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Will the long-awaited bypass road pave the way to reconciliation?

Residents are hopeful that the new bypass will give them some respite from constant dust and smells from passing trucks, growing pot holes and vibrations so strong they have caused cracks in nearby homes. Beyond that, many villagers are still waiting for deeper action to address other ongoing impacts and fears about the air, water and soil pollution from MHP’s industrial farming activities.

Road impacts, by the numbers

MHP’s intensive use of local roads is connected to the sheer size of its operations. Its local Vinnytsia Poultry Farm currently includes over 450 chicken houses, which hold over 17 million chickens at a time. It also leases 25,000 hectares of local farmland, on which it grows grains to feed the chickens. Until now, the main road through Olyanytsya has been a primary transit route for MHP’s chickens, chicken parts, manure, fodder, waste water and other cargo between the buildings of its intensive poultry farm. Since construction of the farm began in 2010, this road has served as the most direct route between MHP’s manure storage facility and half of its local chicken houses on one side, and its hatchery, slaughterhouse, fodder plant, waste water treatment plant and remaining chicken houses on the other side. Now, MHP has begun construction on an expansion of the farm, which will double its size. MHP has boasted that the Vinnytsia Poultry Farm is the largest poultry farm in Europe.

The traffic problem was documented in a 2017 video. Villagers complain that the size and weight of MHP’s agribusiness vehicles has caused damage to the road and surrounding properties, which were not built with the expectation of having to sustain vibrations from so many passing trucks. Houses near the main road now have noticeable cracks in their walls and roofs, which were not present before the arrival of MHP. These cracks are seen consistently in houses bordering the road, regardless of when they were built.

MHP road use has also led to noise and dust pollution, as well as strong odors from vehicle cargo, causing a constant nuisance for local residents. Matters are made worse by the speed of passing trucks and lack of effective speed control and road safety measures, causing a safety concern for local residents who frequently walk along the roadway.

A November 2017 study of traffic impacts set up a video camera to collect footage of vehicles traveling on the Olyanytsya main road over a 7-day period. Through visual observation and by cross-referencing the vehicles shown in the video against the vehicle types registered to the company, the study found an average of 400 heavy vehicles (weighing 3.5 tonnes or more) traveling on the road each day that were either distinctively or likely related to MHP’s operations. This means that vehicles related to MHP accounted for approximately 70% of all heavy vehicle traffic. This is likely an underestimate, as the study only counted vehicles traveling during daylight hours and only those types of vehicles that are registered with MHP, not its contractors.

A solution eight years in the making

The bypass road opening comes after years of complaints and protests by local villagers, dating back to 2010. In 2015, MHP responded to these concerns by developing a draft plan to build a bypass road. Over the following years, the project suffered from repeated delays, even while MHP’s huge expansion of the Vinnytsia Poultry Farm has continued at pace.

In 2016, the Trostyanets Rayon State Administration established a commission of experts to investigate and identify the cause of damage to local residences along the road. The commission found “massive damage to building structures” and found that road use by heavy vehicles, speeding, and breaking and accelerating during traffic were among the primary causes of the damage. Local community members have also held a number of protests about the traffic issues, including an event in September 2017 in which villagers from Olyanytsya blocked the road to all traffic.

Most recently, in June 2018, villagers filed complaints to the accountability offices of two public international banks that provided financing to MHP’s operations in Vinnytsia region, the . These complaints detailed the impacts from MHP’s Vinnytsia Poultry Farm and Zernoproduct Farm. They requested a dialogue process with MHP to discuss community concerns and negotiate solutions directly with the company. Now, eight years after villagers first began to raise their voices, the bypass road is finally complete.

Villagers see the new bypass road as a welcome first step in resolving traffic issues linked to MHP’s operations, but for them, the bypass road was long in coming, and cannot be a stand-alone measure. The bypass road will only make a difference if it is consistently used by MHP employees and contractors. The Olyanytsya main road will still be the most direct route between many MHP facilities, and any significant and lasting reduction in heavy vehicle traffic through the village will require MHP to impose and enforce a policy requiring use of the bypass road rather than the road through Olyanytsya. MHP also has a responsibility to address the past impacts of its constant road use over many years, which has left the road in a bad state of disrepair, full of deep and growing potholes, and caused damage to local homes.

Additionally, while traffic impacts to Olyanytsya have been particularly severe, it is not the only village that has suffered impacts from MHP’s operations. Other villages have also had to put up with impacts from heavy vehicle traffic and foul odors and dust from MHP’s chicken rearing, slaughtering, and grain production facilities. Local villagers throughout the area also fear other impacts, such as pollution to local air and water, and to the region’s prized fertile soil.

The complaint submitted to MHP’s international financers has now been found eligible and local villagers will begin negotiations with MHP in earnest in the coming weeks. The bypass road is a positive step that local villagers hope will signal the start of a genuine process to develop solutions for the many challenges of living next door to Europe’s largest poultry farm. Yet with MHP’s expansion already underway, the company must address the concerns of local villagers with more urgency and make concrete its commitment to sustainable development and responsible business practice.

Leaked World Bank report depicts Georgia’s Nenskra hydropower project as major liability

Community members, experts and civil society groups have long been warning about the heavy toll that the controversial Nenskra hydropower project in Georgia could take on both pristine river ecosystems and the local indigenous communities. But a leaked World Bank document now reveals it is also likely to become a heavy burden on public coffers.

The World Bank’s analysis, dated February 22, 2018, assesses power purchase agreements (PPA) the Georgian government had already signed for a range of energy projects – mostly hydropower – as well as for three other hydropower plants that are currently under consideration. Specifically, this analysis looks into the fiscal costs of these contracts and their possible impact on energy tariffs in the country.

Primarily, the analysis foresees that between 2022 and 2041, the Nenskra hydropower plant (HPP) alone would incur over EUR 1.8 billion in fiscal costs.

The Georgian government is keen to expand the country’s hydropower capacity but, as the report stresses, if these grand plans materialise – and that’s a big ‘if’ – they would far surpass the domestic demand. In turn, these excesses would entail substantial fiscal costs

“The fiscal cost from Nenskra HPP is the largest,” the report states. “Nenskra HPP has the largest impact because it has the highest indicative PPA tariff starting at 7.55 USc/kWh with 3% annual escalation, off-take liability of 34 years, and estimated annual generation of 1.2 billion kWh per year, which is 9 percent of projected total domestic demand in 2023.”

In other words, the Georgian government committed to pay the developer a total of USD 90.6 million on the first year of electricity generated from the Nenskra HPP, and then increase this rate by 3 percent every year during the following 33 years.

In addition, the power purchase agreements for Nenskra and the other projects considered in the report use US cents for electricity tariffs, and therefore future currency exchange rates will mean additional costs due to anticipated depreciation of the Geogian lari (GEL). The authors believe that only this component will range from GEL 350 million (EUR 113.6 today) to GEL 500 million per year between 2023 and 2026.

They also expect that the energy surplus would generate serious liabilities to Georgia’s electricity operator. In 2023, the annual liability of the Nenskra HPP alone is foreseen to be USD 90.6 million. By 2041, this figure is expected to reach USD 154.2 million.

Exporting electricity to Turkey, as Georgian policymakers as well as the international financial institutes involved envisage for Nenskra and other hydropower plants, should diminish the burden on the state budget but not eliminate it. “The average wholesale electricity market price in Turkey is about 4.5 USc/kWh whereas the PPA tariffs for these projects are higher,” the authors of the analysis explain.

And there’s more to it. The report stresses that Nenskra and the other projects could become even more expensive with delay payments and other unplanned expenses. As if to illustrate this point, late last month it has been confirmed that Salini Impreglio, the construction company hired to build the Nenskra hydropower project, is on its way out – a development that almost certainly means jumping the project’s costs. In fact, the project’s expected costs have already nearly doubled since 2015, and international financial institutions estimate its price tag at over a billion dollars – a figure that is only likely to grow further.

FEATURE

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

New information reveals the disproportionate price that Georgia’s government guarantees to pay for electricity from the Nenskra dam. The increasingly unfavourable economics strengthen calls to finally make the project’s contract publicly available.

A dam construction visible between tall green mountains in Georgia.

The International Monetary Fund’s fiscal transparency evaluation report on Georgia from September 2017, already sounded the alarm on the Nenskra project’s threat to the country’s very fiscal stability, and the World Bank’s findings echo these concerns. Ultimately, this analysis makes clear that the Nenskra hydropower project would become a major liability even before it is completed, and it will be Georgian citizens who will be footing the bill.

Similarly, the conclusions of the World Bank’s analysis should make for a major red flag for those international investors that are already involved in the project or still consider backing it. Earlier this year, both the European Investment Bank and the European Bank for Reconstruction and Development approved loans totaling over USD 350 million for the Nenskra project, but the latter has since decided to suspend the process in light of the Italian constructor’s departure. Nevertheless, the Asian Infrastructure Investment Bank and the Asian Development Bank are still mulling support for the Nenskra hydropower plant.

Not least worrying is the fact the terms of this grandiose project have been shrouded in secrecy. The power purchase agreement for the Nenskra hydropower project had been signed between the government of Georgia, the state owned JSC Electricity System Commercial Operator (currently “Electricity Market Operator”), the state owned JSC Partnership Fund and JSC Nenskra Hydro (the latter being a joint venture of K-Water, Korea Water Resource Corporation, and the JSC Partnership fund). This contract has since been kept confidential, and the new revelations make it ever clearer it has to be made public.

The World Bank analysis of this contract was undertaken at the request of the Georgian finance ministry but, similarly, hasn’t been made public until last month. The leaked document has received massive media attention in the country as it shows how overwhelmingly unsustainable the Nenskra project is.

EBRD confirms it will not finance New Kosovo coal plant

In an e-mailed statement responding to an enquiry from the Institute for Energy Economics and Financial Analysis (IEEFA), an EBRD spokesperson said “the EBRD indeed is not considering this project”, ending years of uncertainty as to whether the bank would make an exception to its overall energy policy restricting coal financing.

The news comes as the EBRD prepares to approve a new Energy Strategy for the next five years, in which it looks set to completely exclude direct financing for coal, but has so far made insufficient commitments to avoid financing oil and gas.

ContourGlobal, the company pushing the New Kosovo coal project, has recently said it will turn to the US Overseas Private Investment Corporation (OPIC) and as yet un-named Export Credit Agencies to finance the project.

Yet any potential financiers considering the project will have to come to terms with the fact that the power purchase contract is most likely in breach of Kosovo’s international obligations on state aid under the Energy Community Treaty. Other irregularities also continue to plague the project, such as changing the tender conditions during the process and allowing a single-bid tender to continue even though Kosovo law does not allow it.

The power purchase contract signed between the Kosovar government and ContourGlobal, in which electricity would be bought at a guaranteed “target price” of EUR 80/MWh and ContourGlobal would be paid an “availability fee” even if it doesn’t produce electricity, confirms what KOSID and other civil society groups have argued for years: that the plant is harmful to Kosovo not only for climate and and environmental reasons, but that its economic impacts will also be devastating.

Our efforts to get the remaining financiers to withdraw from the project will therefore continue unabated.

[1] http://www.climatechangenews.com/2018/10/10/world-bank-dumps-support-last-coal-plant/

Carbon sleight of hand continues at Czech coal giant

Last month journalists received a short message from ČEZ stating that the carbon intensity of its mostly coal operations had fallen by 30 % over the past five years, [1] which it attributed to free allowances obtained from the EU’s emissions trading scheme for investments in clean technologies, the so-called derogation.

The numbers, however, mask the true motivation behind the move – a push for another allocation of free emission allowances, which is a profitable business for ČEZ (and not so much – for the state). That is why in the coming months the Czech Republic may decide against allocating allowances free of charge to the power companies and instead selling them in auctions. The estimated profit of EUR 2-3 billion would then fund the New Green Savings program (Nová zelená úsporám).

ČEZ calculated the difference in its emissions intensity for the years 2012 and 2017, but failed to mention that in 2013 it sold one of its largest power plants, Chvaletice, to the mining company of a billionaire and the so-called ‘coal baron’ Pavel Tykač. Since 2017, it also got rid of another large power and heating plant at Tisová by selling it to Sokolovská Uhelná.

The Chvaletice power plant has an installed capacity of 820 MW and Tisová adds another 295 MW, so ČEZ has altogether removed 1.15 GW of lignite power from its portfolio. The remaining coal-fired power plants owned by ČEZ had an installed capacity of 6.19 GW at the end of 2017, so the contribution of these sales is significant (the total installed power would be 7.3 GW without the sales).

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These two transactions are therefore the real reason for the significant reduction in the emissions intensity of ČEZ operations. Obviously, the greenhouse gas emissions and air pollution remain the same at both power plants and are accounted for by other owners.

In the case of Chvaletice, the new owner plans to operate the plant even longer than originally scheduled, thus, increasing emissions over the years.

ČEZ has, of course, managed to reduce some emissions from its own sources. But publicly claiming that it reduced emissions by 30 % thanks to free allowances is misleading.

If it is to receive the free emission allowances for the period after 2020, ČEZ will have to shut down some coal capacity under the new rules. There are concerns that ČEZ will only try to close the small sources which are old and ineffective and pull the same trick by selling its coal power plant at Počerady.

Furthermore, if received, the money from the derogations would free up ČEZ’s own cash reserves for investing in new coal resources, such as those planned at the Mělník power plant.

What we need is real solutions to reduce emissions intensity and air pollution from coal-fired power plants:

  • A fair sale of emission allowances to polluters in auctions;
  • Financial support for clean sources and energy savings through reasonable support schemes available to those who need them, not only ČEZ;
  • Fewer exemptions from the obligation to reduce air pollution from coal-fired power plants in accordance with the  new European limits, effective from August 2021;
  • Closing outdated coal-fired power plants, which are not necessary due to overproduction and exports of Czech energy (notice the increase in electricity export by 19% in 2017), instead of selling them to non-transparent firms.

 

Notes:

[1] E-mail from the spokesman to the journalists:

Mínus 30 procent – o tolik poklesla za 5 let emisní náročnost zdrojů ČEZ

Emisní náročnost zdrojů ČEZ (zdroje Skupiny ČEZ v České republice) poklesla z 0,63 tuny CO2  na dodanou MWh elektřiny v roce 2012 na hodnotu 0,44 tuny CO2/MWh v roce 2017, což jednoznačně prokazuje snížení podílu hnědého uhlí na výrobě elektřiny v rámci ČEZ. Jde o výsledek přechodného přidělování emisních povolenek zdarma výměnou za investice do vybavení a modernizace infrastruktury a čistých technologií (tzv derogace).

Ing. Ladislav Kříž

Hlavní mluvčí Skupiny ČEZ

Manažer útvaru| Útvar komunikace Skupiny ČEZ

ČEZ a.s.

Romania’s energy transition: to be or not to be

One step forward, two steps back

The Clean Energy Package, presented by the European Commission at the end of 2016, brought us a step closer towards a legislative framework to support and facilitate the transition to clean energy.

One of the introduced measures is the obligation of the Member States to prepare a National Integrated Plan for Energy and Climate Change through which clear goals and strategies for 2020-2030 should be set. The first version of this plan should be published and sent to the European Commission by the end of the year.

In the volatile political context at the national level, the launch of the 2018-2030 Energy Strategy of Romania in September should have brought more certainty regarding Romania’s energy future. Instead, the strategy proved that the authorities have the same obsolete vision and aversion to innovations in the field.

Romania under analysis

E3G, an independent think-thank founded to accelerate the global transition to a low-carbon economy, presented an analysis of Romania’s political economy context to promote a better understanding of how political and economic aspects influence the nation’s environmental agenda.

Romania faces extreme weather events that have already caused damages worth over USD 6 billion. In the face of significant climate risks, the current adaptation measures are insufficient and superficial in combating the impacts of climate change.

Moreover, despite significantly contributing to these risks, the fossil fuel industry enjoys strong political support. The energy strategy assigns them an important role in the future. The coal sector is in decline, but no phase-out plan has been formulated.

According to the analysis, Romania’s energy policy focuses on a dated understanding of supply security and the national climate action is motivated only by the European objectives and funds.

Renewables left behind

Romania has already met its renewable energy 2020 targets, mainly through the major expansion of production capacity, facilitated by the Green Certificates Scheme which ended in 2016. Some project developers consider moving their investments to other countries or shutting them down.

Producers’ representatives mentioned that the frequent legislative changes led to the insolvency or even bankruptcy of more than one third of the producers and now the investment recovery rate exceeds 30 years.

Put climate in the spotlight

Climate challenges rarely appear on the public agenda in Romania. There is no basic environmental education and the media do not treat these topics with interest. Therefore, environmental issues receive only moderate attention, the main concerns being energy supply and prices.

In this context, Romania needs to intensify the transfer of knowledge. This can be achieved through the establishment of a platform that combines strategies for environmental impact mitigation of the current energy model and communication of energy transition benefits.

At a time when innovation and sustainability are among the key elements of the energy transition –  transparency and better consultation of all decision-makers should come first. No well-designed strategy can be created without taking in consideration the vision of all those involved in the process. Ambitious climate goals and a just transition for the communities most affected by the elimination of fossil fuels cannot be achieved otherwise.

Controversial dam project in Georgia abandoned by constructor

The USD 575 million worth contract between the Italian construction company Salini Impregilo and the project promoter was signed in August 2015. But with increasing tensions with the local communities and the growing criticism from civil society, the massive Nenskra project has since become a hot potato.

Speculations about Salini’s exit from the project have circulated since at least half a year, but a sentence buried down a statement published on October 18 by the project promoter JSC Nenskra offered the first public confirmation. According to JSC Nenskra, the contract was mutually terminated by the parties, but it remains unclear what led to this move, as well as the terms of Salini’s departure.

For one, Salini owns all the technical documentation related to the Nenskra project, and unless otherwise agreed between the parties, its departure would mean that a new contractor would need to start from scratch, or at least review the available documentation and make the relevant amendments. This would necessarily entail a serious delay in the implementation of the project, and in turn incur substantial additional costs.

The latest warning for investors

In January 2018, the European Bank for Reconstruction and Development (EBRD) approved a USD 214 million loan for the Nenskra project after the decision had been postponed multiple times, and despite civil society groups repeatedly warning about the dire impacts of the project and its highly questionable viability.

In an interview to Georgia’s First Channel on the day JSC Nenskra published its statement, the EBRD’s then Director for Caucasus Bruno Balvanera said the bank has recognised there are issues with the engineering company and it is therefore pausing the process since there are only few companies in the world that can implement a project of this scale.

The Nenskra hydropower project has also received a USD 150 million loan from the European Investment Bank, and a number of other international financial institutions have been considering supporting the project. Yet, this development is but the latest warning sign for any international investors – such as the AIIB and the ADB – who are contemplating such engagement, let alone the Georgian government which continues to promote this highly problematic undertaking.

Nenskra dam in Svaneti - protests against hydro in Georgia

During the three years that it has been involved in the Nenskra project, Salini has failed to meaningfully engage the local residents. Community members have organised several rallies in the region and in the capital Tbilisi to protest the project and the international financial institutions’ role in enabling it. In an unprecedented move, in March this year representatives of all Upper Svaneti communities convened a Lalkhor, a Svan Council meeting, to publish a joint declaration asserting Svans’ status as an indigenous people, and opposing development projects such as the Nenskra hydropower plant that endanger local ecosystems and communities’ livelihoods.

Salini’s checkered track record

In fact, Nenskra is not the first controversial hydropower project Salini has been involved in. Much like in Upper Svaneti, the Bujagali hydropower project in Uganda has seen communities and international civil society protesting the lack of public consultations, loss of livelihood and inadequate compensation as well as resettlement of local residents. In Sierra Leone, the notorious Bumbuna dam, whose construction began in 1982, has been plagued with allegations of corruption, technical problems and tensions with the local communities.

A report published by Bankwatch and Campagna per la Riforma della Banca Mondiale in February 2008 looked at the range of social and environmental impacts of the Gilgel Gibe III project in Ethiopia and Salini’s role in it. Therefore, civil society groups familiar with Salini’s past involvement in controversial hydropower projects have voiced their concerns about the way the company would implement the Nenskra project.

What’s next?

JSC Nenskra expects to complete the project in 2021, and the statement it released two weeks ago insisted that works at the site will resume in November with the construction of two bridges. But as a new constructor to replace Salini is yet to be identified, it remains a mystery who exactly will be carrying out the work. Moreover, due to changes in its technical parameters, the project also lacks a construction permit. Therefore, JSC Nenskra’s plans to resume construction of the already controversial Nenskra hydropower plant next month look particularly questionable.