of Georgia will have to buy electricity from Nenskra – almost twice the current wholesale price (USD 0.047) for electricity bought in Georgia and imported from abroad.

From the supplementary Environmental and Social Impact Assessment (ESIA) – released in March 2017 after the original ESIA from 2015 needed to be redone for lacking sufficient analytical quality – it can be concluded that the state of Georgia is obliged to purchase 1960 GWh of generated electricity annually for no less than the first 36 years of operation, irrespective of the actual demand placed on the grid.

Piecing it all together, Georgia guaranteed to buy almost 2 GWh annually at a price of USD 85.32 per MWh for three and a half decades.

This might turn out to be a long-term burden for the state, especially in a situation where there are no visible guarantees of an affordable electricity price. Moreover, this deal might become an obstacle for exporting locally-produced electricity to countries with lower tariffs (pg. 3).

The exceedingly high price strongly suggests that the deal is simply too unfavourable for Georgia’s taxpayers and is therefore kept under wraps by the parties involved.

What the ESIA does not contain is a scheme for dealing with cost overruns, a possibility that cannot be ruled out and which is concerning for a few reasons. First, the key facilities associated with the project, including transmission lines and access roads are notably absent from this cost estimation, which could mean that the already high cost of the construction – about USD four million per megawatt – would increase further. Second, the estimated cost of the Nenskra project has swollen nearly 50 per cent in the last two years: initially estimated between USD 650-750 million in 2015, costs have risen to USD 1.035 billion according to the AIIB.

Where is the long-term strategy?

A comprehensive, long-term strategic development plan for the energy sector should serve as the baseline for considering any substantial investments like this one to the sector. In the case of Georgia, HPPs receive political backing but little in the way of qualitative analyses of alternatives.

Under these circumstances, it is extremely difficult to justify a billion dollar project with an incomplete cost-benefit analysis, given the questionable economics, the disproportionate electricity price and the impacts of the project on people.

Between TAP and a hard place – Albanian farmers receive peanuts after losing land and livelihoods to gas pipeline

The full report from the fact-finding mission is available for download.

For the past few years, communities along the route of the Trans Adriatic Pipeline (TAP), the western section of the Southern Gas Corridor have been refusing to accept the toll this gargantuan project is taking on them. While the opposition has been particularly vocal in Southern Italy, grievances have been heard also from Greece and Albania.

On our third mission to Albania earlier this year we found out just how dire the situation is for farmers in the only non-EU country affected by TAP. Labelled an EU ‘project of common interest,’ TAP could soon receive a loan of unprecedented size from the European Investment Bank which has been urged by the European Commission to provide the financing, as has recently been revealed.

A black pipe in front of a foggy panorama. — The black pipes were omnipresent along the corridor of the Trans-Adriatic Pipeline – lying on the surface ready to be put underground.

A fraction of the compensation needed

During the visit, Bankwatch, together with the Albanian Helsinki Committee talked to farmers and communities along the corridor of the Trans-Adriatic Pipeline.

Most of the farmers we spoke to have received compensation for their land but were not at all satisfied, explaining that their loss of income and property was not covered. Some of them calculated for us their income and compared it to what they received. The discrepancy was enormous. And none of the farmers we interviewed were compensated for associated assets like destroyed fences, wells, pergolas or other equipment.

A hill with olive trees and a wide swath where the trees have been cut. — The pipeline route cuts like a scar through what used to be Arjan’s olive grove, one of the farmers affected by the TAP pipeline.

Arjan, an olive farmer in Berat County, used to own 130 olive trees that were 70-80 years old. In his irrigated and well maintained orchard one tree gives up to 150 kg of olives per year. At a price of 150 Albanian lek (~EUR 1.12) per kg, he earned about 22.500 lek (~EUR 169) per tree every year. The compensation he received was only 25.000 lek (EUR 187.5) per tree, hardly more than one year of his income per tree. But it will take 15-20 years until newly planted trees will give olives. And even then, they will only provide about 10-15% of the yield he used to have.

In effect, Arjan received the worth of one year’s olive production while losing more than 15 times that.

Arjan’s business not only supported a family of about 16 people, but also several seasonal workers he employed. Now he is left with next to nothing for years to come. “I don’t know what we will be doing,” he says.

Non-transparent compensation values

To guide the compensation process, the company prepared Guides for Land Easement and Acquisition for each country the pipeline traverses. In Albania, these Guides include partly conflicting rules and do not offer a clear outline for how the compensation is to be calculated. Eventually, also the contracts with farmers are in no way transparent about how the compensation value has been established.

None of the dozens of compensation offers, compensation agreements and notarial documents provided by TAP that relate to the compensation include a detailed valuation of land lease, crops and assets.

Apple trees on the left, clear cut on the right. — Urim’s remaining apple trees next to the pipeline corridor.

Urim, an apple farmer from Cangojn, tried to reconstruct the compensation he received based on his contract and TAP’s compensation booklet.

While the booklet defines a compensation price “per tree” (depending on different production types), his contract only states a compensation per square metre. According to the booklet he should have received more than 18.000 lek per tree. However, for a 403 m2 parcel, for instance, where he had 36 trees, he received 344.662 lek which makes 9.574 lek per tree – half the amount he is entitled to.

He rejected the offer for one year and filed a petition with 21 other farmers who had the same issue. He went to the nearest administrative unit and to Tirana several times. The petition remained unanswered. Instead, the company threatened that the state would seize their land. He signed eventually because of this threat.

Land that disappeared

On the basis of an agreement with the Albanian Immovable Property Registration Office TAP was allowed to establish, enhance and update cadastral data (property ownership, boundaries, and usage) within the pipeline corridor. While this may have been intended to simplify the process of land registration for farmers, it led to irregularities and land loss for some of them.

In several cases, where a person’s land was affected, they received new certificates where the boundaries and even the size of their land had changed.

In none of these cases the relevant land owner understood the reason for the change and in all cases owners were dissatisfied with the new certificates.

One farmer from Fush Peshtan, a village in the Berat region, had bought a parcel of land in 2014 to invest in the family’s own olive business. He had a relatively new certificate, including a map, to show for his purchase.

The new certificate, provided by TAP, showed a parcel whose location had been shifted and its size had been reduced. TAP did not offer to pay a compensation for the difference in the value between those two parcels.

The new parcel has been shifted uphill, above the pipeline corridor. The missing part of his land is now state land. While this causes additional difficulties for the family in accessing their olive orchard, TAP has a clear advantage from this change. It has access to the state land downhill, bordering the location from where the pipeline is coming after crossing the river.

A printed satellite map with colourful markings. — The piece of land next to the river that has been taken away from the farmer (red frame). The TAP pipeline route is marked in yellow and green.

Apart from these issues, farmers told us again about intimidation by company representatives and an overall heavy-handed approach that stymies their efforts to verify whether they have been treated fairly.

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In spite of the highly politicised character of the project, no public authority is currently involved to ensure the fair treatment of affected people. Their ability to disagree and appeal to impartial bodies is – currently – highly limited if at all existent. Our findings should trigger a more thorough engagement with the grievances of affected people. At the very least, the approval of public financial support for TAP must not be rushed.

On December 12 the board of directors of the EIB could decide on a EUR 2 billion loan in EU public money for the realisation of the TAP project. If approved, this would be Europe’s largest ever loan for a single project. It would also be a breach of the bank’s own commitment to human rights as reflected in its statutes.

For more detailed information download the full report from the fact-finding mission.

Silesian coal – a quiet exit

Having heard so many times that Silesia’s coal is Poland’s national treasure and the foundation of the country’s energy security, it was striking to find how bleakly the people there see the prospects of the mining sector.

During a November visit to Silesia in Poland, a group of colleagues from Bankwatch and its Polish member group Polska Zielona Siec (Polish Green Network) tried to get a better understanding of the situation in a region that hosts most of Poland’s hard coal mines. We spoke to representatives of regional and local authorities, trade union leaders, miners, environmental activists and a researcher studying the sociology and politics of coal.

The trip was a first step of our just transition campaign in Poland. (Just transition is a development model that is based on locally designed public policies that aim at creating the context for fair income and a decent life for all workers and communities affected by pollution reduction measures.)

Struggling miners

The miners themselves are perhaps the most pessimistic. What they experience first-hand is a shortage of labour in the mines, as few young people are interested in a miner’s career these days. Those who do get hired often leave after a brief period. A senior union leader at one of the mines told us that the good salaries in mining are a myth and a matter of the past:

Today, young people entering the job get low salaries and it is tough to attract them to the job and to keep them here. People often come and leave after two pay periods because they realise they can get the same pay elsewhere.

At the same time, many experienced miners are choosing to leave, opting for early retirement or collecting their severance pay and setting out to build different careers. The famous perks and ‘privileges’ that miners used to enjoy have been taken away from them one by one.

Even more importantly, the mines are no longer the safe harbours of job security that they used to be. On the contrary, there is a lot of uncertainty as people see first hand that even mines which have not been officially selected for closure are being slowly and quietly scaled down while the ordinary workers are often kept in the dark about the management’s plans.

All this is making people look for brighter prospects elsewhere.

In Katowice, we spoke to a third-generation miner who – despite his strong attachment to, and pride in, Silesia’s mining heritage – had nonetheless convinced his eldest child to study renewable energy. His case seems to be quite emblematic.

Interestingly, many people we spoke to believed that the shrinked mining workforce has not created problems for the job market. Indeed, the average unemployment rate in Silesia is lower than the national average and declining. That does not mean, however, that finding decent jobs is an easy task for the ex-mine workers. Those who face particular difficulties include women over 50 who quit office or cleaning jobs at the mines – only to face low pay and job precarity.

Places where mines closed in the 1990s that had been the main or only employers and municipal taxpayers have been hit the hardest. They are still experiencing the lingering effects of a shock transition: long-term unemployment, dependence on welfare and high crime rates. They badly need help.

Struggling mines

With the easily accessible coal deposits largely depleted, extracting coal requires digging ever deeper – sometimes as deep as 1000 metres or more below the ground, where temperatures are higher, conditions more difficult and the methane risk more dangerous. The labour-intensive and costly extraction causes financial troubles for the mines that can hardly compete with cheaper, imported coal. Some even fail to extract the amounts they agreed with their customers.

If domestically produced coal were to continue as the main fuel in Poland’s energy system (as proposed by the government), the mining holdings need to consider developing new deposits. But if they do, they face local community protests or environmental controversies. Silesians clearly have no appetite for new mines, even in areas such as the Paruszowiec district of Rybnik. Even though jobs are badly needed there, a new mine project was successfully stopped by the local community.

A region left alone

That is because the environmental costs of mining and the dependence on coal have been huge for Silesia. The regional authorities have identified environmental degradation, especially air pollution, as well as the extensive degradation of land and urban spaces, as some of the main factors holding back Silesia’s development today.

It is by far too costly for the region to rehabilitate the degraded post-industrial areas, often located in inner cities. But after powering the entire country for decades, the region has been left alone by national authorities.

Much like the region, so have individuals been left alone: current policies that try to address the disastrous air pollution in Silesia emphasise actions by individuals, like reducing emissions from one’s house. But at the same time, Poland still does not have an accessible, universal support scheme for retrofitting single-family dwellings. And people living in apartment blocks in the most deprived areas simply do not have the knowledge or social capital to be able to benefit from the support that is available. The expectation that everyone will somehow manage on their own was one of our most worrying observations.

When we asked people about the causes of the mining sector’s decline, the usual answer was ‘politics’. Some blamed the European energy and climate policy, others the lack of adequate action or strategic vision by the Polish government. But hardly anyone believed that the policies could change.

Potential unfulfilled

The expectation of continued decline comes with a saddening sense of disempowerment. With the coal industry, Upper Silesia is quietly losing what used to be the source of its pride and wealth. It is not getting much in return. The mining sector used to organise people’s lives, foster communal ties and people-to-people relations. Now it has been gradually receding and no candidate to take over that role can be seen – a project that would be big enough to bring people together around a shared vision for their region.

The region does have a development strategy, focused on fostering the new economy and improving living conditions, also by tackling the severe environmental pollution. However, there is little alignment between that strategy and the government’s official plans for the coal mining sector.

Strikingly, the region’s leaders have not been involved when the government drafted its new programme for the mining sector, nor have they been invited to the first meeting on the European Commission’s Coal Platform programme. The region hosts most of Poland’s hard coal mining operations, but since the mining holdings are state owned and mining itself falls under the national energy policy rather than regional policy, the regional government is not participating in the debate on the future of the mining sector – even though it will have to bear the consequences of whatever decisions are made.

This sense of not being in control of things is prevalent in Silesia. At various levels, people feel that very little depends on them and that their role is limited to finding a way – on their own – to deal with whatever ‘Warsaw’ imposes on them. The first step of our just transition campaign should be to overcome this sense of disempowerment. Silesia is redefining itself and while the change is seen by many as a threat, it can be turned into an opportunity – if people regain control of their destiny.

Silesia’s greatest asset is not coal, it is the people: the local communities, social organisations, activists, faith groups, local governments, trade unions and entrepreneurs. So far, those people have not been listened to and do not feel that they could be in charge of their collective destiny. A just transition should first of all aim to create a platform for them to talk about their own visions for Silesia.

What we learnt in Silesia is that the coal economy’s days are almost over. Today the region needs to be recognised for the contribution it made to Poland’s economy in the past decades, offered help in dealing with the environmental consequences, and listened to when it plans its own future.

Europe’s murky Eastern energy deals

This article first appeared on Euractiv.com.

The Eastern Partnership initiative is meant to bring the EU and countries of Eastern Europe and the Caucasus closer together, but it increasingly appears that citizens and the environment come second.

On Friday (November 24), when ministers and heads of state from the EU and the six participating countries will convene in Brussels for the fifth Eastern Partnership summit, they will be praising the cooperation and raising a toast for ‘shared values.’

But the millions of euros in public money that the EU is investing in large infrastructure projects in its eastern neighbours is set to benefit just a handful of corporations and political elites while taking a heavy toll on local communities and the environment.

As Brussels rhetoric speaks of sustainable development and human rights, the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) are mulling major loans for highly controversial projects like the Nenskra hydroelectric dam in Georgia’s mountains and the Southern Gas Corridor led by Azerbaijan.

Bankwatch and its Georgian partner Green Alternative have long been warning that the Nenskra hydropower project – a billion dollar, 280 MW hydropower plant in Georgia’s mountainous Svaneti region – will have a devastating impact on the pristine ecosystems as well as the indigenous communities who have been relying on them for subsistence since generations.

Experts have also warned that this massive piece infrastructure is only likely to increase the risk of landslides and avalanches in this geologically sensitive area. And even cost-benefit analysis by the World Bank’s International Finance Corporation has failed to show that the Nenskra project is indeed the best option for Georgia’s energy security, as the government who had commissioned it has been arguing all along.

Southern gas corridor

Meanwhile, in the name of energy security and bringing the EU and its neighbours ever closer, the European Commission has been doggedly promoting perhaps the most reckless of projects.

The Southern Gas Corridor, a 3,500 kilometers long chain of pipelines starting in Azerbaijan and ending in Italy, is the largest fossil fuels project the EU is currently pursuing in total disregard to Europe’s climate goals and while turning a blind eye to the Azerbaijani regime’s ongoing crackdown on civil society and journalists in the country. It is the same regime that has been found to be operating a slush fund, the so-called Azerbaijani Laundromat, to buy influence among European decision makers, including one member of the EBRD’s board of directors.

Yet, last month the EBRD’s board approved a half billion dollar loan to Azerbaijan for the realisation of the Trans Anatolian Pipeline, the central section of the project, on top of earlier, similarly sized loans for the Shah Deniz II gas drilling project off the coast of Baku.

The EIB’s board of directors could be voting on its loan to the Trans Adriatic Pipeline, the western leg of the Southern Gas Corridor in its December 12 meeting, exactly two years after the conclusion of the Paris climate accord. If approved, this €2 billion loan would be Europe’s largest ever.

The following day, the EBRD’s board is scheduled to decide on a $214 million loan to the Nenskra project. With so much European public money slated for such ill-conceived energy projects, the Eastern Partnership increasingly appears not fit for purpose.

Fostering a meaningful cooperation between the EU and its neighbours is crucial. EU financial support can play a positive role in development in the six Eastern Partnership countries, but the EU must also ensure that this money serves the public good and not the narrow interests of the few.

The Nenskra hydropower dam and the Southern Gas Corridor are prime examples of how EU public money might be used against the very principles that the EU, and the Eastern Partnership framework specifically, are based on.

The Eastern Partnership might be intended to strengthen collaboration and integration of eastern European countries and the EU, but it is not a stand alone process. Decision makers must ensure that all EU actions help promote democracy, and contribute to the protection of human rights and to sustainable development. Citizens in each of the countries should see the benefits – not just fine rhetoric but meaningful actions.

It was a warm morning in early October, the sun bright and a faint smell of burnt coal in the air. The home heating season started late this year, after a prolonged summer. We were in Tuzla, Bosnia and Herzegovina, to install our dust pollution measurement equipment, exactly one year after our first-of-its-kind, independent monitoring was done here.

In 2016, our particulate matter (PM) monitoring results were eye-opening on a number of levels: not only were both PM10 and PM2.5 values above the recommended limits set in Bosnia and Herzegovina and by the World Health Organisation on almost all the days observed, but the levels also skyrocketed in the evenings. This trend raised concerns about whether pollution filters at the Tuzla power plant even functioned properly.

For the whole time, the PM10 values were always above the legal limit for the 24 hour average.

This year, we wanted to probe locals’ claims that pollution had been getting worse with time, and to determine if the high peaks recorded are indeed caused by the nearby Tuzla lignite power station and the associated facilities.

The monitoring equipment was placed in the same location as before, and for the whole nine days when it was in place, not once were the PM10 values below the legal limit of 50 micrograms/m3 for the 24 hour average. In fact, the average values during the observation period (10-19 October) were 40 per cent higher than for the same period in 2016.

The values of PM2.5 measured were also higher than in the previous year by 10 per cent, and the concentrations were twice as much as the WHO’s recommendation of 25 micrograms/ m3 for the 24 hour period. The locals knew what they were talking about.

If there is consensus in the medical world about anything related to PM pollution, it is that prolonged exposure to PM2.5 carries a high risk factor for heart and cerebral diseases, as well as premature mortality.

Since locals had not started heating their homes, the pollution couldn’t come from household stacks.

What is even more worrying is that October 2017 was much warmer than October 2016, meaning that in conversation with the locals of Tuzla, we learned that there was no reason to start heating their homes yet. So if the increased levels of PM were not originating from household stacks – which is the favourite pollution bugbear of the authorities, together with traffic – there must be another source of concern.

Where does the dust come from?

In the graph with PM10 emissions, three high peaks stand out: 11 October between 4-6 AM, 15 October between 4-9 AM, and 18 October between 7-9 AM. We looked at the meteorological data provided by our air pollution monitoring equipment for these specific intervals and came to a straightforward conclusion: depending on the wind’s direction, either the Tuzla coal power or the associated ash disposal site, or both, are responsible for the spikes.

We came to this conclusion because our equipment was placed south of the ash disposal site and north of the power plant. Therefore, when the wind blows from the north – as in the top half of the diagram – and the PM10 emissions are extremely high (up to 937 micrograms/m3 for an hourly value) we can point to the dried ashes blowing from the ash dump in the direction of the town. Similarly, when the wind is blowing from the south – the lower half of the diagram – and the PM10 emissions are high, it is obvious that the power plant’s chimney is the culprit.

What are the Bosnian authorities doing about it?

The air quality in Tuzla is dire and has attracted the attention recently from international media outlets including Euronews, BBC and RAI News, whose television crews have made their way to this town in the world’s second most polluted country.

Yet the Federal Government is set to give the green light to the state owned energy company, Elektroprivreda BiH, to build yet another unit at Tuzla’s power plant. The 450 MW proposed Tuzla 7 project would require additional coal capacity.

The project promoters claim that the new unit would be in line with the EU pollution standards, but the project’s environmental permit/EIA clearly suggests the project will not meet the EU’s recently-adopted Best Available Techniques (BAT) standards. Rather, the project is much more likely to result in an increase of coal that would need to be mined and an increase in ash production, which, as seen above, plays a critical role in aggravating local air pollution.

Local opposition to a new ash disposal site is high, and in April 2016 the local community representatives delivered a petition with 2100 signatures against the proposal to the Federal Ministry of Environment and Tourism. While some units will be shut down in the future, constructing unit 7 would still represent an overall capacity increase, the exact opposite of environmental improvement.

As the ten-year saga continues, plans to build Tuzla 7 at an estimated cost of EUR 722 million received a boost when the government recently indicated a contract for a loan from the Export and Import Bank of China (China Eximbank) could be signed soon, provided the State Aid Council also gives its consent for loan guarantees. The plant is expected to be built by China Gezhouba Group and Guangdong Electric Power Design, according to an EPC (Engineering, Procurement, Construction) contract signed in May 2016.

China’s ‘green policies’ in practice

China’s ‘Green Credit Directive’ and its key performance indicators require Chinese banks to assess, monitor and mitigate social and environmental impacts throughout the lifecycle of the project. However, the project’s planned ash disposal site Šički Brod is without an environmental permit, and yet, China Eximbank failed to factor in this irregularity its project appraisal. This has resulted in an unresolved legal challenge.

One thing is clear: China Eximbank’s client, Elektroprivreda BiH, is not fulfilling the required level of environmental and permitting obligations. For its part, China Eximbank has avoided disclosing the bank’s own due diligence on the project.

Local civil society representing the affected communities have since 2013 made efforts to alert China Eximbank and Chinese authorities overseeing overseas projects including Tuzla 7 about the non-compliance of these practices, but their complaints have fallen on deaf ears.

While the spirit of the Green Credit Directive and other recent ‘green policies’ launched jointly with China’s Belt and Road Initiative are laudable, if China Eximbank finances projects like Tuzla 7 and others in the pipeline, there won’t be much left to inspire confidence about China’s green leadership.

The only other thing more pressing than the impending cold season, temperature inversion and thus an escalation in air pollution in Tuzla, is the China+16 summit held next week in Budapest. During these high-level meetings, financing contracts are signed. But why would any government rush to throw their country’s public budget into such a long-term loan when so many problems with this project remain unaddressed? To be sure, the answer is not for the benefit of air quality and the health of local people.