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First report from Parliament on next EU budget funding for energy and transport infrastructure shows more work to be done

[1] Draft report on the proposal for a regulation of the European Parliament and of the Council establishing the Connecting Europe Facility and repealing Regulations (EU)

The modifications to the Commission’s proposal from May were made by parliamentarians Marian-Jean Marinescu of Romania, Henna Virkkunen of Finland, and Pavel Telička of the Czech Republic. While these proposed changes at times support what we’re calling for in the next EU budget, these still fall short of what is needed to critically improve the CEF.

Our takeaways from a quick evaluation of the report reveal the following:

  • Amendments to so-called ‘Recital 4’ – which refers to the climate objectives of the CEF – underline the need to include sustainable fuels and energy efficiency as eligible investments that benefit climate, but still a more exhaustive description on the ‘climate proofing’ methodology is not provided, which is inconsistent with other mentions of climate proofing throughout the MFF proposal.
  • Some attention has been paid to energy efficiency, especially in Article 3 (b), which now states that CEF should “facilitat[e] decarbonisation and energy efficiency”. These varied hints as to the importance of energy efficiency is a good step forward, but need to be buttressed by specifying that the Energy Efficiency First Principle should be the cornerstone of the methodology that CEF uses to decide which energy and transport projects receive funding. This is still not the case in this draft report.
  • Changes in Recital 36 leave room for the suspension of funds according to “general deficiencies as regards the rule of law in the Member States”. This at least shows consistency with the Commission’s efforts to draft a text on this topic that has generated considerable controversy.

Overall however, many problematic aspects of the CEF regulation remain in the draft report, which appears to have been amended only marginally.

For instance the percentage of funding dedicated to cross-border renewable energy projects is unchanged. Fossil fuels are still eligible for funding, and no particular amendment was tabled regarding the removal of obstacles for investments in smart grids and electromobility. And even though there is a new provision regarding the rule of law within the proposal, provisions for ensuring accountability and transparency are still lacking.

In Latvia, people-led building restoration receives the largest-ever EU funding of its kind

ALTUM grant (ERDF) 722,000EUR
Swedbank 578,000EUR

The total cost of the project will be more than EUR 1.5 million, of which EUR 722 000 is a graft from ALTUM as part of the European Regional Development Fund (ERDF), an important part of the EU budget for central and eastern European countries.

Another EUR 578 000 comes from Swedbank in the form of a co-funded loan on the ALTUM guarantee.

Bottom-up initiative

This typical Soviet housing unit was built in 1971 in Salaspils, not far from Riga,for the workers participating in the construction of the Riga hydroelectric power station on the Daugava river. The five storey building has 120 apartments.
The Riga hydroelectric power station – Image by Dāvis Kļaviņš via Flickr (CC BY-NC-SA 2.0)

Olga has been living here since the building was built and has witnessed the changes that the structure has gone through over the years. Her initially passive and uninterested neighbours needed a push to organise themselves and press the company managing the building to take steps and plan renovations. The company brushed the requests off, blaming the current financial situation and its subsequent lack of savings.

Photo of Olga by Swedbank

So residents took a lead and established their own association to take over the management of the building. Soon, the renovation works took off, at first supplied only by people’s own funding.

However, the building required much more extensive renovations. A solid audit of the technical conditions and underground geotechnical research revealed expanding cracks in the façade: the house was splitting and needed an urgent fix.

Exemplary collaboration yields results

Salaspils – Image by Dāvis Mosāns via Flickr (CC0 1.0)

The energy efficiency program initiated by ALTUM in 2016 was essential. The Salaspils district municipality proved supportive and helpful, financing the project’s development and creating a special department to help people living in similar houses prepare the necessary technical and legal documentation.

When Olga saw the pile of papers prepared for this project, she wondered how much time it would have taken without the external support.

The development of the project was initiated in 2016, and only seven months later it was completed and ready to launch.

Reconstructions will be extensive: repairing and reinforcing the building’s pillars and foundation, “tightening” the exterior of the building with metal bars, and installing a drainage system and a new heating unit to regulate heat supply differently between the north and south facades, thus significantly reducing the consumption of thermal energy.

The outer walls of the building, the roof and basement ceiling will be insulated. The windows, glass blocks in the staircases and entrance doors will be replaced. During the renovations, the heating system will be regulated and balanced, the old insulation of the main pipelines will be restored, the ventilation system improved, and in each apartment recuperation equipment will be installed.

The renovation works are expected to be finished by the first half of 2019. In a revamped building, the residents expect to save up to 50 per cent of the total heat energy consumption and forget about expensive emergency repairs.

Olga believes that for a long time, residents ignored the red flags that the building was slowly crumbling, passing the responsibility to someone else to do something about its deterioration, but nobody came to the rescue.

Thanks to Olga, though, the residents coordinated a collective push and saved their homes, setting a positive precedent for others to follow.

A different kind of bucket challenge

In the village of Roșiuța, Gorj county, Florin was thinking to himself, “How can that air be worse than what I am breathing here?”

His house is sandwiched between the Roșiuța lignite open cast mine and an adjacent coal storage area to the east, and the Lupoaia mine to the west. Every time the wind blows from either of these two directions, the air becomes unbreathable, and everything is covered within minutes in coal dust.

Florin is not one to sit and wait – in the last three years he has repeatedly written to the local environmental inspection and the environmental protection agency and requested action to improve the situation.

After being ping-ponged from one institution to another, he was finally included in the environmental protection agency’s list of air pollution monitoring spots and equipped with nothing less than a blue bucket to collect dust samples. Once a month, the EPA comes to take samples for weighing, concluding every time that the settled amount of dust is within the legal limits.

This is not an isolated case. Throughout the Gorj country, where ten lignite mines and three lignite power plants are located, the “bucket method” is modus operandi when it comes to air pollution monitoring. No proper equipment was ever installed by the authorities to track scientifically the actual particulate matter that the communities are constantly exposed to.

From buckets to spectrometers

This is one of the reasons we placed our environmental dust monitoring device for a full month in Roșiuța.

Over 32 days of monitoring particulate matter 10 μm (PM10) and 2.5 μm in diameter or less (PM2.5), we found that the EU limit on PM10 was exceeded on 23 days and on four of these days, the levels recorded were more than twice the daily limit.

Over the year, only 35 daily average exceedances are allowed by the EU. The EU annual limit on PM 2.5 was exceeded on 6 of the 32 days monitored. The highly visible levels of coarse particles, PM 10, are indicative of its primary sources: the open-cast mines, the coal storage and the open conveyor belts surrounding the village.

“No evidence of a safe level of exposure”

Numerous health risks are associated with exposure to particles sized less than 10 μm in diameter (PM10), and even more so with smaller particles under 2.5 μm in diameter (PM2.5). The World Health Organisation has concluded that there is no evidence of a safe level of exposure or a threshold below which no adverse health effects occur.

And yet, thousands of people throughout the Balkans like Florin, who live in the vicinity of coal fired power plants and related facilities like open cast mines, ash disposal sites and coal storages do not even know the level of pollution they are exposed to.

Curbing air pollution is no easy task, and EU countries have struggled to do so for the last 20 years, with some changes appearing only now. But under no circumstances should those measures be limited to urban agglomerations, while entire communities living near the biggest contributor – the coal industry – should be left to fight this battle alone.

Ombudsman calls for greater transparency of export credit agencies

The Ombudsman’s May decision relates to the responsibility of the European Commission to collect information on ECAs’ activities and report it to the European Parliament.

The purpose of these reports is to ensure that the operations financed by the ECAs of the EU Member States comply with the EU objectives and obligations, such as “consolidating democracy, respect for human rights and policy coherence for development, and the fight against climate change”. Failing to deliver to this standard will be treated as maladministration, as per the Ombudsman’s latest ruling.

Previous reports produced by the Member States not only arrived after the requested deadline but also lacked factual substance. Therefore, the Commission could not evaluate the actual impact of export financing of the Member States and present to the Parliament.

More detailed reporting should lead to more transparent discussions about what these financial institutions can and cannot finance. Since financing is public, there is no reason for ECAs to keep information on their beneficiaries and projects secret. Taking advantage of the minimal oversight, ECAs often get involved in dubious projects that other international financial institutions do not risk to back.

ECAs’ significant share of world trade amounts to hundreds of billions US dollars annually, yet their financing undergoes a very low level of scrutiny, if any at all. Rarely do ECAs disclose information about their activities. Besides the Netherlands, no other country’s national parliaments or general public can access a list of projects supported by their countries’ ECAs.

ECA-Watch, the coalition of non-governmental organisations that brought the complaint to the Ombudsman, applauded the Ombudsman’s decision. Now, with the deadline set on August 23, the Commission has a definitive task to respond to the decision, open the discussion with stakeholders, find a way to implement its recommendation, and improve reporting to the Parliament.

China must walk its EU standards talk

China has put multilateralism and openness front and center of the Sofia meeting this week, yet it is still not clear to the public of Europe which of the 16 CEE countries’ energy infrastructure projects are seeking Chinese financing at the event. A signing ceremony has been announced, but the list of projects on which financing agreements and memoranda will be signed is veiled in secrecy.

Compared to the China-led “16+1” meeting in Belgrade, Serbia, in 2014, when the EU was marginally invited as an observer to the meeting, efforts to improve inclusivity have been called for and acted upon, at least in the headlines. However, China’s striking of bilateral trade deals with the EU’s prospective Western Balkan members and investment-hungry Eastern members have continued to irk Brussels.

Mutual access to each other’s markets and the securing of public procurements remain top priorities in recent EU communications to Beijing. At the same time, Brussels has recently been seen to dial up a notch in voicing its concerns on the environmental and climate change impacts of China’s Belt and Road Initiative in its backyard and beyond.

The European Parliament in its May report on the state of EU-China relations has gone so far as to emphasize that, it “regrets the absence of professional sustainable impact assessments in various projects relating to Belt and Road and underlines the importance of investment quality,” and urges investments to respect ”environmentally sound production and mitigation of climate change,” in line with international standards.

At last year’s “16+1” meeting in Budapest, China granted a $732 million loan to Bosnia and Herzegovina through a loan agreement by China Eximbank for Tuzla coal-fired power station’s new 450 MW unit 7. The agreement was signed in spite of the ongoing environmental and energy permitting irregularities and court challenges surrounding the Tuzla 7 coal project, as well as bypassing federal parliamentary approval which is required by Bosnian law.

Addressing Europe’s rising concerns over “16+1 Cooperation” in a recent statement, China’s Foreign Minister claimed that the cooperation under the framework, and that “relevant laws and regulations of the EU 16+1 Cooperation,” have always been adhered to, while the outcome of all previous meetings made clear that future cooperation between China and the 16 Central and Eastern European countries “should be carried out in accordance with the EU law and regulations.’’

The reality is, despite its pledge to be the world leader in clean technologies exports, China continues to consider financing and/or supplying equipment to seven or so new coal-fired power units planned in southeast Europe. None of these is guaranteed to be in line with the EU’s current pollution control standards, the so-called Best Available Techniques Reference Document (BREF) for Large Combustion Plants. The environmental impact assessments are also of low quality, with all the ones done so far being challenged in court.

Ongoing Chinese financing in the Western Balkans’ energy sector is already enabling non-compliant coal projects like Serbia’s Kostolac B3 and Bosnia’s Tuzla 7 to move forward, thus putting European regulatory harmonization and decarbonization at risk. Other “at risk” planned coal-fired plants in the southeast European countries – Meliti II in Greece, Banovici, Kamengrad, Ugljevik III, Gacko in Bosnia and Herzegovina, and Rovinari in Romania – are also seeking Chinese financing. If realized at the upcoming Sofia meeting, this will turn China’s Belt and Road ‘Balkan Corridor’ into a coal corridor in Europe’s courtyard.

One thing is for sure. As China and its partners discuss potential projects for financing in Central and Eastern Europe at the summit this week, we shall see if China will honour its commitment to cooperate within the EU’s laws and regulations, or continue with its coal business as usual.

How the EBRD can seize the day in sustainable development

Guest post by Kindra Mohr, Policy Director for Accountability Counsel

Last month against the striking backdrop of the Dead Sea in Jordan, delegates and dignitaries, public and private sector representatives, and members of civil society gathered for the European Bank for Reconstruction and Development’s 27th Annual Meeting and Business Forum. In his town hall with civil society, EBRD President Sir Suma Chakrabarti explained that more feedback from the ground makes the Bank’s projects better and investments smarter. As I’ve seen in my own work on the impacts of EBRD investments on communities, rhetoric about more feedback leading to smarter lending requires a renewed commitment through both policy and practice. The EBRD’s current comprehensive policy review provides a timely chance to integrate this commitment into the EBRD’s architecture. Continued leadership and incentives from the top are needed to then see the policy through to practice and impact.

EBRD annual meeting in Jordan. Photo credit: Accountability Counsel

Born at a time of sweeping transitions in 1991 to transform Central and Eastern Europe, the EBRD is no stranger to challenging environments. But as the EBRD forges ahead in regions farther afield, including the Middle East and North Africa, and tentatively considers future markets in sub-Saharan Africa, it must take every opportunity to ensure that it is fully capable of delivering sustainable development in areas of the world that are starving for it.

The recently-launched review of EBRD environmental and social safeguards, public information, and independent accountability mechanism policies is known as a policy review trifecta in the development world. These policies together establish the core of a development finance institution’s approach to development, defining the extent to which it values the rights of the communities it impacts, operates transparently, and is grounded in accountability and access to redress when negative impacts occur. By closing current gaps and modernizing these policies so that they are strong enough to withstand shocks in the coming years, the Bank can set itself up to realize sustainable impact. Bank leadership – right now – needs to focus on shoring up the trifecta.

While strong policies themselves are not sufficient to deliver such impact, they anchor institutional governance, practice, and culture that will serve as the foundation for a community-centered, inclusive approach to development. Sustainability is predicated upon local buy-in and ownership, where communities are empowered to drive the development decisions that affect them. This cannot occur when rights are violated, investments are shrouded in opacity, and communities bear the burden of negative externalities without remediation. At Accountability Counsel, we have witnessed this in development projects across the globe, in geographies as diverse as Haiti, India, Liberia, and Mongolia.

Rigorous environmental and social safeguards not only lessen the risk of popular backlash against the Bank’s activities, but they also show that the Bank is committed to the rights and wellbeing of the communities it is intending to serve. The EBRD’s Environmental and Social Policy needs to move beyond lofty language and clarify the Bank’s specific responsibilities regarding human rights protections. In addition, from both a risk mitigation and a community-centered perspective, the Bank could move further toward sustainability by integrating a human rights due diligence component into its policy so that it can avoid harmful investments early on and pursue those that are most promising for inclusive growth.

Furthermore, as our partners at CEE Bankwatch Network highlight, a public information policy rooted in transparency promotes local empowerment, facilitating communities’ timely access to information about investments that impact their lives. In modernizing this policy, the Bank must avoid unjustifiably sweeping business confidentiality provisions and incorporate extensive disclosure requirements across its entire portfolio, including for financial intermediary sub-projects and projects involving financing facilities. These elements reinforce the public’s right to information and can encourage active participation in the development process.

Moreover, sustainable development is only possible when communities have access to an effective independent accountability mechanism that can hold the Bank accountable for adverse impacts, ensure institutional learning to prevent future harm, and provide remedy so that people are made whole. Unfortunately, we have seen how the current policy of the EBRD’s Project Complaint Mechanism has saddled it with a hopelessly unsound structure and process.

In response to a complaint we supported with partners in Mongolia over large-scale mining ventures, the PCM applied a flawed methodology to its investigation, producing a compliance report that failed to acknowledge first-hand testimonials of the serious harms reported by traditional herders living near the mines. For herding families who had lost over 50,000 acres of pastureland to mining infrastructure, the report added insult to injury. This example stands in contrast to the sustainable development benefits that can be achieved when a mechanism’s policy incorporates principles of fairness, predictability, and independence, as evidenced by our parallel case in Mongolia with the International Finance Corporation’s Compliance Advisor Ombudsman. Through a complex negotiation process, this case produced an independent report that confirmed many of the herders’ concerns and two negotiated agreements that included scores of practical commitments to resolve them.

Taken together, these policies lay the groundwork for good practice and the implementation of a development model that is centered on the rights of impacted communities, transparent operations, and a responsibility to prevent harm and remediate it when it occurs. Although the EBRD will continue to face challenges and opportunities with the shifting development landscape, the policy review presents an auspicious moment to secure its footing and future role in contributing to sustainable development.