Blog entry

New reports add details to investigation of Armenia gold mine

Earlier in the day, Armenia’s prime minister, Nikol Pashinyan, whose popular movement swept to power in April by toppling the kleptocratic rule of Serzh Sargsyan, had called on his supporters to stand against the opposition Republican Party’s calls for a dissolution of the National Assembly. The power grab was seen as a last ditch attempt by the old guard to hang on to the authoritarianism that had stifled political life in the country for nearly two decades. The peaceful demonstration and spirit of optimism and revolution on display that October evening served as the backdrop to our visit to Armenia, where we had travelled to survey opinions about the operations of Lydian International, the largest foreign investor in Armenia whose flagship Amulsar gold mine and its chequered history has been a flashpoint of conflict across the country.

A constant source of conflict

As part of his rise to power, Pashinyan had promised to investigate whether Lydian’s operations were in line with Armenian legislation, which the company believes will contribute USD 185 million annually to GDP, though critics had said was a bad deal for the the country’s coffers and the environment. During our visit, there was a general sense that Armenians expected him to make good on this campaign promise. The Amulsar mine is situated near Jermuk, a resort town two hours southeast from the capital made famous for its natural beauty, hot springs and health spas. Locals have long contended that the gold mine, which has already caused dust pollution and would use cyanide leaching technology to separate the concentrate from the ore, poses a serious threat to tourism in Armenia’s ‘little Switzerland’ and could be detrimental to Armenia’s water resources, such as Arpa river and lake Sevan. Residents of Jermuk were not consulted during the environmental and social impact assessment in 2015 and 2016, which led the Compliance Advisor/Ombudsman of the International Finance Corporation to conclude that the impact of the mine on Jermuk’s water and tourism brand was not properly assessed.

New research sheds light on disputes

These allegations were the focal point of our visit. Together with the Armenia social NGO ‘Community Mutual Assistance,’ we went to Jermuk and the surrounding villages of Kechut and Gndevaz to conduct first-of-its-kind independent research into what local people know and think about the operations of Lydian. In addition to this sociological research, we were accompanied by biologists from the Balkani Wildlife Society in Bulgaria who were conducting an independent analysis of the environmental impact assessment prepared by Lydian as a prerequisite to begin mining operations at Amulsar. The results of this research provide insights into the conflict between the mining company and local communities and suggest that more work on assessing the environmental and social impacts of the mine are needed, should Lydian want to secure consent from the new Armenian government. The European Bank for Reconstruction and Development is providing CAD 10.5 million (EUR 7 million) in equity to Lydian, ‘earmarked for financing of Environmental and Social Mitigation Measures,’ such as the establishment of the Jermuk National Park to offset biodiversity losses resulting from the project. In the case of the research into the ESIA prepared by Balkani, a number of findings should be considered as part of a government’s revision of the agreement with Lydian. In particular, Balkani found that the existing assessments were at odds with the Bern Convention on the Conservation of European Wildlife and Natural Habitats. For instance, a portion of the mine is sited inside an Areas of Special Conservation Interest. This area received this designation because of a number of unique species and habitats situated in this region that could be damaged by the project, a situation which Lydian fails to address entirely in its documentation. The sociological research found that the awareness about the social consequences of the mine is highest in Gndevaz, due in part to Lydian presence in this community and having employed a number of the villagers at its projects. Residents in Kechout and Jermuk felt less informed, and perceptions and assessments have been formed by observation, like of the dust and noise from construction, and the activists protesting against the mining. Substantial concerns about impacts to agricultural lands and pastures were expressed by nearly three quarters of respondents, while 80 per cent were concerned about further future impacts. People related their concerns about the destruction of apricot orchards, pastures, as well as fear that fruit is covered with dust. A similar number of respondents, 85.7 per cent, expressed concerns about the potential impacts of mines on their health. The biodiversity and sociology experts recommend that the new government in Armenia should request new environmental and social impact assessment and consultations with local communities on potential risks of harm to their environment, livelihoods and health. As a protester against the mine said “I’m sure that the government will hear us, otherwise the revolution will be useless if the government is going to treat us the way the previous government did.”

Belgrade incinerator plans raise burning questions

Belgrade’s Vinča landfill, by the river Danube, has been piling up over more than 40 years with no lining or collection of the water leaching out underneath it. It is home to more than 80 people living in informal accommodation and trying to eke out a living from waste-picking at the site.

Action obviously needs to be taken to rehabilitate the site and to set up a socially and environmentally sustainable waste prevention and recycling system in the city.

Incineration lock-in

But in September 2017 the City of Belgrade signed a contract for a 25-year public-private partnership with Itochu and Suez. Although it includes a partial rehabilitation of the landfill and construction of a new one, its main feature is a 340,000 tonnes per year “waste-to-energy” incinerator that would burn around 66 % of Belgrade’s communal waste. Its only recycling component is a construction waste facility.

There was no public discussion about the plans before the contract was signed, nor have non-incineration alternatives for solving Belgrade’s waste problems been considered in the environmental assessment or elsewhere.

Documents obtained by Transparency Serbia seem to indicate that no less than 29 % of Belgrade’s waste is food waste. Paper and cardboard make up another 18 %, plastics 14 %and green garden waste 7 %. Almost none of these need to be disposed of and should be prevented, recycled or composted.

Not only will this EUR 326.5 million project render it highly unlikely that Belgrade can afford to develop a waste prevention, recycling and composting system alongside the incinerator, but the project will be in direct competition for recyclable resources with some of Belgrade’s most vulnerable residents – informal waste collectors.

Up to 12,000 informal waste collectors affected

The project is hailed as introducing private sector involvement to the provision of solid waste management services in the city. But this rather tactless statement renders the estimated 12,000 people already engaged in informal waste collection in Belgrade completely invisible. Some of these people work individually, some of have contracts with private companies, but there is no doubt: Belgrade is not terra nullius.

As well as the 80 or so people living at the landfill site – for whom a so far highly inadequate Resettlement Action Plan has been adopted, that fails to provide details about livelihood restoration – thousands more people’s already precarious livelihoods are at risk from this project.

This is because the city of Belgrade is contractually obliged by Article 102 of the PPP contract to hand over its municipal waste to the PPP consortium. At least this is what the draft version obtained by Transparency Serbia says – the final version is not publicly available.

Unless the city’s waste generation starts growing at an accelerated rate, sooner or later Belgrade may either be forced to change the law to allow waste imports or to clamp down on informal waste collection in order to fulfill its contractual obligations.

Ne Davimo Beograd asked the EBRD what happens if the city does not generate enough waste to fulfill its contract. The answer, in a written response of 16 October 2018, was not reassuring: “Should the City deliver less than 340,000t of waste to the landfill, there is a compensation mechanism stipulated by PPP Agreement which would restore the economic equilibrium for the investor.” In other words, the public would have to pay the incinerator not to work.

Pretty puzzling for an EU candidate country

It seems that Serbia has not been watching the EU’s steady progress on waste management in the last ten years. Not only will the country soon have obligations to recycle 50 % of its municipal waste, but the EU has also adopted recycling targets of 55 % by 2025, 60 % by 2030 and 65 % by 2035.

Serbia might get a few years’ extension on the earlier targets but will have to catch up within a few years, so there is no time to lose. If Belgrade, as Serbia’s capital city, is burning 66 % of its waste then even the 50 % target will be well out of reach. It is not exactly likely that the rest of the country will make up for it.

Presumably the idea is that Belgrade’s overall amount of waste will grow and so it will still be possible to increase the percentage of waste recycled. But this assumption is not only unproven – the environmental assessment fails to even mention Belgrade’s current and expected waste generation, prevention and recycling rates – it is also totally unsustainable and out of line with the EU’s circular economy legislation.

As usual, the public pays

Belgrade’s residents will have to pay twice for this incinerator – once through a fee for waste management and once more through a feed-in tariff for the electricity generated at the plant added to their electricity bills. And if Belgrade fails to deliver enough waste, they may even have to pay thrice due to the compensation clause in the contract.

It is still unknown how much the waste management fee will cost households, according to the environmental and social assessment. This seems highly unlikely. Did the city authorities really sign a concession contract without knowing this, or are they just hiding it? Fortunately, the EBRD has been more forthcoming and in its letter of 16 October put the cost at approximately EUR 1.50 per month per inhabitant. We will see…

The feed-in tariff is based on the outrageous idea that incinerating the biodegradable fraction of municipal waste to produce electricity is a form of renewable energy, even though most of it would not burn without a hefty dose of gas or diesel.

However it is no longer allowed to use feed-in tariffs for new facilities in the EU countries, except the very smallest, and the system is also being phased out in Energy Community countries like Serbia. In fact, Serbia’s feed-in tariff system was supposed to be halted for new installations from the end of this year but was recently extended for another year.

And from 2021 when the new Renewable Energy Directive comes into force, no financial support at all will be allowed for energy produced from incinerating the biodegradable part of waste, if the separate collection targets have not been met. The project consortium had better do some re-calculations to see if they really want to go ahead.

European banks vs. EU rules?

Unfortunately second-rate, oversized infrastructure projects using outdated technology are standard fare for southeast European governments. But it is still disappointing to find European banks still considering support for them.

Both the European Bank for Reconstruction and Development and European Investment Bank are considering loans for this project, while the World Bank Group’s International Finance Corporation both assisted with designing the PPP tender and is interested in financing the implementation.

The project’s collision with EU waste prevention and recycling targets, and the banks’ previous relatively unsuccessful experience with Belgrade authorities’ approach to resettlement and livelihood restoration for Roma settlements for the Gazela Bridge reconstruction are already sufficient grounds for the banks to reconsider their involvement in this project.

But the issues mentioned above barely scratch the surface: We recently submitted 92 pages of comments and questions during the public consultation on the Environmental and Social Impact Assessment.

From the quality of the landfill rehabilitation, to the misrepresentation of the project’s climate impact, to Serbia’s lack of hazardous waste facilities to deal with the residues from the project and its lack of capacity to carry out proper monitoring and enforcement, there are tens of questions that remain unanswered.

We will keep on asking for answers until we get them. In the meantime, we urge the banks to catch up with EU circular economy policy and help Serbia to increase its waste prevention and recycling instead of helping international companies inflict their so-last century technology on us.

If the EBRD does not lead the energy transition, we will have to do it ourselves

Since the EBRD’s new, rather gas-reliant draft energy strategy was published in September this year, the urgency of tackling climate change has once again been underlined by the IPCC. We need to reach net zero greenhouse gas emissions globally by 2050 in order to limit the catastrophic consequences of 1.5°C temperature rise.

In light of this, our hopes were high that the EBRD would significantly strengthen its commitments on fossil fuel lending in the final version.

But reading the adopted version felt like a cold shower: indeed, the EBRD is completely ending any direct support to coal mining and coal-fired electricity generation, but it remains adamant in supporting gas as a transition fuel, falls short of limiting indirect finance to coal and only aligns its climate ambition to the inadequate nationally determined contributions (NDCs) of its countries of operation.

A fixation with gas

Even though the Bank claims that gas “investments will be subject to an economic assessment (which will account for key externalities and apply a shadow price of carbon)”, the fact that it lists Number/volume of investments in upstream gas as one of its performance indicators does not suggest it is serious about minimising its support for the sector.

Yet gas cannot act as a ‘transition fuel’ even to meet the Paris Agreement target of 2.0°C, let alone 1.5°C.

There has been evidence for more than two years now that no more fossil fuel power generation capacity can be built if we are to stay within 2°C climate change. Climate Action Tracker research also showed last year that unabated gas-fired plants are very much unsuited to the targets: the 1.5°C target would require that such plants are completely phased out by 2050.

Even the (so far) conservative World Energy Outlook by the International Energy Agency released recently came with a clear warning “We have no room to build anything that emits CO2 emissions”.

The EBRD acknowledges that “the sustainability, economic feasibility and energy security implications of individual gas options will be context specific and should be assessed on an individual basis against a variety of criteria”. But in an Annex to the strategy, which zooms into Western Balkans energy scenarios, a coal-to-gas switch is presented as the most cost efficient. And this for a region which hardly has any domestic gas resources and relatively little gas infrastructure. This sounds both expensive and risky, not only climate-damaging.

Decarbonisation plans of fossil dependent companies “encouraged”

One of the issues raised by Bankwatch during consultations has been the need for the EBRD to condition any investments in fossil-fuel-heavy companies on decarbonisation plans. Yes, the new policy encourages companies with significant carbon assets to develop decarbonisation plans. But looking back a few years at what else was “encouraged” does not give great hope. The Kyoto Protocol? Encouraged! During this treaty’s lifetime global greenhouse gas emissions accelerated at close to catastrophic rates.

Failing to require decarbonisation plans means that, for example, Serbian state-owned energy mammoth EPS, will be eligible for EBRD financing for renewable energy projects or grid improvements, while it is building a new 350 MW coal power plant and plans to expand lignite mining until at least 2060. Simply put, to have its cake and eat it too.

NDCs – a disclaimer bigger than the title

Responding to the numerous comments received during the public consultations that nationally determined contributions (NDCs), or governments’ climate action pledges, are not enough to meet the Paris Agreement goals and that the revised energy strategy must follow the latest IPCC findings, the EBRD makes the point that it “does not take a formal position on the adequacy of current NDCs of any of its countries of operation and recognises that the quality and ambition of NDCs varies across countries”.

An example of what this means in reality is the Western Balkan countries. While all of them pledge decreases compared to the baseline year, in reality, because of the fact that massive decreases already took place due to de-industrialisation, most of the countries actually plan to increase their emissions year by year and expand their coal fleet. Only Albania has pledged an NDC that will actually require it to make cuts compared to 2012, while Macedonia has also given recent signs of hope by supporting the High-Ambition Coalition in the international climate negotiations.

A ray of hope

In spite of the disappointment of the EBRD’s energy sector strategy, December 13, 2018, should also be remembered as the day when the milestone of one thousand fossil fuel divestment pledges was reached, totalling nearly USD 8 trillion in value.

In stark contrast to the 100 companies responsible for over 70 percent of the world’s greenhouse gas emissions, it will take the power of millions of us to hold the institutions which support them accountable. The EBRD can be sure that we will keep working hard to make sure it does not use a single cent more to finance fossil fuels and other unsustainable energy.

State of play with the energy transformation in Romania

In Romania, the process of an energy transformation is often perceived with scepticism in spite of some improvements in the energy sector since accession to the EU.

Though targets for renewable energy have been achieved, mainly due to previous schemes that helped spur investments, there is still a need for sustainable financing in this area.

Theory versus reality

The Romanian parliament progressed this year and amended the Renewable Law in order to include provisions for prosumers (those who both consume and produce energy) and the subsequent procedure regarding the process for supplying the network with their produced energy.

In addition, there are provisions for prosumers regulating exemptions from tax obligations. Such a framework should have been established by October 2018, but the process was stuck when authorities suspected that the tax exemptions might be perceived as state aid. Until clarification was provided, no provision could be put in place. Earlier this month, the National Energy Regulatory Authority announced that the regulatory frameworks would be submitted to public debate in mid-December and enter into force by 1 January 2019.

While many had hopes for the National Energy Strategy, the strategy eventually failed to live up to expectations: instead of investing in truly clean and sustainable energy projects, the strategy focused on controversial hydropower projects.

In spite of Romania’s great potential for wind and solar energy (with production estimates in 2016 set at 6.25 TWh from wind farms and 1.67 TWh from photovoltaics), their prospects for future exploitation are slim. The Energy Strategy says that the energy system is not able to handle large variations in power injection in the absence of properly-sized balancing and storage systems. With a focus still on fossil fuels and nuclear energy, other renewable sources of energy – biomass, biogas, and geothermal energy – are not given their proper due.

In energy efficiency, the latest initiative of the authorities is a Specialised Energy Efficiency Investment fund. The Ministry of Energy ordered a study to show how such a fund could be implemented.

Another key piece of the energy transformation puzzle, the National Energy and Climate Plan (NECP) was recently published, but unfortunately the draft fails to live up to its potential. The NECP projects a 27.9 per cent share of renewable energy in final energy consumption for 2030, way below the EU 2030 target of 32 per cent. Having registered a share of 26 per cent RES in 2016, Romanian authorities should have opted for a much higher target in 2030. In terms of energy efficiency, Romania registered a value of 31.3 Mtoe in 2016 in primary energy consumption and according to the NECP, it will reach a value of 36.7 Mtoe in 2030 compared to a level of 30.3 Mtoe in 2020. According to projections, Romania’s total greenhouse gas emissions in 2030 (EU-ETS and non-ETS, excluding LULUCF) will be of 118.35 Mt CO²eq. Compared to 1990 total greenhouse gas emissions in national economy’s sectors will be reduced by about 50 per cent in 2030.

Though the NECP is still a draft, stakeholders can still make contributions, although the time allocated for the public debate is limited, with just ten days available for collecting suggestions and recommendations.

Romanian authorities need to be consistent in implementing all policies and measures with transformative potential and to step up their game to create sustainable strategies that will help Romania reach its potential.

Current state of Operational Programmes and perspectives under the new EU budget

The most important source of EU funding in Romania are the Operational Programmes for Regional Development and Large Infrastructure.

For the period 2014-2020, the Regional Operational Programme (ROP) is the main investment policy with an allocated budget of EUR 6.6 billion and national co-financing share of EUR 1.53 billion. It has also established new investments for supporting the transition to a low-carbon economy with a focus on energy efficiency in public and residential buildings, public lightning and urban transport.

For 2017, the signed financing contracts amounted to EUR 1 billion and represented 12 per cent of the total allocations for the programme. The devil is as always in the details. The Priority Axis dedicated to the transition to a low carbon emission economy is not that successful. For the call on energy efficiency in residential buildings, the submitted projects represented 47 per cent of the allocation. Due to little interest in the urban transport section, a reduction of EUR 450 million has been made, and for public lighting, a supplement of just EUR 50 million.

In the Large Infrastructure programme we find almost the same passivity and indifference.

The energy sector under this OP is represented by three Priority Axis:

Axis 6 – Promoting clean energy and energy efficiency to support a low-carbon economy;
Axis 7 with Specific Objective 7.2 – Increasing the energy efficiency in the centralised system of supply of thermal energy in Bucharest;
Axis 8 – Intelligent and sustainable transport systems for electricity and natural gas. The authorities say the objectives cannot be met due to little interest.

Some of the specific objectives for Axis 6, namely the objective 6.1 – production of renewable energy from less used sources (biomass, biogas and geothermal), and objective 6.4 – increased savings in primary energy consumption produced by high-efficiency cogeneration, do not have a well-developed legislative framework to help their implementation.

The Energy Efficiency Directive effectively established an intermediary body in energy projects represented by energy service companies. In Romania there is no regulation for such companies. The same goes for the high-efficiency cogeneration for which a definition was not yet adopted. With these legislative clarifications absent, no projects were submitted.

The current deplorable state of these Operational Programmes is no news. At the national level media report that there are no issues with the current state of the Operational Programmes, but poor absorption of these EU funds is evident.

The new Multiannual Financial Framework must help boost investments in energy and environment.

Energy transformation bottlenecks

An Energy Transition 2018 conference held in Bucharest in October was an opportunity to push the transition further.

Discussions revolved around the need for a new support scheme for producing renewable energy, different from the previous Green Certificates. How the new system will be established remains a mystery. It will have to support those who already invested in the previous scheme, and also attract new investments.

Those present agreed that the Romanian energy sector also lacks Power Purchase Agreements (PPAs) and the Contracts for Difference (CFD). The lack of PPAs is seen as a serious obstacle to developing the system, because it is crucial in handling energy price volatility. Such an agreement can provide long-term clarity on roles, responsibilities, costs, revenues and probability, and significance of associated risks for stakeholders, being also a key to the bankability of the future clean energy project.

The Contract for Difference is mainly a bilateral agreement in which one party, usually producers, receives a fixed price for the electric energy they sell, plus an adjustment to cover the potential difference between the fixed price and the spot price, in case the values do not correspond to those set in the agreement. The authorities regulating the energy field assure that the process has already been set in motion.

Hoping for the best

While it is obvious that the transformation of the energy sector is an ongoing process, now at full throttle, regulatory coherence from authorities is imperative. There is a dire need for predictability to sustain and encourage investments in the energy system. In addition to reaching all EU targets and objectives, Romania needs to mainstream a sustainable and environmentally-friendly approach to the energy sector.

Challenges of communicating the energy transformation in Latvia [Video]

As a result of these experiences, negative perceptions about renewable energy, including the threats of climate change, are very much alive in Latvian society. The main challenge then to overcome is the lack of trust in policy makers to implement fair and transparent solutions for renewables that benefit the people.

Examples from countries like Germany have shown that in order to achieve a rapid increase and acceptance of renewable energy as a propotion of the energy mix, the support and understanding of society is crucial.

With the news cycle dominated by negative stories, successful examples of renewables projects and initiatives are hardly covered in media. The task then is to spread good case studies to gradually develop more a objective understanding of renewable energy and climate change and to shift public opinion.

One of the biggest problems in previous communications is that more often than not, energy sector experts do not explain how certain changes in sector would impact a person’s life on a daily basis, or explain well what abstract concepts really mean. In this way, understanding about the energy sector and needed reforms mostly stay in the circle of experts, with wider society influenced by emotional, simplified and short-term insights.

Communicating about the energy transformation and climate change is complex, since the public is not a unified mass: values and beliefs depend on generation, social status, material wealth and other factors. What is most important is to ensure the interaction and collaboration among NGOs, the media, scientists, universities, companies and ministries in the production and distribution of information explaining and promoting the sustainable energy transformation.

Here are two examples of how we’ve tried to do so in Latvia:

Another half a million euros for coal from Romania’s state budget

According to the Council of Europe Decision 2010/787, state aid for the coal industry is only legal for closure and conservation works. But the Government Decision’s explanatory memorandum mentions the opposite: the purpose is to “continue the activity of the plant for energy production”.

This year, Oltenia Energy Complex’s Valea Mânăstirii ash storage made headlines after its dust cloud covered the city of Craiova, reducing visibility on many streets. The company reported then that the phenomenon was caused by “global climate changes”, failing to mention that these changes are produced by greenhouse gases such as those emitted from burning coal.

This is not the first time Oltenia Energy Complex receives money from the state budget. In June, the company received RON 7.8 million (EUR 1.68 million) through a Government Decision (399/2018) for expropriations in the Roșia mine expansion corridor. Two months later, an almost identical Government Decision (552/2018) resulted in the allocation of RON 4.2 million (EUR 902 000) for Jilț Sud mine.

This year alone, the Company received in total RON 14.7 million (EUR 3.2 million) from the state budget.

While Romania wastes important resources to keep the coal industry alive, ten EU countries have strategies to phase out coal from the energy mix by 2030 and another seven have no installed coal units. The rest are working on strategies for a just transition to clean energy that does not affect workers and mining communities.

The European Commission supports the search for alternatives to coal through the Platform for Coal Regions in Transition, providing technical assistance to finance projects that create low-emission jobs in these areas. Yet only Hunedoara, the hard coal region, was included in this initiative. Authorities in Oltenia continue to imagine a future where lignite is at the front and centre of the economy, despite national and global signs to the opposite.

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